Exhibit 10.35  January 31, 2008  Mr. Dale
S. Barker ProEco Energy
Company P.O. Box
26 Belle Fourche,
South Dakota 57717  Re:Project for Ethanol Plants  Dear Mr. Barker:  In our previous letter dated December 15, 2007 (December Letter),
the parties agreed to revise the agreements relating to their relationship
regarding the 56 million gallons per year ethanol plant in South Dakota (Potential
Project).  The purpose of this
letter (this Letter) is to set forth additional binding agreements
between O2Diesel Corporation, a Delaware corporation (O2Diesel), and
ProEco Energy Company, Inc. (ProEco) and certain selling
shareholders of ProEco, with respect to the Potential Project.  This Letter shall become effective on the day
it is countersigned by you.  1.Loan Agreement.  The parties agree to extend the maturity date
of the Amended and Restated Term Loan Agreement, dated as of December 22,
2006, and as amended and restated on September 14, 2007 and December 15,
2007 (Loan Agreement) from January 31, 2008 to February 29,
2008 (Maturity Date), and the parties shall execute a revised Amended
and Term Loan Agreement, as attached hereto as Exhibit A.  As of January 31, 2008, there is
$1,419,424.25 principal and interest outstanding (the Loan).  The Loan is evidenced by the Secured
Promissory Note, as attached hereto as Exhibit B, and the Secured
Promissory Note, as attached hereto as Exhibit C.  2.Share Exchange Agreement.  Section 6.1(f) of the Share
Exchange Agreement (the Exchange Agreement), dated as of January 12,
2007, by and between O2Diesel and ProEco, sets forth the automatic termination
date of the Exchange Agreement.  Since
the parties agree to extend the Maturity Date, the automatic termination date
of the Exchange Agreement is also extended to February 29, 2008.  3.Miscellaneous.  a.Except as expressly set forth herein, the Loan
Agreement, the Exchange Agreement and December Letter remain in full force
and effect in accordance with their respective terms.


b.This Letter may be executed in any number of
counterparts, which taken together shall constitute one and the same document.  Please sign and date this Letter in the space
provided below to confirm the binding agreement and return a copy to the
undersigned.  We look forward to continuing
working together with you.  Very truly yours,O2DIESEL CORPORATIONBy:
  /s/ Alan RaeAlan Rae, Chief Executive Officer  Accepted and agreed.  PROECO ENERGY COMPANY, INC.   By:
  /s/ Dale S. BakerDale S. Barker  Date:  February 2, 2008  2


EXECUTION COPY  EXHIBIT A  AMENDED AND RESTATED TERM
LOAN AGREEMENT  Dated as of December 22,
2006, and as amended and restated on January 31, 2008  between  ProEco Energy
Company (the Borrower)  and  Dale S. Barker
and Barbara Pyle, as Pledgors  and  O2Diesel
Corporation (the Lender and the Collateral Agent)


AMENDED AND RESTATED TERM
LOAN AGREEMENT  This Amended and Restated Term Loan Agreement (this Agreement),
dated as of December 22, 2006, (the Effective Date) and amended and
restated as of January 31, 2008, is entered into by and among ProEco
Energy Company, a South Dakota corporation (the Borrower), the Pledgors (as
defined herein) and O2Diesel Corporation, a Delaware corporation as lender (the
Lender) and as collateral agent (the Collateral Agent).  RECITALS:  WHEREAS, the Borrower requires capital for the
purchase of an option (the Option) to purchase parcels of land (collectively,
the Parcels and individually, a Parcel) on which a new fuel-grade ethanol
plant (the Potential Project) is to be constructed;  WHEREAS, the Borrower is willing to secure all of its
Obligations (as hereinafter defined) by granting to the Collateral Agent, for
the benefit of itself and the Lender, security interests in and a lien upon all
of its property and assets now owned or hereafter acquired by the Borrower;  WHEREAS, certain stockholders and officers of the
Borrower will benefit from the Loans (as hereinafter defined) made by the Lender
to the Borrower and are willing to pledge collateral as security for payment
and performance of all of the Obligations of the Borrower and to grant to the
Collateral Agent, for the benefit of itself and the Lender, a security interest
in and a lien upon all shares of the issued and outstanding common stock of the
Borrower (the Common Stock) held by such officers;  WHEREAS, the Lender is willing to provide the Borrower
with such capital on the terms and conditions hereafter provided; and  WHEREAS, the Borrower has requested, and the Lender
has agreed to provide, (i) an extension of the Maturity Date of the Loans
(as defined below) and (ii) an increase in the aggregate principal amount
of the Delayed Draws (as defined below) that may be borrowed pursuant to this
Agreement.  NOW, THEREFORE, in consideration of the undertakings
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which hereby is acknowledged, the parties hereto agree as
follows:  ARTICLE I  DEFINITIONS  As used in this Agreement:  Business Day means, with respect to any borrowing or
payment, a day other than Saturday or Sunday on which banks are open for
business in the State of Delaware.  Change in Control means (i)the
failure of Dale S. Barker and Barbara Pyle to own, beneficially and of record,
the issued and outstanding shares of voting stock of the Borrower held by


them as of the Closing Date (appropriately adjusted to reflect stock
splits, stock dividends, reverse stock splits and similar events), (ii) any
merger, consolidation, reorganization, recapitalization, or other business
combination involving the Borrower, in which the stockholders of the Borrower
immediately prior thereto do not own, directly or indirectly, outstanding
voting securities representing more than fifty percent (50%) of the combined
outstanding voting power of the surviving entity in such merger, consolidation,
reorganization, recapitalization or other business combination; (iii) the
sale of all, or substantially all, of the assets of the Borrower; or (iv) the
sale of voting securities of the Borrower in a transaction or a series of
related transactions to any person (or group of persons acting in concert) that
results in such person (or group of persons) (together with their affiliates)
owning more than fifty percent (50%) of the outstanding voting securities of
the Borrower; provided that Change of Control shall not include any
transaction involving the Lender acquiring voting securities or assets or
merging with the Borrower.  Closing Date means December 22, 2006, or such later date as may
be agreed by the parties hereto.  Collateral shall have the meaning ascribed to such term in the
Security Agreement.  Credit Parties (each individually, a Credit Party) shall mean the
Borrower and each of the Pledgors.  Disclosure Schedule means the disclosure schedule to this Agreement
delivered to the Lender by the Borrower upon execution and delivery of this
Agreement.  Environmental Condition means any contamination or damage to the
environment caused by or relating to the use, handling, storage, treatment,
recycling, generation, transportation, release, spilling, leaching, pumping,
pouring, emptying, discharging, injection, escaping, disposal, dumping or
threatened release of Hazardous Materials by the Borrower or any other
Person.  With respect to claims by
employees or any other third parties, Environmental Condition shall also
include the exposure of Persons to amounts of Hazardous Materials in amounts
that have been determined to be deleterious to human health.  Environmental Laws means all currently
applicable federal, state and local laws, ordinances, rules and
regulations and standards, policies and other governmental requirements,
administrative rulings and court judgments and decrees, including all
amendments, and requirements applicable under common law that relate to (1) pollution;
(2) the protection of human health and safety; (3) the protection or
regulation of the environment, including without limitation, air, soils,
wetlands, surface and underground water; (4) aboveground or underground
storage tank regulation or removal; (5) wildlife; (6) protection or
regulation of natural resources; (7) radioactive materials, including
without limitation radon; (8) indoor air quality; and (9) chemicals,
pesticides, mold or fungus or similar substances.  Environmental Laws include, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601,
et seq., the Federal Water Pollution
Control Act, 33 U.S.C. Section 1251, et seq., the
Hazardous Materials Transportation Act, 49 U.S.C. 5101, et seq.,
the Clean Air Act, 42 U.S.C. Section 7401, et seq.,
the Safe Drinking Water Act, 42 U.S.C. Section 300f, et seq.,
the Occupational Safety and Health Act, 29 U.S.C. Section 651, et seq., the Emergency


Planning and Community Right
to Know Act of 1986, 42 U.S.C. 11001, et seq., the
Atomic Energy Act, 42 U.S.C. Section 2014, et seq.,
the National Environmental Policy Act, 42 U.S.C. Section 4321, et seq., the Endangered Species Act, 16 U.S.C. Section 1531,
et seq., the Federal Insecticide, Fungicide &
Rodenticide Act, 7 U.S.C. Section 136, et seq., and
their state analogs, all applicable state superlien or environmental clean-up
or disclosure statutes in any state in which the Borrower operates or conducts
any business, and all similar local laws, and all implementing regulations.  Environmental Noncompliance means any
violation of any Environmental Law.  Hazardous Materials shall mean any
materials regulated as hazardous or toxic under applicable Environmental Laws,
or any other material regulated, or that could result in the imposition of
liability, under Environmental Laws, including, without limitation, petroleum,
petroleum products, fuel oil, crude oil or any fraction thereof, derivatives or
byproducts of petroleum products or fuel oil, natural gas, mold, hazardous
substances, toxic substances, polychlorinated biphenyls, any materials
containing more than one percent (1%) asbestos by weight and any other
substance determined to present a deleterious effect on human health or the
environment.  Intellectual Property means all of the following as
they exist in any jurisdiction throughout the world, in each case, to the
extent owned by, licensed to, or otherwise used by the Borrower:  (a) patents, patent applications and the
inventions, designs and improvements described and claimed therein, patentable
inventions, and other patent rights (including any divisionals, continuations,
continuations-in-part, substitutions, or reissues thereof, whether or not
patents are issued on any such applications and whether or not any such
applications are amended, modified, withdrawn, or refiled) (collectively, Patents);
(b) trademarks, service marks, trade dress, trade names, brand names,
Internet domain names, designs, logos, or corporate names (including, in each
case, the goodwill associated therewith), whether registered or unregistered,
and all registrations and applications for registration thereof (collectively, Trademarks);
(c) works of authorship and all copyrights therein, including all renewals
and extensions, copyright registrations and applications for registration, and
non-registered copyrights (collectively, Copyrights); (d) trade secrets,
confidential business information, concepts, ideas, designs, research or
development information, processes, procedures, techniques, technical
information, specifications, operating and maintenance manuals, engineering
drawings, methods, know-how, data, mask works, discoveries, inventions,
modifications, extensions, improvements, and other proprietary rights (whether
or not patentable or subject to copyright, trademark, or trade secret
protection) (collectively, Trade Secrets); (e) all domain name
registrations, web sites and web pages and related rights, items and
documentation related thereto (collectively, Internet Assets); (f) computer
software programs, including all source code, object code, and documentation
related thereto and all software modules, tools and databases (Software); (g) mask
works, and (h) all licenses, and sublicenses, and other agreements or
permissions related to the preceding property.  IT Assets means computers, computer software (except
for off the shelf or shrink-wrap software), firmware, middleware, servers,
workstations, routers, hubs, switches, data communication lines, and all other
information technology equipment, and all associated documentation.  Loan Documents means this Agreement, the LOI, the
Notes and any Security Documents.


LOI means that certain letter of intent, dated November 30,
2006, signed by the Lender and acknowledged by the Borrower.  Maturity Date means February 29, 2008.  Mortgage (or Mortgages) means any mortgage, deed
of trust, deed to secure debt and other instrument, from time to time executed
by the Borrower for the purpose of granting the Collateral Agent, for its
benefit and the benefit of the Lender, a lien on real property of the Borrower,
in form and substance satisfactory to the Lender.  Obligations means (i) all current or future
unpaid principal of and accrued and unpaid interest (including without
limitation, interest accruing during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding) on the Notes when and as due, whether at
maturity, by acceleration, upon one or more dates set for prepayment or
otherwise; (ii) all other monetary obligations, including but not limited
to, interest, fees, charges; and (iii) the due and punctual performance of
all covenants, agreements, obligations and liabilities of the Borrower now or
hereafter due arising under or in connection with the Loan Documents, expenses,
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding) of the Borrower now or hereafter due
under or in connection with the Loan Documents.  Person means any corporation, natural person, firm,
joint venture, partnership, trust, unincorporated organization, enterprise,
government or any department or agency of any government.  Pledge Agreement means that certain Pledge Agreement
dated as of the date hereof, by and among the Pledgors and the Collateral
Agent.  Pledged Collateral shall have the meaning ascribed
to such term in the Pledge Agreement.  Pledgors means Dale S. Barker and Barbara Pyle.  Purchase Agreement means that any definitive
agreement entered into between the Borrower and the Lender pursuant to which
the Lender acquires all or a portion of the Borrowers assets or voting
securities.  Security Documents means the Security Agreement, the
Pledge Agreement and such other agreements, instruments, documents, financing
statements, warehouse receipts, bills of lading, notices of assignment of
accounts, schedules of accounts assigned, mortgages and other written matter
necessary or reasonably requested by the Lender to perfect and maintain
perfected the Lenders first priority security interest in the Collateral.  Security Agreement means that certain Security Agreement, dated as of
the date hereof, by and between the Borrower and the Pledgors as Grantors and
the Collateral Agent.


Solvent means, with respect to any Person, that (i) the fair
value of all of such Persons properties and assets is in excess of the total
amount of its debts (within the meaning of the U.S. Bankruptcy Code); (ii) it
is able to pay its debts as they mature; (iii) it does not have
unreasonably small capital for the business in which it is engaged or for any
business or transaction in which it is about to engage; and (iv) it is not
insolvent as such term is defined in Section 101(31) of the U.S.
Bankruptcy Code.  Trains Project means the project to build two 50 million gallon
trains in connection with the Potential Project as described in the LOI.  Transaction means the acquisition by the Lender of 80% of the Common
Stock of the Borrower in accordance with the terms and conditions set forth in
the Purchase Agreement.  U.S. Bankruptcy Code means Title 11 of the United States Code, 11
U.S.C.  Section 101, et  seq.  The words herein, hereof and hereunder and other
words of similar import refer to this Agreement as a whole, including the
Exhibits and Schedules hereto, as the same may from time to time be amended,
modified or supplemented, and not to any particular section, subsection or
clause contained in this Agreement.  Wherever from the context it appears appropriate, each
term stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, the feminine and the neuter.  ARTICLE II  THE LOANS  2.1Loans.  (a)Subject to satisfaction of the terms and
conditions set forth in this Agreement, the Lender agrees to make a term loan
to the Borrower on the Closing Date in an aggregate principal amount of
$150,000 (the Initial Loan), the proceeds of which shall be used by the
Borrower solely to purchase the Option.  (b)The Borrower may request that the Lender
make additional term loans to the Borrower in an aggregate principal amount of
up to $1,250,000 (each a Delayed Draw, and together with the Initial Loan, the
Loans) by delivering a written request to the Lender specifying the amount of
the Delayed Draw, the Business Day on which the Borrower wishes to make the
Delayed Draw and the proposed use of the funds provided by the Delayed Draw.  The Lender may, in its absolute discretion,
agree to provide a Delayed Draw to the Borrower, in each case in the amount and
on the Business Day specified in the applicable Borrowing Request, subject to
the conditions set forth in Section 3.2 of this Agreement.


2.2Repayment.  (a)The Borrower shall repay the Loans,
together with all interest due thereon, and all other amounts owing under this
Agreement or the Loan Documents in connection with the Loans in full on the
Maturity Date; notwithstanding any of the foregoing, upon the Lender closing on
a transaction to provide financing for the Trains Project, all amounts owing
under this Agreement or the Loan Documents in connection with the Loans shall
be converted into an intercompany loan from the Lender to the Borrower (the Intercompany
Loan) evidenced by a promissory note to be repaid on a date mutually agreed
upon by the parties.  (b)The obligation of the Borrower to repay
the principal amount of the Loans, and any and all interest which accrues
thereon, shall be evidenced by a series of promissory notes executed and
delivered by the Borrower in the form of Exhibit A hereto (collectively,
the Notes and each individually, a Note).  (c)In the event that the Lender informs the
Borrower that the Lender either (i) is unable to obtain financing for the
Trains Project or (ii) chooses to participate in another opportunity
related to an ethanol plant or the ethanol industry, the parties shall use
commercially reasonable efforts to renegotiate mutually agreeable repayment
terms of all amounts then owing under this Agreement or the Loan Documents in
connection with the Loans.  2.3Interest.  Interest on
the Loans shall accrue at a per annum rate equal to seven percent (7%) (the Applicable
Rate), provided, however, during any period in which a Default (as defined
below), shall exist, interest on the Loans shall accrue at a rate per annum
equal to two percent (2%) above the Applicable Rate.  Interest shall be calculated for actual days
elapsed on the basis of a
360-day year.  Interest on the Loans
shall not be paid in cash but instead automatically shall be added to the
outstanding principal balance of the Loans on the first (1st) Business Day of each calendar month prior to the
Maturity Date and shall be treated in all respects as outstanding principal
under the Loans.  2.4Method of Payment. 
All payments of principal and fees hereunder shall be made in
immediately available funds in United States Dollars to the Lender at the
Lenders address specified pursuant to Section 8.11, by noon (local time)
on the date the same shall be due.  The
Loans may be prepaid in whole or in part without penalty.  Amounts repaid or prepaid with respect to the
Loans may not be reborrowed, provided that the Borrower shall give the Lender
written notice of its intention to prepay any of the outstanding amounts, which
notice shall specify the amount to be so prepaid and the date of such
prepayment, not less than two (2) Business Days prior to such prepayment.


ARTICLE III  CONDITIONS PRECEDENT  3.1Conditions to the Initial Loan. 
The obligation of the Lender to make the Initial Loan shall be subject
to the following conditions precedent:  (a)each of the Credit Parties, to the extent
applicable to such Credit Party, shall have furnished to the Lender, or caused
to be furnished to the Lender (unless otherwise waived by Lender in writing),
the following, in form and substance reasonably satisfactory to the Lender and
its counsel, each dated as of the Effective Date (or such other date as shall
be acceptable to the Lender):  (i) each of the
following Loan Documents to which it is a party, duly executed by an authorized
officer and the other parties thereto: this Agreement, a Note in the principal
amount of $150,000, the Security Agreement and the Pledge Agreement;  (ii) evidence of all
filings of the financing statements with respect to the Security Agreement and
the other Security Documents; searches or other evidence as to the absence of
any liens on the Collateral; and evidence that all other actions with respect
to the liens created by the Security Documents have been taken as are necessary
or appropriate to perfect such liens and establish a first priority security
interest in favor of the Lender in the Collateral, including the Pledged
Collateral; and  (iii) such other
documents as the Lender or its counsel may reasonably request.  (b)the representations and warranties of
each Credit Party made in Article IV of this Agreement and the other Loan
Documents shall be true and correct when made, and shall be true in on and as
of the Closing Date (except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date);  (c)each Credit Party shall have performed
and complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing Date; and  (d)the Lender shall have received an opinion
letter, dated as of the Closing Date and addressed to the Collateral Agent and
the Lender, from counsel to the Borrower, in a form that is reasonably
satisfactory to the Lender.  3.2Conditions
to Subsequent Drawings.  The
obligation of the Lender to lend additional amounts for any Delayed Draw shall
be subject to the following conditions precedent and solely at the discretion
of the Lender:  (a)no Default (as defined below) has
occurred or is continuing or would result from the Delayed Draw;  (b)as of the date that the Delayed Draw is
made, all of the representations and warranties of the Borrower contained in Article IV
and in the other Loan Documents shall be true and correct (except to the extent
such representations and warranties specifically relate to an earlier date, in
which case such representations and warranties shall be true and correct as of
such earlier date, and except for changes after the Closing Date which are not
prohibited by any Loan Document);  (c)the Borrower shall have performed and
complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied


with by it in order to make a Delayed Draw, including the Post-Closing
Conditions Subsequent, if applicable;  (d)the Lender shall have completed its first
level due diligence review of the Borrowers business, assets, contracts,
prospects and financial condition and the technical feasibility of the
Potential Project, and the Lender shall be satisfied in all respects with the
results of such first level due diligence review; and  (e)the Borrower shall have delivered (i) a
Note, duly executed by an authorized officer, in the principal amount of the
applicable Delayed Draw and (ii) any documents related to the proposed use
of Funds for the Delayed Draw as the Lender shall reasonably request.  3.3Post-Closing
Conditions Subsequent.  (a)Within thirty (30) days following the
Closing Date, the Borrower shall enter into an executed account control
agreement, in a form reasonably satisfactory to the Lender, with respect to
each account maintained by the Borrower.  (b)Within ten (10) days following the
Closing Date, the Borrower shall deliver to the Lender evidence in a form
acceptable to the Lender that the Borrower has used the funds advanced in the
Initial Loan to make a payment toward the purchase of the Option.  ARTICLE IV  REPRESENTATIONS AND WARRANTIES  Except as set forth on the Disclosure Schedule
delivered by the Borrower to the Lender, each section of which shall only
qualify the representation or warranty in the correspondingly numbered Section of
this Agreement, each Credit Party, as applicable, represents and warrants to
the Lender that on the date hereof:  4.1Organization and Qualification. 
The Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the state of South Dakota, is qualified to
transact business in the jurisdictions listed on the Disclosure Schedule and
has the requisite corporate power and authority and legal capacity to own and
operate its properties and assets, to conduct its business as now conducted and
as currently proposed to be conducted in the future, to enter into, execute and
deliver this Agreement and the Loan Documents, to issue the Notes and to
perform its obligations under this Agreement and the Loan Documents and any
other agreement to which the Borrower is a party, the execution and delivery of
which are contemplated hereby.  The
Borrower is duly qualified to transact business and is in good standing, if
applicable, in each jurisdiction in which the failure to so qualify would have
a material adverse effect on its business, condition, results or operations,
assets or liabilities (a Material Adverse Effect).  4.2Authorization; Enforceable Obligations. 
Except as set forth on the Disclosure Schedule, the execution, delivery
and performance by the Borrower of each of the Loan Documents, to the extent it
is a party thereto, and the creation of all liens provided for herein and
therein:  (a)  have been and will be
duly authorized by all necessary or proper action; (b) are not in
contravention


of
any provision of the Borrowers by-laws or charter; (c) will not violate
any law or regulation, or any order or decree of any court or governmental
instrumentality; (d) will not conflict with or result in the breach or
termination of, constitute a default under, or accelerate any performance
required by, any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which the Borrower is a party or by which the Borrower or any of
its property is bound (except for such conflict, breach, termination, default
or acceleration as could not reasonably be expected to have a Material Adverse
Effect); (e) will not result in the creation or imposition of any lien
upon any of the property of the Borrower other than those in favor of the
Lender, all pursuant to the Loan Documents; and (f) do not require the
consent or approval of any governmental body, agency, authority or any other
Person, except such consents as have been obtained.  Each of the Loan Documents delivered in
connection herewith at such time shall have been duly executed and delivered
for the benefit of or on behalf of the Borrower, and each shall then constitute
a legal, valid and binding obligation of the Borrower, enforceable against it
in accordance with its terms.  4.3No Default.  The Borrower
is not, and after giving effect to this Agreement shall not be, in default in
the payment or performance of any contractual obligation where such default
could have a material adverse effect on the business, properties, assets,
liabilities or condition (financial or otherwise) on the Borrower.  4.4Financial Information; Minute Books,
Solvency.  (a)All balance sheets, all statements of
operations, stockholders equity and cash flows, and all other financial
information of the Borrower which have been or shall hereafter be furnished by
or on behalf of the Borrower to the Lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby, have been prepared
in accordance with GAAP consistently applied throughout the periods involved
and present fairly in all material respects the matters reflected therein
subject, in the case of unaudited statements, to changes resulting from normal
year-end audit adjustments and except as to the absence of footnotes.  As of the date here, the Borrower has no
material contingent liabilities or material liabilities for taxes, long-term
leases or forward or long-term commitments except as set forth on the
Disclosure Schedule.  (b)The Borrower is Solvent and, after giving
effect to the borrowings under this Agreement, will be Solvent.  4.5Investment Company Act. 
No Credit Party is, or after giving effect to the transactions
contemplated by the Loan Documents will be, an investment company or an
affiliated person or promoter of, or principal underwriter of or for, an
investment company, within the meaning of the Investment Company Act of 1940,
as amended, or any other federal or state law limiting its ability to incur
debt or to execute, deliver or perform the Loan Documents to which it is a
party.  4.6Intellectual Property.  (a)The Disclosure Schedule sets forth a true
and complete list of (i) all Intellectual Property owned by the Borrower,
indicating for each item that is registered the registration or application
number and the applicable filing jurisdiction and (ii) all Intellectual
Property contracts (other than licenses for commercial off-the-shelf or
shrink-wrap software that


are not material to the business, operations, financial condition or
performance of the Borrower, taken as a whole). 
The Borrower exclusively owns (beneficially, and of record where
applicable) all right, title and interest in and to all Intellectual Property
set forth on the Disclosure Schedule (the Scheduled Intellectual Property)
free and clear of all liens not otherwise permitted in this Agreement,
exclusive licenses and non-exclusive licenses not granted in the ordinary
course of business.  The Scheduled
Intellectual Property is not subject to any outstanding order, judgment,
decree, or agreement adversely affecting the use thereof by the Borrower or its
rights thereto, and is valid, subsisting and enforceable.  The Borrower does not, and has not in the
past five years, infringed or otherwise violated the Intellectual Property
rights of any third party.  The Borrower has
sufficient rights to use all Intellectual Property used in its business as
presently conducted, all of which rights shall survive the consummation of the
transactions contemplated by this Agreement unchanged There is no litigation,
opposition, cancellation, proceeding, objection, or claim pending, asserted, or
threatened against the Borrower concerning the ownership, validity,
registerability, enforceability, infringement, use of, or licensed right to use
any Intellectual Property, except as set forth on the Disclosure Schedule.  To the knowledge of the Borrower, no valid
basis exists for any such litigation, opposition, cancellation, proceeding,
objection, or claim.  To the Borrowers
knowledge, no person is violating any Scheduled Intellectual Property right
that the Borrower holds exclusively.  (b)The Scheduled Intellectual Property that
is registered has been duly registered with, filed in, or issued by, as the
case may be, the United States Patent and Trademark Office or such other filing
offices, domestic or foreign, as applicable, and such registration, filings,
issuances, and other actions remain in full force and effect, and are current
and unexpired.  The Borrower has properly
executed and recorded all documents necessary to perfect its title to all
Scheduled Intellectual Property, and has filed all documents and paid all
taxes, fees, and other financial obligations required to maintain in force and
effect all such items.  (c)The Borrower has taken all reasonable
measures to protect the confidentiality and value of all Trade Secrets that are
owned, used, or held by the Borrower, and, to the Borrowers knowledge, such
Trade Secrets have not been used, disclosed to, or discovered by any person
except pursuant to valid and appropriate non-disclosure and/or license
agreements that have not been breached. 
All current and prior employees of the Borrower have executed valid
intellectual property and confidentiality agreements for the benefit of the
Borrower, and to the Borrowers knowledge, no current or prior employee is in
default or breach of any term of any such agreement.  (d)The IT Assets operate and perform in all
material respects in accordance with their documentation and functional
specifications and otherwise as required by the Borrower in connection with its
business, and have not materially malfunctioned or failed within the past three
(3) years.  To the Borrowers
knowledge, no person has gained unauthorized access to the IT Assets.  The Credit Parties have implemented
reasonable backup and disaster recovery technology consistent with industry
practices.  4.7Insurance.  All policies
of insurance in effect of any kind or nature owned by or issued to the
Borrower, (a) as of the Closing Date are listed on the Disclosure
Schedule, (b) are in full force and effect, and (c) are of a nature
and provide such coverage as is customarily carried by


companies
engaged in similar businesses as the Borrower. 
The Borrower does not provide any of its insurance through
self-insurance.  4.8Environmental Matters. 
Except as set forth on the Disclosure Schedule, the Borrower has not
received any written, or to the knowledge of any Credit Party oral, claim or
notice alleging that the Borrower is not in compliance with or is in violation
of any Environmental Law, or has liability or responsibility under any
Environmental Law.  There are no pending
or, to the knowledge of any Credit Party threatened, investigations, inquiries,
administrative proceedings, actions, suits, claims, charges, complaints,
demands, notices or legal proceedings against the Borrower, the Borrowers
business or assets, under Environmental Laws, including those that involve or
relate to Environmental Conditions, Environmental Noncompliance or the release,
use, disposal or arranging for disposal of any Hazardous Materials on or from
any real property used, leased or owned by the Borrower.  Except as set forth on the Disclosure
Schedule, the Borrower has not released any Hazardous Materials on, under or
about any real property used, leased or owned by the Borrower in quantities that
are required to be reported under or that requires investigation or remediation
pursuant to Environmental Law or that otherwise is in violation of any
requirement of any Environmental Law. 
The Borrower is in compliance with Environmental Laws.  The Borrower has not generated, stored,
treated, handled, disposed of, or arranged to dispose of, Hazardous Materials
in a manner or to a location that could reasonably be expected to result in
liability to the Borrower under Environmental Laws.  The Borrower has not exposed any employee or
other individual to any Hazardous Materials or conditions that could reasonably
be expected to form the basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand for
damage to, or investigation and remediation of, any site, location or body of
water (surface or subsurface), or any illness of or personal injury to any
employee or individual.  4.9Accounts.  The
Disclosure Schedule lists all accounts, whether a deposit account or a
securities account, of the Borrower.  4.10Additional Representations and Warranties. 
All representations and warranties made in the Security Agreement are
true, correct and complete as of the Effective Date, except to the extent such
representations and warranties are specifically made as of a particular date
(in which case such representations and warranties are true and correct as of
such particular date).  ARTICLE V  COVENANTS  For so
long as the Loans remain outstanding under this Agreement, unless the Lender
shall otherwise consent in writing, each Credit Party covenants and agrees, as
applicable, that from, and after the date hereof (except as otherwise provided
in this Agreement, or unless the Lender has given its prior written consent):  5.1Notices.  It shall give
the Collateral Agent prompt written notice of any (a) Default (as defined
below), (b) any notice received related to any environmental matter
described in Section 4.8 of this Agreement, (c) any material
amendment to the Borrowers bylaws or charter, or (d) the occurrence of
any event, condition or other circumstance that, singly or in the aggregate,
could


reasonably
be expected to result in a Material Adverse Effect, in each case accompanied by
copies of all notices given or received by such Credit Party with respect to
such event or condition.  5.2Maintenance of a Perfected, First
Priority Security Interest.  It shall
execute all documents and take all actions necessary to perfect and maintain at
all times the Lenders first priority security interest in all of the
Collateral (including the Pledged Collateral as defined in the Pledge
Agreement), now owned or acquired at any later date by such Credit Party.  5.3Real Estate. 
If the Borrower shall acquire a fee or leasehold interest in real
estate, the Borrower will execute a first priority Mortgage, in form and
substance reasonably satisfactory to the Lender, in favor of the Collateral
Agent, for its benefit and the benefit of the Lender, and shall deliver to the
Collateral Agent such title insurance policies, surveys and landlords estoppel
agreements with respect thereto as the Collateral Agent or the Lender shall
reasonably request.  5.4Deposit Accounts. 
The Borrower shall not maintain any account without an effective account
control agreement, in form and substance reasonably satisfactory to the Lender.  5.5Execution of Supplemental Instruments. 
It shall execute and deliver to the Lender from time to time, upon
demand, such supplemental agreements, statements, assignments and transfers, or
instructions or documents relating to the Collateral, and such other
instruments as the Lender may request, in order that the full intent of this
Agreement may be carried into effect.  5.6Corporate Name; Domicile. 
The Borrower shall not amend or modify its Articles of Incorporation to
change its corporate name.  No Credit
Party shall change its domicile without providing at least ten (10) Business
Days prior written notice to the Collateral Agent.  5.7Change of Control. 
No Change of Control shall occur.  ARTICLE VI  DEFAULTS  The occurrence of any one or more of the following
events shall constitute a default hereunder (each, a Default):  6.1Any representation or warranty made in
this Agreement by any Credit Party to the Lender shall be materially false on
the date as of which the same is made.  6.2Nonpayment of any amount of principal or
accrued, unpaid interest due under any Note as and when the same is due and
payable.  6.3The breach by the Borrower of any of the
covenants contained in Article V hereof.  6.4The occurrence of any default or event of
default under any of the other Loan Documents.  6.5The Borrower shall (i) have an order
for relief entered with respect to it under the federal bankruptcy laws as now
or hereafter in effect, (ii) make an assignment for the benefit of


creditors,
(iii) apply for, seek, consent to, acquiesce in, or have appointed for it
or any substantial portion of its property a receiver, custodian, trustee,
examiner, liquidator or similar official for it or any substantial part of its
property, (iv) institute any proceeding seeking an order for relief under
the Federal bankruptcy laws as now or hereafter in effect or seeking to
adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up,
liquidation, reorganization, arrangement, adjustment or composition of it or
its debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors or fail to file an answer or other pleading denying the
material allegations of any such proceeding filed against it, or (v) take
any corporate action to authorize or effect any of the foregoing actions set
forth in this Section 6.5.  ARTICLE VII  ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES  7.1Acceleration. 
If any Default described in Section 6.5 occurs with respect to the
Borrower, the Obligations shall immediately become due and payable without any
election, notice or action on the part of the Lender.  If any other Default occurs, the Lender may
declare the Obligations to be due and payable, whereupon the Obligations shall
become immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which the Borrower hereby expressly waives.  7.2Amendments.  The Lender
and the Credit Parties may enter into written agreements supplemental hereto
for the purpose of adding or modifying any provisions to the Loan Documents or
changing in any manner the rights of the Lender or any Credit Party hereunder
or waiving any Default hereunder.  To be
effective, any such amendment or waiver must be in writing and signed by the
Lender and each Credit Party.  7.3Preservation of Rights, No Adverse Impact. 
No delay or omission of the Lender or the Collateral Agent to exercise
any right under this Agreement or any of the Loan Documents shall impair such
right or be construed to be a waiver of any Default or an acquiescence
therein.  Any single or partial exercise
of any such right shall not preclude other or further exercise thereof or the
exercise of any other right, and no waiver, amendment or other variation of the
terms, conditions or provisions of the Loan Documents whatsoever shall be valid
unless in writing signed by the Lender, and then only to the extent in such
writing specifically set forth.  All
remedies contained in the Loan Documents, or by law afforded shall be
cumulative and all shall be available to the Lender until the Obligations have
been paid in full.  7.4Remedies.  (a)Upon the occurrence and during the
continuance of a Default, the Lender may proceed to protect and enforce to the
Lenders rights by suit in equity, action of law and/or other appropriate
proceeding either for specific performance of any covenant or condition
contained in this Agreement, any Loan Document or in any instrument or document
delivered to the Lender pursuant hereto, or in the exercise of any rights,
remedies or powers granted in this Agreement, any Loan Document and/or any such
instrument or document.  The Lender may
proceed to declare the obligations under this Agreement or any Loan Document to
be due and payable pursuant to Section 7.1 hereof and the Lender may
proceed to enforce payment of such documents as provided herein, or


in any Loan Document, and may offset and apply toward the payment of
such amount any indebtedness of any Credit Party to the Borrower.  (b)Upon the occurrence and during the
continuance of a Default, the Lender may apply as any Credit Partys
attorney-in-fact for any Intellectual Property rights, and sell, lease or
license the Collateral to third persons or associations without being liable to
such Credit Party on account of any losses, damage or depreciation that may
occur as a result thereof so long as the Lender shall act reasonably and in
good faith; and at the Lenders option and without notice to such Credit Party
(except as specifically herein provided) the Lender may sell, license, assign
and deliver the whole or any part of the Collateral, or any substitute therefor
or any addition thereto, at public or private sale, for cash, upon credit, or
for future delivery, at such prices and upon such terms as the Lender deems
advisable.  The Lender shall give the
applicable Credit Party at least ten (10) Business Days by hand delivery
at or by United States first-class mail, postage prepaid (in which event notice
shall be deemed to have been given when so deposited in the mail), to the
address specified herein, of the time and place of any public or private sale
or other disposition.  (c)If any Default described in Section 6.2
occurs with respect to the Borrower, the Lender may, at its absolute
discretion, exercise the Option to purchase the Parcels or any Parcel.  7.5Application of Proceeds.Any and all proceeds of any Collateral realized or obtained by the
Lender upon exercise of its rights and remedies hereunder, shall be applied to
the amounts outstanding under this Agreement or any other Loan Document, after
payment of any and all costs and expenses, fees and commission and taxes of
such sale, collection or other realization, in accordance with the following:  (a)Any and all proceeds of any Collateral
shall first be applied to the payment of any and all expenses, charges or other
amounts which may be due and owing under this Agreement or the other Loan
Documents; and  (b)Any and all proceeds of any Collateral
remaining after application as provided in paragraph (a) above shall be
applied to the payment of principal, interest or charges outstanding with
respect to the Loans or under any Note or the other Loan Documents; and  (c)Any surplus remaining after application
as provided in paragraphs (a) and (b) above, shall be paid to the
Borrower, or its successors or assigns, or to whomsoever may be lawfully
entitled to receive the same.  ARTICLE VIII  GENERAL PROVISIONS  8.1Survival of Representations. 
All representations and warranties of the Borrower contained in this
Agreement shall survive delivery of any Note and the making of the Loans herein
contemplated.  8.2Termination of Security Interest and
Related Obligations.  In the event that the Loans are converted to
an Intercompany Loan as provided for in Section 2.2 of this Agreement, the


covenants
set forth in Sections 5.2 through 5.4 of this Agreement and any and all
obligations of the Credit Parties to provide security under or arising out of
any other Loan Document shall terminate and the Collateral Agent will release
the Collateral pursuant to the terms of the applicable Security Documents,
except that any indemnities provided to the Lender in its capacity as Lender
or as Collateral Agent shall survive the termination of any provisions of
this Agreement or any Loan Document.  8.3Headings.  Section headings
in this Agreement are for convenience of reference only, and shall not govern
the interpretation of any of the provisions of this Agreement.  8.4Entire Agreement. 
The Loan Documents embody the entire agreement and understanding between
the Credit Parties and the Lender and supersede all prior agreements and
understandings between the Credit Parties and the Lender relating to the
subject matter thereof.  8.5No Third Party Beneficiary. 
This Agreement shall not be construed so as to confer any right or
benefit upon any Person other than the parties to this Agreement and their
respective successors and assigns.  8.6Expenses.  Upon the
occurrence of a Default, and so long as a Default is continuing, the Credit
Parties shall pay to the Lender on demand all expenses reasonably incurred in
connection with the collection and enforcement of all Obligations under the
Loan Documents including, without limitation, all reasonable attorneys fees,
and all reasonable costs incurred by the Lender in connection with the
collection and enforcement of the Obligations and in connection with any
proceeding commenced by or against the Borrower under the U.S. Bankruptcy Code.  8.7Severability of Provisions. 
Any provision in this Agreement that is held to be inoperative,
unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction,
be inoperative, unenforceable, or invalid without affecting the remaining
provisions in that jurisdiction or the operation, enforceability, or validity
of that provision in any other jurisdiction, and to this end the provisions of
this Agreement are declared to be severable.  8.8Nonliability of the Lender. 
The relationship between the Borrower and the Lender shall be solely
that of borrower and lender, and that between the Pledgors and the Lender shall
be solely that of pledgor and secured creditor. 
The Lender shall have no fiduciary responsibilities to any Credit
Party.  The Lender undertakes no
responsibility to any Credit Party to review or inform the any Credit Party of
any matter in connection with any phase of any Credit Partys business or
operations.  8.9CHOICE OF LAW. 
THIS AGREEMENT AND THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS (AND NOT THE LAW OF CONFLICTS) OF THE
STATE OF DELAWARE.  8.10Jurisdiction/Jury Trial Waiver/Other
Matters.  (a)The Lender and each Credit Party
acknowledge and agree that any controversy which may arise under this Agreement
or the relationship of such Credit Party and the


Lender established hereby, would be based upon difficult and complex
issues.  Accordingly, to the fullest
extent permitted by law, each Credit Party and the Lender hereby waive trial by
jury in any action or proceeding of any kind or nature in any court in which an
action may be commenced by or against such Credit Party arising out of this
Agreement or by reason of any other cause or dispute whatsoever between such
Credit Party and the Lender of any kind or nature.  (b)Each Credit Party and the Lender agree
that the United States District Court for Delaware or any state court located
in the State of Delaware shall have jurisdiction to hear and determine any
claims or disputes between such Credit Party and the Lender pertaining directly
or indirectly to this Agreement or to any matter arising herefrom.  Each Credit Party expressly submits and
consents in advance to such jurisdiction in any action or proceeding commenced
in such court.  Each Credit Party and the
Lender waive any objection that they may now or hereafter have to the venue of
any proceeding in any such court or that such proceeding was brought in an
inconvenient forum and each agrees not to plead or claim the same.  (c)Each Credit Party hereby waives personal
service of any summons and complaint, or other process or papers issued
therein, and agrees that service of such summons and complaint, or other process
or papers may be made by United States mail, postage prepaid addressed to such
Credit Party at the address set forth below his or her signature hereto.  Should such Credit Party fail to appear or
answer any summons, complaint, process or papers so served within thirty days
after the mailing thereof, he or she shall be deemed in default and an order
and/or judgment may be entered against him or her or her as prayed for in such
summons, complaint, process or papers.  8.11Further Assurances. 
Each Credit Party at its own expense, shall do, make, execute and
deliver all such additional and further acts, deeds, assurances, documents,
instruments and certificates as the Lender may reasonably require, including,
without limitation, (a) executing, delivering and filing financing
statements and continuation statements under the Uniform Commercial Code of the
State of Delaware, (b) obtaining governmental and other third party
consents and approvals, and (c) obtaining waivers from mortgagees and
landlords.  8.12Successors and Assigns. 
The terms and provisions of this Agreement and the Loan Documents shall
be binding upon and inure to the benefit of the Credit Parties and the Lender
and their respective successors and assigns, except that the Credit Parties
shall not have the right to assign its rights or obligations under the Loan
Documents and any assignment in violation thereof shall be null and void.  8.13Giving Notice. 
All notices and other communications provided to any party hereto under
this Agreement or any other Loan Document shall be in writing or by facsimile
and addressed or delivered to such party at their addresses as follows (unless
designated in writing to the other parties): (i) if to any Credit Party,
at the address set forth below such Credit Partys name on the signature page hereto
and (ii) if to the Lender, at the address set forth the Lenders name on
the signature page hereto.  Any
notice, if mailed and properly addressed with postage prepaid, shall be deemed
given three (3) Business Days after being sent; any notice, if transmitted
by facsimile, shall be deemed given when transmitted.  8.14Counterparts. 
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this


Agreement
by signing any such counterpart. 
Facsimiled and photocopied signatures to this Agreement shall be
valid.  This Agreement shall be effective
when it has been executed by each Credit Party and the Lender.  [Remainder of page intentionally left
blank; signature page follows]


IN WITNESS WHEREOF, the parties hereto have executed
this Loan Agreement as of the date first above written.   PROECO ENERGY COMPANYBy:
  /s/ Dale S. BarkerName:
  Dale S. BarkerTitle:
  PresidentAddress:
  P.O. Box
  261Belle
  Fourche, South Dakota 57717Telephone:Facsimile:O2DIESEL CORPORATIONBy:
  /s/ David H. ShipmanName:
  David H. ShipmanTitle:
  Chief Financial OfficerAddress:
  100 Commerce
  Drive, Suite 301Newark,
  Delaware 19713Telephone:
  (302) 266-6000Facsimile:
  (302) 266-7076


PLEDGORS:DALE S. BARKER/s/ Dale S.
  BarkerAddress:Telephone:Facsimile:BARBARA PYLE/s/ Barbara PyleAddress:Telephone:Facsimile:


EXECUTION COPY  EXHIBIT B  SECURED
PROMISSORY NOTE  $150,000
  
  Newark, DelawareDecember 26, 2006  ProEco Energy Company, Inc., a South
Dakota corporation (the Company), FOR VALUE RECEIVED, hereby unconditionally
promises to pay to the order of O2Diesel Corporation (O2Diesel or the Holder),
in U.S. dollars in immediately available funds, the principal amount of One Hundred Fifty Thousand and NO/100 ($150,000)
(the Principal Amount), together with interest on the unpaid principal
balance of this Secured Promissory Note (the Note) outstanding from
time to time from the date hereof, at the rate provided in the Loan Agreement
(as defined below).  The books and
records of the Holder shall be conclusive as to the unpaid principal amount of
this Note at any time outstanding, absent manifest error.  This Note is issued pursuant to the terms of the Loan
Agreement, dated December 22, 2006 (as such agreement may from time to
time be amended, restated, modified or supplemented, the Loan Agreement)
to which the Company and the Holder are parties, to which reference is hereby
made for a statement of all of the terms and conditions applicable to the Loan
evidenced, hereby.  Capitalized terms
used but not otherwise defined herein shall have the meanings ascribed to such
terms in the Loan Agreement.  1.Loan.The Holder hereby loans to the Company on the
date hereof the sum of the Principal Amount. 
The principal amount of the indebtedness evidenced hereby shall be due
and payable on the dates specified in the Loan Agreement.  Interest thereon shall be paid until such
principal amount is paid in full in accordance with and at such interest rates
and at such times as are specified in the Loan Agreement.  2.Default.Upon the occurrence and during the
continuance of a Default, this Note may, as provided in the Loan Agreement, and
without demand, notice or legal process of any kind (other than notices
expressly provided for in the Loan Documents), be declared, and immediately
shall become, due and payable.  In
addition, the Holder shall have the right to exercise other remedies as
provided in the Loan Agreement.  This
Note is secured by the Security Documents.  3.Waivers.  (a)The Company hereby waives presentment, demand for
payment, notice of dishonor, notice of protest, and protest in connection with
the delivery, acceptance, performance, or default of this Note.  (b)No delay by the Holder in exercising any power or
right hereunder shall operate as a waiver of any power or right, nor shall any
single or partial exercise of any power or right preclude other or further
exercise thereof, or the exercise of any other power or right hereunder


or
otherwise.  No waiver or modification of
the terms hereof shall be valid unless set forth in writing by the Holder.  4.Secured Obligations.In order to induce the Holder to loan to the
Company the Principal Amount of this Note, the Company has delivered, or caused
to be delivered, to O2Diesel, as collateral agent for the Holder and any other
holder of Notes (the Collateral Agent), the Security Documents, pursuant to
which the Pledgors (as defined in that certain Security Agreement, dated as of December 22,
2006, by and among the Borrower, the Pledgors and the Secured Creditor and
Collateral Agent (the Security Agreement)) has granted to the Collateral
Agent, on behalf of the Holder and any other holder of Notes, as security and
collateral for the payment and performance of its obligations hereunder, a first
priority security interest in all of the property and assets of the Company and
certain assets of each of the Pledgors, whether now existing or hereafter
arising, and all as more specifically described, and on the terms and
conditions set forth in, the Security Agreement.  5.General.  (a)Successors: Assignment.  This Note and the obligations and rights of
the Company hereunder shall be binding upon and inure to the benefit of the
Company and the Holder and their respective successors.  The Company may not assign this Note or any
obligations hereunder without the prior written consent of the Holder.  (b)Changes.  Changes in or additions to this Note may be
made, or compliance with any term, covenant, agreement, condition or provision
set forth herein, may be omitted or waived (either generally or in a particular
instance and either retroactively or prospectively) upon written consent of the
Holder.  (c)Notices.  All notices, demands or other communications
to be given or delivered under or by reason of the provisions of this Note
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, faxed with confirmation of receipt, sent to the
recipient by reputable overnight courier service (charges prepaid) or mailed to
the recipient by certified or registered mail, return receipt requested and
postage prepaid.  Such notices, demands
and other communications shall be sent to the Holder at the address indicated
below:  O2Diesel Corporation100 Commerce Drive, Suite 301Newark, Delaware 19713Attn:  David Shipman, Chief
  Financial OfficerTel:
  (302) 266-6000Fax:
  (302) 266-7076  With a copy to:  Arnold & Porter LLP1600 Tysons Boulevard, Suite 900McLean, Virginia 22102Attn:  Kevin J.
  Lavin, Esq.Tel:
  (703) 720-7011Fax:
  (703) 720-7399  2


and to the Company at the address indicated
below:  ProEco Energy Company.P.O. Box
  261Belle Fourche, South Dakota 57717Attn:  Dale S. BarkerTel:
  (605)Fax:
  (605)  With a copy to:  Buckmaster Law Offices, PCP.O. Box 726Belle Fourche, South Dakota 57717Attn:  Wesley W. BuckmasterTel:
  (605) 892-2623Fax:
  (605) 892-6337  or to such other address or to the attention of such other person as
the recipient party has specified by prior written notice to the sending party.  (d)Severability.  If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.  6.Governing Law.  (a)This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of Delaware, without regard to choice of law principles.  (b)The parties hereto hereby submit to the jurisdiction
of the state and federal courts located in the State of Delaware for the
purposes of any suit, action or other proceeding relating to any dispute under
this Note.  The Company hereby waives any
right it may have to transfer or change the venue of any litigation between
itself and the Holder in accordance with this sub-section.  (c)THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH IN ANY MANNER ARISES
OUT OF OR IN CONNECTION WITH OR IS IN ANY WAY RELATED TO THIS NOTE OR ANY OF
THE TRANSACTIONS CONTEMPLATED HEREIN.  [SIGNATURE PAGE FOLLOWS]  3


IN WITNESS WHEREOF, this Note has been executed and delivered
on the date first above written by the undersigned duly authorized
representative of the Company.   PROECO ENERGY COMPANYBy:
  /s/ Dale BarkerName:
  Dale BarkerTitle:
  President  4


EXECUTION COPY  EXHIBIT C  SECURED
PROMISSORY NOTE  Newark, Delaware  ProEco Energy Company, Inc., a South
Dakota corporation (the Company), FOR VALUE RECEIVED, hereby
unconditionally promises to pay to the order of O2Diesel Corporation (O2Diesel
or the Holder), in U.S. dollars in immediately available funds, the
Principal Amount (as defined below) together with interest on the unpaid
principal balance of this Secured Promissory Note (the Note)
outstanding from time to time from the date hereof, at the rate provided in the
Loan Agreement (as defined below).  The
books and records of the Holder shall be conclusive as to the unpaid Principal
Amount of this Note at any time outstanding, absent manifest error.  This Note is issued pursuant to the terms of the
Loan Agreement, dated December 22, 2006 (as such agreement may from time
to time be amended, restated, modified or supplemented, the Loan Agreement)
to which the Company and the Holder are parties, to which reference is hereby
made for a statement of all of the terms and conditions applicable to the Loan
evidenced, hereby.  Capitalized terms
used but not otherwise defined herein shall have the meanings ascribed to such
terms in the Loan Agreement.  1.Loan.The Holder hereby loans to the Company on the
date hereof the sum of the Principal Amount. 
As used in this Note, the Principal Amount means the aggregate
amount loaned to the Company by the Holder as reflected on Schedule A to
this Note.  Schedule A reflects
all amount loaned to the Company by the Holders as of December 15,
2007.  The Company shall amend Schedule
A to include any such loans to the Company by the Holder or any of its
affiliates made after such date.  The
Principal Amount of the indebtedness evidenced hereby shall be due and payable
on the dates specified in the Loan Agreement. 
Interest thereon shall be paid until such Principal Amount is paid in
full in accordance with and at such interest rates and at such times as are
specified in the Loan Agreement.  2.Default.Upon the occurrence and during the
continuance of a Default, this Note may, as provided in the Loan Agreement, and
without demand, notice or legal process of any kind (other than notices
expressly provided for in the Loan Documents), be declared, and immediately
shall become, due and payable.  In
addition, the Holder shall have the right to exercise other remedies as
provided in the Loan Agreement.  This
Note is secured by the Security Documents.  3.Waivers.  (a)The Company hereby waives presentment, demand for
payment, notice of dishonor, notice of protest, and protest in connection with
the delivery, acceptance, performance, or default of this Note.  (b)No delay by the Holder in exercising any power or
right hereunder shall operate as a waiver of any power or right, nor shall any
single or partial exercise of any power or right


preclude
other or further exercise thereof, or the exercise of any other power or right
hereunder or otherwise.  No waiver or
modification of the terms hereof shall be valid unless set forth in writing by
the Holder.  4.Secured Obligations.  In order to induce the Holder to loan to the
Company the Principal Amount of this Note, the Company has delivered, or caused
to be delivered, to O2Diesel, as collateral agent for the Holder and any other
holder of Notes (the Collateral Agent), the Security Documents, pursuant to
which the Pledgors (as defined in that certain Security Agreement, dated as of December 22,
2006, by and among the Borrower, the Pledgors and the Secured Creditor and
Collateral Agent, as such agreement may from time to time be amended, restated,
modified or supplemented (the Security Agreement)) has granted to the
Collateral Agent, on behalf of the Holder and any other holder of Notes, as
security and collateral for the payment and performance of its obligations
hereunder, a first priority security interest in all of the property and assets
of the Company and certain assets of each of the Pledgors, whether now existing
or hereafter arising, and all as more specifically described, and on the terms
and conditions set forth in, the Security Agreement.  5.General.  (a)Successors: Assignment.  This Note and the obligations and rights of
the Company hereunder shall be binding upon and inure to the benefit of the
Company and the Holder and their respective successors.  The Company may not assign this Note or any
obligations hereunder without the prior written consent of the Holder.  (b)Changes.  Changes in or additions to this Note may be
made, or compliance with any term, covenant, agreement, condition or provision
set forth herein may be omitted or waived (either generally or in a particular
instance and either retroactively or prospectively), upon written consent of
the Holder.  (c)Notices.  All notices, demands or other communications
to be given or delivered under or by reason of the provisions of this Note
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, faxed with confirmation of receipt, sent to the
recipient by reputable overnight courier service (charges prepaid) or mailed to
the recipient by certified or registered mail, return receipt requested and
postage prepaid.  Such notices, demands
and other communications shall be sent to the Holder at the address indicated
below:  O2Diesel Corporation100 Commerce Drive, Suite 301Newark, Delaware 19713Attn:  David Shipman, Chief
  Financial OfficerTel:
  (302) 266-6000Fax:
  (302) 266-7076  With a copy to:  Arnold & Porter LLP1600 Tysons Boulevard, Suite 900McLean, Virginia 22102Attn:  Kevin J.
  Lavin, Esq.Tel:
  (703) 720-7011Fax:
  (703) 720-7399


and to the Company at the address indicated
below:  ProEco Energy Company.P.O. Box
  261Belle Fourche, South Dakota 57717Attn:  Dale S. BarkerTel:
  (605)Fax:
  (605)  With a copy to:  Buckmaster Law Offices, PCP.O. Box 726Belle Fourche, South Dakota 57717Attn:  Wesley W. BuckmasterTel:
  (605) 892-2623Fax:
  (605) 892-6337  or to such other address or to the attention of such other person as
the recipient party has specified by prior written notice to the sending party.  (d)Severability.  If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.  6.Governing Law.  (a)This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of Delaware, without regard to choice of law principles.  (b)The parties hereto hereby submit to the jurisdiction
of the state and federal courts located in the State of Delaware for the
purposes of any suit, action or other proceeding relating to any dispute under
this Note.  The Company hereby waives any
right it may have to transfer or change the venue of any litigation between
itself and the Holder in accordance with this sub-section.  (c)THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH IN ANY MANNER ARISES
OUT OF OR IN CONNECTION WITH OR IS IN ANY WAY RELATED TO THIS NOTE OR ANY OF
THE TRANSACTIONS CONTEMPLATED HEREIN.  [SIGNATURE PAGE FOLLOWS]


IN WITNESS WHEREOF, this Note has been executed and delivered
on the date first above written by the undersigned duly authorized representative
of the Company.   PROECO ENERGY COMPANYBy:
  /s/ Dale BarkerName:
  Dale BarkerTitle:
  President


SCHEDULE A  Date
  
  Amount1/17/2007
  
  125,000.003/14/2007
  
  125,000.004/25/2007
  
  75,000.005/14/2007
  
  65,000.005/30/2007
  
  65,000.006/12/2007
  
  65,000.006/27/2007
  
  65,000.007/10/2007
  
  65,000.007/25/2007
  
  65,000.008/15/2007
  
  65,000.009/07/2007
  
  65,000.0010/01/2007
  
  65,000.0010/15/2007
  
  65,000.0010/25/2007
  
  40,000.0011/01/2007
  
  65,000.0011/15/2007
  
  40,000.0011/30/2007
  
  40,000.0012/14/2007
  
  40,000.001/18/2008
  
  10,000.00Total:
  
  $
  1,210,000.00