Document:

Exhibit 10.33

 

ADDITIONAL WARRANT

 

WARRANT

 

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR
OTHERWISE DISPOSED OF, UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE
SECURITIES ACT OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH
DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH
REGISTRATION.

 

October 17, 2007

 

O2DIESEL CORPORATION

 

Warrant for the Purchase of Common Stock
(Void after October 17, 2012)

 

No. W-

 

FOR VALUE RECEIVED, this Warrant is hereby issued by O2DIESEL
CORPORATION, a Delaware corporation with file number 3857061 and publicly
traded on the American Stock Exchange and having its Principal Executive
Offices at 100 Commerce Drive, Suite 301, Newark, Delaware 19713 (the “Company”),
to Energenics Holdings Pte Ltd, a company incorporated in Singapore with
registration number 200612991G and having its registered office at 7 Temasek
Boulevard, Suntec City Tower 1 #04-01A, Singapore 038987 (the “Holder”).  Subject to the provisions of this Warrant,
the Company hereby grants to Holder the right to purchase up to 391,157 shares
of the Company’s common stock, par value $.0001 per share (“Common Stock”), at
US$0.375 per share (“Exercise Price”).

 

The Holder agrees with the Company that this Warrant is issued, and all
the rights hereunder shall be held, subject to all of the conditions,
limitations and provisions set forth herein.

 

1.                                       Exercise of Warrant. 
Subject to the terms and conditions set forth herein, the Holder may
exercise this Warrant on or after April 17, 2008, but no later than October 17,
2012. To exercise this Warrant the Holder shall present and surrender this
Warrant to the Company at its principal office, with the Warrant Exercise Form,
attached hereto as Appendix A, duly executed by the Holder and
accompanied by payment in cash or by certified check, payable to the order of
the Company or by a wire transfer to the Company, of the aggregate Exercise
Price for the total aggregate number of securities for which this Warrant is
exercised.  The Common Stock deliverable
upon such exercise, and as adjusted from time to time, are hereinafter referred
to as “Warrant Stock.”

 

Upon receipt by the
Company of this Warrant, together with the executed Warrant Exercise Form and
payment of the Exercise Price, if any, for the securities to be acquired, in
proper form for exercise, and subject to the Holder’s compliance with all
requirements of this Warrant for the exercise hereof, the Holder shall be
deemed to be the holder of record of the

 

1

 

Warrant Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such securities shall not then be
actually delivered to the Holder; provided, however, that no exercise of this
Warrant shall be effective, and the Company shall have no obligation to issue
any Warrant Stock to the Holder upon any attempted exercise of this Warrant,
unless the Holder shall have first delivered to the Company, in form and
substance reasonably satisfactory to the Company, appropriate representations so
as to provide the Company reasonable assurances that the securities issuable
upon exercise may be issued without violation of the registration requirements
of the Securities Act and applicable state securities laws, including without
limitation representations that the exercising Holder is an “accredited
investor” as defined in Regulation D under the Securities Act and that the
Holder is familiar with the Company and its business and financial condition
and has had an opportunity to ask questions and receive documents relating
thereto to his reasonable satisfaction.

 

2.                                       Reservation of Shares. 
The Company will reserve for issuance and delivery upon exercise of this
Warrant all shares of Warrant Stock.  All
such shares shall be duly authorized and, when issued upon such exercise, shall
be validly issued, fully paid and non-assessable and free of all preemptive
rights.

 

3.                                       Assignment or Loss of Warrant.  Subject to the transfer restrictions herein
(including Section 6), upon surrender of this Warrant to the Company or at
the office of its stock transfer agent, if any, with the Assignment Form,
attached hereto as Appendix B, duly executed and funds sufficient to pay
any transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be canceled. 
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and of reasonably
satisfactory indemnification by the Holder, and upon surrender and cancellation
of this Warrant, if mutilated, the Company shall execute and deliver a
replacement Warrant of like tenor and date.

 

4.                                       Rights of the Holder. 
The Holder shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or in equity, and the rights of the
Holder are limited to those expressed in this Warrant.

 

5.                                       Adjustments.

 

(a)                                  Adjustment for Recapitalization.  If the Company shall at any time after the
date hereof subdivide its outstanding shares of Common Stock by
recapitalization, reclassification or split-up thereof, or if the Company shall
declare a stock dividend or distribute shares of Common Stock to its
shareholders, the number of shares of Common Stock subject to this Warrant
immediately prior to such subdivision shall be proportionately increased, and
if the Company shall at any time after the date hereof combine the outstanding
shares of Common Stock by recapitalization, reclassification or combination
thereof, the number of shares of Common Stock subject to this Warrant
immediately prior to such combination shall be proportionately decreased.

 

2

 

(b)                                 Adjustment for Reorganization, Consolidation, Merger, Etc.  If at any time after the date hereof the
Company has a Change in Control, the Holder agrees that, either (a) Holder
shall exercise its purchase right under this Warrant and such exercise will be
deemed effective immediately prior to the consummation of such Change in
Control or (b) if the Holder elects not to exercise the Warrant, this
Warrant will expire upon the consummation of the Change of Control. For
purposes of this Warrant, a “Change in Control” shall be deemed to occur in the
event of a change in ownership or control of the Company effected through any
of the following transactions: (i) the acquisition, directly or
indirectly, by any person or related group of persons (other than the Company
or a person that immediately before the Change of Control  directly
or indirectly controls, or is controlled by, or is under common control with,
the Company) of beneficial ownership (within the meaning of Rule 13d-3 of
the Securities Exchange Act of 1934, as amended) of outstanding securities
possessing more than fifty percent (50%) of the total combined voting power of
the Company’s outstanding securities; or (ii) the sale, transfer or other
disposition of all or substantially all of the Company’s assets; or (iii) the
consummation of a merger or consolidation of the Company with or into another
entity or any other corporate reorganization, if more than fifty percent (50%)
of the combined voting power of the continuing or surviving entity’s securities
outstanding immediately after such merger, consolidation or other
reorganization is owned by persons who were not stockholders of the Company
immediately prior to such merger, consolidation or other reorganization.

 

(c)                                  Certificate as to Adjustments.  The adjustments provided in this Section 5
shall be interpreted and applied by the Company in such a fashion so as to
reasonably preserve the applicability and benefits of this Warrant (but not to
increase or diminish the benefits hereunder). 
In each case of an adjustment in the number of shares of Common
Stock  receivable on the exercise of the
Warrant, the Company at its expense will promptly compute such adjustment in
accordance with the terms of the Warrant and prepare a certificate executed by
two executive officers of the Company setting forth such adjustment and showing
in detail the facts upon which such adjustment is based. The Company will mail
a copy of each such certificate to each Holder.

 

(d)                                 Notices of Record Date, Etc. 
In the event that:

 

(i)                                     the
Company shall declare any dividend or other distribution to the holders of
Common Stock, or authorizes the granting to Common Stock holders of any right
to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities; or

 

(ii)                                  the
Company has a Change in Control; or

 

(iii)                               the
Company authorizes any voluntary or involuntary dissolution, liquidation or
winding up of the Company,

 

then, and in each such case, the Company shall mail or cause to be
mailed to the holder of this Warrant at the time outstanding a notice
specifying, as the case may be, (a) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution or right, or (b) the
date on which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or

 

3

 

winding up is to take place,
and the time, if any is to be fixed, as to which the holders of record of
Common Stock shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation
or winding up.  Such notice shall be
mailed at least 20 days prior to the date therein specified.

 

(e)                                  No Impairment.  The
Company will not, by any voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the Holder of this Warrant against impairment.

 

6.                                       Transfer to Comply with the Securities Act.  This Warrant and any Warrant Stock may not be
sold, transferred, pledged, hypothecated or otherwise disposed of except as
follows:  (a) to a person who, in
the opinion of counsel to the Company, is a person to whom this Warrant or the
Warrant Stock may legally be transferred without registration and without the
delivery of a current prospectus under the Securities Act with respect thereto
and then only against receipt of an agreement of such person to comply with the
provisions of this Section 6 with respect to any resale or other
disposition of such securities; or (b) to any person upon delivery of a
prospectus then meeting the requirements of the Securities Act relating to such
securities and the offering thereof for such sale or disposition, and
thereafter to all successive assignees.

 

7.                                       Reports Under Securities Exchange Act of 1934.  With a view to making available to the Holder
the benefits of Rule 144 under the Securities Act (“Rule 144”) and
any other rule or regulation of the Securities Exchange Commission (“Commission”)
that may at any time permit a Holder to sell securities of the Company to the
public without registration, the Company shall:

 

(a)                                  make
and keep public information available, as required by Rule 144, at all
times;

 

(b)                                 file
with the Commission in a timely manner all reports and other documents required
of the Company under the Securities Act and the Exchange Act; and

 

(c)                                  furnish
to the Holder, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144,
the Securities Act and the Exchange Act; (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company and (iii) such other information as may be
reasonably requested in availing any Holder of any rule or regulation of
the Commission which permits the selling of any such securities without
registration.

 

8.                                       Legend.

 

(a)                                  Unless
the shares of Warrant Stock have been registered under the Securities Act, upon
exercise of this Warrant and the issuance of any of the shares of Warrant

 

4

 

Stock, all certificates
representing shares shall bear on the face thereof substantially the following
legend:

 

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.

 

(b)                                 The
legend requirements shall terminate when (i) the shares in question shall
have been effectively registered under the Securities Act and disposed of
pursuant thereto or (ii) the Company shall have received an opinion of
counsel reasonably satisfactory to it that such legend is not required in order
to insure compliance with the Securities Act.

 

(c)                                  Upon
termination of the legend requirements as per Section 8(b) above, the
Company shall instruct its transfer agent to issue a new share certificate at
no cost to the Holder without a legend limiting the sale or transfer of the
shares.

 

9.                                       Notices.  All notices
required hereunder shall be in writing and shall be deemed given by facsimile
transmission, delivered personally or within one day after mailing when mailed
by an overnight courier service, to the Company or the Holder, as the case may
be, for whom such notice is intended, if to the Holder, at the address of such
party as set forth in the Common Stock and Warrant Purchase Agreement, dated as
of October 17, 2007, between the Company and Energenics Holdings Pte Ltd,
or if to the Company, O2Diesel Corporation, 100 Commerce Drive, Suite 301,
Newark, Delaware 19713 or at such other address of which the Company or the Holder
has been advised by notice hereunder.

 

10.                                 Applicable Law.  The
Warrant is issued under and shall for all purposes be governed by and construed
in accordance with the laws of the State of Delaware, without regard to the
conflict of laws provisions of such State.

 

5

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on
its behalf, in its corporate name, by its duly authorized officer, all as of
the day and year first above written.

 

 

	
   

  	
  O2Diesel Corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Alan R. Rae

  
	
   

  	
   

  	
  Chief Executive Officer

  
				

 

6

 

Appendix A

 

WARRANT EXERCISE FORM

 

The undersigned hereby irrevocably elects to (i) exercise the
within Warrant to purchase                     
shares of the Common Stock of O2DIESEL CORPORATION, a Delaware corporation,
pursuant to the provisions of Section 1 of the attached Warrant, and
hereby makes payment of
$                    
in payment therefor, or (ii) exercise this Warrant for the purchase of
              
shares of Common Stock, pursuant to the provisions of Section 1 of the
attached Warrant.  The undersigned’s
execution of this form constitutes the undersigned’s agreement to all the terms
of the Warrant and to comply therewith.

 

	
   

  	
   

  
	
   

  	
  Signature

  
	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature, if jointly held

  
	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  
				

 

7

 

Appendix B

 

ASSIGNMENT FORM

 

FOR VALUE
RECEIVED                                                          
(“Assignor”) hereby sells, assigns and transfers unto
                                                              
(“Assignee”) all of Assignor’s right, title and interest in, to and under
Warrant No. W-         issued by
                                                        ,
dated                             .

 

	
  DATED:

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ASSIGNOR:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature, if jointly held

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  ASSIGNEE:

  
	
   

  	
   

  
	
  The undersigned agrees to all of the terms of the Warrant and to
  comply therewith.

  
	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Signature, if jointly held

  
	
   

  	
  Print Name:

  	
   

  

 

 

8Exhibit 10.34

 

December 15, 2007

 

Mr. Dale S. Barker

ProEco Energy Company

P.O. Box 26

Belle Fourche, South Dakota
57717

 

	
  Re:

  	
  Project
  for Ethanol Plants

  

 

Dear Mr. Barker:

 

As we have previously
discussed, the current market conditions for raising capital for ethanol plants
are not favorable.  Nonetheless, we would
like to continue our relationship with you, regarding the 56 million gallons
per year ethanol plant in South Dakota (“Potential Project”).  The purpose of this letter (this “Letter”)
is to set forth certain binding agreements between O2Diesel Corporation, a
Delaware corporation (“O2Diesel”), and ProEco Energy Company, Inc.
(“ProEco”) and certain selling shareholders of ProEco (the “Shareholders”),
with respect to the Potential Project. 
This Letter shall become effective on the day it is countersigned by you
(“Effective Date”).

 

1.                                       Loan Agreement.  The parties agree to extend the maturity date
of the Amended and Restated Term Loan Agreement, dated as of December 22,
2006, and as amended and restated on September 14, 2007 (“Loan
Agreement”) from December 15, 2007 to January 31, 2008 (“Maturity
Date”), and the parties shall execute a revised Amended and Term Loan
Agreement, as attached hereto as Exhibit A.  As of December 15, 2007, there is
$1,396,971.92 principal and interest outstanding (the “Loan”), and
ProEco acknowledges and agrees that no further funds will be advanced pursuant
to Section 2.1(b) of the Loan Agreement.  The Loan is evidenced by the Secured
Promissory Note, as attached hereto as Exhibit B, and the Secured
Promissory Note, as attached hereto as Exhibit C.

 

2.                                       Share Exchange
Agreement.  Section 6.1(f) of
the Share Exchange Agreement (the “Exchange Agreement”), dated as of January 12,
2007, by and between O2Diesel and ProEco, sets forth the automatic termination
date of the Exchange Agreement.  Since
the parties agree to extend the Maturity Date, the automatic termination date
of the Exchange Agreement is also extended to January 31, 2008.

 

3.                                       Guarantee for
Katzen International, Inc.  From the Effective Date, ProEco acknowledges
and agrees that O2Diesel will not guarantee any additional payments above the
$250,000, as set forth in the Letter, dated March 27, 2007, from O2Diesel
to Katzen International, Inc.

 

 

4.                                       Negotiations
with Other Parties.

 

a.               From the
Effective Date, O2Diesel hereby expressly waives the prohibition in Section 4.4
of the Share Exchange Agreement.

 

b.              From the
Effective Date, the parties agree that O2Diesel may enter into any merger,
consolidation, share exchange, sale of assets, sale of securities, acquisition
of beneficial ownership of capital stock of any party, or any joint venture or
a similar transaction with respect to the design, construction and operation of
ethanol power plants and/or biodiesel plants.

 

5.                                       Miscellaneous.

 

a.               Except as
expressly set forth herein, the Loan Agreement and the Exchange Agreement
remain in full force and effect in accordance with their respective terms.

 

b.              This Letter may
be executed in any number of counterparts, which taken together shall
constitute one and the same document.

 

[Remainder of the Page Left Intentionally Blank]

 

2

 

Please sign and date this Letter in the space provided below to confirm
the binding agreement and return a copy to the undersigned.  We look forward to continuing working
together with you.

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  O2DIESEL
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Alan Rae

  
	
   

  	
  Alan Rae, Chief Executive Officer

  

 

 

	
  Accepted and agreed.

  
	
   

  
	
  PROECO
  ENERGY COMPANY, INC.

  
	
   

  
	
   

  
	
  By:

  	
    /s/
  Dale S. Baker

  	
   

  
	
  Dale S. Barker

  	
   

  
	
   

  	
   

  
	
  Date:
  January 2, 2008

  	
   

  

 

3

 

EXHIBIT
A

 

AMENDED AND RESTATED TERM
LOAN AGREEMENT

 

Dated as of December 22, 2006, and as amended and
restated on December 15, 2007

 

between

 

ProEco Energy Company (the “Borrower”)

 

and

 

Dale S. Barker and Barbara Pyle, as Pledgors

 

and

 

O2Diesel Corporation (the “Lender” and the “Collateral
Agent”)

 

 

AMENDED AND RESTATED TERM
LOAN AGREEMENT

 

This
Amended and Restated Term Loan Agreement (this “Agreement”), dated as of December 22,
2006, (the “Effective Date”) and amended and restated as of December 15,
2007, is entered into by and among ProEco Energy Company, a South Dakota
corporation (the “Borrower”), the Pledgors (as defined herein) and O2Diesel
Corporation, a Delaware corporation as lender (the “Lender”) and as collateral
agent (the “Collateral Agent”).

 

RECITALS:

 

WHEREAS,
the Borrower requires capital for the purchase of an option (the “Option”) to
purchase parcels of land (collectively, the “Parcels” and individually, a “Parcel”)
on which a new fuel-grade ethanol plant (the “Potential Project”) is to be
constructed;

 

WHEREAS,
the Borrower is willing to secure all of its Obligations (as hereinafter
defined) by granting to the Collateral Agent, for the benefit of itself and the
Lender, security interests in and a lien upon all of its property and assets
now owned or hereafter acquired by the Borrower;

 

WHEREAS,
certain stockholders and officers of the Borrower will benefit from the Loans
(as hereinafter defined) made by the Lender to the Borrower and are willing to
pledge collateral as security for payment and performance of all of the
Obligations of the Borrower and to grant to the Collateral Agent, for the
benefit of itself and the Lender, a security interest in and a lien upon all
shares of the issued and outstanding common stock of the Borrower (the “Common
Stock”) held by such officers;

 

WHEREAS,
the Lender is willing to provide the Borrower with such capital on the terms
and conditions hereafter provided; and

 

WHEREAS,
the Borrower has requested, and the Lender has agreed to provide, (i) an
extension of the Maturity Date of the Loans (as defined below) and (ii) an
increase in the aggregate principal amount of the Delayed Draws (as defined
below) that may be borrowed pursuant to this Agreement.

 

NOW,
THEREFORE, in consideration of the undertakings set forth herein and other good
and valuable consideration, the receipt and sufficiency of which hereby is
acknowledged, the parties hereto agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

As
used in this Agreement:

 

“Business
Day” means, with respect to any borrowing or payment, a day other than Saturday
or Sunday on which banks are open for business in the State of Delaware.

 

“Change in Control” means (i) the failure of Dale S. Barker and Barbara Pyle to own,
beneficially and of record, the issued and outstanding shares of voting stock
of the Borrower held by 

 

 

them as of the Closing Date (appropriately adjusted to
reflect stock splits, stock dividends, reverse stock splits and similar
events), (ii) any merger, consolidation, reorganization, recapitalization,
or other business combination involving the Borrower, in which the stockholders
of the Borrower immediately prior thereto do not own, directly or indirectly,
outstanding voting securities representing more than fifty percent (50%) of the
combined outstanding voting power of the surviving entity in such merger,
consolidation, reorganization, recapitalization or other business combination; (iii) the
sale of all, or substantially all, of the assets of the Borrower; or (iv) the
sale of voting securities of the Borrower in a transaction or a series of
related transactions to any person (or group of persons acting in concert) that
results in such person (or group of persons) (together with their affiliates)
owning more than fifty percent (50%) of the outstanding voting securities of
the Borrower; provided that “Change of Control” shall not include any
transaction involving the Lender acquiring voting securities or assets or
merging with the Borrower.

 

“Closing Date” means December 22,
2006, or such later date as may be agreed by the parties hereto.

 

“Collateral” shall have
the meaning ascribed to such term in the Security Agreement.

 

“Credit Parties” (each
individually, a “Credit Party”) shall mean the Borrower and each of the
Pledgors.

 

“Disclosure Schedule”
means the disclosure schedule to this Agreement delivered to the Lender by the
Borrower upon execution and delivery of this Agreement.

 

“Environmental Condition”
means any contamination or damage to the environment caused by or relating to
the use, handling, storage, treatment, recycling, generation, transportation,
release, spilling, leaching, pumping, pouring, emptying, discharging,
injection, escaping, disposal, dumping or threatened release of Hazardous
Materials by the Borrower or any other Person. 
With respect to claims by employees or any other third parties,
Environmental Condition shall also include the exposure of Persons to amounts
of Hazardous Materials in amounts that have been determined to be deleterious
to human health.

 

“Environmental Laws” means all currently
applicable federal, state and local laws, ordinances, rules and
regulations and standards, policies and other governmental requirements,
administrative rulings and court judgments and decrees, including all
amendments, and requirements applicable under common law that relate to (1) pollution;
(2) the protection of human health and safety; (3) the protection or
regulation of the environment, including without limitation, air, soils,
wetlands, surface and underground water; (4) aboveground or underground
storage tank regulation or removal; (5) wildlife; (6) protection or
regulation of natural resources; (7) radioactive materials, including
without limitation radon; (8) indoor air quality; and (9) chemicals,
pesticides, mold or fungus or similar substances.  “Environmental Laws” include, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., the Toxic Substance Control Act, 15 U.S.C. Section 2601,
et seq., the Federal Water Pollution
Control Act, 33 U.S.C. Section 1251, et seq., the
Hazardous Materials Transportation Act, 49 U.S.C. 5101, et seq.,
the Clean Air Act, 42 U.S.C. Section 7401, et seq.,
the Safe Drinking Water Act, 42 U.S.C. Section 300f, et seq.,
the Occupational Safety and Health Act, 29 U.S.C. Section 651, et  seq., the
Emergency 

 

 

Planning
and Community Right to Know Act of 1986, 42 U.S.C. 11001, et seq.,
the Atomic Energy Act, 42 U.S.C. Section 2014, et seq.,
the National Environmental Policy Act, 42 U.S.C. Section 4321, et seq., the Endangered Species Act, 16 U.S.C. Section 1531,
et seq., the Federal Insecticide,
Fungicide & Rodenticide Act, 7 U.S.C. Section 136, et seq., and their state analogs, all applicable state
superlien or environmental clean-up or disclosure statutes in any state in
which the Borrower operates or conducts any business, and all similar local
laws, and all implementing regulations.

 

“Environmental Noncompliance” means any
violation of any Environmental Law.

 

“Hazardous Materials” shall mean any
materials regulated as hazardous or toxic under applicable Environmental Laws,
or any other material regulated, or that could result in the imposition of
liability, under Environmental Laws, including, without limitation, petroleum,
petroleum products, fuel oil, crude oil or any fraction thereof, derivatives or
byproducts of petroleum products or fuel oil, natural gas, mold, hazardous
substances, toxic substances, polychlorinated biphenyls, any materials
containing more than one percent (1%) asbestos by weight and any other
substance determined to present a deleterious effect on human health or the
environment.

 

“Intellectual
Property” means all of the following as they exist in any jurisdiction
throughout the world, in each case, to the extent owned by, licensed to, or
otherwise used by the Borrower:  (a) patents,
patent applications and the inventions, designs and improvements described and
claimed therein, patentable inventions, and other patent rights (including any
divisionals, continuations, continuations-in-part, substitutions, or reissues
thereof, whether or not patents are issued on any such applications and whether
or not any such applications are amended, modified, withdrawn, or refiled)
(collectively, “Patents”); (b) trademarks, service marks, trade dress,
trade names, brand names, Internet domain names, designs, logos, or corporate
names (including, in each case, the goodwill associated therewith), whether
registered or unregistered, and all registrations and applications for
registration thereof (collectively, “Trademarks”); (c) works of authorship
and all copyrights therein, including all renewals and extensions, copyright
registrations and applications for registration, and non-registered copyrights
(collectively, “Copyrights”); (d) trade secrets, confidential business
information, concepts, ideas, designs, research or development information,
processes, procedures, techniques, technical information, specifications,
operating and maintenance manuals, engineering drawings, methods, know-how,
data, mask works, discoveries, inventions, modifications, extensions,
improvements, and other proprietary rights (whether or not patentable or
subject to copyright, trademark, or trade secret protection) (collectively, “Trade
Secrets”); (e) all domain name registrations, web sites and web pages and
related rights, items and documentation related thereto (collectively, “Internet
Assets”); (f) computer software programs, including all source code,
object code, and documentation related thereto and all software modules, tools
and databases (“Software”); (g) mask works, and (h) all licenses, and
sublicenses, and other agreements or permissions related to the preceding
property.

 

“IT Assets”
means computers, computer software (except for “off the shelf” or “shrink-wrap”
software), firmware, middleware, servers, workstations, routers, hubs,
switches, data communication lines, and all other information technology
equipment, and all associated documentation.

 

“Loan
Documents” means this Agreement, the LOI, the Notes and any Security Documents.

 

 

“LOI” means that certain
letter of intent, dated November 30, 2006, signed by the Lender and
acknowledged by the Borrower.

 

“Maturity
Date” means January 31, 2008.

 

“Mortgage”
(or “Mortgages”) means any mortgage, deed of trust, deed to secure debt and
other instrument, from time to time executed by the Borrower for the purpose of
granting the Collateral Agent, for its benefit and the benefit of the Lender, a
lien on real property of the Borrower, in form and substance satisfactory to
the Lender.

 

“Obligations”
means (i) all current or future unpaid principal of and accrued and unpaid
interest (including without limitation, interest accruing during the pendency
of any bankruptcy, insolvency, receivership or other similar proceeding,
regardless of whether allowed or allowable in such proceeding) on the Notes
when and as due, whether at maturity, by acceleration, upon one or more dates
set for prepayment or otherwise; (ii) all other monetary obligations,
including but not limited to, interest, fees, charges; and (iii) the due
and punctual performance of all covenants, agreements, obligations and
liabilities of the Borrower now or hereafter due arising under or in connection
with the Loan Documents, expenses, indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) of
the Borrower now or hereafter due under or in connection with the Loan
Documents.

 

“Person”
means any corporation, natural person, firm, joint venture, partnership, trust,
unincorporated organization, enterprise, government or any department or agency
of any government.

 

“Pledge
Agreement” means that certain Pledge Agreement dated as of the date hereof, by
and among the Pledgors and the Collateral Agent.

 

“Pledged
Collateral” shall have the meaning ascribed to such term in the Pledge
Agreement.

 

“Pledgors”
means Dale S. Barker and Barbara Pyle.

 

“Purchase
Agreement” means that any definitive agreement entered into between the
Borrower and the Lender pursuant to which the Lender acquires all or a portion
of the Borrower’s assets or voting securities.

 

“Security
Documents” means the Security Agreement, the Pledge Agreement and such other
agreements, instruments, documents, financing statements, warehouse receipts,
bills of lading, notices of assignment of accounts, schedules of accounts
assigned, mortgages and other written matter necessary or reasonably requested
by the Lender to perfect and maintain perfected the Lender’s first priority
security interest in the Collateral.

 

“Security Agreement”
means that certain Security Agreement, dated as of the date hereof, by and
between the Borrower and the Pledgors as Grantors and the Collateral Agent.

 

 

“Solvent” means, with respect to
any Person, that (i) the fair value of all of such Person’s properties and
assets is in excess of the total amount of its debts (within the meaning of the
U.S. Bankruptcy Code); (ii) it is able to pay its debts as they mature; (iii) it
does not have unreasonably small capital for the business in which it is engaged
or for any business or transaction in which it is about to engage; and (iv) it
is not “insolvent” as such term is defined in Section 101(31) of the U.S.
Bankruptcy Code.

 

“Trains Project” means
the project to build two 50 million gallon trains in connection with the
Potential Project as described in the LOI.

 

“Transaction” means the
acquisition by the Lender of 80% of the Common Stock of the Borrower in
accordance with the terms and conditions set forth in the Purchase Agreement.

 

“U.S. Bankruptcy Code”
means Title 11 of the United States Code, 11 U.S.C.  Section 101, et  seq.

 

The
words “herein,” “hereof” and “hereunder” and other words of similar import
refer to this Agreement as a whole, including the Exhibits and Schedules
hereto, as the same may from time to time be amended, modified or supplemented,
and not to any particular section, subsection or clause contained in this
Agreement.

 

Wherever
from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and the plural, and pronouns
stated in the masculine, feminine or neuter gender shall include the masculine,
the feminine and the neuter.

 

ARTICLE II

 

THE LOANS

 

2.1           Loans.

 

(a)         Subject
to satisfaction of the terms and conditions set forth in this Agreement, the
Lender agrees to make a term loan to the Borrower on the Closing Date in an
aggregate principal amount of $150,000 (the “Initial Loan”), the proceeds of
which shall be used by the Borrower solely to purchase the Option.

 

(b)         The
Borrower may request that the Lender make additional term loans to the Borrower
in an aggregate principal amount of up to $1,250,000 (each a “Delayed Draw”,
and together with the Initial Loan, the “Loans”) by delivering a written
request to the Lender specifying the amount of the Delayed Draw, the Business
Day on which the Borrower wishes to make the Delayed Draw and the proposed use
of the funds provided by the Delayed Draw. 
The Lender may, in its absolute discretion, agree to provide a Delayed
Draw to the Borrower, in each case in the amount and on the Business Day
specified in the applicable Borrowing Request, subject to the conditions set
forth in Section 3.2 of this Agreement.

 

 

2.2           Repayment.

 

(a)         The
Borrower shall repay the Loans, together with all interest due thereon, and all
other amounts owing under this Agreement or the Loan Documents in connection
with the Loans in full on the Maturity Date; notwithstanding any of the
foregoing, upon the Lender closing on a transaction to provide financing for
the Trains Project, all amounts owing under this Agreement or the Loan
Documents in connection with the Loans shall be converted into an intercompany
loan from the Lender to the Borrower (the “Intercompany Loan”) evidenced by a
promissory note to be repaid on a date mutually agreed upon by the parties.

 

(b)         The
obligation of the Borrower to repay the principal amount of the Loans, and any
and all interest which accrues thereon, shall be evidenced by a series of
promissory notes executed and delivered by the Borrower in the form of Exhibit A
hereto (collectively, the “Notes” and each individually, a “Note”).

 

(c)         In
the event that the Lender informs the Borrower that the Lender either (i) is
unable to obtain financing for the Trains Project or (ii) chooses to
participate in another opportunity related to an ethanol plant or the ethanol
industry, the parties shall use commercially reasonable efforts to renegotiate
mutually agreeable repayment terms of all amounts then owing under this
Agreement or the Loan Documents in connection with the Loans.

 

2.3           Interest.  Interest on the Loans shall accrue at a per
annum rate equal to seven percent (7%) (the “Applicable Rate”), provided,
however, during any period in which a Default (as defined below), shall exist,
interest on the Loans shall accrue at a rate per annum equal to two percent
(2%) above the Applicable Rate.  Interest
shall be calculated for actual days elapsed on the basis of a 360-day
year.  Interest on the Loans shall not be
paid in cash but instead automatically shall be added to the outstanding
principal balance of the Loans on the first (1st)
Business Day of each calendar month prior to the Maturity Date and shall be
treated in all respects as outstanding principal under the Loans.

 

2.4           Method of Payment.  All payments of principal and fees hereunder
shall be made in immediately available funds in United States Dollars to the
Lender at the Lender’s address specified pursuant to Section 8.11, by noon
(local time) on the date the same shall be due. 
The Loans may be prepaid in whole or in part without penalty.  Amounts repaid or prepaid with respect to the
Loans may not be reborrowed, provided that the Borrower shall give the Lender
written notice of its intention to prepay any of the outstanding amounts, which
notice shall specify the amount to be so prepaid and the date of such
prepayment, not less than two (2) Business Days prior to such prepayment.

 

ARTICLE III

 

CONDITIONS PRECEDENT

 

3.1           Conditions to the
Initial Loan.  The obligation of the
Lender to make the Initial Loan shall be subject to the following conditions
precedent:

 

 

(a)         each
of the Credit Parties, to the extent applicable to such Credit Party, shall
have furnished to the Lender, or caused to be furnished to the Lender (unless
otherwise waived by Lender in writing), the following, in form and substance
reasonably satisfactory to the Lender and its counsel, each dated as of the
Effective Date (or such other date as shall be acceptable to the Lender):

 

(i) each of the
following Loan Documents to which it is a party, duly executed by an authorized
officer and the other parties thereto: this Agreement, a Note in the principal
amount of $150,000, the Security Agreement and the Pledge Agreement;

 

(ii) evidence of all
filings of the financing statements with respect to the Security Agreement and
the other Security Documents; searches or other evidence as to the absence of
any liens on the Collateral; and evidence that all other actions with respect
to the liens created by the Security Documents have been taken as are necessary
or appropriate to perfect such liens and establish a first priority security
interest in favor of the Lender in the Collateral, including the Pledged
Collateral; and

 

(iii) such other
documents as the Lender or its counsel may reasonably request.

 

(b)         the
representations and warranties of each Credit Party made in Article IV of
this Agreement and the other Loan Documents shall be true and correct when
made, and shall be true in on and as of the Closing Date (except to the extent
such representations and warranties specifically relate to an earlier date, in which
case such representations and warranties shall be true and correct as of such
earlier date);

 

(c)         each
Credit Party shall have performed and complied with all agreements, obligations
and conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing Date; and

 

(d)         the
Lender shall have received an opinion letter, dated as of the Closing Date and
addressed to the Collateral Agent and the Lender, from counsel to the Borrower,
in a form that is reasonably satisfactory to the Lender.

 

3.2           Conditions to Subsequent Drawings.  The obligation of the Lender to lend
additional amounts for any Delayed Draw shall be subject to the following
conditions precedent and solely at the discretion of the Lender:

 

(a)         no
Default (as defined below) has occurred or is continuing or would result from
the Delayed Draw;

 

(b)         as of
the date that the Delayed Draw is made, all of the representations and
warranties of the Borrower contained in Article IV and in the other Loan
Documents shall be true and correct (except to the extent such representations
and warranties specifically relate to an earlier date, in which case such
representations and warranties shall be true and correct as of such earlier
date, and except for changes after the Closing Date which are not prohibited by
any Loan Document);

 

(c)         the
Borrower shall have performed and complied with all agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied 

 

 

with by it in
order to make a Delayed Draw, including the Post-Closing Conditions Subsequent,
if applicable;

 

(d)         the
Lender shall have completed its first level due diligence review of the
Borrower’s business, assets, contracts, prospects and financial condition and
the technical feasibility of the Potential Project, and the Lender shall be
satisfied in all respects with the results of such first level due diligence
review; and

 

(e)         the
Borrower shall have delivered (i) a Note, duly executed by an authorized officer,
in the principal amount of the applicable Delayed Draw and (ii) any
documents related to the proposed use of Funds for the Delayed Draw as the
Lender shall reasonably request.

 

3.3           Post-Closing Conditions Subsequent.

 

(a)           Within
thirty (30) days following the Closing Date, the Borrower shall enter into an
executed account control agreement, in a form reasonably satisfactory to the
Lender, with respect to each account maintained by the Borrower.

 

(b)           Within
ten (10) days following the Closing Date, the Borrower shall deliver to
the Lender evidence in a form acceptable to the Lender that the Borrower has
used the funds advanced in the Initial Loan to make a payment toward the
purchase of the Option.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES

 

Except
as set forth on the Disclosure Schedule delivered by the Borrower to the
Lender, each section of which shall only qualify the representation or warranty
in the correspondingly numbered Section of this Agreement, each Credit
Party, as applicable, represents and warrants to the Lender that on the date
hereof:

 

4.1           Organization and
Qualification.  The Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the state of South Dakota, is qualified to transact business in the
jurisdictions listed on the Disclosure Schedule and has the requisite corporate
power and authority and legal capacity to own and operate its properties and
assets, to conduct its business as now conducted and as currently proposed to
be conducted in the future, to enter into, execute and deliver this Agreement
and the Loan Documents, to issue the Notes and to perform its obligations under
this Agreement and the Loan Documents and any other agreement to which the
Borrower is a party, the execution and delivery of which are contemplated
hereby.  The Borrower is duly qualified
to transact business and is in good standing, if applicable, in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on its business, condition, results or operations, assets or liabilities
(a “Material Adverse Effect”).

 

4.2           Authorization;
Enforceable Obligations.  Except as
set forth on the Disclosure Schedule, the execution, delivery and performance
by the Borrower of each of the Loan Documents, to the extent it is a party
thereto, and the creation of all liens provided for herein and therein:  (a)  have been and will be duly
authorized by all necessary or proper action; (b) are not in contravention

 

 

of any provision of the
Borrower’s by-laws or charter; (c) will not violate any law or regulation,
or any order or decree of any court or governmental instrumentality; (d) will
not conflict with or result in the breach or termination of, constitute a
default under, or accelerate any performance required by, any indenture,
mortgage, deed of trust, lease, agreement or other instrument to which the
Borrower is a party or by which the Borrower or any of its property is bound
(except for such conflict, breach, termination, default or acceleration as could
not reasonably be expected to have a Material Adverse Effect); (e) will
not result in the creation or imposition of any lien upon any of the property
of the Borrower other than those in favor of the Lender, all pursuant to the
Loan Documents; and (f) do not require the consent or approval of any
governmental body, agency, authority or any other Person, except such consents
as have been obtained.  Each of the Loan
Documents delivered in connection herewith at such time shall have been duly
executed and delivered for the benefit of or on behalf of the Borrower, and
each shall then constitute a legal, valid and binding obligation of the
Borrower, enforceable against it in accordance with its terms.

 

4.3           No Default.  The Borrower is not, and after giving effect
to this Agreement shall not be, in default in the payment or performance of any
contractual obligation where such default could have a material adverse effect
on the business, properties, assets, liabilities or condition (financial or
otherwise) on the Borrower.

 

4.4           Financial
Information; Minute Books, Solvency.

 

(a)         All
balance sheets, all statements of operations, stockholders’ equity and cash
flows, and all other financial information of the Borrower which have been or
shall hereafter be furnished by or on behalf of the Borrower to the Lender for
the purposes of or in connection with this Agreement or any transaction
contemplated hereby, have been prepared in accordance with GAAP consistently
applied throughout the periods involved and present fairly in all material
respects the matters reflected therein subject, in the case of unaudited
statements, to changes resulting from normal year-end audit adjustments and
except as to the absence of footnotes. 
As of the date here, the Borrower has no material contingent liabilities
or material liabilities for taxes, long-term leases or forward or long-term
commitments except as set forth on the Disclosure Schedule.

 

(b)         The
Borrower is Solvent and, after giving effect to the borrowings under this
Agreement, will be Solvent.

 

4.5           Investment
Company Act.  No Credit Party is, or
after giving effect to the transactions contemplated by the Loan Documents will
be, an “investment company” or an “affiliated person” or “promoter” of, or “principal
underwriter” of or for, an “investment company,” within the meaning of the
Investment Company Act of 1940, as amended, or any other federal or state law
limiting its ability to incur debt or to execute, deliver or perform the Loan
Documents to which it is a party.

 

4.6           Intellectual
Property.

 

(a)         The
Disclosure Schedule sets forth a true and complete list of (i) all
Intellectual Property owned by the Borrower, indicating for each item that is
registered the registration or application number and the applicable filing
jurisdiction and (ii) all Intellectual Property contracts (other than
licenses for commercial “off-the-shelf” or “shrink-wrap” software that 

 

 

are not material
to the business, operations, financial condition or performance of the
Borrower, taken as a whole).  The Borrower
exclusively owns (beneficially, and of record where applicable) all right,
title and interest in and to all Intellectual Property set forth on the
Disclosure Schedule (the “Scheduled Intellectual Property”) free and clear of
all liens not otherwise permitted in this Agreement, exclusive licenses and
non-exclusive licenses not granted in the ordinary course of business.  The Scheduled Intellectual Property is not
subject to any outstanding order, judgment, decree, or agreement adversely
affecting the use thereof by the Borrower or its rights thereto, and is valid,
subsisting and enforceable.  The Borrower
does not, and has not in the past five years, infringed or otherwise violated
the Intellectual Property rights of any third party.  The Borrower has sufficient rights to use all
Intellectual Property used in its business as presently conducted, all of which
rights shall survive the consummation of the transactions contemplated by this
Agreement unchanged  There is no
litigation, opposition, cancellation, proceeding, objection, or claim pending,
asserted, or threatened against the Borrower concerning the ownership,
validity, registerability, enforceability, infringement, use of, or licensed
right to use any Intellectual Property, except as set forth on the Disclosure
Schedule.  To the knowledge of the
Borrower, no valid basis exists for any such litigation, opposition,
cancellation, proceeding, objection, or claim. 
To the Borrower’s knowledge, no person is violating any Scheduled
Intellectual Property right that the Borrower holds exclusively.

 

(b)         The
Scheduled Intellectual Property that is registered has been duly registered
with, filed in, or issued by, as the case may be, the United States Patent and
Trademark Office or such other filing offices, domestic or foreign, as
applicable, and such registration, filings, issuances, and other actions remain
in full force and effect, and are current and unexpired.  The Borrower has properly executed and
recorded all documents necessary to perfect its title to all Scheduled
Intellectual Property, and has filed all documents and paid all taxes, fees,
and other financial obligations required to maintain in force and effect all
such items.

 

(c)         The
Borrower has taken all reasonable measures to protect the confidentiality and
value of all Trade Secrets that are owned, used, or held by the Borrower, and,
to the Borrower’s knowledge, such Trade Secrets have not been used, disclosed
to, or discovered by any person except pursuant to valid and appropriate
non-disclosure and/or license agreements that have not been breached.  All current and prior employees of the
Borrower have executed valid intellectual property and confidentiality
agreements for the benefit of the Borrower, and to the Borrower’s knowledge, no
current or prior employee is in default or breach of any term of any such
agreement.

 

(d)         The
IT Assets operate and perform in all material respects in accordance with their
documentation and functional specifications and otherwise as required by the
Borrower in connection with its business, and have not materially malfunctioned
or failed within the past three (3) years. 
To the Borrower’s knowledge, no person has gained unauthorized access to
the IT Assets.  The Credit Parties have
implemented reasonable backup and disaster recovery technology consistent with
industry practices.

 

4.7           Insurance.  All policies of insurance in effect of any
kind or nature owned by or issued to the Borrower, (a) as of the Closing
Date are listed on the Disclosure Schedule, (b) are in full force and
effect, and (c) are of a nature and provide such coverage as is
customarily carried by 

 

 

companies engaged in
similar businesses as the Borrower.  The
Borrower does not provide any of its insurance through self-insurance.

 

4.8           Environmental Matters.  Except as set forth on the Disclosure
Schedule, the Borrower has not received any written, or to the knowledge of any
Credit Party oral, claim or notice alleging that the Borrower is not in
compliance with or is in violation of any Environmental Law, or has liability
or responsibility under any Environmental Law. 
There are no pending or, to the knowledge of any Credit Party
threatened, investigations, inquiries, administrative proceedings, actions,
suits, claims, charges, complaints, demands, notices or legal proceedings
against the Borrower, the Borrower’s business or assets, under Environmental
Laws, including those that involve or relate to Environmental Conditions,
Environmental Noncompliance or the release, use, disposal or arranging for disposal
of any Hazardous Materials on or from any real property used, leased or owned
by the Borrower.  Except as set forth on
the Disclosure Schedule, the Borrower has not released any Hazardous Materials
on, under or about any real property used, leased or owned by the Borrower in
quantities that are required to be reported under or that requires
investigation or remediation pursuant to Environmental Law or that otherwise is
in violation of any requirement of any Environmental Law.  The Borrower is in compliance with
Environmental Laws.  The Borrower has not
generated, stored, treated, handled, disposed of, or arranged to dispose of,
Hazardous Materials in a manner or to a location that could reasonably be
expected to result in liability to the Borrower under Environmental Laws.  The Borrower has not exposed any employee or
other individual to any Hazardous Materials or conditions that could reasonably
be expected to form the basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand for
damage to, or investigation and remediation of, any site, location or body of
water (surface or subsurface), or any illness of or personal injury to any
employee or individual.

 

4.9           Accounts.  The Disclosure Schedule lists all accounts,
whether a deposit account or a securities account, of the Borrower.

 

4.10         Additional
Representations and Warranties.  All
representations and warranties made in the Security Agreement are true, correct
and complete as of the Effective Date, except to the extent such
representations and warranties are specifically made as of a particular date
(in which case such representations and warranties are true and correct as of
such particular date).

 

ARTICLE V

 

COVENANTS

 

For so
long as the Loans remain outstanding under this Agreement, unless the Lender
shall otherwise consent in writing, each Credit Party covenants and agrees, as
applicable, that from, and after the date hereof (except as otherwise provided
in this Agreement, or unless the Lender has given its prior written consent):

 

5.1           Notices.  It shall give the Collateral Agent prompt
written notice of any (a) Default (as defined below), (b) any notice
received related to any environmental matter described in Section 4.8 of
this Agreement, (c) any material amendment to the Borrower’s bylaws or
charter, or (d) the occurrence of any event, condition or other
circumstance that, singly or in the aggregate, could 

 

 

reasonably be expected to
result in a Material Adverse Effect, in each case accompanied by copies of all
notices given or received by such Credit Party with respect to such event or
condition.

 

5.2           Maintenance of a
Perfected, First Priority Security Interest.  It shall execute all documents and take all
actions necessary to perfect and maintain at all times the Lender’s first
priority security interest in all of the Collateral (including the Pledged
Collateral as defined in the Pledge Agreement), now owned or acquired at any
later date by such Credit Party.

 

5.3           Real Estate.  If the Borrower shall acquire a fee or
leasehold interest in real estate, the Borrower will execute a first priority
Mortgage, in form and substance reasonably satisfactory to the Lender, in favor
of the Collateral Agent, for its benefit and the benefit of the Lender, and
shall deliver to the Collateral Agent such title insurance policies, surveys
and landlords’ estoppel agreements with respect thereto as the Collateral Agent
or the Lender shall reasonably request.

 

5.4           Deposit Accounts.  The Borrower shall not maintain any account
without an effective account control agreement, in form and substance
reasonably satisfactory to the Lender.

 

5.5           Execution of
Supplemental Instruments.  It shall
execute and deliver to the Lender from time to time, upon demand, such supplemental
agreements, statements, assignments and transfers, or instructions or documents
relating to the Collateral, and such other instruments as the Lender may
request, in order that the full intent of this Agreement may be carried into
effect.

 

5.6           Corporate Name;
Domicile.  The Borrower shall not
amend or modify its Articles of Incorporation to change its corporate
name.  No Credit Party shall change its
domicile without providing at least ten (10) Business Days’ prior written
notice to the Collateral Agent.

 

5.7           Change of Control.  No Change of Control shall occur.

 

ARTICLE VI

 

DEFAULTS

 

The
occurrence of any one or more of the following events shall constitute a
default hereunder (each, a “Default”):

 

6.1           Any representation
or warranty made in this Agreement by any Credit Party to the Lender shall be
materially false on the date as of which the same is made.

 

6.2           Nonpayment of any
amount of principal or accrued, unpaid interest due under any Note as and when
the same is due and payable.

 

6.3           The breach by the
Borrower of any of the covenants contained in Article V hereof.

 

6.4           The occurrence of
any default or event of default under any of the other Loan Documents.

 

6.5           The Borrower shall (i) have
an order for relief entered with respect to it under the federal bankruptcy
laws as now or hereafter in effect, (ii) make an assignment for the
benefit of 

 

 

creditors, (iii) apply
for, seek, consent to, acquiesce in, or have appointed for it or any
substantial portion of its property a receiver, custodian, trustee, examiner,
liquidator or similar official for it or any substantial part of its property, (iv) institute
any proceeding seeking an order for relief under the Federal bankruptcy laws as
now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent,
or seeking dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail to file
an answer or other pleading denying the material allegations of any such
proceeding filed against it, or (v) take any corporate action to authorize
or effect any of the foregoing actions set forth in this Section 6.5.

 

ARTICLE VII

 

ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES

 

7.1           Acceleration.  If any Default described in Section 6.5
occurs with respect to the Borrower, the Obligations shall immediately become
due and payable without any election, notice or action on the part of the
Lender.  If any other Default occurs, the
Lender may declare the Obligations to be due and payable, whereupon the
Obligations shall become immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which the Borrower hereby
expressly waives.

 

7.2           Amendments.  The Lender and the Credit Parties may enter
into written agreements supplemental hereto for the purpose of adding or
modifying any provisions to the Loan Documents or changing in any manner the
rights of the Lender or any Credit Party hereunder or waiving any Default
hereunder.  To be effective, any such
amendment or waiver must be in writing and signed by the Lender and each Credit
Party.

 

7.3           Preservation of
Rights, No Adverse Impact.  No delay
or omission of the Lender or the Collateral Agent to exercise any right under
this Agreement or any of the Loan Documents shall impair such right or be
construed to be a waiver of any Default or an acquiescence therein.  Any single or partial exercise of any such
right shall not preclude other or further exercise thereof or the exercise of
any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lender, and then only to the extent in such writing
specifically set forth.  All remedies
contained in the Loan Documents, or by law afforded shall be cumulative and all
shall be available to the Lender until the Obligations have been paid in full.

 

7.4           Remedies.

 

(a)         Upon
the occurrence and during the continuance of a Default, the Lender may proceed
to protect and enforce to the Lender’s rights by suit in equity, action of law
and/or other appropriate proceeding either for specific performance of any
covenant or condition contained in this Agreement, any Loan Document or in any
instrument or document delivered to the Lender pursuant hereto, or in the
exercise of any rights, remedies or powers granted in this Agreement, any Loan
Document and/or any such instrument or document.  The Lender may proceed to declare the
obligations under this Agreement or any Loan Document to be due and payable
pursuant to Section 7.1 hereof and the Lender may proceed to enforce
payment of such documents as provided herein, or 

 

 

in any Loan
Document, and may offset and apply toward the payment of such amount any
indebtedness of any Credit Party to the Borrower.

 

(b)         Upon
the occurrence and during the continuance of a Default, the Lender may apply as
any Credit Party’s attorney-in-fact for any Intellectual Property rights, and sell,
lease or license the Collateral to third persons or associations without being
liable to such Credit Party on account of any losses, damage or depreciation
that may occur as a result thereof so long as the Lender shall act reasonably
and in good faith; and at the Lender’s option and without notice to such Credit
Party (except as specifically herein provided) the Lender may sell, license,
assign and deliver the whole or any part of the Collateral, or any substitute
therefor or any addition thereto, at public or private sale, for cash, upon
credit, or for future delivery, at such prices and upon such terms as the
Lender deems advisable.  The Lender shall
give the applicable Credit Party at least ten (10) Business Days’ by hand
delivery at or by United States first-class mail, postage prepaid (in which
event notice shall be deemed to have been given when so deposited in the mail),
to the address specified herein, of the time and place of any public or private
sale or other disposition.

 

(c)         If
any Default described in Section 6.2 occurs with respect to the Borrower,
the Lender may, at its absolute discretion, exercise the Option to purchase the
Parcels or any Parcel.

 

7.5           Application of
Proceeds.  Any and all proceeds of
any Collateral realized or obtained by the Lender upon exercise of its rights
and remedies hereunder, shall be applied to the amounts outstanding under this
Agreement or any other Loan Document, after payment of any and all costs and
expenses, fees and commission and taxes of such sale, collection or other
realization, in accordance with the following:

 

(a)         Any
and all proceeds of any Collateral shall first be applied to the payment of any
and all expenses, charges or other amounts which may be due and owing under
this Agreement or the other Loan Documents; and

 

(b)         Any
and all proceeds of any Collateral remaining after application as provided in
paragraph (a) above shall be applied to the payment of principal, interest
or charges outstanding with respect to the Loans or under any Note or the other
Loan Documents; and

 

(c)         Any
surplus remaining after application as provided in paragraphs (a) and (b) above,
shall be paid to the Borrower, or its successors or assigns, or to whomsoever
may be lawfully entitled to receive the same.

 

ARTICLE VIII

 

GENERAL PROVISIONS

 

8.1           Survival of
Representations.  All representations
and warranties of the Borrower contained in this Agreement shall survive
delivery of any Note and the making of the Loans herein contemplated.

 

8.2           Termination of
Security Interest and Related Obligations. 
In the event that the Loans are converted to an Intercompany Loan as
provided for in Section 2.2 of this Agreement, the 

 

 

covenants set forth in
Sections 5.2 through 5.4 of this Agreement and any and all obligations of
the Credit Parties to provide security under or arising out of any other Loan
Document shall terminate and the Collateral Agent will release the Collateral
pursuant to the terms of the applicable Security Documents, except that any
indemnities provided to the Lender in its capacity as “Lender” or as “Collateral
Agent” shall survive the termination of any provisions of this Agreement or any
Loan Document.

 

8.3           Headings.  Section headings in this Agreement are
for convenience of reference only, and shall not govern the interpretation of
any of the provisions of this Agreement.

 

8.4           Entire Agreement.  The Loan Documents embody the entire
agreement and understanding between the Credit Parties and the Lender and
supersede all prior agreements and understandings between the Credit Parties
and the Lender relating to the subject matter thereof.

 

8.5           No Third Party
Beneficiary.  This Agreement shall
not be construed so as to confer any right or benefit upon any Person other
than the parties to this Agreement and their respective successors and assigns.

 

8.6           Expenses.  Upon the occurrence of a Default, and so long
as a Default is continuing, the Credit Parties shall pay to the Lender on
demand all expenses reasonably incurred in connection with the collection and
enforcement of all Obligations under the Loan Documents including, without
limitation, all reasonable attorneys’ fees, and all reasonable costs incurred
by the Lender in connection with the collection and enforcement of the
Obligations and in connection with any proceeding commenced by or against the
Borrower under the U.S. Bankruptcy Code.

 

8.7           Severability of
Provisions.  Any provision in this
Agreement that is held to be inoperative, unenforceable, or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or
invalid without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of this Agreement are declared to
be severable.

 

8.8           Nonliability of
the Lender.  The relationship between
the Borrower and the Lender shall be solely that of borrower and lender, and
that between the Pledgors and the Lender shall be solely that of pledgor and
secured creditor.  The Lender shall have
no fiduciary responsibilities to any Credit Party.  The Lender undertakes no responsibility to
any Credit Party to review or inform the any Credit Party of any matter in
connection with any phase of any Credit Party’s business or operations.

 

8.9           CHOICE OF LAW.  THIS AGREEMENT AND THE LOAN DOCUMENTS (OTHER
THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS (AND NOT THE
LAW OF CONFLICTS) OF THE STATE OF DELAWARE.

 

8.10         Jurisdiction/Jury
Trial Waiver/Other Matters.

 

(a)         The
Lender and each Credit Party acknowledge and agree that any controversy which
may arise under this Agreement or the relationship of such Credit Party and the

 

 

Lender established
hereby, would be based upon difficult and complex issues.  Accordingly, to the fullest extent permitted
by law, each Credit Party and the Lender hereby waive trial by jury in any
action or proceeding of any kind or nature in any court in which an action may
be commenced by or against such Credit Party arising out of this Agreement or
by reason of any other cause or dispute whatsoever between such Credit Party
and the Lender of any kind or nature.

 

(b)         Each
Credit Party and the Lender agree that the United States District Court for
Delaware or any state court located in the State of Delaware shall have
jurisdiction to hear and determine any claims or disputes between such Credit
Party and the Lender pertaining directly or indirectly to this Agreement or to
any matter arising herefrom.  Each Credit
Party expressly submits and consents in advance to such jurisdiction in any
action or proceeding commenced in such court. 
Each Credit Party and the Lender waive any objection that they may now
or hereafter have to the venue of any proceeding in any such court or that such
proceeding was brought in an inconvenient forum and each agrees not to plead or
claim the same.

 

(c)         Each
Credit Party hereby waives personal service of any summons and complaint, or
other process or papers issued therein, and agrees that service of such summons
and complaint, or other process or papers may be made by United States mail,
postage prepaid addressed to such Credit Party at the address set forth below
his or her signature hereto.  Should such
Credit Party fail to appear or answer any summons, complaint, process or papers
so served within thirty days after the mailing thereof, he or she shall be
deemed in default and an order and/or judgment may be entered against him or
her or her as prayed for in such summons, complaint, process or papers.

 

8.11         Further Assurances.  Each Credit Party at its own expense, shall
do, make, execute and deliver all such additional and further acts, deeds,
assurances, documents, instruments and certificates as the Lender may
reasonably require, including, without limitation, (a) executing,
delivering and filing financing statements and continuation statements under
the Uniform Commercial Code of the State of Delaware, (b) obtaining
governmental and other third party consents and approvals, and (c) obtaining
waivers from mortgagees and landlords.

 

8.12         Successors and
Assigns.  The terms and provisions of
this Agreement and the Loan Documents shall be binding upon and inure to the
benefit of the Credit Parties and the Lender and their respective successors
and assigns, except that the Credit Parties shall not have the right to assign
its rights or obligations under the Loan Documents and any assignment in
violation thereof shall be null and void.

 

8.13         Giving Notice.  All notices and other communications provided
to any party hereto under this Agreement or any other Loan Document shall be in
writing or by facsimile and addressed or delivered to such party at their
addresses as follows (unless designated in writing to the other parties): (i) if
to any Credit Party, at the address set forth below such Credit Party’s name on
the signature page hereto and (ii) if to the Lender, at the address
set forth the Lender’s name on the signature page hereto.  Any notice, if mailed and properly addressed
with postage prepaid, shall be deemed given three (3) Business Days after
being sent; any notice, if transmitted by facsimile, shall be deemed given when
transmitted.

 

8.14         Counterparts.  This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one agreement,
and any of the parties hereto may execute this 

 

 

Agreement by signing any
such counterpart.  Facsimiled and
photocopied signatures to this Agreement shall be valid.  This Agreement shall be effective when it has
been executed by each Credit Party and the Lender.

 

[Remainder of page intentionally left blank;
signature page follows]

 

 

IN WITNESS WHEREOF, the
parties hereto have executed this Loan Agreement as of the date first above
written.

 

 

	
   

  	
  PROECO ENERGY COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dale S. Barker

  
	
   

  	
  Name:

  	
  Dale S. Barker

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
  Address:

  	
  P.O. Box 261

  
	
   

  	
   

  	
  Belle Fourche, South
  Dakota 57717

  
	
   

  	
  Telephone:

  
	
   

  	
  Facsimile:

  
				

 

 

	
   

  	
  O2DIESEL CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David H. Shipman

  
	
   

  	
  Name:

  	
  David
  H. Shipman

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
	
   

  	
  Address:

  	
  100 Commerce Drive, Suite 301

  
	
   

  	
   

  	
  Newark, Delaware  19713

  
	
   

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
  (302) 266-6000

  
	
   

  	
  Facsimile:

  	
  (302) 266-7076

  
				

 

 

	
   

  	
  PLEDGORS:

  
	
   

  	
   

  
	
   

  	
  DALE S. BARKER

  
	
   

  	
   

  
	
   

  	
  /s/ Dale S. Barker

  	
   

  
	
   

  	
  Address:

  	
   

  
	
   

  	
  Telephone:

  	
   

  
	
   

  	
  Facsimile:

  	
   

  
				

 

 

	
   

  	
  BARBARA PYLE

  
	
   

  	
   

  
	
   

  	
  /s/ Barbara Pyle

  	
   

  
	
   

  	
  Address:

  	
   

  
	
   

  	
  Telephone:

  	
   

  
	
   

  	
  Facsimile:

  	
   

  
				

 

 

EXECUTION COPY

 

EXHIBIT B

 

SECURED
PROMISSORY NOTE

 

	
  $150,000

  	
  Newark, Delaware

  
	
   

  	
  December 26, 2006

  

 

ProEco Energy Company, Inc., a South
Dakota corporation (the “Company”), FOR VALUE RECEIVED, hereby
unconditionally promises to pay to the order of O2Diesel Corporation (“O2Diesel”
or the “Holder”), in U.S. dollars in immediately available funds, the
principal amount of One Hundred Fifty
Thousand and NO/100 ($150,000) (the “Principal Amount”), together
with interest on the unpaid principal balance of this Secured Promissory Note
(the “Note”) outstanding from time to time from the date hereof, at the
rate provided in the Loan Agreement (as defined below).  The books and records of the Holder shall be
conclusive as to the unpaid principal amount of this Note at any time
outstanding, absent manifest error.

 

This Note is issued pursuant to the terms of the
Loan Agreement, dated December 22, 2006 (as such agreement may from time
to time be amended, restated, modified or supplemented, the “Loan Agreement”)
to which the Company and the Holder are parties, to which reference is hereby
made for a statement of all of the terms and conditions applicable to the Loan
evidenced, hereby.  Capitalized terms
used but not otherwise defined herein shall have the meanings ascribed to such
terms in the Loan Agreement.

 

1.             Loan. 
The Holder hereby loans to the Company on the date hereof the sum of the
Principal Amount.  The principal amount
of the indebtedness evidenced hereby shall be due and payable on the dates
specified in the Loan Agreement. 
Interest thereon shall be paid until such principal amount is paid in
full in accordance with and at such interest rates and at such times as are
specified in the Loan Agreement.

 

2.             Default.  Upon the occurrence and during the
continuance of a Default, this Note may, as provided in the Loan Agreement, and
without demand, notice or legal process of any kind (other than notices
expressly provided for in the Loan Documents), be declared, and immediately
shall become, due and payable.  In addition,
the Holder shall have the right to exercise other remedies as provided in the
Loan Agreement.  This Note is secured by
the Security Documents.

 

3.             Waivers.

 

(a)           The
Company hereby waives presentment, demand for payment, notice of dishonor,
notice of protest, and protest in connection with the delivery, acceptance,
performance, or default of this Note.

 

(b)           No
delay by the Holder in exercising any power or right hereunder shall operate as
a waiver of any power or right, nor shall any single or partial exercise of any
power or right preclude other or further exercise thereof, or the exercise of
any other power or right hereunder 

 

 

or
otherwise.  No waiver or modification of
the terms hereof shall be valid unless set forth in writing by the Holder.

 

4.             Secured Obligations.  In order to induce the Holder to loan to the
Company the Principal Amount of this Note, the Company has delivered, or caused
to be delivered, to O2Diesel, as collateral agent for the Holder and any other
holder of Notes (the “Collateral Agent”), the Security Documents, pursuant to
which the Pledgors (as defined in that certain Security Agreement, dated as of December 22,
2006, by and among the Borrower, the Pledgors and the Secured Creditor and
Collateral Agent (the “Security Agreement”)) has granted to the
Collateral Agent, on behalf of the Holder and any other holder of Notes, as
security and collateral for the payment and performance of its obligations
hereunder, a first priority security interest in all of the property and assets
of the Company and certain assets of each of the Pledgors, whether now existing
or hereafter arising, and all as more specifically described, and on the terms
and conditions set forth in, the Security Agreement.

 

5.             General.

 

(a)           Successors:
Assignment.  This Note and the
obligations and rights of the Company hereunder shall be binding upon and inure
to the benefit of the Company and the Holder and their respective
successors.  The Company may not assign
this Note or any obligations hereunder without the prior written consent of the
Holder.

 

(b)           Changes.  Changes in or additions to this Note may be
made, or compliance with any term, covenant, agreement, condition or provision
set forth herein, may be omitted or waived (either generally or in a particular
instance and either retroactively or prospectively) upon written consent of the
Holder.

 

(c)           Notices.  All notices, demands or other communications
to be given or delivered under or by reason of the provisions of this Note
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, faxed with confirmation of receipt, sent to the
recipient by reputable overnight courier service (charges prepaid) or mailed to
the recipient by certified or registered mail, return receipt requested and
postage prepaid.  Such notices, demands
and other communications shall be sent to the Holder at the address indicated
below:

 

	
  O2Diesel Corporation

  
	
  100 Commerce Drive,
  Suite 301

  
	
  Newark, Delaware 19713

  
	
  Attn: 

  	
  David Shipman, Chief
  Financial Officer

  
	
  Tel:

  	
  (302) 266-6000

  
	
  Fax:

  	
  (302) 266-7076

  
			

 

With a copy to:

 

	
  Arnold & Porter LLP

  
	
  1600 Tysons Boulevard, Suite 900

  
	
  McLean, Virginia 22102

  
	
  Attn: Kevin J. Lavin, Esq.

  
	
  Tel:

  	
  (703) 720-7011

  
	
  Fax:

  	
  (703) 720-7399

  

 

 

2

 

and to the Company at the address indicated
below:

 

	
  ProEco Energy Company.

  
	
  P.O. Box 261

  
	
  Belle Fourche, South Dakota 
  57717

  
	
  Attn:  Dale S. Barker

  
	
  Tel:

  	
  (605)

  
	
  Fax:

  	
  (605)

  

 

With a copy to:

 

	
  Buckmaster Law Offices, PC

  
	
  P.O. Box 726

  
	
  Belle Fourche, South Dakota 
  57717

  
	
  Attn: Wesley W. Buckmaster

  
	
  Tel:

  	
  (605) 892-2623

  
	
  Fax:

  	
  (605) 892-6337

  

 

or to such other address or to the attention of such other person as
the recipient party has specified by prior written notice to the sending party.

 

(d)           Severability.  If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.

 

6.             Governing Law.

 

(a)           This
Note shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of Delaware, without regard
to choice of law principles.

 

(b)           The
parties hereto hereby submit to the jurisdiction of the state and federal
courts located in the State of Delaware for the purposes of any suit, action or
other proceeding relating to any dispute under this Note.  The Company hereby waives any right it may
have to transfer or change the venue of any litigation between itself and the
Holder in accordance with this sub-section.

 

(c)           THE COMPANY HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING WHICH IN ANY MANNER ARISES OUT OF OR IN CONNECTION WITH OR IS IN
ANY WAY RELATED TO THIS NOTE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.

 

[SIGNATURE PAGE FOLLOWS]

 

3

 

IN WITNESS WHEREOF, this Note has been
executed and delivered on the date first above written by the undersigned duly
authorized representative of the Company.

 

 

 

	
   

  	
  PROECO ENERGY COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dale Barker

  	
   

  
	
   

  	
  Name:

  	
  Dale Barker

  
	
   

  	
  Title:

  	
  President

  

 

4

 

EXECUTION COPY

 

EXHIBIT C

 

SECURED
PROMISSORY NOTE

 

Newark, Delaware

 

ProEco Energy Company, Inc., a South
Dakota corporation (the “Company”), FOR VALUE RECEIVED, hereby
unconditionally promises to pay to the order of O2Diesel Corporation (“O2Diesel”
or the “Holder”), in U.S. dollars in immediately available funds, the
Principal Amount (as defined below) together with interest on the unpaid
principal balance of this Secured Promissory Note (the “Note”)
outstanding from time to time from the date hereof, at the rate provided in the
Loan Agreement (as defined below).  The
books and records of the Holder shall be conclusive as to the unpaid Principal
Amount of this Note at any time outstanding, absent manifest error.

 

This Note is issued pursuant to the terms of the
Loan Agreement, dated December 22, 2006 (as such agreement may from time
to time be amended, restated, modified or supplemented, the “Loan Agreement”)
to which the Company and the Holder are parties, to which reference is hereby
made for a statement of all of the terms and conditions applicable to the Loan
evidenced, hereby.  Capitalized terms
used but not otherwise defined herein shall have the meanings ascribed to such
terms in the Loan Agreement.

 

1.             Loan. 
The Holder hereby loans to the Company on the date hereof the sum of the
Principal Amount.  As used in this Note,
the “Principal Amount” means the aggregate amount loaned to the Company
by the Holder as reflected on Schedule A to this Note.  Schedule A reflects all amount loaned
to the Company by the Holders as of December 15, 2007.  The Company shall amend Schedule A to
include any such loans to the Company by the Holder or any of its affiliates
made after such date.  The Principal
Amount of the indebtedness evidenced hereby shall be due and payable on the
dates specified in the Loan Agreement. 
Interest thereon shall be paid until such Principal Amount is paid in
full in accordance with and at such interest rates and at such times as are
specified in the Loan Agreement.

 

2.             Default.  Upon the occurrence and during the
continuance of a Default, this Note may, as provided in the Loan Agreement, and
without demand, notice or legal process of any kind (other than notices
expressly provided for in the Loan Documents), be declared, and immediately shall
become, due and payable.  In addition,
the Holder shall have the right to exercise other remedies as provided in the
Loan Agreement.  This Note is secured by
the Security Documents.

 

3.             Waivers.

 

(a)           The
Company hereby waives presentment, demand for payment, notice of dishonor,
notice of protest, and protest in connection with the delivery, acceptance,
performance, or default of this Note.

 

(b)           No
delay by the Holder in exercising any power or right hereunder shall operate as
a waiver of any power or right, nor shall any single or partial exercise of any
power or right 

 

 

preclude
other or further exercise thereof, or the exercise of any other power or right
hereunder or otherwise.  No waiver or
modification of the terms hereof shall be valid unless set forth in writing by
the Holder.

 

4.             Secured Obligations.  In order to induce the Holder to loan to the
Company the Principal Amount of this Note, the Company has delivered, or caused
to be delivered, to O2Diesel, as collateral agent for the Holder and any other
holder of Notes (the “Collateral Agent”), the Security Documents, pursuant to
which the Pledgors (as defined in that certain Security Agreement, dated as of December 22,
2006, by and among the Borrower, the Pledgors and the Secured Creditor and
Collateral Agent, as such agreement may from time to time be amended, restated,
modified or supplemented (the “Security Agreement”)) has granted to the
Collateral Agent, on behalf of the Holder and any other holder of Notes, as
security and collateral for the payment and performance of its obligations
hereunder, a first priority security interest in all of the property and assets
of the Company and certain assets of each of the Pledgors, whether now existing
or hereafter arising, and all as more specifically described, and on the terms
and conditions set forth in, the Security Agreement.

 

5.             General.

 

(a)           Successors:
Assignment.  This Note and the
obligations and rights of the Company hereunder shall be binding upon and inure
to the benefit of the Company and the Holder and their respective
successors.  The Company may not assign
this Note or any obligations hereunder without the prior written consent of the
Holder.

 

(b)           Changes.  Changes in or additions to this Note may be
made, or compliance with any term, covenant, agreement, condition or provision
set forth herein may be omitted or waived (either generally or in a particular
instance and either retroactively or prospectively), upon written consent of
the Holder.

 

(c)           Notices.  All notices, demands or other communications
to be given or delivered under or by reason of the provisions of this Note
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, faxed with confirmation of receipt, sent to the
recipient by reputable overnight courier service (charges prepaid) or mailed to
the recipient by certified or registered mail, return receipt requested and
postage prepaid.  Such notices, demands
and other communications shall be sent to the Holder at the address indicated below:

 

	
  O2Diesel Corporation

  
	
  100 Commerce Drive,
  Suite 301

  
	
  Newark, Delaware 19713

  
	
  Attn: 

  	
  David Shipman, Chief
  Financial Officer

  
	
  Tel:

  	
  (302) 266-6000

  
	
  Fax:

  	
  (302) 266-7076

  
			

 

With a copy to:

 

	
  Arnold & Porter LLP

  
	
  1600 Tysons Boulevard, Suite 900

  
	
  McLean, Virginia 22102

  
	
  Attn: Kevin J. Lavin, Esq.

  
	
  Tel:

  	
  (703) 720-7011

  
	
  Fax:

  	
  (703) 720-7399

  

 

 

and to the Company at the address indicated
below:

 

	
  ProEco Energy Company.

  
	
  P.O. Box 261

  
	
  Belle Fourche, South Dakota 
  57717

  
	
  Attn:  Dale S. Barker

  
	
  Tel:

  	
  (605)

  
	
  Fax:

  	
  (605)

  

 

With a copy to:

 

	
  Buckmaster Law Offices, PC

  
	
  P.O. Box 726

  
	
  Belle Fourche, South Dakota 
  57717

  
	
  Attn: Wesley W. Buckmaster

  
	
  Tel:

  	
  (605) 892-2623

  
	
  Fax:

  	
  (605) 892-6337

  

 

or to such other address or to the attention of such other person as
the recipient party has specified by prior written notice to the sending party.

 

(d)           Severability.  If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.

 

6.             Governing Law.

 

(a)           This
Note shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of Delaware, without regard
to choice of law principles.

 

(b)           The
parties hereto hereby submit to the jurisdiction of the state and federal
courts located in the State of Delaware for the purposes of any suit, action or
other proceeding relating to any dispute under this Note.  The Company hereby waives any right it may
have to transfer or change the venue of any litigation between itself and the
Holder in accordance with this sub-section.

 

(c)           THE COMPANY HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING WHICH IN ANY MANNER ARISES OUT OF OR IN CONNECTION WITH OR IS IN
ANY WAY RELATED TO THIS NOTE OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.

 

[SIGNATURE PAGE FOLLOWS]

 

 

IN WITNESS WHEREOF, this Note has been
executed and delivered on the date first above written by the undersigned duly
authorized representative of the Company.

 

 

	
   

  	
  PROECO ENERGY COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dale Barker

  
	
   

  	
  Name:

  	
  Dale Barker

  
	
   

  	
  Title:

  	
  President

  

 

 

SCHEDULE
A

 

	
  Date

  	
   

  	
  Amount

  	
   

  
	
  1/17/2007

  	
   

  	
  125,000.00

  	
   

  
	
  3/14/2007

  	
   

  	
  125,000.00

  	
   

  
	
  4/25/2007

  	
   

  	
  75,000.00

  	
   

  
	
  5/14/2007

  	
   

  	
  65,000.00

  	
   

  
	
  5/30/2007

  	
   

  	
  65,000.00

  	
   

  
	
  6/12/2007

  	
   

  	
  65,000.00

  	
   

  
	
  6/27/2007

  	
   

  	
  65,000.00

  	
   

  
	
  7/10/2007

  	
   

  	
  65,000.00

  	
   

  
	
  7/25/2007

  	
   

  	
  65,000.00

  	
   

  
	
  8/15/2007

  	
   

  	
  65,000.00

  	
   

  
	
  9/07/2007

  	
   

  	
  65,000.00

  	
   

  
	
  10/01/2007

  	
   

  	
  65,000.00

  	
   

  
	
  10/15/2007

  	
   

  	
  65,000.00

  	
   

  
	
  10/25/2007

  	
   

  	
  40,000.00

  	
   

  
	
  11/01/2007

  	
   

  	
  65,000.00

  	
   

  
	
  11/15/2007

  	
   

  	
  40,000.00

  	
   

  
	
  11/30/2007

  	
   

  	
  40,000.00

  	
   

  
	
  12/14/2007

  	
   

  	
  40,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total:

  	
   

  	
  $

  	
  1,200,000.00

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00139-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00139-of-00352.parquet"}]]