Document:

SUBSCRIPTION
      AGREEMENT

     

    BETWEEN

     

    ELECTRIC
      AQUAGENICS UNLIMITED INC.

     

    AND

     

    THE
      INVESTOR NAMED HEREIN

     

    SEPTEMBER
      16, 2005

     

    
      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    Table
      of Contents

     

    
      	
               

              1.

            	
               

              Purchase
                and Sale of the Convertible Note.

            	
               

              1

            
	
              1.1

            	
              Sale
                and Issuance of the Convertible Note.

            	
              1

            
	
              1.2

            	
              Closing

            	
              1

            
	
               

              2.

            	
               

              Representations
                and Warranties of the Company

            	
               

              2

            
	
              2.1

            	
              Organization,
                Good Standing and Qualification

            	
              2

            
	
              2.2

            	
              Capitalization

            	
              2

            
	
              2.3

            	
              Subsidiaries;
                Joint Ventures

            	
              2

            
	
              2.4

            	
              Authorization

            	
              2

            
	
              2.5

            	
              Governmental
                Consents

            	
              2

            
	
              2.6

            	
              Offering

            	
              3

            
	
              2.7

            	
              Litigation

            	
              3

            
	
              2.8

            	
              Absence
                of Certain Developments

            	
              3

            
	
              2.9

            	
              Proprietary
                Information Agreements

            	
              4

            
	
              2.10

            	
              Patents
                and Trademarks

            	
              4

            
	
              2.11
                

            	
              Compliance
                with Other Instruments

            	
              4

            
	
              2.12

            	
              Related-Party
                Transactions

            	
              5

            
	
              2.13

            	
              Business
                Plan

            	
              5

            
	
              2.14

            	
              Tax
                Returns

            	
              5

            
	
              2.15

            	
              Permits

            	
              5

            
	
              2.16

            	
              Environmental
                and Safety Laws

            	
              5

            
	
              2.17

            	
              Registration
                Rights

            	
              5

            
	
              2.18

            	
              Corporate
                Documents; Minute Books

            	
              5

            
	
              2.19
                

            	
              Title
                to Property and Assets

            	
              5

            
	
              2.20

            	
              Insurance

            	
              6

            
	
              2.21

            	
              Labor
                Agreements and Actions

            	
              6

            
	
              2.22

            	
              Obligations
                of Management

            	
              6

            
	
              2.23

            	
              Disclosure

            	
              6

            
	
              2.24

            	
              No
                Brokerage.

            	
              6

            
	
               

              3.

            	
               

              Representations
                and Warranties of the Investor

            	
               

              6

            
	
              3.1

            	
              Authorization

            	
              7

            
	
              3.2

            	
              Purchase
                Entirely for Own Account

            	
              7

            
	
              3.3

            	
              Accredited
                Investor

            	
              7

            
	
              3.4

            	
              Restricted
                Securities

            	
              7

            
	
              3.5

            	
              Legends

            	
              7

            
	
               

              4.

            	
               

              Conditions
                of Investor’s Obligations at Closing

            	
               

              7

            
	
              4.1

            	
              Representations
                and Warranties

            	
              7

            
	
              4.2

            	
              Performance

            	
              7

            
	
              4.3

            	
              Proceedings
                and Documents

            	
              8

            
	
              4.4

            	
              Fees
                of Counsel

            	
              8

            
	
              4.5

            	
              Registration
                Rights Agreement

            	
              8

            

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      
        	
                4.6

              	
                Securities
                  Agreement

              	
                8

              
	
                4.7

              	
                Warrant

              	
                8

              
	
                4.8

              	
                License
                  and Distribution Agreement

              	
                8

              
	
                 

                5.

              	
                 

                Conditions
                  of the Company’s Obligations at Closing

              	
                 

                8

              
	
                5.1

              	
                Representations
                  and Warranties

              	
                8

              
	
                5.2

              	
                Payment
                  of Purchase Price

              	
                8

              
	
                 

                6.

              	
                 

                Miscellaneous.

              	
                 

                8

              
	
                6.1

              	
                Indemnification

              	
                8

              
	
                6.2

              	
                Survival

              	
                9

              
	
                6.3

              	
                Successors
                  and Assigns

              	
                9

              
	
                6.4

              	
                Governing
                  Law

              	
                9

              
	
                6.5

              	
                Arbitration

              	
                9

              
	
                6.6

              	
                Titles
                  and Subtitles

              	
                10

              
	
                6.7
                  

              	
                Notices

              	
                10

              
	
                6.8

              	
                No
                  Brokers

              	
                11

              
	
                6.9

              	
                Expenses

              	
                11

              
	
                6.10

              	
                Amendments
                  and Waivers

              	
                11

              
	
                6.11

              	
                Severability

              	
                11

              
	
                6.12

              	
                Entire
                  Agreement

              	
                11

              
	
                6.13

              	
                Further
                  Assurances

              	
                11

              
	
                6.14

              	
                Counterparts

              	
                11

              
	
                6.15

              	
                Construction

              	
                11

              

      

    

     

    

    Exhibits:

     

    Exhibit
      A - Convertible
      Note

    Exhibit
      B - Warrant
      Agreement

    Exhibit
      C - Capitalization

    Exhibit
      D - Registration
      Rights Agreement

    Exhibit
      E - Security
      Agreement

    Exhibit
      F - Warrant

    Exhibit
      G - License
      and Distribution Agreement

    

    
      
         

      

      
         

        
          

        

      

      
         

      

       

    

    SUBSCRIPTION
      AGREEMENT

     

    This
      Subscription Agreement (this “Agreement”)
      is
      made as of September 16, 2005, by and among Electric Aquagenics Unlimited Inc.,
      a Delaware corporation (the “Company”),
      Water
      Science, LLC, a Florida limited liability company (the “Investor”).

     

    W
      I T N E
      S S E T H:

     

    WHEREAS,
      the Investor desires to purchase a senior secured convertible promissory note
      from the Company;

     

    WHEREAS,
      the Company is willing to make the representations and warranties and to
      undertake the obligations hereinafter set forth in connection with such
      investment.

     

    NOW,
      THEREFORE, in consideration of the premises and the mutual agreements herein
      contained, the parties hereto agree as follows:

     

    1.  Purchase
      and Sale of the
      Convertible Note.

     

    1.1  Sale
      and Issuance of the
      Convertible Note.

     

    (a)  Subject
      to the terms and conditions of this Agreement, the Investor agrees to purchase,
      and the Company agrees to sell and issue to the Investor, a senior secured
      convertible promissory note for an aggregate purchase price of Three Million
      and
      00/100 U.S. Dollars (U.S. $3,000,000) (the “Purchase
      Price”)
      in the
      form attached hereto as Exhibit
      A
      (the
“Convertible
      Note”).
      The
      Convertible Note, if converted in accordance with its terms on the Effective
      Date, would represent 8.9% of the Company’s common stock, par value $.001 per
      share (the “Common
      Stock”)
      on a
      fully-diluted basis. 

     

    (b)  Subject
      to the terms and conditions of this Agreement, the Investor agrees to purchase,
      and the Company agrees to sell and issue to the Investor, a warrant to purchase
      up to 2,000,000 shares of Common Stock in the form attached hereto as
Exhibit B
      (the
“Warrant”).
      The
      Warrant, upon exercise on the Effective Date, would represent, 14.2% of the
      Company’s Common Stock on a fully-diluted basis. The Convertible Note and the
      Warrant are collectively referred to herein as the “Securities.”

     

    1.2  Closing.
      The
      purchase and sale of the Securities shall take place at the offices of Greenberg
      Traurig, P.A., 1221 Brickell Avenue, Miami, Florida, on the date hereof, at
      10:00 a.m., or at such other place and time as the Company, and the Investor
      mutually agree (which time and place are designated herein as the “Closing”).
      At
      the Closing, the parties shall deliver the following:

     

    (a)  the
      Investor shall pay the Purchase Price by interbank wire transfer of immediately
      available funds to such account of the Company as the Company shall designate
      prior to the Closing; 

     

    (b)  the
      Company shall deliver each of an original executed Convertible Note and a
      Warrant to the Investor; and

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (c)  
      the
      Company shall have terminated or amended each license or distribution agreement
      which grants, or purports to grant any license, distribution or other
      intellectual property right over the Products (as defined in the License and
      Distribution Agreement) of the Company in the Territories (as defined in the
      License and Distribution Agreement), except for the consent required by the
      License Agreement dated April 8, 2004 by and between Innovative Oyster
      Processing System and the Company, which consent will be obtained by the Company
      within sixty (60) days of the date hereof

     

    (d)  the
      respective parties to this Agreement, the Security Agreement, the License and
      Distribution Agreement and the Registration Rights Agreement (collectively,
      the
“Related
      Agreements”)
      shall
      have executed and delivered each such agreement.

     

    2.  Representations
      and Warranties of the
      Company.
      The
      Company, hereby represents and warrants to the Investor as follows:

     

    2.1  Organization,
      Good Standing and Qualification

     

    .
      The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Delaware. The Company and each of its
      subsidiaries is duly qualified to transact business and is in good standing
      in
      each jurisdiction in which the nature of its business or its ownership of
      property requires it to be so qualified except for those jurisdictions in which
      the failure to be so qualified would not, individually or in the aggregate,
      have
      a material adverse effect on the Company’s business, assets, properties,
      prospects, operations or conditions (financial or otherwise) (a “Material
      Adverse Effect”).

     

    2.2  Capitalization.
      The
      capitalization of the Company is as described in its public filings and as
      set
      forth on Exhibit C
      attached
      hereto.
      Except
      as set forth on Exhibit
      B,
      there
      is no option, warrant, call subscription, convertible security, right (including
      preemptive right) or contract of any character to which the Company is a party
      or by which it is bound obligating the Company to issue, exchange, transfer,
      sell, repurchase, redeem or otherwise acquire any capital stock of the Company
      or obligating the Company to grant, extend, accelerate the vesting of or enter
      into any such option, warrant, call, subscription, convertible security or
      right
      to contract. There are no outstanding or authorized stock appreciation, phantom
      stock or similar rights with respect to the Company. 

     

    2.3  Subsidiaries;
      Joint Ventures.
      Except
      as set forth or par of Schedule 2.3,
      the
      Company does not own or control, directly or indirectly, any interest in any
      other corporation, association, or other entity (each, a “Subsidiary”).
      For
      each Subsidiary, Schedule
      2.3
      sets
      forth the equity interest owned by the Company and the percentage of the
      outstanding equity interest so owned. The Company is not a participant in any
      joint venture, partnership, or similar arrangement.

     

    2.4  Authorization.
      The
      Related Agreements constitute valid and legally binding obligations of the
      Company, enforceable in accordance with their respective terms, except
      (i) as limited by applicable bankruptcy, insolvency, reorganization,
      moratorium and other laws of general application affecting enforcement of
      creditors’ rights generally, and (ii) as limited by laws relating to the
      availability of specific performance, injunctive relief or other equitable
      remedies. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    2.5  Governmental
      Consents.
      No
      consent, approval, order or authorization of, or registration, qualification,
      designation, declaration or filing with, any federal, state or local
      governmental authority on the part of the Company is required in connection
      with
      the consummation of the transactions contemplated by this Agreement, except
      for
      such filings as are required pursuant to applicable federal and state securities
      laws and blue sky laws, which filings will be effected within the required
      statutory period.

     

    2.6  Offering.
      Subject
      in part to the truth and accuracy of the Investor’s representations set forth in
      Section 4 of this Agreement, the offer, sale and issuance of the Securities
      as contemplated by this Agreement are exempt from the registration requirements
      of the Securities Act of 1933, as amended (the “Act”),
      and
      the qualification or registration requirements of applicable blue sky laws.
      Neither the Company nor any authorized agent acting on its behalf will take
      any
      action hereafter that would cause the loss of such exemptions.

     

    2.7  Litigation.
      There
      is no action, suit, proceeding or investigation pending, or to the Company’s
      knowledge, currently threatened against the Company that questions the validity
      of this Agreement or the right of the Company to enter into such agreement
      or to
      consummate the transactions contemplated hereby. The Company is not a party
      or
      subject to the provisions of any order, writ, injunction, judgment or decree
      of
      any court or government agency or instrumentality. There is no action, suit,
      proceeding or investigation by the Company currently pending or that the Company
      intends to initiate.

     

    2.8  Absence
      of Certain Developments.
      Since
      June 30, 2005, there has not been any Material Adverse Effect
      and:

     

    (a)  neither
      the Company nor any Subsidiary has sold, leased, transferred or assigned any
      of
      its assets, tangible or intangible, other than for a fair consideration in
      the
      ordinary course of business;

     

    (b)  neither
      the Company nor any Subsidiary has entered into any contract (or series of
      related contracts) either involving more than $10,000 or outside the ordinary
      course of business;

     

    (c)  no
      party
      (including the Company or any Subsidiary) has accelerated, suspended, terminated
      modified or canceled any contract (or series of related contracts) involving
      more than $10,000 to which the Company or any Subsidiary is a party or by which
      any of them is bound;

     

    (d)  no
      encumbrance has been imposed on any assets of the Company or any
      Subsidiary;

     

    (e)  neither
      the Company nor any Subsidiary has made any capital expenditure (or series
      of
      related capital expenditures) either involving more than $10,000 or outside
      the
      ordinary course of business;

     

    (f)  neither
      the Company nor any Subsidiary has made any capital investment in, any loan
      to,
      or any acquisition of the securities or assets of, any other person (or series
      of related capital investments, loans and acquisitions) or acquired (by merger,
      exchange, consolidation, acquisition of stock or assets or otherwise) any
      person;

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (g)  neither
      the Company nor any Subsidiary has granted any license or sublicense of any
      rights under or with respect to any intellectual property;

     

    (h)  there
      has
      been no change made or authorized in the organizational documents of the Company
      or any Subsidiary; and

     

    (i)  neither
      the Company nor any Subsidiary has issued, sold or otherwise disposed of any
      of
      its capital stock or equity interests, or granted any options, warrants or
      other
      rights to purchase or obtain (including upon conversion, exchange or exercise)
      any of its capital stock, except as set forth on Exhibit B.

     

    2.9  Proprietary
      Information Agreements.
      Each
      current and former employee, officer and consultant of the Company has executed
      a proprietary information and inventions assignment agreement in forms adequate
      to protect the Company’s intellectual property, including, without limitation,
      any patents, patent rights, trademarks, trademark rights, service marks, service
      mark rights, trade names, trade name rights and copyrights (collectively,
“Intellectual
      Property”),
      and
      Proprietary Information (as defined below). No former or current employee,
      officer or consultant of the Company has excluded works or inventions made
      prior
      to his or her employment with the Company from such employee’s, officer’s or
      consultant’s proprietary information and inventions assignment agreement. The
      Company does not believe it is or will be necessary to utilize any inventions,
      trade secrets or proprietary information of any of its employees made prior
      to
      their employment by the Company, except for inventions, trade secrets or
      proprietary information that have been assigned to the Company. The Company,
      after reasonable investigation, is not aware that any of its employees, officers
      or consultants are in violation of such agreements, and the Company will use
      its
      best efforts to prevent any such violation. 

     

    2.10  Patents
      and Trademarks.
      The
      Company possesses all Intellectual Property necessary for its business without
      any conflict with or infringement of the valid rights of others, and the Company
      has not received any notice of infringement upon or conflict with the asserted
      rights of others. The Company has a valuable body of trade secrets, including
      know-how, concepts, computer programs and other technical data for the
      development, launch and operation of its business. The Company is not aware
      that
      any of its employees is obligated under any contract (including licenses,
      covenants or commitments of any nature) or other agreement, or subject to any
      judgment, decree or order of any court or administrative agency, that would
      interfere with the use of his or her best efforts to promote the interests
      of
      the Company or that would conflict with the Company’s business. 

     

    2.11  Compliance
      with Other Instruments.
      The
      Company is not in violation of any provision of its Certificate or its bylaws
      or, to its knowledge, of any instrument, judgment, order, writ, decree or
      contract, statute, rule or regulation to which the Company is subject. The
      execution, delivery and performance of this Agreement and the consummation
      of
      the transactions contemplated hereby will not result in any such violation,
      or
      (i) be in conflict with or constitute, with or without the passage of time
      and
      giving of notice, either a default under any such provision or an event that
      results in the creation of any lien, charge or encumbrance upon any assets
      of
      the Company or the suspension, revocation, impairment, forfeiture or non-renewal
      of any material permit, license, authorization or approval applicable to the
      Company, its business or operations or any of its assets or properties, or
      (ii) require the consent or other action by any person under, constitute
      a
      default under, or give rise to termination, cancellation or acceleration of
      any
      right or obligation of the Company or to a loss of any benefit to which the
      Company is entitled under any provision of any agreement or other instrument
      binding upon the Company. 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    2.12  Related-Party
      Transactions.
      Except
      as set forth on Schedule 2.12,
      no
      employee, officer or director of the Company or member of his or her immediate
      family is indebted to the Company, nor is the Company indebted (or committed
      to
      make loans or extend or guarantee credit) to any of them. None of such persons
      has any direct or indirect ownership interest in any firm or corporation with
      which the Company is affiliated or with which the Company has a business
      relationship, or any firm or corporation that competes with the Company, except
      that employees, officers or directors of the Company and members of their
      immediate families may own stock in publicly traded companies that may compete
      with the Company. No member of the immediate family of any officer or director
      of the Company is directly or indirectly interested in any material contract
      with the Company. 

     

    2.13  Business
      Plan.
      Attached hereto as Schedule 2.13
      is a
      true, complete and correct copy of the Company’s business plan and detailed
      budget for the Company’s 2005 and 2006 fiscal years.

     

    2.14  Tax
      Returns.
      The
      Company has timely filed all tax returns (federal, state and local) required
      to
      be filed by it. The Company has not been advised that any of its returns have
      been or are being audited.

     

    2.15  Permits.
      The
      Company has all franchises, permits, licenses and any similar authority
      necessary for the operation of its business. The Company is not in default
      under
      any of such franchises, permits, licenses or other similar authority.

     

    2.16  Environmental
      and Safety Laws.
      To its
      knowledge, the Company is not in violation of any applicable statute, law or
      regulation relating to the environment or occupational health and safety, and
      to
      its knowledge, no material expenditures are or will be required in order to
      comply with any such existing statute, law or regulation.

     

    2.17  Registration
      Rights.
      Except
      as set forth in the Related Agreements, the Company has not granted or agreed
      to
      grant any registration rights, including piggyback rights, to any person or
      entity.

     

    2.18  Corporate
      Documents; Minute Books.
      The
      Certificate and bylaws of the Company are in the form previously provided to
      the
      Investor. The minute books of the Company provided to the Investor contain
      a
      complete summary of all meetings of directors and stockholders since the time
      of
      incorporation and reflect all transactions referred to in such minutes
      accurately in all material respects.

     

    2.19  Title
      to Property and Assets.
      The
      property and assets the Company owns are owned by the Company free and clear
      of
      all mortgages, liens, loans and encumbrances, except (i) for statutory liens
      for
      the payment of current taxes that are not yet delinquent, and (ii) for
      liens, encumbrances and security interests that arise in the ordinary course
      of
      business, and minor defects in title, none of which, individually or in the
      aggregate, materially impair the Company’s ownership or use of such property or
      assets. With respect to the property and assets it leases, the Company is in
      material compliance with such leases and, to its knowledge, holds a valid
      leasehold interest free of any liens, claims or encumbrances, subject to clauses
      (i) and (ii).

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    2.20  Insurance.
      The
      Company has insurance policies with such coverages in amounts (subject to
      reasonable deductibles) customary for similarly situated companies. Copies
      of
      such policies have been delivered to the Investor along with summary
      descriptions of the coverages thereunder.

     

    2.21  Labor
      Agreements and Actions.
      The
      Company is not aware that any officer or employee, or that any group of key
      employees, intends to terminate their employment with the Company, nor does
      the
      Company have a present intention to terminate the employment of any of the
      foregoing. Except as described on Schedule
      2.21,
      the
      Company is not a party to or bound by any currently effective employment
      contract, deferred compensation agreement, bonus plan, incentive plan, profit
      sharing plan, retirement agreement or other employee compensation agreement.
      The
      Company has complied in all material respects with all applicable state and
      federal equal employment opportunity and other laws related to employment.
      No
      executive officer of the Company (i) has been convicted in a criminal proceeding
      or is a named subject of a pending criminal proceeding (excluding minor traffic
      violations) or (ii) is or has been subject to any judgment or order of, or
      the
      subject of any pending civil or administrative action by, the Securities and
      Exchange Commission or any self-regulatory organization. 

     

    2.22  Obligations
      of Management.
      Each
      executive officer and key employee of the Company is currently devoting
      substantially all of his or her business time to the conduct of the business
      of
      the Company. The Company is not aware that any executive officer or key employee
      of the Company is planning to work less than full time at the Company in the
      future. No executive officer or key employee is currently working or, to the
      Company’s knowledge, plans to work or consult for a competitive enterprise,
      whether or not such officer or key employee is or will be compensated by such
      enterprise. 

     

    2.23  Disclosure.
      Neither
      this Agreement (including all the exhibits and schedules hereto) nor any other
      statements or certificates made or delivered in connection herewith contains
      any
      untrue statement of a material fact or omits to state a material fact necessary
      to make the statements herein or therein not misleading in light of the
      circumstances under which they were made. There is no fact known to the Company
      (other than facts known to the general public) that the Company has not
      disclosed to the Investor that has had or which could reasonably be expected
      to
      have a Material Adverse Effect. The information and financial projections
      relating to the Company delivered to the Investor (the “Investor Materials”),
      were made in good faith based upon reasonable assumptions, and the Company
      is
      not aware of any fact or set of circumstances that would lead it to believe
      that
      such information and assumptions were not reasonable. As of the date hereof
      and
      immediately prior to the Closing, no facts have come to the attention of the
      Company that would, in its opinion, require the Company to revise in any
      material respect the Investor Materials or the assumptions underlying the
      projections or any other information contained therein.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    2.24  No
      Brokerage. No
      Person
      will be entitled to receive any brokerage commission, finder’s fee, fee for
      financial advisory services or similar compensation in connection with the
      transaction contemplated by this Agreement.

     

    3.  Representations
      and Warranties of the Investor.
      The
      Investor hereby represents, warrants and covenants that:

     

    3.1  Authorization.
      The
      Investor has full power and authority to enter into the Related Agreements
      to
      which it is a party, and each such agreement when executed will constitute
      a
      valid and legally binding obligation of the Investor, enforceable in accordance
      with its terms.

     

    3.2  Purchase
      Entirely for Own Account.
      The
      Securities to be received by the Investor will be acquired for investment for
      the Investor’s own account, not as a nominee or agent, and not with a view to
      the resale or distribution of any part thereof, and the Investor has no present
      intention of selling, granting any participation in or otherwise distributing
      the same, except that the Investor may transfer, including, without limitation,
      to the Investor’s employees, officers and directors, in accordance with the
      Related Agreements and applicable law. The Investor further represents that
      it
      does not have any contract, undertaking, agreement or arrangement with any
      person to sell, transfer or grant participations to such person or to any third
      person, with respect to any of the Restricted Securities.

     

    3.3  Accredited
      Investor.
      The
      Investor is an “accredited investor” within the meaning of Securities and
      Exchange Commission (“SEC”)
      Rule
      501 of Regulation D, as presently in effect.

     

    3.4  Restricted
      Securities.
      The
      Investor understands that the Securities are characterized as “restricted
      securities” under federal securities laws inasmuch as the Securities being
      acquired from the Company in a transaction not involving a public offering
      and
      that under such laws and applicable regulations the Restricted Securities may
      be
      resold without registration under the Act only in certain limited
      circumstances. 

     

    3.5  Legends.
      It is
      understood that each of the certificates evidencing the Securities may bear
      one
      or all of the following legends:

     

    (a)  “These
      securities have not been registered under the Securities Act of 1933, as
      amended. They may not be sold, offered for sale, pledged or hypothecated in
      the
      absence of a registration statement in effect with respect to the securities
      under such Act or an opinion of counsel satisfactory to the Company that such
      registration is not required or unless sold pursuant to Rule 144 of such
      Act.”

     

    (b)  Any
      other
      legends required to properly reflect the restrictions contained in the Related
      Agreements.

     

    4.  Conditions
      of Investor’s Obligations at Closing.
      The
      obligations of the Investor under this Agreement are subject to the fulfillment
      on or before the Closing of each of the following conditions:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    4.1  Representations
      and Warranties.
      The
      representations and warranties of the Company contained in Section 2 shall
      be
      true on and as of the Closing.

     

    4.2  Performance.
      The
      Company 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 them on or before the Closing.

     

    4.3  Proceedings
      and Documents.
      All
      corporate and other proceedings in connection with the transactions contemplated
      at the Closing, and all documents incident thereto shall be reasonably
      satisfactory in form and substance to the Investor, and it shall have received
      all such counterpart original and certified or other copies of such documents
      as
      they may reasonably request.

     

    4.4  Fees
      of Counsel.
      The
      Company shall have paid the fifty percent (50%) fees, expenses and disbursements
      of counsel to the Investor invoiced at the Closing.

     

    4.5  Registration
      Rights Agreement.
      The
      Company shall have entered into a registration rights agreement in the form
      attached hereto as Exhibit D
      (the
“Registration
      Rights Agreement”).

     

    4.6  Securities
      Agreement.
      The
      Company shall have entered into a security agreement in the form attached hereto
      as Exhibit E
      (the
“Security
      Agreement”).

     

    4.7  Warrant.
      The
      Company shall have the warrant in the form attached hereto as Exhibit F
      (the
“Warrant”).

     

    4.8  License
      and Distribution Agreement The
      Company and the Investor shall have entered into the license and distribution
      agreement in the form attached hereto as Exhibit G
      (the
“License
      and Distribution Agreement”).

     

    5.  Conditions
      of the
      Company’s Obligations at Closing.
      The
      obligations of the Company to the Investor under this Agreement are subject
      to
      the fulfillment on or before the Closing of each of the following conditions
      by
      the Investor:

     

    5.1  Representations
      and Warranties.
      The
      representations and warranties of the Investor contained in Section 3
      shall
      be true on and as of the Closing.

     

    5.2  Payment
      of Purchase Price.
      The
      Investor shall have delivered the Purchase Price as specified in
      Section 1.2 and Schedule
      I.

     

    6.  Miscellaneous.

     

    6.1  Indemnification. 

     

    (a)  Subject
      to Section 6.2 below, the Company agrees to indemnify, defend and hold harmless
      the Investor and the Investor’s members, directors, managers, officers,
      employees, agents and affiliates (collectively, “Investor
      Indemnitees”)
      from
      and against any and all losses, claims, damages, liabilities and expenses,
      including, without limitation, reasonable attorneys’ fees and disbursements and
      other expenses incurred in connection with investigating, preparing, settling
      or
      defending any action, claim or proceeding, pending or threatened and the costs
      of enforcement hereof (collectively, “Losses”),
      that
      such Investor Indemnitee may suffer or become subject to (i) as a result of
      any
      breach of representation, warranty, covenant or agreement made by or to be
      performed on the part of the Company under this Agreement or any other Related
      Agreement, or (ii) that otherwise arise from any action, claim or proceeding
      (whether related to the Company or otherwise) arising out of the matters or
      transactions contemplated by this Agreement or any other Related Agreement,
      and
      in each case to reimburse such Investor Indemnitee for all such amounts as
      they
      are incurred by the Investor. The existence of any breach or representation,
      warranty, covenant or agreement and the amount of Losses incurred or suffered
      arising out of such breach shall be determined without regard to any
      qualification or exception relating to materiality.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (b)  Promptly
      after receipt by any Investor Indemnitee of notice of any demand, claim or
      circumstance that would or might give rise to a claim or the commencement of
      any
      suit, action, proceeding or investigation in respect of which indemnity may
      be
      sought pursuant to Section 6.1(a), such Investor Indemnitee shall give notice
      thereof to the Company. Notwithstanding the foregoing, the failure to give
      prompt notice to the Company will not relieve the Company from liability, except
      to the extent such failure or delay materially prejudices the Company. The
      Company may, at the request of the Investor Indemnitee, participate in and
      control the defense of any such suit, action or proceeding at its own expense.
      It is understood that in any such suit, action or proceeding, the Investor
      Indemnitee has the right to retain its own counsel but that the Company shall
      not be liable for the fees and expenses of more than one separate law firm
      (in
      addition to any local counsel) for all Investor Indemnitees; provided,
      that any
      Investor Indemnitee seeking indemnification under Section 6.1(a)(ii) may assume
      the defense of any such suit, action or proceeding thereunder if the Investor
      Indemnitee reasonably determines that the Company is not adequately representing
      or, because of a potential or actual conflict of interest, may not adequately
      represent, the interests of the Investor Indemnitee.

     

    6.2  Survival.
      The
      warranties, representations and covenants contained in or made pursuant to
      this
      Agreement shall survive the execution and delivery of this Agreement and the
      Closing for a period of twenty-four (24) months following the Closing;
provided,
      however,
      that any
      warranty, representation or covenant relating to tax or environmental matters
      shall survive until the expiration of the statute of limitations for such
      matters under applicable law. The warranties, representations and covenants
      contained in or made pursuant to this Agreement shall in no way be affected
      by
      any investigation of the subject matter thereof made by or on behalf of the
      Investor, the Company or the Founders.

     

    6.3  Successors
      and Assigns.
      Except
      as otherwise provided herein, the terms and conditions of this Agreement shall
      inure to the benefit of and be binding upon the respective successors and
      assigns of the parties (including transferees of any Investor Limited
      Partnership Interests). Nothing in this Agreement, express or implied, is
      intended to confer upon any party, other than the parties hereto or their
      respective successors and assigns, any rights, remedies, obligations or
      liabilities under or by reason of this Agreement, except as expressly provided
      in this Agreement.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    6.4  Governing
      Law.
      This
      Agreement shall be governed by and construed under the laws of the State of
      Delaware, without regard to the conflicts of laws rules of such
      state.

     

    6.5  Arbitration. 

     

    (a)  Any
      dispute, controversy or claim arising out of, relating to or in connection
      with
      this Agreement or any Related Agreement, including any question regarding its
      existence, validity or termination, or regarding a breach thereof (hereafter,
      “dispute”)
      shall
      be submitted to a representative of each of the parties involved to attempt
      to
      reach an amicable resolution. A party wishing to initiate consideration of
      a
      dispute by such representative shall give written notice to the other parties
      hereto of the existence of such dispute and of the party’s desire to have such
      representative consider the dispute. Such notice shall set forth a brief
      description of the nature of the dispute to be considered.

     

    (b)  If
      a
      dispute is not settled within fifteen (15) days after the notice is given to
      the
      other parties seeking representative consideration of a dispute, such dispute
      shall be submitted to arbitration administered by the American Arbitration
      Association in accordance with its Commercial Arbitration Rules, in effect
      on
      the date of this Agreement (the “Rules”).
      A
      party wishing to submit a dispute to arbitration shall give written notice
      to
      such effect to the other parties hereto. The arbitration shall be before a
      sole
      arbitrator appointed in accordance with the Rules and this
      Agreement.

     

    (c)  The
      site
      of the arbitration shall be Miami, Florida, or such other location as the
      parties may mutually agree in writing, any award shall be deemed to have been
      made there. The decision of the arbitrator shall be rendered within 180 days
      from its appointment, and shall be final and binding upon all parties. The
      award
      may be made public only with the written consent of all parties to the
      arbitration, provided,
      however,
      that
      any
      ruling or award, final or otherwise, may be cited in any subsequent dispute
      or
      proceeding to enforce such ruling. The arbitrator shall neither have nor
      exercise any power to award special, exemplary, indirect, consequential or
      punitive damages. 

     

    (d)  It
      is the
      intent of the parties that the arbitration proceeding shall be conducted
      expeditiously, without initial recourse to the courts and without interlocutory
      appeals of the award to the courts. However, if a disputing party refuses to
      honor its obligations under this Agreement to arbitrate, any other disputing
      party may obtain appropriate relief compelling arbitration in any court having
      jurisdiction over the disputing parties; the order compelling arbitration shall
      require that the arbitration proceedings take place in Miami, Florida as
      specified above. The disputing parties may apply to any court having
      jurisdiction for orders requiring witnesses to obey subpoenas issued by the
      arbitrator. Moreover, the arbitrator’s orders and decisions may be enforced if
      necessary by any court having jurisdiction. The award may be confirmed in,
      and
      judgment upon the award entered by, any court having jurisdiction. 

     

    6.6  Titles
      and Subtitles.
      The
      titles and subtitles used in this Agreement are used for convenience only and
      are not to be considered in construing or interpreting this
      Agreement.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    6.7  Notices.
      All
      notices required or permitted hereunder shall be in writing and shall be deemed
      effectively given: (i) upon personal delivery to the party to be notified,
      (ii) when sent by confirmed facsimile if sent during the normal business hours
      of the recipient (if not sent during the normal business hours of the recipient,
      then on the next business day); (iii) three (3) days after having been sent
      by
      registered or certified mail, return receipt requested, postage prepaid; or
      (iv) one (1) day after deposit with a nationally recognized overnight
      courier, specifying next day delivery, with written verification of receipt.
      All
      communications shall be sent to the address as set forth on the signature page
      hereof or at such other address as such party may designate by ten days advance
      written notice to the other parties hereto.

     

    6.8  No
      Brokers.
      Each
      party represents that it neither is nor will be obligated for any finders’ fee
      or commission in connection with this transaction. The Company agrees to
      indemnify and hold harmless the Investor from any liability for any commission
      or compensation in the nature of a finders’ fee (and the costs and expenses of
      defending against such liability or asserted liability) for which the Company
      or
      any of its officers, employees or representatives (including any Founder) is
      responsible.

     

    6.9  Expenses.
      The
      Company shall pay all of the costs and expenses incurred with respect to the
      negotiation, execution, delivery and performance of the Related Agreements.
      If
      any action at law or in equity is necessary to enforce or interpret the terms
      of
      the Related Agreements or the Certificate, the prevailing party shall be
      entitled to reasonable attorney’s fees, costs and necessary disbursements in
      addition to any other relief to which such party may be entitled.

     

    6.10  Amendments
      and Waivers.
      Any
      term of this Agreement may be amended and the observance of any term of this
      Agreement may be waived (either generally or in a particular instance and either
      retroactively or prospectively), only with the written consent of the Company,
      each Founder and the Investor. Any amendment or waiver effected in accordance
      with this paragraph shall be binding upon the Investor, each transferee of
      the
      Investor Limited Partnership Interests, each Founder and the
      Company.

     

    6.11  Severability.
      If one
      or more provisions of this Agreement are held to be unenforceable under
      applicable law, such provision shall be excluded from this Agreement and the
      balance of the Agreement shall be interpreted as if such provision were so
      excluded and shall be enforceable in accordance with its terms.

     

    6.12  Entire
      Agreement.
      The
      Related Agreements constitute the entire agreement among the parties and no
      party shall be liable or bound to any other party in any manner by any
      warranties, representations or covenants except as specifically set forth herein
      or therein.

     

    6.13  Further
      Assurances.
      Each
      party shall perform such other acts and execute and deliver such other documents
      as may be necessary or appropriate to give effect to the purposes and intent
      of
      this Agreement

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    6.14  Counterparts.
      This
      Agreement may be executed in two or more counterparts and the signatures
      delivered by telecopy, each of which shall be deemed an original, with the
      same
      effect as if the signatures were upon the same instrument and delivered in
      person.

     

    6.15  Construction.
      This
      Agreement was negotiated by the parties with the benefit of legal
      representation, and any rule of construction or interpretation otherwise
      requiring this Agreement to be construed or interpreted against any party shall
      not apply to any construction or interpretation hereof.

     

    REMAINDER
      OF PAGE LEFT INTENTIONALLY BLANK

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF,
      the
      parties hereto have executed this Subscription Agreement as of the day and
      year
      hereinabove first written.

     

    
      	 	 	 
	 	
              COMPANY:

               

              ELECTRIC
                AQUAGENICS UNLIMITED INC.

            
	 
 	 
 	 
 
	Date: 	By:  	 
	 	
              
Name:
	 	
              Title:

            
	 	
              Address
                for notices:

              1464
                West 40 South

              Lindon,
                UT 84042

              Attention:
                Gaylord Karren

              Facsimile:
                (801) 443-1029

            

    

    
       

      
        	 	 	 
	 	
                INVESTOR:

                 

                WATER
                  SCIENCE, LLC

              
	 
 	 
 	 
 
	Date: 	By:  	 
	 	
                
Name:
                Peter Ullrich
	 	
                Title:
                  Sole Member

              
	 	
                
                  Address
                    for notices:

                  Water
                    Science, LLC

                  1800
                    N.W. 89th Place

                  Miami,
                    FL 33172

                  Attention:
                    Peter Ullrich

                  Email:
                    peteru@esmaraldainc.com

                

              

      

    

    
       

      Subscription
        Agreement Signature Page 

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
      A

     

    Convertible
      Note

     

    
      
         

      

      
        A-1

        
          

        

      

      
         

      

    

     

    EXHIBIT
      B

     

    Warrant
      Agreement

     

    
      
         

      

      
        B-1

        
          

        

      

      
         

      

    

     

    EXHIBIT
      C

     

    Capitalization

     

    
      	
              Common
                Stockholders

            	 	
              No.
                of Shares

            	 
	 	 	 	 
	
              Founding
                Principal 

            	 	 	
              1,600,000

            	 
	
              Restricted
                Stock 

            	 	 	
              6,122,601

            	 
	
              Public
                Float

            	 	 	
              1,200,000

            	 
	
              Stock
                Option Plan

            	 	 	
              0

            	 
	
              Warrants

            	 	 	
              1,079,052

            	 
	
              Options

            	 	 	
              1,275,000

            	 
	
              Purchase
                Rights

            	 	 	
              0

            	 
	
              Other
                Convertible Securities

            	 	 	
              0

            	 
	 	 	 	 	 
	
              Total
                Common Stock (fully diluted)

            	 	 	
              11,326,653

            	 
	
              Option
                Shares Reserved for Issuance

            	 	 	
              500,000
                grants under the Stock Option Plan

            	 

    

    

    
      
         

      

      
        C-1

        
          

        

      

      
         

      

    

     

    EXHIBIT
      D

     

    Registration
      Rights Agreement

     

    
      
         

      

      
        D-1

        
          

        

      

      
         

      

    

     

    EXHIBIT
      E

     

    Security
      Agreement

     

    
      
         

      

      
        E-1

        
          

        

      

      
         

      

    

     

    EXHIBIT
      F

     

    Warrant

     

    
      
         

      

      
        F-1

        
          

        

      

      
         

      

    

     

    EXHIBIT
      G

     

    License
      and Distribution Agreement

     

    
      
         

      

      
        G-1

        
          

        

      

      
         

      

       

    

    SCHEDULE
      2.3

    

    Subsidiaries
      and Joint Ventures

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    SCHEDULE
      2.13

     

    Business
      Plan and Pro Forma

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    SCHEDULE
      2.21

     

    List
      of Employment Contracts and Relevant Data as to Each
      Contract

     

    Employment
      Agreement ScheduleTHIS
        SECURED CONVERTIBLE PROMISSORY NOTE AND THE SECURITIES ISSUABLE HEREUNDER
        HAVE
        NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
        LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE SECURITIES
        HAVE BEEN REGISTERED UNDER SUCH ACT AND ALL SUCH OTHER APPLICABLE LAWS OR
        AN
        EXEMPTION FROM REGISTRATION IS AVAILABLE.

       

      SENIOR
        SECURED
        CONVERTIBLE PROMISSORY NOTE

       

      
        	September 16, 2005	
                $3,000,000

              

      

       

      FOR
        VALUE
        RECEIVED, Electric Aquagenics Unlimited, Inc., a Delaware corporation (the
        “Company”),
        hereby promises to pay to the order of Water Science, LLC, a Florida limited
        liability company (“Holder”),
        the
        principal amount of Three Million Dollars ($3,000,000), together with all
        other
        amounts due and owing hereunder including interest on the unpaid principal
        balance hereof outstanding from time to time, from and including the date
        hereof
        until and including the date the principal amount hereof is paid in full,
        at the
        rate and at the times set forth in Section 2.

       

      1. Definitions.
        For
        purposes of this Note, the following capitalized terms have the following
        meanings:

       

      “Affiliate”
        means
        with respect to any Person, any other Person (i) which directly or indirectly
        through one or more intermediaries Controls, or is Controlled by, or is under
        common Control with, such first Person, (ii) which beneficially owns or holds
        ten percent (10%) or more of any class of the voting stock of such first
        Person,
        or (iii) whereby ten percent (10%) or more of the voting stock (or in the
        case
        of a Person which is not a corporation, ten percent (10%) or more of the
        equity
        interest) of such other Person is beneficially owned or held by such first
        Person or by a Subsidiary of such first Person.

       

      “Base
        Conversion Price”
        shall
        have the meaning set forth in Section 9(a)(iv).

       

      “Business
        Day”
        means
        any day other than (a) Saturday or Sunday or (b) any other day on which banks
        in
        the State of New York are permitted or required to be closed.

       

      “Collateral”
        shall
        have the meaning provided therefor in the Security Agreement.

       

      “Common
        Stock”
        means
        the shares of the Company’s common stock, par value $.0001 per
        share.

       

      “Common
        Stock Equivalent”
        any
        securities convertible into or exchangeable for shares of Common Stock, or
        the
        issuance of any warrants, options, subscription or purchase rights with respect
        to such convertible or exchangeable securities.

       

      “Control”
        means
        the possession, directly or indirectly, of the power to direct or cause the
        direction of the management or policies of a person, whether through the
        ownership of voting securities, by contract or otherwise, and the terms
“Controlling”
        and
“Controlled”
        (and
        the lower-case versions of the same) shall have meanings correlative
        thereto.

       

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

       

      “Conversion
        Price”
        shall
        have the meaning set forth in Section 7(a). 

       

      “Debt”
        means:
        (i) indebtedness or liability for borrowed money, or for the deferred purchase
        price of property or services (including trade accounts payable); (ii)
        obligations as lessee under capital leases categorized as such in accordance
        with GAAP; (iii) obligations under letters of credit issued for the account
        of
        any Person; (iv) all obligations arising under bankers’ acceptance facilities;
        (v) all guaranties, endorsements (other than for collection or deposit in
        the
        ordinary course of business), and other contingent obligations to purchase,
        to
        provide funds for payment, to supply funds to invest in any Person, or otherwise
        to assure a creditor against loss; and (vi) obligations secured by any Lien
        on
        property owned by the Person, whether or not the obligations have been
        assumed.

      

      “Default
        Rate”
        means
        eight percent (8%) per annum.

       

      “Dilutive
        Issuance”
        shall
        have the meaning set forth in Section 9(a)(iv).

       

      “Dilutive
        Issuance Notice”
        shall
        have the meaning set forth in Section 9(a)(iv).

       

      “Event
        of Default”
        shall
        have the meaning set forth in Section 6(a).

       

      “GAAP”
        means
        generally accepted accounting principles in the United States set forth in
        the
        opinions and pronouncements of the Accounting Principles Board and the American
        Institute of Certified Public Accountants and statements and pronouncements
        of
        the Financial Accounting Standards Board or such other principles as may
        be
        approved by a significant segment of the accounting profession in the United
        States, that are applicable to the circumstances as of the date of
        determination, consistently applied.

       

      “Governmental
        Approval”
        means
        any authorization, consent, approval, license, franchise, concession, lease,
        ruling, permit, certification, exemption, filing or registration by or with
        any
        Governmental Authority or legal or administrative body material and necessary
        for the authority of the Company to conduct its business, the execution and
        delivery of this Note, the Subscription Agreement or the Security Agreement,
        or
        the creation and perfection of the Liens contemplated thereby.

       

      “Governmental
        Authority”
        means
        any nation or government, any state or other political subdivision thereof,
        and
        any entity exercising executive, legislative, judicial, regulatory or
        administrative authority or functions of or pertaining to
        government.

       

      “License
        and Distribution Agreement”
        means
        the License and Distribution Agreement between the Company and the Holder
        entered into on the date hereof. 

       

      “Lien”
        means
        any security interest, mortgage, pledge, hypothecation, assignment, deposit
        arrangement, encumbrance, lien (statutory or other), claim or other priority
        or
        preferential arrangement of any kind or nature whatsoever.

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      “Material
        Adverse Effect”
        means
        any event or action or lack thereof which would cause a material adverse
        effect
        (i) on the business, prospects, operations or financial condition of the
        Company, (ii) the Collateral or Holder’s Lien thereon, or (iii) the Company’s
        ability to perform the Obligations.

       

      “Maturity
        Date”
        shall
        have the meaning set forth in Section 3(a).

       

      “Note”
        means
        this Secured Convertible Promissory Note.

       

      “Obligations”
        means
        all obligations of the Company to Holder or any of Holder’s Subsidiaries
        howsoever created, arising or evidenced, whether direct or indirect, joint
        or
        several, absolute or contingent, or now or hereafter existing, or due or
        to
        become due, which arise out of or in connection with this Note, the Subscription
        Agreement or the Security Agreement and each other related document, including,
        without limitation, all reasonable costs incurred by Holder in connection
        with
        the enforcement of this Note.

       

      “Person”
        means
        an individual, a partnership, a corporation, a limited liability company,
        an
        association, a joint stock company, a trust, a joint venture, an unincorporated
        organization and a governmental entity or any department, agency or political
        subdivision thereof.

       

      “Representation
        Default”
        shall
        have the meaning set forth in 6(a)(iv)

       

      “Restructuring”
        shall
        have the meaning set forth in Section 7(b)(viii). 

       

      “Security
        Agreement”
        shall
        have the meaning set forth in Section 3(c)

       

      “Subscription
        Agreement”
        means
        the Subscription Agreement between the Company and the Holder entered into
        on
        the date hereof. 

       

      “Subsidiary”
        means,
        with respect to any Person (herein referred to as the “parent”), any
        corporation, partnership, association or other business entity (i) of which
        securities or other ownership interests representing more than fifty percent
        (50%) of the equity or more than fifty percent (50%) of the ordinary voting
        power or more than fifty percent (50%) of the general partnership interests
        are,
        at the time any determination is being made, owned, controlled or held by
        the
        parent, or (ii) that is, at the time any determination is made, otherwise
        Controlled by, the parent or one or more Subsidiaries of the parent or by
        the
        parent and one or more Subsidiaries of the parent.

       

      “Trigger
        Event”
        shall
        have the meaning set forth in Section 9(a)(vi).

      

      2. Payment
        of Interest.
        

       

      (a) Calculation.
        Except
        as otherwise expressly provided in Section (a)(b)(i) hereof, interest
        shall
        accrue (computed on the basis of actual days elapsed and a year of 360 days)
        at
        the rate of three percent (3%) per annum on the unpaid principal amount of
        this
        Note outstanding.

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

       

      (b) Payment
        and Compounding.
        Interest on the Note shall compound annually until the Note is repaid in
        full.
        Interest on the Note shall be payable in full on the Maturity Date.

       

      3. Payment
        of Principal on Note and Security.

       

      (a) Maturity
        Date.
        The
        Company shall pay the principal amount outstanding hereunder together with
        accrued and unpaid interest thereon and any other amounts payable to Holder
        in
        respect of this Note on the earlier of (i) September 16, 2008, and (ii) the
        acceleration of the maturity of this Note by Holder pursuant to
        Section (a)(b)(i), (the earlier of such dates, the “Maturity
        Date”),
        unless otherwise converted into Common Stock in accordance with Section
        7.

       

      (b) Principal
        Payments.
        Except
        as otherwise expressly provided in Section (a)(b)(i) hereof, the Company
        shall
        pay the principal amount of this Note, together will all interest accrued
        thereon on the Maturity Date.

       

      (c) Security
        Agreement.
        The
        Company’s obligations hereunder shall be secured by that certain Security
        Agreement, between the Company and Holder, dated as of the date hereof (the
        “Security
        Agreement”).

       

      4. Affirmative
        Covenants.
        So long
        as this Note shall remain outstanding or any Obligations shall remain unpaid,
        the Company shall:

       

      (a) Compliance
        with Laws.
        Comply
        in all material respects with applicable laws, rules, regulations, and orders,
        such compliance to include, without limitation, paying before the same become
        delinquent all taxes, assessments, and governmental charges imposed upon
        it or
        upon its property except for good faith contests for which adequate reserves
        are
        being maintained;

       

      (b) Information
        Rights:
        The
        Company will provide Holder any and all information and reports as it may
        reasonably request from time to time;

       

      (c) Notice
        of
        Litigation.
        Provide
        to Holder promptly after the commencement thereof, notice of all material
        actions, suits, and proceedings before any court or governmental entity,
        affecting the Company;

       

      (d) Notice
        of
        Defaults and Events of Default.
        Provide
        to Holder, as soon as possible and in any event within three (3) Business
        Days
        after the occurrence of each event which either (i) is an Event of Default,
        or
        (ii) with the giving of notice or lapse of time or both would constitute
        an
        Event of Default, a written notice setting forth the details of such event
        and
        the action which is proposed to be taken by the Company with respect
        thereto;

       

      (e) Governmental
        Approvals.
        Promptly obtain and maintain all Governmental Approvals as necessary for
        the
        operation of its business, except to the extent any failure to obtain or
        maintain such Government Approvals would not reasonably be expected to result
        in
        a Material Adverse Effect;

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

       

      (f) Insurance.
        Maintain in full force and effect at all times with reputable insurance
        companies, such insurance of its material properties, in such amounts and
        against such risks and with such deductibles as a Person conducting a similar
        business under similar conditions as the Company would customarily
        maintain;

       

      (g) Continuance
        of Business.
        Maintain its corporate existence and material licenses
        in good standing under and in compliance with all applicable laws and continue
        in operation in the business currently conducted by the Company;
        and

       

      (h) Maintenance.
        Conduct
        its business in a prudent manner, keeping its material assets and properties
        in
        good working order and condition and making all needful and proper repairs,
        replacements and improvements thereof so that such business may be properly
        and
        prudently conducted at all times.

       

      5. Negative
        Covenants.
        So long
        as this Note shall remain outstanding or any Obligations shall remain unpaid,
        the Company shall not, without the prior written consent of the Holder, which
        consent shall not be unreasonably withheld:

       

      (a) create
        or
        suffer to exist any Lien on the Collateral; 

       

      (b) grant
        any
        rights to any other party with respect to any intellectual property of the
        Company (except in the ordinary course of business consistent with prior
        practice and not in violation of, or inconsistent with the grants of licenses
        or
        other rights under the License and Distribution Agreement);

       

      (c) merge
        or
        consolidate into another entity;

       

      (d) sell
        or
        dispose of any material assets of the Company (except in the ordinary course
        of
        business consistent with prior practice);

       

      (e) sell
        or
        dispose all, or substantially all, assets of the Company;

       

      (f) establish
        or acquire any Affiliate (except in the ordinary course of business) or merge
        or
        spin off any Affiliate; or

       

      (g) amend
        the
        Company’s Certificate of Incorporation in a manner which would impair or
        otherwise adversely affect the rights of the Investor hereunder.

       

      6. Events
        of
        Default.

       

      (a) Definition.
        For
        purposes of this Note, an “Event
        of Default”
        shall
        be deemed to have occurred if:

       

      (i) all
        or
        any part of the principal of this Note is not paid when and as the same shall
        become due and payable, whether at maturity, by acceleration or otherwise;
        

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

      (ii) all
        or
        any part of the interest on this Note is not paid when and as the same shall
        become due and payable, whether at maturity, by acceleration, or otherwise,
        or
        any other amount payable hereunder is not paid; 

       

      (iii) a
        default
        shall occur in the observance or performance in any of the other obligation,
        affirmative or negative covenants or agreements of the Company contained
        herein,
        in the Subscription Agreement, the License and Distribution Agreement or
        in the
        Security Agreement after applicable cure periods provided for therein have
        elapsed;

       

      (iv) any
        representation, warranty or certification made by the Company herein or in
        any
        certificate, report or other instrument or agreement delivered pursuant to
        any
        provision hereof shall prove to have been false or incorrect in any material
        respect on the date or dates as of which made (any such falsity being a
“Representation
        Default”);

       

      (v) any
        improper use of the proceeds of this Note pursuant to Section 8 hereof;

       

      (vi) the
        Company makes an assignment for the benefit of creditors or admits in writing
        its inability to pay its debts generally as they become due; or an order,
        judgment or decree is entered adjudicating the Company bankrupt or insolvent;
        or
        any order for relief with respect to the Company is entered under the Federal
        Bankruptcy Code; or the Company petitions or applies to any tribunal for
        the
        appointment of a custodian, trustee, receiver or liquidator of the Company,
        or
        of any substantial part of the assets of the Company, or commences any
        proceeding relating to the Company under any bankruptcy reorganization,
        arrangement, insolvency, readjustment of debt, dissolution or liquidation
        law of
        any jurisdiction; or any such petition or application is filed, or any such
        proceeding is commenced, against the Company and either (x) the Company by
        any
        act indicates its approval thereof, consent thereto or acquiescence therein
        or
        (y) such petition, application or proceeding is not dismissed within sixty
        (60)
        days;

       

      (vii) the
        Company shall have failed to pay money due under any other agreement or document
        evidencing, securing or otherwise relating to Debt of the Company outstanding
        in
        an aggregate principal amount greater than Five Hundred Thousand Dollars
        ($500,000) or there shall have occurred any other material default or event
        of
        default by the Company under any such agreement, the effect of which is,
        after
        the expiration of any cure periods provided for in the documentation evidencing
        such Debt, to accelerate or permit the acceleration of the maturity of such
        Debt;

       

      (viii) a
        final
        judgment for the payment of money in excess of One Hundred Thousand Dollars
        ($100,000) shall
        be
        rendered by a court of record against the Company, and the Company does not
        (x)
        discharge the same or provide for its discharge in accordance with its terms
        or
        (y) procure a stay of execution thereof, within twenty (20) days from the
        date
        of entry thereof and within said period of twenty (20) days, or such longer
        period during which execution of such judgment shall have been stayed, appeal
        therefrom and cause the execution thereof to be stayed during such appeal
        including, but not limited to, by providing adequate bond for such judgment;
        or

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

      (ix) the
        Company shall assert that the Security Agreement is invalid or unenforceable,
        in
        whole or in part, or Holder shall cease to have a perfected first priority
        security interest in any of the Collateral having a fair market value, in
        the
        aggregate for all such collateral, in excess of Twenty Five Thousand Dollars
        ($25,000), other than Permitted Liens.

       

      (b) Consequences
        of Events of Default.

       

      (i) If
        an
        Event of Default of the type described in Section (a)(a)(vi) has occurred,
        the aggregate principal amount of the Note (together with all accrued interest
        thereon and all other Obligations) shall become immediately due and payable
        without any action on the part of Holder, and the Company shall immediately
        pay
        to Holder all such amounts. In all other cases, when any Event of Default
        has
        occurred and shall be continuing, the principal of this Note and the interest
        accrued hereon will, upon written notice from Holder (provided no further
        notice
        shall be required for clauses (a)(a)(i) and (ii)), forthwith become
        and be
        due and payable, if not already due and payable. If payment of this Note
        is
        accelerated, then the outstanding principal balance thereof shall bear interest
        at the Default Rate from and after the date of notice by the Company to Holder
        of the Event of Default. The Company agrees to pay to Holder all reasonable
        out-of-pocket costs and expenses incurred by Holder in any effort to enforce
        the
        Company’s obligations under this Note and pay interest at the Default Rate on
        such costs and expenses to the extent not paid when demanded. 

       

      (ii) Holder
        shall also have any other rights which Holder may have been afforded under
        any
        contract or agreement at any time and any other rights which Holder may have
        pursuant to applicable law. Holder may exercise any and all of its remedies
        under the Subscription Agreement or the Security Agreement contemporaneously
        or
        separately from the exercise of any other remedies hereunder or under applicable
        law.

       

      (iii) The
        Company hereby waives diligence, presentment, protest and demand and notice
        of
        protest and demand, dishonor and nonpayment of this Note, and expressly agrees
        that this Note, or any payment hereunder, may be extended from time to time
        and
        that Holder may accept security for this Note or release security for this
        Note,
        all without in any way affecting the liability of the Company
        hereunder.

       

      7. Conversion.

       

      (a) Optional
        Conversion Right.
        Until
        such time as all of the Obligations under this Note are paid in full, Holder
        shall have the option, exercisable in its sole discretion, to convert all
        or any
        portion of the outstanding principal and interest due on this Note into shares
        of Common Stock at a price per share equal to $3.00 per share (subject to
        the
        adjustments as set forth in Section 9 hereof) (the “Conversion
        Price”).
        

       

      (b) Conversion
        Procedure.

       

      (i) Prior
        to
        the conversion of this Note in accordance with this Section 7, the
        Company
        shall take all necessary steps to ensure that such number of shares of Common
        Stock as are issuable upon conversion of this Note are available for such
        issuance.

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

       

      (ii) Any
        such
        conversion of this Note shall be deemed to have been effected as of the close
        of
        business on the date on which this Note was surrendered at the principal
        office
        of the Company accompanied by a written conversion request specifying the
        amount
        of principal, or principal and interest, to be converted. At such time as
        such
        conversion has been effected, the rights of Holder as such holder to the
        extent
        of the conversion shall cease, and Holder shall be deemed to have become
        the
        holder of record of the shares of Common Stock represented thereby.

       

      (iii) As
        soon
        as possible after a conversion has been effected (but in any event within
        five
        (5) business days), the Company shall deliver to Holder, a certificate or
        certificates representing the number of shares of Common Stock (excluding
        any
        fractional share) issuable by reason of such conversion in such name or names
        and such denomination or denominations as Holder has specified to the Company
        in
        writing.

       

      (iv) If
        any
        fractional Common Share would, except for the provisions hereof, be deliverable
        upon conversion of this Note, the Company, in lieu of delivering such fractional
        share, shall pay an amount equal to the value of such fractional share.

       

      (v) The
        issuance of certificates for the shares of Common Stock upon conversion of
        this
        Note shall be made without charge to Holder for any issuance tax in respect
        thereof or other cost incurred by the Company in connection with such conversion
        and the related issuance of the Shares of Common Stock. Upon conversion of
        this
        Note, the Company shall take all such actions as are necessary in order to
        ensure that the shares of Common Stock issuable with respect to such conversion
        shall be validly issued, fully paid and nonassessable.

       

      (vi) The
        Company shall not close its books against the transfer of the shares of Common
        Stock issued or issuable upon conversion of this Note in any manner which
        interferes with the timely conversion of this Note. Holder, upon the request
        of
        the Company, at the Company’s sole expense, shall assist and cooperate with the
        Company in making any required governmental filings or in obtaining any
        government approval prior to or in connection with the conversion of this
        Note
        (including, without limitation, making any filings required to be made by
        the
        Company).

       

      (vii) The
        Company shall take all such actions as may be necessary to assure that all
        such
        shares of Common Stock may be so issued without violation of any applicable
        law
        or governmental regulation or any requirements of any domestic securities
        exchange upon which shares of Common Stock may be listed (except for official
        notice of issuance which shall be immediately delivered by the Company upon
        each
        issuance).

       

      (viii) In
        case
        of any recapitalization, reclassification or change of the outstanding
        securities of the Company or of any reorganization of the Company or any
        similar
        corporate reorganization on or after the date hereof (a “Restructuring”),
        then
        lawful and adequate provisions shall be made so that in each such case the
        holder, upon conversion of this Note at any time after the consummation of
        such
        Restructuring, shall be entitled to receive, in lieu of the shares or other
        securities and property receivable upon conversion of this Note prior to
        such
        Restructuring, the shares or other securities or property (including cash)
        to
        which such holder would have been entitled upon such consummation if such
        holder
        had converted the principal and interest due under this Note immediately
        prior
        thereto, all subject to further adjustment as provided hereunder; and in
        each
        such case, the terms of this Section 7 shall be applicable to the
        shares or
        other securities properly receivable upon conversion of the principal and
        interest due under this Note, as applicable, after the consummation of such
        Restructuring.

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

       

      (ix) If
        (A)
        the Company shall take a record of the holders of its shares of Common Stock
        (or
        other securities at the time receivable upon the conversion of the Note)
        for the
        purpose of entitling them to receive any dividend or other distribution,
        or any
        right to subscribe for or purchase any securities, or to receive any other
        right
        or otherwise proposes to make a dividend or distribution; (B) there is proposed
        any capital reorganization of the Company, any reclassification of the equity
        interests of the Company, any consolidation or merger of the Company with
        or
        into another entity, or any conveyance of all or substantially all of the
        assets
        of the Company to another entity; (C) any voluntary dissolution, liquidation
        or
        winding-up of the Company; or (D) any redemption or conversion of outstanding
        shares of Common Stock into any other type of securities then, and in each
        such
        case, the Company will mail or cause to be mailed to Holder a notice in
        accordance with Section 15 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, winding up,
        redemption or conversion is to take place, and the time, if any is to be
        fixed,
        as of which the holders of record of the shares of Common Stock (or at the
        time
        receivable upon the conversion of this Note) shall be entitled to exchange
        their
        shares of Common Stock (or such other securities) for securities or other
        property deliverable upon such reorganization, reclassification, consolidation,
        merger, conveyance, dissolution, liquidation or winding up. Such written
        notice
        shall be given at least 30 days prior to the transaction in question and
        not
        less than 10 days prior to the record date in respect thereof.

       

      (c) Partial
        Exercise.
        Upon
        conversion of this Note, Holder shall be entitled to receive a new Note covering
        the portion of principal and interest hereunder of which this Note shall
        not
        have been converted.

       

      8. Use
        of
        Proceeds.

       

      (a) The
        proceeds from this Note shall be used by the Company primarily for:

       

      (i) research
        and development, marketing, working capital, operating expenses in the ordinary
        course of business, manufacturing and purchase of manufacturing components,
        each
        as related to the production and manufacturing of generators and other products,
        of the type and nature contemplated by the License and Distribution Agreement;
        and

       

      (ii) the
        payment of fees and expenses incurred in connection with the consummation
        of the
        transactions between the Holder and the Company. 

       

      (b) The
        proceeds from this Note may not be used by the Company to repay existing
        indebtedness (other than trade payables incurred in the ordinary course of
        business), redeem outstanding equity interests or convertible securities,
        or pay
        compensation.

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

       

      9. Adjustment
        of Conversion Price. The Conversion Price with respect to the shares of Common
        Stock shall be subject to adjustment from time to time as follows:

       

      (a) The
        Conversion Price shall be adjusted from time to time by the Company as
        follows:

       

      (i) Stock
        Splits.
        If the
        Company at any time or from time to time after the date of this Note effects
        a
        subdivision of the outstanding Common Stock, the Conversion Price then in
        effect
        immediately before that subdivision shall be proportionately decreased, and
        conversely, if the Company at any time or from time to time after the date
        of
        this Note combines the outstanding shares of Common Stock, the Conversion
        Price
        then in effect immediately before the combination shall be proportionately
        increased. Any adjustment under this subsection (i) shall become effective
        at
        the close of business on the date the subdivision or combination becomes
        effective.

       

      (ii) Dividends
        and Distributions.
        In the
        event the Company at any time, or from time to time after the date of this
        Note
        makes, or fixes a record date for the determination of holders of Common
        Stock
        entitled to receive, a dividend or other distribution payable in additional
        shares of Common Stock, then and in each such event the Conversion Price
        then in
        effect shall be proportionally decreased as of the time of such issuance
        or, in
        the event such a record date is fixed, as of the close of business on such
        record date.

       

      (iii) Recapitalization
        or Reclassification.
        If the
        shares of Common Stock issuable upon the conversion of this Note are changed
        into the same or a different number of shares of any class or classes of
        stock,
        whether by recapitalization, reclassification or otherwise (other than a
        subdivision or combination of shares or stock dividend or a reorganization,
        merger, consolidation or sale of assets, provided for elsewhere in this Section
        9), then, and in any such event, the Holder shall thereafter be entitled
        to
        receive upon conversion of this Note such number and kind of stock or other
        securities or property of the Company to which a holder of shares deliverable
        upon conversion of this Note would have been entitled on such reclassification
        or other change, subject to further adjustment as provided herein.

       

      (iv) Subsequent
        Equity Sales.
        If the
        Company or any Subsidiary thereof, as applicable, at any time while this
        Note is
        outstanding, shall offer, sell, grant any option to purchase or offer, sell
        or
        grant any right to re-price its securities, or otherwise dispose of or issue
        (or
        announce any offer, sale, grant or any option to purchase or other disposition)
        any Common Stock or Common Stock Equivalents entitling any Person to acquire
        shares of Common Stock, at an effective price per share less than the then
        Conversion Price (such lower price, the “Base
        Conversion Price”
        and
        such issuances collectively, a “Dilutive
        Issuance”),
        as
        adjusted hereunder (if the holder of the Common Stock or Common Stock
        Equivalents so issued shall at any time, whether by operation of purchase
        price
        adjustments, reset provisions, floating conversion, exercise or exchange
        prices
        or otherwise, or due to warrants, options or rights per share which is issued
        in
        connection with such issuance, be entitled to receive shares of Common Stock
        at
        an effective price per share which is less than the Conversion Price, such
        issuance shall be deemed to have occurred for less than the Conversion Price
        on
        such date of the Dilutive Issuance), then the Conversion Price shall be reduced
        to equal the Base Conversion Price. The Company shall notify the Holder in
        writing, no later than three (3) Business Days following the issuance of
        any
        Common Stock or Common Stock Equivalents subject to this section, indicating
        therein the applicable issuance price, or of applicable reset price, exchange
        price, conversion price and other pricing terms (such notice the “Dilutive
        Issuance Notice”).
        For
        purposes of clarification, whether or not the Company provides a Dilutive
        Issuance Notice pursuant to this subsection (iv), upon the occurrence of
        any
        Dilutive Issuance, the Conversion Price shall be reduced to equal the Base
        Conversion Price. 

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

       

      (v) Subsequent
        Rights Offerings.
        If the
        Company, at any time while the Note is outstanding, shall issue rights, options
        or warrants to all holders of Common Stock (and not to the Holder) entitling
        them to subscribe for or purchase shares of Common Stock at a price per share
        less than the Conversion Price at the record date mentioned below, then the
        Conversion Price shall be multiplied by a fraction, of which the denominator
        shall be the number of shares of the Common Stock outstanding on the date
        of
        issuance of such rights or warrants plus the number of additional shares
        of
        Common Stock offered for subscription or purchase, and of which the numerator
        shall be the number of shares of the Common Stock outstanding on the date
        of
        issuance of such rights or warrants plus the number of shares which the
        aggregate offering price of the total number of shares so offered (assuming
        receipt by the Company in full of all consideration payable upon exercise
        of
        such rights, options or warrants) would purchase at such lesser price. Such
        adjustment shall be made whenever such rights or warrants are issued, and
        shall
        become effective immediately after the record date for the determination
        of
        stockholders entitled to receive such rights, options or warrants.

       

      (vi) No
        adjustment in the Conversion Price shall be required unless such adjustment
        would require an increase or decrease of at least 1% in such price; provided,
        however, that any adjustments which by reason of this subparagraph (viii)
        are
        not required to be made shall be carried forward and taken into account in
        any
        subsequent adjustment; and provided, further, that any adjustment required
        in
        order to preserve the tax-free nature of a distribution to the holders of
        shares
        of Common Stock shall be made when so required.  All
        calculations under this Section 9 shall be made to the nearest cent (with
        $.005
        being rounded upward). Anything in this Section 9(a) to the contrary
        notwithstanding, the Company shall be entitled, to the extent permitted by
        law,
        to make such reductions in the Conversion Price, in addition to those required
        by this Section 9(a), as it in its discretion shall determine to be advisable
        in
        order that any stock dividends, subdivision or combination of shares,
        distribution of capital stock or rights or warrants to purchase stock or
        securities, distribution of evidences of indebtedness or assets or any other
        transaction which could be treated as any of the foregoing transactions pursuant
        to Section 305 of the Internal Revenue Code of 1986, as amended (and any
        successor provision), hereafter made by the Company to its shareholders shall
        not be taxable to such shareholders.

       

      10. Lost,
        Stolen, Destroyed or Mutilated Notes.
        In case
        this Note shall be mutilated, lost, stolen or destroyed, the Company shall
        issue
        a new Note of like date, tenor and denomination and deliver the same in exchange
        and substitution for and upon surrender and cancellation of such mutilated
        Note,
        or in lieu of this Note being lost, stolen or destroyed, upon receipt of
        evidence satisfactory to the Company, including an executed affidavit of
        an
        authorized Holder officer, of the loss, theft or destruction of such
        Note.

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

       

      11. Amendment.
        Except
        as otherwise expressly provided herein, the provisions of this Note may be
        amended and the Company may take any action herein prohibited, or omit to
        perform any act herein required to be performed by it, only if the Company
        has
        obtained the prior written consent of Holder.

       

      12. Waiver.
        The failure of the Holder to insist on full compliance with any provision
        of
        this Note in a particular instance shall not result in a waiver or
        relinquishment of any right or obligation herein, and shall not preclude
        the
        Holder from requiring full compliance with any provision of this Note
        thereafter. 

       

      13. Cancellation.
        After
        all principal and accrued interest, and any other Obligations, at any time
        owed
        with respect to this Note has been paid in full or this Note has been converted
        in its entirety in accordance with its terms, this Note shall immediately
        be
        surrendered to the Company for cancellation and shall not be
        reissued.

       

      14. Interpretation.
        For the
        purposes of this Note, all dollar amounts and references to “$” or “Dollar”
        shall be deemed to refer to United States of America dollars. Whenever
        the context of this Note permits, the masculine gender shall include the
        feminine and neuter genders, and any reference to the singular or plural
        shall
        be interchangeable with the other.

       

      15. Place
        of
        Payment.
        Payments of principal and interest are to be paid to Holder by wire transfer
        in
        accordance with the following instructions:

       

      Water
        Science, LLC

      1800
        N.W.
        89th Place

      Miami,
        FL
        33172

      Attention:
        Peter Ullrich

      Email:
        peteru@esmaraldainc.com

      

      or
        to
        such other address or to the attention of such other person as specified
        by
        prior written notice to the Company.

       

      16. Governing
        Law.
        This
        Note shall be governed by and construed in accordance with, the laws of the
        State of Delaware.

       

      17. Notices.
        All
        notices and other communications provided for under this Note shall be in
        writing (including by facsimile) and addressed, delivered or transmitted
        in
        accordance with Section 6.7 of the Subscription Agreement, made and
        entered
        into as of the date hereof, by and among the Company and Holder .

       

      (Remainder
        Of Page Intentionally Left Blank)

       

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      IN
        WITNESS WHEREOF,
        the
        Company has executed and delivered this Note as of the date first set forth
        above.

       

      
        	 	 	 
	 	ELECTRIC
                AQUAGENICS UNLIMITED, INC.
	 
 	 
 	 
 
	 	By:  	/s/ 
	 	
                

                Name:

              
	 	Title:

      

       

      
        
           

        

          13

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