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Exhibit 99.4 CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT Between O2 DIESEL CORPORATION
and THE PURCHASER LISTED ON
SCHEDULE 1 HERETO March 29, 2004




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TABLE OF CONTENTS ARTICLE I
    
    CERTAIN DEFINITIONS
    
    
    11.1
    
    Certain Definitions
    
    
    1ARTICLE II
    
    PURCHASE AND SALE OF CONVERTIBLE PREFERRED SHARES
    
    
    52.1
    
    Purchase and Sale; Purchase Price
    
    
    52.2
    
    Execution and Delivery of Documents; The Closing
    
    
    5ARTICLE III
    
    REPRESENTATIONS AND WARRANTIES
    
    
    73.1
    
    Representations, Warranties and Agreements of the Company
    
    
    73.2
    
    Representations and Warranties of the Purchaser
    
    
    10ARTICLE IV
    
    OTHER AGREEMENTS OF THE PARTIES
    
    
    114.1
    
    Manner of Offering
    
    
    114.2
    
    Notice of Certain Events
    
    
    114.3
    
    Blue Sky Laws
    
    
    124.4
    
    Integration
    
    
    124.5
    
    Furnishing of Rule 144(c) Materials
    
    
    124.6
    
    Solicitation Materials
    
    
    124.7
    
    Listing of Common Stock
    
    
    124.8
    
    Attorney-in-Fact
    
    
    134.9
    
    Indemnification
    
    
    134.10
    
    Purchasers Ownership of Common Stock
    
    
    154.11
    
    No Violation of Applicable Law
    
    
    154.12
    
    Redemption Restrictions
    
    
    164.13
    
    Option for Additional Company Shares
    
    
    16ARTICLE V
    
    MISCELLANEOUS
    
    
    165.1
    
    Fees and Expenses
    
    
    165.2
    
    Entire Agreement
    
    
    175.3
    
    Notices
    
    
    175.4
    
    Amendments; Waivers
    
    
    185.5
    
    Headings
    
    
    185.6
    
    Successors and Assigns5.7
    
    No Third Party Beneficiaries
    
    
    185.8
    
    Governing Law; Venue; Service of Process
    
    
    185.9
    
    Survival
    
    
    185.10
    
    Counterpart Signatures
    
    
    185.11
    
    Publicity
    
    
    195.12
    
    Severability
    
    
    195.13
    
    Limitation of Remedies
    
    
    195.14
    
    Successors and Assigns
    
    
    19




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LIST OF SCHEDULES: Schedule 1
    
    PurchaserSchedule 3.1(a)
    
    SubsidiariesSchedule 3.1(c)
    
    Capitalization and Registration RightsSchedule 3.1(d)
    
    Equity and Equity Equivalent SecuritiesSchedule 3.1(e)
    
    ConflictsSchedule 3.1(f)
    
    Consents and ApprovalsSchedule 3.1(g)
    
    LitigationSchedule 3.1(h)
    
    Defaults and Violations
 LIST OF EXHIBITS: Exhibit A
    
    Certificate of DesignationExhibit G
    
    Power of AttorneyExhibit I
    
    Officers CertificateExhibit J
    
    Registration Rights AgreementExhibit K
    
    Opinion of Counsel
 i




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THIS CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this
Agreement) is made and entered into as of March 29, 2004,
between O2 Diesel Corporation, a corporation organized and existing under the
laws of the State of Washington (the Company), and the
purchaser listed on Schedule 1hereto (the Purchaser). WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchaser and the Purchaser
desires to acquire from the Company seven hundred fifty thousand (750,000)
shares of the Companys Series B 0 % Convertible Preferred Stock, $0.0001 par
value per share (the Series B Preferred Stock), with a
Stated Value of ten dollars ($10) per share, and an aggregate Stated Value of
seven million fifty thousand dollars ($7,500,000), for an aggregate purchase
price of seven million five hundred thousand dollars ($7,500,000). IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and each Purchaser agree as follows: ARTICLE I
CERTAIN DEFINITIONS 1.1 Certain Definitions. As used in this Agreement,
and unless the context requires a different meaning, the following terms have
the meanings indicated: Affiliate means, with respect to any Person, any
Person that, directly or indirectly, controls, is controlled by or is under
common control with such Person. For the purposes of this definition,
control (including, with correlative meanings, the terms
controlled by and under common control
with) shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or by contract or
otherwise. Agreement shall have the meaning set forth in the
introductory paragraph of this Agreement. Armadillo Shares means 4,054,054 of the Ordinary
Shares of Armadillo Investments PLC. Attorney-in-Fact means Gottbetter & Partners, LLP,
488 Madison Avenue, 12 Floor, New York, NY 10022; Tel: 212-400-6900; Fax:
212-400-6901. Business Day means any day except Saturday, Sunday,
any day which shall be a legal holiday or a day on which banking institutions
in the State of New York are authorized or required by law or other government
actions to close. 1




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Certificate of Designation means the Certificate of
Designation of the Series B Preferred Stock annexed as Exhibit
A hereto. Change of Control means the acquisition, directly or
indirectly, by any Person of ownership of, or the power to direct the exercise
of voting power with respect to, a majority of the issued and outstanding
voting shares of the Company. Closing shall have the meaning set forth in
Section 2.2(a). Closing Date shall have the meaning set forth in
Section 2.2(a). Common Stock means shares now or hereafter authorized
of the class of common stock, $0.0001 par value, of the Company and stock of
any other class into which such shares may hereafter have been reclassified or
changed. Company shall have the meaning set forth in the
introductory paragraph. Control Person shall have the meaning set forth in
Section 4.9(a) hereof. Conversion Date shall have the meaning set forth in
the Certificate of Designation. Conversion Price shall have the meaning set forth in
the Certificate of Designation. Default means any event or condition which
constitutes an Event of Default or which with the giving of notice or lapse of
time or both would, unless cured or waived, become an Event of Default. Disclosure Documents means the Companys reports
filed under the Exchange Act with the SEC. Escrow Agent means Gottbetter & Partners, LLP, 488
Madison Avenue, 12 Floor, New York, NY 10022; Tel: 212-400-6900; Fax:
212-400-6901. Event of Default shall have the meaning set forth in
Section 5. Exchange Act means the Securities Exchange Act of
1934, as amended. Execution Date means the date of this Agreement first
written above. Indemnified Party shall have the meaning set forth in
Section 4.9(b) hereof. Indemnifying Party shall have the meaning set forth
in Section 4.9(b) hereof. G&P means Gottbetter & Partners, LLP. 2




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Limitation on Conversion shall have the meaning set
forth in Section 4.10 hereof. Losses shall have the meaning set forth in
Section 4.9(a) hereof. Material shall mean having a financial consequence in
excess of $25,000. Material Adverse Effect shall have the meaning set
forth in Section 3.1(a). NASD means the National Association of Securities
Dealers, Inc. Nasdaq shall mean the Nasdaq Stock Market, Inc.® Original Issue Date, shall have the meaning set forth
in the Certificate of Designation. OTCBB shall mean the NASD over-the counter Bulletin
Board®. Per Share Market Value of the Common Stock means on
any particular date (a) the last sale price of shares of Common Stock on such
date or, if no such sale takes place on such date, the last sale price on the
most recent prior date, in each case as officially reported on the principal
national securities exchange on which the Common Stock is then listed or
admitted to trading, or (b) if the Common Stock is not then listed or admitted
to trading on any national securities exchange, the closing bid price per share
as reported by Nasdaq, or (c) if the Common Stock is not then listed or
admitted to trading on the Nasdaq, the closing bid price per share of the
Common Stock on such date as reported on the OTCBB or if there is no such price
on such date, then the last bid price on the date nearest preceding such date,
or (d) if the Common Stock is not quoted on the OTCBB, the closing bid price
for a share of Common Stock on such date in the over-the-counter market as
reported by the Pinksheets LLC (or similar organization or agency succeeding to
its functions of reporting prices) or if there is no such price on such date,
then the last bid price on the date nearest preceding such date, or (e) if the
Common Stock is no longer publicly traded, the fair market value of a share of
the Common Stock as determined by an Appraiser (as defined in the Certificate
of Designation) selected in good faith by the holders of a majority of the
Series B Preferred Stock; provided,
however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an
additional Appraiser, in which case, the fair market value shall be equal to
the average of the determinations by each such Appraiser. Person means an individual or a corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
limited liability company, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind. Power of Attorney means the power of attorney in the
form of Exhibit G annexed hereto. Proceeding means an action, claim, suit,
investigation or proceeding (including, without limitation, an investigation or
partial proceeding, such as a deposition), whether commenced or threatened. 3




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Purchase Price shall have the meaning set forth in
Section 2.1(b). Purchaser shall have the meaning set forth in the
introductory paragraph. Redemption Price shall mean an amount equal to the
Stated Value of the Shares outstanding that are subject to redemption. Registration Rights Agreement means the Registration
Rights Agreement in the form of Exhibit J annexed hereto. Reporting Issuer means a company that is subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act. Required Approvals shall have the meaning set forth
in Section 3.1(f). Securities means the Shares, the Underlying Shares
and the Option Shares. SEC means the Securities and Exchange Commission. Securities Act means the Securities Act of 1933, as
amended. Series B Preferred Stock shall have the meaning set
forth in the recital. Shares shall have the meaning set forth in
Section 2.1(a). Stated Value means the sum of ten dollars ($10) per
Share or seven million five hundred thousand dollars ($7,500,000) for all of
the Shares. Subsidiaries shall have the meaning set forth in
Section 3.1(a). Trading Day means (a) a day on which the Common Stock
is quoted on Nasdaq, the OTCBB or the principal stock exchange on which the
Common Stock has been listed, or (b) if the Common Stock is not quoted on
Nasdaq, the OTCBB or any stock exchange, a day on which the Common Stock is
quoted in the over-the-counter market, as reported by the Pinksheets LLC (or
any similar organization or agency succeeding its functions of reporting
prices). Transaction Documents means this Agreement and all
exhibits and schedules hereto and all other documents, instruments and writings
required pursuant to this Agreement. Underlying Shares means the shares of the Companys
Common Stock into which the Shares are convertible as provided in the
Certificate of Designation. 4




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ARTICLE II PURCHASE AND SALE OF CONVERTIBLE PREFERRED SHARES 2.1 Purchase and Sale; Purchase Price. (a) Subject to the terms and conditions set forth herein, the Company
shall issue and sell and the Purchaser shall purchase seven hundred fifty
thousand (750,000) shares of the Companys Series B 0 % Convertible Preferred
Stock, $0.0001 par value per share (the Shares). The Series B Preferred
Stock shall have the respective rights, preferences and privileges as set forth
in the Certificate of Designation to be filed by the Company with the Secretary
of State of Washington prior to the Execution Date. (b) The purchase price for each Share shall be Ten Dollars ($10) (the Per
Share Consideration). The Per Share Consideration multiplied by the number of
Shares to be purchased by the Purchaser is referred to as the
Purchase Price. (c) The Purchase Price shall be paid by delivery to the Company of four
million fifty-four thousand fifty-four (4,054,054) Ordinary Shares (the
Armadillo Shares) of Armadillo Investments PLC. Each of the Armadillo Shares
has been valued at £1.00 per share. The number of Ordinary Shares issued is
based on the conversion rate of $1.85/£1. Purchaser will issue $7,500,000/$1.85
or 4,054,054 Ordinary Shares. (d) Notwithstanding anything to the contrary contained in this Agreement,
Companys obligations hereunder shall be expressly contingent upon Company
selling the Armadillo Shares to a purchaser to be located by Purchaser
simultaneously with receipt of the Armadillo Shares for a price not less than
forty percent (40%) of £1.00 per share, less brokerage commissions. 2.2 Execution and Delivery of Documents; The Closing. (a) The Closing of the purchase and sale of the Shares (the Closing)
shall take place simultaneously with the execution and delivery of this
Agreement (the Closing Date). On the Closing Date, (i) the Company shall execute and deliver to the Purchaser the
certificates representing the Shares, which Shares shall have the
respective rights, preferences and privileges as set forth in the
Certificate of Designation annexed as Exhibit A hereto
and the Power of Attorney ; (ii) the Company shall execute and deliver to the Purchaser a
certificate of its President, in the form of Exhibit I
annexed hereto, certifying that attached thereto is a copy of resolutions
duly adopted by the Board of Directors of the Company authorizing the
Company to execute and deliver the Transaction Documents and to enter
into the transactions contemplated thereby; (iii) the Company shall execute and deliver to Purchaser an executed
Power of Attorney in the form annexed hereto as Exhibit G; 5




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(iv) the Company and the Purchaser shall execute and deliver to each
other an executed Registration Rights Agreement in the form annexed
hereto as Exhibit J; (v) counsel for the Company shall execute and deliver to the
Purchaser an executed copy of the opinion of counsel annexed hereto as
Exhibit K; and (vi) the Purchaser shall deliver to the Company the
Armadillo Shares. (b) Notwithstanding the foregoing, at Closing, the Company shall deliver
to Purchaser a certificate representing the Shares (the Closing Stock
Certificate) that shall bear the following legends: (1) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED BY THE
HOLDER FOR ITS OWN ACCOUNT, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO THE
DISTRIBUTION OF SUCH SECURITIES. THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT), OR ANY APPLICABLE
STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT (I)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND COMPLIANCE
WITH SUCH STATE SECURITIES LAWS, (II) IN COMPLIANCE WITH RULE 144 UNDER
THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR (III) UPON THE DELIVERY TO
O2DIESEL CORPORATION, (THE COMPANY) OF AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/ OR COMPLIANCE IS NOT
REQUIRED. (2) ADDITIONALLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD
OR OTHERWISE TRANSFERRED UNLESS AND UNTIL THE COMPANY SELLS THE ARMADILLO
SHARES (AS DEFINED IN THE CONVERTIBLE STOCK PURCHASE AGREEMENT DATED AS OF
MARCH 29, 2004 BETWEEN THE COMPANY AND ARMADILLO INVESTMENT TRUST PLC) AND
RECEIVES A PURCHASE PRICE FOR SUCH SHARES OF NOT LESS THAN FORTY PERCENT (40%)
of £1.00 PER SHARE, LESS BROKERAGE COMMISSIONS. Promptly after the Company sells the Armadillo Shares and receives a purchase
price for the Armadillo Shares of not less than forty percent (40%) for each
Armadillo Share, less brokerage commissions, the Company shall issue to
Purchaser a certificate representing the Shares that bears only paragraph (1)
above as a legend, in exchange for and simultaneously with receipt of the
Closing Stock Certificate. In the event that the Company is unable to sell the
Armadillo Shares within five (5) days of the Closing in the manner described in
the previous sentence, the Company shall return the certificate for the
Armadillo Shares to Purchaser, and Purchaser shall return the Closing Stock
Certificate to the Company. 6




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ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 Representations, Warranties and Agreements of the
Company. The Company hereby makes the following representations and
warranties to the Purchaser, all of which shall survive the Closing: (a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Washington, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. The Company has no subsidiaries other than as set
forth on Schedule 3.1(a) attached hereto (collectively, the
Subsidiaries). Each of the Subsidiaries is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the full corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. Each of the Company and the Subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the
case may be, would not, individually or in the aggregate, have a material
adverse effect on the results of operations, assets, prospects, or financial
condition of the Company and the Subsidiaries, taken as a whole (a
Material Adverse Effect). (b) Authorization, Enforcement. The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated hereby and by each other Transaction Document and to
otherwise to carry out its obligations hereunder and thereunder. The execution
and delivery of this Agreement and each of the other Transaction Documents by
the Company and the consummation by it of the transactions contemplated hereby
and thereby has been duly authorized by all necessary action on the part of the
Company. Each of this Agreement and each of the other Transaction Documents
has been or will be duly executed by the Company and when delivered in
accordance with the terms hereof or thereof will constitute the valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors rights and
remedies or by other equitable principles of general application. (c) Capitalization. The authorized, issued and
outstanding capital stock of the Company is set forth on Schedule 3.1(c). No
shares of the Series B Preferred Stock have been issued as of the date hereof.
No shares of Common Stock are entitled to preemptive or similar rights, nor is
any holder of the Common Stock entitled to preemptive or similar rights arising
out of any agreement or understanding with the Company by virtue of this
Agreement. Except as 7




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disclosed in Schedule 3.1(c), there are no outstanding
options, warrants, script, rights to subscribe to, registration rights, calls
or commitments of any character whatsoever relating to, or, except as a result
of the purchase and sale of the Series B Preferred Stock hereunder,
securities, rights or obligations convertible into or exchangeable for, or
giving any person any right to subscribe for or acquire, any shares of Common
Stock, or contracts, commitments, understandings, or arrangements by which the
Company or any Subsidiary is or may become bound to issue additional shares of
Common Stock, or securities or rights convertible or exchangeable into shares
of Common Stock. Neither the Company nor any Subsidiary is in violation of any
of the provisions of its Certificate of Incorporation, bylaws or other charter
documents. (d) Issuance of Securities. The Shares have been duly
and validly authorized for issuance, offer and sale pursuant to this Agreement
and, when issued and delivered as provided hereunder against payment in
accordance with the terms hereof, shall be valid and binding obligations of the
Company enforceable in accordance with their respective terms. The Company has
and at all times while the Shares are outstanding will continue to maintain an
adequate reserve of shares of Common Stock to enable it to perform its
obligations under this Agreement and the Certificate of Designation. When
issued in accordance with the terms hereof, the Underlying Shares and the
Option Shares will be duly authorized, validly issued, fully paid and
non-assessable. Except as set forth in Schedule 3.1(d) hereto, there is no
equity or equity equivalent security outstanding that is substantially similar
to the Shares, including any security having a floating conversion price
substantially similar to the Shares. (e) No Conflicts. The execution, delivery and
performance of this Agreement and the other Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby do not and will not (i) conflict with or violate any
provision of its Certificate of Incorporation or bylaws (each as amended
through the date hereof) or (ii) be subject to obtaining any consents except
those referred to in Section 3.1(f), conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or its Subsidiaries is subject (including, but
not limited to, those of other countries and the federal and state securities
laws and regulations), or by which any property or asset of the Company or its
Subsidiaries is bound or affected, except in the case of clause (ii), such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted in violation of any law, ordinance or regulation of any governmental
authority. (f) Consents and Approvals. Except as specifically set
forth in Schedule 3.1(f), neither the Company nor any Subsidiary is required to
obtain any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of this Agreement and each of the other
Transaction Documents, except for the filing of the Certificate of Designation
with respect to the 8




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Series B Preferred Stock with the Secretary of State of the
State of Washington, which filing shall be effected prior to the Closing Date
(together with the consents, waivers, authorizations, orders, notices and
filings referred to in Schedule 3.1(f), the Required
Approvals). (g) Litigation; Proceedings. Except as specifically
disclosed in Schedule 3.1(g), there is no action, suit, notice of violation,
proceeding or investigation pending or, to the best knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or any
of their respective properties before or by any court, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) which (i) relates to or challenges the legality, validity or
enforceability of any of the Transaction Documents, the Shares or the
Underlying Shares, (ii) could, individually or in the aggregate, have a
Material Adverse Effect or (iii) could, individually or in the aggregate,
materially impair the ability of the Company to perform fully on a timely basis
its obligations under the Transaction Documents. (h) No Default or Violation. Except as set forth in
Schedule 3.1(h) hereto, neither the Company nor any Subsidiary (i) is in
default under or in violation of any indenture, loan or credit agreement or any
other agreement or instrument to which it is a party or by which it or any of
its properties is bound, except such conflicts or defaults as do not have a
Material Adverse Effect, (ii) is in violation of any order of any court,
arbitrator or governmental body, except for such violations as do not have a
Material Adverse Effect, or (iii) is in violation of any statute, rule or
regulation of any governmental authority which could (individually or in the
aggregate) (x) adversely affect the legality, validity or enforceability of
this Agreement, (y)
have a Material Adverse Effect or (z) adversely impair the Companys
ability or obligation to perform fully on a timely basis its obligations under
this Agreement. (i) Intentionally omitted. (j) Disclosure Documents. The Disclosure Documents are
accurate in all material respects and do not contain any untrue statement of
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. (k) Non-Registered Offering. Neither the Company nor
any Person acting on its behalf has taken or will take any action (including,
without limitation, any offering of any securities of the Company under
circumstances which would require the integration of such offering with the
offering of the Securities under the Securities Act) which might subject the
offering, issuance or sale of the Securities to the registration requirements
of Section 5 of the Securities Act. (l) Placing Agent. The Company accepts and agrees that
Dungarvon Associates, Inc. (Dungarvon) is acting for the
Purchaser and does not regard any person other than the Purchaser as its
customer in relation to this Agreement, and that it has not made any
recommendation to the Company, in relation to this Agreement and is not
advising the Company, with regard to the suitability or merits of the Armadillo
Shares and in particular Dungarvon has no duties or responsibilities to the
Company for the best execution of the transaction contemplated by this
Agreement. 9




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(m) Private Placement Representations. The
Company (i) has received and carefully reviewed such information and
documentation relating to the Purchaser that the Company has requested,
including, without limitation, the Purchasers Confidential Private Offering
Memorandum dated January 1, 2004; (ii) has had a reasonable opportunity to ask
questions of and receive answers from the Purchaser concerning the Armadillo
Shares, and all such questions, if any, have been answered to the full
satisfaction of the Company; (iii) has such knowledge and expertise in
financial and business matters that it is capable of evaluating the merits and
risks involved in an investment in the Armadillo Shares; (iii) understands that
the Purchaser has determined that the exemption from the registration
provisions of the Securities Act of 1933, as amended (the Securities
Act), provided by Section 4(2) of the Securities Act and Rule 506
of Regulation D thereunder is applicable to the offer and sale of the Armadillo
Shares, based, in part, upon the representations, warranties and agreements
made by the Company herein; and (iv) except as set forth herein, no
representations or warranties have been made to the Company by the Purchaser or
any agent, employee or affiliate of the Purchaser and in entering into this
transaction the Company is not relying upon any information, other than the
results of independent investigation by the Company. The Purchaser acknowledges and agrees that the Company makes no
representation or warranty with respect to the transactions contemplated hereby
other than those specifically set forth in Section 3.1
hereof. 3.2 Representations and Warranties of the Purchaser.
The Purchaser hereby represents and warrants to the Company as follows: (a) Organization; Authority. The Purchaser is a
corporation, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its formation with the requisite power and
authority to enter into and to consummate the transactions contemplated hereby
and by the other Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The acquisition of the Shares to be
purchased by the Purchaser hereunder has been duly authorized by all necessary
action on the part of the Purchaser. This Agreement has been duly executed and
delivered by the Purchaser and constitutes the valid and legally binding
obligation of the Purchaser, enforceable against it in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to, or
affecting generally the enforcement of, creditors rights and remedies or by
other general principles of equity. (b) Purchaser Status. At the time Purchaser was
offered the Securities, it was, and at the date hereof it is, an accredited
investor as defined in Rule 501(a) under the Securities Act. (c) Investment Intent. The Purchaser is acquiring the
Shares to be purchased by it hereunder, and will acquire the Underlying Shares
relating to such Shares, and the Option Shares for its own account for
investment purposes only and not with a view to or for distributing or
reselling such Shares, Underlying Shares or Option Shares, or any part thereof
or interest therein, without prejudice, however, to such Purchasers right,
subject to the provisions of this Agreement, at all times to sell or otherwise
dispose of all or any part of such Shares, 10




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Underlying Shares or Option Shares
in compliance with applicable federal and state securities laws. (d) Experience of Purchaser. The Purchaser, either
alone or together with its representatives, has such knowledge, sophistication
and experience in business and financial matters so as to be capable of
evaluating the merits and risks of an investment in the Securities to be
acquired by it hereunder, and has so evaluated the merits and risks of such
investment. (e) Ability of Purchaser to Bear Risk of Investment.
The Purchaser is able to bear the economic risk of an investment in the
Securities to be acquired by it hereunder and, at the present time, is able to
afford a complete loss of such investment. (f) Access to Information. The Purchaser acknowledges
acknowledges that it has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
Securities offered hereunder and the merits and risks of investing in such
securities; (ii) access to information about the Company and the Companys
financial condition, results of operations, business, properties, management
and prospects sufficient to enable it to evaluate its investment in the
Securities; and (iii) the opportunity to obtain such additional
information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment and to verify the accuracy and
completeness of the information that it has received about the Company. (g) Reliance. The Purchaser understands and
acknowledges that (i) the Shares, Underlying Shares and Option Shares being
offered and sold to it hereunder are being offered and sold without
registration under the Securities Act in a private placement that is exempt
from the registration provisions of the Securities Act under Section 4(2) of
the Securities Act and (ii) the availability of such exemption depends in part
on, and that the Company will rely upon the accuracy and truthfulness of, the
foregoing representations and such Purchaser hereby consents to such reliance. The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section
3.2. ARTICLE IV OTHER AGREEMENTS OF THE PARTIES 4.1 Manner of Offering. The Securities are being
issued pursuant to section 4(2) of the Securities Act and Rule 506 of
Regulation D thereunder. The Amadillo shares are being issued pursuant to
section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder. 4.2 Notice of Certain Events. The Company shall, on a
continuing basis, (i) advise the Purchaser promptly after obtaining knowledge
of, and, if requested by the Purchaser, confirm 11




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such advice in writing, of (A)
the issuance by any state securities commission of any stop order suspending
the qualification or exemption from qualification of the Shares or the
Underlying Shares, for offering or sale in any jurisdiction, or the initiation
of any proceeding for such purpose by any state securities commission or other
regulatory authority, or (B) any event that makes any statement of a material
fact made by the Company in Section 3.1 or in the Disclosure
Documents untrue or that requires the making of any additions to or changes in
Section 3.1 or in the Disclosure Documents in order to make
the statements therein, in the light of the circumstances under which they are
made, not misleading, (ii) use its best efforts to prevent the issuance of any
stop order or order suspending the qualification or exemption from
qualification of the Securities under any state securities or Blue Sky laws,
and (iii) if at any time any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption from
qualification of the Securities under any such laws, and use its best efforts
to obtain the withdrawal or lifting of such order at the earliest possible
time. 4.3 Blue Sky Laws. The Company shall cooperate with
the Purchaser in connection with the exemption from registration of the
Securities under the securities or Blue Sky laws of such jurisdictions as the
Purchasers may
request; provided, however, that
neither the Company nor its Subsidiaries shall be required in connection
therewith to qualify as a foreign corporation where they are not now so
qualified. The Company agrees that it will execute all necessary documents and
pay all necessary state filing or notice fees to enable the Company to sell the
Securities to the Purchasers. 4.4 Integration. The Company shall not and shall use
its best efforts to ensure that no Affiliate shall sell, offer for sale or
solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchaser. 4.5 Furnishing of Rule 144(c) Materials. The Company
shall, for so long as any of the Securities remain outstanding and during any
period in which the Company is not subject to Section 13 or 15(d) of the
Exchange Act, make available to any registered holder of the Securities
(Holder or Holders) in connection with any sale thereof and any prospective
purchaser of such Securities from such Person, such information in accordance
with Rule 144(c) promulgated under the Securities Act as is required to sell
the Securities under Rule 144 promulgated under the Securities Act. 4.6 Solicitation Materials. The Company shall not (i)
distribute any offering materials in connection with the offering and sale of
the Shares or Underlying Shares other than the Disclosure Documents and any
amendments and supplements thereto prepared in compliance herewith or (ii)
solicit any offer to buy or sell the Shares or Underlying Shares by means of
any form of general solicitation or advertising. 4.7 Listing of Common Stock. If the Common Stock is or
shall become listed on the OTCBB or on another exchange, the Company shall (a)
use its best efforts to maintain the listing of its Common Stock on the OTCBB
or such other exchange on which the Common Stock is then listed until
expiration of the periods during which the Shares may be converted and (b)
shall provide to the Purchaser evidence of such listing. 12




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4.8 Attorney-in-Fact. For the sole purpose of
effectuating the terms and provisions of this Agreement and the Certificate of
Designation, the Company hereby agrees to give a power of attorney to G&P as is
evidenced by Exhibit G annexed hereto. All acts done under
such power of attorney are hereby ratified and approved and neither the
Attorney-in-Fact nor any designee or agent thereof shall be liable for any acts
of commission or omission, for any error of judgment or for any mistake of fact
or law, as long as the Attorney-in-Fact is operating within the scope of the
power of attorney and this Agreement and its exhibits. The power of attorney,
being coupled with an interest, shall be irrevocable while any of the Shares
remain unconverted, or any portion of this Agreement remains unsatisfied. In
addition, the Company shall give the Attorney-in-Fact resolutions executed by
the Board of Directors of the Company which authorize transfers of the Shares
and
future issuances of the Underlying Shares for the Shares, and which
resolutions state that they are irrevocable while any of the Shares remain
unconverted, or any portion of this Agreement remains unsatisfied. 4.9 Indemnification. (a) Indemnification (i) The Company shall, notwithstanding termination of this Agreement
and without limitation as to time, indemnify and hold harmless the
Purchaser and its officers, directors, agents, employees and affiliates,
each Person who controls or the Purchaser (within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act) (each such
Person, a Control Person) and the officers,
directors, agents, employees and affiliates of each such Control Person,
to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys fees) and expenses
(collectively, Losses), as incurred, arising out of,
or relating to, a breach or breaches of any representation, warranty,
covenant or agreement by the Company under this Agreement or any other
Transaction Document. (ii) The Purchaser shall, notwithstanding termination of this
Agreement and without limitation as to time, indemnify and hold harmless
the Company, its officers, directors, agents and employees, each Control
Person and the officers, directors, agents and employees of each Control
Person, to the fullest extent permitted by application law, from and
against any and all Losses, as incurred, arising out of, or relating to,
a breach or breaches of any representation, warranty, covenant or
agreement by the Purchaser under this Agreement or the other Transaction
Documents. (b) Conduct of Indemnification Proceedings. If any
Proceeding shall be brought or asserted against any Person entitled to
indemnity hereunder (an Indemnified Party), such
Indemnified Party promptly shall notify the Person from whom indemnity is
sought (the Indemnifying Party) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment
of counsel reasonably satisfactory to the Indemnified Party and the payment of
all fees and expenses incurred in connection with defense thereof; provided,
that the failure of any Indemnified Party to give such notice shall not relieve
the Indemnifying Party of its obligations or liabilities pursuant to this
Agreement, except (and only) to the extent that it shall be finally determined
by a court of competent jurisdiction (which determination is not 13




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subject to
appeal or further review) that such failure shall have proximately and
materially adversely prejudiced the Indemnifying Party. An Indemnified Party shall have the right to employ separate counsel in
any such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed to pay such fees and
expenses; or (2) the Indemnifying Party shall have failed promptly to assume
the defense of such Proceeding and to employ counsel reasonably satisfactory to
such Indemnified Party in any such Proceeding; or (3) the named parties to any
such Proceeding (including any impleaded parties) include both such Indemnified
Party and the
Indemnifying Party, and such Indemnified Party shall have been advised by
counsel that a conflict of interest is likely to exist if the same counsel were
to represent such Indemnified Party and the Indemnifying Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of the claim
against the Indemnified Party but will retain the right to control the overall
Proceedings out of which the claim arose and such counsel employed by the
Indemnified Party shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding. All fees and expenses of the Indemnified Party to which the Indemnified
Party is entitled hereunder (including reasonable fees and expenses to the
extent incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section) shall be paid to the
Indemnified Party, as incurred, within ten (10) Business Days of written notice
thereof to the Indemnifying Party. No right of indemnification under this Section shall be available as to a
particular Indemnified Party if there is a non-appealable final judicial
determination that such Losses arise solely out of the negligence or bad faith
of such Indemnified Party in performing the obligations of such Indemnified
Party under this Agreement or a breach by such Indemnified Party of its
obligations under this Agreement. (c) Contribution. If a claim for indemnification under
this Section is unavailable to an Indemnified Party or is insufficient to hold
such Indemnified Party harmless for any Losses in respect of which this Section
would apply by its terms (other than by reason of exceptions provided in this
Section), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses in such proportion as is
appropriate to reflect the relative benefits received by the Indemnifying Party
on the one hand and the Indemnified Party on the other and the relative fault
of the Indemnifying Party and Indemnified Party in connection with the actions
or omissions that resulted in such Losses as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether there was a judicial determination that such Losses 14




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arise in part out
of the negligence or bad faith of the Indemnified Party in performing the
obligations of such Indemnified Party under this Agreement or the Indemnified
Partys breach of its obligations under this Agreement. The amount paid or
payable by a party as a result of any Losses shall be deemed to include any
attorneys or other fees or expenses incurred by such party in connection with
any Proceeding to the extent such party would have been indemnified for such
fees or expenses if the indemnification provided for in this Section was
available to such party. (d) Non-Exclusivity. The indemnity and contribution
agreements contained in this Section are in addition to any obligation or
liability that the Indemnifying Parties may have to the Indemnified Parties. 4.10 Purchasers Ownership of Common Stock. In
addition to and not in lieu of the limitations on conversion set forth in the
Certificate of Designation, the conversion and exercise rights of the Purchaser
set forth in the Certificate of Designation shall be limited, solely to the
extent required, from time to time, such that, unless the Purchaser gives
written notice seventy five (75) days in advance to the Company of the
Purchasers intention to exceed the Limitation on Conversion as defined herein,
with respect to all or a specified amount of the Shares and the corresponding
number of the Underlying Shares, in no instance shall the maximum number of
shares of Common Stock which the Purchaser (singularly, together with any
Persons who in the determination of the Purchaser, together with the Purchaser,
constitute a group as defined in Rule 13d-5 of the Exchange Act) may receive in
respect of any conversion of the Shares exceed, at any one time, an amount
equal to four and ninety nine one hundredths percent (4.99%) of the then
issued and outstanding shares of Common Stock of the Company following such
conversion (the foregoing being herein referred to as the Limitation
on Conversion); provided,
however, that the Limitation on Conversion shall not apply
to any forced or automatic conversion pursuant to this Agreement or the
Certificate of Designation; and provided,
further that if the Purchaser shall have declared an Event
of Default and, if a cure period is provided, the Company shall not have
properly and fully cured such Event of Default within any such cure period,
the provisions of this Section 4.10 shall be null and void from and after such
date. The Company shall, promptly upon its receipt of a Notice of Conversion
tendered by the Purchaser (or its sole designee) for the Shares, as applicable,
notify the Purchaser by telephone and by facsimile of the number of shares of
Common Stock outstanding on such date and the number of Underlying Shares which
would be issuable to the Purchaser (or its sole designee, as the case may be)
if the conversion requested in such Notice of Conversion or exercise requested
in such Notice of Exercise were effected in full, whereupon, in accordance with
the Certificate of Designation and notwithstanding anything to the contrary set
forth therein, the Purchaser may within one (1) Business Day of its receipt of
the Company notice required by this Section 4.10 by facsimile revoke such
conversion or exercise to the extent (in whole or in part) that the Purchaser
determines that such conversion or exercise would result in the ownership by
the Purchaser of shares of Common Stock in excess of the Limitation on
Conversion. 4.11 No Violation of Applicable Law. Notwithstanding
any provision of this Agreement to the contrary, if the redemption of the
Shares otherwise required under this Agreement or the Certificate of
Designation would be prohibited by the relevant provisions of Washington law,
such redemption shall be effected as soon as it is permitted under such law; 15




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provided, however, that interest payable
by the Company with respect to any such redemption shall accrue in accordance
with Section 5.14. 4.12 Redemption Restrictions. Notwithstanding any
provision of this Agreement to the contrary, if any redemption of the Shares
otherwise required under this Agreement or the Certificate of Designation would
be
prohibited in the absence of consent from any lender to the Company or any
of the Subsidiaries, or by the holders of any class of securities of the
Company, the Company shall use its best efforts to obtain such consent as
promptly as practicable after any such redemption is required. Interest
payable by the Company with respect to any such redemption shall accrue in
accordance with Section 5.14 until such consent is obtained. Nothing contained
in this Section 4.12 shall be construed as a waiver by the Purchaser of any
rights they may have by virtue of any breach of any representation or warranty
of the Company herein as to the absence of any requirement to obtain any such
consent. 4.13 Option for Additional Company Shares. The Company
hereby grants to Purchaser an option to acquire that number of shares of the
Companys Common Stock (the Option Shares), such option to
be exercisable during the thirty (30) day period commencing on the date
Purchaser completes the conversion of all of the Series B Preferred Stock (the
Conversion Completion Date), equal to the difference, if a
positive amount, between (a) the number of the Companys shares of Common
Stock into which the original amount of the Series B Preferred Stock would
have been convertible on the Closing Date at a conversion price equal to one
dollar and eighty two cents ($1.82), less (b) the aggregate number of the
shares of Common Stock into which the original amount of the Series B Preferred
Stock has actually been converted as of the Conversion Completion Date. The
exercise price for the Option Shares shall be the Fixed Conversion Price. In
case of any stock split, stock dividend, reclassification of the Common Stock,
any consolidation or merger of the Company with or into another person, the
sale or transfer of all or substantially all of the assets of the Company or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, then each Option Share then
outstanding shall have the right thereafter upon exercise to receive only such
shares of stock and other securities and property receivable upon or deemed to
be held by holders of Common Stock following such stock split, stock dividend,
reclassification, consolidation, merger, sale, transfer or share exchange
(except in the event the property is cash, then the Purchaser shall have the
right to exercise the Option Shares and receive cash in the same manner as
other stockholders). In such event, if appropriate, the exercise price for the
Option Shares shall be proportionately adjusted. ARTICLE V MISCELLANEOUS 5.1 Fees and Expenses. Except as set forth in this
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Shares (and, upon
conversion or exercise thereof, 16




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the Underlying Shares) pursuant hereto. The
Purchaser shall be responsible for any taxes payable by the Purchaser that may
arise as a result of the investment hereunder or the transactions contemplated
by this Agreement or any other Transaction Document. The Company agrees to pay
a total Purchasers
counsel $7,500 for legal fees associated with the transactions
contemplated by this Agreement, $5,000 prior to preparation of this Agreement
and the other Transaction Documents, and $2,500 at closing, and the reasonable
disbursements of counsel in connection with the transactions contemplated by
this Agreement. The Company shall pay all costs, expenses, fees and all taxes
incident to and in connection with: (A) the issuance and delivery of the
Securities, (B) the exemption from registration of the Securities for offer and
sale to the Purchaser under the securities or Blue Sky laws of the applicable
jurisdictions, and (C) the preparation of certificates for the Securities
(including, without limitation, printing and engraving thereof), and (D) all
fees and expenses of counsel and accountants of the Company. 5.2 Entire Agreement This Agreement, together with all
of the Exhibits and Schedules annexed hereto, and any other Transaction
Document contains the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters. This Agreement shall be deemed
to have been drafted and negotiated by both parties hereto and no presumptions
as to interpretation, construction or enforceability shall be made by or
against either party in such regard. 5.3 Notices. Any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given upon facsimile transmission (with written
transmission confirmation report) at the number designated below (if delivered
on a Business Day during normal business hours where such notice is to be
received), or the first Business Day following such delivery (if delivered
other than on a Business Day during normal business hours where such notice is
to be received) whichever shall first occur. The addresses for such
communications shall be: If to the Company:
    
    O2 Diesel Corporation100 Commerce Drive, Suite 301Newark, Delaware 19713Attn: Alan Rae, President and CEOTel: (302) 266-6000Fax: (302) 266-7634With copies to:
    
    Arnold & Porter LLP1600 Tysons Blvd., Suite 901McLean, VA 22102Attn: Kevin J. Lavin, Esq.Tel: (703) 720-7011Fax: (703) 720-7399If to the Purchaser:
    
    See Schedule 1attached hereto
 17




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With copies to:
    
    Gottbetter & Partners, LLP488 Madison Avenue, 12th FloorNew York, NY 10022Attn: Adam S. Gottbetter, Esq.Tel: (212) 400-6900Fax: (212) 400-6901
 or such other address as may be designated hereafter by notice given pursuant
to the terms of this Section 5.3. 5.4 Amendments; Waivers. No provision of this
Agreement may be waived or amended except in a written instrument signed, in
the case of an amendment, by both the Company and the Purchaser, or, in the
case of a waiver, by the party against whom enforcement of any such waiver is
sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right accruing to it thereafter. 5.5 Headings. The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof. 5.6 No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns and is not for the benefit of, nor may any provision
hereof be enforced by, any other person. 5.7 Governing Law; Venue; Service of Process. The
parties hereto acknowledge that the transactions contemplated by this Agreement
and the exhibits hereto bear a reasonable relation to the State of New York.
The parties hereto agree that the internal laws of the State of New York shall
govern this Agreement and the exhibits hereto, including, but not limited to,
all issues related to usury. Any action to enforce the terms of this Agreement
or any of its exhibits, or any other Transaction Document shall be brought
exclusively in the state and/or federal courts situate in the County and State
of New York. Service of process in any action by the Purchaser to enforce the
terms of this Agreement may be made by serving a copy of the summons and
complaint, in addition to any other relevant documents, by commercial overnight
courier to the Company at its principal address set forth in this Agreement. 5.8 Survival. The representations and warranties of
the Company and the Purchaser contained in Article III and the agreements and
covenants of the parties contained in Article IV and this Article VII shall
survive the Closing. 5.9 Counterpart Signatures. This Agreement may be
executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid 18




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and binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature page were an original
thereof. 5.10 Publicity. The Company and the Purchaser shall
consult with each other in issuing any press releases or otherwise making
public statements with respect to the transactions contemplated hereby and
neither party shall issue any such press release or otherwise make any such
public statement without the prior written consent of the other, which consent
shall not be unreasonably withheld or delayed, unless counsel for the
disclosing party deems such public statement to be required by applicable
federal and/or state securities laws. Except as otherwise required by
applicable law or regulation, the Company will not disclose to any third party
(excluding its legal counsel, accountants and representatives) the names of the
Purchaser. 5.11 Severability. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affected or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute therefore, and upon so agreeing, shall incorporate such
substitute provision in this Agreement. 5.12 Limitation of Remedies. With respect to claims by
the Company or any person acting by or through the Company, or by the Purchaser
or any person acting through the Purchaser, for remedies at law or at equity
relating to or arising out of a breach of this Agreement, liability, if any,
shall, in no event, include loss of profits or incidental, indirect, exemplary,
punitive, special or consequential damages of any kind. 5.13 Successors and Assigns. This Agreement shall
become effective when it is executed by the parties and shall thereafter be
binding upon and enure to the benefit of the parties hereto and their permitted
successors and assigns. This agreement and any of the rights, interests or
obligations hereunder may be assigned by the Purchaser without the consent of
the Company. [ SIGNATURE PAGE FOLLOWS] 19




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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first indicated above. Company:O2 Diesel CorporationBy: /s/ Alan R. RaeName: Alan R. RaeTitle: President & CEOPurchaser:Dungarvon Associates, Inc. on behalf ofArmadillo Investments PLC.By: /s/ Daniel J. KinderName: Daniel J. KinderTitle: Director
 20