Document:

BYWATER RESOURCES INC.

9301 WILSHIRE BLVD. SUITE 311 

BEVERLY HILLS, CALIFORNIA 

90210

 

 

TRUST AGREEMENT

 

 

May 31, 2006

 

 

In accordance with the instructions of the Board of Directors of the Corporation I, Rolf Harms, President will hold the CARTER 1 Claim as described in Appendix A attached to this TRUST AGREEMENT IN Trust for the CORPORATION as President of the CORPORATION. If I resign from position of President than I will immediately transfer the CARTER 1 Claim to the new President of the CORPORATION.

 

 

	
            .  
 	
            .
 

Rolf Harms, President

 

Free Miner License Number: ___________________

 

 

 

 

 

 

 

 

 

 

 

 

APPENDIX  “A”

 

CARTER 1 Claim Description

Nanaimo Mining Division

UTM Zone 10

Map Sheet M092L 05E

Centered Approximately

Latitude 50° 19’ N

Longitude 127° 35’ W                                                                

 

The following claim comprise the CARTER 1 mineral claim group as described in the Trust Agreement dated April 24, 2006:

	
            Claim Name
  	
            Cells
  	
            Tenure Record #
  	
            Expiry Date
  	
            Map Sheet
  	
            Owner
  
	
            Carter 1
 	
            25
 	
            524224
 	
            Dec22/06
 	
            MO92L05E
 	
            G. Wells
 
	
             
 	
             
 	
             
 	
             
 	
             
 	
             
 
	
            TOTAL
 	
            25
 	
            UNITS
 	
            515.797 
 	
            HectaresW.G. TIMMINS

1016-470 Granville Street

Tel/Fax:604-682-5281

 

CONSENT OF AUTHOR

 

	
            To:
 	
            United States Securities and Exchange Commission
 

 

I, William G. Timmins, P.Eng. do hereby consent to the filing, with the regulatory authorities referred to above, of the technical report titled “Geology Report on Carter 1 Claim” dated February, 2006 (the “Technical Report”) and to the written disclosure of the Technical Report and of extracts from or a summary of the Technical Report in the written disclosure in any Offering Memorandum, other offering documents, or an Annual Information Form of Bywater Resources Inc.

 

I hereby certify that I have read Bywater’s Form SB-2 and I do not have any reason to believe that there are any misrepresentations in the information derived from the Technical Report in the written disclosure in the Offering Memorandum, other offering documents, or an Annual Information Form of Bywater Resources Inc.

 

	
            I hereby consent to the use of my name as a consultant to the Company.
 

 

Dated:  July 19, 2006

 

	
            /s/ William G. Timmins  
 

WILLIAM G. TIMMINSExhibit 10.1

                                 PROMISSORY NOTE

FACE  AMOUNT                                        $845,000
PRICE                                               $650,000
INTEREST  RATE                                      12%  per  month
NOTE  NUMBER                                        July-2006-101
ISSUANCE  DATE                                      July  14,  2006
MATURITY  DATE                                      October  14,  2007

FOR  VALUE RECEIVED, US Energy Initiatives, Inc., a Georgia corporation, and all
of its subsidiaries (the "Company") (OTC BB: USEI) hereby promises to pay to the
order  of DUTCHESS PRIVATE EQUITIES FUND, II, LP (collectively, the "Holder") by
the  Maturity  Date, or earlier, the Face Amount of Eight Hundred and Forty-Five
Thousand  Dollars  ($845,000) U.S., (this "Note") in such amounts, at such times
and  on such terms and conditions as are specified herein (sometimes hereinafter
the  Company  and  the  Holder  are  referred to collectively as "the Parties").

Any  capitalized  term  not  defined  in this Note are defined in the Investment
Agreement  for the Equity Line of Credit between Dutchess Private Equities Fund,
LP  (the  "Investor") and the Company (the "Equity Line"), which definitions the
Company  and  the  Holder  incorporate  herein  by  reference.

ARTICLE  1          Method  of  Payment/Interest

Section  1.1  Payments made to the Holder by the Company in satisfaction of this
Note  (referred  to  as a "Payment," or "Payments") shall be drawn from each Put
under  the  Equity  Line  of Credit provided by the Investor to the Company. The
Company  shall  make payments to the Holder in such amounts and at such times as
outlined  herein.  On  or  before  July  31, 2006 through November 30, 2006, the
Company shall make a Payment totaling one hundred percent (100%) of each Put (as
defined  in  the Investment Agreement between the Company and the Investor dated
November 4, 2005) each week (the "Payment Amount") until the Face Amount is paid
in  full, minus any fees due. The First Payment will be due on July 31, 2006 and
each  subsequent Payment will be made at the Closing of each Put ("Payment Date"
or  "Payment Dates") until this Note is paid in full. Commencing on December 31,
2006,  the  Payment  Amount shall be the greater of a) 1/12th of the outstanding
balances  due  on  this  Note  and  any  notes currently outstanding between the
Company  and  the  Holder  dated  March  23,  2006 and December 20, 2005 ("Prior
Notes");  or  b) 100% of the proceeds of each Put. Notwithstanding any provision
to the contrary in this Note, the Company may pay in full to the Holder the Face
Amount, or any balance remaining thereon, in readily available funds at any time
and  from  time  to  time  without  penalty.

Section  1.2  Payments  pursuant  to  this Note shall be drawn directly from the
Closing  of  each  Put  and shall be wired directly to the Holder on the Closing
Date  and  shall  be  included  in  the  calculation of the Threshold Amount (as
defined  in  Section  1.4,  below).  The  Company  agrees  to  fully execute and
diligently  carry  out  Puts  to  the  Investor,  on  the terms set forth in the
Investment  Agreement. The Company agrees that the Put Amount shall be set forth
as  outlined  in  Article  20,  below.  Failure  to comply with the terms of the
Investment Agreement with respect to the Puts will result in an Event of Default
as  defined  in  this  Agreement  in  Article  4.

Section  1.3     In order to assist the Company in meeting its obligations under
this  Note  and  Prior  Notes,  the  Company  hereby  authorizes the Investor to
transfer  funds  from  each  Put  directly to the Holder.  A Put shall be deemed
closed  after  the  funds  are  transferred  to  the  Holder.

Section 1.4 After Closing, the Company must make a Prepayment to the Holder when
the  aggregate  amount  of financing ("Financing") received by the Company is in
excess of one dollar ($1.00) ("Threshold Amount"). The Company agrees to pay one
hundred  percent (100%) of any proceeds raised by the Company over the Threshold
Amount  toward  the  Prepayment  of  this Note and Prior Notes, Interest and any
penalties  until  the Face Amount is paid in full. The Prepayments shall be made
to  the  Holder  within  one  (1)  business  day of the Company's receipt of the
Financing.  Failure  to  do so will result in an Event of Default. The Threshold
Amount  shall also pertain to any assets sold, transferred or disposed of by the
Company.

Section  1.5  The  Company  shall  pay twelve percent (12%) annual coupon on the
unpaid  Face  Amount  of this Note and all Prior Notes commencing on the date of
this  Note.  The  Interest  shall  compound daily, pro rata for partial periods.

ARTICLE  2             Collateral

Section  2.1     The Company does hereby agree to issue to the Holder for use as
Collateral  forty  (40)  signed  Put Notices.  In the event, the Holder uses the
Collateral  in  full,  the  Company  shall  immediately  deliver  to  the Holder
additional  Put  Sheets  as  requested  by  the  Holder.

Section 2.2 Upon the completion of the Company's obligation to the Holder of the
Face  Amount  of this Note, the Company will not be under any further obligation
to  complete additional Puts. All remaining Put sheets shall be marked "VOID" by
the  Holder  and  returned  to  the  Company  at  the  Company's  request.

ARTICLE  3             Unpaid  Amounts

Section  3.1     In  the  event  that  on  the Maturity Date the Company has any
remaining  amounts  unpaid  on this Note (the "Residual Amount"), the Holder can
exercise  its  right  to  increase  the  Face  Amount by ten percent (10%) as an
initial  penalty  AND  an  additional  two and one-half percent (2.5%) per month
                  ---
paid,  pro  rata  for  partial  periods, compounded daily, as liquidated damages
("Liquidated Damages").  If a Residual Amount remains, the Company is in Default
and  the  Holder  may elect remedies as set  forth  in  Article  4,  below.  The
Parties  acknowledge  that  Liquidated  Damages  are not interest and should not
constitute  a  penalty.

ARTICLE  4          Defaults  and  Remedies

Section  4.1     Events  of  Default. An "Event of Default" occurs if any one of
the  following  occur:

(a)     The  Company does not make a Payment within two (2) business days of (i)
the  Closing  of  a Put; or (ii) a Payment Date;  or, (iii) a Residual Amount on
the  Note  exists  on  the  Maturity  Date;  or

(b)     The Company, pursuant to or within the meaning of any Bankruptcy Law (as
hereinafter  defined):  (i)  commences  a  voluntary  case; (ii) consents to the
entry  of  an order for relief against it in an involuntary case; (iii) consents
to the appointment of a Custodian (as hereinafter defined) of the Company or for
its  property; (iv) makes an assignment for the benefit of its creditors; or (v)
a court of competent jurisdiction enters an order or decree under any Bankruptcy
Law  that:  (A)  is  for  relief against the Company in an involuntary case; (B)
appoints  a  Custodian  of  the  Company  or for its property; or (C) orders the
liquidation  of  the  Company,  and  the order or decree remains unstayed and in
effect  for  sixty  (60)  calendar  days;  or

(c)     The  Company's  $0.001  par  value  common stock (the "Common Stock") is
suspended  or  is  no  longer  listed  on  any recognized exchange, including an
electronic over-the-counter bulletin board, for in excess of two (2) consecutive
trading  days;  or

(d)     Either  the  registration  statement  for  the  underlying shares in the
Equity  Line  is  not  effective for any reason and is not cured within five (5)
days;  or,

(e)     Any  of  the  Company's  representations or warranties contained in this
Agreement  were  false  when  made;  or,

(f)     The  Company  breaches  this  Agreement, and such breach, if and only if
such breach is subject to cure, continues for a period of two (2) business days.

As  used  in  this  Section 4.1, the term "Bankruptcy Law" means Title 11 of the
United  States  Code  or  any  similar  federal  or  state law for the relief of
debtors.  The term "Custodian" means any receiver, trustee, assignee, liquidator
or  similar  official  under  any  Bankruptcy  Law.

Section  4.2     Remedies.  In  the  Event  of  Default, the Holder may elect to
garnish  Revenue from the Company in an amount that will repay the Holder on the
schedules  outlined  in  this Agreement and fully enforce the Security Agreement
dated  March  23,  2006  between  the  Holder  and  the  Company.

     For  EACH  AND  EVERY  Event of Default, as outlined in this Agreement, the
          ----------------
Holder  can  exercise  its  right to increase the Face Amount of the Note by ten
percent  (10%)  as  an  initial  penalty.  In  addition, the Holder may elect to
increase  the  Face  Amount  of  the  Note by two and one-half percent (2.5%) as
Liquidated  Damages,  compounded daily.  The Parties acknowledge that Liquidated
Damages  are  not  interest  under  the  terms  of this Agreement, and shall not
constitute  a  penalty.

     In  the  event  of  a  Default hereunder, the Holder, at its sole election,
shall  have  the  right,  but  not  the  obligation,  to  either:

          a)  Switch  the Residual Amount to a three-year ("Convertible Maturity
Date"),  eighteen  percent  (18%)  interest bearing convertible debenture at the
terms  described  hereinafter  (the  "Convertible  Debenture").  In the Event of
Default,  the  Convertible  Debenture  shall  be considered closed ("Convertible
Closing  Date"),  as  of  the  date  the Issuance Date of the this Note.  If the
Holder  chooses  to  convert the Residual Amount to a Convertible Debenture, the
Company  shall  have  twenty (20) business days after notice of default from the
Holder  (the "Notice of Convertible Debenture") to file a registration statement
covering  an  amount  of  shares  equal  to  three hundred percent (300%) of the
Residual  Amount.  Such registration statement shall be declared effective under
the Securities Act of 1933, as amended (the "Securities Act"), by the Securities
and  Exchange  Commission  (the "Commission") within sixty (60) business days of
the  Convertible  Closing  Date.   In  the  event the Company does not file such
registration  statement  within  twenty  (20)  business  days  of  the  Holder's
request,  or such registration statement is not declared by the Commission to be
effective  under  the  Securities Act within the time period described above the
Residual  Amount  shall  increase by five thousand dollars ($5,000) per day.  In
the  event  the Company is given the option for accelerated effectiveness of the
registration statement, the Company will cause such registration statement to be
declared  effective  as  soon  as  reasonably  practicable and will not take any
action  to  delay  the  registration to become effective.  In the event that the
Company  is  given  the option for accelerated effectiveness of the registration
statement,  but  chooses not to cause such registration statement to be declared
effective  on such accelerated basis, the Residual Amount shall increase by five
thousand  dollars  ($5,000)  per day commencing on the earliest date as of which
such  registration statement would have been declared to be effective if subject
to  accelerated  effectiveness;  or

           b) The Holder may increase the Payment Amount described under Article
1  to  fulfill  the repayment of the Residual Amount.  The Company shall provide
full  cooperation to the Holder in directing funds owed to the Holder on any Put
made  by  the Company to the Investor.    The Company agrees to diligently carry
out  the  terms outlined in the Equity Line for delivery of any such shares.  In
the  event  the  Company  is  not diligently fulfilling its obligation to direct
funds  owed to the Holder from Puts to the Investor, as reasonably determined by
the  Holder,  the  Holder  may,  after  giving the Company two (2) business days
advance  notice  to cure the same, elect to increase the Face Amount of the Note
by  2.5%  each  day, compounded daily, in additional to and on top of additional
remedies  available  to  the  Holder  under  this  Note.

Section  4.3     Conversion  Privilege

(a)     The  Holder  shall  have  the right to convert the Convertible Debenture
into  shares  of Common Stock at any time following the Convertible Closing Date
and  before  the close of business on the Convertible Maturity Date.  The number
of  shares  of  Common  Stock  issuable  upon  the conversion of the Convertible
Debenture  shall be determined pursuant to Section 4.4, but the number of shares
issuable  shall  be  rounded  up  to  the  nearest  whole  share.

(b)     The Holder may convert the Convertible Debenture in whole or in part, at
     any  time  and  from  time  to  time.

(c)     In  the  event  all  or any portion of the Convertible Debenture remains
outstanding  on the Convertible Maturity Date (the "Debenture Residual Amount"),
the  unconverted  portion  of  such  Convertible Debenture will automatically be
converted  into  shares  of Common Stock on such date in the manner set forth in
Section  4.4.

Section  4.4     Conversion  Procedure.

(a)     The  Holder may elect to convert the Residual Amount in whole or in part
any  time  and  from  time to time following the Convertible Closing Date.  Such
conversion  shall be effectuated by providing the Company, or its attorney, with
that  portion  of  the  Convertible  Debenture  to  be converted together with a
facsimile  or electronic mail of the signed notice of conversion (the "Notice of
Conversion").   The  date  on  which  the  Notice  of  Conversion  is  effective
("Conversion  Date")  shall  be  deemed  to  be the date on which the Holder has
delivered  to  the  Company a facsimile or electronic mail Notice of Conversion.
The Holder can elect to either reissue the Convertible Debenture, or continually
     convert  the  existing  Debenture.  Any  Notice  of  Conversion  faxed  or
electronically  mailed by the Holder to the Company on a particular day shall be
deemed  to  have  been received no later than the previous business day (receipt
being  via  a  confirmation of the time such facsimile or electronic mail to the
Company  is  received).

(b)     Common  Stock  to  be Issued.     Upon the conversion of any Convertible
Debentures by the Holder, the Company shall instruct its transfer agent to issue
stock   certificates   without   restrictive   legends   or   stop   transfer
instructions,  if,  at  that  time,  the  aforementioned  registration statement
described in Section 4.2 has been declared effective (or with proper restrictive
legends  if  the registration statement has not as yet been declared effective),
in  specified  denominations  representing  the number of shares of Common Stock
issuable  upon  such  conversion.   In  the  event  that the Debenture is deemed
saleable  under  Rule  144  of  the Securities Exchange Act of 1933, the Company
shall,  upon  a  Notice of Conversion, instruct the transfer agent to issue free
trading  certificates  without  restrictive legends, subject to other applicable
securities  laws.  The  Company  is responsible to for all costs associated with
the  issuance  of  the  shares, including but not limited to the opinion letter,
FedEx  of the certificates and any other costs that arise. The Company shall act
as  registrar  of  the Shares of Common Stock to be issued and shall maintain an
appropriate  ledger  containing  the  necessary information with respect to each
Convertible Debenture. The Company warrants that no instructions have been given
or  will be given to the transfer agent which limit, or otherwise prevent resale
and that the Common Stock shall otherwise be freely resold, except as may be set
forth  herein  or  subject  to  applicable  law.

(c)     Conversion  Rate.  The  Holder  is  entitled  to  convert  the Debenture
Residual  Amount,  plus  accrued  interest  and penalties, anytime following the
Convertible Closing Date, at the lesser of either (i) seventy-five percent (25%)
     of  the  lowest  closing  bid  price  during  the fifteen (15) trading days
immediately  preceding  the Notice of Conversion, or (ii) 100% of the lowest bid
price  for  the  twenty  (20) trading days immediately preceding the Convertible
Closing  Date  ("Fixed  Conversion  Price").   No  fractional  shares  or  scrip
representing fractions of shares will be issued on conversion, but the number of
shares  issuable  shall  be  rounded  up  to  the  nearest  whole  share.

(d)     Nothing  contained  in  the  Convertible  Debenture  shall  be deemed to
establish  or  require  the  Company  to pay interest to the Holder at a rate in
excess  of  the maximum rate permitted by applicable law.  In the event that the
rate  of  interest  required  to  be  paid exceeds the maximum rate permitted by
governing  law,  the  rate  of  interest required to be paid thereunder shall be
automatically  reduced to the maximum rate permitted under the governing law and
such  excess  shall  be returned with reasonable promptness by the Holder to the
Company.  In  the  event this Section 4.4(d) applies, the Parties agree that the
terms  of this Note shall remain in full force and effect except as is necessary
to  make  the  interest  rate  comply  with  applicable  law.

(e)     The  Holder  shall be treated as a shareholder of record on the date the
Company  is  required  to  issue the Common Stock to the Holder. If prior to the
issuance  of  stock  certificates,  the  Holder designates another person as the
entity  in  the  name of which the stock certificates requesting the Convertible
Debenture  are  to  be  issued, the Holder shall provide to the Company evidence
that either no tax shall be due and payable as a result of such transfer or that
the  applicable  tax  has  been  paid  by the Holder  or  such  person.  If  the
Holder  converts any part of the Convertible Debentures, or will be, the Company
shall  issue  to the Holder a new Convertible Debenture equal to the unconverted
amount,  immediately  upon  request  by  the  Holder.

(f)     Within  three  (3)  business  days  after  receipt  of the documentation
referred  to  in  this Section, the Company shall deliver a certificate, for the
number of shares of Common Stock issuable upon the conversion.  In the event the
Company  does not make delivery of the Common  Stock  as  instructed  by  Holder
within  three (3) business days after the Conversion Date, the Company shall pay
to  the Holder an additional one percent (1%) per day in cash of the full dollar
value  of  the  Debenture  Residual  Amount  then  remaining  after  conversion,
compounded  daily.

(g)     The  Company  shall  at  all  times reserve (or make alternative written
arrangements  for  reservation or contribution of shares) and have available all
Common  Stock necessary to meet conversion of the Convertible Debentures  by the
Holder  of  the entire amount of Convertible Debentures then outstanding. If, at
any  time,  the  Holder  submits a Notice of Conversion and the Company does not
have  sufficient  authorized but unissued shares of Common Stock (or alternative
shares  of  Common  Stock  as may be contributed by stockholders of the Company)
available  to  effect,  in  full,  a conversion of the Convertible Debentures (a
"Conversion  Default,"  the date of such default being referred to herein as the
"Conversion  Default  Date"),  the  Company shall issue to the Holder all of the
shares  of Common Stock which are available.  Any Convertible Debentures, or any
portion  thereof,  which  cannot  be  converted  due  to  the  Compnay's lack of
sufficient authorized common stock (the "Unconverted Debentures"), may be deemed
null  and  void upon written notice sent by  the  Holder  to  the  Company.  The
Company  shall  provide notice of such Conversion Default ("Notice of Conversion
Default")  to  the  Holder,  by  facsimile, within one (1) business days of such
default.

(h)     The  Company  agrees to pay the Holder payments for a Conversion Default
("Conversion  Default  Payments")  in  the  amount  of (N/365) multiplied by .24
multiplied  by the initial issuance price of the outstanding or tendered but not
converted Convertible Debentures held by the Holder where N = the number of days
from  the  Conversion  Default  Date  to  the  date  (the  "Authorization Date")
that  the  Company  authorizes  a sufficient number of shares of Common Stock to
effect  conversion  of  all remaining Convertible Debentures.  The Company shall
send  notice  ("Authorization  Notice")  to the Holder that additional shares of
Common  Stock  have  been  authorized, the Authorization Date, and the amount of
Holder's  accrued  Conversion  Default Payments.  The accrued Conversion Default
shall  be  paid  in  cash  or  shall  be  convertible  into  Common Stock at the
conversion  rate set forth in the first sentence of this paragraph, upon written
notice  sent  by  the  Holder  to the Company, which Conversion Default shall be
payable  as follows:  (i) in the event the Holder elects to take such payment in
cash,  cash  payment shall be made to the Holder  within five (5) business days,
or (ii) in the event Holder elects to take such payment in stock, the Holder may
convert  at  the  conversion  rate  set  forth  in  the  first  sentence of this
paragraph  until  the  expiration  of  the  conversion  period.

(i)     The  Company  acknowledges  that  its  failure  to maintain a sufficient
number  of  authorized  but  unissued shares of Common Stock to effect in full a
conversion of the Convertible Debentures in full will cause the Holder to suffer
irreparable   harm,   and  that  the  actual  damages  to  the  Holder  will  be
difficult  to  ascertain.  Accordingly, the parties agree that it is appropriate
to  include  in  this Agreement a provision for liquidated damages.  The Parties
acknowledge  and  agree  that the liquidated damages provision set forth in this
section  represents the parties' good faith effort to quantify such damages and,
as  such,  agree  that  the  form  and  amount  of  such  liquidated damages are
reasonable,  and  under  the  circumstances,  do  not constitute a penalty.  The
payment of liquidated damages shall not relieve the Company from its obligations
to deliver the Common Stock pursuant to the terms of this Convertible Debenture.

(j)     If,  by  the  third  (3rd)  business  day after the Conversion Date, any
portion  of  the shares of the Convertible Debentures have not been delivered to
the Holder and the Holder purchases, in an open market transaction or otherwise,
shares  of  Common Stock (the "Covering  Shares")  necessary  to  make  delivery
of  shares which would had been delivered if the full amount of the shares to be
converted  had  been  delivered to the Holder, then the Company shall pay to the
Holder,  in  addition  to  any  other  amounts  due  to  Holder pursuant to this
Convertible Debenture, and not in lieu thereof, the Buy-In Adjustment Amount (as
defined  below).  The  "Buy  In  Adjustment  Amount"  is the amount equal to the
excess,  if  any,  of (x) the Holder's total purchase price (including brokerage
commissions,  if  any) for the Covering Shares minus (y) the net proceeds (after
brokerage  commissions, if any) received by the Holder from the sale of the Sold
Shares.  The  Company  shall  pay  the Buy-In Adjustment Amount to the Holder in
immediately  available  funds within five (5) business days of written demand by
the  Holder.  By  way of illustration and not in limitation of the foregoing, if
the  Holder  purchases  shares  of  Common  Stock  having a total purchase price
(including  brokerage  commissions) of $11,000 to cover a Buy-In with respect to
shares  of  Common  Stock  it  sold  for  net  proceeds  of  $10,000, the Buy-In
Adjustment  Amount  which the Company will be required to pay to the Holder will
be  $1,000.

ARTICLE  5          Additional  Financing  and  Registration  Statements

Section  5.1     The  Company  will  not  enter  into  any  additional financing
agreements  whether  for debt or equity, without prior expressed written consent
from  the  Holder.  Violation  of  this  Section  5.1 will result in an Event of
Default  and  the  Holder  may  elect  to take the action or actions outlined in
Article  4.

Section  5.2     The  Company  agrees  that  it  shall not file any registration
statement  which  includes any of its Common Stock, including those on Form S-8,
until  such  time  as the Note is paid off in full ("Lock-Up Period") or without
the  prior  written  consent  of  the  Holder.

Section  5.3     If,  at  any  time, while this Note is outstanding, the Company
issues or agrees to issue to any entity or person ("Third Party") for any reason
whatsoever,  any common stock or  securities  convertible  into  or  exercisable
for  shares  of  common  stock  (or modify any such terms in effect prior to the
execution  of  this  Note)  (a  "Third Party Financing"), at terms deemed by the
Holder  to  be more favorable to the Third Party, then the Company grants to the
Holder  the right, at the Holder's election, to modify the terms of this Note to
match  or  conform  to  the  more  favorable  term  or  terms of the Third Party
Financing.  The  rights of the Holder in this Section 5.3 are in addition to all
other  rights  the  Holder  has pursuant to this Note and the Security Agreement
between  the  Holder  and  the  Company.

Section  5.4     During  the  period  of  time  that  this Note is in force, the
Company's  officers, insiders, affiliates or other related parties shall refrain
from  selling  any  Stock.

ARTICLE  6          Notice.

Section  6.1     Any notices, consents, waivers or other communications required
or  permitted  to  be  given under the terms of this Note must be in writing and
will  be  deemed  to  have  been  delivered  (i)  upon  delivery, when delivered
personally;  (ii)  upon receipt, when sent by facsimile (provided a confirmation
of  transmission is mechanically or electronically generated and kept on file by
the  sending  party);  or  (iii)  one  (1)  day  after deposit with a nationally
recognized overnight delivery service, so long as it is properly addressed.  The
addresses  and  facsimile  numbers  for  such  communications  shall  be:

If  to  the  Company:

Mark  Clancy
US  Energy  Initiatives,  Inc.
12409  Telecom  Drive
Tampa,  FL  33637
Telephone:  813-979-9222
Facsimile:  813-979-9224

With  copy  to:

If  to  the  Holder:

Dutchess  Capital  Management,  LLC
Douglas  Leighton
50  Commonwealth  Ave,  Suite  2
Boston,  MA  02116
(617)  301-4700
(617)  249-0947

Section  6.2     The  Parties  are  required to provide each other with five (5)
business  days  prior  notice to the other party of any change in address, phone
number  or  facsimile  number.

ARTICLE  7          Time

     Where  this  Note  authorizes  or  requires  the  payment  of  money or the
performance of a condition or obligation on a Saturday or Sunday or a holiday on
which  the  United  States  Stock Markets ("US Markets") are closed ("Holiday"),
such  payment  shall  be  made  or condition or obligation performed on the last
business day preceding such Saturday, Sunday or Holiday.  A "business day" shall
mean  a  day  on  which  the  US  Markets are open for a full day or half day of
trading.

ARTICLE  8          No  Assignment.

      This  Note  and the obligations hereunder shall not be assigned, except as
otherwise  provided  herein.

ARTICLE  9          Rules  of  Construction.

     In  this Note, unless the context otherwise requires, words in the singular
number  include the plural, and in the plural include the singular, and words of
the  masculine gender include the feminine and the neuter, and when the tense so
indicates,  words of the neuter gender may refer to any gender.  The numbers and
titles  of  sections  contained  in  the  Note  are  inserted for convenience of
reference  only,  and  they  neither form a part of this Note nor are they to be
used  in  the  construction or interpretation hereof.  Wherever, in this Note, a
determination of the Company is required or allowed, such determination shall be
made  by  a majority of the Board of Directors of the Company and, if it is made
in  good  faith,  it  shall  be  conclusive  and  binding  upon  the  Company.

ARTICLE  10          Governing  Law

     The  validity,  terms,  performance  and  enforcement of this Note shall be
governed  and construed by the provisions hereof and in accordance with the laws
of  the  Commonwealth  of  Massachusetts  applicable  to  agreements  that  are
negotiated,  executed,  delivered  and  performed  solely in the Commonwealth of
Massachusetts.

ARTICLE  11          Disputes  Subject  to  Arbitration

     The  parties  to  this  Note  will  submit all disputes arising under it to
arbitration  in Boston, Massachusetts before a single arbitrator of the American
Arbitration  Association  ("AAA").  The  arbitrator  shall  be  selected  by
application  of  the  rules  of  the AAA, or by mutual agreement of the parties,
except that such arbitrator shall be an attorney admitted to practice law in the
Commonwealth  of  Massachusetts.  No  party to this agreement will challenge the
jurisdiction  or  venue provisions as provided in this section.  Nothing in this
section  shall  limit the Holder's right to obtain an injunction for a breach of
this  Agreement  from  a  court  of  law.

ARTICLE  12          Conditions  to  Closing

     The Company shall have delivered the proper Collateral to the Holder before
Closing  of  this  Note.

ARTICLE  13          Structuring  and  Administration  Expense

     The Company agrees to pay for related expenses associated with the proposed
transaction  of  sixty-five thousand dollars ($65,000). This amount shall cover,
but  is not limited to, the following: due diligence expenses, document creation
expenses,  closing  costs,  and  transaction  administration  expenses. All such
structuring  and  administration  expenses  shall  be  deducted  from  the first
closing.

ARTICLE  14          Indemnification

     In  consideration  of the Holder's execution and delivery of this Agreement
and  the  acquisition  and funding by the Holder of this Note and in addition to
all  of the Company's other obligations under the documents contemplated hereby,
the  Company  shall  defend, protect, indemnify and hold harmless the Holder and
all  of its shareholders, officers, directors, employees, counsel, and direct or
indirect  investors  and  any  of  the  foregoing  person's  agents  or  other
representatives  (including,  without  limitation,  those retained in connection
with  the  transactions  contemplated  by  this  Agreement)  (collectively,  the
"Indemnities")  from  and  against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection  therewith (irrespective of whether any such Indemnitee is a party to
the  action  for  which  indemnification  hereunder  is  sought), and including,
without  limitation,  reasonable  attorneys'  fees  and  disbursements  (the
"Indemnified  Liabilities"),  incurred  by  any  Indemnitee  as  a result of, or
arising  out  of,  or  relating  to  (i)  any misrepresentation or breach of any
representation  or  warranty  made  by  the  Company  in  the Note, or any other
certificate,  instrument  or  document  contemplated  hereby or thereby (ii) any
breach  of any covenant, agreement or obligation of the Company contained in the
Note  or  any  other  certificate, instrument or document contemplated hereby or
thereby,  except  insofar  as  any  such misrepresentation, breach or any untrue
statement,  alleged  untrue  statement,  omission or alleged omission is made in
reliance  upon  and  in  conformity  with  written  information furnished to the
Company  by,  or  on behalf of, the Holder or is based on illegal trading of the
Common  Stock by the Holder. To the extent that the foregoing undertaking by the
Company  may be unenforceable for any reason, the Company shall make the maximum
contribution  to  the  payment  and  satisfaction  of  each  of  the Indemnified
Liabilities  that  is permissible under applicable law. The indemnity provisions
contained  herein  shall be in addition to any cause of action or similar rights
the  Holder  may  have,  and  any  liabilities  the  Holder  may  be subject to.

ARTICLE  15          Incentive  Shares

     The  Company  shall  issue  six million (6,000,000) shares of unregistered,
restricted  Common  Stock  to  the  Holder  as  an  incentive for the investment
("Incentive  Shares").  The  Incentive  Shares  shall  be  issued  and delivered
immediately  to  the  Holder and shall carry piggyback registration rights.   In
the  event the Shares are not registered in the next registration statement, the
Company  shall  pay  to  the  Holder,  as  a  penalty,  six  million (6,000,000)
additional  shares  of  common  stock  for each time a registration statement is
filed  and  the  Shares are not included.  The Holder at its sole discretion may
waive  such  penalty.  The  Company's  failure  to  issue  the  Incentive Shares
constitutes  an  Event  of  Default  and  the  Holder  may  elect to enforce the
remedies  outlined in Article 4.  The Company's obligation to provide the Holder
with  the  Incentive Shares, as set forth herein, shall survive the operation of
the  Agreement  and any default on this obligation shall provide the Holder with
all rights, remedies and default provisions set forth in this Note, or otherwise
available  by  law.

ARTICLE  16          Use  of  Proceeds

     The  Company  shall  use  the  funds  for  general  corporate  purposes.

ARTICLE  17          Waiver

     The  Holder's  delay  or  failure at any time or times hereafter to require
strict  performance  by  Company of any obligations, undertakings, agreements or
covenants  shall  not  waive,  affect, or diminish any right of the Holder under
this  Note  to  demand strict compliance and performance herewith. Any waiver by
the  Holder of any Event of Default shall not waive or affect any other Event of
Default,  whether  such  Event  of  Default  is  prior or subsequent thereto and
whether  of  the  same or a different type. None of the undertakings, agreements
and  covenants  of  the Company contained in this Note, and no Event of Default,
shall be deemed to have been waived by the Holder, nor may this Note be amended,
changed  or  modified,  unless such waiver, amendment, change or modification is
evidenced by a separate instrument in writing specifying such waiver, amendment,
change  or  modification  and  signed  by  the  Holder.

ARTICLE  18          Senior  Obligation

     The  Company  shall cause this Note to be senior in right of payment to all
other  current  or future debt of the Company.  The Company warrants that it has
taken  all necessary steps to subordinate its other obligations to the rights of
the  Holder  in  this  Note.

ARTICLE  19          Transactions  With  Affiliates

     The  Company  shall  not,  and  shall cause each of its Subsidiaries to not
enter into, amend, modify or supplement, or permit any Subsidiary to enter into,
amend,  modify  or  supplement,  any  agreement,  transaction,  commitment  or
arrangement with any of its or any Subsidiary's officers, directors, persons who
were  officers  or  directors  at  any  time  during  the  previous  two  years,
shareholders who beneficially own five percent (5%) or more of the Common Stock,
or  affiliates  or with any individual related by blood, marriage or adoption to
any  such  individual  or with any entity in which any such entity or individual
owns  a  five  percent (5%) or more beneficial interest (each a "Related Party")
during  the  Lock  Up  Period.

ARTICLE  20          Equity  Line  Obligations

     Section  20.1     While  the Company's Common Stock is trading below thirty
cents ($.30) per share, the Company hereby gives consent to the Investor for the
Put Amount to be equal to the greater of 1) twelve thousand five hundred dollars
($12,500)  per  week; or, 2) twenty percent (20%) of the total dollar volume per
week  during  the  Price  Period  of  the  Put.

     Section 20.2     Upon the Company's Common Stock trading at or above thirty
cents ($.30) per share, the Company hereby gives consent of the Investor for the
Put  Amount  to be equal to the greater of 1) the maximum Put Amount as outlined
in  the Equity Line; or, 2)  twenty percent (20%) of the total dollar volume per
week  during  the  Price  Period  of  the  Put.

     Section  20.3     At  the  request  of  the  Holder,  at any time after the
Company's current effective registration statement for the Equity Line of Credit
with  Dutchess  Private  Equities,  LP  (File  No:  333-129928), has ten million
(10,000,000)  shares  or  less  remaining  for  issuance,  the  Company  shall
immediately  execute  a  new  Investment  Agreement for an Equity Line of Credit
under  the  same  terms and conditions as the previous Equity Line.  The Company
shall immediately prepare and file a registration statement for the registration
of  shares  as set forth in the new Investment Agreement.  The Holder shall also
retain  the  right  to  determine  the  date  of the filing of such registration
statement.  Failure  to do any action outlined in this Article will result in an
Event  of  Default.

     Section 20.4     The Company shall diligently carry out all Puts and within
twenty-four  (24)  hours,  return  all  paperwork  to  the  Investor.

ARTICLE  21          Security

     This  Note  is  fully secured by the Security Agreement between the Company
and  the  Holder  dated  March  23,  2006.

ARTICLE  22          Transfer  Agent  Instructions

The Company shall continue to keep instructions on file with its transfer agent,
irrevocably  appointing Theodore Smith as the Company's agent for the purpose of
having  certificates  issued,  registered in the name of the Holder or Investor,
for  Shares representing such Puts, as specified from time to time by the Holder
or  Investor  to the Company upon the Put Closing Date (as defined in the Equity
Line),  and  for any and all Liquidated Damages, if any (as this term is defined
in  this  Note or any Prior Notes ).  Nothing in this Article 22 shall affect in
any  way the Holder's or Investor's obligations and agreement to comply with all
applicable  securities laws upon resale of Shares. The Company acknowledges that
a  breach  by it of its obligations hereunder will cause irreparable harm to the
Holder  and  Investor  by  vitiating  the  intent and purpose of the transaction
contemplated  hereby.  Accordingly,  the Company acknowledges that the remedy at
law for a breach of its obligations under this Article 22 will be inadequate and
agrees,  in  the  event  of  a breach or threatened breach by the Company of the
provisions of this Article 22, that the Holder shall be entitled, in addition to
all  other  available  remedies,  to  an  injunction  restraining any breach and
requiring  immediate  issuance  and  transfer,  without the necessity of showing
economic  loss  and  without  any  bond  or  other  security  being  required.

ARTICLE  23          Integration

     The  Company hereby acknowledges that with the execution of this Note, that
Article  1,  Article  20,  Article  21  and Article 22 of this Note, and all the
Sections  thereunder,  shall supersede those respective Articles and Sections in
the Prior Notes with the Holder dated March 23, 2006 and December 20, 2006.  The
Company  hereby  agrees  that  upon the completion of the obligations hereunder,
this  Article  shall continue in full force and effect for the Prior Notes until
such  time  as  the  full  Face  Amount  have  been  paid  in  full.

ARTICLE  24          Miscellaneous

Section  24.1     This  Note may be executed in two or more counterparts, all of
which taken together shall constitute one instrument.  Execution and delivery of
this  Note  by exchange of facsimile  copies  bearing  the  facsimile  signature
of  a  party shall constitute a valid and binding execution and delivery of this
Note by such party.  Such facsimile copies shall constitute enforceable original
documents.

Section  24.2     The  Company  warrants  that  the  execution,  delivery  and
performance  of  this Note by the Company and the consummation by the Company of
the  transactions  contemplated  hereby  and  thereby  will  not (i) result in a
violation  of  the  Articles  of Incorporation, any Certificate of Designations,
Preferences  and  Rights  of  any  outstanding  series of preferred stock of the
Company  or  the By-laws or (ii) conflict with, or constitute a material default
(or  an event which with notice or lapse of time or both would become a material
default)  under,  or  give  to  others  any  rights  of  termination, amendment,
acceleration  or  cancellation  of,  any material agreement, contract, indenture
mortgage,  indebtedness  or  instrument  to  which  the  Company  or  any of its
Subsidiaries  is a party, or result in a violation of any law, rule, regulation,
order,  judgment or decree, including United States federal and state securities
laws  and  regulations and the rules and regulations of the principal securities
exchange  or  trading  market on which the Common Stock is traded or listed (the
"Principal  Market"), applicable to the Company or any of its Subsidiaries or by
which  any  property or asset of the Company or any of its Subsidiaries is bound
or  affected.  Neither  the  Company nor its Subsidiaries is in violation of any
term  of, or in default under, the Articles of Incorporation, any Certificate of
Designations,  Preferences  and  Rights  of  any outstanding series of preferred
stock  of the Company or the By-laws or their organizational charter or by-laws,
respectively,  or  any  contract,  agreement, mortgage, indebtedness, indenture,
instrument,  judgment,  decree  or  order  or  any  statute,  rule or regulation
applicable  to  the  Company or its Subsidiaries, except for possible conflicts,
defaults,  terminations, amendments, accelerations, cancellations and violations
that  would  not individually or in the aggregate have a Material Adverse Effect
as  defined below. The business of the Company and its Subsidiaries is not being
conducted,  and  shall  not  be  conducted,  in  violation  of any law, statute,
ordinance,  rule,  order  or regulation of any governmental authority or agency,
regulatory  or  self-regulatory agency, or court, except for possible violations
the sanctions for which either individually or in the aggregate would not have a
Material  Adverse  Effect.  The  Company  is  not   required   to   obtain   any
consent,  authorization,  permit or order of, or make any filing or registration
(except  the  filing of a registration statement)  with, any court, governmental
authority  or  agency, regulatory or self-regulatory agency or other third party
in  order for it to execute, deliver or perform any of its obligations under, or
contemplated  by,  this Note in accordance with the terms hereof or thereof. All
consents,  authorizations,  permits, orders, filings and registrations which the
Company  is  required  to  obtain  pursuant  to the preceding sentence have been
obtained  or  effected  on or prior to the date hereof and are in full force and
effect  as  of  the date hereof. The Company and its Subsidiaries are unaware of
any  facts  or  circumstances which might give rise to any of the foregoing. The
Company is not, and will not be, in violation of the listing requirements of the
Principal  Market  as  in  effect  on the date hereof and on each of the Closing
Dates  and is not aware of any facts which would lead to delisting of the Common
Stock  by  the  Principal  Market.

Section  24.3     The Company and its "Subsidiaries" (which for purposes of this
Note means any entity in which the Company, directly or indirectly, owns capital
stock  or  holds  an  equity  or   similar   interest)   are  corporations  duly
organized and validly existing in good standing under the laws of the respective
jurisdictions of their incorporation, and have the requisite corporate power and
authorization  to  own  their  properties  and to carry on their business as now
being  conducted. Both the Company and its Subsidiaries are duly qualified to do
business and are in good standing in every jurisdiction in which their ownership
of  property  or  the  nature  of  the  business  conducted  by  them makes such
qualification  necessary,  except  to  the  extent  that  the  failure  to be so
qualified  or  be  in good standing would not have a Material Adverse Effect. As
used  in  this Note, "Material Adverse Effect" means any material adverse effect
on  the  business,  properties,  assets,  operations,  results  of  operations,
financial  condition  or  prospects of the Company and its Subsidiaries, if any,
taken  as  a  whole,  or  on  the  transactions  contemplated  hereby  or by the
agreements  and instruments to be entered into in connection herewith, or on the
authority  or  ability of the Company to perform its obligations under the Note.

Section  24.4     Authorization; Enforcement; Compliance with Other Instruments.

     (i)  The  Company  has the requisite corporate power and authority to enter
into  and  perform  its  obligations under this Note, and to issue this Note and
Incentive  Shares  in  accordance  with  the  terms hereof and thereof, (ii) the
execution and delivery of this Note by the Company and the consummation by it of
the  transactions  contemplated hereby and thereby, including without limitation
the  reservation  for issuance and the issuance of the Incentive Shares pursuant
to  this  Note,  have been duly and validly authorized by the Company's Board of
Directors  and  no  further consent or authorization is required by the Company,
its  Board  of Directors, or its shareholders, (iii) this Note has been duly and
validly executed and delivered by the Company, and (iv) the Note constitutes the
valid  and binding obligations of the Company enforceable against the Company in
accordance  with  their  terms,  except as such enforceability may be limited by
general  principles  of  equity  or  applicable  bankruptcy,  insolvency,
reorganization,  moratorium,  liquidation  or  similar  laws  relating  to,  or
affecting  generally,  the  enforcement  of  creditors'  rights  and  remedies.

Section  24.5     This  Note  is the FINAL AGREEMENT between the Company and the
Holder with respect to the terms and conditions set forth herein, and, the terms
of  this  Note  may  not  be contradicted by evidence of prior, contemporaneous,
or  subsequent  oral  agreements  of the Parties.  The execution and delivery of
this  Note  is done in conjunction with the duly authorized and validly existing
Security  Agreement,  as  defined  in  Article  21.

Section  24.6     There  are no disagreements of any kind presently existing, or
reasonably  anticipated  by  the  Company  to arise, between the Company and the
accountants,  auditors  and  lawyers  formerly or presently used by the Company,
including  but  not  limited  to disputes or conflicts over payment owed to such
accountants,  auditors  or  lawyers.

Section  24.7     All  representations  made  by or relating to the Company of a
historical  nature  and all undertakings described herein shall relate and refer
to  the  Company,  its  predecessors,  and  the  Subsidiaries.

Section  24.8     The  only  officer,  director,  employee  and consultant stock
option  or  stock  incentive  plan  currently  in  effect or contemplated by the
Company  has been submitted to the Holder or is described or within past filings
with  the United States Securities and Exchange Commission.  The Company aggress
not  to  initiate  or  institute  any  such  plan  or  to  issue  stock options.

Section 24.9     The Company acknowledges that its failure to timely meet any of
its   obligations   hereunder,   including,   but   without   limitation,   its
obligations  to make Payments, deliver shares and, as necessary, to register and
maintain  sufficient  number  of  Shares,  will  cause  the  Holder  to  suffer
irreparable  harm  and that the actual damage to the Holder will be difficult to
ascertain.  Accordingly,  the parties agree that it is appropriate to include in
this  Debenture a provision for liquidated damages.  The parties acknowledge and
agree that the liquidated damages provision set forth in this section represents
the parties' good faith effort to quantify such damages and, as such, agree that
the  form  and  amount  of  such  liquidated  damages  are reasonable and do not
constitute  a  penalty.  The payment of liquidated damages shall not relieve the
Company  from  its obligations to deliver the Common Stock pursuant to the terms
of  this  Debenture.

                                      *.* *

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<PAGE>

Any  misrepresentations shall be considered a breach of contract and an Event of
Default  under  this  Agreement  and  the  Holder  may  seek  to take actions as
described  under  Article  4  of  this  Agreement.

IN WITNESS WHEREOF, the Company has duly executed this Note as of the date first
written  above.

US  ENERGY  INITIATIVES,  INC.

By          /s/  Mark  Clancy
            -----------------
Name:       Mark  Clancy
Title:      Chief  Executive  Officer

DUTCHESS  PRIVATE  EQUITIES  FUND,  II,  L.P.
BY  ITS  GENERAL  PARTNER  DUTCHESS
CAPITAL  MANAGEMENT,  LLC

By:        /s/  Douglas  Leighton
           ----------------------
Name:      Douglas  H.  Leighton
Title:     A  Managing  Member

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