Document:

IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT

                               CEBA LOAN AGREEMENT

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

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

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

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

                                    ARTICLE I
                                   DEFINITIONS

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

         1.1 AGREEMENT  EXPIRATION DATE.  "Agreement  Expiration Date" means the
date the Agreement ceases to be in force and effect.  The Agreement expires upon
the  occurrence  of one of the  following:  a) the  Loan  is  repaid  in full or
required part, including accrued interest, court costs and any penalties; b) the
Agreement is terminated by the Department due to any default under Article X; c)
no  disbursement  of CEBA  funds has  occurred  within the  twenty  four  months
immediately  following the Award Date;  or d) if the  Agreement  includes only a
Forgivable  Loan,  at the end of the  three  (3)  year  contract  period  if the
Business or Community has demonstrated  successful completion of the project Job
Attainment and Wage Obligation.

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

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

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

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

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

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

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

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

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

         b.   Attachment B1, Promissory Note of the Business.

         c.   Attachment B2, Promissory Note of the Community.

         d.   Attachment C, CEBA Application for Assistance.

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

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

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

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

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

                                   ARTICLE II
                                     FUNDING

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

                                      -2-
<PAGE>

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

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

         2.4  DISBURSEMENT  OF LESS THAN THE TOTAL  AWARD  AMOUNT.  If the total
award amount has not been disbursed  within one hundred twenty (120) days of the
Project  Completion  Date, then the Department  shall be under no obligation for
further disbursement.  And, the Community and Business shall be obligated to the
extent of Loan proceeds received.

                                   ARTICLE III
                            TERMS OF FORGIVABLE LOAN

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

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

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

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

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

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

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

                                   ARTICLE IV
                       CONDITIONS TO DISBURSEMENT OF FUNDS

         Unless and until the  following  conditions  have been  satisfied,  the
Department shall be under no obligation to disburse to the Community or Business
any amounts under the Loan Agreement:
                                      -3-
<PAGE>

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

         a. Certificate of Good Standing of the corporation.

         b. Certified copy of the corporation's Articles of Incorporation.

         c. Certificate of Incumbency  naming the current officers and directors
         of the corporation.

         d. Resolution of the Board of Directors  authorizing the  corporation's
         execution  and  delivery  of  this  Loan  Agreement  and the  Note  and
         borrowing  hereunder,  and such  other  papers  as the  Department  may
         reasonably request; and specifying the officer(s) authorized to execute
         the Loan Agreement and bind the corporation.

         e. Pursuant to Article 6.1(i) of this Contract,  a signed Authorization
         for Release of Confidential  State Tax Information form, to permit IDED
         to receive the Business's state tax information  directly from the Iowa
         Department of Revenue for purposes of annually updating the Iowa Public
         Return on Investment Analysis.

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

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

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

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

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

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

         4.5 RECORDING.  The Business and Community shall have properly recorded
in the appropriate office of the Recorder of Deeds and/or the Secretary of State
any  mortgage,  security  agreement,  financing  statement  or similar  document
required by the Department under the Loan Agreement,  with all recording charges
paid.

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

                                      -4-
<PAGE>

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

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

                                    ARTICLE V
                   REPRESENTATIONS AND WARRANTIES OF BUSINESS

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

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

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

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

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

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

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

                                      -5-
<PAGE>
                                   ARTICLE VI
                              COVENANTS OF BUSINESS

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

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

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

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

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

                  (e) ACCESS TO  RECORDS/INSPECTIONS.  The Business shall,  upon
reasonable  notice and at any time (during normal  business  hours),  permit the
Community and its representatives and the Department, its representatives or the
State  Auditor to  examine,  audit  and/or  copy (i) any plans and work  details
pertaining to the Project, (ii) all of the Business' books, records and accounts
relating to the Project,  and (iii) all other documentation or materials related
to this Loan;  the Business  shall  provide  proper  facilities  for making such
examination and/or inspection.

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

                  (g) DOCUMENTATION. The Business shall deliver to the Community
and/or IDED, upon request, (i) copies of all contracts or agreements relating to
the Project,  (ii) invoices,  receipts,  statements or vouchers  relating to the
Project,  (iii) a list of all unpaid bills for labor and materials in connection
with the Project, (iv) budgets and revisions showing estimated Project costs and
funds  required at any given time to complete and pay for the  Project,  and (v)
current and year-to-date  operating  statements,  including but not limited to a
Profit and Loss and Balance Sheet,  not older than sixty (60) days from the date
of request.
                  (h) NOTICE OF PROCEEDINGS.  The Business shall promptly notify
the Community and IDED of the  initiation  of any claims,  lawsuits,  bankruptcy
proceedings  or other  proceedings  brought  against  the  Business  which would
adversely impact the Project,  including, but not limited to, any proceedings to
assert or enforce liens against collateral securing the Loan.

                  (i) REPORTS.  The Business shall execute an Authorization  for
Release of Confidential  State Tax  Information  form, to permit IDED to receive
the  Business's  state tax  information  directly  from the Iowa  Department  of
Revenue for purposes of annually  updating the Iowa Public  Return on Investment
Analysis  for  this  Project.  The  Business  shall  submit  to IDED  any  other
information  requested  by IDED to update the Iowa Public  Return on  Investment
Analysis for this  Project.  The  Business  shall  prepare,  sign and submit the
following reports to the Community throughout the Project period:
                                      -6-
<PAGE>

<TABLE>
<CAPTION>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                   ARTICLE VII
                       JOB ATTAINMENT AND WAGE OBLIGATION

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

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

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

                                  ARTICLE VIII
                           COVENANTS OF THE COMMUNITY

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

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

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

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

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

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

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

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

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

                                      -9-
<PAGE>

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

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

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

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

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

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

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

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

                                   ARTICLE IX
                                    SECURITY

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

                  Blanket UCC-1.

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

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

                                      -10-
<PAGE>

         9.4  COMMUNITY LIABILITY.

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

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

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

                                    ARTICLE X
                              DEFAULT AND REMEDIES

         10.1  EVENTS OF  DEFAULT.  The  following  shall  constitute  Events of
Default under this Loan Agreement:

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

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

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

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

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

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

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

                                      -11-
<PAGE>

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

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

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

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

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

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

                   (a)  exercise any remedy provided by law;

                   (b)  declare the unpaid  principal plus interest then accrued
                        on  the  Note  due  and  payable   immediately   without
                        presentment,  demand, protest, notice of protest, notice
                        of intention to  accelerate or other notice of any kind,
                        all of which are expressly waived by the Business.

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

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

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

                                      -12-
<PAGE>

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

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

                                   ARTICLE XI
                             DISBURSEMENT PROCEDURES

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

                                   ARTICLE XII
                          GENERAL TERMS AND PROVISIONS

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

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

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

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

                                      -13-
<PAGE>

determined by the Department to be in compliance with this Loan  Agreement.  The
Community and the Business shall return to the Department all unencumbered  Loan
proceeds  within  one (1) week of receipt  of Notice of  Termination.  Any costs
previously  paid by the  Department  which  are  subsequently  determined  to be
unallowable  through audit,  monitoring or closeout procedures shall be returned
to the Department within thirty (30) days of the disallowance.

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

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

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

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

         12.9 INVESTMENT OF LOAN FUNDS.  Temporarily  idle Loan proceeds held by
the Community or Business may be invested  provided such investments shall be in
accordance with State law, shall be controlled by the Community or Business, and
any interest  accrued  shall be credited to and expended on the Project prior to
the expenditure of other Loan proceeds.  All Loan proceeds remaining,  including
accrued interest,  after all allowable Project costs have been paid or obligated
shall be returned to the  Department  within  thirty (30) days after the Project
Completion Date.

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

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

         12.12 ENFORCEMENT EXPENSES.  The Business shall pay upon demand any and
all  reasonable  fees and  expenses  of the  Community  and/or  the  Department,
including  the fees and  expenses of their  attorneys,  experts  and agents,  in
connection  with  the  exercise  or  enforcement  of any of  the  rights  of the
Department and/or Community under the Loan Agreement.

                                      -14-
<PAGE>

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

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

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

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

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

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

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

IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT:

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

BUSINESS:
Hydrogen Engine Center

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

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

                                      -15-
<PAGE>

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

                     IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT
                                  CEBA PROGRAM

                                 PROMISSORY NOTE

                             Loan Number: 05-CEBA-41

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

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

         FOR VALUE  RECEIVED,  the  undersigned  (hereafter  called the "Maker")
promises  to pay to the  order  of the  City of  Algona  (hereafter  called  the
"Payee"),  at its office at 112 W. Call St., Algona,  Iowa  50511-0452,  or upon
notice to the Maker,  at such other place as may be designated from time to time
by the holder, the principal sum of $250,000, to be paid as follows:

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

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

         2. Loan Agreement;  Acceleration  Upon Default.  This Note is issued by
Maker to evidence an obligation  to repay a loan  according to the terms of Loan
Agreement  #05-CEBA-41  of June 28, 2005 between the Payee and Maker and, at the
election of the holder without notice to the Maker, shall become immediately due
and payable in the event any payment is not made when due or upon the occurrence
of any event of default under the terms of the Loan Agreement.

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

         4. Security. Payment of this Note is secured by a Blanket UCC-1 and the
holder is entitled to the benefits of the security therein described.

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

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

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

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

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

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

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

ADDRESS:                             Hydrogen Engine Center
602 E. Fair St.
Algona, Iowa 50511
                                     BY:
                                     -------------------------------------------
                                         (Signature)

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

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

<PAGE>

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

                     IOWA DEPARTMENT OF ECONOMIC DEVELOPMENT
                                  CEBA PROGRAM

                                 PROMISSORY NOTE

                             Loan Number 05-CEBA-41

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

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

         FOR VALUE  RECEIVED,  the  undersigned  (hereafter  called the "Maker")
promises  to pay to the  order  of the  State of Iowa,  Department  of  Economic
Development  (hereafter  called  the  "Payee"),  at its office at 200 East Grand
Avenue, Des Moines, Iowa 50309, or upon notice to the Maker, at such other place
as may be  designated  from time to time by the  holder,  the  principal  sum of
$250,000, to be paid as follows:

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

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

         2. Loan Agreement;  Acceleration  Upon Default.  This Note is issued by
Maker to evidence an obligation  to repay a loan  according to the terms of Loan
Agreement  #05-CEBA-41  of June 28, 2005 between the Payee and Maker and, at the
election of the holder without notice to the Maker, shall become immediately due
and payable in the event any payment is not made when due or upon the occurrence
of any event of default under the terms of the Loan Agreement.

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

<PAGE>

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

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

         5. Security. Payment of this Note is secured by a Blanket UCC-1 and the
holder is entitled to the benefits of the security therein described.

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

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

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

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

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

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

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

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

                                  ATTEST:
                                         ---------------------------------------
                                                       (Signature, Title)Tri-Square Construction L.L.C.

This Agreement is made this 1st day of September, 2005 by and between

OWNER,          Hydrogen Engine Center (HEC) by President Ted Hollinger  and
             -------------------------------------------------------------------
COTRACTOR,      Tri-Square Construction LLC
             -------------------------------------------------------------------
PROJECT:        Hydrogen Engine Center
            --------------------------------------------------------------------
ARCHITECT/ENGINEER:    Architects Collaborative
                       -------------------------------------

1 THE WORK Contractor shall furnish  construction  administration and management
services and use Contractor's best efforts to perform the Work in an expeditious
manner  consistent  with the Contract  Documents.  Contractor  shall provide all
labor ,  materials,  equipment  and services  necessary to complete the Work, as
described  in Exhibit A, all of which  shall be provided in full accord with and
reasonably  inferable from the Contract  Documents as being necessary to produce
the indicated results.

2 CONTRACT PRICE As full compensation for performance by Contractor of the Work,
Owner  shall  pay  Contractor  the  lump  sum  price  of for  Phase  I work  for
$1,200,000.00 which will be approved upon signing this contract and Phase II for
$680,466.00  which must be  approved  in writing  before work can begin or money
released. Total contract is for One Million, Eight Hundred Eighty Thousand, Four
Hundred, and Sixty Six and 00/100 dollars ($1,880,466.00). The lump sum price is
hereinafter  referred  to as the  Contract  Price,  which  shall be  subject  to
increase or decrease as provided in this Agreement. A down payment of $60,000.00
is  due  upon  the  signing  of  this   contract  for   material   ordering  and
contingencies.  Price on Phase I and  Phase II  could  change  if start  date is
extended past 6 months.

3  INSURANCE  Prior to the  start of the Work,  Contractor  shall  purchase  and
maintain  insurance  coverage and limits of liability as set forth in Exhibit E,
that will protect  Contractor  from claims arising out of Contractor  operations
under this  Agreement,  whether  the  operations  are by  Contractor,  or any of
Contractor's  consultants  or  subcontractors  or anyone  directly or indirectly
employed by any of them, or by anyone for whose acts any of them may be liable.

4 BONDS  Performance  and  Payment  Bonds  ______  are__X__are  not  required of
Contractor.  Such bonds shall be issued by a surety licensed in the state of the
location of the Project and must be  acceptable  to Owner.  The penal sum of the
Payment Bond shall equal the penal sum of the Performance Bond.

5 EXHIBITS The following Exhibits are incorporated by reference and made part of
this Agreement:

EXHIBIT A:  The Work,         Attached four (4) pages.
                              --------------------------------------------------
EXHIBIT B:  Contract  Documents  (Attach a complete  listing by title,  date and
number of pages.)
EXHIBIT C: Progress Schedule, Attached one (1) pages.
                              --------------------------------------------------
EXHIBIT D:  Alternates and Unit Prices,  include dates when  alternates and unit
prices no longer apply,        N/A          pages.
                         ---------------
EXHIBIT E: Insurance Provisions,      Attached one (1) pages.
                                  ----------------------------------------------
EXHIBIT   : Other,
Phase I and Phase II cost breakdowns (5) pages.
--------------------------------------------------------------------------------
<PAGE>

6 CONTRACTOR'S  RESPONSIBILITIES Contractor shall be responsible for supervision
and  coordination  of the  Work,  including  the  construction  means,  methods,
techniques,  sequences and procedures  utilized,  unless the Contract  Documents
give other specific instructions.

6.1  Except  for  permits  and fees  that are the  responsibility  of the  Owner
pursuant to this  Agreement.  Contractor  shall obtain and pay for all necessary
permits, licenses, renewals pertaining to the Work.

6.2 Contractor  shall pay all applicable taxes enacted when bids are received or
negotiations concluded for the Work provided by Contractor.

6.3 In the event that Owner elects to perform  work at the Worksite  directly or
by  others  retained  by  Owner,  Contractor  and  Owner  shall  coordinate  the
activities  of all  forces  at the  Worksite  and  shall  agree  upon  fair  and
reasonable schedules and operational  procedures for Worksite activities.  Owner
shall require each separate  contractor to cooperate with  Contractor and assist
with the coordination of activities and the review of construction schedules and
operations. The Contract Price and Contract Time shall be equitably adjusted, as
mutually agreed by the parties,  for changes made necessary by the  coordination
of  construction  activities,  and the  construction  schedule  shall be revised
accordingly.

6.4 In order to facilitate  its  responsibilities  for completion of the Work in
accordance with and as reasonably  inferable from the Contract Documents,  prior
to commencing  the Work,  Contractor  shall examine and compare the drawings and
specifications  with  information  furnished by Owner pursuant to Paragraph 7.2;
relevant field  measurements made by Contractor;  and any visible  conditions at
the Worksite affecting the Work.

6.5 WARRANTY

6.5.1 The work shall be executed in accordance  with the Contact  Documents in a
workmanlike manner. Contractor warrants the all materials and equipment shall be
new  unless  otherwise  specified,  of good  quality,  in  conformance  with the
Contract  Documents,   and  free  from  defective   workmanship  and  materials.
Contractor further warrants that the Work will be free from material defects not
intrinsic  in the  design  or  materials  required  in the  Contract  Documents.
Contractor's warranty does not include remedies for defects or damages caused by
normal  wear and tear  during  normal  usage,  use for a  purpose  for which the
Project was not intended,  improper or insufficient  maintenance,  modifications
performed by Owner or others retained by Owner, or abuse.

6.5.2 If, prior to the Date of Substantial  Completion and within one year after
the date of Substantial Completion of the Work, any portion of the Work is found
to be not in conformance with the Contract Documents  ("Defective Work"),  Owner
shall  promptly  notify  Contractor in writing.  Unless Owner  provides  written
acceptance of the condition,  Contractor  shall  promptly  correct the Defective
Work at its own  cost and time and  bear  the  expense  of  additional  services
required for correction of any Defective Work for which it is responsible.

6.6 SAFETY Contractor shall have overall  responsibility  for safety precautions
and  programs  in  the  performance  of  the  Work,   except  that  Contractor's
subcontractors  shall also be responsible  for the safety of persons or property
in the  performance  of their work,  and for  compliance  with the provisions of
applicable laws and regulations.  Contractor shall seek to avoid injury, loss or
damage  to  persons  or  property  by taking  reasonable  steps to  protect  its
employees and other persons at the Worksite;  materials and equipment  stored at
on-site or off-site  locations for use in the Work; and property  located at the
site and  adjacent  to Work  areas,  whether or not the  property is part of the
Work.

                                      -2-
<PAGE>

6.7  HAZARDOUS  MATERIALS A Hazardous  Material is any  substance  or  materials
identified now or in the future as hazardous  under any federal,  state or local
law or regulation,  or any other  substance or materials which may be considered
hazardous or otherwise subject to statutory or regulatory  requirement governing
handling,  disposal  and/or  clean-up.  Contractor  shall  not be  obligated  to
commence  or  continue  work  until any  Hazardous  Material  discovered  at the
Worksite has been removed,  or rendered or determined to be harmless by Owner as
certified by an independent  testing  laboratory and approved by the appropriate
government  agency.  If Contractor incurs additional costs and/or is delayed due
to the  presence or  remediation  of  Hazardous  Material,  Contractor  shall be
entitled to an equitable  adjustment  in the Contract  Price and/or the Contract
Time.

6.8 MATERIAL  BROUGHT TO THE WORKSITE  Contractor  shall be responsible  for the
proper delivery,  handling,  application,  storage,  removal and disposal of all
materials  and  substances  brought to the Worksite by  Contractor in accordance
with the Contract Documents and used or consumed in the performance of the Work.

6.9  SUBMITTALS  Contractor  shall  submit to Owner  and,  if  directed,  to its
Architect/Engineer for review and approval all shop drawings,  samples,  product
data and similar submittals required by the Contract Documents. Contractor shall
be  responsible to Owner for the accuracy and conformity f its submittals to the
Contract Documents. Contractor shall prepare and deliver its submittals to Owner
in a manner  consistent  with  the  Schedule  of the  Work and in such  time and
sequence so as not to delay the performance of the Work or the work of Owner and
others  retained by Owner.  When  Contractor  delivers its  submittals to Owner,
Contractor shall identify in writing for each submittal all changes,  deviations
or substitutions from the requirements of the Contract  Documents.  The approval
of any  Contractor  submittal  shall  not be  deemed  to  authorize  deviations,
substitutions  or changes in the  requirements of the Contract  Documents unless
express written  approval is obtained from Owner  specifically  authorizing such
deviation,  Substitution  or change.  Further,  Owner shall not make any change,
deviation or substitution  through the submittal  process  without  specifically
identifying  and  authorizing  such  deviation  to  Contractor.  Owner  shall be
responsible for review and approval of submittals with reasonable  promptness to
avoid causing  delay.  Contractor  shall perform all Work strictly in accordance
with  approved  submittals.  Owner's  approval  does not relieve  Contract  from
responsibility for Defective Work resulting from errors or omissions of any kind
on the approved Shop Drawings.

6.10 SITE  CONDITIONS If the  conditions  at the Worksite are (a)  subsurface or
other physical  conditions which are materials different from those indicated in
the Contract Documents,  or (b) unusual or unknown physical conditions which are
materially  different  from  conditions  ordinarily  encountered  and  generally
recognized  as  inherent  in  Work  provided  for  in  the  Contract  Documents,
Contractor shall stop Work and give immediate written notice of the condition to
Owner and the  Architect/Engineer.  Contractor  shall not be required to perform
any work relating to the unknown  condition without the written mutual agreement
of the parties.  Any change in the  Contract  Price  and/or  Contract  Time as a
result of the unknown condition shall be made by Change Order.

6.11 CUTTING, FITTING AND PATCHING Contractor shall perform cutting, fitting and
patching  necessary to  coordinate  the various parts of the Work and to prepare
its Work for the work of Owner or others retained by Owner.

6.12 CLEANING UP Contractor shall regularly remove debris and waste materials at
the Worksite  resulting from the Work. Prior to  discontinuing  Work in an area,
Contractor  shall  clean the area and remove  all  rubbish  and is  construction
equipment,  tools,  machinery  waste and  surplus  materials.  Contractor  shall
minimize and confine dust and debris resulting from construction activities.  At
the  completion  of the Work,  Contractor  shall  remove from the  Worksite  all
construction equipment, tools, surplus materials, waste materials and debris.

                                      -3-
<PAGE>

7 OWNER'S  RESPONSIBILITIES  Any information or services to be provided by Owner
shall provided in a timely manner so as not to delay the Work.

7.1 FINANCIAL  INFORMATION  Prior to  commencement of the Work and thereafter at
the written request of Contractor,  Owner shall provide Contractor with evidence
of Project financing.  Evidence of such financing shall be a condition precedent
to Contractor's  commencing or continuing the Work. Contractor shall be notified
prior to any material change in Project financing.

7.2  WORKSITE  INFORMATION  Owner  shall  provide  at Owner's  expense  and with
reasonable promptness the following,  which Contractor shall be entitled to rely
upon for its accuracy and completeness:
         .1  information  describing the physical  characteristics  of the site,
including  surveys,  site  evaluations,  legal  descriptions,  data or  drawings
depicting existing conditions, subsurface and environmental studies, reports and
investigations;
         .2 tests,  inspection  and other  reports  dealing  with  environmental
maters, hazardous material and other existing conditions,  including structural,
mechanical and chemical tests, required by the Contract Documents or by law; and
         .3 any other information or services requested in writing by Contractor
that are  relevant to  Contractor's  performance  of the Work and under  Owner's
control.

The  information  required by this  Paragraph  shall be  provided in  reasonable
detail.   Legal  descriptions  shall  include  easements,   title  restrictions,
boundaries,  and  zoning  restrictions.   Worksite  descriptions  shall  include
existing   buildings  and  other  construction  and  all  other  pertinent  site
conditions.  Adjacent property  descriptions shall include structures,  streets,
sidewalks,  allies,  and other features  relevant to the Work.  Utility  details
shall include available services, lines at the Worksite and adjacent thereto and
connection points. The information shall include public and private information,
subsurface information,  grades, contours, and elevations,  drainage data, exact
locations  and  dimensions,  and  benchmarks  that can be used by  Contractor in
laying out the Work.

7.3 BUILDING PERMIT,  FEES AND APPROVALS Except for those required of Contractor
pursuant to this  Agreement,  Owner shall secure and pay for all other  permits,
approvals,  easements,  assessments  and  fees  required  for  the  development,
construction,  use or occupancy of permanent structures or for permanent changes
existing facilities, including the building permit.

8  SUBCONTRACTS  Work not performed by  Contractor  with its own forces shall be
performed by subcontractors.  Contractor agrees to bind every  subcontractor and
materials   supplier   (and  require   every   subcontractor   to  so  bind  its
subcontractors  and material  suppliers) to all the provisions of this Agreement
and  Contractor  Documents as they apply to the  subcontractor's  and  materials
supplier's portions of the Work.

9 CONTRACT TIME September 1, 2005

9.1 DATE OF COMMENCEMENT  The Date of Commencement is the date of this Agreement
as first  written  on page one of this  Agreement,  unless  otherwise  set forth
below: (Insert here any special provisions concerning notices to proceed and the
Data of Commencement.)

9.2 TIME Substantial Completion of the Work for Phase I shall be achieved in Two
Hundred,  Ninety Seven (297) days from the date of  commencement.  Phase II work
scheduled  will be agreed on when approval to start is given.  Unless  otherwise
specified  in the  Certificate  of  Substantial  Completion,  the Work  shall be
finally  complete  within  __Thirty__  (30) days  after the date of  Substantial
Completion,  subject to adjustments  as provided for in the Contract  Documents.
Time limits stated above are of the essence of the Agreement.

                                      -4-
<PAGE>

10 SCHEDULE OF THE WORK Before  submitting  the first  application  for payment,
Contractor shall submit,  for review by the  Architect/Engineer  and approval by
Owner,  a Schedule  of the Work that  shall  show the dates on which  Contractor
plans to begin and to complete  various parts of Work,  including dates on which
information and approvals are required from Owner.

11 DELAYS AND EXTENSIONS OF TIME

11.1 If Contractor is delayed at any time in the commencement or progress of the
Work by any cause beyond the control of Contractor, Contractor shall be entitled
to an equitable  extension  of the Contract  Time.  In addition,  if  Contractor
incurs  addition,  if  Contractor  incurs  additional  costs as a result of such
delay.  Contractor shall be entitled to an equitable  adjustment in the Contract
Price, subject to the mutual waiver of consequential damages herein. Examples of
causes  beyond the control of  Contractor  include,  but are not limited to, the
following:  acts or omissions of Owner or others  retained by Owner;  Changes in
the Work or the  sequencing  of the Work  ordered  by  Owner,  or  arising  from
decisions of Owner;  changes in the Work or the  performance of the Work;  labor
disputes not  involving  Contractor;  fire;  encountering  Hazardous  Materials;
adverse  weather  conditions  not reasonably  anticipated;  concealed or unknown
conditions; delay authorized by Owner pending dispute resolution.

11.2 To the  extent a delay in the  progress  of the Work is caused  by  adverse
weather  conditions not reasonably  anticipated,  fire,  unusual  transportation
delays,  general  labor  disputes  impacting  the Project  but not  specifically
related to the Worksite,  governmental  agencies,  or  unavoidable  accidents or
circumstances, Contractor shall only be entitled to its actual costs without fee
and an extension of the Date of Substantial Completion and/or Final Completion.

11.3 In the event delays to the Work are encountered for any reason,  Contractor
shall provide  prompt  written notice to Owner of the cause of such delays after
Contractor first  recognizes  first  recognizes the delay.  Owner and Contractor
agree to undertake reasonable steps to mitigate the effect of such delays.

11.4 NOTICE OF DELAY  CLAIMS If  contractor  request an  equitable  extension of
Contact time and/or an  equitable  adjustment  in Contract  price as a result of
delay,  Contactor  shall give Owner written  notice of the claim.  If contractor
causes delay in the  completion of the Work,  Owner shall be entitled to recover
its additional cost,  subject to the mutual waiver of the consequential  damages
herein.

12 ALLOWANCES All allowances stated in the Contract  Documents shall be included
in the Contact  Price.  While  Owner may direct the  amounts of, and  particular
material   suppliers  of  subcontractors   for,  specific  allowance  items,  if
Contractor reasonably objects to a material supplier or subcontractor,  it shall
not be required to contract with them.  Owner shall select  allowance items in a
timely manner so as not to delay the Work. Allowances shall include the costs of
materials  and  equipment  delivered  to  the  Worksite  less  applicable  trade
discounts and including requisite taxes, unloading and handling at the Worksite,
and labor and installation,  unless specifically stated otherwise.  Contractor's
overhead and profit for the allowances  shall be included in the Contract Price,
but not in the allowances.  The Contract Price shall be adjusted by Change Order
to  reflect  the  actual  costs  when  they are  greater  than or less  than the
allowances.

13 CHANGES

13.1  Contractor  may request  and/or Owner may order changes in the Work or the
timing or sequencing of  performance of the Work that impacts the Contract Price
or the Contract Time. All such changes in the Work that affect  Contract Time or
Contract Price shall be formalized in a Change Order.

                                      -5-
<PAGE>

13.2  Owner  and  Contractor  shall  negotiate  in  good  faith  an  appropriate
adjustment  to the Contract  Price and/or the Contract  Time and shall  conclude
these negotiations as expeditiously as possible.  Acceptance of the Change Order
and any  adjustment  in the  Contract  Price and/or  Contract  Time shall not be
unreasonably withheld.

13.3 COST OR CREDIT DETERMINATION

13.3.1 An increase or decrease in the Contract  Price  and/or the Contract  Time
resulting  from a change in the Work shall be  determined  by one or more of the
following methods:
         .1   unit prices set forth in the Agreement or as subsequently agreed;
         .2   a mutually accepted,  itemized lump sum;
         .3   costs calculated on a  basis agreed upon by Owner and Contractor
              plus a fee (either a lump sum or a fee based on a  percentage  of
              cost) to which they agree; or
         .4   by the method provided below:

13.4 UNIT PRICES If unit prices are  included in the  Contract  Documents or are
subsequently  agreed to by the  parties,  but the  character or quantity of such
unity price  items as  originally  contemplated  is so  different  in a proposed
Change Order that the original  unit prices will cause  substantial  inequity to
Owner or Contractor, such unit prices shall be equitably adjusted.

13.5  PERFORMANCE OF CHANGED WORK  Contractor  shall not be obligated to perform
Changed Work until a Change Order has been executed by Owner and Contractor.

14 PAYMENT

14.1 SCHEDULE OF VALUES Within  twenty-one  (21) days from the date of execution
of this  Agreement.  Contractor  shall  prepare  and  submit  to  Owner,  and if
directed,  its  Architect/Engineer,  a  schedule  of values  apportioned  to the
various  divisions  or  phases of the Work.  Each  line  item  contained  in the
schedule of values shall be assigned  and monetary  price such that the total of
all items shall equal the Contract Price.

14.2 PROGRESS  PAYMENTS  Contractor shall submit to Owner and, if directed,  its
Architect/Engineer  a monthly application for payment no later than the last day
of  the  calendar  month  for  the  preceding  thirty  (30)  days.  Contractor's
applications  for  payment  shall be  itemized  and  supported  by  Contractor's
schedule  of  values  and any  other  substantiating  data as  required  by this
Agreement.  Payment  applications  shall  pay the  amount  otherwise  due on any
payment application, less any amounts as set forth below, no later than ten (10)
days after Contractor has submitted a complete and accurate payment application.
Owner may deduct,  from any  progress  payment,  such amounts as may be retained
pursuant to Paragraph 14.4.

14.3 RETAINAGE From each progress  payment made prior to Substantial  Completion
Owner may retain  _three  (3)__  percent (%) of the amount  otherwise  due after
deduction of any amounts as provided in Paragraph 14.4 of this Agreement.

14.4 ADJUSTMENT OF CONTRACTOR'S PAYMENT APPLICATION Owner may adjust or reject a
payment  application or nullify a previously  approved payment  application,  in
whole or in part,  as may  reasonably be necessary to protect Owner from loss or
damage based upon the  following,  to the extent that  Contractor is responsible
therefore under this Agreement:

         .1   Contractors's  repeated  failure to perform the Work as required b
              the Contract Documents;
         .2   loss or damage  for which  Owner may be liable  arising  out of or
              relating to this Agreement and caused by Contractor to Owner or to
              others retained by Owner;

                                      -6-
<PAGE>
         .3   Contractor's  failure to properly  pay  Subcontractors  for labor,
              materials  or  equipment  furnished  in  connection  with the Work
              following receipt of such payment from Owner.
         .4   Defective Work not corrected in timely fashion;
         .5   reasonable  evidence of delay in performance of the Work such that
              the Work will not be completed within Contract Time, and
         .6   reasonable  evidence  demonstrating that the unpaid balance of the
              Contract  Price is  insufficient  to fund the cost to complete the
              Work.

Owner shall give written  notice to  Contractor at the time of  disapproving  or
nullifying an application for payment of the specific  reasons  therefore.  When
the above reasons for  disapproving or nullifying an application for payment are
removed, payment shall be made for the amounts previously withheld.

14.5  PAYMENT  DELAY If for any reason not the fault of  Contractor,  Contractor
does not receive a progress  payment from Owner  within seven (7) days'  written
notice to Owner,  and  without  prejudice  to and in addition to any other legal
remedies, may stop Work until payment of the full amount owing to Contractor has
been received.  The Contract Price and Contract Time shall be equitably adjusted
by Change Order for reasonable cost and delay resulting from shutdown, delay and
start-up.

14.6  SUBSTANTIAL  COMPLETION  When  Substantial  Completion  of the  Work  or a
designated  portion thereof is achieved,  Contractor shall prepare a Certificate
of  Substantial   Completion  that  shall  establish  the  date  of  Substantial
Completion,  and the  respective  responsibilities  of Owner and  Contractor for
interim items such as security, maintenance,  utilities, insurance and damage to
the  Work,  and  fixing  the  time  for  completion  of all  items  on the  list
accompanying the Certificate. The Certificate of Substantial Completion shall be
submitted by  Contractor  to Owner for written  acceptance  of  responsibilities
assigned in the  Certificate.  Unless  otherwise  provided in the Certificate of
Substantial  Completion,  warranties  required by the Contract  Documents  shall
commence  on the date of  Substantial  Completion  of the  Work or a  designated
portion.

14.6.1 Upon  acceptance by Owner of the  Certificate of Substantial  Completion,
Owner shall pay to Contractor the remaining retainage held by Owner for the Work
described in the  Certificate of Substantial  Completion less a sum equal to two
hundred  percent  (200%)  of the  estimated  cost of  completing  or  correcting
remaining  items on that part of the Work, as agreed to by Owner and  Contractor
as necessary to achieve final  completion.  Uncompleted items shall be completed
by  Contractor  in a mutually  agreed  time frame.  Owner  shall pay  Contractor
monthly the amount retained for unfinished items is complete.

14.7 FINAL COMPLETION When final completion has been achieved,  Contractor shall
prepare for Owner's  acceptance a final  application for payment stating that to
the best of Contractor'  knowledge,  and based on Owner's inspections,  the Work
has reached final completion in accordance with the Contract Documents.

14.7.1  Final  payment of the  balance of the  Contract  Price  shall be made to
Contractor within twenty (20) days after Contractor has submitted to the Owner a
complete  and  accurate   application   for  final  payment  and  the  following
submissions:
         .1   an affidavit  declaring any indebtedness  connected with the Work,
              e.g. payrolls or invoices for materials or equipment, to have been
              paid,  satisfied or to be paid with the proceeds of final payment,
              so as not to encumber Owner's property;
         .2   as-built  drawings,  manuals,  copies of warranties  and all other
              close-out documents required by the Contract Documents;
         .3   release of any liens, conditioned on final payment being received;
         .4   consent of any surely, if applicable; and
         .5   a report of any accidents or injuries experienced by Contractor or
              its Subcontractors at the Worksite.

                                      -7-
<PAGE>

14.8 Claims not  reserved in writing with the making of final  payment  shall be
waived except for claims relating to liens or similar encumbrances,  warranties,
Defective Work and latent defects.

14.9 LATE  PAYMENT  Payments due but unpaid  shall bear  interest  from the date
payment is due at the prime rate prevailing at the place of the Project.

15 INDEMNITIES

15.1 To the fullest extent permitted by law, Contractor shall defend,  indemnify
and hold Owner, Owner's officers, directors,  members,  consultants,  agents and
employees and the Architect/Engineer  harmless from all claims for bodily injury
and property damage, other than to the Work itself and other property insured un
Exhibit E, that may arise from the performance of the Work to the extent of the
 negligence  attributed to such acts or omissions by Contractor,  subcontractors
or anyone employed  directly or indirectly by any of them or by anyone for whose
acts any of them may be  liable.  Contractor  shall not be  required  to defend,
indemnify or hold harmless Owner, Architect/Engineer or others retained by Owner
for any acts,  omissions or  negligence of Owner,  Architect/Engineer  or others
retained by Owner.

15.2 To the fullest extent  permitted by law, Owner shall defend,  indemnify and
hold harmless Contractor, its officers, directors or members,  subcontractors or
anyone  employed  directly or indirectly by any of them or anyone for whose acts
any of them may be liable from all claims for bodily injury and property  damage
other than property insured under Exhibit S, that may arise from the performance
of work by Owner, Architects/Engineer or others retained by Owner, to the extent
of  the   negligence   attributed   to  such   acts  or   omissions   by  Owner,
Architect/Engineer or others retained by Owner.

16 MUTUAL WAIVER OF  CONSEQUENTIAL  DAMAGES Owner and Contractor  agree to waive
all claims against each other for any  consequential  damages that may arise out
of or relate to this Agreement.  Owner agrees to waive damages including but not
limited to Owner's loss of use of the  Project,  any rental  expenses  incurred,
loss of income,  profit or financing  related to the Project as well as the loss
of business, loss of financing,  principal office overhead and expenses, loss of
profits not related to this Project, or loss of reputation. Contractor agrees to
waive damages including but not limited to loss of business,  loss of financing,
principal  office  overhead  and  expenses,  loss of profits not related to this
Project,  loss of bonding  capacity or loss of reputation.  This Paragraph shall
not be construed to preclude contractual  provisions for liquidated damages when
such provisions  relate to direct damages only. The provisions of this Paragraph
shall also apply to the  termination  of this  Agreement  and shall survive such
termination.

17 NOTICES TO CURE AND TERMINATION

17.1  NOTICE TO CURE A DEFAULT If  Contractor  persistently  refuses or fails to
supply enough properly skilled workers,  proper  materials,  and/or equipment to
maintain  the  approved  Schedule of the Work in  accordance  with Article 6, or
fails to make a prompt  payment to its  workers,  subcontractors,  or  materials
suppliers disregards laws, ordinances,  rules,  regulations or orders of any , O
authority having jurisdiction, or is otherwise guilty of a materials breach of a
provision of this Agreement,  Contractor maybe deemed in default.  If Contractor
fails within seven (7) working days after written  notification  to commence and
continue satisfactory  correction of such default with diligence and promptness,
then Owner,  without  prejudice to any other rights or remedies,  shall have the
right to take reasonable  steps it deems necessary to correct  deficiencies  and
charge the cost to Contractor  who shall be liable for such  payments  including
reasonable overhead, profit and attorney's fees.

                                      -8-
<PAGE>

17.2  TERMINATION  BY OWNER If,  within seven (7) days of receipt of a notice to
cure pursuant to Paragraph 17.1, Contractor fails to commence and satisfactorily
continue  correction  of the default set forth in the notice to cure,  Owner may
notify Contractor that it intends to terminate this Agreement for default absent
appropriate  corrective  action within fourteen (14) additional  days. After the
expiration of the additional fourteen (14) day period,  Owner may terminate this
Agreement by written notice absent appropriate  corrective  action.  Termination
for  default is in  addition  to any other  remedies  available  to Owner  under
Paragraph  17.1 If Owner's  costs arising out of  Contractor's  failure to cure,
including the cost of completing the Work and reasonable  attorney Fees,  exceed
the unpaid Contract Price, Contractor shall pay the difference to Contractor. In
the event Owner exercises its rights under this  Paragraph,  upon the request of
Contractor.  In the event Owner exercises its rights under this Paragraph,  upon
the request of the  Contractor,  Owner shall  furnish to  Contractor  a detailed
accounting of the costs incurred by Owner.

17.3  TERMINATION  BY CONTRACTOR  Upon seven (7) days' written  notice to Owner,
Contractor  may terminate this Agreement if the Work has been stopped for thirty
(30) day period through no fault of Contractor for any of the following reasons:

         .1   under  court  order or order  of  other  governmental  authorities
              having jurisdiction;

         .2   as a result of the  declaration  of a national  emergency or other
              governmental  act  during  which,  through  no  act  or  fault  of
              Contractor, materials are not available; or

17.4 In addition,  upon seven (7) days' written notice to Owner,  Contractor may
terminate the Agreement if Owner:

         .1   fails to furnish  reasonable  evidence that  sufficient  funds are
              available  and  committed  for the entire  cost of the  Project in
              accordance with Paragraph 7.1 or

         .2   assigns this Agreement over Contractor's reasonable objection, or

         .3   fails to pay  Contractor  in  accordance  with this  Agreement and
              Contractor  has complied  with the notice  provisions of Paragraph
              14.5, or

         .4   otherwise materially breaches this Agreement.

17.5 Upon termination by Contractor pursuant to this Agreement, Contractor shall
be entitled to recover  from Owner  payment  for all Work  executed  and for any
proven  loss,  cost or  expense  in  connection  with the  Work,  including  all
demobilization costs plus reasonable overhead and profit.

17.6  OBLIGATIONS   ARISING  BEFORE   TERMINATION  Even  after  termination  the
provisions of this Agreement still apply to any Work  performed,  payments made,
events  occurring,  costs charged or incurred or obligations  arising before the
termination date.

18 CLAIMS AND DISPUTE RESOLUTION

18. CLAIMS FOR ADDITIONAL COST OR TIME Except as provided in Paragraphs 11.2 and
11.4 for any claim for an increase in the  Contract  Price  and/or the  Contract
Time,  Contractor  shall give Owner written notice of the claim within  fourteen
(14) days after  Contractor  first  recognizes the condition  giving rise to the
claim, whichever is later. Except in an emergency,  notice shall be given before
proceeding  with the Work.  Any change in the Contract Price and/or the Contract
Time resulting from such claim shall be authorized by Change Order.

                                      -9-
<PAGE>
18.2 WORK CONTINUANCE AND PAYMENT Unless otherwise agreed in writing, Contractor
shall continue the Work and maintain the Schedule of the Work during any dispute
resolution proceedings. If Contractor continues to perform, Owner shall continue
to make payments in accordance with the Agreement.

18.3 INTIAL DISPUTE  RESOLUTION  PROCESSES If a dispute arises out of or relates
to this  Agreement  or its  breach,  the  parties  shall  endeavor to settle the
dispute  first  through  direct  discussions.  If the dispute  cannot be settles
through direct discussions,  the parties shall endeavor to settle the dispute by
mediation  under  the  current  Construction  Industry  Mediation  Rules  of the
American  Arbitration   Association  before  recourse  to  any  binding  dispute
resolution procedures.

18.4  OTHER  DISPUTE  PROCESSES  If neither  direct  discussions  nor  mediation
successfully  resolve the dispute, the parties agree that the following shall be
used to resolve the dispute.

(check one selection only)

___Arbitration  Arbitration shall be pursuant to the Construction Industry Rules
of the  American  Arbitration  Association  unless the  parties  mutually  agree
otherwise.  A written  demand for  arbitration  shall be filed with the American
Arbitration Association and the other party to the Agreement within a reasonable
time after the dispute or claim has arisen,  but in no even after the applicable
statue  of  limitations  for a  legal  or  equitable  proceeding  has  run.  The
arbitration  award shall be final. This agreement to arbitrate shall be governed
by the Federal  Arbitration  Act and judgment upon the award may be confirmed in
any court having jurisdiction.

___Litigation  Action may be filed in the  appropriate  state,  or federal court
located in the jurisdiction in which the Project is located.

18.5 COST OF DISPUTE  RESOLUTION The prevailing party in any dispute arising out
of or  relating  to this  Agreement  or its breach that is resolved by a binding
dispute  resolution  process  shall be entitled to recover  from the other party
reasonable  attorneys' fees, costs and expenses incurred by the prevailing party
in connection with such dispute resolution process.

19  ASSIGNMENT  Neither Owner nor  Contractor  shall assign its interest in this
Agreement  without the written  consent of the other except as to the assignment
of proceeds. The terms and conditions of this Agreement shall be binding on both
parties, their partners, successors, assigns and legal representatives.  Neither
party to this  Agreement  shall assign the Agreement as a whole without  written
consent of the other.

20 GOVERNING  LAW This  Agreement  shall be governed by the law in effect at the
location of the Project.

21 JOINT  DRAFTING The parties  expressly  agree that this Agreement was jointly
drafted,  and that they both had  opportunity  to negotiate  terms and to obtain
assistance  of counsel in reviewing  terms prior to  execution.  This  Agreement
shall be construed  neither  against nor in favor of either party,  but shall be
construed in a neutral manner.

22 NOT INCLUDED

         o    No landscaping
         o    No removal of trees or brush that isn't required to do site work
         o    Nothing which is not specifically listed in this contract
         o    No  specialty  items  for Dyno room for  safety,  fire  code,  gas
              hook-ups, etc
         o    No exterior  electrical  or plumbing  on site (all  utilities  are
              figured to the buildings)
         o    Any changes that occur do to  engineering  or Fire Marshall  which
              result in price increase
                                      -11-
<PAGE>

23 OPTIONS The following are options and are not included in Contract Prices for
Phase I and Phase II

         23.A PHASE I
         o    Stairs and Storage above  bathrooms,
              boiler room,  break room and office             $9,863.00 extra
         o    In-floor heat in assembly building             $54,684.00 extra
         o    Snow melt in loading ramp                      $18,329.00 extra
         o    If in-floor is put in assembly
              building-don't need secondary heat              $4,479.00 save
         o    Miscellaneous items to consider                $67,311.00 extra

                              TOTAL CHANGES                 $145,708.00

         23.B PHASE II
         o    In-floor heat in office building               $12,800.00 save
         o    Asphalt instead of concrete

OWNER: Hydrogen Engine Center               CONTRACTOR:  Tri Square Construction

BY:    /s/ Theodore Hollinger               BY:  /s/  Eugene P. Hunt
       ----------------------------              -------------------------------

PRINT NAME: Theodore Hollinger              PRINT NAME:   Eugene P. Hunt

PRINT TITLE: President                      PRINT TITLE:  President

ATTEST: ______________________________________ATTEST: __________________________

                                      -12-

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