Document:

Exhibit
4.2

Security Agreement
for Sausalito Capital Partners I, LLC

SECURITY
AGREEMENT

This SECURITY AGREEMENT (“Security Agreement”)
is dated as of July 5, 2006 (the “Effective Date”), by and between
Domestic Energy Partners, LLC., a Utah limited liability company (the “Company”),
and Sausalito Capital Partners I, LLC, a
Nevada limited liability company (the “Lender”).

WHEREAS, on the Effective Date, the Company issued a
10% Convertible Promissory Note (“Note”) to the Lender, attached hereto as Exhibit
A, to evidence a loan made to the Company in the amount of $500,000.00 (the
“Loan”); and

WHEREAS, in order to induce Lender to make the Loan to
the Company, the Company has agreed to grant to the Lender a security interest
in all of the Company’s assets to secure the amounts currently owing, and any
additional amounts which may be owing, by the Company pursuant to the Loan
Agreement and the terms hereof.

NOW, THEREFORE, for good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto hereby agree as
follows:

1.             Defined
Terms.  The following terms shall
have the following meanings, unless the context otherwise requires:

“Code” shall mean the Uniform Commercial Code
as in effect in the State of Washington on the Closing Date.

“Collateral” shall have the meaning given
such term in Section 2.

“Event of Default” shall have the meaning
given such term in the Note(s).

“Obligations” shall mean the unpaid Loan and
all Interest thereon (as such terms are defined in the Loan Agreement) pursuant
to the Loan Agreement and the Note(s), including all costs of collection.

All of other capitalized terms used but not defined
herein shall have the meanings assigned to such terms in the Loan Agreement.

2.             Grant of Security Interest.  As collateral security for the prompt and
complete payment and performance when due of all the Obligations, the Company
hereby grants to the Lender a security interest in all of the Company’s right,
title and interest in, to and under the following, whether now existing or
hereafter acquired (all of which collateral being hereinafter collectively
called the “Collateral”):

ACCOUNTS

All
present and future accounts owned by the Company, including and together with
any and all contract rights, accounts receivable, security deposits (where not
otherwise prohibited by law or agreement), and other rights of any kind to
receive payments for services rendered and goods supplied by the Company,
together with agreements, customer lists, client lists, and accounts, invoices,
agings, verification reports and other records relating in any way to such
accounts.

CONTRACTS

All
contracts, contract rights, royalties, license rights, leases, instruments,
undertakings, documents or other agreements in or under which the Company may
now or hereafter have any right, title or interest whether now existing or
hereinafter created and all forms of obligations owing to the Company arising
out of the sale or lease of goods, the licensing of technology or the rendering
of services by the Company, whether or not earned by 

 

performance,
and any and all credit insurance, guaranties, and other security therefor, as
well as all merchandise returned to or reclaimed by the Company.

EQUIPMENT,
FURNISHINGS AND MISCELLANEOUS PERSONAL PROPERTY

All
presently owned and hereafter acquired furniture, furnishings, equipment,
machinery, vehicles (including motor vehicles and trailers) computer hardware
and software, accounting or bookkeeping systems, client or customer lists and
information, data sheets and other records of any kind, wherever located,
stored or inventoried, which are used or which may be used in the Company’s
business;

FIXTURES

All
materials used by the Company in connection with its business operations,
including, but not limited to, supplies, trade equipment, appliances, apparatus
and any other items, now owned or hereafter acquired by the Company, and now or
hereafter attached to, or installed in (temporarily or permanently) any real
property now or in the future owned or leased by the Company;

GENERAL
INTANGIBLES

All
general intangibles and other personal property of the Company, now owned or
hereinafter acquired, including, without limitation, the following:  (a) permits, authorizations and approvals
presently and hereafter issued by any federal, state, municipal or local
governmental or regulatory authority in favor of the Company; (b) all plans,
specifications, renderings and other similar materials presently owned or
hereafter acquired by the Company; (c) all presently existing and hereafter
created contracts, leases, licenses and agreements to which the Company is a
party; (d) all presently and hereafter existing policies and agreements of
insurance in favor of the Company; (e) all presently and hereafter existing
equity contribution agreements and other equity financing arrangements in favor
of the Company; (f) all copyrights, chattel paper, electronic chattel paper,
licenses, money, insurance proceeds, contract rights, subscription lists,
mailing lists, licensing agreements, patents, trademarks, service marks, trade
styles, patents, patent applications, franchise agreements, blueprints,
drawings, purchase orders, customer lists, route lists, infringements, claims,
computer programs, computer discs, computer tapes, literature, reports,
catalogs, design rights, income tax refunds, payments of insurance and rights
to payment of any kinds, trade names, refundable, returnable or reimbursable
fees, deposits or other funds or evidences of credit or indebtedness deposited
by or on behalf of the Company with any governmental agencies, boards,
corporations, providers of utility services, public or private; (g) all
presently existing and hereafter acquired computer programs, computer software
and other electronic systems and materials of any kind of the Company; (h)
goodwill; and (i) all other presently existing and hereafter acquired
documents, accounts, general intangibles and intangible personal property of
any kind.

DOCUMENTS

All
documents, cash, deposit accounts, securities, securities entitlements, securities
accounts, investment property, financial assets, letters of credit,
certificates of deposit, instruments, chattel paper, and electronic chattel
paper now owned or hereafter acquired and the Company’s books relating to the
foregoing.

COPYRIGHTS

All
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; all trade secret
rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any
of the foregoing.

PROCEEDS

All
of the Company’s books and records relating to the foregoing and any and all
present and future accounts, general intangibles, chattel paper, electronic
chattel paper, products, accessions, replacements, betterments and
substitutions for any of the foregoing described property, and all proceeds
arising from or by virtue of, or from the sale or disposition of, or
collections with respect to, or insurance proceeds payable with respect to, or
claims against any other persons, corporations or other entities with respect
to, all or any part of the foregoing described property and interests.

 

3.             Rights
of Lender; Limitations on Lender’s Obligations.  It is expressly agreed by the Company that,
anything herein to the contrary notwithstanding, the Company shall remain
liable under each of its contracts and documents to observe and perform all the
conditions and obligations to be observed and performed by it thereunder, all
in accordance with and pursuant to the terms and provisions of its contracts
and documents.  Lender shall have no
obligation or liability under any of the Company’s contracts and documents by reason
of or arising out of this Security Agreement or the granting to Lender of a
security interest therein or the receipt by Lender of any payment relating to
any of its contracts and documents pursuant hereto, nor shall Lender be
required or obligated in any manner to perform or fulfill any of the
obligations of the Company under or pursuant to any of its contracts and
documents, or to make any payment, or to make any inquiry as to the nature or
the sufficiency of any payment received by it or the sufficiency of any
performance by any party under any of its contracts and documents, or to
present or file any claim, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.

4.             Representations
and Warranties.  The Company hereby
represents and warrants that the chief executive office and chief place of
business of the Company is 1200 West 400 North, Orem, UT 84660, and the Company
will not change such chief executive office and chief place of business or
remove such records unless the Company shall have given the Lender at least 10
days’ prior written notice thereof.

5.             Covenants. 
The Company covenants and agrees with the Lender that from and after the
date of this Security Agreement and until the Obligations are fully satisfied:

(a)           Further Documentation.  At any time and from time to time, upon the
written request of the Lender, and at the sole expense of the Company, the
Company will promptly and duly execute and deliver any and all such further
documents and take such further action as Lender may reasonably request in
carrying out the terms and conditions of this Security Agreement and the rights
and powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in
effect in any jurisdiction with respect to the security interests granted
hereby.

(b)           Continuous Perfection.  The Company will not change its name,
identity or corporate structure in any manner unless the Company shall have
given the Lender at least 10 days’ prior written notice thereof and shall have
taken all action (or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such action in
advance) necessary or reasonably requested by the Lender to amend any financing
statement or continuation statement filed with respect to the Collateral so
that it is not misleading.

(c)           Insurance. 
The Company will insure the Collateral against such risks and hazards as
other companies similarly situated insure against, in amounts and under
policies which it currently holds and under such additional or substituted
amounts or policies as it may from time to time determine, which shall be
reasonably acceptable to the Lender (providing that no cancellation of such
insurance shall be effective without 30 days written notice to the Lender and
containing loss payable clauses to the Lender as its interest may appear) and
all premiums thereon shall be paid by the Company.

6.             Remedies, Rights Upon Default.  (a)  In
addition to any other rights given to the Lender hereunder, if an Event of
Default shall occur and be continuing and the Lender shall have declared the
amounts owing under the Note(s) to be due and payable (or such amounts shall
have automatically, become due and payable), all payments received by the
Company under or in connection with any of the Collateral shall be held by the
Company in trust for the Lender, shall be segregated from other funds of the
Company and shall, if requested by the Lender forthwith upon receipt by the
Company be turned over to the Lender, in the same form as received by the
Company (duly endorsed by the Company to the Lender, if required).

(b)           If
any Event of Default shall occur and be continuing the Lender may exercise in
addition to all other rights and remedies granted to it in this Security
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the Code.  Without limiting the
generality of the foregoing, the Company expressly agrees that in any such
event, the Lender, without demand of performance or other demand, (except the
notice specified below of time and place of public or 

 

private sale) to or upon the Company or any other person may forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may forthwith sell, lease, assign, give option or options to
purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange broker’s board or at any of the Lender’s
offices or elsewhere at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk.  The Lender shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such
private sale or sales, to purchase the whole or any part of said Collateral so
sold, free of any right or equity of redemption, which equity of redemption the
Company hereby releases.  The Company
further agrees, at the Lender’s request, to assemble the Collateral, make it
available to the Lender at places which the Lender shall reasonably select,
whether at the Company’s premises or elsewhere. 
The Lender shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care, safe keeping or otherwise of any or all of the Collateral or in any
way relating to the rights of the Lender hereunder, including reasonable
attorneys’ fees and legal expenses, to the payment in whole or in part of the
Obligations, the Company remaining liable for any deficiency remaining unpaid
after the application, and only after so paying over such net proceeds and
after the payment by the Lender of any other amount required by any provision
of law.  To the extent permitted by
applicable law, the Company waives all claims, damages, and demands against the
Lender arising out of the repossession, retention or sale of the Collateral.  The Company agrees that the Lender need not
give more than 10 days notice of the time and place of any public sale or of
the time after which a private sale may take place and that such notice is
reasonable notification of such matters. 
The Company shall remain liable for any deficiency if the proceeds of
any sale or disposition of the Collateral are insufficient to pay all amounts
to which Lender is entitled.

(c)           The
Company hereby waives presentment, demand, protest or any notice (to the extent
permitted by applicable law) of any kind in connection with this Security
Agreement or any Collateral.

7.             Application of Proceeds.  The Proceeds of all sales and collections in
respect of any Collateral shall be applied as follows:

(a)           First, to the payment of the costs and expenses of such
sales and collections, the expenses of Lender and the reasonable fees and
expenses of its counsel;

(b)           Second, any surplus then remaining to the payment of the
Obligations in such order and manner as the Lender may in its sole discretion
determine; and

(c)           Third, any surplus then remaining shall be paid to the
Company.

8.             Limitation
on Lender’s Duty in Respect of Collateral. 
Beyond the use of reasonable care in the custody thereof, the Lender
shall not have any duty as to any Collateral in its possession or control or in
the possession or control of any agent or nominee of it or any income thereon
or as to the preservation of rights against prior parties or any other rights
pertaining thereto.

9.             Notices.  Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be delivered
personally or by facsimile (receipt confirmed electronically) or shall be sent
by a reputable express delivery service or by certified mail, postage prepaid
with return receipt requested, addressed as follows:

	
  if to the Company, to:

  	
   

  
	
   

  
	
  Domestic Energy
  Partners, LLC.

  
	
  1200 West 400
  North

  
	
  Orem, UT 84660

  
	
  Attn:  Ron Crafts

  
	
  Fax:  (801) 225-8635

  

 

 

 

	
  if to Lender, to:

  	
   

  
	
   

  	
   

  
	
  Sausalito Capital Partners
  I, LLC

  	
   

  
	
  369B Third
  Street, #269

  
	
  San Rafael, CA
  94901

  
	
  Attn:     Don Lew

  
	
  Fax:     (415) 454-2046

  
	
   

  
	
  with a copy to:

  
	
   

  
	
  The Otto Law
  Group, PLLC

  
	
  601 Union
  Street, Suite 4500

  
	
  Seattle, WA
  98101

  
	
  Attn:    David M. Otto

  
	
  Fax:     (206) 262-9513

  

 

Either party hereto may change the above specified
recipient or mailing address by notice to the other party given in the manner
herein prescribed.  All notices shall be
deemed given on the day when actually delivered as provided above (if delivered
personally or by facsimile, provided that any such facsimile is received during
regular business hours at the recipient’s location) or on the day shown on the
return receipt (if delivered by mail or delivery service).

10.           Severability. 
Any provision of this Security Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

11.           No Waiver; Cumulative Remedies.  The Lender shall not by any act, delay,
omission or otherwise be deemed to have waived any of its rights or remedies
hereunder and no waiver shall be valid unless in writing, signed by the Lender,
and then only to the extent therein set forth. 
A waiver by the Lender of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which the Lender would
otherwise have had on any future occasion. 
No failure to exercise nor any delay in exercising on the part of the
Lender, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise or any other right, power or privilege.  The rights and remedies hereunder provided
are cumulative and may be exercised singly or concurrently, and are not
exclusive of any rights and remedies provided by law.  None of the terms or provisions of this
Security Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by the Company and the Lender.

12.           Successors and Assigns.  This Security Agreement and all obligations
of the Company hereunder shall be binding upon the successors and permitted
assigns of the Company, and shall, together with the rights and remedies of the
Lender hereunder, inure to the benefit of the Lender and its successors and
permitted assigns; provided that the Company may not assign any of its rights
or obligations hereunder without the prior written consent of the Lender.  This Security Agreement may be
assigned by the Lender without the consent of the Company.

13.           Governing
Law.  This Security Agreement shall
be governed by and construed in accordance with the domestic laws of the State
of Washington without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Washington or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Washington.

14.           Counterparts. This Security Agreement may be
executed in separate counterparts each of which will be an original and all of
which taken together will constitute one and the same agreement.

 

15.           Facsimile. 
This Security Agreement
may be executed using facsimiles of signatures, and a facsimile of a signature
shall be deemed to be the same, and equally enforceable, as an original of such
signature.

16.           Termination. 
At such time as the Obligations have been fully paid in cash, the
security interest created hereby shall automatically terminate, the Lender
shall take all such actions as may be requested by the Company to evidence such
termination and to release the liens created hereby, at the Company’s expense.

* * * * * *

 

IN
WITNESS WHEREOF, each of the parties hereto has caused this Security Agreement
to be executed and delivered by its duly authorized officer as of Effective
Date.

	
  

  	
  DOMESTIC ENERGY PARTNERS, LLC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ron Crafts

  
	
   

  	
   

  	
  Ron Crafts

  
	
   

  	
   

  	
  Chairman and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SAUSALITO CAPITAL PARTNERS I, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Donald Lew

  
	
   

  	
   

  	
  Don Lew

  
	
   

  	
   

  	
  Managing MemberExhibit 10.2

REDD Engagement Letter

[BETTER BIODIESEL
LOGO]

1400 West 400 North

Ph: (801) 990-2810

Fax: (801) 225-8635

www.betterbiodiesel.com

E-mail: info@betterbiodiesel.com

November 15, 2006

Mr. Lowry Redd, PE

President

REDD Engineering & Construction, Inc.

1600 West 2200 South, Suite 107

Salt Lake City, Utah 84119

Dear Mr. Redd,

This Engagement
Letter (the “Letter”) confirms the understanding by which Better Biodiesel,
Inc. (“BBD”) has engaged REDD Engineering & Construction, Inc. (“REDD”),
and REDD has agreed to be engaged by BBD, to perform the engineering and
consulting services (the “Services”) reflected in REDD’s October 5, 2006 letter
to BBD, attached hereto as Exhibit A. Hereinafter, REDD and BBD shall be
collectively referred to as the “Parties”.

As evidenced by my
email to you confirming the Notice to Proceed and subsequently, the check for
Twenty Thousand Dollars ($20,000.00) which BBD sent REDD last month as a
retainer for the Services, BBD desires to move forward with the relationship.
As discussed and agreed, the Parties expect to work together to prepare
additional formalized agreements for each major addition or change to this work
scope in order to facilitate the various phases of program development,
including, but not limited to: Study, Design / Engineering, Permitting,
Procurement / Fabrication, Construction / Commissioning / Startup, Operations
and Maintenance, and Process and Facility Upgrade.

Also enclosed
hereto as Exhibit B is the budget cost estimate sheet prepared by REDD,
representing the current estimate of capital costs for a standard package, 10
million gallons per year (“gpy”) module of the process and components as
invented by BBD.

The Parties
acknowledge their mutual intent to work together to timely perform the tasks to
be outlined in the various project correspondence and plans, including timely
payment of all obligations by BBD, in order to meet BBD targets for scope,
schedule and budget.

This Letter may be
executed by facsimile and in one or more counterparts, all of which taken
together shall constitute one and the same instrument.

IN WITNESS
WHEREOF, and intending to be legally bound hereby, the Parties have each
executed and delivered this Letter as of the day and year first above written.

	
  REDD ENGINEERING &
  CONSTRUCTION, INC.

  
	
   

  
	
  /s/ Lowry Redd

  	
   

  
	
  By:

  	
  Lowry Redd, PE

  	
   

  
	
  Title:

  	
  President

  	
   

  

 

 

 

	
  BETTER BIODIESEL, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Ron Crafts

  	
   

  
	
  By:

  	
  Ron Crafts

  
	
  Title:

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  Cc:

  	
  F. Briton McConkie

  
	
   

  	
  Peter Kristensen

  
	
   

  	
  David Otto

  
	
   

  	
   

  
	
  Encl: 

  	
  October 5, 2006
  letter from Lowry Redd to Ron Crafts (Exhibit A)

  
	
   

  	
  REDD Standard
  Terms & Conditions and Billing Rate Schedule (Exhibit A)

  
	
   

  	
  Budget Cost
  Estimate Sheet (Exhibit B)

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