Document:

Filed by Automated Filing Services Inc. (604) 609-0244 - Mantra Venture Group Ltd. - Exhibit 10.5

OPTION AGREEMENT 

THIS AGREEMENT is made and effective as of the 1st day
of October, 2007 

B E T W E E N: 

  
    
      
        
          THE GOVERNING COUNCIL OF THE UNIVERSITY OF TORONTO,
            a corporation vested with the government, management and control of
            the University of Toronto by the University of Toronto Act, 1971
            and having offices at MaRS Centre, Heritage Building, 101 College
            Street, Suite 320, Toronto, Ontario M5G 1L7, Canada 

          (hereinafter “UT”) 

        

      

    

  

- and - 

  
    
      
        
          MANTRA ENERGY ALTERNATIVES LTD., a corporation
            having offices at 207 West Hastings Street, Suite 1205, Vancouver,
            B.C. V6B 1H7, Canada 

          (hereinafter the “Optionee”) 

        

      

    

  

WHEREAS Mohammad Reza Irvani and Masoud Karimi
Ghartemani (each an “Inventor” and collectively, the “Inventors”),
while employed by UT have made an Invention (as hereinafter defined); 

WHEREAS by Assignments of Rights from UT dated October
7, 2004, UT assigned its entire right, title and interest in the Invention to
the Inventors on terms and conditions set out therein; 

WHEREAS by Assignments of Rights from Masoud Karimi
Ghartemani (“Ghartemani”) dated October 7, 2004, Ghartemani assigned his
entire right, title and interest in the Invention to Mohammad Reza Irvani (the
“Owner”) on terms and conditions set out therein; 

WHEREAS by a Technology Owners’ Agreement dated October
12, 2004 the Owner retained the University of Toronto Innovations Foundation
(“UTIF”) as his exclusive agent for the exploitation of the Invention,
including the patenting and licensing thereof; 

WHEREAS UTIF, on behalf of the Owner, has filed patent
applications in relation to the Invention as listed in Schedule “A” hereof; 

Page 1 of 13 

WHEREAS effective May 1, 2006, UTIF ceased to operate
its business and it transferred and assigned all of its business and assets to
UT; 

WHEREAS the Optionee is a company whose purpose is to
commercialize, develop, manufacture, market, distribute and sell useful
products; and 

WHEREAS UT, on behalf of the Owner, is willing to grant
to the Optionee an option to negotiate and acquire the exclusive right to
develop, manufacture, market, distribute and sell products which may be derived
in whole or in part from the practice of the Technology. 

NOW THEREFORE in consideration of the premises and the
mutual covenants, terms, conditions and agreements contained herein, and other
good and valuable consideration, the sufficiency of which is hereby
acknowledged, the Parties hereto agree as follows: 

ARTICLE 1 
INTERPRETATION 

1.1       
Definitions 

In this Agreement, the following terms have the meanings set
forth below: 

“Agreement” means this Option Agreement including all
attached schedules, as the same may be supplemented, amended, restated or
replaced in writing from time to time by mutual agreement of the Parties; 

“Confidential Information” means this Agreement and its
terms and conditions, the Know-how, and any information, which is non-public,
confidential or proprietary in nature, including, without limitation, business
information, trade secrets, and any information related to the Technology,
whether written, oral or in electronic form, provided that tangible materials
are marked as confidential, and provided that information given orally or by
visual inspection is identified as confidential at the time of disclosure, and
confirmed as confidential in writing within fifteen (15) days, but shall not
include information that: 

	 	(a) 	
      is or becomes generally available to the public other
      than as a result of any act by a receiving Party to this
  Agreement;

	 	 	 
	 	(b) 	
      is rightfully received from a third party without similar
      restriction or without breach of this Agreement;

	 	 	 
	 	(c) 	
      a receiving Party is able to demonstrate, in writing, was
      known to it on a non-confidential basis; or

	 	 	 
	 	(d) 	
      a receiving Party can show through tangible evidence was
      independently developed by a Party without the use of any of the
      Confidential Information.

Page 2 of 13 

“Copyright” means the rights prescribed in the
Copyright Act (Canada), including those copyright registrations and
applications relating to the Technology identified in Schedule “A” herein; 

“Draft License Agreement” shall mean the technology
license agreement in relation to the Technology attached hereto as Schedule “B”;

“Effective Date” shall mean the date first shown in this
Agreement; 

“Intellectual Property Rights” means all Patents,
Copyright, trade-names and other intellectual property rights relating to the
Invention, whether registered or not, owned by or licensed to the Owners (or any
of them); 

“Invention” means the invention titled “A Novel System
for Detection and Extraction of Useful Signals in Three-Phase Power Systems” as
more fully described in the University of Toronto Confidential Intellectual
Property Disclosure attached hereto as Schedule “C”; 

“Know-how” means any and all trade secrets, technical
expertise, knowledge, confidential information and know-how, whether patentable
or unpatentable relating to the Invention, whether in written, machine readable,
drawing or oral form, including, without limiting the generality of the
foregoing, all technical information, raw material, data, product
specifications, processes and designs, operating and production data,
calculations, computer programs, instructions and techniques, quality control
and other standards, and drawings relating thereto which are developed by the
Owner and which exist at the Effective Date; 

“Parties” means UT and the Optionee collectively, and
“Party” means any of them; 

“Patents” means the patents listed in Schedule “A”
appended hereto, and shall include any divisional, re-examination, renewal, or
continuation applications based on the said patent applications, any patents
which may issue on, from or as a result of any of the foregoing, including all
foreign patents, and any reissue of said patents; and 

“Technology” means the Invention, the Know-how and all
Intellectual Property Rights relating to the Invention. 

1.2        Captions

The division of this Agreement into articles, sections,
subsections and schedules and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement. The article, section, subsection and schedule headings in this
Agreement are not intended to be full or precise descriptions of the text to
which they refer and are not to be considered part of this Agreement. All uses
of the words “hereto”, “herein”, “hereof”, “hereby” and “hereunder” and similar
expressions refer to this Agreement and not to any particular section or portion
of it. References to an Article, Section, Subsection or Schedule refer to the
applicable article, section, subsection or schedule of this Agreement. 

Page 3 of 13 

1.3        Currency

Unless specified otherwise, all statements of or references to
dollar amounts in this Agreement are to lawful money of Canada. 

1.4        Schedules

The following schedules are attached to and incorporated by
reference into this Agreement: 

	Schedule A 	Intellectual
      Property Rights 
	Schedule B 	Draft License Agreement 
	Schedule C 	Invention
  

ARTICLE 2 
TECHNOLOGY OPTION 

2.1       
Grant of Option 

	 	(a) 	
      UT (solely as agent of the Owner) hereby grants to the
      Optionee an exclusive option to negotiate and obtain an exclusive,
      worldwide license to the Technology in all fields of use (the
      “Option”), upon and subject to the terms and conditions hereinafter
      set forth.

	 	 	 
	 	(b) 	
      UT (solely as agent of the Owner) hereby grants to the
      Optionee, during the term of this Agreement, a non-exclusive right to use
      the Technology for internal research purposes.

	 	 	 
	 	(c) 	
      Nothing in this Agreement grants the Optionee the right
      to use the Technology for the purpose of making, using or selling a
      commercial product.

	 	 	 
	 	(d) 	
      The Optionee may exercise its Option hereunder at any
      time during the term of this Agreement or any extension thereof.

	 	 	 
	 	(e) 	
      In the event that the Optionee exercises its Option
      hereunder, the Optionee and UT agree to execute a technology license
      agreement containing substantially similar terms and conditions as set
      forth in the Draft License Agreement.

	 	 	 
	 	(f) 	
      In the event that the Optionee fails to exercise the
      Option within the term of this Agreement or within any extension thereof,
      or if this Agreement is terminated pursuant to Section 6.2 herein, UT may
      offer exclusive worldwide licenses in relation to the Technology to third
      parties.

Page 4 of 13 

ARTICLE 3 
CONSIDERATION 

3.1       
Upfront Fees 

	 	(a) 	
      In consideration for the Option granted herein, the
      Optionee shall pay to UT a non-refundable upfront fee (the “Option
      Fee”) of twelve thousand dollars ($12,000) on or within thirty (30)
      days following the Effective Date.

	 	 	 
	 	(b) 	
      In the event that the Optionee fails to exercise the
      Option within the term of this Agreement or if this Agreement is
      terminated in accordance with section 6.2 hereof, the Parties hereto
      acknowledge and agree that the Option Fee shall be forfeit by the Optionee
      and shall remain the property of UT.

ARTICLE 4 
INTELLECTUAL PROPERTY 

4.1       
Patent Prosecution 

During the term of this Agreement, UT shall: 

	 	(i) 	
      file, prosecute and maintain the Patents in the name of
      Owner as assignee;

	 	 	 
	 	(ii) 	
      pay all third party charges relating to the filing,
      prosecution and maintenance of the Patents; and

	 	 	 
	 	(iii) 	
      keep the Optionee reasonably advised of the progress of
      prosecution and of any actions UT proposes to take or has taken in
      connection with the prosecution or maintenance of the
  Patents.

4.2       
Confidentiality 

	 	(a) 	
      All Confidential Information will remain the property of
      its owner or the party that furnished it as the case may be.

	 	 	 
	 	(b) 	
      For a period of five (5) years from the date of
      disclosure of Confidential Information, each Party agrees to maintain in
      confidence all Confidential Information disclosed with the same degree of
      care as it normally takes to preserve its own confidential information of
      similar grade, but in any event, no less than a reasonable degree of
      care.

	 	 	 
	 	(c) 	
      Each Party may only disclose Confidential Information to
      persons with a “need to know” who shall be made aware of, and be required
      to observe and comply with the covenants and obligations contained herein,
      and the

Page 5 of 13 

	 		
      Confidential Information shall only be used to carry on
      or facilitate business as contemplated under this Agreement.

	 	 	 
	 	(d) 	
      A Party may disclose Confidential Information pursuant to
      the requirements of a government agency or pursuant to a court order,
      provided that the Party shall take all reasonable steps, including, but
      not limited to the seeking of an appropriate protective order, to preserve
      the confidentiality of the Confidential Information provided.

	 	 	 
	 	(e) 	
      If this Agreement is terminated for any reason, any Party
      in receipt of Confidential Information shall promptly deliver or destroy
      all Confidential Information of the disclosing Party without retaining
      copies thereof, except that the receiving Party may retain in the office
      of its legal counsel one (1) copy of written Confidential Information for
      record purposes only.

	 	 	 
	 	(f) 	
      In the event that a Party becomes aware of, or perceives
      any threat that, any Confidential Information may be disclosed contrary to
      the provisions of this Section 4.2, or in the circumstances referred to in
      Subsection 4.2(d) hereof, such Party shall immediately provide written
      notice thereof to the other Party.

ARTICLE 5
REPRESENTATIONS, WARRANTIES AND INDEMNITY

5.1       
Representations and Warranties of Parties 

The representations of the Optionee and UT, one to the other
are as follows: 

	 	(a) 	
      The Optionee is a corporation duly organized, validly
      existing and in good standing, and it has the right and authority to enter
      this Agreement, and do all acts and things as required or contemplated to
      be done, observed and performed by it hereunder;

	 	 	 
	 	(b) 	
      the execution, delivery and performance of this Agreement
      does not contravene any law, rule or regulation of any Party or of the
      jurisdiction in which it is incorporated; and

	 	 	 
	 	(c) 	
      UT is a corporation duly organized, validly existing and
      in good standing, and it has the right to grant the Option as provided
      herein and that such grant is not in conflict with any other agreement to
      which it is a party.

EXCEPT FOR THE FOREGOING REPRESENTATIONS AND WARRANTIES
PROVIDED IN THIS SECTION 5.1, UT DISCLAIMS ALL REPRESENTATIONS, WARRANTIES AND
CONDITIONS OF ANY KIND, WHETHER EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE,
INCLUDING WITHOUT LIMITATION ALL REPRESENTATIONS, WARRANTIES AND CONDITIONS AS
TO QUALITY, MERCHANTABLE QUALITY, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE, SCOPE, PATENTABILITY, VALIDITY OR 

Page 6 of 13 

ENFORCEABILITY OF THE TECHNOLOGY OR THAT THE TECHNOLOGY IS SAFE
FOR ANY USE OR PURPOSE WHATSOEVER, OR THAT THE TECHNOLOGY DOES NOT INFRINGE THE
RIGHTS OF ANY THIRD PARTY. 

5.2       
Indemnity 

Except to the extent when caused by the gross negligence of UT,
the Optionee shall indemnify and hold harmless the Inventors, the Owner, their
respective successors and assigns, and UT, its parents, subsidiaries,
affiliates, attorneys, agents, officers, directors, employees, administrators,
predecessors, successors or assigns (collectively, the “Indemnitees”)
from and against any and all claims, threats, loss, liability, damage or
expense, including reasonable lawyers’ fees, by reason or arising out of any
acts or failure to act by or out of any use of the Technology by the Optionee or
its servants, agents, affiliates, officers, directors, stock-holders, or
employees. The party seeking indemnification shall give the Optionee prompt
notification of any such claim, threat, loss, liability, damage or expense. The
indemnity provided herein shall survive any termination or assignment of this
Agreement without time limit. The Optionee acknowledges that UT is entering this
Agreement and obtaining the foregoing indemnification as agent for other
Indemnitees and is holding the rights contained in this paragraph in trust for
the other Indemnitees. 

ARTICLE 6
TERM AND TERMINATION 

6.1       
Term 

This Agreement shall come into effect upon the Effective Date,
and unless earlier terminated, shall terminate twelve (12) months following the
Effective Date. 

6.2       
Termination 

	 	(a) 	
      This Agreement may be terminated for material breach by
      any of the Parties upon at least thirty (30) days prior written notice (in
      accordance with the notice provisions of Section 7.1 hereof) to the Party
      asserted to be in breach thereof.

	 	 	 
	 	(b) 	
      Termination shall be effective on the date set forth in
      the notice, unless prior to that date the Party in breach has cured the
      breach.

	 	 	 
	 	(c) 	
      The Optionee may terminate this Agreement, at is sole
      discretion, at any time upon thirty (30) days prior written notice to
      UT.

	 	 	 
	 	(d) 	
      If a Party:

	 	 	 
	 		
      (i)       
      is adjudicated insolvent or a bankrupt,

Page 7 of 13 

	 	(ii) 	
      is the subject of any proceedings relating to its
      liquidation, insolvency or for the appointment of a receiver or similar
      officer for it, or

	 	 	 
	 	(iii) 	
      makes a general assignment for the benefit of all or
      substantially all of its creditors, or enters into an agreement for the
      composition, extension or re-adjustment of all or substantially all of its
      obligations,

	 		
      then the other Party, within the conditions of applicable
      law, may immediately terminate this Agreement by giving written
    notice.

	 	 	 
	 	(e) 	
      Termination as set forth in this Section shall not
      relieve any of the Parties of any obligations accrued under this Agreement
      prior to the date of termination. The following provisions shall survive
      termination of this Agreement: Sections 1.1 (Definitions); 4.2
      (Confidentiality); 5.2 (Indemnity); Subsection 6.2(e) (Survival); and
      Article 7 (General Provisions).

ARTICLE 7 
GENERAL 

7.1       
Notices 

All notices required and permitted under this Agreement shall
be in writing, and service of all such notices shall be sufficient and complete
if and when sent by registered mail, postage prepaid addressed to the party to
be notified, at the address given above or at other addresses of which the
parties have notice in writing. 

7.2       
Conflict 

In the event any term or any part of any term of this Agreement
is determined to be void or unenforceable, such term or part of a term shall be
considered separate and severable from this Agreement and the remaining terms
shall continue in full force and effect. 

7.3       
Governing Law 

This Agreement shall be governed by, and interpreted and
enforced in accordance with the laws in force in the Province of Ontario and the
federal laws of Canada applicable therein (excluding any conflict of laws, rule
or principle which might refer such interpretation to the laws of another
jurisdiction). Each Party hereby attorns and submits to the exclusive
jurisdiction of the Ontario Superior Court of Justice in any action or
proceeding arising out of or relating to this Agreement. Further, each Party
hereby agrees that service may be made on any representative of the Parties
hereto, whether in Toronto or elsewhere. Finally, each Party hereby agrees that
all such claims in respect of such actions or proceedings shall be heard and
determined in Toronto in such Ontario court. 

Page 8 of 13 

7.4       
Further Assurances 

The Parties agree to execute, acknowledge and deliver all such
further instruments, and to do all such other acts, as may be necessary or
appropriate to carry out the intent and purpose of this Agreement. 

7.5       
Waiver of Rights 

No failure or delay on a part of a Party hereto in exercising
any right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy preclude
any other or future exercise thereof or the exercise of any other right, power
or remedy. No waiver by a Party hereto of a default hereunder shall operate
against such Party as a waiver of such default unless made in writing and signed
by an authorized officer of such Party. 

7.6       
Relationship of the Parties 

	 	(a) 	
      The relationship of the Optionee to UT is that of an
      independent contractor and neither the Optionee nor its agents or
      employees shall be considered employees of UT. This Agreement does not
      constitute and shall not be construed as constituting a partnership or
      joint venture or grant of a franchise between the Optionee and
  UT.

	 	 	 
	 	(b) 	
      A Party will not use the name of any other Party, nor any
      member of such Party’s staff in any advertising or publicity without the
      prior written approval of an authorized representative of the body whose
      name is to be used. However, a Party may notify others of the fact that
      this Agreement is in effect.

7.7       
Force Majeure 

No Party shall be liable to any other party for delay or
failure in the performance of any of its obligations hereunder if such failure
is caused by Force Majeure, as hereinafter defined. For the purposes hereof,
“Force Majeure” means any act of God, action or failure to act of any
government or governmental or regulatory authority, failure of supplies,
materials, equipment, labour or transportation being provided by any other
person, power failure or shortage, strike, lockout, work slowdown or stoppage,
accident, fire, flood, explosion, storm, other natural occurrence, sabotage or
other event beyond the control of the relevant party. 

7.8       
Entire Agreement 

This Agreement, including all attached Schedules which are
hereby incorporated by reference, sets forth the entire agreement and
understanding of the Parties relating to the subject matter contained herein and
merges all prior discussions and agreements between them, and neither Party
shall be bound by any definition, condition, warranty or representation other
than expressly stated in this Agreement. Any amendment to this 

Page 9 of 13 

Agreement shall not be effective unless it is in writing and
signed by the duly authorized signing officers of each Party. 

7.9       
Facsimile Execution 

To evidence the fact that it has executed this Agreement, a
Party may send a copy of its executed counterpart to the other Party by
facsimile transmission. That Party shall be deemed to have executed this
Agreement on the date it sent such facsimile transmission. In such event, such
Party shall forthwith deliver to the other Party the counterpart of this
Agreement executed by such Party. 

7.10       
Assignment 

This Agreement shall not be assigned by the Optionee without
the prior written consent of UT, such consent not to be unreasonably withheld.

7.11       
Succession 

This Agreement shall be binding upon and enure to the benefit
of the Parties hereto and their respective heirs, executors, administrators and
other legal representatives and, to the extent permitted hereunder, their
respective successors and permitted assigns. 

IN WITNESS WHEREOF, the Parties have caused this
Agreement to be executed in a legally binding manner. 

THE GOVERNING COUNCIL OF THE UNIVERSITY OF TORONTO

Per:    /s/ Tim McTiernan, Ph.D.                                      

            Tim McTiernan, Ph.D. 

             Interim Vice-President,
  Research 

             Executive Director,
  The Innovations Group 

             University of Toronto

 

MANTRA ENERGY ALTERNATIVES LTD. 

Per:    /s/ David Warren                                                   

             David Warren 

             Chief Financial
  Officer and Chief Operating Officer 

Page 10 of 13 

SCHEDULE “A” 
INTELLECTUAL PROPERTY RIGHTS 

	Jurisdiction: 	Canada 
	Patent Title: 	“Three-Phase Power Signal
      Processor” 
	Application Number: 	2,503,685 
	Filing Date: 	April 5, 2005 
	  	  
	Jurisdiction: 	United States 
	Patent Title: 	“Three-Phase Power Signal
      Processor” 
	Application Number: 	11/098,421 
	Filing Date: 	April 5, 2005

Page 11 of 13 

SCHEDULE “B” 

  DRAFT LICENSE AGREEMENT 

 

 

 

 

Page 12 of 13 

SCHEDULE “C” 

  INVENTION 

 

 

 

 

Page 13 of 13SEPARATION AGREEMENT

                  THIS  SEPARATION  AGREEMENT  (the  "Agreement")  is  made  and
entered into effective as of October 16, 2007 (the  "Separation  Date"),  by and
between Momentum Biofuels,  Inc., a Colorado corporation formerly known as Tonga
Capital Corporation (the "Company") and Barent W. Cater (the "Executive").

                              W I T N E S S E T H:
                               -------------------

                  WHEREAS,  the  Executive  and the  Company are parties to that
certain  Executive  Employment  Agreement  dated  as  of  April  15,  2007  (the
"Employment Agreement"); and

                  WHEREAS,   the  parties  mutually  desire  to  arrange  for  a
separation  from the Company and its affiliates and  subsidiaries  under certain
terms; and

                  WHEREAS,  in  consideration  of the mutual promises  contained
herein,  the parties  hereto are willing to enter into this  Agreement  upon the
terms and conditions herein set forth.

                  NOW,  THEREFORE,  in consideration of the premises,  the terms
and  provisions  set  forth  herein,  the  mutual  benefits  to be gained by the
performance thereof and other good and valuable  consideration,  the receipt and
sufficiency  of which are  hereby  acknowledged,  the  parties  hereto  agree as
follows:

     1.  Termination  of Employment.  Effective as of the  Separation  Date, the
Executive is removed from his position as President and Chief Executive  Officer
of the  Company.  The  parties  agree that the  termination  of the  Executive's
employment  is a termination  for the  convenience  of the Company,  and is made
without Cause pursuant to the Employment Agreement.

     2.  Separation  Benefits.  The Company  agrees to pay or  provide,  and the
Executive  agrees  to  accept,  the  benefits  set  forth in this  Section  2 in
consideration  for the  Executive's  service through the Separation Date and the
additional consideration provided by the Executive pursuant to this Agreement.

          A. Payment of Expenses.  Within 5 days following the Separation  Date,
     the  Company  will pay to the  Executive  $72,095.49,  which  includes  (1)
     $57,095.49  ($55,923.40  Principal,  $1,172.09 interest),  in settlement of
     that  certain  promissory  note  executed  on July 19, 2007 in favor of the
     Executive,  and (2) $15,000 in reimbursement of attorneys' fees paid by the
     Executive in  connection  with the  preparation  of his initial  employment
     agreement.

<PAGE>

          B.  Vesting of Option.  The parties  agree that the option to purchase
     5,000,000  shares of the Company's  common stock ("Common  Stock"),  as set
     forth on Exhibit A to the Employment Agreement (the "Option"), is currently
     exercisable  with respect to 1,000,000  shares of Common  Stock.  As of the
     Separation Date, the Company agrees that the Option will become exercisable
     with respect to an additional 500,000 shares of Common Stock, such that the
     Option will be exercisable  with respect to a total of 1,500,000  shares of
     Common Stock. The Option will remain  exercisable until April 15, 2012. The
     parties  agree  that  a  separate  agreement  amending  and  restating  and
     documenting   the   complete   terms  of  the  Option   will  be   executed
     contemporaneously  herewith in  substantially  the form attached  hereto as
     Attachment A.

          C. Removal of Lock-Up  Restrictions.  Effective  as of the  Separation
     Date,  the Company  agrees to waive the lock-up  restrictions  described in
     Exhibit A to the Employment Agreement with respect to any and all shares of
     Common Stock which the Executive has or may acquire in the future.

          D. Registration of Outstanding Shares. The Company agrees to cause all
     shares of Common Stock  currently held by the Executive to be registered on
     form SB-2 along with the shares  sold in the  Company's  private  placement
     completed on September 4, 2007.

     3. Mutual Release of Claims.

          A. In consideration of the covenants from the Company to the Executive
     set  forth  herein,   the  receipt  and  sufficiency  of  which  is  hereby
     acknowledged,  Executive,  on his  behalf  and  on  behalf  of  his  heirs,
     devisees,   legatees,   executors,   administrators,   personal  and  legal
     representatives,  assigns and successors in interest,  hereby  IRREVOCABLY,
     UNCONDITIONALLY AND GENERALLY RELEASES, ACQUITS, AND FOREVER DISCHARGES, to
     the  fullest  extent  permitted  by law,  Company  and  each  of  Company's
     divisions,  subsidiaries,  successors and assigns,  agents, or any of them,
     from any and all charges,  complaints,  claims, damages, actions, causes of
     action,  suits, rights,  demands,  grievances,  costs,  losses,  debts, and
     expenses  (including  attorneys'  fees and costs  incurred),  of any nature
     whatsoever arising prior to the Separation Date;  provided,  however,  that
     nothing  contained  herein  shall  operate to release  any  obligations  of
     Company,  its successors or assigns (x) arising under any claims to amounts
     or benefits  described  in this  Agreement  or (y) to defend and  indemnify
     Executive to the maximum extent that directors and officers of corporations
     are  required  to be  indemnified  under  Colorado  law  or  the  Company's
     Certificate of Incorporation and Bylaws for all costs of litigation and any
     judgment or settlement amount paid.

<PAGE>

          B. In consideration of the covenants from the Executive to Company set
     forth herein, the receipt and sufficiency of which is hereby  acknowledged,
     the Company,  its assigns and successors in interest,  hereby  IRREVOCABLY,
     UNCONDITIONALLY AND GENERALLY RELEASES, ACQUITS, AND FOREVER DISCHARGES, to
     the fullest extent  permitted by law, the Executive,  his heirs,  devisees,
     legatees, executors, administrators, personal and legal representatives, or
     any of  them,  from  any  and all  charges,  complaints,  claims,  damages,
     actions,  causes of action,  suits,  rights,  demands,  grievances,  costs,
     losses, debts, and expenses (including attorneys' fees and costs incurred),
     of any nature whatsoever arising prior to the Separation Date.

     4. Restrictive  Covenants.  The Company agrees that the covenants set forth
in Section 7.E. of the  Employment  Agreement  are no longer  applicable  and to
waive any claim it may have in the future to enforce such section. The Executive
acknowledges  that  the  remaining  covenants  set  forth  in  Section  7 of the
Employment Agreement are operative and remain in effect in accordance with their
terms.

     5. Mutual  Nondisparagement;  Press Release.  The Executive and the Company
and its  officers  and  directors  agree  to  refrain  from  any  criticisms  or
disparaging  comments,  orally or in  writing,  about  each  other or in any way
relating to the Executive's employment or separation from employment;  provided,
however,  that nothing in this  Agreement  shall apply to or restrict in any way
the communication of information by the Company or the Executive to any state or
federal law enforcement agency or require notice to the Company or the Executive
thereof,  and neither  the  Executive  nor the Company  will be in breach of the
covenant  contained  above solely by reason of  testimony  which is compelled by
process  of law.  The  parties  agree  that  any  press  release  regarding  the
Executive's  separation  will be reviewed and approved by both parties  prior to
distribution.

     6. Indemnification; D&O Insurance. The Company shall indemnify and hold the
Executive harmless against  judgments,  fines,  amounts paid in settlement,  and
reasonable  expenses  (including  attorneys  fees)  incurred by the Executive in
connection  with the defense of any action or  proceeding in which he is a party
by reason of his  position  as an  officer  or  director  of the  Company or any
affiliated  company or entity,  so long as the Executive acted in good faith and
in a manner the  Executive  reasonably  believed  to be in or not opposed to the
best  interests of the  Company,  and,  with  respect to any criminal  action or
proceeding,  Employee  had no  reasonable  cause  to  believe  his  conduct  was
unlawful;  provided,  however,  that such  indemnity  shall be  consistent  with
Colorado law and with the provisions  contained as of the date of this Agreement
within the Company's bylaws and charter,  or the affiliated  company or entity's
bylaws or charter, addressing the indemnification of its directors, officers and
authorized representatives for actions of the nature described herein. Until the
date 6 years  following  the  Separation  Date,  the Company  agrees to maintain
reasonable  directors and officers liability  insurance covering claims incurred
in respect of the period during which the Executive was a director or officer of
the Company.

<PAGE>

     7.  Nonassignability.  Neither  this  Agreement  nor any right or  interest
hereunder shall be subject,  in any manner, to anticipation,  alienation,  sale,
transfer,  assignment,  pledge,  encumbrance  or charge,  whether  voluntary  or
involuntary,  by  operation  of law or  otherwise,  any attempt at such shall be
void;  provided,  that any such  benefit  shall not in any way be subject to the
debts, contract,  liabilities,  engagements or torts of the Executive, nor shall
it be subject to attachment or legal process for or against the Executive.

     8. Entire  Agreement;  Modification.  This  Agreement sets forth the entire
agreement and understanding of the parties concerning the subject matter hereof,
and supersedes all prior agreements, arrangements and understandings relative to
that subject matter including,  without limitation, the Employment Agreement. No
term or provision hereof may be modified or  extinguished,  in whole or in part,
except by a writing which is dated and signed by the parties to this  Agreement.
No waiver of any of the  provisions or conditions of this Agreement or of any of
the rights,  powers or privileges of a party will be effective or binding unless
in writing and signed by the party  claimed to have given or  consented  to such
waiver. No representation, promise or inducement has been made to or relied upon
by or on behalf of either party  concerning  the subject  matter hereof which is
not set forth in this Agreement.

     9. Waiver.  No term or condition of this Agreement  shall be deemed to have
been  waived,  nor shall there be an estoppel  against  the  enforcement  of any
provision of this Agreement,  except by written  instrument of the party charged
with such waiver or estoppel.

     10. Notices.  All notices or communications  hereunder shall be in writing,
addressed as follows:

                           To the Company:

                           Momentum Biofuels, Inc.
                           Attn: Chairman of the Board
                           2600 S. Shore Blvd., Suite 100
                           League City, TX 77573

                           To the Executive:

                           Barent W. Cater
                           13 Mariners Lane
                           Kemah, Texas  77565

All such  notices  shall be  conclusively  deemed  to be  received  and shall be
effective;  (i) if sent by hand delivery, upon receipt, (ii) if sent by telecopy
or facsimile  transmission,  upon  confirmation of receipt by the sender of such
transmission, or (iii) if sent by registered or certified mail, on the fifth day
after the day on which such notice is mailed.

<PAGE>

     11. Source of Payments.  All cash payments  provided in this Agreement will
be paid from the  general  funds of the  Company.  The  Executive's  status with
respect to amounts owed under this Agreement will be that of a general unsecured
creditor of the Company.

     12.  Taxes.  The  Executive  shall be  entitled  to  receive  tax  gross-up
payments,  to the  extent  required  pursuant  to the terms of  Exhibit A to the
Employment Agreement,  which is expressly incorporated herein. Such payments, if
required,  will be made no later than the end of the  taxable  year in which the
Executive remits the underlying taxes. This Agreement is intended to comply with
Section 409A of the Code (to the extent  applicable)  and the Company  agrees to
interpret,  apply and administer this Agreement in the least restrictive  manner
necessary  to  comply  with  such  requirements  and  without  resulting  in any
diminution in the value of payments or benefits to the Executive.

     13. Severability. If any provision of this Agreement is held to be invalid,
illegal or unenforceable,  in whole or part, such invalidity will not affect any
otherwise valid  provision,  and all other valid  provisions will remain in full
force and effect.

     14.   Counterparts.   This  Agreement  may  be  executed  in  two  or  more
counterparts,  each of  which  will be  deemed  an  original,  and all of  which
together will constitute one document.

     15.  Titles.  The titles and headings  preceding the text of the paragraphs
and subparagraphs of this Agreement have been inserted solely for convenience of
reference and do not  constitute a part of this Agreement or affect its meaning,
interpretation or effect.

     16.  Governing  Law. This  Agreement  shall be governed by and construed in
accordance  with the laws of the State of Texas  (except that no effect shall be
given  to any  conflicts  of law  principles  thereof  that  would  require  the
application of the laws of another jurisdiction).

     17. Arbitration.  Any dispute or controversy arising under or in connection
with  this  Agreement  shall  be  settled   exclusively  by  final  and  binding
arbitration in Houston,  Texas,  in accordance  with the Employment  Arbitration
Rules of the American  Arbitration  Association ("AAA"). The arbitrator shall be
selected by mutual agreement of the parties, if possible. If the parties fail to
reach agreement upon  appointment of an arbitrator  within thirty days following
receipt by one party of the other  party's  notice of desire to  arbitrate,  the
arbitrator shall be selected from a panel or panels of persons  submitted by the
AAA.  The  selection  process  shall  be  that  which  is set  forth  in the AAA
Employment  Arbitration Rules then prevailing,  except that, if the parties fail
to select an arbitrator from one or more panels, AAA shall not have the power to
make an  appointment  but shall  continue to submit  additional  panels until an
arbitrator has been selected. This agreement to arbitrate shall not preclude the
parties from engaging in voluntary,  non-binding  settlement  efforts  including
mediation.

     18.   Counterparts.   This  Agreement  may  be  executed  in  one  or  more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument.

                            [Signature Page Follows]

<PAGE>

                  IN WITNESS  WHEREOF,  the parties have executed this Agreement
on the date and year first above written.

                                    MOMENTUM BIOFUELS, INC.

                                    By:________________________
                                       Name:
                                       Title:

                                    EXECUTIVE

                                    ____________________________
                                    Barent W. Cater

<PAGE>

                                  ATTACHMENT A

                  FORM OF AMENDED AND RESTATED OPTION AGREEMENT

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