Option to Purchase Common Stock of Chapeau, Inc. Void after March 21, 2010
Exhibit
4.1
THIS
OPTION AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933
ACT”). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED,
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE 1933 ACT, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT AND APPLICABLE STATE SECURITIES
LAW.
Option
to Purchase Common Stock
of
Chapeau,
Inc.
Void
after March 21, 2010
This
Option is issued to TEFCO, LLC, a Virginia limited liability company (the “Optionee”), by
Chapeau, Inc., a Utah corporation (the “Company”), as of March 21, 2008 (the
“Option Issue Date”). This Option is issued pursuant to that certain
Turnkey Financing, Loan and Security Agreement dated as of March 20, 2008 (the
“Agreement”).
The
Company and the Optionee agree as follows:
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1.
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Grant of
Option
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Subject to the terms and conditions set
forth herein, the Company grants to Optionee a nonqualified stock option (the
“Option”) to purchase Five Million (5,000,000) shares of the Company’s
authorized and unissued common stock, par value $0.001 per share (the “Common
Stock”), from the Company, with an exercise price per share (the “Exercise
Price”) equal to 90% of the average closing price per share of Common Stock on
the over-the-counter bulletin board during the 30 days prior to December 14,
2007. The number
of shares of Capital Stock issuable to this Section 1 as well as the Exercise
Price of such shares, shall be subject to adjustment pursuant to Section 8
below.
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2.
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Status of
Options
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The Option granted hereunder is granted
to Optionee in connection with the Agreement, and it is not intended to qualify
as an “incentive stock option” under Section 422 of the Internal Revenue Code of
1986, as amended (the “Code”).
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3.
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Term of
Option
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The Option shall terminate on, and
shall not be exercisable after 5:00 p.m. Eastern on the two (2) year anniversary
of the Option Issue Date (the “Expiration Date”); provided that in the event
(each a “Disposition Event”) of (i) the closing of the Company’s sale or
transfer of all or substantially all of its assets, or (ii) the closing of the
acquisition of the Company by another entity by means of merger, consolidation
or other transaction or series of related transactions, resulting in the
exchange of the outstanding shares of the Common Stock (unless (A) the
shareholders of the Company immediately prior to such transaction or series of
related transactions are holders of a majority of the voting equity securities
of the surviving or acquiring corporation immediately thereafter, and (B) each
of such shareholders immediately prior to such transaction or series of related
transactions holds the same pro rata share of such majority of the voting equity
securities of the surviving or acquiring corporation as each hold of the Company
immediately prior to such transaction or series of related transactions), this
Option shall, on the date of a Disposition Event, no longer be exercisable and
become null and void. The Company shall notify the Optionee at least 60 days
prior to the consummation of any Disposition Event and, in all circumstances,
the Optionee shall have at least 40 days after the Option Issue Date to exercise
this Option.
4. Exercise
4.1 Exercisability. The
Option shall be immediately exercisable with respect to the entire number of
shares of Common Stock subject to the Option.
4.2 Notice of
Exercise. The Optionee shall exercise the Option by delivering
to the Company, either in person or by certified or registered mail, written
notice of election to exercise, in the form attached hereto as Schedule A, payment
in full of the Exercise Price as provided in Section 4.3 below and payment of
the sums required by, or other compliance with, the provisions of Section 4.4
below. The Company shall notify Optionee of the expiration date of
the Option thirty (30) days prior to their expiration. Failure to do
so shall extend the Option thirty (30) days from the date of receipt by the
Optionee of such expiration notice.
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4.3 Payment of Exercise
Price. The Exercise Price for any shares of Common Stock with
respect to which Optionee exercises this Option shall be paid in full at the
time Optionee delivers the written notice of exercise to the
Company. The Exercise Price shall be paid (i) in cash, (ii) by check
or (ii) via the following net exercise provision. In lieu of
exercising this Option by paying the Exercise Price in cash, the Optionee may
elect to receive shares equal to the value of this Option (or the portion
thereof being exercised) by surrender of this Option at the principal office of
the Company together with the Notice of Cashless Exercise annexed hereto as
Schedule B
duly completed and executed, in which event the Company shall issue to Optionee
the number of shares of Common Stock computed using the following
formula:
X= (Y)(A-B)
A
Where
X = The number of shares of Common Stock to be
issued to Optionee.
Y
= The number of
shares of Common Stock purchasable under this Option.
A
= The fair
market value of one share of Common Stock.
B
= The Exercise
Price (as adjusted to the date of such calculations).
For
purposes of this Section, the fair market value of one share of Common Stock
shall be equal to the volume weighted average closing price per share of Common
Stock on the over-the-counter bulletin board (or such other securities exchange
or Nasdaq market on which the Company’s securities are trading) over the 30 days
prior to exercise, or, if the Company’s Common Stock is not trading on the
over-the-counter bulletin board (or such other securities exchange or Nasdaq
market) the fair market value shall be determined by the Board of Directors in
good faith.
4.4 Withholding. Upon
exercise of the Option, or any portion thereof, Optionee shall pay to the
Company, or make arrangements satisfactory to the Board for payment to the
Company of, all federal, state and local taxes, if any, required to be withheld
by the Company in connection with the exercise of the Option or the relevant
portion thereof.
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5.
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Issuance of
Shares
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Promptly after the Company’s receipt of
the written notice of exercise provided for in Section 4.2 above, Optionee’s
payment in full of the Exercise Price, and Optionee’s compliance with the
provisions of Section 4.4 above, the Company shall deliver, or cause to be
delivered to Optionee, separate certificates for the whole number of shares of
Common Stock with respect to which each portion of the Option is being exercised
by Optionee. Such shares shall be registered in the name of
Optionee. If any law or regulation of the United States Securities
and Exchange Commission or of any other federal or state governmental body
having jurisdiction shall require the Company or Optionee to take any action
prior to the issuance to Optionee of the shares of Common Stock specified in the
written notice of election to exercise, or if any listing agreement between the
Company and any national securities exchange requires such shares to be listed
prior to issuance, the date for the delivery of such shares shall be deferred
until the completion of such action and/or such listing.
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6. Fractional
Shares
In no event shall the Company be
required to issue fractional shares of Common Stock upon the exercise of any
part of the Option, and any exercise that would otherwise result in such an
issuance shall be rounded up to the nearest whole number of shares.
7. Rights as a
Shareholder
Prior to exercise of this Option, the
Optionee shall not be entitled to any rights of a shareholder with respect to
this Option, including without limitation the right to vote, receive dividends
or other distributions thereon, exercise preemptive rights or be notified of
shareholder meetings, and the Optionee shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. No
adjustment shall be made for dividends (ordinary or extraordinary, whether cash,
securities or other property) or distributions or other rights for which the
record date is prior to the date such share certificate is issued, except as
provided in Section 8 below. However, nothing in this Section 7 shall
limit the right of the Optionee to be provided the notices required under this
Option.
8. Adjustment of Exercise Price
and Number of Shares
8.1 Subdivisions, Combinations
and Other Issuances. If the Company shall
subdivide the Common Stock, by split-up or otherwise, combine the Common Stock
or issue additional shares of Common Stock in the form of a stock split, as a
dividend or other distribution with respect to any of its securities, the number
of shares of Common Stock issuable on the exercise of this Option shall be
proportionately increased in the case of a subdivision, stock split, dividend or
distribution and shall be proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the Exercise Price,
but the aggregate purchase price payable for the total number of shares
purchasable under this Option (as adjusted) shall remain the same. Any
adjustment under this Section 8.1 shall become effective at the close of
business on the date the subdivision or combination becomes effective, or as of
the record date of a stock split, dividend or other distribution, or in the
event that no record date is fixed, upon the making of such dividend or
distribution.
8.2 Reclassification,
Reorganization and Consolidation. In the event of any
reclassification, capital reorganization or change in the Common Stock, other
than as a result of an event provided for in Section 8.1 above, or a merger or
consolidation of the Company with or into another corporation, then as a part of
such reorganization, merger or consolidation and as a condition of such
transaction, the Optionee shall have the right at any time prior to the
expiration of this Option to purchase, at a total price equal to that payable
upon the exercise of this Option, the kind and amount of shares of stock and
other securities and property receivable in connection with the applicable
transaction by a holder of the same number of shares of Common Stock as were
purchasable by the Optionee immediately prior to the transaction. In any such
case appropriate provisions shall be made with respect to the rights and
interest of the Optionee so that this provision shall thereafter be applicable
with respect to any securities deliverable upon exercise of this Option, and
appropriate adjustments shall be made to the Exercise Price; provided that the
aggregate purchase price for the shares of Common Stock available hereunder
shall remain the same.
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8.3 Anti-Dilution. In
addition to the adjustments called for above, the number of shares of Common
Stock issuable on exercise of this Option shall subject to adjustment pursuant
to the terms of the Registration Rights Agreement, as defined
below.
8.4 Notice of
Adjustment. When
any adjustment is required to be made in the number or kind of securities
receivable upon exercise of this Option, or in the Exercise Price, the Company
shall promptly notify the Optionee thereof and of the number of shares or other
securities thereafter receivable upon exercise of this Option and the adjusted
Exercise Price per share.
8.5 No Impairment. The Company and
the Optionee will not, by any voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company or the Optionee, respectively, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 8
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Company and the Optionee against
impairment.
9. Transfer of
Option
Optionee may sell, assign or otherwise
transfer all or any part of the Option so long as such transaction is otherwise
in compliance with all federal and state securities laws, rules and regulations
and the Company receives an opinion of counsel reasonably satisfactory to the
Company that such sale, assignment or transfer is exempt from any registration
requirements or permit requirements under such laws.
10. Reservation for
Issuance
The Company covenants that it will at
all times keep available such number of authorized shares of Common Stock, free
from all preemptive rights with respect thereto, which will be sufficient to
permit the exercise of this Option for the full number of shares specified
herein. The Company covenants that the shares of Common Stock, when issued
pursuant to the exercise of this Option and in exchange for the Exercise Price,
will be duly and validly issued, fully paid and non-assessable and free from all
taxes, liens, charges and encumbrances of any kind.
11. Investment
Representations
The
Optionee hereby represents and warrants that:
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11.1 This
Option and the shares of Common Stock to be received upon exercise of this
Option (collectively, the “Securities”) are being acquired for investment for
the Optionee’s own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and the Optionee has no present
intention of selling, granting any participation in, or otherwise distributing
the Securities, in whole or in part. The Optionee does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to the Securities.
11.2 The
Optionee is able to fend for itself, can bear the economic risk of its
investment, has adequate means for providing for its current needs and
contingencies and has no need for liquidity with respect to its investment in
the Company, and has such knowledge and experience in financial or business
matters such that it is capable of evaluating the merits and risks of the
investment in the Securities.
11.3 The
Optionee is an “accredited investor” as that term is defined in Rule 501 of
Regulation D.
11.4 At
no time was the Optionee presented directly with or solicited by any publicly
issued or circulated newspaper, mail, radio, television or other form of general
advertising or solicitation in connection with the grant of this
Option.
11.5 The
Optionee has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect to
the Securities. The Optionee further has had an opportunity to ask questions of
and receive answers from the Company regarding the terms and conditions of the
grant of the Securities and to obtain additional information (to the extent the
Company possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify any information furnished to the Optionee
or to which the Optionee had access.
11.6 The
Optionee understands that the Securities that it is purchasing or otherwise
taking delivery of are or will be characterized as “restricted securities” as
that term is defined in Rule 144 promulgated under the Securities Act of 1933,
as amended (the “1933 Act”), inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under the 1933
Act and applicable federal and state statutes and regulations such securities
may be resold without registration only in certain limited
circumstances. The Optionee represents that it is familiar with Rule
144, as presently in effect, and which permits limited resale of stock purchased
in a private placement subject to the satisfaction of certain conditions,
including among other things, the existence of a public market for the stock,
the availability of certain current public information about the issuer, the
resale occurring not less than one year after a party has purchased and paid for
the stock to be sold, the sale being effected through a “broker’s transaction”
or in transactions directly with a “market maker” and the number of shares of
stock being sold during any three-month period not exceeding specified
limitations. The Optionee understands and hereby acknowledges that
the Company may not be satisfying the current public information requirement of
Rule 144 at the time the Optionee wishes to sell the Securities, and that,
in such event, the Optionee may be precluded from selling such securities under
Rule 144, even if the other requirements of Rule 144 have been
satisfied.
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12. Registration
Rights
The shares of Common Stock are subject
to registration under the 1933 Act pursuant to that certain Registration Rights
Agreement dated as of an even date herewith by and between the Company and
Optionee (the “Registration Rights Agreement”).
13. General
Provisions
13.1 Entire
Agreement. This Agreement and the Registration Rights
Agreement contain the entire understanding between the parties with respect to
the subject matter hereof, and supersedes any and all prior written or oral
agreements between the parties with respect to the subject matter
hereof. There are no representations, agreements, arrangements or
understandings, either written or oral, between or among the parties with
respect to the subject matter hereof which are not set forth herein this
Agreement.
13.2 Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
13.3 Notices. Any
notice given pursuant to this Agreement may be served personally on the party to
be notified or may be mailed, with postage thereon fully prepaid, by certified
or registered mail, with return receipt requested, addressed as set forth by the
party’s signature on this Agreement or at such other address as such party may
designate in writing from time to time. Any notice given as provided
in the preceding sentence shall be deemed delivered when given if personally
served or if mailed, ten (10) business days after mailing.
13.4 Further
Acts. Each party to this Agreement agrees to perform such
further acts and to execute and deliver such other and additional documents as
may be reasonably necessary to carry out the provisions of this
Agreement.
13.5 Severability. If
any term, provision, covenant or condition of this Agreement is held by a court
of competent jurisdiction to be invalid, illegal or unenforceable for any
reason, such invalidity, illegality or unenforceability shall not affect any of
the other terms, provisions, covenants or conditions of this Agreement, each of
which shall be binding and enforceable.
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IN
WITNESS WHEREOF, the parties have entered into this Option as of the date first
above written.
“COMPANY”
CHAPEAU,
INC.
/s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇▇
By: ▇▇▇
▇. ▇▇▇▇▇▇▇▇
Its:
Chief Executive Officer
“OPTIONEE”
TEFCO,
LLC
/s/ ▇▇▇▇ ▇▇▇▇▇
By: ▇▇▇▇
▇▇▇▇▇
Its: Manager
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SCHEDULE
A
NOTICE
OF EXERCISE
To: Chapeau,
Inc.
The undersigned hereby elects to
purchase _________ shares of Common Stock pursuant to the terms of the attached
Option, and payment of the Exercise Price per share required under the Option
accompanies this notice.
The undersigned hereby affirms each and
every one of the representations and warranties contained in Section 11 of the
Option as of the date of this Notice of Exercise.
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OPTIONEE:
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_________________________________________
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By:
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Date:
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Name in
which shares should be registered:
_________________________________________
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SCHEDULE
B
NOTICE
OF CASHLESS EXERCISE
To:
(1) The
undersigned hereby elects to acquire in a cashless exercise ______________
shares of Common Stock pursuant to the terms of Section 4.3 of the attached
Option.
(2) Please
issue a certificate or certificates representing said shares of stock in the
name of the undersigned or in such other name as is specified
below:
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By:
______________________________
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Name:
________________________________
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