H2DIESEL
      HOLDINGS, INC.

     

    Stock
      Option Agreement

     

    1. Grant
      of Option.
      In
      accordance with and subject to the terms and conditions of this Stock Option
      Agreement (the “Agreement”),
      H2Diesel Holdings, Inc., a Florida corporation (the “Corporation”,
      which
      term shall include any entity which acquires, through merger, share exchange,
      purchase of assets or otherwise, substantially all of the capital stock or
      assets of the Corporation), grants to Cary J. Claiborne (the “Optionee”)
      a
      nonqualified stock option (the “Option”)
      to
      purchase the number of shares (the “Option
      Shares”)
      of its
      common stock, par value $.001 per share (“Common
      Stock”),
      set
      forth on each of Schedule
      1
      and
Schedule
      2
      attached
      hereto (collectively, the “Schedules”),
      at
      the initial option exercise price of $4.00 per share (such price, as it may
      be
      adjusted hereunder from time to time, the “Exercise
      Price”).
      Capitalized terms used but not otherwise defined herein shall have the meanings
      set forth in the Employment Agreement between the Corporation and the Optionee,
      as such agreement may be amended, supplemented, amended and restated or
      otherwise modified from time to time.

     

    2. Acceptance
      by Optionee.
      The
      exercise of the Option or any portion thereof is conditioned upon acceptance
      by
      the Optionee of the terms and conditions of this Agreement, as evidenced by
      the
      Optionee’s execution and delivery of the Schedules to this Agreement to the
      Corporation.

     

    3. Vesting
      of Option.
      The
      Options shall vest in the tranches as set forth in the Schedules and such vested
      Options shall be exercisable in accordance with this Agreement.

     

    4. Expiration
      of Option.
      The
      Options shall expire on the expiration date set forth in the Schedules (the
      “Expiration
      Date”)
      unless
      earlier terminated as set forth in Section
      6
      below,
      and may not be exercised after such date.

     

    5. Conditions
      to Exercise of Option.
      Except
      as otherwise set forth in Section
      6,
      the
      Optionee may exercise the Option or any portion thereof to the extent then
      vested at any time or from time to time during the period commencing on the
      grant date set forth on the Schedules and ending on the Expiration Date. The
      Option may be exercised only by the Optionee or, in the event of his death
      or
      incompetence, his personal representative or heirs, as the case may
      be.

     

    6. Termination
      of Employment.
      (a)
      Upon termination of the Optionee’s employment by the Corporation or any of its
      subsidiaries due to the death of the Optionee, any vested Options may be
      exercised on or before the Expiration Date.

     

    (b)
      Upon
      termination of the Optionee’s employment by the Corporation or any of its
      subsidiaries due to a Disability, the next unvested tranche of performance
      options set forth on Schedule
      2
      hereto
      (the “Performance
      Options”)
      will
      vest if the applicable Performance Targets are actually met and any vested
      Options may be exercised on or before the Expiration Date.

     

    (c)
      Upon
      termination of the Optionee’s employment by the Corporation or any of its
      subsidiaries for Cause, any vested Option may be exercised at any time or from
      time to time until and including the 30th day after such termination.


    


    (d)
      Subject to Section
      6(e)
      below,
      upon termination of the Optionee’s employment by the Corporation or any of its
      subsidiaries without Cause or for Good Reason, then all of the unvested time
      based options set forth on Schedule
      1
      hereto
      (the “Time
      Based Options”)
      will
      vest and the next tranche of unvested Performance Options will vest as if the
      applicable Performance Targets had been met. Additionally, such vested portions
      of the Options may be exercised on or before the Expiration Date. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (e)
      If
      there is a Change of Control in the Corporation and within twelve (12) months
      thereafter the Optionee’s employment by the Corporation or any of its
      subsidiaries is terminated without Cause or for Good Reason, then all unvested
      Time Based Options and all unvested Performance Options will vest and may be
      exercised on or before the Expiration Date.

     

    (f)
      Notwithstanding anything in this Agreement to the contrary, in no event may
      any
      Option be exercised following the Expiration Date nor may any Option be
      exercised with respect to the unvested portion thereof. 

     

    7. Procedure
      for Exercise.
      (a) The
      vested portion of the Options may be exercised for the number of Option Shares
      specified in a written notice delivered to the Corporation at least five days
      prior to the date on which purchase is requested (such notice, an “Exercise
      Notice”),
      accompanied by full payment in cash of the aggregate Exercise Price in respect
      of such Option Shares. If specified in the Exercise Notice, payment of such
      Exercise Price may also be made by means of the Corporation retaining from
      the
      Option Shares to be delivered upon exercise of the Option, or portion thereof,
      that number of Option Shares having an aggregate Fair Market Value (as defined
      below) on the date that the Exercise Notice is delivered to the Corporation
      (the
      date that the Exercise Notice is delivered to the Corporation being referred
      to
      as the “Valuation
      Date”;
      provided,
      however,
      that if
      such date is not a day on which securities markets are open for trading, then
      the Valuation Date shall be the first succeeding date that such markets are
      open) equal to the aggregate Exercise Price of the total number of Option Shares
      with respect to which the Optionee shall then be exercising the Option. If
      upon
      exercise of all or a portion of the Option there shall be payable by the
      Corporation or a subsidiary any amount for withholding taxes, then, at the
      Corporation’s election and as a condition to such exercise, either (i) the
      Corporation shall reduce the number of Option Shares to be issued to the
      Optionee by a number of Option Shares of Common Stock having an aggregate Fair
      Market Value on the Valuation Date equal to the amount of such withholding
      tax
      or (ii) the Optionee shall pay such amount to the Corporation or its subsidiary,
      as applicable. 

     

    (b)
      If
      any applicable law requires the Corporation to take any action with respect
      to
      the Option Shares specified in the Exercise Notice, or if any action remains
      to
      be taken under the Certificate of Incorporation or Bylaws of the Corporation,
      as
      in effect at the time, to effect due issuance of Option Shares, then the
      Corporation shall take such action and the day for delivery of such Option
      Shares shall be extended for the period necessary to take such action. The
      Optionee shall not have any of the rights of a shareholder of the Corporation
      under the Option. 

     

    (c)
      As
      used herein, the phrase “Fair Market Value” shall mean (i) if the Common
      Stock is listed or admitted for trading on a national securities exchange,
      an
      automated quotation system or the Over-the-Counter Bulletin Board, the last
      reported sale price per share of the Common Stock on the Valuation Date, or,
      in
      case no such reported sale takes place on such day or is reported, then the
      average of the last reported per share bid and ask prices for shares of the
      Common Stock on such date (or if such bid and ask prices are not available
      on
      such date, the most recent preceding date), in either case as officially
      reported by such securities exchange, quotation system or Bulletin Board on
      which the Common Stock is listed or admitted to trading, (ii) if not so
      listed or admitted for trading, the fair market value of a share of the Common
      Stock as determined by the Corporation’s board of directors in good faith, or
      (iii) if such exercise is in connection with a merger or consolidation of the
      Corporation in which the Corporation is not the survivor or in which the Common
      Stock is exchanged for cash or other securities or a sale of all or
      substantially all of the assets of the Corporation (collectively, a “Sale”), the
      implied price per share of the Common Stock resulting from such
      Sale.

     

    8. Adjustment
      of Exercise Price and Option Shares. (a)
      If,
      at any time prior to the Expiration Date, the number of outstanding shares
      of
      Common Stock is (i) increased by a stock dividend payable in shares of Common
      Stock or by a subdivision or split-up of shares of Common Stock, or (ii)
      decreased by a combination of shares of Common Stock, then, following the record
      date fixed for the determination of holders of Common Stock entitled to receive
      the benefits of such stock dividend, subdivision, split-up, or combination,
      the
      Exercise Price shall be adjusted to a new amount equal to the product of (A)
      the
      Exercise Price in effect on such record date, and (B) the quotient obtained
      by
      dividing (x) the number of Option Shares for which the Option was exercisable
      on
      such record date without giving effect to the event referred to in the foregoing
      clause (i) or (ii) (such number of Option Shares, the “Record
      Date Option Shares”),
      by
      (y) the aggregate number of shares to which the Record Date Option Shares would
      have been increased or decreased immediately after and as a result of the event
      referred to in the foregoing clause (i) or (ii) had the Record Date Option
      Shares been issued immediately prior to such record date.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b) Upon
      each
      adjustment of the Exercise Price as provided in Section
      8(a),
      the
      Optionee shall thereafter be entitled to subscribe for and purchase, at the
      Exercise Price resulting from such adjustment, the number of Option Shares
      equal
      to the product of (i) the number of Record Date Option Shares and (ii) the
      quotient obtained by dividing (A) the Exercise Price existing prior to such
      adjustment by (B) the new Exercise Price resulting from such
      adjustment.

     

    9. Reclassification,
      Etc. In
      case
      of any reclassification or change of the outstanding Common Stock of the
      Corporation (other than as a result of a subdivision, combination or stock
      dividend), or in case of any consolidation of the Corporation with, or merger
      of
      the Corporation into, another corporation or other business organization (other
      than a consolidation or merger in which the Corporation is the continuing
      corporation and which does not result in any reclassification or change of
      the
      outstanding Common Stock of the Corporation) at any time prior to the Expiration
      Date, then, as a condition of such reclassification, reorganization, change,
      consolidation or merger, lawful provision shall be made, and duly executed
      documents evidencing the same from the Corporation or its successor shall be
      delivered to the Optionee, so that the Optionee shall have the right prior
      to
      the Expiration Date to purchase, at a total price not to exceed that payable
      upon the exercise of this Option as to the number of Option Shares is then
      exercisable, the kind and amount of shares of stock and other securities and
      property receivable upon such reclassification, reorganization, change,
      consolidation or merger by a holder of the number of Option Shares which might
      have been purchased by the Optionee immediately prior to such reclassification,
      reorganization, change, consolidation or merger, and in any such case
      appropriate provisions shall be made with respect to the rights and interest
      of
      the Optionee to the end that the provisions hereof (including provisions for
      the
      adjustment of the Exercise Price and of the number of shares purchasable upon
      exercise of the Option) shall thereafter be applicable in relation to any shares
      of stock and other securities and property thereafter deliverable upon exercise
      of the Option.

     

    10. Non-Transferability
      of Stock Options.
      The
      Option granted hereunder to the Optionee shall not be transferable by the
      Optionee otherwise than by will, or by the laws of descent and
      distribution.

     

    11. No
      Right to Employment.
      Nothing
      contained in this Agreement, nor any action taken by the board of directors,
      shall confer upon the Optionee any right with respect to continuation of
      employment by the Corporation or a subsidiary as an employee nor interfere
      in
      any way with the right of the Corporation or a subsidiary to terminate the
      Optionee’s employment as an employee at any time with or without
      Cause.

     

    12. Compliance
      With Applicable Law.
      The
      issuance of the Option Shares pursuant to the exercise of the Option is subject
      to compliance with all applicable laws, including without limitation laws
      governing withholding from employees and nonresident aliens for income tax
      purposes. 

     

    13. Investment
      Representations; Restrictions on Option Shares.
      Unless
      a
      current registration statement under the Securities Act of 1933, as amended
      (the
“Securities
      Act”)
      shall
      be in effect with respect to the Option Shares to be issued upon exercise of
      the
      Option, the Optionee, by accepting the Option, covenants and agrees that, at
      the
      time of exercise of the Option, the Optionee will deliver to the Corporation
      such written representations that the Corporation may deem necessary or
      appropriate to ensure that the Option Shares are not required to be registered
      under the Securities Act or applicable state securities laws. The Optionee
      agrees that certificates representing Option Shares may bear a legend
      substantially as follows:

     

    THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS.
      THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED OR TRANSFERRED UNTIL THE
      HOLDER HEREOF PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE
      DISCRETION OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO
      THE
      ISSUER) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER OR OTHER DISPOSITION WILL NOT
      VIOLATE APPLICABLE FEDERAL OR STATE LAWS.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    14. Notices
      Generally. Any
      notice, request, consent, other communication or delivery pursuant to the
      provisions hereof shall be in writing and shall be sent by one of the following
      means: (i) by registered or certified first class mail, postage prepaid, return
      receipt requested; (ii) by facsimile transmission with confirmation of receipt;
      (iii) by overnight courier service; or (iv) by personal delivery, and shall
      be
      properly addressed to the Optionee at the last known address or facsimile number
      appearing on the books of the Corporation, or, except as herein otherwise
      expressly provided, to the Corporation at its principal executive office
      Attention: Chairman of the Board of Directors, or such other address or
      facsimile number as shall have been furnished to the party giving or making
      such
      notice, demand or delivery.

     

    15. Miscellaneous.
      

     

    (a) This
      Agreement has been duly authorized on behalf of the Corporation by the board
      of
      directors. The Optionee represents that he is free to enter into this Agreement
      and that his entering into this Agreement does not violate any obligation that
      he has to any other person or legal entity.

     

    (b) In
      the
      event that any provision of this Agreement would be held to be invalid or
      unenforceable for any reason unless narrowed by construction, this Agreement
      shall be construed as if such invalid or unenforceable provision had been more
      narrowly drawn so as not to be invalid or unenforceable. If, notwithstanding
      the
      foregoing, any provision of this Agreement shall be held to be invalid or
      unenforceable for any reason, such invalidity or unenforceability shall attach
      only to such provision and shall not affect or render invalid or unenforceable
      any other provision of this Agreement.

     

    (c) This
      Agreement sets forth the entire understanding of the Corporation and the
      Optionee with respect to the subject matter hereof and cannot be amended or
      modified except by a writing signed by both parties.

     

    (d) Except
      as
      otherwise expressly provided herein, this Agreement shall be binding upon and
      inure to the benefit of the parties hereto, and their respective permitted
      successors and assigns, heirs and personal representatives.

     

    (e) This
      Agreement may not be amended, and no provision of this Agreement may be waived,
      except by a writing signed by Optionee and by a duly authorized representative
      of the Corporation. 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

     

    (f) This
      Agreement shall be interpreted, construed and administered in accordance with
      the laws of the State of Florida without regard to its choice of law provisions
      that would cause the laws of another jurisdiction to apply. For the purposes
      of
      any suit, action, or other proceeding (collectively, a “Proceeding”)
      arising out of this Agreement or any transaction contemplated hereby, each
      of
      the parties hereto irrevocably submits to the exclusive jurisdiction of the
      courts of the State of Florida.

     

    (g) This
      Agreement may be executed in counterparts which, taken together, shall
      constitute a single original document.

     

    


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    IN
      WITNESS WHEREOF, the
      Corporation has caused this Agreement to be executed as of December 18,
      2007.

    .

    
      
        	 	H2DIESEL HOLDINGS, INC.
	 	 
	 	
                By:
                  /s/
                  David A. Gillespie 

                Name:
                  David A. Gillespie

                Title:
                  President and Chief Executive
                  Officer

              


      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Schedule
      1

    Time
      Based Options

    


    
      	
              1.
                Name of Optionee:

            	
              Cary
                J. Claiborne

            
	
               

            	
               

            
	
              2.
                Number of Option Shares:

            	
              300,000
                shares of Common Stock

            
	
               

            	
               

            
	
              3.
                Initial Option Exercise Price Per Share:

            	
              $4.00

            
	
               

            	
               

            
	
              4.
                Date of Grant:

            	
              December
                1, 2007

            
	
               

            	
               

            
	
              5.
                Expiration Date:

            	
              December
                1, 2017

            
	
               

            	
               

            
	
              6.
                Vesting Schedule:

            	
              option
                to purchase up to 105,000 shares of Common Stock shall vest on the
                date of
                grant

            
	
               

            	
               

            
	
               

            	
              option
                to purchase up to 65,000 shares of Common Stock shall vest on December
                1,
                2008

            
	
               

            	
               

            
	
               

            	
              option
                to purchase up to 65,000 shares of Common Stock shall vest on December
                1,
                2009

            
	
               

            	
               

            
	
               

            	
              option
                to purchase up to 65,000 shares of Common Stock shall vest on December
                1,
                2010

            


    

    


    


    Accepted
      and agreed to as of December 19, 2007:

     

    /s/
      Cary J. Claiborne  

    Cary
      J.
      Claiborne 


    
      
         

         

      

      
         

        
          

        

      

      
         

      

    


    Schedule
      2

    Performance
      Options

    


    
      	
              1.
                Name of Optionee:

            	
              Cary
                J. Claiborne

            
	
               

            	
               

            
	
              2.
                Number of Option Shares:

            	
              450,000
                shares of Common Stock

            
	
               

            	
               

            
	
              3.
                Initial Option Exercise Price Per Share:

            	
              $4.00

            
	
               

            	
               

            
	
              4.
                Date of Grant:

            	
              December
                1, 2007

            
	
               

            	
               

            
	
              5.
                Expiration Date:

            	
              December
                1, 2017

            
	
               

            	
               

            
	
              6.
                Vesting Schedule:

            	
              option
                to purchase up to 75,000 shares of Common Stock shall vest in respect
                of
                the fiscal year ending December 31, 2007 if the Performance Targets
                (defined below) for such year are met;

            
	
               

            	
               

            
	
               

            	
              option
                to purchase up to 125,000 shares of Common Stock shall vest in respect
                of
                the fiscal year ending December 31, 2008 if the Performance Targets
                for
                such year are met;

            
	
               

            	
               

            
	
               

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

            
	 	 
	 	
              option
                to purchase up to 125,000 shares of Common Stock 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 no 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.

            


    

    


    


    Accepted
      and agreed to as of December 19, 2007:

     

    /s/
      Cary J. Claiborne 

    Cary
      J.
      Claiborne