Document:

<PAGE>

STRATEGIC GROWTH
INTERNATIONAL, INC.

                                                                  March 22, 2006

Mr. Robert Parry
Chief Executive Officer
ZBB ENERGY CORPORATION
N93 W14475 Whittaker Way
Menomonee Falls, WI 53051

Dear Mr. Halloran:

     We are pleased to set forth the terms of the retention of Strategic Growth
International ("SGI") by ZBB ENERGY CORPORATION (collectively with its
affiliates, the "Company").

     1. SGI shall, on a non-exclusive basis, assist the Company as the Company's
investor relations advisor in the development of a comprehensive financial
relations program with the following goals, all of which are designed to achieve
increased and sustained share value:

     (a)  Introducing the Company to investment banking firms, institutional
          investors, money managers, and high net worth brokers both in the U.S.
          and Europe;

     (b)  Obtaining on behalf of the Company invitations to and coordinate
          participation in financial industry conferences;

     (c)  Assisting with day-to-day investor communications (i.e. shareholders
          calls, scheduling appointments, sending introductory and follow-up
          materials); and

     (d)  Providing to the Company such professional services as may be
          reasonably required to assist the Company in carrying out the
          following programs and objectives:

          (i)   Developing a coordinated package of financial public relations
                materials, including PowerPoint presentation, fact sheet, press
                releases, corporate package, etc., that is reasonably acceptable
                to the Company. SGI will also review and advise on features and
                functionality of the website in this regard;

          (ii)  Assisting the Company in obtaining introductions to market
                makers and professionals in the investment community;

          (iii) Encouraging institutional ownership in the stock;

            150 EAST 52ND STREET, 22ND FL., NEW YORK, NEW YORK 10022
                    TEL: 1-212-838-1444 / FAX: 1-212-838-1511

<PAGE>

ZBB ENERGY CORPORATION
MARCH 22, 2006
PAGE 2

          (iv)  Obtaining research from reputable institutional sales boutiques
                and small cap research analysts;

          (v)   Creating financial media opportunities for the Company as
                appropriate;

          (vi)  Obtaining invitations to, and coordinate participation in,
                financial industry conferences; and

          (vii) Assisting in creating opportunities for European buying in the
                stock.

     2. In connection with SGI's activities on the Company's behalf, SGI will
familiarize itself with the business, operations, properties, financial
condition, and prospects of the Company. In connection with its role as the
Company's investor relations advisor, SGI would expect its services to include
such additional advisory and related services as may be mutually agreed upon by
SGI and the Company. The retention by the Company of SGI as investor relations
advisor as heretofore described shall be for a period of one year from the date
hereof.

     3. In connection with SGI's activities on the Company's behalf, the Company
will cooperate with SGI and will furnish SGI with all information and data
concerning the Company (the "Information") which SGI deems appropriate and will
provide SGI with access to the Company's managers, members, officers, directors,
employees, independent accountants, legal counsel, consultants, and
representatives. The Company represents and warrants that all Information made
available to SGI by the Company will, at all times during the period of
engagement of SGI hereunder, be complete and correct in all material respects
and will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading in the light of the circumstances under which
such statements are made. The Company further represents and warrants that any
projections provided by it to SGI will have been prepared in good faith and will
be based upon assumptions which, in light of the circumstances under which they
are made, are reasonable. The Company acknowledges and agrees that, in rendering
its services hereunder, SGI will be using and relying on the Information without
independent verification thereof by SGI or independent appraisal by SGI of any
of the Company's assets. SGI does not assume responsibility for any information
regarding the Company. Any advice rendered by SGI pursuant to this Agreement may
not be disclosed publicly without SGI's prior written consent.

<PAGE>

ZBB ENERGY CORPORATION
MARCH 22, 2006
PAGE 3

4. In consideration of its services pursuant to this Agreement, SGI shall be
entitled to receive, and the Company agrees to pay SGI, the following
compensation:

U.S. $10,000 per month in cash, payable each month in advance, for a period of
one year commencing upon the date hereof.

The first month will be paid immediately upon execution of this Agreement.
Billing will be done monthly for the coming month. Expenses and charges will be
included in the following month's bill. Payment will be due with ten (10) days
upon receipt of invoice otherwise a $150.00 late fee per month late will be
added.

The Company agrees to grant SGI 3,328,585 options on the following basis.
1,664,292 options to be issued on execution of this Agreement, exercisable at
AUD$.25 per share. 832,146 options to be issued subject to ZBB completing its
Bridge Loan funding by an additional amount of not less than US$500,000,
exercisable at AUD$0.25 per share. 832,146 options to be issued subject to ZBB's
net tangible assets increasing by at least $6 million (excluding any bank
financing or merger and acquisition activities), exercisable at 120% of the PIPE
or IPO price. All such options will be of five-year duration. At the option of
SGI, such options may be exercised on a cashless basis and will have piggyback
registration rights for one year with respect to the options with demand
registration rights after one year, and will be subject to non-dilution
provisions and my be transferred in whole or in part to one or more officers of
the Company.

The Company shall have the right to terminate this agreement on September 22,
2006 upon 10 days prior written notice. Upon such termination on September 22,
2006, the Company will have the right to rescind 50% of the options.

     5. In addition to the fees described in Paragraph 3 above, the Company
agrees to promptly reimburse SGI for reasonable accountable expenses incurred in
connection with its retention hereunder when incurred or promptly thereafter.
SGI will obtain approval for any expenses incurred exceeding $250.00 per
activity.

     6. The Company agrees to indemnify SGI in accordance with the
indemnification provisions (the "Indemnification Provisions") attached to this
Agreement as Annex A, which Indemnification Provisions are incorporated herein
and made a part hereof.

     7. SGI may terminate this Agreement at any time upon 30 days' prior written
notice, without liability or continuing obligation, except as set forth in the
following sentence. Neither termination of this Agreement nor completion of the
assignment contemplated hereby shall affect: (i) any compensation earned by SGI
up to the date of termination or completion, as the case may be, including the
consulting fees

<PAGE>

ZBB ENERGY CORPORATION
MARCH 22, 2006
PAGE 4

of termination or completion, as the case may be, including the consulting fees
referenced in Paragraph 4 hereof; (ii) the reimbursement of expenses incurred by
SGI up to the date of termination or completion, as the case may be, (iii) the
provisions of Paragraphs 4 through 8 of this Agreement and (iv) the
Indemnification Provisions attached as Annex A hereto which are incorporated
herein, all of which shall remain operative and in full force and effect.

     8. The validity and interpretation of this Agreement shall be governed by
the law of the State of New York applicable to agreements made and to be fully
performed therein. The Company irrevocably submits to the jurisdiction of any
court of the State of New York or the United States District Court for the
Southern District of the State of New York for the purpose of any suit, action,
or other proceeding arising out of this Agreement, or any of the agreements or
transactions contemplated hereby, which is brought by or against the Company and
(i) hereby irrevocably agrees that all claims in respect of any such suit,
action, or proceeding may be heard and determined in any such court and (ii) to
the extent that the Company has acquired, or hereafter may acquire, any immunity
from jurisdiction of any such court or from any legal process therein, the
Company hereby waives, to the fullest extent permitted by law, such immunity.
The Company hereby waives, and agrees not to assert in any such suit, action, or
proceeding, in each case, to the fullest extent permitted by applicable law, any
claim that (a) the Company is not personally subject to the jurisdiction of any
such court, (b) the Company is immune from any legal process (whether through
service or notice, attachment prior to judgment attachment in aid of execution,
execution, or otherwise) with respect to the Company's property or (c) any such
suit, action, or proceeding is brought in an inconvenient forum.

     9. The benefits of this Agreement shall inure to the respective successors
and assigns of the parties hereto and of the indemnified parties hereunder and
their successors and assigns and representatives, and the obligations and
liabilities assumed in this Agreement by the parties hereto shall be binding
upon their respective successors and assigns.

     10. For the convenience of the parties hereto, any number of counterparts
of this Agreement may be executed by the parties hereto. Each such counterpart
shall be, and shall be deemed to be, an original instrument, but all such
counterparts taken together shall constitute one and the same Agreement. This
Agreement may not be modified or amended except in writing signed by the parties
hereto.

     If the foregoing correctly sets forth our Agreement, please sign the
enclosed copy of this letter in the space provided and return it to us.

<PAGE>

ZBB ENERGY CORPORATION
MARCH 22, 2006
PAGE 5

                                        Very truly yours,

                                        STRATEGIC GROWTH INTERNATIONAL, INC.

                                        BY: /s/ Stanley S. Altschuler
                                            ------------------------------------
                                            NAME: STANLEY S. ALTSCHULER
                                            TITLE: PRESIDENT

CONFIRMED AND AGREED TO:
THIS 22 DAY OF MARCH, 2006

ZBB ENERGY CORPORATION

BY: /s/ Robert Parry
    ---------------------------------
    NAME: ROBERT PARRY
    TITLE: CHIEF EXECUTIVE OFFICER

<PAGE>

ZBB ENERGY CORPORATION
MARCH 22, 2006
PAGE 6

                                                                         ANNEX A

                           INDEMNIFICATION PROVISIONS

     ZBB Energy Corporation (the "Company") agrees to indemnify and hold
harmless SGI Associates LLC ("SGI") against any and all losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs, expenses, and
disbursements (and any and all actions, suits, proceedings, and investigations
in respect thereof and any and all legal and other costs, expenses, and
disbursements in giving testimony or furnishing documents in response to a
subpoena or otherwise), including, without limitation the costs, expenses, and
disbursements, as and when incurred, of investigating, preparing, or defending
any such action, suit, proceeding, or investigation (whether or not in
connection with litigation in which SGI is a party), directly or indirectly,
caused by, relating to, based upon, arising out of, or in connection with SGI's
acting for the Company, including, without limitation, any act or omission by
SGI in connection with its acceptance of or the performance or non-performance
of its obligations under the letter agreement dated MARCH 22, 2004, between SGI
and the Company, as it may be amended from time to time (the "Agreement");
provided, however, such indemnity agreement shall not apply to any portion of
any such loss, claim, damage, obligation, penalty, judgment, award, liability,
cost expense, or disbursement to the extent it is found in a final judgment by a
court of competent jurisdiction (not subject to further appeal) to have resulted
primarily and directly from the willful misconduct of SGI. The Company also
agrees that SGI shall not have any liability (whether direct or indirect, in
contract or tort or otherwise) to the Company for or in connection with the
engagement of SGI, except to the extent that any such liability is found in a
final judgment by a court of competent jurisdiction (not subject to further
appeal) to have resulted primarily and directly from SGI's willful misconduct.

     These Indemnification Provisions shall be in addition to any liability
which the Company may otherwise have to SGI or the persons indemnified below in
this sentence and shall extend to the following: SGI, its affiliated entities,
directors, officers, employees, legal counsel, agents, and controlling persons
(within the meaning of the federal securities laws). All references to SGI in
these Indemnification Provisions shall be understood to include any and all of
the foregoing.

<PAGE>

ZBB ENERGY CORPORATION
MARCH 22, 2006
PAGE 7

     If any action, suit, proceeding, or investigation is commenced, as to which
SGI proposes to demand indemnification, it shall notify the Company with
reasonable promptness: provided, however, that any failure by SGI to notify the
Company shall not relieve the Company from its obligations hereunder. SGI shall
have the right to retain counsel of its own choice to represent it, and the
Company shall pay the fees, expenses, and disbursements of such counsel; and
such counsel shall, to extent consistent with its professional responsibilities,
cooperate with the Company and any counsel designated by the Company. The
Company shall be liable for any settlement of any claim against SGI made with
the Company's written consent, which consent shall not be unreasonably withheld.
The Company shall not, without the prior written consent of SGI, settle or
compromise any claim, or permit a default or consent to the entry of any
judgment in respect thereof, unless such settlement, compromise, or consent
includes, as an unconditional term thereof, the giving by the claimant to SGI of
an unconditional release from all liability in respect of such claim.

     In order to provide for just and equitable contribution, if a claim for
indemnification pursuant to these Indemnification Provisions is made, but it is
found in a final judgment by a court of competent jurisdiction (not subject to
further appeal) that such indemnification may not be enforced in such case, even
though the express provisions hereof provide for indemnification in such case,
then the Company, on the one hand, and SGI, on the other hand, shall contribute
to the losses, claims, damages, obligations, penalties, judgments, awards,
liabilities, costs, expenses, and disbursements to which the indemnified persons
may be subject in accordance with the relative benefits received by the Company,
on the one hand, and SGI, on the other hand, and also the relative fault of the
Company, on the one hand, and SGI on the other hand, in connection with the
statements, acts, or omissions which resulted in such losses, claims, damages,
obligations, penalties, judgments, awards, liabilities, costs, expenses, or
disbursements and the relevant equitable considerations shall also be
considered. No person found liable for a fraudulent misrepresentation shall be
entitled to contribution from any person who is not also found liable for such
fraudulent misrepresentation. Notwithstanding the foregoing, SGI shall not be
obligated to contribute any amount hereunder that exceeds the amount of fees
previously received by SGI pursuant to the Agreement.

     Neither termination nor completion of the engagement of SGI referred to
above shall affect these Indemnification Provisions which shall then remain
operative and in full force and effect.<PAGE>

                                                                      02/04/2004

Contractor: ZBB Energy Corporation

                             ENCUMBRANCE INFORMATION

                                                            --------------------
                                                            DOCUMENT #500-03-031
                                                            --------------------

<TABLE>
------------------------------------------------------------------------------------------------------------------------
<S>                       <C>                                              <C>               <C>
Amount Encumbered         Program/Category (Code & Title)                                    Fund Title
by this Document
                          B/A IT. 3360-001-0381 (C) 30-Development
                                                                                             PIERRD
    $1,873,133.00

Prior Amount Encumbered   Budget List # 501.027B Encumber by: 06/30/2005   Expend by: 06/30/2009
for this Contract
                          Item                                                  Chapter        Statute       Fiscal Year

                          0381000-3360-001-30                                     157            2003           03/04

Total Amount Encumbered
to Date                   Object of Expenditure (Code and Title)

                          5400-615.68-54302

I hereby certify upon my own personal knowledge that budgeted funds          T.B.A. No.         B.R. No.
are available for the period and purpose of the expenditure stated above.

Signature of Accounting Officer                                                                 Date
/s/ Pam Young                                                                                   3/2/04

------------------------------------------------------------------------------------------------------------------------
</TABLE>

             NOTES: Energy Systems Integration - 2004 Calendar Award

                                                       $1,873,133 TOTAL DOCUMENT

<PAGE>

Illegible

                                         ---------------------------------------
STANDARD AGREEMENT -- APPROVED BY THE    CONTRACT NUMBER        AM. NO._________
STD. 2(REV. 5-91)     ATTORNEY GENERAL   500-03-031
                                         ---------------------------------------
                                         TAXPAYERS FEDERAL EMPLOYER
                                         IDENTIFICATION NUMBER 39-1987014
                                         ---------------------------------------

THIS AGREEMENT, made and entered into this 4th day of February, 2004. in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting.

--------------------------------------------------------------------------------
TITLE OF OFFICER ACTING FOR STATE       Agency
                                        State Energy Resources Conservation
Executive Director__________________.   & Development Commission ______________,
                                        hereafter called the state, and
--------------------------------------------------------------------------------
CONTRACTOR'S NAME

ZBB Energy Corporation ________________________________________________________,
hereafter called the Contractor
--------------------------------------------------------------------------------

WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows:
(Set forth service to be rendered by Contractor, amount to be paid Contractor,
time for performance or completion, and attach plans and specification, if any.)

1.   CONTRACT CONTENTS

     This contract consists of the paragraphs listed below and attached exhibits
     which are hereby expressly incorporated herein.

     1.   Contract Contents

     2.   Contract Purpose

     3.   Contract Term

     4.   Definitions

     5.   Payments to Contractor

     6.   Travel and Per Diem

CONTINUED ON _______ SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT
NUMBER.

================================================================================
     The provisions on the reverse side hereof constitute a part of this
agreement.

IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above, written.
================================================================================
         STATE OF CALIFORNIA                           CONTRACTOR
--------------------------------------------------------------------------------
AGENCY                                  CONTRACTOR (If other then an individual,
                                        state whether a corporation partnership,
                                        etc.)
   State Energy Resources                  ZBB Energy Corporation
   Conservation and Development
   Commission
--------------------------------------------------------------------------------
BY (AUTHORIZED SIGNATURE)               BY (AUTHORIZED SIGNATURE)

   /s/ Cheryl Raedel          4-2-04       /s/ Geoffrey David Hann
--------------------------------------------------------------------------------
PRINTED NAME OF PERSON SIGNING          PRINTED NAME AND TITLE OF PERSON SIGNING

   Cheryl Raedel                           Geoffrey David Hann -- Director
--------------------------------------------------------------------------------
TITLE                                   ADDRESS
                                           N93 W 14475 Whittaker Way
   Manager, Contracts Office               Menomenee Falls, WI 53051-1653
--------------------------------------------------------------------------------

<TABLE>
<S>                       <C>              <C>       <C>           <C>
-------------------------------------------------------------------------------------------------
AMOUNT ENCUMBERED BY          PROGRAM        FUND                  Department of General Services
   THIS DOCUMENT          CATEGORY (CODE    TITLE                              Use Only
                            AND TITLE)
                          --------------------------------------      DPR
$1,873,133.00             (OPTIONAL USE)
-----------------------    SEE ATTACHED                            ------------------------------
PRIOR AMOUNT ENCUMBERED   --------------------------------------
FOR THIS CONTRACT         ITEM   CHAPTER   STATUTE   FISCAL YEAR              APPROVED
$0.00                                                                   ---------------------
-----------------------   --------------------------------------        |                    |
TOTAL AMOUNT ENCUMBERED   OBJECT OF EXPENDITURE( CODE AND TITLE)        |     APR 28 2004    |
TO DATE                                                                 |                    |
$1,873,133.00                                                           ---------------------
----------------------------------------------------------------      DEPT OF GENERAL SERVICES
I hereby certify upon my own personal      T.B.A NO.    B.R. NO.
knowledge that budgeted funds are                                  ------------------------------
available for this period and purpose of
the expenditure stated above.
</TABLE>

----------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER                        DATE

/s/ Pam young                                          3/2/04      /s/ Illegible
================================================================
[_] CONTRACTOR  [_] STATE AGENCY  [_] DEPT. OF GEN. SER.  [_] CONTROLLER  [_]

<PAGE>

STATE Illegible                                            CONTRACTOR'S COPY

STANDARD AGREEMENT -- APPROVED BY THE         CONTRACT NUMBER        AM. NO.
STD. 2 (REV. 5.91)    ATTORNEY GENERAL        500-03-031
                                              TAXPAYERS FEDERAL EMPLOYER
                                              IDENTIFICATION NUMBER
                                              39-1987014

THIS AGREEMENT, made and entered into this 4th day of February, 04, in the
State of California, by and between State of California, through its duly
elected or appointed, qualified and acting

<TABLE>
<S>                                 <C>
TITLE OF OFFICER ACTING FOR STATE   AGENCY
                                    State Energy Resources Conservation
Executive Director                  & Development Commission _________________, hereafter called the State, and

CONTRACTOR'S NAME
ZBB Energy Corporation _______________________________________________________, hereafter called the Contractor
</TABLE>

WITNESSETH: That the Contractor for and in consideration of the covenants,
conditions, agreements, and stipulations of the State hereinafter expressed,
does hereby agree to furnish to the State services and materials as follows:
(Set forth service to be rendered by Contractor, amount to be paid Contractor,
time for performance or completion, and attach plans and specification, if any.)

1.   CONTRACT CONTENTS

     This contract consists of the paragraphs listed below and attached exhibits
     which are hereby expressly incorporated herein.

     1.   Contract Contents

     2.   Contract Purpose

     3.   Contract Term

     4.   Definitions

     5.   Payments to Contractor

     6.   Travel and Per Diem

CONTINUED ON _________ SHEETS, EACH BEARING NAME OF CONTRACTOR AND CONTRACT
NUMBER

--------------------------------------------------------------------------------
     The provisions on the reverse side hereof constitute a part of this
agreement.

IN WITNESS WHEREOF, this agreement has been executed by the parties hereto, upon
the date first above written.
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
            STATE OF CALIFORNIA                                   CONTRACTOR
------------------------------------------   --------------------------------------------------------
<S>                                          <C>
AGENCY                                       CONTRACTOR (If other than an individual, state whether a
                                             corporation, partnership, etc.)

   State Energy Resources Conservation and   ZBB Energy Corporation
   Development Commission

BY (AUTHORIZED SIGNATURE)                    BY (AUTHORIZED SIGNATURE)

PRINTED NAME OF PERSON SIGNING               PRINTED NAME AND TITLE OF PERSON SIGNING

   Cheryl Raedel

TITLE                                        ADDRESS

                                                N93 W 14475 Whittaker Way
   Manager, Contracts Office                    Menomenee Falls, WI 53051-1653
</TABLE>

<TABLE>
<S>                                <C>                                 <C>           <C>
AMOUNT ENCUMBERED BY THIS          PROGRAM/CATEGORY (CODE AND TITLE)   FUND TITLE    Department of General Services
DOCUMENT                                                                                       Use Only

_ 1,873,133.00                     (OPTIONAL USE)
                                   See Attached

PRIOR AMOUNT ENCUMBERED FOR
THIS CONTRACT                      ITEM   CHAPTER   STATUTE   FISCAL YEAR

_ 0.00

TOTAL AMOUNT ENCUMBERED TO DATE    OBJECT OF EXPENDITURE (CODE AND TITLE)

_ 1,873,133.00

I hereby certify upon my own personal knowledge    T.B.A. NO.   B.R. NO.
that budgeted funds are available for the period
and purpose of the expenditure stated above.

SIGNATURE OF ACCOUNTING OFFICER                                DATE

/s/ Pam young                                                  3/2/04
-------------------------------
</TABLE>

[_] CONTRACTOR   [_] STATE AGENCY   [_] DEPT. OF GEN. SER.  [_] CONTROLLER   [_]

<PAGE>

Contractor: ZBB Energy Corporation                                    02/04/2004

                             ENCUMBRANCE INFORMATION

                                                           DOCUMENT # 500-03-031

<TABLE>
---------------------------------------------------------------------------------------------------------------------
<S>                       <C>                                                <C>
Amount Encumbered         Program/Category (Code & Title)                                    Fund Title
by this Document          B/A IT. 3360-001-0381 (C) 30-Development
                                                                                             PIERRD
    $1,873,133.00

Prior Amount Encumbered   Budget List # 501.027B    Encumber by: 06/30/2005   Expend by: 06/30/2009
for this Contract
                          Item                                               Chapter   Statute   Fiscal Year

                          0381000-3360-001-30                                  157       2003       03/04

Total Amount Encumbered
to Date                   Object of Expenditure (Code and Title)

                          5400-615.68-54302

I hereby certify upon my own personal knowledge that budgeted funds          T.B.A. No.         B.R. No.
are available for the period and purpose of the expenditure stated above.

Signature of Accounting Officer                                                                 Date

/s/ Pam Young                                                                                   3/2/04
---------------------------------------------------------------------------------------------------------------------
</TABLE>

             NOTES: Energy Systems Integration - 2004 Calendar Award

                                                       $1,873,133 Total Document

<PAGE>

          1.   Purchase of Equipment
          8.   Project Budget Revision
          9.   Contract Management
          10.  Standard of Performance
          11.  Subcontractors and Subcontractor Agreements
          12.  Reporting
          13.  Recordkeeping, Cost Accounting and Auditing
          14.  Business Activity Reporting
          15.  Review and Notice of Conflicting Terms
          16.  Confidentiality
          17.  Intellectual Property Items Developed Prior to this Contract
          18.  Rights of Parties Regarding Intellectual Property
          19.  Royalty Payments to Commission
          20.  Notices to Parties
          21.  Disputes
          22.  Stop Work
          23.  Termination
          24.  General Terms and Conditions

          Exhibit A:   Work Statement
                          Attachment A-l - Progress Report Format
                          Attachment A-2 - Final Report Format
                          Attachment A-3 - Resume/Bios
          Exhibit B:   Task Deliverables, Schedule & Gantt Chart
          Exhibit C:   Budget
          Exhibit D:   Contract Contacts - Commission and Contractor
          Exhibit E:   Confidential and Intellectual Property List

2.   CONTRACT PURPOSE

     The purpose of this contract is to fund research, development and
demonstration projects under the Energy Commission Public Interest Energy
Research (PIER) Program. The contract will demonstrate and evaluate the economic
benefits of distribution system upgrade deferral. This goal will be met by
operating a ZBB zinc-bromine battery EES at a PG&E distribution node for a
minimum of 18 months. Specific tasks are detailed in the attached Exhibit A,
"Work Statement."

3.   CONTRACT TERM

     The term of this contract shall be from APRIL 12, 2004 TO MARCH 31, 2008.
     This contract is of no force or effect until signed by both parties, and
     approved by the Department of General Services.

4.   DEFINITIONS

     A.   AFFILIATE OF THE CONTRACTOR means any natural person, corporation,
          partnership joint venture, sole proprietorship or other business
          entity directly or indirectly through one or more intermediaries,
          controlling, controlled by, or under common control with the
          Contractor. The term "control" (including the terms "controlled by"
          and "under common control with") means the possession, direct or
          indirect, of the power to direct or cause the direction of the
          management and policies of a person, whether through the ownership of
          voting securities, by contract, or otherwise. For purposes of this
          contract, it is presumed that ownership or control of the voting power
          of more than fifty

                                  Page 3 of 28

<PAGE>

          percent (50%) of the voting stock or partnership interests in an
          entity constitutes control of that entity.

     B.   CONTRACT BUDGET refers to Commission reimbursable and Contractor's
          matching fund expenditures for that portion of the project covered by
          the contract.

     C.   CONTRACT PERIOD is the length of this contract between the Energy
          Commission and the Contractor. The Contractor's "project" may coincide
          with or extend outside the "contract period."

     D.   DATE means calendar date.

     E.   CONTRACT START DATE is the date Commission reimbursable expenses can
          begin after the Department of General Services signs the contract
          document.

     F.   CONTRACT END DATE is the last date Commission reimbursable expenses
          can be incurred and is the expiration date of the contract.

     G.   ECONOMIC BENEFIT for a project co-funded using Energy Commission
          funds means the realization of economic gain or other tangible
          benefits by the Contractor or its affiliates (except bona fide third
          party purchasers of Contractor's commercial products) through the use
          of project-related products and rights, including but not limited to,
          operation, sale, distribution or manufacturing, or by any other
          transaction, including but not limited to, grant, rent, loan, equity,
          option, transfer, license or other fee, or by otherwise disposing of
          the project-related products and rights.

     H.   The Commission may rely upon professional accounting opinion in making
          a final determination of the dollar value of gross revenue, and such
          determination shall be the basis for calculating the royalty payment
          due the Commission.

     I.   EQUIPMENT is defined as having a useful life of at least one year,
          having an acquisition unit cost of at least $5,000, and purchased with
          Commission funds. EQUIPMENT means any products, objects, machinery,
          apparatus, implements or tools purchased, used or constructed within
          the project, including those products, objects, machinery, apparatus,
          implements or tools from which over thirty percent (30%) of the
          equipment is composed of materials purchased for the project.

     J.   For purposes of determining depreciated value of equipment used in the
          contract, the project shall terminate at the end of the normal useful
          life of the equipment purchased, funded and/or developed with
          Commission funds. The Commission may determine the normal useful life
          of such equipment.

     K.   FINANCIAL STATEMENTS means balance sheets, statements of operations,
          statements of cash flows, and capita] statements.

     L.   GROSS REVENUES means the gross sales price, rentals and other amounts
          received by Contractor from or on account of the sale, lease, or other
          transfer or use of Project-Related Products and Rights, less sales
          tax paid. Gross Revenues shall be determined as above and in
          accordance with appropriate Federal cost principles and any economic
          benefit.

     M.   KEY PERSONNEL are employees or consultants of the Contractor who are
          critical to the outcome of the project. For example, they may have
          expertise in the particular field, or have experience that is not
          available from another source. Replacing these individuals may affect
          the outcome of the project.

     N.   KEY SUBCONTRACTORS are contractors, subcontractors or vendors to the
          Contractor and who are critical to the outcome of the project. As with
          Key Personnel, Key Subcontractors may have

                                  Page 4 of 28

<PAGE>

          expertise in the particular field, or have experience that is not
          available from another source and replacement may significantly
          affect the project. An employee of the Contractor's subcontractor or
          vendor may also qualify as "key".

     O.   MATCH FUND PARTICIPANT means any party which supplies match funds to
          the project.

     P.   MATERIALS means the substances used in constructing a finished object,
          commodity, device, article or product.

     Q.   OTHERWISE DISPOSING OF means (1) project-related products and rights
          not sold but delivered by the Contractor or its affiliates to others
          regardless of the basis for compensation, if any, and (2)
          project-related products and rights put into use by the Contractor or
          any third party for any purpose other than testing or evaluation of
          the project-related products and rights.

     R.   PROJECT refers to the entire effort undertaken and planned by the
          Contractor including the work co-funded by the Commission. The
          project may coincide with or extend beyond the contract period.

     S.   PROJECT-RELATED PRODUCTS AND RIGHTS means any and all energy
          inventions, discoveries, machines, designs, computer software,
          products, devices, mechanisms, methods, protocols, processes,
          algorithms, flowcharts, diagrams, trade secrets, data, copyrights,
          patents, trademarks, proprietary rights, and the like created or made
          or discovered or first reduced to practice by the Contractor or other
          third party as a result, in whole or in part, of the contract award(s)
          and any and all updates, revisions, modification, enhancements,
          derivations, variations, additions, continuations, renewals, and
          extensions thereto and all proceeds and products therefrom.

     T.   SALE is sale, license, lease, gift or other transfer of a
          project-related product or right.

     U.   SALES PRICE means gross revenue, excluding normal returns and
          allowances such as sales tax, freight and insurance, if applicable,
          derived from a sale.

     V.   SUBJECT INVENTION means any and all energy invention or discovery
          conceived, or first actually reduced to practice in the course of or
          under the Commission-funded portion of this contract (i.e., that
          portion of this contract for which Contractor has invoiced the
          Commission and received reimbursement) and includes any art, method,
          process, machine, manufacture design or composition of matter, or any
          new and useful improvement hereof, whether patented or unpatented,
          under the patent laws of the United States of America or any foreign
          country.

     W.   TECHNOLOGY refers to the general subject area where the product or
          innovation will be used. For example, solar thermal electric
          generation is a technology area; direct steam generation is an
          innovation in this technology area. TECHNOLOGY DEVELOPED means subject
          invention and/or project-related products and rights.

     X.   Terms Relating to Data

          1)   TECHNICAL DATA or DATA as used throughout this contract means
               recorded information regardless of form or characteristic, of a
               scientific or technical nature. It may, for example, document
               research; document experimental, developmental, demonstration, or
               engineering work; or be usable or used to define a design or
               process; or to procure, produce, support, maintain, or operate
               material. The data may be graphic or pictorial delineations in
               media such as drawings or photographs, test specifications or
               related performance or design type documents or computer software
               (including computer programs, computer software data bases, and
               computer software documentation). Examples of technical data
               include manufacturing techniques and methods, machinery, devices
               such as tools, products, or components, research and engineering
               data, engineering drawings and associated lists,

                                  Page 5 of 28

<PAGE>

               specifications, engineering calculations, standards, process
               sheets, manuals, technical reports, catalog item identification,
               and related information. Technical data as used herein does not
               include financial reports, cost analyses and other information
               incidental to contract administration.

          2)   BUSINESS INFORMATION is information about the operation of a
               specific business. It includes information concerning the cost
               and pricing of goods, supply sources, cost analyses,
               characteristics of customers, books and records of the business,
               sales information including mailing lists, customer lists,
               business opportunities, information regarding the effectiveness
               and performance of personnel, and information incidental to
               contract administration.

          3)   PUBLIC INFORMATION is information previously published, generally
               available from more than one source, or information in the public
               domain. All air monitoring and emission data included in a
               proposal or requested through a contract are public information
               California Government Code Section 6254.7 states that all
               information, analyses, plans or specifications that disclose the
               nature, extent, quantity, or degree of air contaminants or other
               pollution which any article, machine, equipment, or other
               contrivance will produce, which any state or local agency
               requires Contractor to provide before the Contractor builds,
               erects, alters, replaces, operates, sells, rents, or uses such
               article, etc., are public records.

          4)   CONFIDENTIAL INFORMATION is technical data or business
               information Contractor has satisfactorily identified and which
               the Commission has agreed to designate as confidential.

          5)   PROPRIETARY DATA is such data as Contractor has identified in a
               satisfactory manner as being under Contractor's control prior to
               commencement of performance of this contract or produced by
               Contractor or its subcontractors at its own expense, and which
               Contractor has reasonably demonstrated as being of a proprietary
               nature either by reason of copyright, patent or trade secret
               doctrines in full force and effect at the time when performance
               of this contract is commenced.

          6)   A TRADE SECRET is any formula, plan, pattern, process, tool,
               mechanism, compound, procedure, production data, or compilation
               of information which is not patented and which is generally known
               only to certain individuals with a commercial concern and are
               using it to fabricate, produce or compound an article of trade or
               a service having commercial value and which gives its user an
               opportunity to obtain a business advantage over competitors who
               do not know or use it.

          7)   GENERATED DATA is that data which the Contractor collects,
               collates, records, deduces, reads out or postulates for use in
               the performance of this contract. In addition, any electronic
               data processing program, model or software system developed or
               substantially modified by the Contractor in the performance of
               this contract at Commission expense, together with complete
               documentation thereof, shall be treated as generated data.

          8)   DELIVERABLE DATA is that data which, under the terms of this
               contract, is required to be delivered to the Commission.

5.   PAYMENTS TO CONTRACTOR

     Subject to the conditions listed below, the Commission agrees to reimburse
     Contractor, monthly in arrears, for expenses incurred in accordance with
     Exhibit C, Budget. The consideration to be paid Contractor, as provided
     herein, shall be in compensation for Contractor's actual and allowable
     expenses incurred in the performance hereof, including travel, per diem,
     and applicable taxes, unless otherwise expressly so provided. The total
     amount of this contract shall not exceed $1,873,133 (One million, eight
     hundred seventy three thousand, one hundred thirty three dollars).

                                  Page 6 of 28

<PAGE>

     A.   A request for payment shall consist of, but is not limited to:

          1)   An invoice that is a LIST of actual expenses incurred during the
               billing period, backup information is not required, see Audit
               clauses. The invoice list must include:

               a)   date prepared, contract number, contractor's Federal ID
                    number and billing period,

               b)   contractor's actual hourly labor rates by individual, which
                    may be fully loaded,

               c)   operating expenses, including equipment, travel,
                    miscellaneous,

               d)   subcontractor invoices, identifying small business and
                    disabled veteran business,

               e)   overheads, direct & indirect, not included in the fully
                    loaded hourly rate,

               f)   match fund expenditures, and

               g)   by task: cumulative amounts, budgeted, billed to date,
                    current billing, and balance of funds.

          2)   A progress report that documents evidence of progress, which
               includes written progress reports and deliverables prepared by
               the Contractor as detailed in Exhibit A and Exhibit B.

     B.   The Commission will accept computer-generated or electronically
          transmitted invoices without backup documentation provided that
          Contractor sends a hardcopy the same day to the address in Exhibit D,
          Contract Contacts.

     C.   Contractor shall submit all invoices to the address designated in
          Exhibit D.

     D.   Each invoice is subject to Commission Contract Manager approval and
          payment by the State Controller's Office.

     E.   The Commission Contract Manager may approve invoices requesting
          partial payment of a task if the Contractor has demonstrated
          sufficient evidence of progress toward preparing the deliverables
          required in that task. The Commission Contract Manager will dispute an
          invoice requesting payment of all funds remaining in that task budget,
          if the Commission Contract Manager has not received and approved all
          of the deliverables due for that task.

     F.   Payments shall be made to Contractor only for undisputed invoices. An
          undisputed invoice is an invoice executed by Contractor for services
          rendered to the Commission and for which additional evidence is not
          required to make payment. The Commission Contract Manager shall give
          written notice and specify the known reasons for dispute to Contractor
          within 15 working days of receipt of the disputed invoice by using a
          State of California Standard Form 209. If the invoice is not disputed
          within the 15 working days, the invoice is presumed to be valid, but
          is subject to audit and verification.

     G.   Commission shall retain from each invoice an amount equal to 10 per
          cent (10%) of that invoice, excluding equipment invoices. The retained
          amount shall be held by the Commission and released to Contractor only
          upon the Commission's approval that the contract work has been
          satisfactorily completed and the Final Report has been received and
          approved. Contractor must submit an invoice for the retained amount.

     H.   Payment shall be made to Contractor no later than 30 calendar days
          from the date a correct, undisputed invoice is received in the
          Commission Accounting Office. The State shall make payment to the
          Contractor for performance under this contract, in accordance with
          applicable deliverable criteria, receipt and approval by the
          Commission, and in accordance with invoices submitted.

                                  Page 7 to 28

<PAGE>

     I.   Contractor is entitled to interest penalties beginning on the 46th
          calendar day that an undisputed invoice is not paid. Contractor is not
          required to submit an invoice for the interest penalties.

     J.   Contractor shall retain all records relating to direct and indirect
          expenses reimbursed to Contractor hereunder, and to hours of
          employment on this contract by all employees of Contractor for which
          the Commission is billed. Such records shall be maintained for a
          period of three years after final payment of this contract, or until
          audited by the State, whichever occurs first, and shall be available
          for inspection or audit at any reasonable time by the Commission or
          its designee.

     K.   This contract is funded through the Public Interest Energy Research
          (PIER) Program. Contractor may be providing matching fund identified
          in Contractor's proposal and as detailed in Exhibit C, Budget. Match
          sources may be revised subject to the requirements of Exhibit A.

     L.   These (PIER) contract funds are available until June 30, 2009. The
          Commission cannot warrant or guarantee that these funds will be
          extended by the State Legislature. To reflect a reduction of funds,
          the Commission may amend the contract to reflect any reduction of
          funds or cancel the contract under the Termination clause.

6.   TRAVEL AND PER DIEM

     A.   Travel identified in Exhibit C, Budget is approved and does not
          require further authorization.

     B.   Travel that is not included in Exhibit C, Budget shall require prior
          written authorization from the Commission Contract Manager. Commission
          will reimburse travel expenses from the Contractor's office location
          where the employees assigned to the contract are permanently located.

     C.   Commission shall reimburse Contractor for travel and per diem, up to
          but not to exceed, the rates allowed nonrepresented State employees.
          Commission shall provide Contractor with current rates and updates
          when revised by the State or requested by Contractor. Travel expenses
          in excess of the State rates cannot be reimbursed.

     D.   Contractor must retain documentation of travel expenses in its
          financial records as follows:

          o    expenses must be detailed using the current State rates,

          o    expenses must be listed by trip including dates and times of
               departure and return, and

          o    receipts for travel expenses claimed must be retained by
               Contractor (receipts are not required for travel meals or
               incidentals within current allowable rates).

7.   PURCHASE OF EQUIPMENT

     A.   Equipment, as defined in Clause 4 and identified in Exhibit C, Budget,
          PIER Reimbursable Expenditures, is approved for purchase.

     B.   Equipment not included in Exhibit C, Budget, PIER Reimbursable
          Expenditures, shall be subject to prior written approval from the
          Commission Contract Manager.

     C.   All equipment purchased with Commission funds shall be made subject to
          the following terms and conditions:

          1)   The Commission Contract Officer will complete and sign a Uniform
               Commercial Code (UCC.l) Financing Statement and submit it to the
               Contractor for signature. The Commission Contract Officer will
               file the signed UCC.l with the Secretary of State's Office.
               Invoices for equipment purchases associated with a UCC.l will
               not be processed until the UCC.l has been filed with the
               Secretary of State's Office

                                  Page 8 of 28

<PAGE>

          2)   Title to all non-expendable equipment purchased in part or in
               whole with Commission funds shall remain with the Commission

          3)   Contractor shall assume all risk for maintenance, repair,
               destruction and damage to equipment while in the possession or
               subject to the control of Contractor. Contractor is not expected
               to repair or replace equipment that is intended to undergo
               significant modification or testing to the point of
               damage/destruction as part of the work described in Exhibit A,
               Work Statement

     D.   Upon termination of this contract, Commission may:

          1)   if requested by the Contractor, authorize the continued use of
               such equipment to further Public Interest Energy Research
               efforts,

          2)   by mutual agreement with the Contractor, allow the Contractor to
               purchase such equipment for an amount not to exceed the residual
               value of the equipment as of the date of termination of this
               contract, or

          3)   request that such equipment be delivered to the Commission with
               any costs incurred for such return to be borne by the Commission.

8.   PROJECT BUDGET REVISIONS

     A.   Budget reallocations that do not significantly affect the scope of
          work will be made in the following manner. Contractor shall provide
          reasonable advance notification to the Commission Contract Manager of
          any anticipated budget reallocations. Contractor may reallocate a
          task budget up to 15 percent (15%) of the original task amount, with
          prior written notification to the Contract Manager. Reallocations of
          more than 15 percent (15%) of an original task budget require prior
          written approval of the Commission Contract Manager and the Program
          Team Lead Commission Contract Manager will notify the Contractor
          Project Manager in writing within 10 working days. The Commission
          Contract Manager shall send approved changes in a revised Exhibit C,
          Budget to the Commission Contract Officer.

     B.   Significant changes in the scope of work must be approved by the
          Commission in the form of a formal amendment. A change is significant
          if it increases the project budget beyond the approved amount, results
          in changes in deliverables, moves due dates beyond the term of the
          contract or modifies the scope of work reasonably beyond that approved
          at the Commission business meeting.

9.   CONTRACT MANAGEMENT

     A.   Contractor Project Manager

          The Contractor Project Manager on behalf of Contractor is designated
          in Exhibit D. The Contractor Project Manager may not be replaced
          without Commission Contract Manager's prior written approval. Such
          approval shall not be unreasonably withheld. The Contractor Project
          Manager is responsible for the day to day project status, decisions
          and communications with the Commission Contract Manager.

     B.   Commission Contract Manager

          The Commission Contract Manager is designated in Exhibit D. Commission
          may change the Contract Manager by notice given Contractor at any time
          signed by the Commission Contract

                                  Page 9 of 28

<PAGE>

          Officer. The Commission Contract Manager is responsible for the
          day-to-day contract status, decisions and communications with the
          Contractor Project Manager. The Commission Contract Manager will
          review and approve all project deliverables, reports and invoices.

     C.   Within the contract term stated in contract clause 3, revisions to
          Exhibit B, Task Deliverables, Schedule and Gantt Chart, may be made by
          the Contractor Project Manager and approved in writing by the
          Commission Contract Manager without a formal amendment to the
          contract.

10.  STANDARD OF PERFORMANCE

     A.   Contractor, its subcontractors and their employees in the performance
          of Contractor's work under this contract shall be responsible for
          exercising the degree of skill and care required by customarily
          accepted good professional practices and procedures used in scientific
          and engineering research fields.

     B.   The failure of a project to achieve the technical or economic goals
          stated in the Work Statement is not a basis for the Commission to
          determine that the work is unacceptable, unless the work conducted by
          the Contractor or subcontractors is deemed by the Commission to have
          failed the foregoing standard of performance.

     C.   In the event that Contractor or its subcontractor fail to perform in
          accordance with the foregoing standard of performance, the Commission
          Contract Manager and the Contractor Project Manager shall seek to
          negotiate in good faith an equitable resolution satisfactory to both
          parties. If such a resolution cannot be reached, the parties shall
          work through the Commission's dispute resolution process described in
          the Disputes clause herein.

     D.   Nothing contained in this section is intended to limit any of the
          rights or remedies which the Commission may have under law.

     E.   The Commission Contract Manager shall, upon completion of the contract
          and/or release of retention, prepare a performance evaluation of
          Contractor.

          1)   If the Commission Contract Manager prepares an unsatisfactory
               evaluation, the evaluation shall be filed with the Department of
               General Services, Office of Legal Services (DGS), and sent to the
               Contractor within 15 days. The Contractor shall have 30 days to
               prepare a response to the evaluation of the contract performance.
               The Contractor shall send its response to the DGS and a copy to
               the Commission.

          2)   The unsatisfactory evaluation and Contractor's response shall not
               be a public record and shall remain on file for a period of 36
               months only.

11.  PERSONNEL, SUBCONTRACTORS, DVBES

     A.   Key Personnel

          Contractor's key personnel, listed in Exhibit D, may not be
          substituted without the Commission Contract Manger's prior written
          approval. Such approval shall not be unreasonably withheld Contractor
          may substitute all other personnel, with reasonable advance
          notification made to the Commission Contract Manager.

     B.   Key Subcontractors

          Contractor's key subcontractors, listed in Exhibit D, may not be
          substituted without the Commission Contract Manager's prior written
          approval. Such approval shall not be unreasonably

                                  Page 10 of 28

<PAGE>

          withheld. Contractor may substitute all other subcontractors, with
          reasonable advance notification made to the Commission Contract
          Manager. Replacement of key subcontractors is subject to the
          conditions of subparagraph C.

     C.   Agreements with Subcontractors

          1)   Nothing contained in this contract or otherwise, shall create any
               contractual relationship between the Commission and any
               subcontractors, and no subcontract shall relieve the Contractor
               of its responsibilities and obligations hereunder. The Contractor
               agrees to be as fully responsible to the Commission for the acts
               and omissions of its subcontractors or persons either directly or
               indirectly employed by any of them as it is for the acts and
               omissions of persons directly employed by the Contractor. The
               Contractor's obligation to pay its subcontractors is an
               independent obligation from the Commission's obligation to make
               payments to the Contractor. As a result, the Commission shall
               have no obligation to pay or to enforce the payment of any monies
               to any subcontractor.

          2)   Contractor shall be responsible for establishing and maintaining
               contractual agreements with and reimbursement of each of the
               subcontractors for work performed in accordance with the terms of
               this contract. Contractor shall provide Commission with copies of
               all contractual agreements with key subcontractors promptly upon
               final execution thereof.

          3)   Flowdown provisions that should be included in subcontracts are
               listed below. Review each provision for applicability to each
               situation.

               DEFINITIONS               CONFIDENTIALITY
               -----------------------   -------------------------------------
               Travel & Per Diem         Intellectual Property Items Developed
                                         prior to this Contract
               Purchase of Equipment     Recordkeeping, Cost Accounting &
                                         Auditing
               Standard of Performance   Rights of Parties Regarding
                                         Intellectual Property
               Disputes                  Stop Work
               Termination               General Terms & Conditions

          3)   PIER contractors who are subcontracting with a private or public
               university may use the terms and conditions negotiated by the
               Commission for their subcontracts with the university.

          4)   Replacement or substitution of all non-key subcontractors is
               permitted with reasonable advance written notification to the
               Commission Contract Manager and shall be subject to the
               provisions of subparagraphs D and E below.

          5)   Each subcontract shall contain provisions similar to those of
               Clause 18, "Rights of Parties Regarding Intellectual Property",
               subparagraph F. "Limitations on Contractor Disclosure of Contract
               Data, Information, Reports and Records." related to the
               confidentiality of Commission data and its nondisclosure by
               Contractor.

          6)   All subcontracts entered into pursuant to this contract shall be
               subject to examination and audit by the Bureau of State Audits
               for a period of three years after final payment under the
               contract.

          7)   Each subcontract to which the Commission has consented shall
               contain a provision that further assignments shall not be made to
               any third or subsequent tier subcontractor without additional
               advance written consent of Commission.

     D.   Additions, Removal, or Substitutions of Subcontractors

          Any subcontractor change shall be subject to the following conditions:

                                  Page 11 of 28

<PAGE>

          1)   Contractor shall provide the Commission with a copy of its
               contracting policies and procedures for selecting subcontractors.
               The Commission Contract Officer shall evaluate the Contractor's
               process to determine if it is in substantial accord with the
               State's process. The Commission Contract Officer will provide a
               written determination to the Contractor. The Commission Contract
               Officer will retain this set of contracting policies and
               procedures until the final audit of project records.

          2)   If Contractor's process is acceptable, Contractor may use its
               process to solicit and select subcontractors. If, however,
               Contractor's process does not substantially meet the State's
               requirements, Contractor shall solicit a minimum of three bids or
               provide justification, in advance, to the Contract Officer, as to
               why a competitive process is not appropriate.

          3)   Thirty days prior to using new policies and procedures, the
               Contractor shall notify the Commission Contract Officer and
               provide a detailed, written description of the changes. The
               Commission Contract Officer will provide a written determination
               to the Contractor stating whether the revised changes are still
               in substantial accord with the State's process.

     E.   Disabled Veteran Business (DVBE) Changes

          Contractor must use the DVBE subcontractors/vendors identified in its
          proposal for the duration of the contract. Replacement of DVBEs must
          be approved in advance by the Commission. Contractor must notify the
          Commission Contract Manager in writing. The process of replacing any
          subcontractor/vendor is defined in subparagraph D above. In addition,
          the Contractor's written request must include:

          1)   A letter from the Contractor explaining the reason for the change
               and the identity of the DVBE subcontractor/vendor changed; or

          2)   If the change is not a DVBE, an explanation of the Contractor's
               efforts (good faith) to replace the DVBE with another DVBE.

          Contractor shall submit the request to the Commission Contract
          Manager, the Commission Contract Officer determines compliance with
          the DVBE. The Contractor's request and the Commission's approval
          or disapproval shall not be an excuse for noncompliance with any other
          provision of law including, but not limited to, the subletting and
          subcontracting fair practices act or any other contract requirements
          related to substitution of subcontractors.

          Contractor's failure to adhere to the DVBE participation goals in its
          proposal may be cause for contract termination and recovery of damages
          under the rights and remedies due the Commission under the Termination
          clause.

12.  REPORTING

     A.   All reports and deliverables shall be delivered to the Accounting
          Office and address designated in Exhibit D. Confidential reports and
          deliverables shall be delivered to the Contracts Officer designated in
          Exhibit D.

     B.   Progress Reports

          The Contractor shall prepare progress reports which summarize all
          contract activities conducted by the Contractor for the reporting
          period, including an assessment of the ability to complete the project
          within the current budget and any anticipated cost overruns. Each
          progress report is due to

                                  Page 12 of 28

<PAGE>

          the Commission Contract Manager within 30 days after the end of the
          reporting period. The Commission Contract Manager will specify the
          report format, contents, and number of copies to be submitted, see
          Attachment A-1, Progress Report Format.

     C.   Final Report and Final Meeting

          At the conclusion of the contract's technical work and as provided for
          in Exhibit A, Work Statement, and Exhibit B, Task Deliverables
          Schedule. Contractor shall prepare a comprehensive written Final
          Report, including an Executive Summary. The Commission Contract
          Manager will review and approve the Final Report.

          Contractor shall also meet with the Commission to present the
          findings, conclusions, and recommendations. Both the final meeting and
          the Final Report must be consummated on or before the termination date
          of the contract. Final Report specifications and meeting are detailed
          in the Exhibit A, Work Statement and Attachment A-2, Final Report
          Format.

     D.   All reports, including reprints, shall include the following legend:

                                  LEGAL NOTICE

          THIS REPORT WAS PREPARED AS A RESULT OF WORK SPONSORED BY THE
          CALIFORNIA ENERGY COMMISSION (COMMISSION). IT DOES NOT NECESSARILY
          REPRESENT THE VIEWS OF THE COMMISSION, ITS EMPLOYEES, OR THE STATE OF
          CALIFORNIA. THE COMMISSION, THE STATE OF CALIFORNIA, ITS EMPLOYEES,
          CONTRACTORS, AND SUBCONTRACTORS MAKE NO WARRANTY, EXPRESS OR IMPLIED,
          AND ASSUME NO LEGAL LIABILITY FOR THE INFORMATION IN THIS REPORT; NOR
          DOES ANY PARTY REPRESENT THAT THE USE OF THIS INFORMATION WILL NOT
          INFRINGE UPON PRIVATELY OWNED RIGHTS. THIS REPORT HAS NOT BEEN
          APPROVED OR DISAPPROVED BY THE COMMISSION NOR HAS THE COMMISSION
          PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION IN THIS
          REPORT.

13.  RECORDKEEPING, COST ACCOUNTING AND AUDITING

     A.   Cost Accounting

          Contractor agrees to keep separate, complete, and correct accounting
          of the costs involved in developing, installing, constructing, and
          testing of project-related product(s) funded under the
          Commission-funded portion of this contract as well as keep separate,
          complete, and correct account of the economic benefit(s) from
          project-related product(s) and right(s). The Commission shall have
          the right to examine Contractor's books of accounts at all reasonable
          times to the extent and as is necessary to verify the accuracy of
          Contractor's reports.

     B.   Accounting Procedures

          The Contractor's costs shall be determined on the basis of the
          Contractor's accounting system procedures and practices employed as of
          the effective date of this contract. The Contractor's cost accounting
          practices used in accumulating and reporting costs during the
          performance of this contract shall be consistent with the practices
          used in estimating costs for any proposal to which this contract
          relates; provided that such practices are consistent with the other
          terms of this contract and provided, further, that such costs may be
          accumulated and reported in greater detail during performance of this
          contract. The Contractor's accounting system shall distinguish between
          direct costs and indirect costs. All costs incurred for the same
          purpose, in like circumstances, are either direct costs only or
          indirect costs only with respect to costs incurred under this
          contract.

                                 Page 13 of 28

<PAGE>

     C.   Allowabi1ity of Costs

          1)   Allowable Costs

               The costs for which the Contractor shall be reimbursed under this
               contract include all costs, direct and indirect, incurred in the
               performance of work that are identified in the Contractor's
               proposal and contract Exhibit C, Budget.. Costs must be incurred
               within the term of the contract. Factors to be considered in
               determining whether an individual item of cost is allowable
               include (i) reasonableness of the item, (ii) allocability of the
               item to the work, (iii) the Contractor's use of applicable
               Federal OMB Circulars A-87, A-21, A-122 or FAR Part 31, and (iv)
               the other terms and conditions of this contract. Federal
               guidelines are on-line at:www.whitehouse.gov/omb.

          2)   Unallowable Costs

               The following is a description of some specific items of cost
               that are unallowable; provided, however, that the fact that a
               particular item of cost is not included shall not mean that it is
               allowable. Details concerning the allowability of costs are
               available from the Commission Accounting Office.

               a)   Contingency Costs, Imputed Costs, Fines and Penalties,
                    Losses on Contracts, and Excess Profit Taxes are
                    unallowable.

               b)   The Commission will pay for State or local sales or use
                    taxes on the services rendered or equipment, parts or
                    software supplied to the Commission pursuant to this
                    contract. The State of California is exempt from Federal
                    excise taxes.

          3)   Except as provided for in this contract, Contractor shall use the
               Federal OMB Circulars A-87, A-21, A-122 or FAR Part 31 in
               determining allowable and unallowable costs.

     D.   Audit Rights

          Contractor shall maintain books, records, documents, and other
          evidence, based on the procedures set forth above, sufficient to
          reflect properly all costs claimed to have been incurred in performing
          this contract. The Commission, an agency of the State or, at the
          Commission's option, a public accounting firm designated by
          Commission, may audit such accounting records at all reasonable times
          with prior notice by Commission, Commission shall bear the expense of
          such audits. It is the Intent of the parties that such audits shall
          ordinarily be performed not more frequently than once every twelve
          (12) months during the performance of the work and once at any time
          within three (3) years following payment by Commission of the
          Contractor's final invoice. However, performance of any such interim
          audits by Commission does not preclude further audit.

          Contractor agrees that the Commission, the Department of General
          Services, the Bureau of State Audits, or their designated
          representative shall have the right to review and to copy any records
          and supporting documentation pertaining to the performance of this
          contract. Contractor agrees to maintain such records for possible
          audit for a minimum of three (3) years after final payment, unless a
          longer period of record retention is stipulated. Contractor agrees to
          allow the auditor(s) access to such records during normal business
          hours and to allow interviews of any employees who might reasonably
          have information related to such records. Further, Contractor agrees
          to include a similar right of the State to audit records and interview
          staff in any subcontract related to performance of this contract. (GC
          8546.7, PCC 10115 et seq., CCR Title 2, Section 1896)

     E.   Refund to Commission

                                 Page 14 of 28

<PAGE>

          If Commission determines, pursuant to subarticle C or otherwise, that
          any invoiced and paid amounts exceed the actual allowable incurred
          costs and earned fixed fees (if any), Contractor shall repay such
          amounts to Commission within thirty (30) days of request or as
          otherwise agreed by the Commission and Contractor, if Commission does
          not receive such repayments, Commission shall be entitled to withhold
          further payments to the Contractor,

     F.   Audit Cost

          The cost of the audit shall be borne by the Commission except when the
          results of the audit reveal an error detrimental to the Commission
          exceeding more than ten percent (10%) or $5,O0O (whichever is greater)
          of 1) the amount audited, or 2) if a royalty audit, the total
          royalties due in the period audited. In these exceptions, Contractor
          agrees to reimburse Commission for reasonable costs and expenses
          incurred by the Commission in conducting such audit.

14.  BUSINESS ACTIVITY REPORTING

     A.   Contractor shall promptly notify the Commission Contract Manager of
          the occurrence of each of the following:

          1)   A change of address.

          2)   A change in the business name or ownership.

          3)   The existence of any litigation or other legal proceeding
               affecting the project.

          4)   The occurrence of any casualty or other loss to project
               personnel, equipment or third parties of a type commonly covered
               by insurance,

          5)   Contractor's receipt of notice of any claim or potential claim
               against Contractor for patent, copyright, trademark, service mark
               and/or trade secret infringement that could affect the
               Commission's rights.

     B.   Contractor shall not change or reorganize the type of business entity
          under which it does business except upon prior written notification to
          the Commission. A change of business entity or name change requires an
          amendment assigning or novating the contract to the changed entity. In
          the event the Commission is not satisfied that the new entity can
          perform as the original Contractor, the Commission may terminate this
          contract as provided in the Termination clause.

15.  REVIEW AND NOTICE OF CONFLICTING TERMS

     Contractor warrants and attests that it has conducted a detailed review of
     the terms and conditions of its existing project related third party
     agreements and has identified all known or reasonably foreseeable conflicts
     with this contract's terms and conditions and has disclosed the conflicts
     in writing to the Commission prior to executing this contract. In the event
     further conflicts are identified. Contractor and Commission agree that
     these conflicts shall be addressed using the procedure described in the
     Disputes clause. Nothing in this contract is intended to nullify or obviate
     any prior third party agreements executed by Contractor. However, the
     Commission is free to terminate this contract if the conflict impairs or
     diminishes the value of this contract.

16.  CONFIDENTIALITY

     A.   Determination

          The Commission Executive Director makes the final determination of
          confidentiality. In the event there is a disagreement over the items
          to be delivered under the contract, the parties shall use the Disputes
          clause. Those items to be delivered as confidential shall be subject
          to the Commission Executive Director's determination of
          confidentiality. If the

                                 Page 15 of 28

<PAGE>

          Contractor wishes to appeal the Executive Director's determination,
          the appeal shall be made to the full Commission. If the Contractor
          disagrees with this determination, the Contractor may seek judicial
          review as per Title 20 CCR 2506, et seq.

          The Contractor has not identified any confidential or proprietary
          items to be delivered under this contract.

     B.   Public and Confidential Deliverables

          Only those items specifically listed in Exhibit E or in a subsequent
          determination of confidentiality qualify as confidential deliverables.
          All deliverables including, but not limited to, progress reports, task
          deliverables and the Final Report shall not contain confidential
          information except when the Commission Contract Manager and the
          Contractor deem it necessary to include confidential information in a
          deliverable. In such event, the Contractor shall prepare the
          deliverable in two separate volumes, one for public distribution and
          one to be maintained in the Commission's confidential records.

     C.   Future Confidential Information

          The Contractor and the Commission agree that during this contract, it
          is possible that the Contractor may develop additional data or
          information that the Contractor considers to be protectable as
          confidential information. The Commission Contract Manager shall
          provide a copy of the Commission Application for Confidential
          Designation to the Contractor Project Manager. Contractor must list
          all items and information along with justification for confidentiality
          and submit the application to the Commission Contract Manager. The
          Commission Executive Director makes the final determination of
          confidentiality. Such subsequent determinations will be added to
          Exhibit E.

     D.   Identifying and Submitting Confidential Information

          All confidential information submitted by the Contractor shall be
          marked "Confidential" on each document containing the confidential
          information and delivered in a sealed package to the Commission
          Contract Officer identified in Exhibit D. The Commission Contract
          Officer will notify the Commission Contract Manager that the
          confidential information has been received and is in the Contracts
          Office for review. The confidential information will only be available
          to those persons authorized by the Executive Director.

17.  INTELLECTUAL PROPERTY ITEMS DEVELOPED PRIOR TO THIS CONTRACT

     A.   The Commission makes no claim to intellectual property that existed
          prior to this contract and was developed without Commission funding.

     B.   The Contractor gives notice that the items listed in Exhibit E have
          been developed without Commission funding and prior to the start of
          this contract. This list represents a brief description of the prior
          developed intellectual property. A detailed description of the
          intellectual property, as it exists on the effective date of this
          contract, may be necessary if Commission funds are used to further
          develop the listed intellectual property. This information will assist
          the parties make an informed decision regarding intellectual property
          rights and possible repayment obligations.

                                 Page 16 of 28

<PAGE>

18.  RIGHTS OF PARTIES REGARDING INTELLECTUAL PROPERTY

     A.   Commission's Rights in Deliverables

          Deliverables and reports specified for delivery to the Commission
          under this contract shall become the property of the Commission. The
          Commission may use, publish, and reproduce the deliverables and
          reports subject to the provisions of subparagraph C.

     B.   Rights in Technical, Generated, and Deliverable Data

          1)   Contractor's Rights

               All data (i.e., technical, generated and deliverable data)
               produced under this contract shall be the property of the
               Contractor, limited by the license retained by the Commission in
               2) below, and the rights the Commission has in deliverables
               specified above in A).

          2)   Commission's Rights

               Contractor shall provide the Commission with a copy of all
               technical, generated and deliverable data produced under the
               contract. Contractor does not have to copy and submit data the
               Commission Contract Manager has identified as being unusable to
               the Commission and the PIER program. For instance, some data may
               not warrant routine copying and shipping because the raw data is
               too disaggregated or voluminous for practical application.
               Retention of such data at the Contractor's facility for
               inspection, review and possible copying by the Contract Manager
               is expected to be a more efficient use of Commission staff and
               the Contractor's time and efforts.

               For all data (technical, generated and deliverable) produced
               under this contract, the Commission retains a no-cost,
               non-exclusive, non-transferable, irrevocable, royalty-free,
               worldwide, perpetual license to use, publish, translate, produce
               and to authorize others to produce, translate, publish and use
               the data, subject to the provisions of subparagraph C.

     C.   Limitations on Commission Disclosure of Contractor's Confidential
          Records

          1)   Data provided to the Commission by Contractor, which data the
               Commission has not already agreed to keep confidential and which
               Contractor seeks to have designated as confidential, or is the
               subject of a pending application for confidential designation,
               shall not be disclosed by the Commission except as provided in
               Title 20 CCR Sections 2506 and 2507 (or as they may be amended),
               unless disclosure is ordered by a court of competent
               jurisdiction.

          2)   It is the Commission's intent to use and release project results
               such as deliverables and data in a manner calculated to further
               PIER while protecting proprietary or patentable interests of
               the parties. Therefore, the Commission agrees not to disclose
               confidential data or the contents of reports containing data
               considered by Contractor as confidential, without first providing
               a copy of the disclosure document for review and comment by
               Contractor. Contractor shall have no less than 10 working days
               for review and comment and, if appropriate, to make an
               application for confidential designation on some or all of the
               data. The Commission shall consider the comments of Contractor
               and use professional judgment in revising the report, information
               or data accordingly.

                                 Page 17 of 28

<PAGE>

     D.   Exclusive Remedy

          In the event the Commission intends to publish or has disclosed data
          the Contractor considers confidential, the Contractor's exclusive
          remedy is a civil court action for injunctive relief. Such court
          action shall be filed in Sacramento County, Sacramento, California.

     E.   Waiver of Consequential Damages

          IN NO EVENT WILL THE ENERGY COMMISSION BE LIABLE FOR ANY SPECIAL,
          INCIDENTAL, OR CONSEQUENTIAL DAMAGES BASED ON BREACH OF WARRANTY,
          BREACH OF CONTRACT, NEGLIGENCE, STRICT TORT, OR ANY OTHER LEGAL THEORY
          FOR THE DISCLOSURE OF CONTRACTOR'S CONFIDENTIAL RECORDS, EVEN IF THE
          ENERGY COMMISSION HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
          DAMAGES THAT THE ENERGY COMMISSION WILL NOT BE RESPONSIBLE FOR
          INCLUDE, BUT ARE NOT LIMITED TO, LOSS OF PROFIT; LOSS OF SAVINGS OR
          REVENUE; LOSS OF GOODWILL; LOSS OF USE OF THE PRODUCT OR ANY
          ASSOCIATED EQUIPMENT; COST OF CAPITAL; COST OF ANY SUBSTITUTE
          EQUIPMENT, FACILITIES, OR SERVICES; DOWNTIME; THE CLAIMS OF THIRD
          PARTIES INCLUDING CUSTOMERS; AND INJURY TO PROPERTY.

     F.   Limitations on Contractor Disclosure of Contract Data, Information,
          Reports and Records

          1)   Contractor will not disclose the contents of the final or any
               preliminary deliverable or report without first providing a copy
               of the disclosure document for review and comment to the
               Commission Contract Manager. The Contractor shall consider the
               comments of the Commission Contract Manager and use professional
               judgment in revising the reports, information or data
               accordingly.

          2)   After any document submitted has become a part of the public
               records of the State, Contractor may, if it wishes to do so at
               its own expense, publish or utilize the same, but shall
               include the legal notice stated above.

          3)   Notwithstanding the foregoing, in the event any public statement
               is made by the Commission as to the role of Contractor or the
               content of any preliminary or Final Report of Contractor
               hereunder, Contractor may, if it believes such statement to be
               incorrect, state publicly what it believes is correct.

          4)   No record that is provided by the Commission to Contractor for
               Contractor's use in executing this contract and which has been
               designated as confidential, or is the subject of a pending
               Application for Confidential Designation, except as provided in
               Title 20, CCR Sections 2506 and 2507, shall be disclosed, unless
               disclosure is ordered by a court of competent jurisdiction
               (Title 20 CCR Section 2501, et seq.). At the election of the
               Commission Contract Manager, the Contractor, its employees and
               any subcontractor shall execute a "Confidentiality Agreement,"
               supplied by the Commission Contract Manager.

          5)   Contractor acknowledges that each of its officers, employees, and
               subcontractors who are involved in the performance of this
               contract will be informed about the restrictions contained herein
               and to abide by the above terms.

     G.   Proprietary Data

          Proprietary data owned by the Contractor shall remain with the
          Contractor throughout the term of this contract and thereafter. The
          extent of Commission access to the same and the testimony

                                 Page 18 of 28

<PAGE>

          available regarding the same shall be limited to that reasonably
          necessary to demonstrate, in a scientific manner to the satisfaction
          of scientific persons, the validity of any premise, postulate or
          conclusion referred to or expressed in any deliverable hereunder.

     H.   Preservation of Data

          Any data which is reserved to the Contractor by the express terms
          hereof, and pre-existing proprietary or confidential data which has
          been utilized to support any premise, postulate or conclusion referred
          to or expressed in any deliverable hereunder, shall be preserved by
          the Contractor at the Contractor's own expense for a period of not
          less than three years after receipt and approval by the Commission of
          the Final Report herein.

     I.   Destruction of Data

          Before the expiration of three years and before changing the form of
          or destroying any such data, the Contractor shall notify Commission of
          any such contemplated action and Commission may, within thirty (30)
          days after said notification, determine whether it desires said data
          to be further preserved. If Commission so elects, the expense of
          further preserving said data shall be paid for by the Commission.
          Contractor agrees that Commission may at its own expense, have
          reasonable access to said data throughout the time during which said
          data is preserved. Contractor agrees to use its best efforts to
          identify competent witnesses to testify in any court of law regarding
          said data or, at Commission's expense, to furnish such competent
          witnesses.

     J.   Patent Rights

          Patent rights for subject inventions will be the property of
          Contractor, subject to the Commission retaining a no-cost,
          nonexclusive, nontransferable, irrevocable royalty-free, worldwide
          perpetual license to use or have practiced for or on behalf of the
          State of California the subject invention(s) for governmental
          purposes. Contractor must obtain agreements to effectuate this clause
          with all persons or entities, except for the U.S. Department of Energy
          (DOE), obtaining ownership interest in the patented subject
          invention(s). Previously documented (whether patented or unpatented
          under the patent laws of the United States of America or any foreign
          country) inventions are exempt from this provision.

     K.   March-In Rights

          The Contractor shall forfeit and assign to the Commission, at the
          Commission's request, all rights on a subject invention if either: 1)
          Contractor fails to apply for a patent on subject inventions(s)
          developed under this contract within six months of conceiving or first
          actually reducing to practice the technology or 2) Contractor or
          assignee has not taken, or is not expected to take within a reasonable
          time, effective steps to achieve practical application of the subject
          invention. In this event, the Contractor agrees to relinquish all
          rights, subject to DOE reserved rights, on the subject invention to
          the Commission. The Commission will have the unfettered right to use
          and/or dispose of the rights in whatever manner it deems most suitable
          to help transfer the technology into the market place, including but
          not limited to, seeking patent protection, or licensing the invention.

     L.   Commission's Rights to Invention.

          Contractor and all persons and/or entities obtaining an ownership
          interest in subject invention(s) shall include within the
          specification of any United States patent application, and any patent
          issuing thereon covering a subject invention, the following
          statement:

         "THIS INVENTION WAS MADE WITH STATE OF CALIFORNIA SUPPORT UNDER
       CALIFORNIA ENERGY COMMISSION CONTRACT NUMBER 500-03-031. THE ENERGY

                                  Page 19 of 28

<PAGE>

                COMMISSION HAS CERTAIN RIGHTS TO THIS INVENTION."

     M.   Commission's Interest in Inventions.

          Upon the perfecting of a patent application on any subject invention,
          Contractor will complete and sign a Uniform Commercial Code (UCC.1)
          Financing Statement and submit it to the Commission Contract Manager
          for complete processing. The Commission Contract Manager will review
          the UCC.1 for complete information and file the satisfactory UCC.1
          with the Secretary of State's Office.

     N.   Copyrights

          1)   Copyrightable material first produced under this contract shall
               be owned by the Contractor, limited by the license granted to the
               Commission in 2) below.

          2)   Contractor agrees to grant the Commission a royalty-free, no-cost
               nonexclusive, irrevocable, nontransferable worldwide, perpetual
               license to produce, translate, publish, use and dispose of, and
               to authorize others to produce, translate, publish, use and
               dispose of all copyrightable material first produced or composed
               in the performance of this contract.

          3)   Contractor will apply copyright notices to all deliverables using
               the following form or such other form as may be reasonably
               specified by Commission.

                 "(C)[YEAR OF FIRST PUBLICATION OF DELIVERABLE],
                         [THE COPYRIGHT HOLDER'S NAME].
                              ALL RIGHTS RESERVED."

          4)   Software

               In the event software is developed that is not a deliverable
               under the contract, Contractor shall have the right to copyright
               and/or patent such software and grants the Commission a
               royalty-free, no-cost, non-exclusive, irrevocable,
               non-transferable, worldwide, perpetual license to produce and use
               the software, its derivatives and upgrades for governmental
               purposes.

     O.   Intellectual Property Indemnity

          Contractor warrants that Contractor will not, in its supplying of the
          work under this contract's work statement, knowingly infringe or
          misappropriate any intellectual property right of a third party, and
          that it will conduct a reasonable investigation of the intellectual
          property rights of third parties to avoid such infringement.
          Contractor will defend and indemnify Commission from and against any
          claim, lawsuit or other proceeding, loss, cost, liability or expense
          (including court costs and reasonable fees of attorneys and other
          professionals) to the extent arising out of: (i) any third party claim
          that a deliverable infringes any patent, copyright, trade secret or
          other intellectual property right of any third party, or (ii) any
          third party claim arising out of the negligent or other tortious
          act(s) or omission(s) by the Contractor, its employees, subcontractors
          or agents, in connection with or related to the deliverables or the
          Contractor's performance thereof under this contract.

19.  ROYALTY PAYMENTS TO COMMISSION

     In consideration of Commission providing funding to Contractor, Contractor
     agrees to pay Commission royalties on the terms and conditions hereinafter
     set forth.

                                  Page 20 of 28

<PAGE>

     A.   Contractor agrees to pay Commission a royalty of 1.5% (one and
          one-half percent) of the Sale Price on the sale of each and every
          project-related product or right that the Contractor receives.

     B.   Contractor's obligation to make payments to Commission shall commence
          from the date project related products or rights are first sold and
          shall extend for a period of fifteen years thereafter. Payments are
          payable in annual installments and are due the first day of March in
          the calendar year immediately following the year during which
          Contractor receives gross revenues.

     C.   Early Buyout. Contractor has the option of paying its royalty
          obligations to Commission without a pre-payment penalty, provided
          Contractor makes the payment within two years from the date at which
          royalties are first due to Commission, in the lump sum amount equal to
          two (2) times the amount of funds drawn down on the contract.

     D.   Contractor agrees not to make any sale, license, lease, gift or other
          transfer of any Project-Related Products and Rights with the intent
          of, or for the purpose of, depriving Commission of royalties
          hereunder. Generally, this means that Contractor will not make any
          sale, license, lease or other transfer of Project-Related Products and
          Rights for consideration other than fair market value. Further,
          Contractor agrees that such activity constitutes breach of this
          contract and that Contractor agrees to repay within 60 days the amount
          due under subparagraph C above (Early Buyout).

     E.   Contractor acknowledges that a late payment of royalties owed to the
          Commission will cause the Commission to incur costs not contemplated
          by the parties. If a royalty payment is not paid when due, Contractor
          agrees to pay the Commission a late fee equal to two percent (2%) of
          the payment due. Additionally, Contractor agrees that royalty payments
          not paid within fifteen (15) days of the due date shall thereupon
          become debt obligations of Contractor to the Commission, due upon
          demand and bearing interest at the maximum interest rate allowed by
          law.

     F.   Contractor shall maintain separate accounts within its financial and
          other records for purposes of tracking components of sales and
          royalties due to Commission under this contract.

     G.   Payments to Commission are subject to audit as provided for under the
          Recordkeeping, Cost Accounting and Auditing clause.

     H.   In the event of default hereunder, Commission shall be free to
          exercise all rights and remedies available to it herein, and under law
          and at equity. The occurrence of any of the following events or
          conditions shall cause default under this contract:

          1)   Contractor's failure to pay when due, any amount due and payable
               under the terms of this contract.

20.  NOTICES TO PARTIES

     Notice to either party may be given by certified mail properly addressed,
     postage fully prepaid, to the address designated in Exhibit D for each
     respective party or to such other address as either party shall notify the
     other in accordance with this section. Such notice shall be effective when
     received, as indicated by post office records, or if deemed undeliverable
     by post office, such notice shall be effective nevertheless fifteen (15)
     days after mailing.

     Alternatively, notice may be given by personal delivery to the party at the
     address designated in Exhibit D. Such notice shall be deemed effective when
     delivered unless a legal holiday for State offices commences during said
     24-hour period, in which case the effective time of the notice shall be
     postponed 24 hours for each such intervening day.

                                  Page 21 of 28

<PAGE>

21.  DISPUTES

     In the event of a contract dispute or grievance between the Contractor
     Project Manager and Commission Contract Manager, the parties shall use any
     or all of the following procedures:

     A.   Commission Dispute Resolution

          If the Commission Contract Manager and the Contractor Project Manager
          cannot resolve a contract dispute or grievance, Contractor Project
          Manager and Commission Contract Manager shall each prepare a package
          in writing stating the issues in dispute, the legal authority or other
          basis for their respective positions and the remedy sought. The
          packages must be submitted to the Commission Dispute Resolution
          Committee. The Commission Contract Manager will notify the Contractor
          Project Manager of the current Committee members. The Committee shall
          make a determination on the problem within ten (10) working days after
          receipt of the package.

          If Contractor disagrees with the Committee's decision, Contractor may
          appeal to the full Commission at a regularly scheduled business
          meeting. The Committee will provide the Contractor with the current
          procedures for placing the appeal on a Commission Business Meeting
          Agenda.

          Contractor shall continue with its responsibilities under this
          contract during any dispute.

     B.   Binding Arbitration

          Should the Commission's Dispute Resolution procedure identified in
          Paragraph A. above fail to resolve a contract dispute or grievance to
          the satisfaction of the Contractor, the parties must mutually agree to
          have the dispute or grievance resolved through binding arbitration.
          The arbitration proceeding shall take place in Sacramento County,
          California, and shall be governed by the commercial arbitration rules
          of the American Arbitration Association (AAA) in effect on the date
          the arbitration is initiated. One (1) arbitrator who is an expert in
          the particular field of the dispute or grievance shall resolve the
          dispute or grievance. The arbitrator shall be selected in accordance
          with the aforementioned commercial arbitration rules. The decision
          rendered by the arbitrator shall be final, and judgment may be entered
          upon it in accordance with the applicable law in any court having
          jurisdiction thereof. The demand for arbitration shall be made no
          later than six (6) months after the date of the contract's
          termination, irrespective of when the dispute or grievance arose, and
          irrespective of the applicable statute of limitations for a suit based
          on the dispute or grievance. If the parties do not mutually agree to
          arbitration, the sole forum to resolve the dispute is State court.

          The cost of arbitration shall be borne by the parties as follows:

          1)   The AAA's administrative fees shall be borne equally by the
               parties;

          2)   The expense of a stenographer shall be borne by the party
               requesting a stenographic record;

          3)   Witness expenses for either side shall be paid by the party
               producing the witness;

          4)   Each party shall bear the cost of its own travel expenses;

          5)   All other expenses shall be borne equally by the parties, unless
               the arbitrator apportions or assesses the expenses otherwise as
               part of his or her award.

          At the option of the parties, any or all of these arbitration costs
          may be deducted from any balance of contract funds Both parties must
          agree, in writing, to utilize contract funds to pay for arbitration
          costs.

                                  Page 22 of 28

<PAGE>

22.  STOP WORK

     The Commission Contract Officer may, at any time, by written notice to
     Contractor, require Contractor to stop all or any part of the contract's
     work tasks. Stop Work Orders may be issued for reasons such as a project
     exceeding budget, standard of performance, out of scope work, delay in
     project schedule, misrepresentations, etc.

     A.   Compliance

          Upon receipt of such stop work order, Contractor shall immediately
          take all necessary steps to comply therewith and to minimize the
          incurrence of costs allocable to work stopped.

     B.   Equitable Adjustment

          An equitable adjustment shall be made by Commission based upon a
          written request by Contractor for an equitable adjustment. Contractor
          must make such adjustment request within thirty (30) days from the
          date of receipt of the stop work notice.

     C.   Terminating a Stop Work Order

          Contractor shall resume the stopped work only upon receipt of written
          instructions from the Commission's Contract Officer terminating the
          stop work order.

23.  TERMINATION

     A.   Purpose

          The parties agree that because the Commission is a state entity and
          contracts on behalf of all Californian ratepayers, it is necessary for
          the Commission to be able to terminate, at once, upon the default of
          Contractors and to proceed with the work required under the Contract
          in any manner the Commission deems proper. Contractor specifically
          acknowledges that the termination of the Contract by the Commission
          under the terms set forth below is an essential term of the Contract,
          without which the Commission would not enter into the Contract.
          Contractor further agrees that upon any of the events triggering the
          termination the Contract by the Commission, the Commission has the
          right to terminate the Contract, and it would constitute bad faith of
          the Contractor to interfere with the immediate termination of the
          Contract by the Commission.

     B.   Breach

          The Commission shall provide the Contractor written notice of intent
          to terminate due to Contractors breach. Contractor will have 15
          calendar days to fully perform or cure the breach. In the event
          Contractor does not cure the breach within 15 days, the Commission
          may, without prejudice to any of its other remedies, terminate this
          contract upon five (5) calendar days written notice to Contractor. In
          such event, Commission shall pay Contractor only the reasonable value
          of the satisfactorily performed services theretofore rendered by
          Contractor, as may be agreed upon by the parties or determined by a
          court of law, but not in excess of the contract maximum payable.

     C.   For Cause

          The Commission may, for cause, and at its option, terminate this
          contract upon giving thirty calendar (30) days, advance written notice
          to Contractor. In such event, Contractor agrees to use all reasonable
          efforts to mitigate its expenses and obligations. Commission will pay
          Contractor for

                                  Page 23 of 28

<PAGE>

          services rendered and expenses incurred within 30 days after notice of
          termination which could not by reasonable efforts of Contractor have
          been avoided, but not in excess of contract maximum payable.
          Contractor agrees to relinquish possession of equipment purchased for
          this project with Commission funds to Commission, or Contractor may,
          with approval of Commission, purchase said equipment as provided by
          the terms of this contract.

          The term "for cause" includes, but is not limited to, the following
          reasons:

          o    Partial or complete loss of match funds;

          o    Reorganization to a business entity unsatisfactory to the
               Commission;

          o    Retention or hiring of subcontractors, or replacement or addition
               of Key Personnel that fail to perform to the standards and
               requirements of this contract;

          o    Failure to utilize the DVBE subcontractors/vendors in
               Contractor's proposal,

          o    Contractor is not able to pay its debts as they become due and/or
               Contractor is in default of an obligation that impacts
               Contractor's ability to perform under this Contract,

          o    Significant change in State or Energy Commission policy such that
               the work or product being funded would not be supported by the
               Commission; or

          o    In the case of a technical support contract, changes in
               Commission staff such that Commission staff can do the work or
               product being funded.

     D.   Gratuities

          The Commission may, by written notice to Contractor, terminate the
          right of Contractor to proceed under this contract if it is found,
          after notice and hearing by Commission or by Executive Director of the
          Energy Commission or his duly authorized representative, that
          gratuities were offered or given by Contractor, or any agent or
          representative of Contractor, to any officer or employee of the
          Commission, with a view toward securing a contract or securing
          favorable treatment with respect to awarding or amending or making a
          determination with respect to performance of such contract.

          In the event this contract is terminated as provided herein.
          Commission shall be entitled to (1) pursue the same remedies against
          Contractor as it could pursue in the event of the breach of the
          contract by Contractor, and (2) exemplary damages in an amount which
          shall be not less than three nor more than ten times the cost incurred
          by Contractor in providing any such gratuities to any such officer or
          employee, as a penalty, in addition to any other damages to which it
          may be entitled by law.

          The rights and remedies of Commission provided in this clause shall
          not be exclusive and are in addition to any other rights and remedies
          provided by law or under this contract.

     E.   Advantage

          Contractor, team member or subcontractors shall not hire, contract
          with, or otherwise commit themselves to an advantageous economic
          contract with the Commission's Contractor/subcontractor who evaluated
          Contractor's proposal. The Commission reserves the right to cancel
          the contract.

24.  GENERAL TERMS & CONDITIONS

     A.   It is understood and agreed that certain contract provisions shall
          survive the completion or termination date of this contract for any
          reason. The contract provisions include, but are not limited to:

          o    "Payments to Contractor"                        Section 5

          o    "Purchase of Equipment"                         Section 7

          o    "Recordkeeping, Cost Accounting and Auditing"   Section 13

                                  Page 24 of 28

<PAGE>

          o    "Business Activity Reporting"               Section 14

          o    "Rights of Parties Regarding Intellectual
                Property"                                  Section 18

          o    "Royalty Payments to Commission"            Section 19

          o    "Disputes"                                  Section 21

          o    "Termination"                               Section 23

          o    "Site Access"                               Section 24. D

          o    "Indemnification"                           Section 24. L

     B.   The clause headings appearing in this contract have been inserted for
          the purpose of convenience and ready reference. They do not purport,
          and shall not be deemed, to define, limit, or extend the scope or
          intent of the clauses to which they appertain.

     C.   If public hearings on the subject matter dealt with in this contract
          are held during the period of the contract, and if requested by the
          Commission, Contractor will make available to testify the personnel
          assigned to this contract. Commission will reimburse Contractor for
          labor and travel of said personnel at the contract rates for such
          work.

     D.   The Energy Commission staff or its representatives shall have
          reasonable access to the construction site or R&D laboratory, and all
          project records.

     E.   This contract shall be conducted in accordance with the terms and
          conditions of California Energy Resources Conservation and Development
          Commission (hereafter "Commission") Request for Proposal number
          500-03-501, Addendum # 1-4, Contractor's proposal, dated October 20,
          2004, this contract, and the attached exhibits listed below.
          Contractor's proposal is not attached hereto, but is expressly
          incorporated by reference into this contract. In the event of conflict
          or inconsistency between the terms of this contract and Contractor's
          proposal, this contract and its exhibits shall be considered
          controlling.

     F.   In the interpretation of this contract, any inconsistencies between
          the terms hereof and the exhibits shall be resolved in favor of the
          terms hereof.

     G.   The Commission reserves the right to seek further written assurances
          from the Contractor and its team that the work of the project under
          the contract will be performed consistent with the terms of the
          contract.

     H.   No alteration or variation of the terms of this contract shall be
          valid unless made in writing and signed by the parties hereto, and no
          oral understanding or agreement not incorporated herein, shall be
          binding on any of the parties hereto. Other than as specified herein,
          no document or communication passing between the parties hereto shall
          be deemed as part of this contract.

     I.   This contract is not assignable by the Contractor, either in whole or
          in part, without the consent of the State. Consent consists of a
          formal written contract amendment approved by the Commission and DGS.
          Such consent shall not be unreasonably withheld.

     J.   It is hereby understood and agreed that this contract shall be
          governed by the laws of the State of California as to interpretation
          and performance.

     K.   Time is of the essence in this contract.

     L.   Contractor agrees to indemnify, defend and save harmless the State,
          its officers, agents and employees from any and all claims and losses
          accruing or resulting to any and all contractors, subcontractors,
          suppliers, laborers, and any other person, firm or corporation
          furnishing or supplying work services, materials, or supplies in
          connection with the performance of this

                                 Page 25 of 28

<PAGE>

          contract, and from any and all claims and losses accruing or resulting
          to any person, firm or corporation who may be injured or damaged by
          Contractor in the performance of this contract.

     M.   Contractor warrants, represents and agrees that it and its
          subcontractors, employees and representatives shall at all times
          comply with all applicable State contracting laws, codes, rules and
          regulations in the performance of this contract.

     N.   Contractor, and the agents and employees of Contractor, in the
          performance of this contract, shall act in an independent capacity and
          not as officers or employees or agents of the State.

     O.   No waiver of any breach of this contract shall be held to be a waiver
          of any other or subsequent breach. All remedies afforded in this
          contract shall be taken and construed as cumulative, that is, in
          addition to every other remedy provided therein or by law. The failure
          of Commission to enforce at any time any of the provisions of this
          contract, or to require at any time performance by Contractor of any
          of the provisions therefore, shall in no way be construed to be a
          waiver of such provisions, nor in any way affect the validity of this
          contract or any part thereof or the right of Commission to thereafter
          enforce each and every such provision.

     P.   If any provision of this contract or the application thereof is held
          invalid, that invalidity shall not affect other provisions of the
          contract.

     Q.   In no event shall any course of dealing, custom or trade usage modify,
          alter, or supplement any of the terms or provisions contained herein.

     R.   During the performance of this Agreement, Contractor and its
          subcontractors shall not unlawfully discriminate, harass, or allow
          harassment against any employee or applicant for employment because of
          sex, race, color, ancestry, religious creed, national origin, physical
          disability (including HIV and AIDS), mental disability, medical
          condition (cancer), age (over 40), marital status, and denial of
          family care leave. Contractor and subcontractors shall insure that the
          evaluation and treatment of their employees and applicants for
          employment are free from such discrimination and harassment.
          Contractor and subcontractors shall comply with the provisions of the
          Fair Employment and Housing Act (Government Code Section 12990 (a-f)
          et seq.) and the applicable regulations promulgated thereunder
          (California Code of Regulations, Title 2, Section 7285 et seq.). The
          applicable regulations of the Fair Employment and Housing Commission
          implementing Government Code Section 12990 (a-f), set forth in Chapter
          5 of Division 4 of Title 2 of the California Code of Regulations, are
          incorporated into this Agreement by reference and made a part hereof
          as if set forth in full. Contractor and its subcontractor shall give
          written notice of their obligations under this clause to labor
          organizations with which they have a collective bargaining or other
          Agreement.

          Contractor shall include the nondiscrimination and compliance
          provisions of this clause in all subcontracts to perform work under
          the Agreement.

     S.   The Contractor shall certify in writing under penalty of perjury, the
          minimum, if not exact, percentage of recycled content, both post
          consumer waste and secondary waste as defined in the Public Contract
          Code, Sections 12161 and 12200, in materials, goods, or supplies
          offered or products used in the performance of this Agreement,
          regardless of whether the product meets the required recycled product
          percentage as defined in the Public Contract Code, Sections 12161 and
          12200. Contractor may certify that the product contains zero recycled
          content. (PCC 10233, 10308.5, 10354).

                                 Page 26 of 28

<PAGE>

     T.   For any contract in excess of $100,000:

          o    the Contractor recognizes the importance of child and family
               support obligations and shall fully comply with all applicable
               state and federal laws relating to child and family support
               enforcement, including, but not limited to, disclosure of
               information and compliance with earnings assignment orders, as
               provided in Chapter 8 (commencing with section 5200) of Part 5 of
               Division 9 of the Family Code; and

          o    the Contractor, to the best of its knowledge is fully complying
               with the earnings assignment orders of all employees and is
               providing the names of all new employees to the New Hire Registry
               maintained by the California Employment Development Department."

     U.   The Government Code Chapter on Antitrust claims contains the following
          definitions:

               o    "Public purchase" means a purchase by means of competitive
                    bids of goods, services, or materials by the State or any of
                    its political subdivisions or public agencies on whose
                    behalf the Attorney General may bring an action pursuant to
                    subdivision (c) of Section 16750 of the Business and
                    Professions Code).

               o    "Public Purchasing Body" means the State or the subdivision
                    or agency making a public purchase. Government Code Section
                    4550 (b).

          1)   In submitting a bid to a public purchasing body, the bidder
               offers and agrees that if the bid is accepted, it will assign to
               the purchasing body all rights, title, and interest in and to all
               causes of action it may have under Section 4 of the Clayton Act
               (15 U.S.C. Sec. 15) or under the Cartwright Act (Chapter 2
               (commencing with Section 16700) of Part 2 of Division 7 of the
               Business and Professions Code), arising from purchases of goods,
               materials, or services by the bidder for sale to the purchasing
               body pursuant to the bid. Such assignment shall be made and
               become effective at the time the purchasing body tenders final
               payment to the bidder. Government Code Section 4552.

          2)   If an awarding body or public purchasing body receives, either
               through judgment or settlement, a monetary recovery for a cause
               of action assigned under this chapter, the assignor shall be
               entitled to receive reimbursement for actual legal costs incurred
               and may, upon demand, recover from the public body any portion of
               the recovery, including treble damages, attributable to
               overcharges that were paid by the assignor but were not paid by
               the public body as part of the bid price, less the expenses
               incurred in obtaining that portion of the recovery. Government
               Code Section 4553.

          3)   Upon demand in writing by the assignor, the assignee shall,
               within one year from such demand, reassign the cause of action
               assigned under this part if the assignor has been or may have
               been injured by the violation of law for which the cause of
               action arose and (a) the assignee has not been injured thereby,
               or (b) the assignee declines to file a court action for the cause
               of action. Government Code Section 4554.

     V.   In the event that any provision of this Contract is unenforceable or
          held to be unenforceable, then the parties agree that all other
          provisions of this Contract have force and effect and shall not be
          effected thereby.

     W.   Contractor by signing this agreement hereby acknowledges the
          applicability of Government Code Section 16645 through Section 16649
          to this agreement.

          1)   Contractor will not assist, promote or deter union organizing by
               employees performing work on a state service contract, including
               public works contract.

          2)   No state funds received under this agreement will be used to
               assist, promote or deter union organizing.

                                 Page 27 of 28

<PAGE>

          3)   Contractor will not, for any business conducted under this
               agreement, use any state property to hold meetings with employees
               or supervisors, if the purpose of such meetings is to assist,
               promote or deter union organizing, unless the state property is
               equally available to the general public for holding meetings.

          4)   If Contractor incurs costs, or makes expenditures to assist,
               promote or deter union organizing, Contractor will maintain
               records sufficient to show that no reimbursement from state funds
               has been sought for these costs, and that Contractor shall
               provide those records to the Attorney General upon request.

          Contractor hereby certifies that no request for reimbursement, or
          payment under this agreement will seek reimbursement for costs
          incurred to assist, promote or deter union organizing.

     X.   Contractor declares that it is eligible to contract with the state
          pursuant to Public Contract Code section 10286.1, the California
          Taxpayer and Shareholder Protection Act of 2003, related to expatriate
          corporations and their subsidiaries."

                                 Page 28 of 28

<PAGE>

                                    EXHIBIT A
                                  SCOPE OF WORK

GLOSSARY

Specific terms and acronyms used throughout this work statement are defined as
follows:

<TABLE>
<CAPTION>
ACRONYM         DEFINITION
-------------   ----------------------------------------------------------------------------------
<S>             <C>
AC (or ac)      alternating current -- characterized by voltage and current varying with time
amp (A)         ampere -- a measure of electrical current
B/C             benefit-to cost ratio
CPR             Critical Project Review
DAS             data acquisition system
DC(or dc)       direct current -- characterized by non-time-varying voltage and current
DOE             U. S. Department of Energy
DUIT            Distributed Utility Integration Test Project
EES             electric energy storage
electrolyte     a liquid solution capable of conducting electric current
FCR             fixed charge rate
Gantt chart     a graph or picture showing start and completion dates of project tasks versus time
IEEE            The Institute of Electrical and Electronics Engineers
inverter        an electronics system that converts DC power to AC power
kW              kiloWatt -- one thousand Watts of power
kWh             kiloWatt-hour -- energy equal to 1 kW for one hour
MW              megaWatt -- one million Watts of power
MWH             megaWatt-hour -- energy equal to 1 MW for one hour
NPV             net present value
O&M             operations and maintenance (or the costs associated with them)
PCS             power conversion system -- also referred to as an inverter
PG&E            Pacific Gas & Electric Co.
PIER            Public Interest Energy Research (Program of the CEC)
PowerPlus       Anaheim-based technical support contractor for ZBB Energy Corporation
R&D             Research & Development
RD&D            Research, Development & Demonstration
RFP             Request for Proposal -- herein refers to CEC Research Solicitation #500-03-501
state of the
art             the most advanced technology of its type currently available
T&D             transmission & distribution
turn-key        supplied to the end-user in a fully-operational state
UCC. 1          Uniform Commercial Code (Financing Statement)
VAR             volt-ampere reactive
volt (V or v)   a measure of electrical potential
watt (W)        a measure of power
WBS             Work Breakdown Structure -- a project management tool
ZBB             ZBB Energy Corporation
ZnBr            Zinc-Bromine (battery technology)
</TABLE>

                                     1 of 17

                                    Exhibit A

<PAGE>

TECHNICAL TASK LEST

<TABLE>
<CAPTION>
TASK #   CPR   TASK NAME
------   ---   -----------------------------------------------------------------------------------
<S>       <C>  <C>
1.1            Administration
2.0       X    Assemble Storage System
3.0            Installation of 500 kWh/500 kW Storage System at the PG&E Designated Test Facility
4.0       X    Utility Required Testing and Engineering
5.0       X    Pre-Commissioning Data Collection at Utility Demonstration Site
6.0            Installation of Storage System at Utility Demonstration Site
7.0            Data Acquisition System and Benefits Data Reporting Requirements
8.0            Technology Transfer Activities
</TABLE>

KEY NAME LIST

TASK #    KEY PERSONNEL   KEY SUBCONTRACTOR(S)   KEY PARTNER(S)
------   --------------   --------------------   --------------
  1        Peter Lex              None                PG&E
  2        Peter Lex                                  PG&E
  3        Peter Lex                                  PG&E
  4      Bob Malahowski                               PG&E
  5      Bob Malahowski                               PG&E
  6      Bob Malahowski                               PG&E
  7         Peter Lex                                 PG&E
  8         Peter Lex                                 PG&E

PROBLEM STATEMENT

OVERVIEW

The growing electrical load in many parts of California, especially cities in
the Central Valley, is stressing the capacity of the existing distribution
infrastructure. This is particularly true during peak periods of several hours
per day during the summer months. The standard utility practice in addressing
this problem is to identify specific facilities that are nearing capacity
limits, and schedule capital infrastructure upgrades to alleviate the constraint
and to accommodate future load growth. The result is the financing of an
expensive upgrade project, with yearly finance charges, but low utilization of
the upgraded capacity in the near term years: the capacity is really needed for
only a few hours per year.

In recent years, many technologies, such as internal combustion engines,
microturbines, fuel cells, wind turbines, photovoltaics (PV) and storage
systems, referred to as distributed resources (DR), have been proposed as
alternatives to capital upgrades in situations where peak loading for a
relatively few hours per year is the problem. It has been postulated that the
installation of DR at critical points in the distribution system can provide the
peak loading capacity in smaller increments better suited to matching load
growth, at least for a few years, thereby deferring the capital upgrade as long
as practical, and saving the cost of the carrying charges for that investment
for those years. All of these DR technologies are mature and commercially viable
to varying degrees. The issue with regard to distribution system deferral is
proving the postulation: Can the application be successfully and reliably
operated so as to achieve the hoped-for benefits of infrastructure deferral?

                                     2 of 17

                                    Exhibit A

<PAGE>

To date, ZBB has participated in similar projects with Detroit Edison and United
Energy (Australia), albeit on a smaller scale than proposed for this project.
Utilities in the US have studied this application to some degree, but battery
systems have only recently been available in large enough sizes and with
favorable economics, to warrant utility-scale demonstrations.

TECHNOLOGY BARRIERS

The primary barrier to implementation of storage for distribution system
deferral, in California and elsewhere, is unfamiliarity with the technology on
the part of utilities. Questions remain as to the reliability of new
technologies, how the utilities would be allowed to finance the equipment (i.e.,
earn a return on investment), new standards and operating procedures that would
need to be developed, system impacts if the technology does not prove itself,
and so on. Utilities are reluctant to spend money on something that might not
work; regulatory agencies could disallow the expenses as imprudent. On the other
hand, there are few regulatory incentives to utilities for trying new
technologies.

This project will answer these questions by installing a suitable EES and
acquiring sufficient data to provide qualitative analysis.

This project is designed to address the pressing need for validation and
evaluation of the benefits of energy storage when applied to the deferral of
distribution system upgrades. In addition to providing financial benefits, the
system will demonstrate the use of energy storage in a practical grid-connected
application. It will do so with essentially no air emissions or other
environmental drawbacks, as opposed to other sources of generation such internal
combustion engines or combustion turbines. A successful demonstration will open
the door to future use of energy storage and a growing market for new
technology. This is a critical time for energy providers to make decisions on
the power systems of the future, so it is timely for the Commission to undertake
this demonstration at this time.

RELATIONSHIP TO PIER GOALS

This Agreement meets the PIER Goals of Improving the Energy/Cost Value of
California's Electricity, and Improving the Reliability, Quality, and
Sufficiency of California's Electricity. By providing support to the
distribution system, the flow of power to customers is assured, thus improving
reliability and sufficiency. This project also meets the secondary goal of
improving the energy cost/value of California's Electricity. By avoiding costly
grid investments, the overall cost of electricity to California consumers maybe
reduced.

GOALS OF THE AGREEMENT

The goal of this Agreement is to demonstrate and evaluate the economic benefits
of distribution system upgrade deferral. This goal will be met by operating a
ZBB zinc-bromine battery EES at a PG&E distribution node for a minimum of 18
months.

OBJECTIVES OF THE AGREEMENT

The objectives of this Agreement are to:

1.   Validate the benefits of operating energy storage for distribution system
     support

2.   Reduce the cost of electricity delivery

3.   Increase the expected number of new technologies providing increased
     reliability / sufficiency of power to consumers by one

4.   Increase the number of new technologies that are market ready by one

                                     3 of 17

                                    Exhibit A

<PAGE>

5.   Increase the adoption by the market of specific technologies, i.e.,
     zinc-bromine energy storage

This project provides state-of-the-art zinc-bromine energy storage to
California. A successful project will increase market share and penetration for
this specific technology. It will also improve acceptance and thus the market
for other energy storage technologies.

TASK 1.0 ADMINISTRATION

MEETINGS

TASK 1.1 ATTEND KICK-OFF MEETING

The goal of this task is to establish the lines of communication and procedures
for implementing this Agreement.

THE CONTRACTOR SHALL:

     o    Attend a "kick-off" meeting with the Commission Contract Manager, the
          Contracts Officer, and a representative of the Accounting Office. The
          Contractor shall bring their Project Manager, Contracts Officer,
          Accounting Officer, and others designated by the Commission Contract
          Manager to this meeting. The administrative and technical aspects of
          this Agreement will be discussed at the meeting. Prior to the
          kick-off meeting, the Commission Contract Manager will provide an
          agenda to all potential meeting participants.

The administrative portion of the meeting shall include, but not be limited to,
the following:

     o    Terms and conditions of the Agreement

     o    CPRs (Task 1.2)

     o    Match fund documentation (Task 1.7)

     o    Permit documentation (Task 1.8)

The technical portion of the meeting shall include, but not be limited to, the
following:

     o    The Commission Contract Manager's expectations for accomplishing tasks
          described in the Scope of Work;

     o    An Updated Schedule of Deliverables

     o    An updated Gantt chart

     o    Progress Reports (Task 1.4)

     o    Technical Deliverables (Task 1.5)

     o    Final Report (Task 1.6)

The Commission Contract Manager shall designate the date and location of this
meeting.

DELIVERABLES:

o    An Updated Schedule of Deliverables

o    An Updated Gantt Chart

o    An Updated List of Match Funds

o    An Updated List of Permits

                                     4 of 17

                                    Exhibit A

<PAGE>

TASK 1.2 CPR MEETINGS

The goal of this task is to determine if the project should continue to receive
Commission funding to complete this Agreement and if it should, are there any
modifications that need to be made to the tasks, deliverables, schedule or
budget.

CPRs provide the opportunity for frank discussions between the Commission and
the Contractor. CPRs generally take place at key, predetermined points in the
Agreement, as determined by the Commission Contract Manager and as shown in
the Technical Task List above and in the Schedule of Deliverables. However, the
Commission Contract Manager may schedule additional CPRs as necessary, and any
additional costs will be borne by the Contractor.

Participants include the Commission Contract Manager, PG&E representative and
the Contractor, and may include the Commission Contracts Officer, the PIER
Program Team Lead, other Commission staff and Management as well as other
individuals selected by the Commission Contract Manager to provide support to
the Commission.

THE COMMISSION CONTRACT MANAGER SHALL:

o    Determine the location, date and time of each CPR meeting with the
     Contractor. These meetings generally take place at the Commission, but they
     may take place at another location.

o    Send the Contractor the agenda and a list of expected participants in
     advance of each CPR. If applicable, the agenda shall include a discussion
     on both match funding and permits.

o    Conduct and make a record of each CPR meeting. One of the outcomes of this
     meeting will be a schedule for providing the written determination
     described below.

o    Determine whether to continue the project, and if continuing, whether or
     not to modify the tasks, schedule, deliverables and budget for the
     remainder of the Agreement, including not proceeding with one or more
     tasks. If the Commission Contract Manager concludes that satisfactory
     progress is not being made, this conclusion will be referred to the
     Commission's Research, Development and Demonstration Policy Committee for
     its concurrence.

o    Provide the Contractor with a written determination in accordance with the
     schedule. The written response may include a requirement for the Contractor
     to revise one or more deliverable(s) that were included in the CPR.

THE CONTRACTOR SHALL:

o    Prepare a CPR Report for each CPR that discusses the progress of the
     Agreement toward achieving its goals and objectives. This report shall
     include recommendations and conclusions regarding continued work of the
     project. This report shall be submitted along with any other deliverables
     identified in this Scope of Work. Submit these documents to the Commission
     Contract Manager and any other designated reviewers at least 15 working
     days in advance of each CPR meeting.

o    Present the required information at each CPR meeting and participate in a
     discussion about the Agreement.

                                     5 of 17

                                    Exhibit A

<PAGE>

CONTRACTOR DELIVERABLES:

o    CPR Report(s)

o    CPR deliverables identified in the Scope of Work

COMMISSION CONTRACT MANAGER DELIVERABLES:

o    Agenda and a List of Expected Participants

o    Schedule for Written Determination

o    Written Determination

TASK 1.3 FINAL MEETING

The goal of this task is to close out this Agreement.

THE CONTRACTOR SHALL:

o    Meet with the Commission to present the findings, conclusions, and
     recommendations. The final meeting must be completed during the closeout of
     this Agreement.

     This meeting will be attended by, at a minimum, the Contractor, the
     Commission Contracts Officer, and the Commission Contract Manager. The
     technical and administrative aspects of Agreement closeout will be
     discussed at the meeting, which may be two separate meetings at the
     discretion of the Commission Contract Manager.

     The technical portion of the meeting shall present findings, conclusions,
     and recommended next steps (if any) for the Agreement. The Commission
     Contract Manager will determine the appropriate meeting participants.

     The administrative portion of the meeting shall be a discussion with the
     Commission Contract Manager and the Contracts Officer about the following
     Agreement closeout items:

     o    What to do with any state-owned equipment (Options)

     o    Contractor or host facility may purchase equipment at fair market
          value

     o    Need to file UCC.1 form re: Commission's interest in patented
          technology

     o    Commission's request for specific "generated" data (not already
          provided in Agreement deliverables)

     o    Need to document Contractor's disclosure of "subject inventions"
          developed under the Agreement

     o    "Surviving" Agreement provisions, such as repayment provisions and
          confidential deliverables

     o    At the direction of the Commission Contract Manager, the Contractor
          shall remove and properly dispose of all items associated with the
          2MW/2MWH electric energy storage system (consisting of the four (4)
          500 kWh / 500 kW zinc-bromine battery systems and the associated site
          level installation items) from the demonstration site at no costs to
          the Commission.

     o    Upon receiving approval from the Commission Contracts Officer, the
          Contractor or host facility may purchase the items associated with the
          2MW/2MWH electric energy storage system at fair Market Value (unless
          otherwise negotiate).

     o    Final invoicing and release of retention

                                     6 of 17

                                    Exhibit A

<PAGE>

o    Prepare a schedule for completing the closeout activities for this
     Agreement.

DELIVERABLES:

o    Written documentation of meeting agreements and all pertinent information

o    Schedule for completing closeout activities

REPORTING

TASK 1.4 MONTHLY PROGRESS REPORTS

The goal of this task is to periodically verify that satisfactory and continued
progress is made towards achieving the research objectives of this Agreement.

THE CONTRACTOR SHALL:

o    Prepare progress reports which summarize all Agreement activities conducted
     by the Contractor for the reporting period, including an assessment of the
     ability to complete the Agreement within the current budget and any
     anticipated cost overruns. Each progress report is due to the Commission
     Contract Manager within 5 working days after the end of the reporting
     period. Attachment A-1, Progress Report Format, provides the recommended
     specifications.

o    Submit an additional copy of each monthly progress report to the U.S.
     Department of Energy contact listed in Task 1.5.

DELIVERABLES:

o    Monthly Progress Reports

TASK 1.5 TEST PLANS, TECHNICAL REPORTS AND INTERIM DELIVERABLES

The goal of this task is to set forth the general requirements for submitting
test plans, technical reports and other interim deliverables, unless described
differently in the Technical Tasks.

THE CONTRACTOR SHALL:

o    Submit a draft of each deliverable listed in the Technical Tasks to the
     Commission Contract Manager for review and comment in accordance with the
     approved Schedule of Deliverables. The Commission Contract Manager will
     provide written comments back to the Contractor on the draft deliverable
     within 15 working days of receipt. Once agreement has been reached on the
     draft, the Contractor shall submit the final deliverable to the Commission
     Contract Manager. The Commission Contract Manager shall provide written
     approval of the final deliverable within 10 working days of receipt. Key
     elements from this deliverable shall be included in the Final Report for
     this project.

o    Submit an additional copy of each deliverable to U.S. Department of Energy
     contact:

     Garth P. Corey
     Sandia National Laboratories
     PO Box 5800 MS-O710
     Albuquerque, NM 87185-0710

TASK 1.6 FINAL REPORT

The goal of this task is to prepare a comprehensive written Final Report that
describes the original purpose, approach, results and conclusions of the work
done under this Agreement. The Commission Contract Manager will review and
approve the Final Report. The Final Report must

                                     7 of 17

                                    Exhibit A

<PAGE>

be completed on or before the termination date of the Agreement. Attachment A-2,
Final Report Format, provides the recommended specifications.

The Final Report shall be a public document. If the Contractor has obtained
confidential status from the Commission and will be preparing a confidential
version of the Final Report as well, the Contractor shall perform the following
subtasks for both the public and confidential versions of the Final Report.

TASK 1.6.1 FINAL REPORT OUTLINE

THE CONTRACTOR SHALL:

o    Prepare a draft outline of the Final Report.

o    Submit the draft outline of Final Report to the Commission Contract Manager
     for review and approval. Also submit a copy to the U.S. Department of
     Energy contact listed in Task 1.5. The Commission Contract Manager will
     provide written comments back to the Contractor on the draft outline within
     5 working days of receipt. Once agreement has been reached on the draft,
     the Contractor shall submit the final outline to the Commission Contract
     Manager. The Commission Contract Manager shall provide written approval of
     the final outline within 2 working days of receipt.

DELIVERABLES:

o    Draft Outline of the Final Report

o    Final Outline of the Final Report

TASK 1.6.2 FINAL REPORT

THE CONTRACTOR SHALL:

o    Prepare the draft Final Report for this Agreement in accordance with the
     approved outline.

o    Submit the draft Final Report to the Commission Contract Manager for review
     and comment. Also submit a copy to the U.S. Department of Energy contact
     listed in Task 1.5. The Commission Contract Manager will provide written
     comments within 10 working days of receipt.

     Once agreement on the draft Final Report has been reached, the Commission
     Contract Manager shall forward the electronic version of this report to the
     PIER Technology Transfer Group for final editing. Once final editing is
     completed, the Commission Contract Manager shall provide written approval
     to the Contractor within 2 working days.

o    Submit one bound copy of the Final Report with the final invoice.

DELIVERABLES:

o    Draft Final Report

o    Final Report

MATCH FUNDS, PERMITS, AND ELECTRONIC FILE FORMAT

                                     8 of 17

                                    Exhibit A

<PAGE>

TASK 1.7 IDENTIFY AND OBTAIN MATCHING FUNDS

The goal of this task is to ensure that the match funds planned for this
Agreement are obtained for and applied to this Agreement during the term of this
Agreement.

The costs to obtain and document match fund commitments are not reimbursable
through this Agreement. While the PIER budget for this task will be zero
dollars, the Contractor may utilize match funds for this task. Match funds
shall be spent concurrently or in advance of PIER funds during the term of
this Agreement. Match funds must be identified in writing, and the associated
commitments obtained before the Contractor can incur any costs for which the
Contractor will request reimbursement.

THE CONTRACTOR SHALL:

o    Prepare a letter documenting the match funding committed to this Agreement
     and submit it to the Commission Contract Manager at least 2 working days
     prior to the kick-off meeting:

     1.   If no match funds were part of the proposal that led to the Commission
          awarding this Agreement and none have been identified at the time this
          Agreement starts, then state such in the letter.

     2.   If match funds were a part of the proposal that led to the Commission
          awarding this Agreement, then provide in the letter:

          o    A list of the match funds that identifies the:

               o    Amount of each cash match fund, its source, including a
                    contact name, address and telephone number and the task(s)
                    to which the match funds will be applied.

               o    Amount of each in-kind contribution, a description,
                    documented market or book value, and its source, including a
                    contact name, address and telephone number and the task(s)
                    to which the match funds will be applied. If the in-kind
                    contribution is equipment or other tangible or real
                    property, the Contractor shall identify its owner and
                    provide a contact name, address and telephone number, and
                    the address where the property is located.

          o    A copy of the letter of commitment from an authorized
               representative of each source of cash match funding or in-kind
               contributions that these funds or contributions have been
               secured.

o    Discuss match funds and the implications to the Agreement if they are
     significantly reduced or not obtained as committed, at the kick-off
     meeting. If applicable, match funds will be included as a line item in the
     progress reports and will be a topic at CPR meetings.

o    Provide the appropriate information to the Commission Contract Manager if
     during the course of the Agreement additional match funds are received.

o    Notify the Commission Contract Manager within 5 working days if during the
     course of the Agreement existing match funds are reduced. Reduction in
     match funds may trigger an additional CPR.

                                     9 of 17

                                    Exhibit A

<PAGE>

DELIVERABLES:

o    A letter regarding Match Funds or stating that no Match Funds are provided

o    Letter(s) for New Match Funds

o    A copy of each Match Fund commitment letter

o    Letter that Match Funds were Reduced (if applicable)

TASK 1.8 IDENTIFY AND OBTAIN REQUIRED PERMITS

The goal of this task is to obtain all permits required for work completed under
this Agreement in advance of the date they are needed to keep the Agreement
schedule on track. Permit costs and the expenses associated with obtaining
permits are not reimbursable under this Agreement. While the PIER budget for
this task will be zero dollars, the Contractor shall show match funds for this
task. Permits must be identified in writing and obtained before the Contractor
can incur any costs related to the use of the permits for which the Contractor
will request reimbursement.

THE CONTRACTOR SHALL:

o    Prepare a letter documenting the permits required to conduct this Agreement
     and submit it to the Commission Contract Manager at least 2 working days
     prior to the kick-off meeting:

     1.   If there are no permits required at the start of this Agreement, then
          state such in the letter.

     2.   If it is known at the beginning of the Agreement that permits will be
          required during the course of the Agreement, provide in the letter:

          o    A list of the permits that identifies the:

               o    Type of permit

               o    Name, address and telephone number of the permitting
                    jurisdictions or lead agencies

          o    Schedule the Contractor will follow in applying for and obtaining
               these permits

o    The list of permits and the schedule for obtaining them will be discussed
     at the kick-off meeting, and a timetable for submitting the updated list,
     schedule and the copies of the permits will be developed. The implications
     to the Agreement if the permits are not obtained in a timely fashion or are
     denied will also be discussed. If applicable, permits will be included as a
     line item in the progress reports and will be a topic at CPR meetings.

o    If during the course of the Agreement additional permits become necessary,
     then provide the appropriate information on each permit and an updated
     schedule to the Commission Contract Manager.

o    As permits are obtained, send a copy of each approved permit to the
     Commission Contract Manager.

o    If during the course of the Agreement permits are not obtained on time or
     are denied, notify the Commission Contract Manager within 5 working days.
     Either of these events may trigger an additional CPR.

DELIVERABLES:

o    A letter documenting the Permits or stating that no Permits are required

o    Updated list of Permits as they change during the Term of the Agreement

                                    10 of 17

                                    Exhibit A

<PAGE>

o    Updated schedule for acquiring Permits as it changes during the Term of the
     Agreement

o    A copy of each approved Permit

TASK 1.9 ELECTRONIC FILE FORMAT

The goal of this task is to unify the formats of electronic data and documents
provided to the Commission as contract deliverables. Another goal is to
establish the computer platforms, operating systems and software that
will be required to review and approve all software deliverables.

 THE CONTRACTOR SHALL:

 o   Deliver documents to the Commission Contract Manager in the following
     formats:

     o    Data sets shall be in Microsoft (MS) Access or MS Excel file format.

     o    PC-based text documents shall be in MS Word file format.

     o    Documents intended for public distribution shall be in PDF file
          format, with the native file format provided as well.

     o    Project management documents shall be in MS Project file format.

 o   Request exemptions to the electronic file format in writing at least 90
     days before the deliverable is submitted.

DELIVERABLES:

o    A letter requesting exemption from the Electronic File Format (if
     applicable)

TECHNICAL TASKS

Unless otherwise provided in the individual Task, the Contractor shall prepare
all deliverables in accordance with the requirements in Task 1.5.

TASK 2.0 ASSEMBLE STORAGE SYSTEM

The goal of this task is to assemble all components and subsystems into a
complete, turn-key EES. The system will be based on ZBB zinc-bromine battery
technology. The application size determined by the end-user, PG&E, is 2 MWh of
storage, coupled to a power conversion system "PCS" capable of 2 MW output for
1 hour.

The Contractor will assemble four (4) trailer-mounted battery system modules,
each with 500 kWh energy storage and 500 kW output capability (referred to as a
500kWh/500kW zinc-bromine battery EES). Each module will consist of ten,
individual 50 kWh battery cells (two strings of 5 modules connected electrically
in parallel) enclosed in a standard 20-foot shipping container. The batter
container will be mounted along with the PCS on a 40-foot trailer for shipping
and operation. Electrical connections between individual modules and the PCS
will be completed prior to shipping.

The first 500kWh/500kW zinc-bromine battery EES will be delivered to the PG&E
designated test facility within 12 months of the contract start, for acceptance
testing and pre-engineering prior to field installation. The three remaining
500kWh/500kW zinc-bromine battery EESs will be assembled and delivered along
with the first system to the utility demonstration site within 18

                                    11 of 17

                                    Exhibit A

<PAGE>

months of contract start. At the demonstration site, the four modules will be
connected so as to constitute a 2MWh, 2 MW storage system, programmed to operate
in a peak load shaving mode.

THE CONTRACTOR SHALL:

o    Assemble one fully functional, trailer-mounted 500 kWh/500kW zinc-bromine
     battery EES for use at the site testing at PG&E Designated Test Facility.

o    Prepare CPR Report as defined in Task 1.2.

o    Conduct in CPR, as defined in Task 1.2, after the first trailer-mounted 500
     kWh/500kW zinc-bromine battery EES is assembled.

o    Transport one 500kWh/500kW zinc-bromine battery EES to the PG&E designated
     test facility (DUIT) for evaluation and assessment. Notify the Commission
     Contract Manager when unit has been delivered to test site.

o    Assemble three (3) additional fully functional, trailer-mounted 500
     kWh/500kW zinc-bromine battery EESs for use at the customer demonstration
     site. Notify the Commission Contract Manager and the Contracts Officer when
     assembly is complete.

CONTRACTOR DELIVERABLES:

     o    CPR Report

     o    A letter to the Commission Contract Manager stating that the first
          trailer-mounted 500 kWh/ 500kW zinc-bromine battery storage system has
          been assembled, shipped and received at the PG&E designated test
          facility.

     o    A letter to the Commission Contract Manager with a copy to the
          Contracts Officer stating that the remaining three (3) trailer-mounted
          500 kWh / 500kW zinc-bromine battery storage system have been
          assembled. This letter shall include a complete list of the components
          and serial numbers on each trailer for the 3 completed modules.

COMMISSION CONTRACT MANAGER DELIVERABLES:

     o    CPR agenda

     o    List of Equipment upon completion of the trailer-mounted 500 kWh /
          500kW zinc-bromine battery storage system)

TASK 3.0 INSTALLATION OF 500 kWh/500 kW STORAGE SYSTEM AT THE PG&E DESIGNATED
TEST FACILITY

The first of the four trailer-mounted battery system modules constructed by ZBB
is to be transported to the PG&E designated test facility at PG&E's San Ramon
Site (location of the ongoing DUIT program). The purpose of sending the storage
system to this controlled test location is twofold. First, testing the storage
system at this site meets the requirements of PG&E to test its integration
into PG&E's distribution and communication systems before it is allowed to be
connected to the electric grid. Second, testing at this site will allow PG&E
personnel to be trained in the operation of the storage system before it is
placed in its commercial substation demonstration site.

THE CONTRACTOR SHALL:

o    Deliver and commission a 500 kWh / 500 kW zinc-bromine battery system at
     the PG&E designated test facility, located in San Ramon, California, and
     notify Commission Contract Manager when system is commissioned

o    Prepare a Draft Test Plan outlining the specific tests to be performed at
     the PG&E designated test facility. The test plan shall include, but not be
     limited to:

          o    Description of all test to be performed at the PG&E test facility

                                    12 of 17

                                    Exhibit A

<PAGE>

     o    Expected outcome of each proposed test

     o    Test objectives and technical approach

     o    A test matrix showing the number of test conditions and expected
          response

     o    Verify utility grid interface requirement with PG&E

     o    A description of the data analysis procedures and the interface role
          of the DOE Data Analysis contractors

     o    A description of the quality assurance procedures and plans for
          updating the remaining three 500 kWh/ 500 kW zinc-bromine battery
          systems with the information learned from this testing

     o    A Software Specification Plan for the operation of the 500 kWh / 500
          kW zinc-bromine battery systems

     o    PG&E's review, comments and recommendations

DELIVERABLES:

o    Draft Test Plan for the proposed operation of the 500 kWh / 500 kW
     zinc-bromine battery system at the PG&E designated test facility.

o    Final Test Plan for the proposed operation of the 500 kWh / 500 kW
     zinc-bromine battery system at the PG&E designated test facility.

o    Letter notifying the Commission Contract Manager that the 500 kWh / 500 kW
     zinc-bromine battery system has been commissioned at the PG&E designated
     test facility

TASK 4.0 UTILITY REQUIRED TESTING AND ENGINEERING

The goal of this task is to perform the engineering and analysis work required
to prepare the storage system for operation in accordance with the intended
application: distribution system upgrade deferral. There will be on-site
software development and testing required to ensure the system responds
correctly to conditions in the field, i.e., it operates when peak load
requirements dictate. This development will take place in the controlled PG&E
test facility environment where dispatching, maximum capabilities and other
potential benefits will be tested before going to the commercial demonstration
site. It is likely that such testing will reveal additional benefits (e.g.,
power quality, voltage support, etc.) beyond those already identified once the
operations personnel are involved in this controlled environment testing.

THE CONTRACTOR SHALL:

o    Prepare a Draft Test Report documenting the results from completing all the
     elements of the Test Plan for the operation of the 500 kWh / 500 kW
     zinc-bromine battery system at the PG&E Test Facility. This report shall
     also include PG&E's review, comments and recommendations. This document
     shall be submitted to the Commission Contract Manager in accordance with
     the procedure for Critical Project Reviews.

o    Prepare the CPR report.

o    Participate in the CPR.

o    Modify the Draft Test Report in accordance with comments received during
     the Critical Project Review. Once agreement has been reached on the draft,
     the Contractor shall submit the final deliverable to the Commission
     Contract Manager. The Commission Contract Manager shall provide written
     approval of the final deliverable within 10 working days of receipt. Key
     elements from this document shall be included in the Final Report for this
     project.

DELIVERABLES:

                                    13 of 17

                                    Exhibit A

<PAGE>

o    Draft Test Report.

o    CPR Report

o    Final Test Report

TASK 5.0 PRE-COMMISSIONING DATA COLLECTION AT UTILITY DEMONSTRATION SITE

The goal of this task is to gather data at the user site. This will document the
problem to be solved by the installation of energy storage and provide input to
the benefits analysis. The data will also help guide the design and optimization
of interfaces and procedures for operation of the EES.

THE CONTRACTOR SHALL:

o    Gather data on electric loads, utility system conditions, etc., as per the
     DAS Implementation Plan, at the proposed demonstration site where the
     storage unit is to be installed in the future. Prepare the Monthly Data
     Collection Reports.

o    Prepare a Draft Demonstration Site Installation Plan shall include but not
     be limited to the following:

     o    The necessary requirements to complete utility and site level
          interface and interconnect requirements

     o    Preparation of all necessary electrical, mechanical and civil
          engineering drawings, schedule for obtaining any required site level
          permits or approvals

     o    Identification of all appropriate site level commissioning activities.

o    Prepare CPR Report as defined in Task 1.2

o    Conduct a CPR as defined in Task 1.2.

CONTRACTOR DELIVERABLES:

o    Monthly Data Collection Reports.

o    Draft Demonstration Site Installation Plan.

o    Final Demonstration Site Installation Plan

o    CPR Report

COMMISSION CONTRACT MANAGER DELIVERABLES:

o    CPR agenda

TASK 6.0 INSTALLATION OF STORAGE SYSTEM AT UTILITY DEMONSTRATION SITE

The goal of this task is to install the fully functional EES at the host utility
demonstration site (the exact location to be determined by PG&E), to
demonstrate acceptable performance in the field, and to commission the facility
so that the demonstration period may commence.

The storage system installed at the PG&E Test Facility will be moved to the
demonstration location and interconnected according to the Demonstration Site
Installation Plan. Simultaneously, the three other storage modules being built
by ZBB will be delivered to the demonstration site. The four systems will be
installed and configured to constitute a 2 MWh, 1 MW storage system, and will
be commissioned according to the Demonstration Site Installation Plan.

                                    14 of 17

                                    Exhibit A

<PAGE>

THE CONTRACTOR SHALL:

o    Prepare and ship turn-key system of four trailer-mounted 500 kWh / 500 kW
     zinc-bromine battery storage systems to user site and notify Commission
     Contract Manager when all four units have arrived at the demonstration
     site.

o    Commission four trailer-mounted 500 kWh / 500 kW zinc-bromine battery
     storage systems at the demonstration site as defined in the Demonstration
     Site Installation Plan and notify Commission Contract Manager when all four
     units have been commissioned and are operating.

o    Collect site level data as defined in the DAS Implementation Plan.

DELIVERABLES:

o    A letter stating that all four trailer-mounted 500 kWh / 500 kW
     zinc-bromine battery storage systems have been shipped and received at the
     PG&E designated demonstration site location.

o    A letter stating the four trailer-mounted 500 KWh / 500 kW zinc-bromine
     battery storage systems have been commissioned and are operating.

o    DAS Reports as defined in the DAS Implementation Plan.

TASK 7.0 DATA ACQUISITION SYSTEM AND BENEFITS DATA REPORTING REQUIREMENTS

The goal of this task is to provide system level operation and performance
information, including economic performance information, about this project, to
the public. This goal will be achieved through the use of a Data Acquisition
System (DAS) and additional reporting requirements to the standard PIER
reporting requirements contained in Administrative Tasks 1.4 and 1.6 and
Agreement Attachments A-l and A-2. This system will be maintained by and at the
Contractor's site.

THE CONTRACTOR SHALL:

o    Prepare a DAS Implementation Plan. This plan shall include, but not be
     limited to, the following:

     o    A method for providing secure communications capabilities for remote
          access and uploading of daily operational data to a central data
          collection site assigned responsibility for Data Management activities
          under a separate contract issued by DOE.

     o    Characteristics of the selected DAS, which must at a minimum record
          the following:

          o    Events that result in a change of system operational mode,

          o    Demonstration system response times to changes in operating
               conditions,

          o    Energy and power into and out of the EES demonstration system,
               for each AC phase in the system,

          o    System load,

          o    System duty cycle count,

          o    System Failures/Problems,

          o    Electrical performance of the Power Conditioning System.

          o    The DAS shall accommodate the secure storage of at least 365 days
               of historical data on site, and all data Shall be time stamped
               with resolution to 1 millisecond.

     o    Any flowcharts and operating manuals for the DAS.

     o    Method for obtaining historical utility system performance data.
          Utility system performance data for a minimum of 365 days prior to the
          installation of the demonstration system is required in order to
          provide credible baseline data on electrical system performance before
          and after the installation of the demonstration system. This data
          shall include, but not be limited to, load profiles, peaks, overloads,
          faults, power

                                    15 of 17

                                    Exhibit A

<PAGE>

          quality events, and any other information required to fully
          characterize the operation of the electrical utility at the
          demonstration site prior to installation of the demonstration system.

o    Procure a DAS system according to the approved DAS Implementation Plan.

o    Prepare a DAS System Test Plan. This test plan shall include, but not be
     limited to:

     o    a description of the process to be tested

     o    the rationale for why the tests are required

     o    predicted performance based on calculations or other analyses

     o    test objectives and technical approach

     o    a test matrix showing the number of test conditions and replicated
          runs

     o    a description of the facilities, equipment, instrumentation required
          to conduct the tests

     o    a description of test procedures, including parameters to be
          controlled and how they will be controlled; parameters to be measured
          and instrumentation to measure them; calibration procedures to be
          used; recommended calibration interval; and maintenance of the test
          log

     o    a description of the data analysis procedures

     o    a description of quality assurance procedures

     o    contingency measures to be considered if the test objectives are not
          met

o    Build and test the DAS system according to the approved DAS System Test
     Plan.

o    Prepare a DAS System Test Report. The Test Report shall include, but not be
     limited to, the following:

     o    test results

     o    analysis

     o    conclusions

     o    recommendations

     o    photographs as appropriate.

o    Collect historical utility system performance data according to the
     approved DAS Implementation Plan for a minimum of 365 days prior to system
     commissioning.

o    Run and manage the DAS.

o    Provide a secure access to data collected by the DAS that allows daily
     uploading of operational data to a central site. Protocols for supporting
     this remote data upload requirement shall be coordinated with the DOE's
     Data Management Contractor prior to the implementation of the system to
     insure standard communications protocol is used to fulfill this
     requirement. All data shall be time stamped with resolution to 1
     millisecond.

o    Prepare DAS operational summary information each month, and include this
     information in the Monthly Progress Reports described in Administrative
     Task 1.4. This information shall include, but not be limited to, the
     following:

     o    A written summary of the economic benefit derived for the month

     o    A written summary of all operations and maintenance activities for the
          month

     o    System dispatch information and use patterns associated with the
          project

     o    Energy consumption breakdown of parasitic loads introduced by the
          demonstration system

     o    System performance under typical utility fault conditions (e.g.
          lightning strikes)

     o    System performance under user fault conditions (e.g. fault in customer
          plant)

     o    System reliability, failure rates, and performance summary

     o    Utility system operational data after installation of the
          demonstration system

     o    A comparison, after the 2-month anniversary of system commissioning,
          of DAS data to the historical utility system performance data
          collected in this Task.

                                    16 of 17

                                    Exhibit A

<PAGE>

o    Prepare benefits data information, and include this information on a
     quarterly basis in the Monthly Progress Reports described in Administrative
     Task 1.4. This information should be sufficient to demonstrate the
     economic benefits defined in the original proposal.

o    Prepare Annual DAS Reports. These reports shall consolidate all the monthly
     DAS operational summary information and the quarterly benefits data
     information and summarize the operation of the system for the preceding
     year.

DELIVERABLES:

     o    Draft DAS Implementation Plan

     o    Final DAS Implementation Plan

     o    Draft DAS System Test Plan

     o    Final DAS System Test Plan

     o    Draft DAS System Test Report

     o    Final DAS System Test Report

     o    Draft Annual DAS Reports

     o    Final Annual DAS Reports

TASK 8.0 TECHNOLOGY TRANSFER ACTIVITIES

The goal of this task is to develop a Technology Transfer Plan to address has
the knowledge gained from this effort will be shared with industry, California
ratepayers, potential future customers and other interested parties

THE CONTRACTOR SHALL:

o    Prepare a Draft Technology Transfer Plan. This plan will address as a
     minimum:

     o    Overview of the project and project status

     o    Expected benefits when the project was proposed.

     o    Observed benefits and values demonstrated during the project

     o    Future market opportunities for this demonstrated technology

     o    List of proposed technical presentations, project orientations,
          project tours and other activities where information will be
          transferred to appropriate individuals, organizations and agencies.

     o    Conduct technology transfer activities in accordance with the
          Technology Transfer Plan.

DELIVERABLES:

     o    Draft Technology Transfer Plan.

     o    Final Technology Transfer Plan.

     o    Technology transfer presentations and activities as defined in the
          Technology Transfer Plan

                                    17 of 17

                                    Exhibit A

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00111-of-00352.parquet"}]]