EXHIBIT 10.3
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Security Agreement") is dated as of
_________________ between CHAPEAU, INC. dba BLUEPOINT ENERGY PRODUCTS, INC., a
Utah corporation (the "Debtor") and ____________________ (the "Lender").
R E C I T A L S
WHEREAS, in the Convertible Secured Promissory Note (the "Promissory
Note"), dated as of even date herewith, between Lender and Debtor, Lender has
agreed to provide funds to Debtor to facilitate the next phase of development of
Debtor's products in the stated amount of $__________; this Security Agreement,
the Promissory Note, any additional promissory notes, and all other agreements
and documents in connection therewith and with the Loans shall be referred to as
the "Loan Documents"; and
WHEREAS, the Debtor will benefit from the Lender's extension of the Loan to
Debtor, and desires to grant to Lender the security set forth in this Security
Agreement, as a condition precedent to Lender's extension of the Loan to Debtor;
NOW, THEREFORE, in consideration of the premises and promises contained
herein and in order to induce the Lender to make the Loan, the Debtor hereby
agrees with the Lender as follows:
C O V E N A N T S
1. Grant of Security Interest. The Debtor hereby grants to the Lender, to
secure the payment of all monies due by Debtor to the Lender with respect
to the Loans and the performance of all obligations of Debtor to the Lender
arising under the Loan Documents and the Loans, and under all other
documents and agreements delivered by Debtor to Lender pursuant to the
Promissory Notes, of every kind and description, whether absolute or
contingent, due or to become due, now existing or hereafter incurred,
including amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C.
362(a), (collectively, the "Obligations"), a security interest in all
assets and property of the Debtor, wherever located, including the
following (collectively the "Collateral"):
(a) Equipment. All equipment now owned or hereafter acquired by Debtor,
all machinery, fixtures, vehicles, if any (including motor vehicles
and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing, wherever located.
(b) Inventory. All inventory now owned or hereafter acquired by Debtor,
including, without limitation, all merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished
products, and documents of title representing any of the foregoing.
(c) General Intangibles. All contract rights and general intangibles now
owned or hereafter acquired by Debtor, including, without limitation,
goodwill, leases, license agreements, blueprints, drawings, purchase
orders, customer lists, claims, computer programs, computer discs,
computer tapes, literature, reports, catalogs, design rights, income
tax refunds, payments of insurance and rights to payment of any kind;
(d) Accounts. All now existing and hereafter arising receivables,
accounts, contract rights, royalties, license rights and all other
forms of obligations owing to Debtor arising out of the sale or lease
of goods, the licensing of technology or the rendering of services by
Debtor, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Debtor;
(e) Proprietary Collateral. All now owned or hereafter acquired
Proprietary Collateral of Debtor. "Proprietary Collateral" means all
patents, patent applications, draft patent applications, registered
and unregistered trademarks, registered and unregistered trade names,
registered and unregistered service marks, registered and unregistered
copyrights, registered domain names and other intellectual property,
and all licenses, rights and interests of Debtor related to any of the
foregoing, including: (i) all computer software in which Debtor has an
interest, including the source code thereof (collectively the
"Programs"), including without limitation all trade secrets embodied
in the Programs and all copyrights and patents with respect to the
Programs, in whatever form, whether tangible or intangible, on paper
or electronic; (ii) any databases maintained by the Debtor for use in
connection with the Programs, in whatever form, whether tangible or
intangible, on paper or electronic; (iii) all claims, causes of action
and rights to sue for past, present and future infringement or
unconsented use of any of the foregoing and all rights pertaining
thereto; (iv) all general intangibles, intangible intellectual
property, and other similar property of Debtor of any kind or nature,
whether now owned or hereafter acquired or developed, associated with
or arising out of any of the foregoing; (v) all proceeds of any of the
foregoing, including, without limitation, all license royalties and
proceeds of infringement suits; and (vi) all derivative works,
modifications, additions and substitutions of the foregoing.
(f) Investment Property. All investment property, securities and other
property of any kind of Debtor.
(g) Negotiable Collateral. All of Debtor's letters of credit, advices of
credit, negotiable documents, warehouse receipts, bills of lading,
certificates of title, certificates of deposit, chattel paper,
instruments, notes, documents and documents of title.
(h) Debtor's Books. All of Debtor's Books. "Debtor's Books" means all of
Debtor's books, records, databases and other electronic and computer
records or tape files, including, without limitation, ledgers and
records with respect to Debtor's assets, liabilities, business
operations, financial condition, the Collateral, clients, prospective
clients, employees and prospective employees, and the equipment
containing such information.
(i) Proceeds. All proceeds of the foregoing (including, without
limitation, whatever is receivable or received when Collateral or
proceeds are sold, collected, exchanged or otherwise disposed of,
whether such disposition is voluntary or involuntary, including,
without limitation, rights to payment or performance with respect to
return premiums, insurance proceeds, indemnities, warranties, and
causes of action affecting or relating to the Collateral), and all
claims, rights and interests in any of the above and all substitutions
therefor and additions and accessions thereto.
2. Representations, Warranties and Covenants. Until the Obligations are
indefeasibly paid and performed in full, the Debtor hereby represents and
warrants to and covenants with the Lender that:
(a) Ownership of Collateral. Debtor is the owner of, and has good and
marketable title to, the Collateral, free and clear of all Liens.
"Lien" means any security interest, pledge, bailment, mortgage, deed
of trust, conditional sales and title retention agreement (including
any lease in the nature thereof), charge, encumbrance or other similar
arrangement or interest in real or personal property, whether such
interest is based on common law, statute or contract.
(b) Enforceable Lien. This Agreement creates a valid and enforceable Lien
on the Collateral in favor of Lender, and all filings and other
actions necessary or desirable to protect and perfect such Lien have
been duly taken or will be taken upon the filing of UCC financing
statements, and the filing of collateral assignments with respect
to the Proprietary Collateral with the United States Patent and
Trademark Office ("PTO") and the United States Copyright Office.
(c) Location. Debtor's principal place of business, chief executive office
and Debtor's Books are located at 10 East Gregg St., Reno, NV 89511
("Debtor's Location").
(d) Name. Debtor does not conduct business under any business name, trade
name or style other than the name set forth in the introductory
paragraph hereof. None of the Collateral has been held in the name of
any other person or entity over the past 5 years.
(e) Proprietary Collateral.
(i) Schedule 1 attached hereto lists all of the Debtor's patents, patent
applications, patent disclosure documents, draft patent applications,
registered and unregistered trademarks, registered and unregistered
trade names, registered and unregistered service marks, registered
and unregistered logos, registered and unregistered copyrights and
registered domain names. All Proprietary Collateral is subsisting
and has not been adjudged invalid or unenforceable, in whole or in
part. All maintenance fees required to be paid with respect to the
registration or recordation of, or otherwise on account of, such
Proprietary Collateral have been timely paid.
(ii) With respect to any Proprietary Collateral for which Debtor is either
a licensor or a licensee pursuant to a license or licensing agreement,
each such license or licensing agreement is in full force and effect,
and Debtor is not in default of any of its obligations thereunder.
(iii) To the best knowledge of Debtor, no past, present or contemplated
future use of the Proprietary Collateral by Debtor has, does or will
infringe upon or violate any right, privilege or license agreement of
or with any other person or entity. To the best knowledge of Debtor,
no material infringement or unauthorized use presently is being made
of any of the Proprietary Collateral by any person or entity.
(f) No Untrue Statement. All information set forth herein and in the other
Loan Documents, or hereafter supplied to Lender by or on behalf of
Debtor with respect to the Collateral, contains no untrue statement of
a material fact and does not omit and will not omit to state any
material fact necessary to make any information so supplied, in light
of the circumstances under which they were supplied, not misleading.
(g) Protection of Collateral and Lender's Lien. Debtor agrees to perform
all acts that may be necessary to maintain, preserve, protect and perfect
the Collateral, the Lien granted to Lender therein and the first priority
of Lender's Lien. Debtor's obligations under this Section shall include
the maintenance of all Proprietary Collateral as Debtor's exclusive
property and the protection of Lender's interest therein, including the
maintenance of registrations and applications, and the filing of
renewals, affidavits of use, affidavits of incontestability and
opposition, and interference and cancellation proceedings. Debtor agrees
to appear in and defend any action or proceeding which may affect its
title to, or Lender's interest in, any Collateral that is material to
the business of Debtor, including, without limitation, suits for
infringement of any Proprietary Collateral.
(h) Charges on Collateral. Debtor agrees to pay promptly when due all taxes,
Liens and all other charges now or hereafter imposed upon or affecting
any Collateral. Should the Debtor fail to do so the Lender may, in its
discretion, discharge taxes, charges and other encumbrances at any time
levied or placed on or assessed with respect to the Collateral, make
repairs thereof and pay any necessary filing fees, if the failure to do
so could have a material adverse effect on the business, properties,
assets, operation or condition (financial or otherwise) of the Debtor
and any subsidiaries, taken as a whole. The Debtor agrees to reimburse
the Lender on demand for any and all expenditures so made and until paid
the amount thereof shall be a debt secured by the Collateral. The Lender
shall not have any obligation to the Debtor to make any such expenditures,
nor shall the making thereof relieve the Debtor of any default prior to
reimbursement by the Debtor to the Lender in full of any such
expenditures.
(i) Further Assurances. Debtor agrees to procure, execute and deliver from
time to time any endorsements, assignments, financing statements,
collateral assignments and other writings reasonably deemed necessary or
appropriate by Lender to perfect, maintain and protect its Lien hereunder
and the priority thereof. In furtherance thereof, if Debtor shall obtain
rights to any new Proprietary Collateral (whether pursuant to licenses,
or amendments or supplements to existing Proprietary Collateral, or
otherwise), the provisions of this Security Agreement shall automatically
apply thereto and Debtor shall give to Lender prompt notice thereof.
Debtor shall do all things deemed necessary or advisable by Lender to
ensure the validity, perfection, priority and enforceability of the Lien
of Lender in such future acquired Proprietary Collateral.
(j) Changes in Name or Location. Debtor shall not change its name, its state
of incorporation, the location of the Collateral or the location of
Debtor's principal executive office except upon 30 days' advance written
notice to Lender.
(k) Records of Collateral. Debtor shall keep separate, accurate and complete
records of the Collateral and provide Lender with such records and such
other reports and information relating to the Collateral as Lender may
reasonably request from time to time.
(l) Transfer of Collateral. Debtor agrees not to sell, encumber, lease,
rent, license, abandon, or cause to be rendered invalid or unenforceable,
or otherwise dispose of or transfer any Collateral, or right or interest
therein, except for a de minimis portion thereof, other than to Lender,
or with the prior written consent of Lender.
(m) Notice of Loss. Debtor shall promptly notify Lender in writing of any
material loss, damage or destruction to, infringement of, and the
occurrence of any event that could have a material adverse effect on,
any Collateral or Lender's Lien therein, whether or not covered by
insurance, including, without limitation, any petition under the
Bankruptcy Code filed by or against any licensor of any of the
Proprietary Collateral for which Debtor is a licensee.
3. Certain Remedies. Upon the occurrence and during the continuance of an
event of default hereunder, the Lender may at any time in its discretion
transfer any property constituting Collateral into its own name or that of
its nominee and receive the income thereon and hold the same as security
for Obligations or apply it on principal or interest due on Obligations.
None of the aforementioned rights or remedies shall inure to the benefit of
the Lender at any time when an event of default is not continuing. The
powers conferred on the Lender by this paragraph are solely to protect the
interest of the Lender and shall not impose any duties on the Lender to
exercise any powers.
4. Default: Remedies. Debtor shall be in default under this Security
Agreement upon the occurrence of an Event of Default as defined in the
Purchase Agreement or any other event of default under any Note or any
other Loan Documents, including without limitation any breach of any
representation, warranty or covenant in this Security Agreement.
Thereupon, and as long as such event of default continues, the Lender shall
then have in any jurisdiction where enforcement hereof is sought, to the
fullest extent permitted by law from time to time, in addition to all other
rights and remedies, the rights and remedies of a secured party under the
Uniform Commercial Code of California, including without limitation thereto
the right to take immediate possession of the Collateral, and for this
purpose the Lender may, so far as Debtor can give authority therefor, enter
upon any premises on which the Collateral, or any part thereof, may be
situated and remove the same therefrom. The Debtor will upon demand make
the Collateral available to the Lender at a place and time designated by
the Lender that is reasonably convenient to both parties. The Lender will
give the Debtor at least ten (10) days prior written notice of the time and
place of any public sale of Collateral or of the time after which any
private sale thereof is to be made.
5. Private Sale and Compliance with Law.
(a) Lender shall not incur any liability as a result of the sale of
Collateral, or any part thereof, at any private sale conducted in a
commercially reasonable manner. Debtor hereby waives any claim
against Lender arising by reason of the fact that the price at which
Collateral may have been sold at such a private sale conducted in a
commercially reasonable manner was less than the price which might
have been obtained at a public sale or was less than the aggregate
amount of the Obligations, even if Lender accepts the first offer
received and does not offer Collateral to more than one offeree.
(b) Debtor agrees that in any sale of any of the Collateral whenever an
event of default hereunder shall have occurred and be continuing,
Lender is hereby authorized to comply with any limitation or
restriction in connection with such sale as it may be advised by
counsel is necessary in order to avoid any violation of applicable law
or in order to obtain any required approval of the sale or of the
purchaser by any governmental regulatory authority or official, and
Debtor further agrees that such compliance shall not result in such
sale being considered or deemed not to have been made in a
commercially reasonable manner, nor shall Lender be liable or
accountable to Debtor for any discount allowed by reason of the fact
that such Collateral is sold in compliance with any such limitation or
restriction.
6. Rights with Respect to Proprietary Collateral. Upon the occurrence and
continuance of an event of default, Lender may assert or retain any rights
under any license agreement for any Proprietary Collateral, including any
rights of Debtor arising under Section 365(n) of the Bankruptcy Code; may
execute any and all applications, documents, papers and instruments for
Lender to use any Proprietary Collateral; may grant or issue any exclusive
or non-exclusive license with respect to any Proprietary Collateral; and
may assign, convey or otherwise transfer title in or dispose of any
Proprietary Collateral. Upon the occurrence and continuance of an event of
default, Lender may enforce or protect any Proprietary Collateral, and may
defend, settle, adjust or institute any action, suit or proceeding with
respect to any Proprietary Collateral, in which event Debtor shall, at the
request of Lender, do any and all lawful acts and execute any and all
documents requested by Lender in aid of Lender. To the extent that Lender
shall elect not to bring suit to enforce any Proprietary Collateral, Debtor
shall use all reasonable measures and its diligent efforts, whether by
action, suit, proceeding or otherwise, to prevent the infringement,
misappropriation or violation thereof by others and for that purpose agrees
to diligently maintain any action, suit or proceeding against any person or
entity necessary to prevent such infringement, misappropriation or
violation. In furtherance of Lender's rights hereunder, Debtor hereby
grants to Lender an irrevocable, non-exclusive license (exercisable without
royalty or other payment by Lender) to use, license or sublicense any
Proprietary Collateral in which Debtor now or hereafter has any right,
title or interest together with the right of access to all media in which
any of the foregoing may be recorded or stored.
7. Application of Proceeds. All proceeds received by the Lender in respect of
any sale of, collection from, or other realization upon all or any part of
the Collateral shall be held by the Lender as Collateral for, and promptly
applied in whole by the Lender against, the Obligations in the following
order of priority:
FIRST: To the repayment of the costs and expenses of such sale, collection or
other realization, and all expenses, liabilities and advances made or
incurred by the Lender in connection therewith;
SECOND: After payment in full of the amounts specified in the preceding
subparagraph, to the payment of all Obligations; and
THIRD: After payment in full of the amounts specified in the preceding
subparagraphs, to the payment to or upon the order of the Debtor, or
to whomsoever may be lawfully entitled to receive the same or as a
court of competent jurisdiction may direct, of any surplus then
remaining.
8. Lender Appointed Attorney-in-Fact. The Debtor hereby irrevocably appoints
the Lender as the Debtor's attorney-in-fact, with full authority in the
place and stead of the Debtor and in the name of the Debtor, the Lender or
otherwise, from time to time in the Lender's discretion upon the occurrence
and during the continuation of an event of default hereunder, to take any
action and to execute any instrument which the Lender may deem necessary or
advisable to accomplish the purposes of this Security Agreement, including,
without limitation to file any claims or take any action or institute any
proceedings which the Lender may deem reasonably necessary for the
collection of any of the Collateral or otherwise to enforce the rights of
the Lender with respect to any of the Collateral.
9. Lender's Duties. The powers conferred on the Lender hereunder are solely
to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Lender shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral.
10. Indemnity and Expenses.
(a) The Debtor agrees to defend, indemnify and hold harmless the Lender
from and against any and all claims, losses and liabilities growing
out of or resulting from this Security Agreement (including, without
limitation, enforcement of this Security Agreement), except claims,
losses or liabilities resulting from the Lender's gross negligence or
willful misconduct.
(b) The Debtor will upon demand pay to the Lender the amount of any and
all reasonable expenses, including the reasonable fees and
disbursements of counsel and of any experts and agents, which the
Lender may incur in connection with (i) the administration of this
Security Agreement, (ii) the custody, preservation, use or operation
of, or the sale of, collection from, or other realization upon, any of
the Collateral, (iii) the exercise or enforcement of any of the rights
of the Lender hereunder or (iv) the failure by the Debtor to perform
or observe any of the provisions hereof.
11. Amendments, Etc. No amendment or waiver of any provision of this Security
Agreement nor consent to any departure by the Debtor herefrom shall in any
event be effective unless the same shall be in writing and signed by the
Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. None of
the Debtor's rights or obligations or any interest therein hereunder may be
assigned without the written consent of the Lender.
12. Addresses for Notices. Any notice required or permitted under this
Security Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or
upon delivery by confirmed facsimile transmission, nationally recognized
overnight courier service, or upon deposit with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to
the party to be notified at the address indicated below, or at such other
address as such party may designate by ten (10) days' advance written
notice to the other parties.
If to the Debtor: Chapeau, Inc. dba BluePoint Energy Products, Inc.
10 East Gregg St
Reno, NV 89511
with a copy to: Christensen Law Group PC
2999 Douglas Blvd., Suite 185
Roseville, CA 95661
If to the Lender:
13. Continuing Security Interest. This Agreement shall create a continuing
security interest in the Collateral, and shall (a) remain in full force and
effect until payment and performance in full of the Obligations (or 91 days
after payment and performance in full of the Obligations solely if the
Lender has, in good faith based upon an opinion of Lender's counsel,
reasonable cause to believe that such payment may constitute a voidable
preference under federal bankruptcy law and no reasonable defense to such
preference exists), (b) be binding upon the Debtor, its successors and
assigns and (c) inure to the benefit of the Lender and their successors,
transferees and assigns. Upon the payment in full of the Obligations (or
91 days after payment and performance in full of the Obligations solely if
the Lender has, in good faith based upon an opinion of Lender's counsel,
reasonable cause to believe that such payment will constitute a voidable
preference under federal bankruptcy law and no reasonable defense to such
preference exists), the security interest granted hereby shall terminate
and all rights to the Collateral shall revert to the Debtor. Upon any such
termination, the Lender will, at the Debtor's expense, execute and deliver
to the Debtor such documents as the Debtor shall reasonably request to
evidence such termination.
14. Governing Law: Terms. This Security Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada, without
regard to conflict of laws principles, except to the extent that the
validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Collateral are governed by the laws
of a jurisdiction other than the State of Nevada. Unless otherwise defined
herein, terms defined in the Uniform Commercial Code in effect in the State
of Nevada are used herein as therein defined.
15. Consent to Jurisdiction; Waiver of Jury Trial.
(a) CONSENT TO JURISDICTION. EACH PARTY HERETO IRREVOCABLY AND
UNCONDITIONALLY (I) AGREES THAT ANY SUIT, ACTION OR OTHER LEGAL
PROCEEDING ARISING OUT OF THIS AGREEMENT MAY BE BROUGHT IN THE UNITED
STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF CALIFORNIA OR, IF
SUCH COURT DOES NOT HAVE JURISDICTION OR WILL NOT ACCEPT JURISDICTION,
IN ANY COURT OF GENERAL JURISDICTION IN THE COUNTY OF PLACER,
CALIFORNIA; (II) CONSENTS TO THE JURISDICTION OF ANY SUCH COURT IN ANY
SUCH SUIT, ACTION OR PROCEEDING; AND (III) WAIVES ANY OBJECTION WHICH
SUCH PARTY MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT AMONG OR
PROCEEDING IN ANY SUCH COURT.
(b) SERVICE OF PROCESS. EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF
ANY PROCESS, PLEADING, NOTICES OR OTHER PAPERS BY THE MAILING OF
COPIES THEREOF BY REGISTERED, CERTIFIED OR FIRST CLASS MAIL, POSTAGE
PREPAID, TO SUCH PARTY AT SUCH PARTY'S ADDRESS AS SET FORTH IN THIS
AGREEMENT, OR BY ANY OTHER METHOD PROVIDED OR PERMITTED UNDER NEVADA
LAW.
(c) WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY
IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
(WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).
16. Injunctive Relief. The parties hereto acknowledge and agree that any
party's remedy at law for a breach or threatened breach of any of the
provisions of this Agreement would be inadequate and such breach or
threatened breach shall be per se deemed as causing irreparable harm to
such party. Therefore, in the event of such breach or threatened breach,
the parties hereto agree that, in addition to any available remedy at law,
including but not limited to monetary damages, an aggrieved party, without
posting any bond, shall be entitled to seek equitable relief in the form of
specific enforcement, temporary restraining order, temporary or permanent
injunction, or any other equitable remedy that may then be available to the
aggrieved party.
17. Counterparts. This Agreement may be signed in counterparts, with the same
effect as if the signatures were on the same instrument.
18. Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (a)
such provision shall be excluded from this Agreement, (b) the balance of
the Agreement shall be interpreted as if such provision were so excluded
and (c) the balance of the Agreement shall be enforceable in accordance
with its terms.
IN WITNESS WHEREOF, the Debtor and the Lender have executed this Security
Agreement as of the date first above written.
CHAPEAU, INC. (LENDER)
By:___________________________ _____________________________
Printed Name: Guy A. Archbold
_______________ _____________________________
Title: CEO
SCHEDULE 1
Proprietary Collateral