AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

 
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), is entered
into on December 18, 2007, by and between H2Diesel Holdings, Inc., a Delaware
corporation (the “Company”), and Cary Claiborne (the “Executive”).
 
WHEREAS, the Company desires to employ Executive, and Executive desires to be
employed by the Company, upon the terms and conditions hereinafter set forth.
 
NOW, THEREFORE, in consideration of the covenants herein contained, and other
good and valuable consideration, the receipt and adequacy of which are hereby
forever acknowledged, the parties, with the intent of being legally bound
hereby, agree as follows:
 
1. Term. The term of this Agreement shall commence on the first date of the
Executive’s employment, December 1, 2007 (the “Effective Date”) and shall end on
December 31, 2010 (the “Initial Term”); provided, however, that the term of this
Agreement shall automatically be extended beyond the Initial Term for a one year
period, effective January 1, 2011 (the “Renewal Term”) unless either party
notifies the other by a date which is two-hundred seventy (270) days prior to
the expiration of the Initial Term that such party desires not to extend the
Initial Term beyond the third anniversary of the Effective Date. This Agreement
shall continue for successive one-year Renewal Terms unless and until either
party gives two-hundred seventy (270) days notice to the other of its desire not
to extend further the term of this Agreement beyond the end of the then-current
Renewal Term, or this Agreement is otherwise terminated pursuant to Section 5
hereof. The term of this Agreement, whether during the Initial Term or any
Renewal Term, shall be referred to as the “Term.”
 
2. Position and Responsibilities.
 
2.1 Position. Executive will be employed by the Company to render services to
the Company in the position of Chief Financial Officer. In that capacity, the
Executive shall solely, under supervision of the President and Chief Executive
Officer (the “CEO”), have general supervision over the financial and accounting
matters of the Company, and perform other duties reasonably assigned to the
Executive from time to time by the CEO provided the duties relate to the
business of the Company and are consistent with the Executive’s position as
Chief Financial Officer, as well as Executive’s background and experience. The
Executive shall diligently perform all such services. The Executive shall report
directly to the CEO. Executive shall, in all material respects, abide by all
material and written Company rules, policies, and practices as adopted or
modified, from time to time, in the Company’s sole discretion; and Executive
shall attempt to use his best efforts in the performance of his duties
hereunder.
 
2.2 Other Activities. While employed by the Company, Executive shall devote
substantially all of his business time, attention, and skill to perform his
assigned duties, services, and responsibilities hereunder, and shall act at all
times in the furtherance of the Company’s business and interests. Executive
shall not, during the term of this Agreement engage, directly or indirectly, in
any other business activity (whether or not pursued for pecuniary advantage)
which could reasonably be expected to materially interfere with Executive’s
duties and responsibilities hereunder or create a conflict of interest with the
Company. The foregoing limitations shall not prohibit Executive from: (i)
serving as a consultant to another entity provided that such service would not
violate Section 6.1 below or (ii) making and managing his personal and family
investments in such form or manner as will neither require Executive’s services
in the operation or affairs of the companies or enterprises in which such
investments are made nor materially interfere with the performance of the
Executive’s duties hereunder. The Company acknowledges that Executive will from
time-to-time serve on the boards of corporations, advisory committees, trade
organizations, philanthropic organizations or other entities. Accordingly, the
foregoing limitations shall not prohibit Executive from serving on the boards of
corporations, advisory committees, trade organizations, philanthropic
organizations or other entities, provided that such service does not create a
material conflict of interest with the Company.

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2.3 No Conflict. Executive represents and warrants that Executive’s execution of
this Agreement, Executive’s employment with the Company, and the performance of
Executive’s proposed duties under this Agreement shall not violate any
obligations Executive may have to any other employer, person, or entity,
including but not limited to any obligations with respect to not disclosing any
proprietary or confidential information of any other person or entity.
 
3. Compensation and Benefits.
 
3.1 Base Salary. In consideration of the services to be rendered under this
Agreement, the Company shall pay Executive an initial base salary of eighteen
thousand seven hundred fifty ($18,750) dollars per month (“Base Salary”) in
accordance with the Company’s standard payroll practices. Such Base Salary shall
be subject to such withholding or deductions as may be mutually agreed between
the Company and Executive or as required by law. Executive’s Base Salary will be
reviewed annually, and may be adjusted (upward, but not downward) at the
discretion of the CEO and the Compensation Committee of the Board.
 
3.2 Stock Options. In consideration of the services to be rendered under this
Agreement:
 
(a) The Company shall grant to the Executive options to purchase 300,000 shares
of the Company’s Common Stock at a price of $4.00 per share, the fair market
value on December 1, 2007 (the “Grant Date”), of which 105,000 shares shall vest
on the Grant Date and the remainder shall vest in annual tranches as follows
(collectively, the “Time Based Options”):
 
65,000 shares shall vest on the first anniversary of the Grant Date;

65,000 shares shall vest on the second anniversary of the Grant Date; and

65,000 shares shall vest on the third anniversary of the Grant Date.

(b) The Company shall grant to the Executive options to purchase 450,000 shares
of the Company’s Common Stock at a price of $4.00 per share, the fair market
value on the Grant Date, which shall vest in annual tranches if certain annual
performance targets (the “Performance Targets”) to be established in good faith
by the CEO and the Compensation Committee of the Board (the “Compensation
Committee”) are met, as more fully set forth below (collectively, the
“Performance Options”):

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75,000 shares if the Performance Options shall vest in respect of the fiscal
year ending December 31, 2007 if the Performance Targets for such year are met;

125,000 shares shall vest in respect of the fiscal year ending December 31, 2008
if the Performance Targets for such year are met; and

125,000 shares shall vest in respect of the fiscal year ending December 31, 2009
if the Performance Targets for such year are met; and

125,000 shares shall vest in respect of the fiscal year ending December 31, 2010
if the Performance Targets for such year are met.

Commencing with the fiscal year ending December 31, 2008, the Performance
Targets for each fiscal year shall be established by the Compensation Committee
not later than February 28 of such fiscal year. The Compensation Committee shall
determine whether the Performance Targets for the preceding fiscal year have
been met not later than seven days after the date that the Company’s audited
financial statements in respect of such fiscal year become available, and if
such Performance Targets are determined to have been met, the Performance
Options in respect of such fiscal year shall be deemed to be vested as of such
date of determination. The Time Based Options and the Performance Options shall
be more fully documented in one or more Stock Option Agreement(s) containing
customary terms and conditions and shall expire on the tenth (10th) anniversary
of the Effective Date.
 
3.3 Stock Grant. The Company shall grant to the Executive the number of shares
of the Company’s common stock equal to $25,000 on December 1, 2007, December 1,
2008, and December 1, 2009 (each a “Stock Grant Date”), based on the fair market
value of a share of the Company’s common stock on each applicable Stock Grant
Date and provided that the Executive is still employed on each applicable Stock
Grant Date. Any fractional shares shall be paid to the Executive in cash. 
 
3.4 Equity Compensation. To the extent that the Board and the stockholders of
the Company approve an equity compensation or incentive plan (the “Plan”), the
Executive shall be eligible to participate in such plan at a level commensurate
with his position. The amount of any equity awards to the Executive and terms
and conditions thereof shall be determined not less frequently than annually by
a committee of the Board appointed pursuant to the Plan, or by the Board, in
each case following consultation with the Chief Executive Officer in each of its
discretion and pursuant to the Plan.
 
3.5 Benefits. Executive shall be entitled to participate in the pension and
health and welfare benefit plans and perquisites that the Company generally
makes available to its employees or other executives, at a level commensurate
with his position (the “Executive Benefits”).
 

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3.6 Vacation. During the Term, Executive shall be entitled to vacation each year
in accordance with the Company’s policies in effect from time to time, but in no
event less than four (4) weeks paid vacation per calendar year. The Executive
shall also be entitled to such periods of sick leave as is customarily provided
by the Company for its senior executive employees.
 
3.7 Business Expenses. Throughout the term of Executive’s employment hereunder,
the Company shall reimburse Executive for all reasonable and necessary travel,
entertainment, promotional, and other business expenses that may be incurred by
Executive in the course of performing Executive’s duties. Authorized expenses
shall be reimbursed by the Company in accordance with policies and practices
adopted, from time to time, by the Company concerning expense reimbursement for
employees and shall be reimbursed upon timely presentation to the Company of an
itemized expense statement with respect thereto, including substantiation of
expenses incurred and such other documentation as may be required by the
Company’s reimbursement policies from time to time and in accordance with
Internal Revenue Service guidelines.
 
3.8 Bonus Plan. The Executive shall be eligible to participate in an annual cash
bonus plan established by the Compensation Committee (the “Bonus Plan). The
Executive’s bonus will be targeted at 50% of the Executive’s Base Salary,
subject to achieving certain performance targets (the “Bonus Plan Targets”). The
Executive’s bonus with respect to the fiscal year ending December 31, 2007 shall
be not less than 22% of the Executive’s Base salary, prorated for the number of
days the Executive is actually employed by the Company. The Executive’s bonus
with respect to the fiscal year ending December 31, 2008 shall be not less than
22% of the Executive’s Base salary. Commencing with the fiscal year ending
December 31, 2008, the Bonus Plan and the performance targets for each fiscal
year shall be established by the Compensation Committee not later than February
28 of such fiscal year. The Compensation Committee shall determine whether the
Bonus Plan Targets for the preceding fiscal year have been met not later than
seven days after the date that the Company’s audited financial statements in
respect of such fiscal year become available and the bonus in respect of such
fiscal year, if earned, shall be payable promptly after such determination. Any
bonus paid under this Section shall be paid in accordance with the Bonus Plan
and the Company’s payroll practices.
 
3.9 Relocation and Commuting Expenses. The Executive hereby agrees to relocate
within 50 miles of the Company’s executive offices, which will be established at
a location to be determined by the Board, currently anticipated to be Lake Mary,
Florida.
 
(a) The Company will provide the Executive with a lump-sum payment of $50,000
(the “Relocation Payment”) for all reasonable and necessary actual out-of-pocket
relocation expenses paid or incurred by the Executive. The Relocation Payment
will be made within thirty days after the Executive completes the relocation.
 
(b) If this Agreement is terminated under Section 5(c) or 5(g) within 2 years of
the Executive completing his relocation then the Executive will reimburse the
Company the full amount of the Relocation Payment
 

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(c) The Executive will complete the relocation process not later than August 31,
2009. During the period from the Effective Date up to the date when the
Executive completes his relocation, the Executive’s office will be located in
Central Florida and the Executive will commute between the office and his
current residence.
 
(d) During the period from the Effective Date until the completion of the
Executive’s relocation the Company will reimburse the Executive for reasonable
out of pocket travel expenses incurred in commuting between the Executive’s home
in Ellicott City, Maryland and the Company’s offices in Central Florida.
 
(e) During the period from the Effective Date until the completion of the
Executive’s relocation the Company will reimburse the Executive for reasonable
out of pocket expenses incurred for temporary housing and meals while in
Florida.
 
4. Nondisclosure of Confidential and Proprietary Information. At all times
before and for five (5) years after the termination of Executive’s service (for
any reason by the Company or by Executive), Executive agrees to keep all
Confidential or Proprietary Information in strict confidence and secrecy, and
not to disclose or use the Confidential or Proprietary Information in any way
outside of Executive’s assigned responsibilities for the Company. “Confidential
or Proprietary Information” means any non-public information or idea (whether or
not a trade secret) relating to the business of the Company obtained by
Executive in the course of employment by the Company that is not generally known
outside the Company or not generally known in the industry or by persons engaged
in businesses similar to that of the Company (including information which may be
available from sources outside the Company, but not in the form, arrangement, or
compilation in which it exists within the Company) that should reasonably be
considered confidential, including, but not limited to: (i) customer lists and
records of current, former, and prospective customers; (ii) special needs and
characteristics of current, former, or prospective customers; (iii) present or
future business plans; (iv) trade secrets, proprietary, or confidential
information of any customer or other entity to which the Company owes an
obligation not to disclose such information; (v) marketing, financing, business
development, or strategic plans; (vi) sales methods, practices, and procedures;
(vii) personnel information; (viii) research and development data and
projections; (ix) information or data concerning the Company’s competitive
position in its various lines of business; (x) existing, new, or envisioned
products, programs, services, methods, techniques, processes, projects, or
systems; and (xi) sales, pricing, billing, costs, and other financial data and
projections. All documents containing this information will be considered
Confidential or Proprietary Information whether or not marked with any
proprietary or confidential notice or legend. Notwithstanding the foregoing,
nothing herein shall prohibit the Executive from disclosing any information: (1)
in connection with performance of his duties hereunder as he deems in good faith
to be necessary or desirable; or (2) if compelled pursuant to the order of a
court or other governmental or legal body having jurisdiction over such matter;
or (3) if necessary for Executive to defend his rights in a legal or regulatory
proceeding. In the event Executive is compelled by order of a court or other
governmental or legal body to communicate or divulge any such information,
knowledge or data, he shall promptly notify the Company. However, Employee’s
obligations under this Section shall not extend to:

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1)
Confidential or Proprietary Information which is or becomes part of the public
domain or is available to the public by publication or otherwise without
disclosure by Employee; or

2)
Confidential or Proprietary Information which was within Employee’s knowledge or
in his possession prior to his employment by the Company; or

3)
Confidential or Proprietary Information which, either prior to or subsequent to
the Company’s disclosure to Employee with an obligation of confidentiality, was
disclosed to Employee, without obligation of confidentiality, by a third party
who did not acquire such information, directly or indirectly, from Employee.

5. Termination; Rights and Obligations on Termination. The Executive’s
employment under this Agreement may be terminated in any one of the followings
ways:
 
(a) Death. The death of Executive shall immediately and automatically terminate
the Executive’s employment under this Agreement. If Executive dies while
employed by the Company, any vested options may be exercised on or before the
option’s expiration date. Any option that remains unexercised after this period
shall be forfeited. Upon the Executive’s death, the Executive’s legal
representative shall receive: (1) any compensation earned but not yet paid,
including and without limitation, any bonus if declared or earned but not yet
paid for a completed fiscal year (and also in any event including the guaranteed
bonuses for 2007 and 2008, pro rata, based on time served during the applicable
year through the date of termination), any amount of Base Salary earned but
unpaid, any accrued vacation payable pursuant to the Company’s policies, and any
unreimbursed business expenses, which amounts shall be promptly paid in a lump
sum, and (2) any other amounts or benefits owing to the Executive under the then
applicable employee benefit plans, long term incentive plans or equity plans and
programs of the Company which shall be paid or treated in accordance with the
terms of such plans and programs (subsections (1) and (2) shall be collectively
referred to as, the “Accrued Amounts”). Other than the benefits described above,
no further compensation or benefits shall be due or owing upon the Executive’s
death.
 
(b) Disability. If as a result of incapacity due to physical or mental illness
or injury, Executive shall have been absent from Executive’s duties hereunder
for six (6) consecutive months, then thirty (30) days after receiving written
notice (which notice may occur before or after the end of such six (6) month
period, but which shall not be effective earlier than the last day of such six
(6) month period), the Company may terminate Executive’s employment hereunder
provided Executive is unable to substantially perform his duties hereunder at
the conclusion of such notice period (a “Disability”), as determined by a
physician mutually selected by the parties hereto. In the event the Executive’s
employment is terminated as a result of Disability, Executive shall receive from
the Company, in a lump-sum payment due within ten (10) days of the effective
date of termination, an amount equal to the sum of the Base Salary and bonus, if
any, that would have been paid to Executive through the end of the then
remaining Term if the Executive were not disabled or for six (6) months,
whichever is less (assuming that Executive would have received no further
increases in his Base Salary (including for the sake of clarity the automatic
achievement of 2007 and 2008 guaranteed bonuses, pro rata based on time that
would have been served during the applicable year through the end of the Term or
the 12 month period described above, as applicable)). The Executive shall also
be entitled to the Accrued Amounts. Additionally, if Executive is terminated due
to a Disability, the next unvested tranche of Performance Options will vest if
the applicable Performance Targets are actually met. Any vested options may be
exercised on or before the option’s expiration date. Any option that remains
unexercised after this period shall be forfeited. Other than the benefits
described above, no further compensation or benefits shall be due or owing upon
the Executive’s termination due to a Disability.
 

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(c) Cause. The Company may terminate this Agreement immediately upon written
notice to Executive for “Cause,” which shall mean: (i) the Executive’s willful,
material, and irreparable breach of this Agreement; (ii) Executive’s willful
misconduct in the performance of any of his material duties and responsibilities
hereunder that has a material adverse effect on the Company; (iii) Executive’s
intentional and continued non-performance (other than by reason of disability or
incapacity) of any of the Executive’s material duties and responsibilities
hereunder or of any reasonable, lawful instructions from the Board, which
continues for ten (10) days after receipt by Executive of written notice from
the Company except when Executive is diligently working to cure such
non-performance and the cure requires more than ten (10) days; (iv) Executive’s
material and willful dishonesty or fraud with regard to the Company (other than
good faith expense account disputes) that has a material adverse effect on the
Company (whether to the business or reputation of the Company; or (v)
Executive’s conviction of a felony (other than as a result of vicarious
liability or a traffic related offense). For purposes of this paragraph, no act,
or failure to act, on Executive’s part shall be considered “willful” unless done
or omitted to be done, by him not in good faith and without reasonable belief
that his action or omission was in the best interests of the Company. In the
event of the Executive’s termination of employment by the Company for Cause the
Executive shall receive the Accrued Amounts, if the termination is within two
years of the Executive’s relocation the Executive shall repay the Relocation
Payment and the Executive may exercise his vested options for a period of thirty
(30) days following termination for Cause.
 
Notwithstanding the foregoing, following the Executive’s receipt of written
notice from the Company of any of the events described in subsections (i)
through (iv) above, the Executive shall have ten (10) days in which to cure the
alleged conduct (if curable) except when Executive is diligently working to cure
such non-performance and the cure requires more than ten (10) days.
 
(d) Without Cause. At any time after Executive’s commencement of employment, the
Company may, without Cause, terminate the Executive’s employment, effective
thirty (30) days after written notice is provided to Executive. In the event
Executive is terminated by the Company without Cause, Executive shall receive
from the Company within ten (10) days after such termination, in a lump sum
payment, an amount equal to the sum of the Base Salary and bonus, if any, that
would have been paid to Executive through the end of the then remaining Term if
the Executive had not been terminated or for twelve (12) months, whichever is
less (assuming that Executive would have received no further increases in his
Base Salary and assuming achievement of all applicable Bonus Plan Targets
(including for the sake of clarity the automatic achievement of 2007 and 2008
guaranteed bonuses, pro rata based on time that would have been served during
the applicable year through the end of the Term (or the renewal term, as
applicable) or the 12 month period described above, as applicable). The
Executive shall also receive the Accrued Amounts. Additionally, if Executive is
terminated by the Company without Cause, all of the unvested Time Based Options
will vest and the next tranche of unvested Performance Options will vest as if
the applicable Performance Targets had been met. Any vested options may be
exercised on or before the option’s expiration date. Any option that remains
unexercised after this period shall be forfeited.
 

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(e) Resignation for Good Reason. At any time after Executive’s commencement of
employment, the Executive may resign for Good Reason (as defined below)
effective thirty (30) days after written notice is provided to the Company. Upon
the Executive’s termination of employment for Good Reason, the Executive shall
be entitled to all payments and benefits as if his employment was terminated by
the Company without Cause as provided in subsection (d) above. For purposes of
this Agreement, Good Reason means: (i) any adverse change in the Executive’s
position, title or reporting relationship or a material diminution of his
duties, responsibilities or authority or the assignment to Executive of duties
or responsibilities that are inconsistent with the Executive’s position;
(ii) any reduction in salary or bonus opportunities; (iii) the failure by the
Company to continue in effect any material compensation or benefit plan or
arrangement in which Executive participates unless an equitable and
substantially comparable arrangement (embodied in a substitute or alternative
plan) has been made with respect to such plan or arrangement, or the failure by
the Company to continue Executive’s participation therein (or in such substitute
or alternative plan or arrangement) on a basis not less favorable, both in terms
of the amount of benefits provided and the level of participation relative to
other participants, as existed at the time of the Executive’s commencement of
employment; (iv) any material breach of this Agreement (or any other written
agreement entered into between the Executive and the Company) by the Company;
(v) failure of any successor to the Company (whether direct or indirect and
whether by merger, acquisition, consolidation or otherwise) to assume in a
writing delivered to Executive upon the assignee becoming such, the obligations
of the Company hereunder; or (vi) a requirement by the Company that the
Executive relocate a second time.
 
Notwithstanding the foregoing, following the Company’s receipt of written notice
from the Executive of any of the events described in subsections (i) through
(vi) above, the Company shall have ten (10) days in which to cure the alleged
conduct (if curable).
 
(f) Change in Control of the Company. In the event that a Change of Control (as
defined below) in the Company shall occur during the Term of this Agreement, and
within 12 months thereafter the Executive’s employment shall be terminated
without Cause pursuant to Section 5(d) above or for Good Reason pursuant to
Section 5(e) above, then the Executive’s severance compensation will be as set
forth above for termination without Cause or Good Reason, as the case may be;
provided, however, that all unvested options (both Perfomance and Time Based)
will vest and remain exercisable for the balance of the option term. The Company
shall have no further liability under this Agreement. (For the sake of clarity,
if the Executive’s employment is not terminated within 12 months after a Change
of Control, the compensation payable to Executive for terminations thereafter
without Cause pursuant to Section 5(d) above or for Good Reason pursuant to
Section 5(e) above shall remain as stated in those sections.)
 
For purposes of this Agreement, the term “Change of Control” shall mean:

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(i) approval by the stockholders of the Company of (x) a reorganization, merger,
consolidation or other form of corporate transaction or series of transactions
(other than the issuance by the Company of equity securities to investors
whether in private placements or public offerings (an “Equity Offering”)), in
each case, with respect to which persons who were the stockholders of the
Company immediately prior to such reorganization, merger or consolidation or
other transaction do not, immediately thereafter, own more than 50% of the
combined voting power entitled to vote generally in the election of directors of
the reorganized, merged or consolidated company’s then outstanding voting
securities, in substantially the same proportions as their ownership immediately
prior to such reorganization, merger, consolidation or other transaction, or (y)
a liquidation or dissolution of the Company or (z) the sale of all or
substantially all of the assets of the Company (unless such reorganization,
merger, consolidation or other corporate transaction, liquidation, dissolution
or sale is subsequently abandoned);
 
(ii) individuals who, as of the Effective Date of this Agreement, constitute the
Board (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent
to the Effective Date of this Agreement whose election, or nomination for
election by the Company’s stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the directors of the Company) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board; or
 
(iii) the acquisition (other than from the Company) by any person, entity or
“group”, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the “Securities Exchange Act”), of beneficial
ownership within the meaning of Rule 13-d promulgated under the Securities
Exchange Act of more than 50% of either the then outstanding shares of the
Company’s common stock or the combined voting power of the Company’s then
outstanding voting securities entitled to vote generally in the election of
directors (hereinafter referred to as the ownership of a “Controlling Interest”)
excluding, for this purpose, any acquisitions by (1) the Company or its
subsidiaries, (2) any person, entity or “group” that as of the Effective Date of
this Agreement owns beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act) of a Controlling Interest, (3)
any employee benefit plan of the Company or its subsidiaries, or (4) any
acquisition in one or more Equity Offerings.
 
(g) Resignation without Good Reason or Retirement by Executive. The Executive
may resign without Good Reason or retire upon 90 days’ written notice, and upon
such termination of employment he shall receive the Accrued Amounts.
 
(h) Superseding Agreement. This Agreement shall be terminated immediately and
automatically if the parties enter into another employment agreement which
supersedes this Agreement. In the event the parties enter into a superseding
agreement, no severance pay or other compensation shall be due to Executive with
respect to the termination of this Agreement.
 

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6. Use and Return of Company Property. Executive acknowledges the Company’s
proprietary rights and interests in its tangible and intangible property.
Accordingly, Executive agrees that upon termination of Executive’s employment
with the Company, for any reason, and at any time, Executive shall deliver to
the Company all Company property, including: (a) all documents, contracts,
writings, disks, diskettes, computer files or programs, computer-generated
materials, information, documentation, or data stored in any medium, recordings
and drawings pertaining to trade secrets, proprietary or confidential
information, or other inventions and works of the Company; (b) all records,
designs, plans, sketches, specifications, patents, business plans, financial
statements, accountings, flow charts, manuals, notebooks, memoranda, lists, and
other property delivered to or compiled by Executive, by or on behalf of the
Company or any of its representatives, vendors, or customers which pertain to
the business of the Company, all of which shall be and remain the property of
the Company, and shall be subject, at all times, to its discretion and control;
(c) all equipment, devices, products, and tangible property entrusted to
Executive by the Company; and (d) all correspondence, reports, records, notes,
charts, advertisement materials, and other similar data pertaining to the
business, activities, or future plans of the Company, in the possession or
control of Executive, shall be delivered promptly to the Company without request
by it. Executive shall certify to the Company, in writing, within five (5) days
of any request by the Company, that all such materials have been returned to the
Company. Notwithstanding the foregoing or anything else to the contrary in this
Agreement, the Executive may (i) retain and use in his discretion his rolodex
and similar address and telephone directories (whether in writing or electronic
format) and (ii) retain the personal computer provided to Executive by Company.
 
6.1 Non-competition. At all times while the Executive is employed by the Company
and for a period of: (i) two (2) years after any termination of the Executive’s
employment for Cause or the Executive’s termination of his employment without
Good Reason; (ii) the lesser of one (1) year or the remainder of the Term after
any termination of the Executive’s employment by the Company without Cause or
the Executive’s termination for Good Reason; or (iii) one (1) year following the
non-renewal of this Agreement or any termination pursuant to Section 5, the
Executive shall not, directly or indirectly, engage in or have any interest in
any person (whether as an employee, officer, director, partner, agent, security
holder, creditor, consultant or otherwise) that directly or indirectly (or
through any affiliated entity to the extent the combined entities derive fifty
percent (50%) or more of their revenues through a business competitive with the
Company’s Business) competes with the Company’s Business (as defined below);
provided that such provision shall not apply to the Executive’s ownership of
securities of the Company or the acquisition by the Executive, solely as an
investment, of securities of any issuer that is registered under Section 12(b)
or 12(g) of the Securities Exchange Act of 1934, as amended and that are listed
or admitted for trading on any United States national securities exchange or
that are quoted on the National Association of Securities Dealers Automated
Quotations System, or any similar system or automated dissemination of
quotations of securities prices in common use, so long as the Executive does not
control, acquire a controlling interest in or become a member of a group which
exercises direct or indirect control of, more than five percent of any class of
capital stock of such issuer. For purposes of this Section 6.1, the term
“Business” shall mean the biofuels business and any other business in which the
Company is actively engaged prior to the delivery of a notice of termination by
the Company or the Executive hereunder and which business the Company is engaged
at the date of termination of the Executive’s employment.
 

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6.2 Non-Solicitation. At all times while the Executive is employed by the
Company and for a period of: (i) two (2) years after any termination of the
Executive’s employment for Cause or the Executive’s termination of his
employment without Good Reason; (ii) the lesser of one (1) year or the remainder
of the Term after any termination of the Executive’s employment by the Company
without Cause or the Executive’s termination for Good Reason; or (iii) one (1)
year following the non-renewal of this Agreement or any termination pursuant to
Section 5, the Executive shall not, directly or indirectly, for himself or for
any other person (a) employ or attempt to employ or enter into any contractual
arrangement with any employee or former employee of the Company, or (b) call on
or solicit any of the actual or targeted prospective customers or suppliers of
the Company on behalf of any person in connection with any business that
competes with the Business of the Company nor shall the Executive make known the
names and addresses of such customers or suppliers or any information relating
in any manner to the Company’s trade or business relationships with such
customers or suppliers, other than in connection with the performance of
Executive’s duties under this Agreement.
 
6.3 Reasonable Restrictions. Executive hereby acknowledges and agrees that the
limits on his ability to engage in activities that are competitive with the
Company, as defined above, are warranted in order to protect the Company’s trade
secrets and Confidential or Proprietary Information, and further, are warranted
to protect the Company in developing and maintaining its reputation, goodwill,
and status in the marketplace. Executive specifically agrees that the time
period, geographic scope, and nature of the restrictions set forth in Sections
6.1 and 6.2 are reasonable and necessary to protect the Company’s legitimate
business interests and do not impose any limitations greater than those
necessary to protect those interests.
 
6.4. Remedies. Executive hereby acknowledges and agrees that the services
Executive has rendered and will continue to render to the Company are of a
special and unique character, which gives this Agreement a peculiar value to the
Company, and further acknowledges and agrees that the loss of those services to
a direct competitor or the direct competition by Executive against the Company
cannot be reasonably or adequately compensated for by damages in an action at
law. Executive further acknowledges and agrees that any material breach by
Executive of any provision of Sections 4 or 6 of this Agreement shall cause
irreparable harm to the Company, which harm cannot be reasonably or adequately
compensated for by damages in an action at law. Accordingly, without prejudice
to the rights and remedies otherwise available to the Company, Executive agrees
that, in addition to any other right or remedy the Company may have, upon
adequate proof of a material breach the Company shall be entitled to a temporary
restraining order and to a preliminary and permanent injunction enjoining or
restraining the breach of this Agreement by Executive, without the necessity of
proving the inadequacy of monetary damages or the posting of any bond or
security. Executive acknowledges and agrees that the preceding remedies shall be
in addition to any and all other rights available to the Company at law or in
equity. The failure of the Company to promptly institute legal action upon any
breach of this Agreement shall not constitute a waiver of that or any other
breach hereof.
 
7. Indemnification; Insurance.
 
7.1 Indemnification of Executive. While the Executive is employed by the Company
and thereafter, in the event Executive is made a party to any threatened,
pending, or contemplated action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by the Company against
Executive), by reason of the fact that Executive is or was performing services
under this Agreement, then the Company shall indemnify Executive to the fullest
extent permitted by applicable law against all expenses (including attorneys’
fees), judgments, fines, and amounts paid in settlement, as actually and
reasonably incurred by Executive in connection therewith. In the event that both
Executive and the Company are made a party to the same third party action,
complaint, suit, or proceeding, the Company will engage competent legal
representation, and Executive will use the same representation, provided that if
counsel selected by the Company shall have a conflict of interest that prevents
such counsel from representing Executive, then the Company shall engage separate
counsel on Executive’s behalf, and subject to the provisions of this Section 7,
the Company will pay all attorneys’ fees of such separate counsel.
 

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7.2 Insurance Provided by Company. As soon as practicable after the Effective
Date, the Company shall obtain a directors and officers liability insurance
policy covering all directors and officers of the Company, including Executive,
which insurance policy shall provide adequate insurance coverage for each of
such persons, as shall be approved by the Board. The Executive shall be entitled
to such coverage while employed and thereafter while potential liability exists.
 
8. Assignment; Binding Effect. Executive shall have no right to assign this
Agreement to another party other than by will or by the laws of descent and
distribution. This Agreement may be assigned or transferred by the Company only
to an acquirer of all or substantially all of the assets of the Company,
provided such acquirer promptly assumes all of the obligations hereunder of the
Company in a writing delivered to the Executive and otherwise complies with the
provisions hereof with regard to such assumption. Nothing in this Agreement
shall prevent the consolidation, merger, or sale of the Company or a sale of any
or all or substantially all of its assets. Subject to the foregoing restriction
on assignment by Executive, this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by the parties hereto and their respective heirs,
legal representatives, successors, and assigns.
 
9. Additional Provisions.
 
9.1 Damages. Nothing contained herein shall be construed to prevent the Company
or the Executive from seeking and recovering from the other damages sustained by
either or both of them as a result of its or his breach of any term or provision
of this Agreement. In the event that either party hereto brings suit for the
collection of any damages resulting from, or the injunction of any action
constituting, a breach of any of the terms or provisions of this Agreement, then
the party found to be at fault shall pay all reasonable court costs and
attorneys’ fees of the other.
 
9.2 Amendments; Waivers; Remedies. This Agreement may not be amended, and no
provision of this Agreement may be waived, except by a writing signed by
Executive and by a duly authorized representative of the Company. Failure to
exercise any right under this Agreement shall not constitute a waiver of such
right. Any waiver of any breach of this Agreement shall not operate as a waiver
of any subsequent breaches. All rights or remedies specified for a party herein
shall be cumulative and in addition to all other rights and remedies of the
party hereunder or under applicable law.
 

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9.3 Notices. Any notice under this Agreement must be in writing and addressed to
the Company or to Executive at the corresponding address below. Notices under
this Agreement shall be effective upon: (a) hand delivery, when personally
delivered; (b) written verification of receipt, when delivered by overnight
courier or certified or registered mail; or (c) acknowledgment of receipt of
electronic transmission, when delivered via electronic mail or facsimile.
Executive shall be obligated to notify the Company, in writing, of any change in
Executive’s address. Notice of change of address shall be effective only when
done in accordance with this Section 9.3.
 
Company’s Notice Address:
H2Diesel Holdings, Inc.
11111 Katy Freeway
Houston, TX 77079
Attn.: David A Gillespie
Telephone: 713 973 5720
Facsimile: 713 973 5777
 
Executive’s Notice Address:
Mr. Cary Claiborne
3056 Seneca Chief Trail
Ellicott City, Maryland 21042

 
9.4 Severability. If any provision of this Agreement shall be held by a court of
competent jurisdiction to be invalid, unenforceable, or void, such provision
shall be enforced to the fullest extent permitted by law, and the remainder of
this Agreement shall remain in full force and effect. In the event that the time
period or scope of any provision is declared by a court of competent
jurisdiction to exceed the maximum time period or scope that such court deems
enforceable, then such court shall reduce the time period or scope to the
maximum time period or scope permitted by law.
 
9.5 Taxes. All amounts paid under this Agreement (including, without limitation,
Base Salary) shall be reduced by all applicable state and federal tax
withholdings and any other withholdings required by any applicable jurisdiction.
 
9.6 Governing Law. The validity, interpretation, enforceability and performance
of this Agreement shall be governed by and construed in accordance with the laws
of the State of Florida, without regard to conflict of laws principles that
would cause the laws of another jurisdiction to apply.
 
9.7 Interpretation. This Agreement shall be construed as a whole, according to
its fair meaning, and not in favor of or against any party. Sections and section
headings contained in this Agreement are for reference purposes only, and shall
not affect, in any manner, the meaning or interpretation of this Agreement.
Whenever the context requires, references to the singular shall include the
plural and the plural the singular.
 
9.8 Survival. All of those portions of this Agreement that require performance
by either party following termination of Executive’s employment hereunder shall
survive any termination of this Agreement.
 

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9.9 Counterparts. This Agreement may be executed in several counterparts
(including by means of telecopied signature pages), each of which shall be
deemed an original but all of which shall constitute one and the same
instrument.
 
9.10 Authority. Each party represents and warrants that such party has the
right, power, and authority to enter into and execute this Agreement and to
perform and discharge all of the obligations hereunder, and that this Agreement
constitutes the valid and legally binding agreement and obligation of such party
and is enforceable in accordance with its terms.
 
9.11 Additional Assurances. The provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties except as
may be herein specifically provided to the contrary; provided, however, that at
the request of the Company, Executive shall execute such additional instruments
and take such additional acts as the Company may deem necessary to effectuate
this Agreement.
 
9.12 Entire Agreement. This Agreement is the final, complete, and exclusive
agreement of the parties with respect to the subject matter hereof and
supersedes and merges all prior or contemporaneous representations, discussions,
proposals, negotiations, conditions, communications, and agreements, whether
written or oral, between the parties relating to the subject matter hereof and
all past courses of dealing or industry custom. No oral statements or prior
written material not specifically incorporated herein shall be of any force and
effect, and no changes in or additions to this Agreement shall be recognized
unless incorporated herein by amendment, as provided herein (such amendment to
become effective on the date stipulated therein).
 
9.13 Executive Acknowledgment. Executive acknowledges that, before signing this
Agreement, Executive was advised of his right to consult with an attorney of his
choice to review this Agreement and that Executive had sufficient opportunity to
have an attorney review the provisions of this Agreement and negotiate its
terms. Executive further acknowledges that Executive had a full and adequate
opportunity to review this Agreement before signing it; that Executive carefully
read and fully understood all the provisions of this Agreement before signing
it, including the rights and obligations of the parties; and that Executive has
entered into this Agreement knowingly and voluntarily.
 
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
 

 
COMPANY:
         
H2DIESEL HOLDINGS, INC.
         
By: /s/ David A. Gillespie                      
 
Name: David A Gillespie
 
Title: President and Chief Executive Officer
             
EXECUTIVE:
     
/s/ Cary J. Claiborne                                
 
Cary J. Claiborne

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