THIS WARRANT 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...
Exhibit
4.2
THIS
WARRANT 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.
|
Warrant
to Purchase Common Stock
of
Chapeau,
Inc.
Void
after March 21, 2013
This
Warrant is issued to TEFCO, LLC, a Virginia limited liability
company (the
“Holder”), by Chapeau, Inc., a Utah corporation (the “Company”), as of March 21,
2008 (the “Warrant Issue Date”). This Warrant is issued pursuant to
that certain Turnkey Financing, Loan and Security Agreement dated as of March
20, 2008 (the “Agreement”).
1. Shares. Subject to
the terms and conditions of this Warrant, the Holder is entitled, upon surrender
of this Warrant at the principal office of the Company (or at such other place
as the Company shall notify the Holder in writing), to purchase from the Company
Five Million (5,000,000) fully paid and non-assessable shares of Common Stock,
as constituted on the Warrant Issue Date. The number of shares of Common Stock
issuable pursuant to this Section 1 (the “Shares”) shall be subject to
adjustment pursuant to Section 10 below.
2. Exercise Price. The per share
purchase price for the Shares shall be equal to $1.99, which is 150% 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 as adjusted from time to
time pursuant to Section 10 below (the “Exercise Price”).
3. Exercise
Period. This Warrant shall be exercisable, in whole or in
part, during the term commencing on the Warrant Issue Date and ending at 5:00
p.m. Eastern on the five (5) year anniversary of the Warrant Issue 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 Warrant shall, on the date of a Disposition Event, no longer
be exercisable and become null and void. The Company shall notify the Holder at
least 30 days prior to the consummation of any Disposition Event and, in all
circumstances, the Holder shall have at least 20 days prior to the consummation
of such Disposition Event to exercise this Warrant. The Company shall notify
Holder thirty (30) days prior to expiration of Warrant. Failure to do
so shall extend the Warrant thirty (30) days from the receipt by Holder of such
expiration notice.
4. Method of
Exercise. While this Warrant remains outstanding and
exercisable, the Holder may exercise this Warrant, in whole or in part, at one
time or from time to time, by:
(a) the
surrender of this Warrant, together with a duly executed copy of the form of
Notice of Election attached hereto, to the Secretary of the Company at its
principal offices; and
(b) the
payment to the Company of an amount equal to the aggregate Exercise Price for
the number of Shares being purchased.
(c) In
lieu of exercising this Warrant by paying the Exercise Price in cash, the Holder
may elect to receive shares equal to the value of this Holder (or the portion
thereof being exercised) by surrender of this Holder 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 Holder
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
Holder.
|
Y
=
|
The
number of shares of Common Stock purchasable under this
Warrant.
|
B-2
|
A
=
|
The
fair market value of one share of Common
Stock.
|
|
B
=
|
The
Exercise Price (as adjusted to the date of such
calculations).
|
(d) 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.
In the
event of a partial exercise of this Warrant, the Company shall cause to be
issued to the Holder a Warrant of like tenor to this Warrant for the number of
Shares for which this Warrant has not yet been exercised.
5. Representations and Warranties of
Holder. The Holder hereby represents and warrants
that:
(a) This
Warrant and the Shares to be received upon exercise of this Warrant
(collectively, the “Securities”) are being acquired for investment for the
Holder’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 Holder has no present
intention of selling, granting any participation in, or otherwise distributing
the Securities, in whole or in part. The Holder 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.
(b) The
Holder 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.
(c) The
Holder is an “accredited investor” as that term is defined in Rule 501 of
Regulation D.
(d) At
no time was the Holder presented 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 issuance of this
Warrant.
(e) The
Holder 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 Holder further has had an opportunity to ask questions of
and receive answers from the Company regarding the terms and conditions of the
issuance 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 Holder
or to which the Holder had access.
B-3
(f) The
Holder 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 Holder 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 Holder understands and hereby acknowledges that the
Company may not be satisfying the current public information requirement of
Rule 144 at the time the Holder wishes to sell the Securities, and that, in
such event, the Holder may be precluded from selling such securities under
Rule 144, even if the other requirements of Rule 144 have been
satisfied.
|
6.
|
Transfer
Restrictions.
|
(a) The
Holder may sell, assign or transfer this Warrant and the Shares issuable upon
exercise hereof so long as such transfer complies with all applicable federal
and state securities laws and the Company receives an opinion of counsel
reasonably satisfactory to the Company that such sale, assignment or transfer is
exempt from such from any registration requirements or permit requirements under
such laws.
(b) Certificates
evidencing the Securities shall bear one or all of the following
legends:
(i) “The
securities represented hereby have not been registered under the Securities Act
of 1933, as amended (the “Act”), or under applicable state securities
laws. These securities are subject to restrictions on transferability
and resale and may not be offered, sold, pledged, hypothecated, assigned,
transferred or resold except as permitted under the Act and applicable state
securities laws pursuant to (i) a registration statement under the Act, which
has become effective and is current with respect to these securities, or (ii) an
exemption therefrom.”
(ii) Any
legend required by the laws of the State and any other applicable state of the
United States.
B-4
7. Certificates for
Shares. Upon the exercise of the purchase rights evidenced by
this Warrant, one or more certificates for the number of Shares so purchased
shall be issued as soon as practicable thereafter (with appropriate restrictive
legends, if applicable), and in any event within 15 days following compliance by
the Holder with the requirements of Section 4 above. The Company
shall not be required to issue any fractional shares, and if any fraction of a
Share would be issuable on the exercise of this Warrant in full, the Company
shall pay an amount in cash equal to the then current fair market value of a
Share, as then determined in good faith by the Board of Directors of the
Company, times the applicable fraction.
8. Reservation of Shares. 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 Warrant for the
full number of Shares specified herein. The Company covenants that the Shares,
when issued pursuant to the exercise of this Warrant 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.
9. Adjustment of Exercise Price and
Number of Shares. The number of and kind of Shares purchasable
or receivable upon exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time as follows:
(a) 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 as a stock split, dividend or other distribution with respect to any of
its securities, the number of Shares issuable on the exercise of this Warrant
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 Warrant (as adjusted) shall remain the same. Any
adjustment under this Section 10(a) 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.
(b) Reclassification, Reorganization and
Consolidation. In the event of any reclassification, capital
reorganization or change in the Common Stock, or a merger or consolidation of
the Company with or into another corporation, other than as a result of an event
provided for in (a) above, then, as a condition of such transaction, the Holder
shall have the right at any time prior to the expiration of this Warrant to
purchase, at a total price equal to that payable upon the exercise of this
Warrant, 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 Holder
immediately prior to the transaction. In any such case appropriate provisions
shall be made with respect to the rights and interest of the Holder so that this
provision shall thereafter be applicable with respect to any securities
deliverable upon exercise of this Warrant, and appropriate adjustments shall be
made to the Exercise Price; provided that the aggregate purchase price shall
remain the same.
B-5
(c) Other Anti-Dilution
Adjustments. In addition to the adjustments called for above, the number
of shares of Common Stock issuable on exercise of this Warrant shall subject to
adjustment pursuant to the terms of the Registration Rights Agreement, as
defined below.
(d) Notice of Adjustment. When
any adjustment is required to be made in the number or kind of securities
receivable upon exercise of this Warrant, or in the Exercise Price, the Company
shall promptly notify the Holder thereof and of the number of Shares or other
securities thereafter receivable upon exercise of this Warrant and the adjusted
Exercise Price per share.
(e) No Impairment. The
Company and the Holder 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 Holder, respectively, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 10
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 Holder against
impairment.
10. No Shareholder
Rights. Prior to exercise of this Warrant, the Holder shall
not be entitled to any rights of a shareholder with respect to this Warrant or
the Shares, including without limitation the right to vote, receive dividends or
other distributions thereon, exercise preemptive rights or be notified of
shareholder meetings, and the Holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. However,
nothing in this Section 11 shall limit the right of the Holder to be provided
the notices required under this Warrant.
11. Transfers. Subject
to compliance with the requirements of Section 6 above, this Warrant and all
rights (but only with all related obligations) hereunder are transferable in
whole or in part by the Holder upon reasonable prior written notification to the
Company. The transfer shall be recorded on the books of the Company upon (i) the
surrender of this Warrant, properly endorsed, to the Company at its principal
offices; (ii) the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer; and (iii) the transferee’s
agreement in writing to be bound by and subject to the terms and conditions of
this Warrant. In the event of a partial transfer, the Company shall
issue to the Holders one or more appropriate new Warrants of like tenor to this
Warrant.
12. Successors and Assigns. The
terms and provisions of this Warrant shall inure to the benefit of, and be
binding upon, the Company and the Holder and their respective successors.
transferees and assigns.
B-6
13. Registration Rights. The
Shares 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 Holder (the “Registration Rights Agreement”).
14. Amendments and
Waivers. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the Holder.
15. Captions. The
section and subsection headings of this Warrant are inserted for convenience
only and shall not constitute a part of this Warrant in construing or
interpreting any provision hereof.
16. Governing Law. This
Warrant shall be governed by the laws of the State of California.
B-7
IN WITNESS WHEREOF, this
Warrant to be executed by the Company and acknowledged by the Holder as of March
21, 2008.
CHAPEAU,
INC.
|
|
By:
/s/ Xxx X.
Xxxxxxxx
|
|
Name:
Xxx X. Xxxxxxxx
|
|
Its: Chief
Executive Officer
|
ACCEPTED AND ACKNOWLEDGED BY
“HOLDER”:
TEFCO,
LLC
By: /s/
Xxxx
Xxxxx
Name:
|
Xxxx
Xxxxx
|
Its:
|
Manager
|
B-8
NOTICE
OF EXERCISE
To: Chapeau,
Inc.
The
undersigned hereby elects to purchase _________ shares of the Common Stock of
Chapeau, Inc. (the “Company”) pursuant to the terms of the attached Warrant, and
payment of the Exercise Price per share required under the Warrant accompanies
this notice.
The
undersigned hereby affirms each and every one of the representations and
warranties contained in Section 5 of the Warrant as of the date of this Notice
of Exercise.
WARRANT
HOLDER:
|
|
_________________________________________
|
|
By:
|
|
Date:
|
Name in
which shares should be registered:
_________________________________________
B-9
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 of the attached
Warrant.
(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:
By:
|
Name:
_________________________________
B-10