THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES LAWS. THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS
TO THIS NOTE UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO ESSENTIAL INNOVATIONS TECHNOLOGY
CORP. THAT SUCH REGISTRATION IS NOT REQUIRED.
SECURED REVOLVING NOTE
FOR VALUE RECEIVED, ESSENTIAL INNOVATIONS TECHNOLOGY CORP., a Nevada
corporation (the "Company" or "Parent"), promises to pay to LAURUS MASTER FUND,
LTD., c/o M&C Corporate Services Limited, P.O. Box 309 GT, ▇▇▇▇▇▇ House, South
Church Street, ▇▇▇▇▇▇ Town, Grand Cayman, Cayman Islands, Fax: ▇▇▇-▇▇▇-▇▇▇▇ (the
"Holder") or its registered assigns or successors in interest, the sum of up to
Four Million Dollars (US$4,000,000), without duplication of any amounts owing by
the Company to the Holder under the Note (as defined in the Security and
Purchase Agreement referred to below), or, if different, the aggregate principal
amount of all Loans (as defined in the Security and Purchase Agreement referred
to below), together with any accrued and unpaid interest hereon, on March 2,
2009 (the "Maturity Date") if not sooner paid in full.
Capitalized terms used herein without definition shall have the
meanings ascribed to such terms in the Security and Purchase Agreement among the
Company and the Eligible Subsidiaries (as described therein) and the Holder
dated as of the date hereof (as amended, modified and/or supplemented from time
to time, the "Security and Purchase Agreement").
ARTICLE I
CONTRACT RATE AND THE NOTE
1.1 Availability. The Company hereby acknowledges and agrees that the Loans
contemplated in the Security and Purchase Agreement shall not be made
available by the Holder to the Company until all conditions precedent
in Section 3.1 have been met to the satisfaction of the Holder in its
sole discretion.
1.2 Contract Rate. Subject to Sections 3.2 and 4.9, interest payable on the
outstanding principal amount of this Note (the "Principal Amount")
shall accrue at a rate per annum equal to the "prime rate" published in
The Wall Street Journal from time to time (the "Prime Rate"), plus two
percent (2.0%) (the "Contract Rate"). The Contract Rate shall be
increased or decreased as the case may be for each increase or decrease
in the Prime Rate in an amount equal to such increase or decrease in
the Prime Rate; each change to be effective as of the day of the change
in the Prime Rate. Subject to Section 1.2, the Contract Rate shall not
at any time be less than eight percent (8.0%). Interest shall (i)
accrue as of the First Advance Date (as defined below), (ii) be
calculated on the basis of a 360 day year, and (iii) be payable
monthly, in arrears, commencing one (1) calendar month from the Second
Advance Date (as defined below) on the first business day of each
consecutive calendar month thereafter through and including the
Maturity Date, and on the Maturity Date, whether by acceleration or
otherwise.
1.3 Contract Rate Adjustments and Payments. The Contract Rate shall be
calculated on the last business day of each calendar month hereafter
(other than for increases or decreases in the Prime Rate which shall be
calculated and become effective in accordance with the terms of Section
1.1) until the Maturity Date.
SECURED REVOLVING NOTE
-2-
1.4 Taxes.
(a) Any and all payments by the Company hereunder, including any
amounts received on redemption of the Note and any amounts on
account of interest or deemed interest, shall be made free and
clear of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or
withholdings, and all liabilities with respect thereto,
excluding taxes imposed on net income or franchise taxes of
the Holder by the jurisdiction in which such person is
organized or has its principal office (all such non-excluded
taxes, levies, imposts, deductions, charges withholdings and
liabilities, collectively or individually, "Taxes"). If the
Company shall be required to deduct any Taxes from or in
respect of any sum payable hereunder to the Holder, (i) the
sum payable shall be increased by the amount (an "additional
amount") necessary so that after making all required
deductions (including deductions applicable to additional sums
payable under this Section 1.4) the Holder shall receive an
amount equal to the sum it would have received had no such
deductions been made, (ii) the Company shall make such
deductions and (iii) the Company shall pay the full amount
deducted to the relevant governmental authority in accordance
with applicable law.
(b) In addition, Company agrees to pay to the relevant
governmental authority in accordance with applicable law any
present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies that arise
from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to,
this Note ("Other Taxes"). The Company shall deliver to the
Holder official receipts, if any, in respect of any Taxes or
Other Taxes payable hereunder promptly after payment of such
Taxes or Other Taxes or other evidence of payment reasonably
acceptable to the Holder.
(c) The obligations of the Company under this Section 1.4 shall
survive the termination of this Note and the payment of the
Note and all other amounts payable hereunder.
ARTICLE II
OPTIONAL PREPAYMENT
2.1 Optional Redemption in Cash. The Company will have the option of
prepaying this Note ("Optional Redemption") by paying to the Holder the
Prepayment Premium (as hereinafter defined) together with accrued but
unpaid interest thereon to the Redemption Payment Date (as hereinafter
defined) and any and all other unpaid amounts then due, accrued,
payable or owing to the Holder under this Note, the Security and
Purchase Agreement or any Ancillary Agreement (the "Redemption
Amount"). The "Prepayment Premium" for the period commencing on the
date hereof up to and including the Maturity Date, shall be equal to
one hundred and thirty percent (130%) of the Principal Amount. The
Company shall deliver to the Holder a written notice of redemption (the
"Notice of Redemption") specifying the date for such Optional
Redemption (the "Redemption Payment Date"), which date shall be ten
(10) business days after the date of the Notice of Redemption (the
"Redemption Period"). On the Redemption Payment Date, the Redemption
Amount must be paid in good funds to the Holder. In the event the
Company fails to pay the Redemption Amount on the Redemption Payment
Date as set forth herein, then such Redemption Notice will be null and
void.
2.2 Maturity; Surrender, Etc. In the case of a repayment of this Note
pursuant to this Article II, the Principal Amount of this Note to be
repaid shall mature and become due and payable on the applicable
Redemption Payment Date together with interest on such Principal Amount
accrued to such date and any other amount due and payable under this
Note, the Purchase Agreement or any Ancillary Agreement to the extent
that such amounts are outstanding as of the applicable Redemption
SECURED REVOLVING NOTE
-3-
Payment Date. From and after such date, unless the Company shall fail
to pay such Principal Amount when so due and payable together with the
interest and other amounts as aforesaid, interest on such Principal
Amount shall cease to accrue. The Holder shall make the appropriate
reduction to the Principal Amount, accrued interest and other amounts
due, accrued, payable or owing as entered in its records and shall
provide written notice thereof to the Company within one (1) Business
Day of the applicable Payment Date. If this Note is paid in full, it
shall be surrendered to the Company and cancelled and shall not be
reissued and no note shall be issued in lieu of any paid Principal
Amount of this Note.
ARTICLE III
CONDITIONS PRECEDENT
3.1 Conditions Precedent. The following conditions precedent shall be
satisfied by the Company prior to the date upon which the Loan shall be
advanced by the Holder to the Company (the "Second Advance Date"):
(a) The Company shall obtain the Holder's prior consent to the
advance of the Loan;
(b) The Company shall obtain the Holder's prior consent to the
First Acquisition (as defined below)
(c) The Holder shall have received in form and substance
satisfactory to the Holder, confirmation that the Company has
completed the acquisition of Pacific Geo Exchange Inc.
("Pacific") and the indirect acquisition of its wholly-owned
subsidiary Earth Source Energy Inc. ("Earth Source")
(together, the "First Acquisition", and such date of
completion of the First Acquisition herein referred to as the
"First Acquisition Closing Date");
(d) The Company shall obtain the Holder's prior consent to the
Second Acquisition (as defined below);
(e) The Holder shall have received in form and substance
satisfactory to the Holder, confirmation that the Company has
completed the acquisition of Geotech Drilling Services Ltd.
("Geotech BC") and the indirect acquisition of its
wholly-owned subsidiary Geotech Drilling Alberta Ltd.
("Geotech AB") (together, the "Second Acquisition", and such
date of completion of the Second Acquisition herein referred
to as the "Second Acquisition Closing Date");
(f) The Holder shall have received in form and substance
satisfactory to the Holder, confirmation that the Holder has a
first priority security interest over all of the personal
property and assets of the Company, Essential Innovations
Corp. ("Essential"), Pacific, Earth Source, Geotech BC and
Geotech AB in respect of which the Holder shall take a
security interest pursuant to the Master Security Agreement in
favour of the Holder dated as of the date hereof granted by
the Company and Essential (the "Master Security Agreement")
and supplemented by the Joinder and Confirmation of Security
Agreement granted by Pacific and Earth Source dated as of the
date (the "First Advance Date") upon which the Holder advances
the loan to the Company pursuant to the Secured Term Note (the
"First Joinder and Confirmation of Security Agreement"), and
the Joinder and Confirmation of Security Agreement granted by
Geotech BC and Geotech AB dated as of the Second Advance Date
(the "Second Joinder and Confirmation of Security Agreement");
SECURED REVOLVING NOTE
-4-
(g) All Ancillary Agreements (as such term is defined in the
Security and Purchase Agreement) shall have been executed and
delivered by the Company and Essential to the Holder dated as
of the date hereof, and executed and delivered by Pacific and
Earth Source dated as of the First Advance Date;
(h) The First Joinder and Confirmation of Security Agreement shall
have been executed and delivered by Pacific and Earth Source
to the Holder whereby Pacific and Earth Source are added as
parties to the Ancillary Agreements including, without
limitation, (i) the Subsidiary Guaranty (ii) the Security and
Purchase Agreement, (iii) the Master Security Agreement, and
(iv) the Share Pledge Agreement;
(i) The Second Joinder and Confirmation of Security Agreement
shall have been executed and delivered by Geotech BC and
Geotech BC to the Holder whereby Geotech BC and Geotech AB are
added as parties to the Ancillary Agreements including,
without limitation, (i) the Subsidiary Guaranty (ii) the
Security and Purchase Agreement, (iii) the Master Security
Agreement, and (iv) the Share Pledge Agreement;
(j) The Holder shall have received in form and substance
satisfactory to the Holder, confirmation that there has been
no Material Adverse Effect (as defined in the Security and
Purchase Agreement) in respect of the Company, Essential,
Pacific, Earth Source, Geotech BC, and Geotech AB as of March
2, 2006; and
(k) The Holder shall have received in form and substance
satisfactory to the Holder, confirmation that any other
conditions of advance set forth in the Security and Purchase
Agreement have been satisfied by the Company, Essential,
Pacific, Earth Source, Geotech BC and Geotech AB,
and upon delivery or confirmation thereof, as the case may be, the Holder shall
make the Loan available to the Company and shall instruct the Escrow Agent to
advance the Loan.
ARTICLE IV
EVENTS OF DEFAULT AND DEFAULT RELATED PROVISIONS
4.1 Events of Default. The occurrence of an Event of Default under the
Security and Purchase Agreement shall constitute an event of default
("Event of Default") hereunder.
4.2 Default Interest. Following the occurrence and during the continuance
of an Event of Default, the Company shall, jointly and severally, pay
additional interest on the outstanding principal balance of this Note
in an amount equal to two percent (2%) per month, and all outstanding
Obligations, including unpaid interest, shall continue to accrue
interest at such additional interest rate from the date of such Event
of Default until the date such Event of Default is cured or waived.
4.3 Default Payment. Following the occurrence and during the continuance of
an Event of Default, the Holder, at its option, may elect, acting
reasonably and in good faith, in addition to all rights and remedies of
the Holder under the Security and Purchase Agreement and the other
Ancillary Agreements and all obligations and liabilities of the Company
under the Security and Purchase Agreement and the other Ancillary
Agreements, to require the Company to make a Default Payment ("Default
Payment"). The Default Payment shall be one hundred thirty percent
(130%) of the outstanding principal amount of the Note, plus accrued
but unpaid interest, all other fees then remaining unpaid, and all
other amounts payable hereunder. The Default Payment shall be applied
first to any fees due and payable to the Holder pursuant to the Notes,
the Security and Purchase Agreement and/or the Ancillary Agreements,
SECURED REVOLVING NOTE
-5-
then to accrued and unpaid interest due on the Notes and then to the
outstanding principal balance of the Notes. The Default Payment shall
be due and payable immediately on the date that the Holder has
exercised its rights pursuant to this Section 4.3.
ARTICLE V
MISCELLANEOUS
5.1 Cumulative Remedies. The remedies under this Note shall be cumulative.
5.2 Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
All rights and remedies existing hereunder are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
5.3 Notices. Any notice herein required or permitted to be given shall be
in writing and shall be deemed effective given (a) upon personal
delivery to the party notified, (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient, if
not, then on the next business day, (c) five days after having been
sent by registered or certified mail, return receipt requested, postage
prepaid, or (d) one 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
Company at the address provided for the Company in the Security and
Purchase Agreement executed in connection herewith, and to the Holder
at the address provided in the Security and Purchase Agreement for the
Holder, with a copy to ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ number (▇▇▇) ▇▇▇-▇▇▇▇, or at
such other address as the Company or the Holder may designate by ten
days advance written notice to the other parties hereto.
5.4 Amendment Provision. The term "Note" and all references thereto, as
used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so
amended or supplemented, and any successor instrument as such successor
instrument may be amended or supplemented.
5.5 Assignability. This Note shall be binding upon the Company and its
successors and assigns, and shall inure to the benefit of the Holder
and its successors and assigns, and may be assigned by the Holder in
accordance with the requirements of the Security and Purchase
Agreement. The Company may not assign any of its obligations under this
Note without the prior written consent of the Holder, any such
purported assignment without such consent being null and void.
5.6 Cost of Collection. In case of any Event of Default under this Note,
the Company shall pay the Holder the Holder's reasonable costs of
collection, including reasonable attorneys' fees.
5.7 Governing Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
(b) THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW
YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY, ON THE ONE HAND,
AND THE HOLDER, ON THE OTHER HAND, PERTAINING TO THIS NOTE,
THE SECURITY AND PURCHASE AGREEMENT OR ANY OF THE OTHER
SECURED REVOLVING NOTE
-6-
ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS NOTE, THE SECURITY AND PURCHASE AGREEMENT OR
ANY OF THE OTHER ANCILLARY AGREEMENTS PROVIDED, THAT THE
COMPANY ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY
HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF
NEW YORK, STATE OF NEW YORK; AND FURTHER PROVIDED, THAT
NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE
THE HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN
ANY OTHER JURISDICTION TO COLLECT THE OBLIGATIONS, TO REALIZE
ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS,
OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
HOLDER. THE COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND THE COMPANY HEREBY WAIVES ANY OBJECTION WHICH
IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE OR FORUM NON CONVENIENS. THE COMPANY HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF
SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT THE
ADDRESS SET FORTH IN THE SECURITY AND PURCHASE AGREEMENT AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF THE COMPANY'S ACTUAL RECEIPT THEREOF OR TEN (10)
DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID
(c) THE COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE
APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST
COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE COMPANY HERETO WAIVES ALL RIGHTS TO TRIAL BY
JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE
BETWEEN THE HOLDER, AND/OR THE COMPANY ARISING OUT OF,
CONNECTED WITH, RELATED OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE, THE
SECURITY AND PURCHASE AGREEMENT, ANY OTHER ANCILLARY AGREEMENT
OR THE TRANSACTIONS RELATED HERETO OR THERETO.
5.8 Severability. In the event that any provision of this Note is invalid
or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or
enforceability of any other provision of this Note.
5.9 Maximum Payments. Nothing contained herein shall be deemed to establish
or require the payment of a rate of interest or other charges in excess
of the maximum permitted by applicable law. In the event that the rate
of interest required to be paid or other charges hereunder exceed the
maximum rate permitted by such law, any payments in excess of such
maximum rate shall be credited against amounts owed by the Company to
the Holder and thus refunded to the Company.
SECURED REVOLVING NOTE
-7-
5.10 Security Interest and Guarantee. The Holder has been granted a security
interest (i) in all assets of the Company as more fully described in
the Security and Purchase Agreement (ii) in all assets of the Company
and its Subsidiaries pursuant to the Master Security Agreement dated as
of the date hereof and (iii) in certain assets of the Company and its
Subsidiaries pursuant to the Share Pledge Agreement dated as of the
date hereof. The obligations of the Company under this Note are
guaranteed by certain Subsidiaries of the Company pursuant to the
Subsidiary Guaranty dated as of the date hereof.
5.11 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be applied in the interpretation
of this Note to favor any party against the other.
IN WITNESS WHEREOF, the Company has caused this Secured Revolving Note to be
signed in its name effective as of this 2nd day of March, 2006.
ESSENTIAL INNOVATIONS TECHNOLOGY CORP.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: President/CEO
