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Exhibit 10.1

 

 
TURNKEY PROJECT ACQUISITION, LOAN
 
AND
 
SECURITY AGREEMENT
 
between
 
CHAPEAU, INC.
 
and
 
TEFCO, LLC
 

 
Dated as of March 20, 2008
 

 
 

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TABLE OF CONTENTS
 

       
Page
         
ARTICLE I
 
DEFINITIONS
 
2
Section 1.1
 
Certain Definitions
 
2
Section 1.2
 
Terms Defined in Other Sections
 
2
Section 1.3
 
Other Definitional Provisions
 
12
         
ARTICLE II
 
THE CLOSING
 
12
Section 2.1
 
Closing
 
12
Section 2.2
 
Deliveries at the Closing
 
12
Section 2.3
 
Option to Acquire Future Turnkey Projects
 
13
Section 2.4
 
The Loan
 
15
         
ARTICLE III
 
REPRESENTATIONS AND WARRANTIES OF INVESTOR GROUP
 
15
Section 3.1
 
Due Organization; Good Standing and Power
 
15
Section 3.2
 
Authorization; Noncontravention
 
15
Section 3.3
 
No Litigation or Regulatory Action
 
16
Section 3.4
 
Financing
 
16
Section 3.5
 
Prior Activities
 
16
Section 3.6
 
Brokers
 
16
Section 3.7
 
Securities Law Matters
 
17
         
ARTICLE IV
 
REPRESENTATIONS AND WARRANTIES OF CHAPEAU
 
17
Section 4.1
 
Due Organization; Good Standing and Power
 
17
Section 4.2
 
Authorization; Noncontravention
 
18
Section 4.3
 
Capitalization
 
18
Section 4.4
 
Authorization of Securities
 
18
Section 4.5
 
Financial Statements
 
19
Section 4.6
 
No Undisclosed Liabilities
 
19
Section 4.7
 
Governmental Approvals
 
19
Section 4.8
 
Title to Assets; Absence of Liens
 
19
Section 4.9
 
Compliance with laws
 
20
Section 4.10
 
Product Warranty; Product Liability
 
20

 
 
 
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TABLE OF CONTENTS
(continued)
 
Section 4.11
 
Brokers
 
20
Section 4.12
 
Full Disclosure
 
20
Section 4.13
 
Location of Collateral; and Books and Records
 
21
Section 4.14
 
Accounts
 
21
Section 4.15
 
Tax Matters
 
21
Section 4.16
 
Employee Benefits
 
22
Section 4.17
 
Absence of Certain Changes
 
22
Section 4.18
 
Contracts; No Defaults
 
23
Section 4.19
 
Insurance
 
24
Section 4.20
 
Environmental Compliance
 
24
Section 4.21
 
Intellectual Property
 
24
         
ARTICLE V
 
COLLATERAL
 
25
Section 5.1
 
Security Interest
 
25
Section 5.2
 
Perfection and Protection of the Company’s Security Interest
 
25
Section 5.3
 
First Priority
 
25
Section 5.4
 
Collateral Proceeds Management
 
25
         
ARTICLE VI
 
CONDITIONS
 
27
Section 6.1
 
Conditions Precedent to the Initial Acquisition and the Loan
 
27
Section 6.2
 
Conditions Precedent to All Future Acquisitions
 
29
Section 6.3
 
Conditions Precendent to Chapeau’s Obligations
 
29
         
ARTICLE VII
 
COVENANTS
 
30
Section 7.1
 
Existence and Good Standing
 
30
Section 7.2
 
Fundemental Changes
 
30
Section 7.3
 
Compliance with Laws
 
30
Section 7.4
 
Books and Records
 
30
Section 7.5
 
Financial Reporting
 
31
Section 7.6
 
Notification to Company
 
32
Section 7.7
 
Collateral Locations
 
32

 
 
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TABLE OF CONTENTS
(continued)
 
Section 7.8
 
Use of Proceeds
 
32
Section 7.9
 
Business
 
33
Section 7.10
 
Liens
 
33
Section 7.11
 
Accounts
 
33
Section 7.12
 
Inventory
 
33
Section 7.13
 
Equipment
 
33
Section 7.14
 
Insurance
 
33
Section 7.15
 
Disposition of Property
 
33
Section 7.16
 
Sale and Leasback
 
33
Section 7.17
 
Distributions
 
34
Section 7.18
 
Restricted Investments
 
34
Section 7.19
 
Guarantees
 
34
Section 7.20
 
Indebtedness
 
34
Section 7.21
 
Transactions with Affiliates
 
34
Section 7.22
 
New Subsidiaries
 
34
Section 7.23
 
Financial Covenants
 
34
Section 7.24
 
Subordinated Indebtedness
 
34
Section 7.25
 
Future Assurances
 
34
         
ARTICLE VIII
 
EVENTS OF DEFAULT
 
35
Section 8.1
 
Events of Default
 
35
         
ARTICLE IX
 
REMEDIES
 
36
Section 9.1
 
Obligations
 
36
Section 9.2
 
Collateral
 
37
Section 9.3
 
Injunctive Relief
 
37
Section 9.4
 
Setoff
 
38
         
ARTICLE X
 
INDEMNIFICATION
 
38
Section 10.1
 
Survival
 
38
Section 10.2
 
Indemnification
 
38
Section 10.3
 
Indemnification Procedures
 
39

 
 
 
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TABLE OF CONTENTS
(continued)
 
 
Section 10.4
 
Calculation of Losses; Tax Treatment of Payments
 
40
         
ARTICLE VIII
 
MISCELLANEOUS
 
40
Section 11.1
 
Notices
 
40
Section 11.2
 
Reserved
 
41
Section 11.3
 
Amendments; Waiver
 
41
Section 11.4
 
Assignment
 
41
Section 11.5
 
Binding Effect
 
42
Section 11.6
 
Entire Agreement
 
42
Section 11.7
 
No Third-Party Beneficiaries
 
42
Section 11.8
 
Specific Performance
 
42
Section 11.9
 
Severability
 
42
Section 11.10
 
Governing Law; Jurisdiction
 
43
Section 11.11
 
Arbitration
 
43
Section 11.12
 
Counterparts
 
43
Section 11.13
 
No Presumption
 
43

 
 
 
 
 
 
 
 
 
 
 
 

 
 
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TURNKEY PROJECT ACQUISITION, LOAN AND SECURITY AGREEMENT
 
This Turnkey Project Acquisition, Loan and Security Agreement (this “Agreement”)
is entered into as of this 20th day of March, 2008, by and among Chapeau, Inc.,
a Utah corporation (“Chapeau”), and TEFCO, LLC, a Virginia limited liability
company (the “Company”).
 
RECITALS
 
A. Chapeau and the Company entered into a Joint Venture Agreement dated as of
December 14, 2007 (the “Joint Venture Agreement”), pursuant to which the parties
agreed that the Company would acquire from Chapeau various turnkey projects in
combined heat and power and combined cooling heat and power applications
incorporating Chapeau’s EnviroGen™ energy modules or similar products and
related rights (collectively, the “Turnkey Projects”).
 
B. In connection with each Turnkey Project, (i) the Company will enter into a
discount energy service or purchase agreement (a “DES Agreement”) with each
Turnkey Project customer (each a “Customer”) for the tolling of energy by each
such Turnkey Project for the benefit of such Customer, and (ii) the Company and
Chapeau will enter into a Service and Maintenance Agreement (a “S&M Agreement”)
to provide essential services in respect of such Turnkey Project.  The Company
wishes to acquire Turnkey Projects identified by Chapeau in the future (“Future
Turnkey Projects”) pursuant to agreements having terms mutually agreeable to the
Company and Chapeau in their reasonable discretion.
 
C. The Company wishes to purchase from Chapeau each Turnkey Project in operation
on the date of this Agreement (collectively, the “Existing Turnkey Projects”),
on the terms and subject to the conditions set forth below, and Chapeau wishes
to sell the Existing Turnkey Projects on such terms and subject to such
conditions.
 
D. Chapeau has entered into a DES Agreement with each Customer of each Existing
Turnkey Project (the “Existing DES Agreements”). Chapeau wishes to assign the
Existing DES Agreements to the Company on the terms and conditions set forth
below, and the Company wishes to accept and assume the Existing DES Agreements
on such terms and conditions. In that regard and in connection with the
assignment and assumption of the Existing DES Agreements, Chapeau agrees to
service, operate and maintain each such Turnkey Project, pursuant to the
continuing service obligation of Chapeau set forth below (the “Continuing
Service Obligation”).
 
E. Additionally, the Company has agreed to loan $10 million to Chapeau for
general working capital purposes on the terms and subject to the conditions set
forth below (the “Loan”), which Loan will be secured by a first priority
security interest on all of the assets and properties of Chapeau.
 
F. In consideration for the transactions contemplated hereby (collectively, the
“Transactions”), Chapeau wishes to grant to the Company an option to acquire
Future Turnkey Projects (the “Future Turnkey Project Option”), such option to be
on the terms and subject to the conditions set forth below, and the Company
wishes to accept the Future Turnkey Project Option on such terms and conditions,
provided, that the Company has made it a condition precedent to its entry into
the Transactions that the right of first refusal granted to Gordon V. Smith in
Section 10 of those certain Secured Promissory Notes, dated September 11, 2007,
in the principal amounts of $3,400,000 and $2,700,000, respectively, be
terminated.
 

 

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G.  Chapeau and the Company wish to amend and restate the Joint Venture
Agreement in its entirety. Each of the Board of Directors of Chapeau and the
Board of Managers of the Company has determined that the transactions
contemplated by the Joint Venture Agreement, as amended and restated pursuant to
the terms hereof, are in the best interests of its shareholders and members, as
the case may be.
 
H.  In connection with the transactions contemplated by the Joint Venture
Agreement, the Company was entitled to the payment of a facilities fee (the
"Fee") and to receive the Option and the Warrant. The Fee is due and payable, if
at all, and the Option and Warrant issuable, on completion by the Company of the
funding of the Note. Pursuant to the terms of this Agreement, the parties
acknowledge and agree that, on the Initial Closing Date, such transactions will
be consummated and the Fee will then be due, and the Option and Warrant
issuable, to the Company.

 
AGREEMENT
 
NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
 
ARTICLE I
 
DEFINITIONS
 
Section 1.1       Certain Definitions.  For purposes of this Agreement, the
following terms shall have the following meanings.
 
Section 1.2       Terms Defined in Other Sections.
 
 “Account” means any “account,” as such term is defined in Article 9 of the UCC,
now owned or hereafter acquired by Chapeau, or in which Chapeau now holds or
hereafter acquires any interest and, in any event, shall include, without
limitation, all accounts receivable, book debts and other forms of obligations
(other than forms of obligations evidenced by Chattel Paper, Documents or
Instruments) now owned or hereafter received or acquired by or belonging or
owing to Chapeau (including, without limitation, under any trade name, style or
division thereof) whether arising out of goods sold or services rendered by
Chapeau or from any other transaction, whether or not the same involves the sale
of goods or any other transaction, whether or not the same involves the sale of
goods or services by Chapeau (including, without limitation, any such obligation
which may be characterized as an account or contract right under the UCC) and
all of Chapeau’s rights in, to and under all purchase orders or receipts now
owned or hereafter acquired by it for goods or services, and all of Chapeau’s
rights to any goods represented by any of the foregoing (including, without
limitation, unpaid seller’s rights of rescission, replevin, reclamation and
stoppage in transit and rights to returned, reclaimed or repossessed goods), and
all monies due or to become due to Chapeau under all purchase orders and
contracts for the sale of goods or the performance of services or both by
Chapeau (whether or not yet earned by performance on the part of Chapeau or in
connection with any other transaction), now in existence or hereafter occurring,
including, without limitation, the right to receive the proceeds of said
purchase orders and contracts, and all collateral security and guarantees of any
kind given by any Person with respect to any of the foregoing.

 
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“Account Debtor” means any “account debtor,” as such term is defined in Article
9 of the UCC.

“Action” means any action, litigation, claim, suit, mediation, arbitration,
inquiry, government or other investigation or proceeding of any nature, whether
criminal, civil, legislative, administrative, regulatory, prosecutorial or
otherwise, by or before any mediator, arbitrator or Governmental Body or similar
Person.
 
“Affiliate” means, as to any Person, any other Person (i) that, directly or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with, such Person; (ii) who is a director or officer (A) of
such Person, (B) of any subsidiary of such Person or (C) of any Person described
in the foregoing clause (i) with respect to such Person; or (iii) which,
directly or indirectly through one or more intermediaries, is the beneficial or
record owner (as defined in Rule 13d-3 of the Securities Exchange Act of 1934,
as amended, as the same is in effect on the date hereof) of ten percent or more
of any class of the outstanding voting stock, securities or other equity or
ownership interests of such Person, or of any option, warrant or other right to
acquire such equity or ownership interest.  For purposes of this definition, the
term “control” (and the correlative terms, “controlled by” and “under common
control with”) shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies, whether through
ownership of securities or other interests, by contract or otherwise.  For
purposes hereof, “Affiliate” includes any subsidiary.

“Bankruptcy Code” means Title 11 of the U.S. Code.
 
“Business” means the installation of self-contained electrical generators in
combined heat and power and combined cooling heat and power applications
incorporating Chapeau’s EnviroGen™ Energy Modules or similar products and
related rights on a turnkey basis and the servicing and support of such
projects.
 
“Business Day” means a day on which national banks are open for business in Los
Angeles, California.
 
“Change in Control” means a merger, business combination, reorganization,
recapitalization or other transactions, which results in the stockholders of
Chapeau who own at least 50% of its shares of Common Stock then outstanding
immediately prior to such transaction owning less than 50% of the surviving
entity’s voting control immediately after the transaction, or a sale, transfer
or other disposition in any transaction or series of transaction of all or
substantially all of the assets of Chapeau.

 

 
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“Chattel Paper” means any “chattel paper,” as such term is defined in Article 9
of the UCC, now owned or hereafter acquired by Chapeau or in which Chapeau now
holds or hereafter acquires any interest.

“Collateral” shall have the meaning assigned to such term in Article V of this
Agreement.

“Commercial Tort Claim” has the meaning prescribed for such term as defined by
the UCC, which definition is incorporated herein by reference, and includes,
without limitation, a claim arising in tort with respect to which (a) the
claimant is an organization or (b) the claimant is an individual and the claim
(i) arose in the course of the claimant’s business or profession and (ii) does
not include damages arising out of personal injury to or the death of an
individual.
 
“Commission” means the United States Securities and Exchange Commission.

“Commissioning” means the process of enabling an installed Turnkey Project for
commercial operation, which process is (i) performed in accordance with
Chapeau’s then current standard Commissioning procedures and (ii) evidenced by
the commencement of Services (as such term is defined in a DES Agreement)
pursuant to a DES Agreement.

“Common Stock” means the common stock, par value $0.001 per share, of Chapeau.

“Contracts” means all contracts, undertakings, franchise agreements or other
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Chapeau may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.

“Copyrights” means all of the following now owned or hereafter acquired by
Chapeau or in which Chapeau now holds or hereafter acquires any interest: (i)
all copyrights, whether registered or unregistered, held pursuant to the laws of
the United States, any state thereof or of any other country; (ii)
registrations, applications and recordings in the United States Copyright Office
or in any similar office or agency of the United States, any state thereof or
any other country; (iii) any continuations, renewals or extensions thereof; and
(iv) any registrations to be issued in any pending applications.

“Copyright License” means any written agreement granting any right to use any
Copyright or Copyright registration now owned or hereafter acquired by Chapeau
or in which Chapeau now holds or hereafter acquires any interest.

“Deposit Account” has the meaning prescribed for such term as defined by the
UCC, which definition is incorporated herein by reference, and includes, without
limitation, a nonnegotiable certificate of deposit or a demand, time, savings,
passbook, or similar account maintained with a bank.

 
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“Distribution” means, with respect to a Person, any dividend or other
distribution in respect of its Equity Interests or any payment on account of the
purchase, redemption or other acquisition or retirement of its Equity Interests.

“Documents” means any “documents,” as such term is defined in Article 9 of the
UCC, now owned or hereafter acquired by Chapeau or in which Chapeau now holds or
hereafter acquires any interest.

“Equipment” means any “equipment,” as such term is defined in Article 9 of the
UCC, now owned or hereafter acquired by Chapeau or in which Chapeau now holds or
hereafter acquires any interest, other than any leasehold interest, and any and
all additions, substitutions and replacements of any of the foregoing, wherever
located, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto.

“Equity Interests” means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other rights entitling the holder thereof to purchase or acquire any such
interest.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
 
“Environment” means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air) and any other environmental medium.

“Environmental, Health and Safety Liabilities” means any obligations or
liabilities (including any proceeding or other assertions of obligations or
liabilities) that are (i) related to environmental, health or safety issues
(including on-site or off-site contamination by Hazardous Substances of surface
or subsurface soil or water); or (ii) based upon or related to (A) any
Environmental Law or (B) any Order imposed by any Governmental Authority with
respect to any Environmental Law.
 
“Environmental Law” means any Law that addresses or is otherwise related to
environmental, human health or safety issues, including any Law relating to (i)
the protection, preservation or remediation of the Environment, (ii) any
emissions, Releases or discharges of Hazardous Substances into the Environment
or (iii) the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, handling, clean-up or control of Hazardous Substances.

“Fixtures” means any “fixtures,” as such term is defined in Article 9 of the
UCC, now owned or hereafter acquired by Chapeau or in which Chapeau now holds or
hereafter acquires any interest and, now or hereafter attached or affixed to or
constituting a part of, or located in or upon, real property wherever located,
together with all right, title and interest of Chapeau in and to all extensions,
improvements, betterments, renewals, substitutes, and replacements of, and all
additions and appurtenances to any of the foregoing property, and all
conversions of the security constituted thereby, immediately upon any
acquisition or release thereof or any such conversion, as the case may be.

 
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“GAAP” means generally accepted accounting principles, as in effect in the
United States, applied on a consistent basis during the periods involved and
consistent with past practices.

“General Intangibles” means any “general intangibles,” as such term is defined
in Article 9 of the UCC, now owned or hereafter acquired by Chapeau or in which
Chapeau now holds or hereafter acquires any interest and, in any event, shall
include, without limitation, all right, title and interest which Chapeau may now
or hereafter have in or under any Contract, all customer lists, interests in
partnerships, joint ventures and other business associations, permits, goodwill
(other than the goodwill associated with any Trademark, Trademark registration
or Trademark licensed under any Trademark License), claims in or under insurance
policies, including unearned premiums, uncertificated securities, cash and other
forms of money or currency, deposit accounts (including as defined in Article 9
of the UCC), rights to receive tax refunds and other payments and rights of
indemnification.

“Governmental Authority” means any United States federal, state, local or other
governmental department, commission, board, bureau, agency, central bank, court,
tribunal or other instrumentality or authority, domestic or foreign, exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

“Hazardous Substance” means chemicals, contaminants or industrial, toxic,
hazardous or radioactive substances, wastes or other pollutants (including
petroleum or petroleum distillates, asbestos or asbestos-containing material)
regulated by Environmental Law.

“Indebtedness” of any Person means, without duplication, (i) all indebtedness of
such Person for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments or letters of credit (or
reimbursement obligations in respect thereof), (iii) all obligations of such
Person to pay the deferred purchase price of property or services, except for
current accounts payable and accrued expenses arising in the Ordinary Course of
Business, (iv) all indebtedness represented by obligations of such Person under
a lease that is required to be capitalized for financial reporting purposes by
such Person, (v) all obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities, (vi) all obligations,
contingent or otherwise, of such Person to guarantee any Indebtedness of any
other Person, (vii) all obligations under any forward contract, futures
contract, swap, option or other financing agreement or arrangement (including,
without limitation, caps, floors, collars and similar agreements), the value of
which is dependent upon interest rates, currency exchange rates, commodities or
other indices, and (viii) all Indebtedness of the types referred to in clauses
(i) through (vii) above of any other Person secured by any mortgage, lien,
pledge, charge or security interest on property owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Indebtedness.

“Initial Closing Date” means the date of this Agreement.

 
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“Initial Term” shall have the meaning therefor, as set forth in each applicable
DES Agreement.

 “Instruments” means any “instrument,” as such term is defined in Article 9 of
the UCC, now owned or hereafter acquired by Chapeau or in which Chapeau now
holds or hereafter acquires any interest.

“Intellectual Property” means all Copyrights, Trademarks, Patents, rights to
Intellectual Property, Licenses, trade secrets, source codes, customer lists,
proprietary or confidential information, inventions (whether or not patented or
patentable), technical information, procedures, designs, knowledge, know-how,
software, data bases, skill, expertise, experience, processes, models, drawings,
materials and records and goodwill.

“Interest Shares” means that number of shares of Common Stock determined by (a)
multiplying  the dollar amount of monies advanced to Chapeau in accordance with
Section 2.3(a) for a particular period pursuant to any provision of this
Agreement by (b) 0.17, then by multiplying such product by (c)(i) the number of
days in the period for which the principal balance in question was outstanding
divided by (ii) 365 and then by dividing such amount by (d) the volume weighted
average closing price of one share of Common Stock on the over-the-counter
bulletin board, or such other exchange, market or listing service on which
shares of Common Stock trade subsequent to the date of this Note, over the
period in which such interest amount has accrued, and expressing that quotient
as a whole number.

“Inventory” means any “inventory,” as such term is defined in Article 9 of the
UCC, wherever located, now owned or hereafter acquired by Chapeau or in which
Chapeau now holds or hereafter acquires any interest, and, in any event, shall
include, without limitation, all inventory, goods and other personal property
which are held by or on behalf of Chapeau for sale or lease or are furnished or
are to be furnished under a contract of service or which constitute raw
materials, work in process or materials used or consumed or to be used or
consumed in Chapeau’s business, or the processing, packaging, promotion,
delivery or shipping of the same, and all furnished goods whether or not such
inventory is listed on any schedules, assignments or reports furnished to the
Company from time to time and whether or not the same is in transit or in the
constructive, actual or exclusive occupancy or possession of Chapeau or is held
by Chapeau or by others for Chapeau’s account, including, without limitation,
all goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers and all inventory which may be located on premises
of Chapeau or of any carriers, forwarding agents, truckers, warehousemen,
vendors, selling agents or other persons.

“Investment” means, with respect to a Person, any investment, loan, guarantee,
advance or capital contribution by such Person in, to or with respect to its
Affiliates (other than the Company) or to any other Person, or any acquisition
of property in exchange for cash or other property, provided that the purchase
of Equipment in the Ordinary Course of Business shall not be included in the
definition of Investment.
 
“Investment Property” has the meaning prescribed for such term as defined by the
UCC, which definition is incorporated herein by reference, and includes, without
limitation, a security (whether certificated or uncertificated) security
entitlement, securities account, commodity contract, or commodity account.
 

 
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“Knowledge” as it relates to Chapeau means, with respect to any matter in
question, the actual knowledge of Chapeau’s directors and executive officers
following such investigation as would be made by a reasonably prudent person
similarly situated.
 
“Law” means any and all laws, statutes, ordinances, codes, rules, regulations,
decrees and orders of any Governmental Authority.

 “Letter of Credit Rights” has the meaning prescribed for such term as defined
by the UCC, which definition is incorporated herein by reference, and includes,
without limitation, a right to payment or performance under a letter of credit,
whether or not the beneficiary has demanded or is at the time entitled to demand
payment or performance.  The term does not include the right of a beneficiary to
demand payment or performance under a letter of credit.

 
“License” means any Copyright License, Patent License, Trademark License or
other license of rights or interests now held or hereafter acquired by Chapeau
or in which Chapeau now holds or hereafter acquires any interest and any
renewals or extensions thereof.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment for
security, security interest, encumbrance, levy, lien or charge of any kind,
whether voluntarily incurred or arising by operation of law or otherwise,
against any property, any conditional sale or other title retention agreement,
any lease in the nature of a security interest, and the filing of any financing
statement (other than a precautionary financing statement with respect to a
lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.

“Loss” means any losses, claims, damages, fines, penalties, assessments by
public agencies, settlement, cost or expenses (including actual costs of defense
and reasonable attorneys’ fees) and other liabilities, but excluding, any
consequential, incidental, indirect, special or punitive damages, but including
penalties and additions to Taxes.
 
 “Material Adverse Effect” means a material adverse effect upon: (i) the
business, operations, properties, assets, or financial condition of Chapeau;
(ii) the ability of Chapeau to pay and perform the Secured Obligations in
accordance with the terms thereof; or (iii) the ability of any party to perform
its obligations under this Agreement and the Transaction Documents.

“Minimum Annual Electric Service and Billing Rate” shall have the meaning
therefor, as set forth in the applicable DES Agreement.

“Note” means a secured promissory note in the principal amount of $10 million,
in the form agreed to by the parties to this Agreement.

 “Option” means an option to acquire 5,000,000 shares of Common Stock issuable
by Chapeau to the Company in connection with the Transactions, such Option to be
substantially in the form of Exhibit A attached hereto.

 
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“Order” means any judgment, order (consent or other), writ, stipulation,
injunction, ruling, decision or decree of any Governmental Body.
 
“Ordinary Course of Business” means the ordinary and usual course of day-to-day
operations of the business of Chapeau through the date hereof consistent with
past practice.
 
“Patent License” means any written agreement granting any right with respect to
any invention on which a Patent is in existence now owned or hereafter acquired
by Chapeau or in which Chapeau now holds or hereafter acquires any interest.

“Patents” means all of the following now owned or hereafter acquired by Chapeau
or in which Chapeau now holds or hereafter acquires any interest: (i) letters
patents of, or rights corresponding thereto in, the United States or any other
country, all registrations and recordings thereof, and all applications for
letters patent of, or rights corresponding thereto in the United States or any
other country, including, without limitation, registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state thereof or any other country;
(ii) all reissues, continuations, continuations-in-part or extensions thereof;
(iii) all petty patents, divisionals, and patents of addition; and (iv) all
patents to issue in any such applications.

“Patent Security Agreement” means that certain Patent Security Agreement dated
as of an even date herewith, substantially in the form of Exhibit D hereto.

“Permitted Liens” means any and all of the following: (i) liens in favor of the
Company under this Agreement, (ii) liens securing the payment of taxes or other
governmental charges not yet delinquent or being contested in good faith by
appropriate proceeding, for which adequate reserves are maintained in accordance
with GAAP; (iii) liens securing claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like Persons imposed without action
of such parties, provided that the payment thereof is not yet required or is
otherwise being contested in good faith; (iv) liens incurred or deposits made in
the Ordinary Course of Business in connection with worker’s compensation,
unemployment insurance, social security and other like laws; (v) purchase money
security interests in personal property acquired after the date of this
Agreement, provided such are limited to the personal property so acquired and
proceeds, thereof; (vi) any liens existing as of the date hereof and
specifically disclosed to the Company herein; (vii) leases, subleases, licenses
and sublicenses granted to others in the Ordinary Course of Business not
interfering in any material respect with the conduct of the business of Chapeau;
(viii) liens arising from judgments, decrees or attachments to the extent and
only so long as such judgment, decree or attachment has not caused or resulted
in an Event of Default (as defined herein); (ix) liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of customs
duties in connection with the importation of goods; (x) liens which constitute
rights of set-off of a customary nature or bankers’ liens with respect to
amounts on deposit, whether arising by operation of law or by contract, in
connection with arrangements entered into with banks in the Ordinary Course of
Business; (xi) such Liens and other imperfections of title as do not materially
detract from the secured property; (xii) such Liens already disclosed in
Chapeau’s latest periodic report filed with the Commission prior to the Initial
Closing Date; and (xiii) liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by liens of the type
described in clause (vi) above, provided that any extension, renewal or
replacement lien shall be limited to the property encumbered by the existing
lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.

 
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“Person” means any individual, sole proprietorship, corporation (whether for
profit, not-for-profit, professional or any other form of corporation), trust
(including business trusts), estate, unincorporated association, employee
organization, firm, business, institution, association, partnership (general,
limited, limited liability or any other form of partnership), joint venture,
limited liability company, Governmental Authority and any other entity of any
kind or nature.

“Proceeds” means “proceeds,” as such term is defined in Article 9 of the UCC
and, in any event, shall include, without limitation, (i) any and all Accounts,
Chattel Paper, Instruments, cash or other forms of money or currency or other
proceeds payable to Chapeau from time to time in respect of the Collateral, (ii)
any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to Chapeau from time to time with respect to any of the Collateral, (iii) any
and all payments (in any form whatsoever) made or due and payable to Chapeau
from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
Governmental Authority (or any Person acting under color of Governmental
Authority), and (iv) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.

“Receivables” shall mean and include all of Chapeau’s Accounts, Instruments,
Documents, Chattel Paper and General Intangibles whether secured or unsecured,
whether now existing or hereafter created or arising, and whether or not
specifically sold or assigned to the Company hereunder.

“Registration Rights Agreement” means that certain Registration Rights Agreement
dated as of an even date herewith, which agreement sets forth Chapeau’s
obligations with respect to the registration under the 1933 Act of all shares of
Common Stock issued or issuable to the Company pursuant to the terms hereof. The
Registration Rights Agreement is attached hereto as Exhibit C.

“Release” means any actual or threatened release, spill, emission, leaking,
dumping, injection, pouring, disposal, discharge, leaching or migration into or
through the Environment (including ambient air, surface water, groundwater, land
surface or subsurface strata).
 
“Restricted Investment” means, with respect to Chapeau, any Investment except
(a) purchases of Inventory in the Ordinary Course of Business, (b) acquisitions
(not otherwise prohibited by this Agreement) of Equipment for use in the
Ordinary Course of Business, (c) direct obligations of the United States of
America or any agency thereof, or obligations guaranteed by the United States of
America, that mature within one year from the date of acquisition thereof,
certificates of deposit, maturing within one year from the date of acquisition,
and money market or demand deposit accounts issued by a commercial bank that is
a member of the Federal Reserve System and has capital and surplus aggregating
at least $100,000,000, (d) advances on commissions due and payable in respect of
Existing Turnkey Projects and to be paid with respect to Future Turnkey Projects
and (e) travel and other advances to employees made in the Ordinary Course of
Business.
 

 
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“Secured Obligations” shall mean and include all principal, interest, fees,
costs, or other liabilities or obligations for monetary amounts owed by Chapeau
to the Company, whether due or to become due, matured or unmatured, liquidated
or unliquidated, contingent or non-contingent arising under the Note as the same
may from time to time be amended, modified, supplemented or restated.

“Subsequent Closing Date” shall mean the first Business Day immediately
following the date upon which all of the necessary consents and assignments have
been executed to effectuate the sale and transfer of the Existing Turnkey
Projects to the Company.
 
“Taxes” means (A) all federal, state, local or foreign taxes or similar charges,
fees, imposts, levies and assessments, including all net income, gross receipts,
capital, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation, property and
estimated taxes, customs duties and similar fees, assessments and charges
imposed by any taxing authority, (B) all interest, penalties, fines, additions
to tax or additional amounts imposed by any taxing authority in connection with
any item described in clause (A), and (C) any liability for the foregoing
payable by reason of contract, assumption, operation of Law, Treasury Regulation
Section 1.1502-6 (or any predecessor or successor thereof of any analogous or
similar provision under Law), as a transferee or otherwise
 
“Trademark License” means any written agreement granting any right to use any
Trademark or Trademark registration now owned or hereafter acquired by Chapeau
or in which Chapeau now holds or hereafter acquires any interest.

“Trademarks” means any of the following now owned or hereafter acquired by
Chapeau or in which Chapeau now holds or hereafter acquires any interest: (i)
any and all trademarks, trade names, corporate names, business names, trade
styles, service marks, logos, other source or business identifiers, prints and
labels on which any of the foregoing have appeared or appear, designs and
general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and any applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any sthereof or any other country
or any political subdivision thereof and (ii) any reissues, extensions or
renewals thereof.

“Trademark Security Agreement” means that certain Trademark Security Agreement
dated as of an even date herewith, substantially in the form of Exhibit E
hereto.
 
“Transaction Documents” means this Agreement, the Note, Option, Warrant and any
other agreement entered into between Chapeau and the Company pursuant to the
Transactions.

 
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“UCC” shall mean the Uniform Commercial Code as the same may, from time to time,
be in effect in the State of Virginia.  Unless otherwise defined herein, terms
that are defined in the UCC and used herein shall have the meanings given to
them in the UCC.

“Warrant” means a warrant to acquire 5,000,000 shares of Common Stock issuable
by Chapeau to the Company in connection with the Transactions, such Warrant to
be substantially in the form of Exhibit B attached hereto.
 
Section 1.3       Other Definitional Provisions.  The Section headings of this
Agreement are for convenience of reference only and shall not be deemed to alter
or affect the meaning or interpretation of any provision hereof.  Unless the
context otherwise requires, (i) all references to Sections contained in this
Agreement are references to sections of this Agreement, (ii) words in the
singular include the plural and vice versa and (iii) words of any gender include
each other gender.  As used in this Agreement, the following words or phrases
have the following meanings:  (i) “include”, “includes” or “including” shall be
deemed to be followed by the words “without limitation”; (ii) “hereby”,
“herein”, “hereof”, “hereto”, “hereunder”, and words of similar import refer to
this Agreement as a whole and not to any particular provision hereof; and (iii)
“or” means “and/or”.  References in this Agreement to any Persons shall include
such Persons and their successors and permitted assigns.
 
ARTICLE II
 
PURCHASE OF EXISTING TURNKEY PROJECTS; ASSIGNMENT AND ASSUMPTION
 
Section 2.1       Purchase and Sale On the Subsequent Closing Date, Chapeau
agrees to sell all of its right, title and interest in and to the Existing
Turnkey Projects identified on Schedule 2.1(a) and for the dollar amounts
identified on Schedule 2.1(a) (the “Purchase Price”) and the Company agrees to
purchase the Existing Turnkey Projects for such Purchase Price (the “Initial
Acquisitions”). The parties acknowledge that payment of the Purchase Price is
intended to be: (a) generally in accordance with the Project Funding Schedule
set forth in Section 2.3(a)(iii) of this Agreement; and (b) on other terms and
conditions mutually agreed to by the parties.  The parties further acknowledge
and agree that the Purchase Price was calculated based on a total sales price to
the Company, inclusive of all installation, sales or use tax, sales commissions,
insurance and any other cost associated with the installation, maintenance and
provision of service over the Initial Term of the Existing Turnkey Projects, as
is necessary to provide the Company with a projected internal rate of return
(“IRR”) of 17% over such Initial Term, with such return taking into effect the
specified future cash flows from the Minimum Annual Electric Service and Billing
Rate as such terms are defined in the respective DES Agreement for each Existing
Turnkey Project.
 
Section 2.2       Assignment and Assumption. In connection with such purchase
and sale, Chapeau agrees to transfer and assign all of its right, title and
interest in and to the Existing DES Agreements set forth on Schedule 2.2 and the
Company agrees to assume such agreements, subject to Chapeau’s Continuing
Service Obligation, as follows:
 

 
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(a)        Chapeau shall perform Chapeau’s Continuing Service Obligation with
respect to each Turnkey Project sold to the Company pursuant to the terms of a
S&M Agreement on terms to be mutually agreed, which S&M Agreement shall include
the monitoring, operation, service, maintenance and all other support activities
to be performed by Chapeau in connection with each such Turnkey Project
(collectively, “Chapeau’s Support”).
 
(b)        Chapeau shall use its best efforts, and, to the extent relevant, the
Company shall provide reasonable assistance, to obtain the Customer’s consent to
the assignment of all of Chapeau’s rights and obligations under each DES
Agreement related to Existing Turnkey Projects.
 
Section 2.3       Option to Acquire Future Turnkey Projects. In consideration of
the transactions contemplated by this Agreement, Chapeau grants to the Company
the Future Turnkey Project Option and the Company hereby accepts the grant
thereof.
 
(a)        The Future Turnkey Project Option shall be subject to the following
terms and conditions:
 
(i)         Chapeau agrees to present to the Company detailed information
relating to each Future Turnkey Project, including without limitation, the
location of the project, the state and county of permitting and installation,
the terms of any DES Agreement being negotiated with a potential Customer, the
salient terms of the associated S&M Agreement and all other information
reasonably requested by the Company (collectively, the “Turnkey Information
Package”). Chapeau will use commercially reasonably efforts to originate and
negotiate a DES Agreement for each Future Turnkey Project to be offered to the
Company that (A) are (i) forms of master agreements with key Customers
reasonably and mutually acceptable to the Company and Chapeau, which forms of
master agreement can be readily adapted to multiple Customer locations with
minimal modifications, solely for location specific data, or (ii) single
agreements with Customers reasonably and mutually acceptable to the Company and
Chapeau and (B) have a term of 10 years or more, and such other terms as are
reasonably and mutually acceptable to the Company and Chapeau.
 
(ii)        The Company shall have thirty (30) days from the date of receipt of
the complete Turnkey Information Package to determine whether to acquire such
Future Turnkey Project. If the Company elects not to acquire such Future Turnkey
Project then Chapeau may seek financing for that particular project from third
party financing sources, provided that the failure of the Company to acquire one
or more Future Turnkey Projects shall not alter Chapeau’s obligations under this
Section 2.3.
 
(iii)       If the Company does elect to acquire such Future Turnkey Project,
the acquisition thereof shall be on a project funding schedule (“Project Funding
Schedule”) based upon a project management plan for each Turnkey Project
presented to the Company by Chapeau, which schedule shall project the funding
requirements for each aspect of the project (i.e., permitting, engineering,
product development, construction, Commissioning, etc.) and, unless otherwise
agreed by the parties, shall provide the following purchase price installments
according to the following schedule:
 

 
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(1)      35% shall be paid to Chapeau upon execution of a DES Agreement in
respect of such Future Turnkey Project;
 
(2)      25% shall be paid to Chapeau upon delivery by its third party supplier
of the generator and its prime mover engine to Chapeau for assembly;
 
(3)      20% shall be paid to Chapeau upon successful completion of Chapeau’s
factory validation testing in accordance with Chapeau’s then current standard
procedures of the assembly of the EnviroGen™ Energy Module(s) or similar
products required for the corresponding Turnkey Project;
 
(4)      10% shall be paid to Chapeau upon delivery of the EnviroGen™ Energy
Module(s) or similar products required for such Future Turnkey Project to the
Customer’s site; and
 
(5)      the remaining 10% shall be paid to Chapeau upon Commissioning of such
Future Turnkey Project.
 
(b)        The Company shall be entitled to receive quarterly interest payments
on the amounts advanced to Chapeau in accordance with Section 2.3(a), payable in
the form of Interest Shares, provided that, interest on such advances shall
cease to accrue upon the commissioning of the Turnkey Project in question and
the final payment of Interest Shares shall be due within thirty (30) days
following the date of such commissioning.
 
(c)        If the Company experiences a default in or cancellation of a DES
Agreement (A) prior to the complete installation of the corresponding Turnkey
Project, in the Company’s reasonable  direction Chapeau shall (i) use all
reasonable efforts to obtain a new DES Agreement and Customer on terms and with
a counterparty reasonably acceptable to the Company or (ii) cancel the DES
Agreement or Existing Service Agreement, as applicable, and return to the
Company all funds received in connection therewith, net of any offsetting
amounts collected by the Company from the Customer pursuant to the terms of the
cancelled DES Agreement; or (B) after the Commissioning of the corresponding
Turnkey Project, Chapeau will use all reasonable efforts to relocate the
affected Turnkey Project and to obtain a new DES Agreement therefor on terms and
with a counterparty reasonably acceptable to the Company, provided that all
amounts expended by the Company in respect of such terminated Turnkey Project
under Section 2.3(a) shall continue to earn interest pursuant to Section 2.3(b)
until Chapeau has either fully reimbursed the Company in respect of such
expenditures or a replacement Turnkey Project has been selected and
Commissioned.
 
(d)        The Company and Chapeau will execute a Turnkey Project Purchase
Agreement with respect to each such Future Turnkey Project to be acquired by the
Company, which Agreement will set forth the Project Funding Schedule for such
Future Turnkey Project.  In respect of each such Future Turnkey Project, the
Parties acknowledge and agree that:
 
(i)         the sales price to the Company therefor will be an amount calculated
to provide the Company a projected IRR of 17% over the Initial Term of the
relevant DES Agreement including all installation, sales or use tax, sales
commissions, insurance and any other cost associated with the installation,
maintenance and provision of service over the Initial Term, taking into effect
the specified future cash flows from the Minimum Annual Electric Service and
Billing Rate;
 

 

 
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(ii)        Chapeau will bear full responsibility with respect to the terms of
Chapeau’s Continuing Service Obligation relating to such Future Turnkey Project.
 
(e)        The Future Turnkey Project Option shall continue until the Company
has acquired $300 million in Future Turnkey Projects (the “Funding Threshold”),
unless (i) the Company elects to discontinue such acquisitions prior to
fulfillment of the Funding Threshold (ii) this Agreement has been terminated..
If the Company and Chapeau have executed Turnkey Project Purchase Agreements
equal to or in excess of the Funding Threshold, then the Company shall have the
exclusive right to acquire an additional $300 million in Future Turnkey Projects
(the “Secondary Funding Threshold”) on terms and conditions substantially
similar to those provided for in Section 2.3 of this Agreement except that the
sales price to the Company for such Future Turnkey Projects shall provide for a
projected IRR to the Company of 15%.  If the Company declines to acquire any
such additional Future Turnkey Projects then Chapeau may secure alternative
financing for the sale of any such Future Turnkey Projects.  If the Company and
Chapeau have executed Turnkey Project Purchase Agreements equal to or in excess
of the Secondary Funding Threshold, then the Company shall have the exclusive
right to acquire all Turnkey Projects generated by Chapeau for so long as the
Company has the financial capability to undertake said transactions, which
acquisitions shall be on terms and conditions to be mutually agreed upon by
Chapeau and the Company.  If the Company declines to acquire any such additional
Turnkey Projects or the parties are unable to reach mutual agreement in respect
of the terms of such acquisitions, then Chapeau may secure alternative financing
for the manufacture and sale of any such Turnkey Projects.
 
Section 2.4       The Loan. Subject to the conditions set forth in this
Agreement, on the Initial Closing Date, the Company shall make the Loan to
Chapeau. Except as otherwise set forth herein, the terms and conditions of the
Loan shall be governed by the Note.
 

ARTICLE III
 
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 
The Company represents and warrants to Chapeau that:
 
Section 3.1       Due Organization; Good Standing and Power.  The Company is a
limited liability company duly organized, validly existing and in good standing
under the Laws of the State of Virginia, and has all requisite limited liability
company power and authority necessary to own or lease all of its properties and
assets and to carry on its business as it is now being conducted.

Section 3.2
Authorization; Noncontravention.  

 
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(a)        The Company has all necessary limited liability company power and
authority to execute and deliver this Agreement and the Transaction Documents to
which it is a party and, to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby.  The execution,
delivery and performance by the Company of this Agreement and the Transaction
Documents to which it is a party, and the consummation by it of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
limited liability company action on the part of the Company.  This Agreement has
been duly executed and delivered by the Company and, assuming due authorization,
execution and delivery hereof by Chapeau, constitutes a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that such enforceability (i) may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and other similar
Laws of general application affecting or relating to the enforcement of
creditors’ rights generally and (ii) is subject to general principles of equity,
whether considered in a proceeding at law or in equity (the “Bankruptcy and
Equity Exception”).  The Transaction Documents to which the Company is a party
will upon execution be duly executed and delivered by the Company and, assuming
the due authorization, execution and delivery thereof by the other parties
thereto, and will constitute the legal, valid and binding obligations of the
Company, enforceable against it in accordance with their respective terms,
subject to the Bankruptcy and Equity Exception.
 
(b)        The execution and delivery by the Company of this Agreement and the
Transaction Documents to which it is a party do not, and neither the
consummation by the Company of the transactions contemplated by this Agreement
and the Transaction Documents to which it is a party nor the compliance by the
Company with any of the terms or provisions hereof and thereof will, (i)
conflict with or violate any provision of the certificate of formation or
limited liability company agreement of the Company, or (ii) (x) violate any Law
or Order applicable to the Company or any of its properties or assets, or (y)
violate or constitute a default under any of the terms, conditions or provisions
of any Contract to which the Company is a party or by which any of its
properties or assets is bound.
 
Section 3.3       No Litigation.  There is no action, suit, proceeding, hearing
or investigation pending or, to the Company’s actual knowledge, threatened,
against the Company or any of its Affiliates that would reasonably be expected
to prevent, hinder or delay the consummation of any of the transactions
contemplated hereby or that questions the legality or propriety of the
transactions contemplated hereby.

Section 3.4       Securities Law Matters.  The Company acknowledges that shares
of Common Stock to be issued by Chapeau under this Agreement have not been
registered under the Securities Act of 1933, as amended (the “Securities Act”),
or the securities laws of any state or foreign jurisdiction and, unless so
registered, may not be offered, sold, transferred, or otherwise disposed of
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and any applicable securities
laws of any state or foreign jurisdiction.  The Company is acquiring shares of
Common Stock for investment and not with a present view to the sale or
distribution of them within the meaning of Section 2(11) of the Securities Act.
 
Section 3.5       No Prior Activity.  The Company was recently formed, has no
operations to date and, except as otherwise contemplated by the Transaction
Documents, has not incurred any liability or obligation.
 

 
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Section 3.6       Full Disclosure.  No representation or warranty of the Company
contained in this Agreement and no written statement made by or on behalf of the
Company to Chapeau pursuant to this Agreement or any of Transaction Documents
contains an untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading.  There are no facts that the Company has not disclosed to Chapeau
which could, individually or in the aggregate, reasonably be expected to have a
material adverse effect on the Company.
 
Section 3.7       Investment Representations.  The Company hereby makes the
following representations and warranties with respect to its ownership of the
Note, the Option, the Warrant, the Fee and any Interest Shares issuable pursuant
to the Note and Common Stock otherwise issueable pursuant to the Registration
Rights Agreement (collectively, the “Securities”):
 
(a)              The Company is familiar with Chapeau’s business affairs,
operations and financial condition and has sufficient information about Chapeau
to reach an informed and knowledgeable investment decision in the
Securities.  The Company is acquiring the Securities for investment for its own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.

(b)              The Company understands that the Securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of its
investment intent as expressed herein.

(c)              The Company acknowledges and understands that the Securities
must be held indefinitely unless subsequently registered under the Securities
Act or an exemption from such registration is available.  The Company
understands that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer thereof unless registered or such
registration is not otherwise required in the opinion of legal counsel for the
Company, which counsel must be reasonably acceptable to Chapeau.

(d)              The Company is aware of Rule 144 promulgated under the
Securities Act which permits limited public resale of securities acquired in a
non-public offering subject to the satisfaction of certain conditions.

(e)              The Company is an “accredited investor” as defined in Rule
501(a) of Regulation D promulgated under the Securities Act.

 
 
ARTICLE IV
 
REPRESENTATIONS AND WARRANTIES OF CHAPEAU
 
Chapeau represents and warrants to the Company that, except as set forth in the
Schedule of Exceptions attached hereto:
 

 
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Section 4.1       Due Organization; Good Standing and Power.  Chapeau is a
corporation duly incorporated, validly existing and in good standing under the
Laws of the State of Utah, and has all requisite corporate power and authority
necessary to own or lease all of its properties and assets and to carry on its
business as it is now being conducted.  Chapeau is duly authorized to do
business and is in good standing in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such qualification or authorization
necessary, except where the failure to be so qualified, authorized or in good
standing would not reasonably be expected to have a Material Adverse Effect.
 
Section 4.2
Authorization; Noncontravention. 

 
(a)        Chapeau has all necessary corporate power and authority to execute
and deliver the Transaction Documents to which it is a party, to perform its
obligations thereunder, and to consummate the transactions contemplated
thereby.  The execution, delivery and performance by Chapeau of the Transaction
Documents to which it is a party, and the consummation by Chapeau of the
transactions contemplated thereby, have been duly authorized and approved by all
necessary action on the part of Chapeau.  This Agreement has been duly executed
and delivered by Chapeau and, assuming due authorization, execution and delivery
hereof by the other parties hereto, constitutes a legal, valid and binding
obligation of Chapeau, enforceable against Chapeau in accordance with its terms,
subject to the Bankruptcy and Equity Exception.  The Transaction Documents
(other than this Agreement) to which Chapeau is a party will upon execution be
duly executed and delivered by Chapeau and, assuming the due authorization,
execution and delivery thereof by the other parties thereto, will upon execution
constitute the legal, valid and binding obligations of Chapeau, enforceable
against Chapeau in accordance with their respective terms, subject to the
Bankruptcy and Equity Exception.
 
(b)        None of the execution and delivery of the Transaction Documents by
Chapeau, the consummation by Chapeau of the transactions contemplated thereby,
or the compliance by Chapeau with any of the terms or provisions thereof will,
(i) conflict with or violate any provision of the certificate of incorporation
and by-laws of Chapeau, or (ii) (x) violate any Law or Order applicable to
Chapeau or any of its properties or assets, (y) require the consent or approval
of, or any payment to, any third party or (z) violate, conflict with, or
constitute a breach of or default under, any of the terms, conditions or
provisions of any Contract to which Chapeau is a party or by which any of its
properties or assets is bound, except, in the case of clause (ii), for such
violations, consents, approvals, payments, conflicts, breaches or defaults as
would not reasonably be expected to have a Material Adverse Effect.
 
Section 4.3       Capitalization.  The authorized capital stock of Chapeau
consists of 325,000,000 shares of common stock, $0.001 par value per share (the
“Common Stock”).  As of the date of this Agreement, there are (a) 63,461,089
shares of Common Stock presently issued and outstanding, (b) options, warrants
and other contingent securities (collectively, the “Contingent Securities”) to
acquire 35,652,773 shares of Common Stock presently issued and outstanding, (c)
no shares of Common Stock are reserved for future issuance pursuant to any stock
option or stock issuance plan and (d) no shares of Common Stock are held by
Chapeau as treasury stock.  All of the issued and outstanding (x) shares of
Common Stock and (y) Contingent Securities were duly authorized for issuance and
are validly issued, fully paid and non-assessable and were not issued in
violation of any purchase or call option, right of first refusal, subscription
right, preemptive right or any similar rights.
 

 
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Section 4.4       Authorization of Securities.  When issued in accordance with
the terms of this Agreement, (a) the Option, (b) the Warrant, (c) the shares of
Common Stock issuable as interest on the Note and (d) the shares of Common Stock
issuable pursuant to Section 6.1(d) will be duly authorized, validly issued,
fully paid and nonassessable, free and clear of all Liens, other than Liens
created by the Company.  All such shares of Common Stock have been duly and
validly reserved for issuance. 
 
Section 4.5       Financial Statements. Chapeau’s audited balance sheet and
statements of income and cash flows as of and for the fiscal years ended June
30, 2004, June 30, 2005 and June 30, 2006 and the unaudited balance sheet and
statements of income and cash flows of Chapeau as of and for the six month
period ended December 31, 2007 (collectively, the “Financial Statements”) have
been prepared from the books and records of account of Chapeau in accordance
with GAAP throughout the periods covered thereby, and present fairly and
accurately, in all material respects, the financial condition of the Company as
of such dates and the results of operations of the Company for such periods.
Except for obligations and liabilities reflected in the Financial Statements,
Chapeau has no off-balance sheet obligation or liability of any nature (matured
or unmatured, fixed or contingent) to, or any financial interest in, any third
party or other Person the purpose or effect of which is to defer, postpone,
reduce or otherwise avoid or adjust the recording of debt expenses incurred by
Chapeau.
 
Section 4.6       No Undisclosed Liabilities.  Except as set forth in Schedule
4.6, Chapeau does not have any Indebtedness or Liabilities (whether or not
required under GAAP to be reflected on a balance sheet or the notes thereto)
other than those (i) specifically reflected on and fully reserved against in the
Financial Statements, (ii) incurred in the Ordinary Course of Business since the
December 31, 2007 (the “Balance Sheet Date”) or (iii) that are immaterial to
Chapeau or that would not reasonably be expected to have a Material Adverse
Effect.
 
Section 4.7       Governmental Approvals.  No consents or approvals of, or
filings, declarations or registrations with, any Governmental Body are necessary
for the execution and delivery of the Transaction Documents by Chapeau, and the
consummation by Chapeau of the transactions contemplated thereby, other than
such consents, approvals, filings, declarations or registrations that, if not
obtained, made or given, would not reasonably be expected to impair the ability
of Chapeau to perform its obligations under the Transaction Documents, or
prevent or materially impede, interfere with, hinder or delay the consummation
of the Closing.
 
Section 4.8       Title to Assets; Absence of Liens.  Chapeau has good and valid
title to each of the Existing Turnkey Projects, free and clear of all Liens,
except Permitted Liens.  Chapeau has the full right to contribute, transfer and
assign each of the Existing DES Agreements, free and clear of all Liens, except
Permitted Liens. Prior to the acquisition of any Future Turnkey Project by the
Company, Chapeau will have good and valid title thereto, free and clear of all
Liens, except Permitted Liens.
 
Section 4.9       Compliance with Laws. 
 

 

 
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(a)        Chapeau is in compliance with all Laws and Orders as in effect as of
the date hereof applicable to the Existing Turnkey Projects and the Existing DES
Agreements, including without limitation, and the manufacturing, sale and
installation thereof, except where the failure to be in compliance would not
have a Material Adverse Effect on Chapeau.  Chapeau has in full force and effect
all permits, licenses and authorizations, the absence of which would not
reasonably be expected to have a Material Adverse Effect on Chapeau, to perform
its obligations under the Existing DES Agreements.
 
(b)        No Order is in effect, that names Chapeau and is related to any
Existing Turnkey Project, that imposes a material obligation on Chapeau and the
ongoing ownership and operation of the Existing Turnkey Projects and performance
by Chapeau under the Exiting Service Agreements.  Except as set forth on
Schedule 4.9(b), there are no Actions pending (to the Knowledge of Chapeau with
respect to investigations of Chapeau by any Governmental Bodies) or, to the
Knowledge of Chapeau, threatened, against or affecting Chapeau, or to the
Knowledge of Chapeau, any of its officers, directors, employees, agents or
stockholders in their capacity as such, in each case with respect to the
Existing Turnkey Projects and the Existing DES Agreements and, to the Knowledge
of Chapeau, there are no facts or circumstances which may give rise to any of
the foregoing.
 
(c)        There are no Actions pending (to the Knowledge of Chapeau with
respect to investigations of Chapeau or any other Affiliate of Chapeau by any
Governmental Bodies) or, to the Knowledge of Chapeau, threatened, by or against
Chapeau with respect to the Transaction Documents, or in connection with any of
the Transactions, and Chapeau has no reason to believe there is a valid basis
for any such Action.
 
Section 4.10     Product Warranty; Product Liability.
 
(a)        The Existing Turnkey Projects conform in all material respects with
and to all manufacturer and product specifications, all express and implied
warranties and all applicable Laws.  To the Knowledge of Chapeau, Chapeau does
not have any material liability for replacement or repair of any such products
or other damages in connection therewith or any other customer or product
obligations not reserved against on the Financial Statements.  Chapeau has not
sold any products or delivered any services that included a warranty for a
period of longer than one year.
 
(b)        To the Knowledge of Chapeau, Chapeau does not have any material
liability arising out of any injury to individuals or property as a result of
the ownership, possession, or use of any of the Existing Turnkey Projects.  To
the Knowledge of Chapeau, Chapeau has not committed any act or failed to commit
any act, which would result in, and there has been no occurrence which would
give rise to or form the basis of, any product liability or liability for breach
of warranty (whether covered by insurance or not) on the part of Chapeau with
respect to the Existing Turnkey Projects.
 
Section 4.11     Brokers.  Except for Elisabeth R. Schreiber, whose fees shall
be paid by Chapeau at the Closing, no Person has acted, directly or indirectly,
as a broker, finder or financial advisor for Chapeau in connection with the
Transactions, and no Person is entitled to any fee or commission or like payment
in respect thereof.
 

 
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Section 4.12     Full Disclosure.  No representation or warranty of Chapeau
contained in this Agreement and no written statement made by or on behalf of
Chapeau to the Company pursuant to this Agreement or any of Transaction
Documents contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading.  There are no facts which Chapeau has not disclosed to the Company
which could, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
 
Section 4.13     Location of Collateral and Books and Records.  Schedule 4.13 is
a complete list of the locations of the Collateral (other than Inventory
in-transit to one of such locations) and of Chapeau’s books and records on and
as of the Initial Closing Date.  Schedule 4.13 includes the name and mailing
address of the owner thereof.
 
Section 4.14     Accounts.  Each Account represents a bona fide sale or lease
and delivery of goods by Chapeau, or rendition of services by Chapeau in the
Ordinary Course of Business.  Each Account is for an amount payable by the
Account Debtor thereon on the terms set forth in the invoice therefor, without
any offset, deduction, defense or counterclaim except as set forth on Schedule
4.14.  No payment has been received, and no material credit, discount or
extension or agreement has been granted, on any Account except as set forth on
Schedule 4.14.  All goods described in any invoice representing a sale of goods
have been delivered to the Account Debtor named therein and all services of
Chapeau described in each invoice representing services have been or will be
performed.
 
Section 4.15     Tax Matters.  Except as set forth on Schedule 4.15:
 
(a)              (i) All Tax Returns required to be filed by Chapeau have been
timely filed; (ii) all such Tax Returns are true and complete in all material
respects; (iii) all Taxes (whether or not reflected on such Tax Returns) due by
or with respect to Chapeau, chargeable as an Lien upon the assets of Chapeau,
claimed to be due by any Tax Authority or that may become due by Chapeau with
respect to any period (or portion thereof) ending on or before the Initial
Closing Date have been paid or have been adequately reserved for in the books
and records of Chapeau in accordance with GAAP; and (iv) Chapeau has duly and
timely withheld all Taxes required to be withheld and such withheld Taxes have
been either duly and timely paid to the proper Tax Authority or properly set
aside in accounts for such purpose.

(b)              No Taxes on or in respect of Chapeau are currently under audit,
examination or investigation by any Tax Authority.  No Tax Authority is now
asserting, or to Chapeau’s Knowledge, threatening to assert against Chapeau, any
deficiency or claim for Taxes or any adjustment to Taxes, and no circumstances
exist to form the basis for asserting or raising such a claim or deficiency.

(c)              No written claim against or in respect of Chapeau (other than a
claim that has been finally settled) has been made in the last three years by
any Tax Authority in a jurisdiction where Chapeau does not file Tax Returns or
pay or collect Taxes in respect of a particular type of Tax imposed by such
jurisdiction that Chapeau is or may be subject to an obligation to file Tax
Returns or pay or collect Taxes in respect of such Tax in such jurisdiction.

 
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(d)              Chapeau (i) is not a party to or bound by, and does not have
any obligation under, any Tax allocation, sharing, indemnity or similar Contract
or arrangement, (ii) is not and has never been a member of any consolidated,
combined or unitary group for purposes of filing Tax Returns or paying Taxes,
(iii) is not otherwise liable for the Taxes of any other Person as a transferee,
successor or otherwise and (iv) has not received or applied for a Tax ruling or
entered into a closing agreement pursuant to Section 7121 of the IRC, or any
predecessor provision or any similar provision of state or local law.

(e)              There are no Liens with respect to Taxes upon any of the
properties or assets, real or personal, tangible or intangible of Chapeau,
except for Permitted Liens.
 
Section 4.16     Employee Benefits.  Schedule 4.16 contains a list of each of
Chapeau’s Benefit Plans.  There is no “Multiemployer Plan,” as defined in ERISA,
under which any employee of the Business has any present or future right to
benefits or under which Chapeau has any present or future liability.  Any and
all contributions, including salary deferrals, required to be made under the
terms of Chapeau Benefit Plans as of the date of this Agreement have been made
in a timely fashion. No such Benefit Plan provides for, and no written or oral
agreements have been entered into promising or guaranteeing, the continuation of
medical, dental, vision, life or disability insurance coverage for any employees
of Chapeau or their beneficiaries for any period of time beyond the earlier of
(i) the end of the current plan year or (ii) the termination of employment
(except to the extent of coverage required under Title I, Part 6 of ERISA. For
purposes of this Section 4.16, the term “Benefit Plans” includes “qualified”
retirement plans under Code Section 401(a), non-qualified deferred compensation
plans, supplemental executive retirement plans and welfare benefit plans, as
defined in ERISA.
 

Section 4.17     Absence of Certain Changes.  Except as set forth on Schedule
4.17 or as otherwise contemplated by this Agreement, since the Balance Sheet
Date, there has not been:
 
(a)              any material damage, destruction, casualty or other similar
occurrence or event (whether or not insured against) to the assets of Chapeau;

(b)              any Liens attached to any of the assets of Chapeau not in the
Ordinary Course of Business;

(c)              any incurrence or creation of any liability, obligation or
other Contract in excess of $150,000 by Chapeau, except unsecured trade payables
incurred in the Ordinary Course of Business;

(d)              any purchase, sale, transfer, assignment or other disposition
by Chapeau of any assets in excess of $150,000 not in the Ordinary Course of
Business;

(e)              any entry into, termination of or receipt of notice of
termination of any Contract with any supplier, vendor, dealer, distributor or
sales representative by Chapeau (other than purchase orders entered into or
terminated in the Ordinary Course of Business;

 
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(f)               any change by Chapeau of its accounting methods, practices,
policies or procedures which were not or consented to by Chapeau’s accountants,
or otherwise made in accordance with generally accepted accounting principles in
the United States;

(g)              any amendment or change to the organizational documents of
Chapeau;

(h)              with the exception of any transaction contemplated by this
Agreement or the Transaction Documents, any transaction by Chapeau with any
officer, manager, member or Affiliate of Chapeau other than the payment of
compensation in the Ordinary Course of Business;

(i)               any Contract entered into by Chapeau otherwise obligating it
to do any of the foregoing.

Section 4.18
Contracts; No Defaults.

 
(a)              Schedule 4.18(a) contains a true and complete list of each
Material Contract.  For purposes of this Agreement, a “Material Contract” shall
mean any Contract to which Chapeau is a party, including each Existing Service
Agreement, other than a Contract that (i) pursuant to its terms, has expired,
has been terminated or has been fully performed by the parties thereto, and
Chapeau has no liability (contingent or otherwise) thereunder, (ii) is
cancelable by Chapeau upon 30 days’ or less notice, without any penalty or other
financial obligation, and that involves payments to or from Chapeau of less than
$100,000 in such 30-day period, or (iii) involves annual aggregate payments to
or from Chapeau of $200,000 or less.  True and complete copies (or, if oral,
full written descriptions) of all Material Contracts, including all amendments
thereto, have been delivered to the Company.

(b)              Except as set forth on Schedule 4.18(b):

(i)         each Material Contract is a valid and binding obligation of Chapeau
and, to Chapeau’s Knowledge, is a valid and binding obligation of the other
party thereto;

(ii)        neither Chapeau nor, to Chapeau’s Knowledge, any other party thereto
is in material violation of or in material default in respect of, nor has there
occurred an event or condition by or on behalf of Chapeau or, to Chapeau’s
Knowledge, by or on behalf of any other party that, with the passage of time or
giving of notice or otherwise, could constitute a material default under or
permit the termination of any Material Contract;

(iii)        no event or condition has occurred or is alleged to have occurred
regarding the actions of Chapeau or, to Chapeau’s Knowledge, any other Person
that constitutes or (with the passage of time or giving of notice or otherwise)
could constitute a basis of force majeure or other claim of excusable delay,
nonperformance or accelerated or increased rights by Chapeau or any other Person
under any Material Contract;

(iv)        Chapeau has not given to or received from any other Person any
written notice or other communication (whether oral or written) regarding any
actual, alleged, possible or potential material violation or breach of, or
material default under, any Material Contract; and

 
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(v)        the enforceability of any Material Contract will not be affected in
any manner by the execution, delivery and performance of this Agreement, and no
Material Contract contains any change in control or other terms and conditions
that will (with or without obtaining consent or waiver) become applicable or
inapplicable as a result of the consummation of the Contemplated Transactions.

Section 4.19
Insurance.

 
(a)              Schedule 4.19(a) sets forth (i) a true and complete list of all
insurance currently in force that covers or purports to cover risks or losses to
or associated with the Business (collectively, the “Policies”); and (ii) with
respect to each Policy, the names of the insured and all additional insureds
thereunder, a description of the insured loss coverage, the expiration date and
time of coverage, the dollar limitations of coverage and a general description
of each deductible feature thereof.

(b)             Except as set forth on Schedule 4.19(b), (i) Chapeau is, and has
been continuously since January 1, 2006, insured with financially responsible
insurers or under other financially responsible arrangements in such amounts and
against such risks and losses as are customary for companies engaged in a
similar business and acting in accordance with reasonably prudent business
practice; (ii) the Policies are in full force and effect in accordance with
their respective terms, no notice of cancellation has been received by Chapeau;
and (iii) all premiums due under the Policies have been paid (without regard to
grace periods).

Section 4.20
Environmental Compliance.  Except as set forth on Schedule 4.20:

 
(a)              The Business of Chapeau is being conducted in compliance in all
material respects with, and Chapeau is not subject to any actual or potential
liability pursuant to, any Environmental Laws. There are no conditions or
circumstances that would either prevent the continued and uninterrupted
operation of the Business in compliance in all material respects with
Environmental Laws after the Closing or require additional material capital
expenditures in order to maintain the continued and uninterrupted operation of
the Business in compliance in all material respects with Environmental Laws
after the Closing.

(b)              Chapeau has not received any form of notice or inquiry from any
Governmental Body relating to any actual or potential Environmental, Health and
Safety Liability at any Existing Turnkey Project location.

(c)              The use and operation of an Existing Turnkey Project by a
Customer (i) will not expose any Person to any Hazardous Substance in violation
of, and (ii) will be in material compliance with, all applicable Environmental
Laws.

Section 4.21     Intellectual Property. Schedule 4.21 sets forth all
Intellectual Property owned or used by Chapeau and which are necessary to
conduct the Business as currently conducted.  To Chapeau's Knowledge, (i) no
infringement exists by on the intellectual property rights of any other Person
that results in any way from the operations of the Business, and (ii) there is
no infringing use of any of the Intellectual Property owned by Chapeau by any
other Person.  No Orders or proceedings are pending, or to Chapeau's Knowledge,
threatened, against Chapeau that challenge the validity of, or Chapeau’s
ownership of or right to use, any of the Intellectual Property.
 

 
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ARTICLE V
 
COLLATERAL
 
Section 5.1       Security Interest.  As security for the payment and
performance of the Secured Obligations, Chapeau hereby grants to the Company a
continuing security interest, lien and collateral assignment in and to all of
Chapeau’s personal property, including without limitation all of Chapeau’s
right, title and interest in and to all of the following, in each case both now
owned and hereafter acquired: all Accounts, Inventory (including, without
limitation, Inventory in transit), Equipment, General Intangibles, Chattel
Paper, Letter of Credit Rights, Intellectual Property, Instruments, Documents
and documents of title, Investment Property, Deposit Accounts, Commercial Tort
Claims (including, without limitation, those listed on Schedule 5.1), money,
cash, cash equivalents, securities and other property of any kind (to the extent
such other property is at any time held directly or indirectly by the Company or
any Affiliate), all books and records, whether in tangible or intangible form,
and all accessions to, substitutions for and replacements, products and proceeds
of any of the foregoing (collectively, the “Collateral”).  The Company’s Liens
shall continue in full force and effect in all Collateral until the Secured
Obligations have been fully paid, at which time the Company will use all
commercially reasonable efforts to terminate as promptly as reasonable the
security interest, lien and collateral assignment granted pursuant to this
Agreement.
 
Section 5.2       Perfection and Protection of the Company’s Security
Interest.  Chapeau shall perform, at its expense, all action reasonably
requested by the Company at any time to perfect, maintain, protect and enforce
the Company’s Liens.  If at any time any Collateral is located on any leased
premises not owned by Chapeau, then Chapeau shall, at the request of the
Company, obtain written landlord lien waivers or subordinations with respect to
such Collateral, in form and substance satisfactory to the Company.  If any
Collateral is at any time in the possession or control of any warehouseman,
bailee, processor or any other Person other than Chapeau, then Chapeau shall
notify the Company thereof and shall, at the request of the Company, notify such
Person (in form and substance reasonably satisfactory to the Company) of the
Company’s Liens in such Collateral and instruct such Person to hold all such
Collateral for the Company’s account subject to the Company’s instructions.
 
Section 5.3       First Priority.  Chapeau agrees that the Company’s Liens shall
at all times be and remain first, prior and senior to any other interests in the
Collateral, except as may be expressly agreed otherwise by the Company in
writing.
 
Section 5.4       Collateral Proceeds Management.  Following an Event of Default
and the acceleration by the Company of the payment of the Secured Obligations,
all collections and proceeds of Collateral shall be subject to an express trust
for the benefit of the Company, and shall be delivered to the Company for
application to the Obligations as follows:
 

 

 
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(a)        Chapeau shall establish a lock-box service for collections of
Accounts at a commercial bank acceptable to the Company and subject to a
collection account agreement by such bank providing, among other things, that
(i) all items of payment received in such lock-box are received by such bank for
the Company, (ii) such bank has no rights of setoff or recoupment or any other
claim against such items (other than for payment of its service fees and other
charges directly related to the administration of such lock-box), and (iii) such
bank will immediately deposit all such collections to an account of the
Company.  Chapeau shall instruct all Account Debtors in writing to cause, and
otherwise take reasonable steps to cause, all payments to be delivered directly
to the address established for such lock-box service.
 
(b)        Chapeau will not use, dispose, withhold or otherwise exercise
dominion over any proceeds of Collateral.  If Chapeau at any time receives any
proceeds of Collateral, it shall receive such proceeds as the Company’s trustee
and shall immediately deliver such proceeds to the Company in their original
form duly endorsed in blank or to the order of the Company.
 
Section 5.5       Examinations; Inspections; Verifications.  The Company shall
have the right at any time upon 2 Business Days prior notice to Chapeau to
conduct field examinations to inspect the Collateral and to inspect, audit and
copy Chapeau’s books and records relating to the Collateral or the
Business.  Following an Event of Default and acceleration of the Secured
Obligations and during the continuation thereof or following the reasonable
request of the Company, the Company is authorized to discuss Chapeau’s affairs
with any Person (other than a direct competitor of Chapeau), including without
limitation employees of Chapeau, as the Company may deem necessary in relation
to the Collateral, Chapeau’s business or financial condition or the Company’s
rights under this Agreement.  Chapeau agrees to pay the Company’s then customary
charge for field examinations and audits and the preparation of reports thereof
performed or prepared at any time following the occurrence of an Event of
Default and during the continuance thereof.
 
Section 5.6       Right to Cure.  The Company may, in its sole and absolute
discretion, pay any amount or do any act required of Chapeau hereunder or under
any other Loan Document in order to preserve, protect, maintain or enforce the
Collateral or the Company’s Liens, and which Chapeau fails to pay or do,
including payment of any judgment lien, insurance premium, charge, landlord’s or
bailee’s claim on or with respect to the Collateral.  All payments that the
Company makes under this Section 5.6 and all out-of-pocket costs and expenses
that the Company pays or incurs in connection therewith shall be paid or
reimbursed to the Company on demand upon receipt of reasonable proof
thereof.  Any action taken by the Company under this Section 5.6 shall not waive
any Default or Event of Default or any rights of the Company with respect
thereto.
 

 

 
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Section 5.7       Power of Attorney.  Following an Event of Default and during
the continuation thereof, Chapeau hereby irrevocably appoints the Company as
Chapeau’s agent and attorney-in-fact to take any action necessary to preserve
and protect the Collateral and the Company’s interests under the Loan Documents
or to sign and file any document necessary to perfect the Company’s
Liens.  Without limiting the foregoing, the Company shall have the right at any
time to take any of the following action, in its own name or in the name of
Chapeau: (i) make written or verbal requests for verification of the validity,
amount or any other matter relating to any Collateral from any Person, (ii)
endorse Chapeau’s name on checks, instruments or other evidences of payment on
Collateral, (iii) sign and file, in Chapeau’s name or in the Company’s name as
secured party, any proof of claim or other document in any bankruptcy
proceedings of any Account Debtor or obligor on Collateral, (iv) access, copy or
utilize any information recorded or contained in any computer or data processing
equipment or system maintained by Chapeau in respect of the Collateral, (v) open
mail addressed to Chapeau and take possession of checks or other proceeds of
Collateral for application in accordance with this Agreement, (vi) notify any or
all Persons which the Company believes may be Account Debtors or obligors on
Collateral to make payment directly to the Company, for the account of Chapeau,
(vii) redirect the deposit and disposition of collections and proceeds of
Collateral, provided, that such proceeds shall be applied to the Secured
Obligations as provided by this Agreement, (viii) settle, adjust, compromise or
discharge Accounts or extend time of payment upon such terms as the Company may
reasonably determine, (ix) notify post office authorities, in the name of
Chapeau or in the name of the Company, as secured party, to change the address
for delivery of Chapeau’s mail to an address designated by the Company, (x) sign
Chapeau’s name on any invoice, bill of lading, warehouse receipt or other
document of title relating to any Collateral and (xi) clear Inventory through
customs in Chapeau’s name, in the Company’s name as secured party or in the name
of the Company’s designee, and to sign and deliver to customs officials powers
of attorney in Chapeau’s name for such purpose. The powers granted under this
Section 5.7 are coupled with an interest and are irrevocable until all Secured
Obligations have been paid in full.  Costs and expenses incurred by the Company
in connection with any of such actions by the Company, including reasonable
attorneys’ fees and reasonable out-of-pocket expenses, shall be reimbursed to
the Company on demand.
 
Section 5.8       Preservation of the Company’s Rights.  To the extent allowed
by law, and unless the Collateral is in the possession of the Company, neither
the Company nor any of its officers, directors, employees or agents shall be
liable or responsible in any way for the safekeeping of any Collateral or for
any act or failure to act with respect to the Collateral, or for any loss or
damage thereto or any diminution in the value thereof, or for any act by any
other Person.  In the case of any instruments and chattel paper included within
the Collateral, the Company shall have no duty or obligation to preserve rights
against prior parties.  The Secured Obligations shall not be affected by any
failure of the Company to take any steps to perfect its security interests or to
collect or realize upon the Collateral, nor shall loss of or damage to the
Collateral release Chapeau from any of the Secured Obligations.
 
ARTICLE VI

CONDITIONS

Section 6.1       Conditions Precedent to the Initial Acquisitions and the
Loan.  The obligation of the Company to make the Initial Acquisitions and the
Loan under this Agreement is subject to the fulfillment, to the Company’s
reasonable satisfaction, of each of the following conditions precedent:
 

 
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(a)        The Company shall have received each of the following, in each case
in form and substance reasonably satisfactory to the Company:
 
(i)         A copy of the organizational documents of Chapeau, and all
amendments thereto, accompanied by the certificate of the appropriate
Governmental Authority of Chapeau’s jurisdiction of incorporation bearing a
current date acceptable to the Company, to the effect that such copy is correct
and complete and that Chapeau is duly organized and validly existing in such
jurisdiction;
 
(ii)         Certification by the appropriate Governmental Authority, bearing a
current date acceptable to the Company, to the effect that Chapeau is in good
standing and qualified to transact business in Chapeau’s jurisdiction of
incorporation and in each other jurisdiction where Chapeau is qualified to do
business;
 
(iii)        (A) a copy of the bylaws or similar governing document of Chapeau,
and all amendments thereto, (B) certification of the name, signature and
incumbency of all officers of Chapeau who are authorized to execute any
Transaction Document on behalf of Chapeau and (C) a copy of authorizing
resolutions approving this Agreement and the other Transaction Documents to be
executed and delivered by Chapeau, authorizing the transactions contemplated
thereby, and authorizing and directing a named officer or officers of Chapeau to
sign and deliver all Transaction Documents to be executed by Chapeau, duly
adopted by Chapeau’s board of directors, all accompanied by a certificate from
the Chief Executive Officer of Chapeau dated as of the Initial Closing Date to
the effect that each such item is true and complete and in full force and effect
as of the Initial Closing Date;
 
(iv)        This Agreement, duly executed by Chapeau;
 
(v)         The Note, the Option, the Warrant and the Registration Rights
Agreement, each duly executed Chapeau;
 
(vi)        Evidence of insurance in compliance with the requirements of this
Agreement together with loss payable and additional insured endorsements in
favor of the Company;
 
(vii)       A closing certificate, certifying to the satisfaction of conditions
precedent specified by this Section 6.1, duly executed by the Chief Executive
Officer;
 
(viii)      UCC-3 termination statements, partial releases or such other
releases may be required by the Company with respect to the Collateral;
 
(ix)       Copies of the Financial Statements duly certified by the Chief
Financial Officer thereof;
 
(x)        A Trademark Security Agreement, duly executed;
 
(xi)       A Patent Security Agreement, duly executed. 
 

 

 
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(b)        An opinion of counsel for Chapeau, in form and substance reasonably
satisfactory to the Company, and an opinion of special Utah counsel for Chapeau,
in form and substance reasonably satisfactory to the Company; and
 
(c)        Chapeau shall have paid all expenses of the Company incurred in
connection with the Transaction.
 
Section 6.2       Conditions Precedent to all Future Acquisitions.  In addition
to the conditions precedent specified by Section 6.1, the obligation of the
Company to acquire any Future Turnkey Project shall be subject to the following
conditions precedent:
 
(a)        All representations and warranties in this Agreement shall be true
and correct in all material respects on and as of the date of the  acquisition
of such Future Turnkey Project, as though made on and as of such date (except to
the extent any such representations and warranties relate solely to an earlier
date);
 
(b)        No Default or Event of Default shall have occurred and be continuing
on the date of such acquisition; and
 
(c)        No Material Adverse Effect shall have occurred. Conditions Precedent
to Chapeau.
 
Section 6.3       Conditions Precedent to Chapeau.   The obligations of Chapeau
to consummate the transactions contemplated by this Agreement is subject to the
fulfillment, to Chapeau’s reasonable satisfaction, of each of the following
conditions precedent.  Chapeau shall have received each of the following, in
each case in form and substance reasonably satisfactory to Chapeau:
 
(a)        A copy of the organizational documents of the Company, and all
amendments thereto, accompanied by the certificate of the appropriate
Governmental Authority of the Company’s jurisdiction of organization bearing a
current date acceptable to Chapeau, to the effect that such copy is correct and
complete and that the Company is duly organized and validly existing in such
jurisdiction;
 
(b)        Certification by the appropriate Governmental Authority, bearing a
current date acceptable to the Chapeau, to the effect that the Company is in
good standing and qualified to transact business in Company’s jurisdiction of
organization and in each other jurisdiction where the Company is qualified to do
business;
 
(c)        (A) a copy of the governing documents of Company, and all amendments
thereto, (B) certification of the name, signature and incumbency of all
representatives of the Company who are authorized to execute any Transaction
Document on behalf of the Company, and (C) a copy of authorizing resolutions
approving this Agreement and the other Transaction Documents to be executed and
delivered by the Company, authorizing the transactions contemplated thereby, and
authorizing and directing a named manager or managers of the Company to sign and
deliver all Transaction Documents to be executed by the Company, duly adopted by
the Company’s governing body, all accompanied by a certificate from a Manager of
the Company dated as of the Initial Closing Date to the effect that each such
item is true and complete and in full force and effect as of the Initial Closing
Date;
 

 

 
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(d)        This Agreement, duly executed by the Company; and
 
(e)        The Option, the Warrant, the Registration Rights Agreement, each duly
executed by the Company.
 

ARTICLE VII

COVENANTS

Through and until the payment and performance in full of the Secured
Obligations, unless otherwise consented to by the Company, which consent shall
not be unreasonably withheld, Chapeau agrees as follows:
 
Section 7.1       Existence and Good Standing.  Each of Chapeau and its
Subsidiary shall maintain its existence and its qualification and good standing
in all jurisdictions in which the failure to maintain such qualification or good
standing would reasonably be expected to have a Material Adverse Effect.
 
Section 7.2       Fundamental Changes.  Neither Chapeau nor any Subsidiary shall
enter into any Change of Control or wind-up, liquidate or dissolve.  Chapeau
will not change its name, its jurisdiction of organization, organizational type
or location of its chief executive office unless it gives the Company at least
thirty (30) days’ prior written notice thereof and executes all documents that
the Company reasonably requests in connection therewith.
 
Section 7.3       Compliance with Laws.  Each of Chapeau and its Subsidiary
shall comply in all material respects with all applicable requirements of
Law.  Without limiting the foregoing, Chapeau will timely file all tax returns,
timely pay all taxes due and payable by Chapeau (except such taxes as may be
contested in good faith by appropriate proceedings, provided that adequate
reserves shall be maintained as are appropriate according to GAAP and no Lien
(other than a Permitted Lien) results from any non-payment, make all required
withholding and other tax deposits, and establish adequate reserves for payment
of all such items.
 
Section 7.4       Books and Records.  Chapeau shall maintain at all times
correct and complete books and records in which complete, correct and timely
entries are made of its transactions in accordance with GAAP applied
consistently with the audited financial statements required to be delivered
pursuant to Section 7.5.
 
Section 7.5       Financial Reporting.  Chapeau will furnish to the Company the
following information, all of which shall be kept confidential by the Company:
 

 
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(a)        As soon as available, but in any event not later than date on which
annual financial statements must be filed by Chapeau with the Commission,
consolidated audited and consolidating audited balance sheets, and statements of
income and expense, cash flow and of stockholders’ equity for Chapeau and its
Subsidiary for such fiscal year, and the accompanying notes thereto, prepared in
accordance with GAAP, which present fairly the financial position and results of
operations of Chapeau and its consolidated Subsidiary as of the date thereof and
for the fiscal year then ended.  Such statements shall be examined in accordance
with generally accepted auditing standards by independent certified public
accountants selected by Chapeau.  Upon the occurrence of an Event of Default,
Chapeau hereby authorizes the Company to communicate directly with its certified
public accountants and, by this provision, authorizes such accountants to
disclose to the Company any and all financial statements and other supporting
financial documents and schedules relating to Chapeau and to discuss directly
with the Company the finances and affairs of Chapeau.
 
(b)        As soon as available, but in any event not later than date on which
quarterly financial statements must be filed by Chapeau with the Commission
consolidated and consolidating unaudited balance sheets and statements of income
and expense, cash flow and of stockholders’ equity for Chapeau and its
consolidated Subsidiary as of the end of such quarter and the accompanying notes
thereto, if any, , which present fairly the financial position and results of
operations of Chapeau and its consolidated Subsidiary as of the date thereof and
for the quarter then ended;
 
(c)        As soon as available, but in any event not later than thirty (30)
days after the end of each calendar month, consolidated and consolidating
unaudited balance sheets of Chapeau and its consolidated Subsidiary as of the
end of such month, and consolidated and consolidating unaudited statements of
income and expense for Chapeau and its consolidated Subsidiary for such month
and for the period from the beginning of the fiscal year to the end of such
month, all in reasonable detail, fairly presenting the financial position and
results of operations of Chapeau and its consolidated Subsidiary as of the date
thereof and for such periods.
 
(d)        With each of the annual audited financial statements delivered
pursuant to Section 7.5(a), and with each of the quarterly and monthly unaudited
financial statements delivered pursuant to Sections 7.5(b) and (c), a Compliance
Certificate duly executed by the chief financial officer of Chapeau (i) setting
forth in reasonable detail the calculations required to establish that Chapeau
was in compliance with the covenants, if any, set forth in Section 7.23 during
the period covered in such financial statements and as of the end thereof and
(ii) stating that, except as explained in reasonable detail in such certificate
(A) all of the representations and warranties of Chapeau contained in this
Agreement and the other Transaction Documents are correct and complete in all
material respects as at the date of such certificate as if made at such time,
except for those that speak as of a particular date, (B) Chapeau is, at the date
of such certificate, in compliance in all material respects with all of its
respective covenants and agreements in this Agreement and the other Transaction
Documents and (C) no Default or Event of Default then exists or existed during
the period covered by such financial statements.  If such certificate discloses
that a representation or warranty is not correct or complete, or that a covenant
has not been complied with, or that a Default or Event of Default existed or
exists, such certificate shall set forth what action Chapeau has taken or
proposes to take with respect thereto.
 

 
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(e)        As soon a practicable after approval by Chapeau’s Board of Directors,
but in no event later than ninety days after the beginning of each fiscal year,
annual forecasts (to include forecasted consolidated and consolidating balance
sheets, statements of income and expenses and statements of cash flow) for
Chapeau and its Subsidiary as of the end of and for each month of such fiscal
year.
 
(f)         As soon as available, but in any event not later than five (5)
Business Days after Chapeau’s receipt thereof, a copy of all management reports
and management letters prepared for Chapeau by any independent certified public
accountants of Chapeau.
 
(g)        Promptly after filing, a copy of each federal and state income tax
return filed by Chapeau.
 
(h)        Such additional information as the Company may from time to time
reasonably request regarding the financial and business affairs of Chapeau or
any of its Subsidiary.
 
Section 7.6       Notification to the Company.  Chapeau shall notify the Company
in writing immediately (a) after becoming aware of any Default or Event of
Default, or if Chapeau reasonably expects that any Default or Event of Default
will occur, (b) after becoming aware of any event or circumstance, including
without limitation any pending or threatened action, suit or claim by any
Person, any pending or threatened investigation by a Governmental Authority or
any violation of any requirement of Law, that would be treated as a contingent
liability of Chapeau under GAAP and is in an amount in excess of $250,000 or
would be reasonably expected to result in a Material Adverse Effect and (c)
immediately if its board of directors or other governing body authorizes the
filing by Chapeau of a petition in bankruptcy.  Each notice given shall describe
the subject matter thereof in reasonable detail and specify the action that
Chapeau or its Subsidiary, as applicable, has taken or proposes to take with
respect thereto.
 
Section 7.7       Collateral Locations.  Except for Inventory in transit to
Chapeau in the Ordinary Course of Business, Chapeau will not maintain any
Collateral at any location other than those locations listed on Schedule 7.7
unless it gives the Company at least thirty (30) days’ prior written notice
thereof (with the delivery of each Turnkey Information Package constituting
prior written notice with respect to any Collateral to be installed and
maintained at such Future Turnkey Project site) and delivers or causes to be
delivered to the Company all documents that the Company reasonably requests in
connection therewith, including without limitation, in the case of any leased
location, an access and waiver agreement, signed by the owner of such location,
in form and substance reasonably satisfactory to the Company.
 
Section 7.8       Use of Proceeds.  Chapeau will not use any proceeds of the
Loan, directly or indirectly, for any purpose other than (a) on the Agreement
Date, to pay transactional fees, costs and expenses incurred in connection with
the Transaction Documents, (b) on the Agreement Date and thereafter, for working
capital in connection with the growth and expansion of the Business and (c)
those items listed on Schedule 7.8.  Chapeau will not use any proceeds of the
Loan, directly or indirectly, to purchase or carry margin stock, repay or
otherwise refinance indebtedness incurred to purchase or carry margin stock or
to extend credit for the purpose of purchasing or carrying any margin stock.
 

 
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Section 7.9       Business.  Chapeau will not engage, directly or indirectly, in
any line of business other than the energy and energy management business.
 
Section 7.10     Liens.  Neither Chapeau nor its Subsidiary shall create, incur,
assume, or permit to exist any Lien on any property now owned or hereafter
acquired by any of them, except Permitted Liens.
 
Section 7.11     Accounts.  If Chapeau becomes aware of any matter adversely
affecting the collectability of any Account involving an amount greater than
$250,000, including information regarding the Account Debtor’s creditworthiness,
Chapeau will promptly so advise the Company.  Chapeau will promptly notify the
Company of all disputes and claims in excess of $250,000 with respect to any
Account Debtor.  No material discount, credit or allowance shall be granted to
any such Account Debtor without the Company’s prior written consent.
 
Section 7.12     Inventory.  Inventory shall be held for sale in the Ordinary
Course of Business, and is and will be fit for such purpose.  Chapeau will keep
the Inventory in good and marketable condition, at its own expense.
 
Section 7.13     Equipment.   All Equipment will be used or held for use in the
Ordinary Course of Business and shall be maintained in good operating condition
and repair, ordinary wear and tear excepted.  Current maintenance records will
be maintained on all Equipment and made available to the Company upon
request.  Chapeau will not alter or remove any identifying symbol or number on
any Equipment.
 
Section 7.14     Insurance.  Chapeau shall keep and maintain adequate insurance
with respect to the Business and all Collateral, written by insurers reasonably
acceptable to the Company.  Such insurance shall be with respect to loss,
damages, and liability of amounts acceptable to the Company and shall include,
at minimum, business interruption, workers compensation, general premises
liability, fire, theft, casualty and all risk.  Chapeau will make timely payment
of all premiums required to maintain such insurance in force.  Chapeau shall
cause the Company to be an additional insured and loss payee under all policies
of insurance covering any of the Collateral, to the extent of the Company’s
interest, in form reasonably satisfactory to the Company.  All insurance
proceeds received from any casualty to any of the Collateral shall either be (a)
used to replace such damaged Collateral or (b) paid to the Company and shall be
applied in reduction of the Secured Obligations unless otherwise agreed by the
Company.  Chapeau shall deliver copies of each insurance policy to the Company
upon request.
 
Section 7.15     Disposition of Property.  Neither Chapeau nor its Subsidiary
will transfer, sell, assign, lease or otherwise dispose of any of its property,
or agree to do any of the foregoing, except (a) the use of money or cash
equivalents, not constituting proceeds of Collateral, in the Ordinary Course of
Business and in a manner that is not prohibited by this Agreement, (b) sale of
Inventory in the Ordinary Course of Business and (c) sale or other disposition
of Equipment in the Ordinary Course of Business that is obsolete or no longer
useable in the Business.
 

 

 
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Section 7.16     Sale and Leaseback. Neither Chapeau nor its Subsidiary shall
directly or indirectly enter into any arrangement with any Person providing for
Chapeau or such Subsidiary to lease or rent property that Chapeau or such
Subsidiary has sold or will sell or otherwise transfer to such Person.
 
Section 7.17     Distributions. Neither Chapeau nor its Subsidiary shall
directly or indirectly declare or make, or incur any liability to make, any
Distribution, except Distributions to Chapeau by its Subsidiary.
 
Section 7.18     Restricted Investments.  Neither Chapeau nor its Subsidiary
shall make any Restricted Investment.
 
Section 7.19     Guaranties.  Neither Chapeau nor its Subsidiary shall make,
issue or be or become liable on any Guaranty, except in favor of the Company.
 
Section 7.20     Indebtedness.  Neither Chapeau nor its Subsidiary shall incur
or maintain any Indebtedness, other than (a) the Note, (b) trade payables and
contractual obligations to suppliers and customers arising in the Ordinary
Course of Business, (c) Indebtedness described on Schedule 7.20 and (d)
Indebtedness arising in respect of any Turnkey Project not purchased by the
Company, so long as the terms of such Indebtedness are reasonably acceptable to
the Company and do not include any Liens on any of the existing Collateral.
 
Section 7.21     Transactions with Affiliates.    Except as otherwise
contemplated by this Agreement, Chapeau will not engage in any transaction with
any Affiliate except in the Ordinary Course of Business and in amounts and upon
terms no less favorable to Chapeau than would be obtained in a comparable
arm’s-length transaction with a Person who is not an Affiliate.
 
Section 7.22     New Subsidiaries.  Chapeau shall not, directly or indirectly,
organize, create, acquire or permit to exist any Subsidiary other than those
listed on Schedule 7.22.
 
Section 7.23     Financial Covenants.  At such time as Chapeau has positive
operating cash flow, the Parties shall negotiate in good faith standard and
customary financial covenants for inclusion in this Article 7, such covenants to
include without limitation, debt service and tangible net worth tests.
 
Section 7.24     Subordinated Indebtedness.  Chapeau will not make any payment
on account of subordinated Indebtedness unless and except (a) to the extent such
payment is expressly permitted by the terms of a subordination agreement
reasonably acceptable to the Company applicable to such Indebtedness or (b) such
subordinated indebtedness is outstanding as of the Initial Closing Date and is
otherwise disclosed on Schedule 7.19.
 
Section 7.25     Further Assurances.  Chapeau shall execute and deliver, or
cause to be executed and delivered, to the Company such documents and
agreements, and shall take or cause to be taken such actions, as the Company
may, from time to time, reasonably request to carry out the terms and conditions
of this Agreement and the other Loan Documents.
 

 
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ARTICLE VIII

EVENTS OF DEFAULT
 
Section 8.1       Events of Default.  Each of the following shall constitute an
“Event of Default” under this Agreement:
 
(a)        any failure by Chapeau to timely pay any amount due under the Note
within five (5) Business Days of its due date;
 
(b)        any representation or warranty made by Chapeau in this Agreement or
any other Transaction Document or any financial statement furnished by Chapeau
to the Company shall prove to be untrue in any material respect as of the date
on which made or furnished, provided that, Chapeau shall have thirty (30) days
from the date of its actual knowledge of the breach of such representation or
warranty to cure such breach if such breach is capable of a cure;
 
(c)        any material noncompliance or material breach of any requirement
contained in;
 
(i)        Article VII, and such failure continues for a period of ten (10) days
after the earlier of Chapeau’s actual knowledge thereof or written notice
thereof by the Company to Chapeau;
 
(ii)       any other provision of this Agreement, and such failure continues for
a period of thirty (30) days after the earlier of Chapeau’s actual knowledge
thereof or written notice thereof by the Company to Chapeau;
 
(d)        Chapeau or its Subsidiary shall (i) file a voluntary petition in
bankruptcy or otherwise commence any action or proceeding seeking
reorganization, arrangement or readjustment of its debts, or consent to or
acquiesce in any such petition, action or proceeding; (ii) apply for or
acquiesce in the appointment of a receiver, assignee, liquidator, custodian,
trustee or similar officer for it or for all or any part of its property; (iii)
make an assignment for the benefit of creditors; or (iv) be unable generally to
pay its debts as they become due;
 
(e)        an involuntary petition shall be filed or an action or proceeding
otherwise commenced seeking relief under the Bankruptcy Code or seeking any
reorganization, arrangement, consolidation or readjustment of the debts of
Chapeau or its Subsidiary under any other bankruptcy or insolvency law;
 
(f)         a receiver, assignee, liquidator, custodian, trustee or similar
officer shall be appointed for Chapeau or its Subsidiary;
 
(g)        Chapeau or its Subsidiary shall file a certificate of dissolution or
shall be liquidated, dissolved or wound-up or shall commence or have commenced
against it any action or proceeding for dissolution, winding-up or liquidation,
or shall take any action in furtherance thereof;
 

 

 
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(h)        Default shall occur with respect to any indebtedness for borrowed
money (other than the Secured Obligations) of Chapeau or its Subsidiary in an
outstanding principal amount which exceeds $500,000 and which indebtedness
Chapeau does not reasonably dispute in good faith, and such default shall
continue for more than the period of grace, if any, therein with respect
thereto, if the effect thereof (with or without the giving of notice or further
lapse of time or both) is to accelerate, or to permit the holder of any such
Indebtedness to accelerate, the maturity of any such Indebtedness, or any such
Indebtedness shall be declared due and payable or be required to be prepaid
(other than by a regularly scheduled required prepayment) prior to the stated
maturity thereof;
 
(i)         one or more final, non-appealable judgments, orders, decrees or
arbitration awards is entered against Chapeau involving in the aggregate
liability (to the extent not covered by independent third-party insurance as to
which the insurer does not dispute coverage) of $500,000 or more and such
liability has not been satisfied within fifteen (15) days of such final,
non-appealable event;
 
(j)         the filing or commencement of any attachment, sequestration,
garnishment, execution or other Lien (other than Permitted Liens) or action
against or with respect to any Collateral that would be reasonably expected to
have a Material Adverse Effect;
 
(k)        any Loan Document ceases to be in full force and effect or any Lien
with respect to any material portion of the Collateral intended to be secured
thereby ceases to be, or is not, valid, perfected (for any reason other than the
failure of the Company to file a financing statement or continuation thereof to
maintain perfection) and prior to all other Liens (other than Permitted Liens)
or is terminated, revoked or declared void, or any Loan Document shall terminate
(other than in accordance with its terms with the written consent of the
Company) or become void or unenforceable, or the validity or enforceability of
this Agreement or any Transaction Document shall be contested by Chapeau, its
Subsidiary or any Affiliate of either Person;
 
(l)         the occurrence of any event or circumstance that results in a
Material Adverse Effect.
 

ARTICLE IX

REMEDIES

Section 9.1
Obligations.

 
(a)        Upon the occurrence of any Event of Default described in Sections
8.1(d), 8.1(e), 8.1(f) or 8.1(g), this Agreement shall automatically and
immediately terminate and the Note and all other obligations owed by Chapeau
shall automatically become immediately due and payable without notice or demand
of any kind.
 

 
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(b)        If any other Event of Default exists, the Company may do any one or
more of the following, at any time or times and in any order, without notice to
or demand on Chapeau: (i) terminate the Agreement as they relate to the Loan,
(ii) declare the Note and any or all other obligations to be immediately due and
payable and (iii) pursue its other rights and remedies hereunder, under the Note
or otherwise under applicable Law.
 
Section 9.2       Collateral.  If an Event of Default has occurred and is
continuing, the Company shall have, in addition to all other rights of the
Company, the rights and remedies of a secured party under the UCC.  At any time
when an Event of Default is in existence: (i) the Company may notify Account
Debtors to make payment directly to the Company, or to such address as the
Company may specify, and enforce, settle or adjust Accounts General Intangibles
or Chattel Paper with Account Debtors or obligors thereon for amounts and upon
terms which the Company considers appropriate, and in such case, the Company
will credit the Secured Obligations with only the net amounts received by the
Company in payment thereof after deducting all the Company Expenses incurred or
expended in connection therewith; (ii) the Company may take possession of the
Collateral and keep it on Chapeau’s premises or remove all or any part of it to
another location selected by the Company; (iii) on request by the Company,
Chapeau will, at Chapeau’s cost, assemble the Collateral and make it available
to the Company at a place reasonably convenient to the Company; and (iv) the
Company may sell or otherwise dispose of any Collateral at public or private
sales, for cash, upon credit or otherwise, at such prices and upon such terms as
the Company deems appropriate in its sole and absolute discretion.  Unless the
Collateral is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, the Company will give Chapeau
reasonable notice of the time and place of any public sale thereof or of the
time after which any private sale or any other intended disposition thereof is
to be made.  For this purpose, it is agreed that at least five (5) Business Days
notice of the time of sale or other intended disposition of the Collateral
delivered in accordance with Section 11.1 shall be deemed to be reasonable
notice in conformity with the UCC.  The Company may adjourn or otherwise
reschedule any public sale by announcement at the time and place specified in
the notice of such public sale, and such sale may be made at the time and place
as so announced without necessity of further notice.  The Company shall not be
obligated to sell or dispose of any Collateral, notwithstanding any prior notice
of intended disposition.  If any Collateral is sold on terms other than payment
in full at the time of sale, no credit shall be given in reduction of the
Secured Obligations until the Company receives payment in cash, and if any such
buyer defaults in payment, the Company may resell the Collateral without further
notice to Chapeau.  If the Company seeks to take possession of all or any
portion of the Collateral by judicial process, Chapeau waives the posting of any
bond, surety or security with respect thereto that might otherwise be required.
Chapeau agrees that the Company has no obligation to preserve rights to the
Collateral or to marshal any Collateral for the benefit of any Person. The
Company is hereby granted a license or other right to use, without charge,
Chapeau’s labels, patents, copyrights, name, trade secrets, trade names,
trademarks in completing production of, advertising or selling any Collateral,
and Chapeau’s rights under all licenses shall inure to the Company’s benefit for
such purpose.  The proceeds of any sale or disposition of Collateral shall be
applied first to all expenses of sale, including reasonable attorneys’ fees, and
then to the Secured Obligations.  Chapeau shall remain liable for any
deficiency.
 

 

 
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Section 9.3       Injunctive Relief.  Following an Event of Default and during
the continuance thereof, all cash proceeds of Collateral from time to time
existing, including without limitation collections and payments of Accounts,
whether consisting of cash, checks or other similar items, at all times shall be
subject to an express trust for the benefit of the Company.  All such proceeds
shall be subject to the Company’s Liens.  Except as may be specifically allowed
otherwise by this Agreement, Chapeau is expressly prohibited from using,
spending, retaining or otherwise exercising any dominion over such proceeds
following an Event of Default and during the continuance thereof.  Chapeau
acknowledges and agrees that an action for damages against Chapeau for any
breach of such prohibitions shall not be an adequate remedy at law.  In the
event of any such breach, Chapeau agrees to the fullest extent allowed by law
that the Company shall be entitled to injunctive relief to restrain such breach
and require compliance with the requirements of this Agreement.
 
Section 9.4       Setoff.  Chapeau irrevocably authorizes the Company to charge
any account of Chapeau maintained with the Company with such amount as may be
necessary from time to time to pay any of the Secured Obligations when
due.  Chapeau agrees that the Company shall have a contractual right to setoff
any and all deposits or other sums at any time credited by or due from the
Company to Chapeau against any part of the Secured Obligations.
 
ARTICLE X

INDEMNIFICATION

Section 10.1     Survival.  The representations and warranties set forth in this
Agreement shall survive the Closing through and including the date that the
Secured Obligations have been paid in full.  
 
Section 10.2     Indemnification. 
 
(a)        Subject to the other provisions of this Article X, Chapeau hereby
agrees, to the fullest extent permitted by applicable Law, to indemnify, defend
and hold harmless the Company, as appropriate, from, against and in respect of
any Losses incurred or suffered by the Company arising out of, in connection
with or relating to:
 
(i)       Any failure of the representations and warranties of Chapeau in this
Agreement to be true and correct in all material respects as of the Initial
Closing Date; and
 
(ii)      Any failure of Chapeau to perform in all material respects any of its
covenants or obligations contained in this Agreement.
 
(b)        Chapeau shall not be required to indemnify the Company to the extent
of any Loss that a court of competent jurisdiction shall have determined by
final judgment to have resulted from the bad faith or willful misconduct of the
Company.
 
(c)        Notwithstanding anything to the contrary elsewhere in this Agreement,
no party shall, in any event, be liable to any other Person for any
consequential, incidental, indirect, special or punitive damages of such other
Person, including any loss of revenue, income or profits, diminution of value or
loss of business reputation or opportunity arising out of or relating to the
breach or alleged breach hereof, except to the extent any such damages are
required to be paid pursuant to a third party claim determined by final judgment
by a court of competent jurisdiction.
 

 
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Section 10.3     Indemnification Procedures. 
 
(a)        Any Person against whom indemnification is sought pursuant to the
provisions of Section 10.2 shall be referred to as an “Indemnifying Party”, and
any Person seeking to be indemnified pursuant to the provisions of Section 10.2
shall be referred to as an “Indemnified Party”.
 
(b)        If an Indemnified Party determines that it has a claim for Losses
against an Indemnifying Party under Section 10.2 (other than as a result of a
Third Party Claim), the Indemnified Party shall give prompt written notice
thereof to the Indemnifying Party, which notice shall describe in reasonable
detail the nature of the claim, an estimate of the amount of Losses attributable
to such claim to the extent feasible and the basis of the Indemnified Party’s
request for indemnification under Section 10.2.  If the Indemnifying Party
disputes such claim or the amount of Losses attributable to such claim and such
dispute is not resolved by the parties, such dispute shall be resolved in
accordance with Section 10.3(c) below.
 
(c)        If an Indemnified Party is notified of a claim of a third party (each
such claim, a “Third Party Claim”) which may give rise to a claim for
indemnification against an Indemnifying Party under Section 10.2, then the
Indemnified Party shall promptly notify such Indemnifying Party thereof in
writing (including copies of all papers served with respect to such Third Party
Claim), which notice shall describe in reasonable detail the nature of the Third
Party Claim, an estimate of the amount of Losses attributable to the Third Party
Claim to the extent feasible and the basis of the Indemnified Party’s request
for indemnification under Section 10.2; provided however, that the failure to
notify an Indemnifying Party shall not relieve the Indemnifying Party of its
obligations hereunder unless and to the extent the Indemnifying Party shall be
actually and materially prejudiced by such failure to so notify.  Any
Indemnifying Party shall be entitled to participate in the defense of such Third
Party Claim giving rise to an Indemnified Party’s claim for indemnification at
such Indemnifying Party’s expense, and at its option (subject to the limitations
set forth below) shall be entitled to assume the defense thereof by appointing a
reputable counsel reasonably acceptable to the Indemnified Party to be the lead
counsel in connection with such defense; provided further, that, as a condition
precedent to Indemnifying Party assuming the defense of such claim, Indemnifying
Party must first agree in writing to be responsible for all Losses arising
therefrom (subject to the limitations in Section 10.2, as applicable) without
any reservations of rights, defenses or similar claims to provide full
indemnification for such Losses and demonstrate that, after giving effect to the
application of the limitations in Section 10.2, as applicable, Indemnifying
Party is reasonably likely to be responsible for a greater portion of the Losses
than Indemnified Party; provided, further, that:
 
(i)       the Indemnified Party shall be entitled to participate at its own
expense in the defense of such claim and to employ counsel of its choice for
such purpose;
 
(ii)      the Indemnified Party shall cooperate in good faith with the
Indemnifying Party and its counsel in the defense or compromise of any claims;
 

 
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(iii)      the Indemnified Party (and not the Indemnifying Party) shall be
entitled to assume control of such defense and the Indemnifying Party shall pay
the fees and expenses of counsel retained by the Indemnified Party if (i) the
claim for indemnification relates to or arises in connection with any criminal
proceeding, action, indictment, allegation or investigation; (ii) the claim
seeks an injunction or equitable relief against the Indemnified Party; (iii) a
conflict of interest exists between the Indemnifying Party and the Indemnified
Party; (iv) an adverse outcome of the claim could reasonably be expected to have
a Material Adverse Effect on the Indemnified Party or its business; or (v) the
Indemnifying Party failed or is failing to vigorously prosecute or defend such
claim; and
 
(iv)     if the Indemnifying Party shall control the defense of any such claim,
the Indemnifying Party shall obtain the prior written consent of the Indemnified
Party (not to be unreasonably withheld) before entering into any settlement of a
Proceeding.
 
(d)        For the avoidance of doubt, the defense of any claim includes the
obligation to post all appeal bonds, securities, guaranties or similar
obligations in connection with such claim or Third Party Claim related thereto.
 
(e)        After any final decision, judgment or award shall have been rendered
by a Governmental Body of competent jurisdiction and the expiration of the time
in which to appeal therefrom, or a settlement shall have been consummated, or
the Indemnified Party and the Indemnifying Party shall have arrived at a
mutually binding agreement, in each case with respect to any Third Party Claim
hereunder, the Indemnified Party shall forward to the Indemnifying Party notice
of any sums due and owing by the Indemnifying Party pursuant to this Agreement
with respect to such matter and the Indemnifying Party shall pay all of such
remaining sums so due and owing to the Indemnified Party by wire transfer of
immediately available funds within five Business Days after the date of such
notice.
 
Section 10.4    Calculation of Losses; Tax Treatment of Payments.  The amount of
any Losses for which indemnification is provided under this Article X shall be
net of any amounts actually recovered or recoverable by the Indemnified Party
under insurance policies or otherwise with respect to such Losses, including
under implied or express warranties, financial guarantees or other assurances,
under contractual indemnification rights with respect to third parties or as a
result of tax benefits (net of expenses incurred in connection with such
recovery).  The Indemnified Party shall use its commercially reasonable efforts
to recover under insurance policies for any Losses prior to seeking
indemnification under this Agreement.
 
ARTICLE XI
 
MISCELLANEOUS
 
Section 11.1     Notices.  Any notice, demand or other communication required or
permitted to be given or made hereunder shall be in writing and shall be
delivered personally or by courier during normal business hours on a Business
Day at the relevant address set forth below, or sent by facsimile or other means
of recorded electronic communication (provided such transmission is confirmed),
in the case of:
 

 
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(a)
Chapeau, addressed as follows:

1190 Suncast Lane, Suite 2
El Dorado Hills, California 95762
Attention: Guy A. Archbold
Facsimile: (916) 939-8705

with a copy to:
Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, California 90064
Attention:  T. Hale Boggs, Esq.
Facsimile:  (650) 213-0288

 
(b)
the Company, addressed as follows:

TEFCO, LLC
c/o Mark K. Mason
2260 Huntley Circle
San Marino, CA 91108

with copies to:

Gordon V. Smith
8401 Greensboro Drive, Suite 300
McLean, VA 22102-3598

and

Timothy F. Silvestre
Strategic Law Partners, LLP
500 South Grand Ave., Suite 2050
Los Angeles, CA 90071
Fax—(213) 213-7301

Any notice, demand or other communication so given shall be deemed to have been
given or made and received on the day of hand delivery, and on the next day
following its being sent by facsimile or other means of recorded electronic
communication, with confirmation of delivery received (provided such day is a
Business Day and, if not, on the first Business Day thereafter).  Each party may
from time to time change its address for notice by giving notice to the other
given in the manner aforesaid.
 
Section 11.2
Reserved.

 

 
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Section 11.3     Amendments; Waiver.  This Agreement may be amended, modified,
or supplemented only pursuant to a written instrument making specific reference
to this Agreement and signed by each of the parties hereto.  No waiver of any
provision hereof, or consent required hereunder, or any consent or departure
from this Agreement, shall be valid or binding unless expressly and
affirmatively made in writing and duly executed by the party to be charged with
such waiver.  No waiver shall constitute or be construed as a continuing waiver
or a waiver in respect of any subsequent default, either of similar or different
nature, unless expressly so stated in such writing.
 
Section 11.4     Assignment.  No assignment of this Agreement or of any rights
or obligations hereunder may be made by any party hereto, directly or indirectly
(by operation of law or otherwise), without the prior written consent of the
other parties hereto.  Any assignment by any party hereto in violation of this
Section 11.4 shall be null and void ab initio.
 
Section 11.5     Binding Effect.  This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs, legal
representatives, successors, and permitted assigns.
 
Section 11.6     Entire Agreement.  This Agreement, including the Schedules and
Annexes hereto, and the other Transaction Documents constitute the entire
agreement of the parties with respect to the subject matter hereof, and upon
execution hereof, the Original Agreement shall be amended and restated in its
entirety to read as set forth herein.
 
Section 11.7     No Third-Party Beneficiaries.  Nothing express or implied in
this Agreement is intended or shall be construed to confer upon or give any
person other than the parties hereto and their respective heirs, successors, and
permitted assigns any right, benefits, or remedy under or by reason of this
Agreement.
 
Section 11.8     Specific Performance.  The parties recognize the unique nature
of the obligations of each party hereunder and therefore agree that each party
shall be entitled to specific performance of the obligations of the other
parties set forth in this Agreement.
 
Section 11.9     Severability.  If any provision of this Agreement or the
application of such provision to any person or circumstance shall be held by a
court of competent jurisdiction to be invalid, illegal, or unenforceable under
the applicable Law of any jurisdiction, (i) the remainder of this Agreement or
the application of such provisions to other persons or circumstances or in other
jurisdictions shall not be affected thereby, (ii) such invalid, illegal, or
unenforceable provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such Law, and
(iii) such invalid, illegal, or unenforceable provision shall not affect the
validity or enforceability of any other provision of this Agreement.
 
Section 11.10   Governing Law; Jurisdiction.  This Agreement, and all claims or
causes of action) (whether in contract or tort) that may be based upon, arise
out of or relate to this Agreement or the negotiation, execution or performance
of this Agreement shall be governed by, and construed under and in accordance
with, the internal Laws of the State of Virginia (without regard to conflict of
laws principles thereof).  Each party to this Agreement hereby irrevocably and
unconditionally (i) agrees that any suit, action or proceeding against it by any
other party to this Agreement with respect to this Agreement shall be instituted
only in Fairfax County, Virginia; (ii) consents and submits, for itself and its
property, to the jurisdiction of such courts for the purpose of any such suit,
action or proceeding instituted against it by the other parties prior to the
Closing; (iii) agrees that a final judgment in any such suit, action or
proceeding instituted against it by the other parties shall be conclusive and
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law; and (iv) waives the right to a jury trial in any such
suit, action or proceeding instituted against it by the other parties.
 

 
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Section 11.11   Arbitration. Except as otherwise mutually agreed to by the
parties thereto, any claim, dispute, or controversy of whatever nature arising
out of or relating to this Agreement,  including, without limitation, any action
or claim based on tort, contract, or statute or concerning the interpretation,
effect, termination, validity, performance, and/or breach of this Agreement
(“Claim”), shall be resolved by final and binding arbitration before one (1)
arbitrator (the “Arbitrators”) selected from and administered by JAMS in
accordance with its then existing arbitration rules or procedures regarding
commercial or business disputes.  The arbitration shall be held in Los Angeles
County, California.
 
(a)        Depositions may be taken and full discovery may be obtained in any
arbitration commenced under this provision.
 
(b)        The Arbitrator shall, within fifteen (15) calendar days after the
conclusion of the arbitration hearing, issue a written award and statement of
decision describing the essential findings and conclusions on which the award is
based, including the calculation of any damages awarded.  The Arbitrator shall
be authorized to award compensatory damages, but shall not be authorized (i) to
award non-economic damages, such as for emotional distress, pain and suffering,
or loss of consortium, (ii) to award punitive damages, or (iii) to reform,
modify, or materially change this Agreement or any other agreements contemplated
hereunder, provided that the damage limitations described in parts (i) and (ii)
of this sentence will not apply if such damages are statutorily authorized.  The
Arbitrator also shall be authorized to grant any temporary, preliminary, or
permanent equitable remedy or relief he or she deems just and equitable and
within the scope of this Agreement, including, without limitation, an injunction
or order for specific performance.
 
(c)        Each party shall bear its own attorney’s fees, costs, and
disbursements arising out of the arbitration and shall pay an equal share of the
fees and costs of the Arbitrator, provided that the Arbitrator shall be
authorized to determine whether a party is the prevailing party, and if so, to
award to that prevailing party reimbursement for its reasonable attorneys’ fees,
costs and disbursements (including, for example, expert witness fees and
expenses, photocopy charges, travel expenses, etc.), and/or the fees and costs
of the Arbitrator.  Each party shall fully perform and satisfy the arbitration
award within 15 days of the service thereof.
 
(d)        By agreeing to this binding arbitration provision, the parties
understand that they are waiving certain rights and protections which may
otherwise be available if a Claim between the parties were determined by
litigation in court, including, without limitation, the right to seek or obtain
certain types of damages precluded by this paragraph 15.6, the right to a jury
trial, certain rights of appeal, and a right to invoke formal rules of procedure
and evidence.
 

 

 
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Section 11.12   Counterparts.  This Agreement may be executed in multiple
counterparts, each of which when so executed and delivered shall be an original,
and all of which when taken together shall constitute one and the same
instrument.
 
Section 11.13   No Presumption.  This Agreement shall be construed without
regard to any presumption or rule requiring construction or interpretation
against the party drafting or causing any instrument to be drafted.
 

 
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IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, have
duly executed this Agreement as of the date first written above.
 
CHAPEAU, INC.
 
 
By:
/s/ Guy A. Archbold

Name:
Guy A. Archbold

 
Title:
Chief Executive Officer

 

 
TEFCO, LLC
 

 
By:
/s/ Mark Mason

Name:
Mark Mason

 
Title:
Manager

 

 

 

 

 

 
 
 
 

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