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SECURED PROMISSORY NOTE
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Date: September
11, 2007
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$_____________________
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FOR
VALUE RECEIVED, the undersigned, Chapeau, Inc., a Utah
corporation (the “ Borrower ”) promises to
pay to the order of Gordon V. Smith, individually (the “
Lender ”), at 8716 Cider Brook Way, Potomac,
Maryland 20854, or at such other address as the Lender may
specify in writing, the principal sum of
___________________________ ($_________________) (the
“Maximum Loan Amount”), or if less, the aggregate
unpaid principal amount outstanding, with interest until
maturity, whether by acceleration or otherwise, at the
interest rates provided for on Exhibit A attached hereto and
incorporated herein. Interest shall be calculated
on the basis of a 365-day year for the actual number of days
the principal is outstanding.
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1.
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The
principal amount payable under this Note shall be the sum of all
advances made by the Lender to or at the request of the Borrower,
which shall be made in accordance with the schedule of advances set
forth on Exhibit B attached hereto and incorporated herein or as
otherwise mutually agreed to by the Lender and the Borrower in
writing, less principal payments actually received in cash by the
Lender.
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2.
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The
books and records of the Lender shall be the best evidence of the
principal amount and the unpaid interest amount owing at any time
under this Note and shall be conclusive absent manifest
error.
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3.
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No
interest shall accrue under this Note until the date of the first
advance made by the Lender; thereafter interest on all advances
shall accrue and be computed on the principal balance outstanding
from time to time under this Note until the same is paid in
full. Borrower shall make regular monthly payments in
arrears of all accrued and unpaid interest at the rates set forth
and as more specifically provided for in Exhibit A attached hereto
until the Maturity Date (as defined below) when all amounts
outstanding under this Note shall be due and payable in
full.
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4.
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Commencing
on the fifth (5th) business day of the second calendar month
immediately following the last day of the Start-Up Period (as that
term is defined in Exhibit A attached hereto), and continuing on
the fifth (5th) business day of each calendar month thereafter,
until and including the Maturity Date, at which time the unpaid
principal balance of the Note then outstanding and all accrued and
unpaid interest thereon shall be payable in full, Borrower shall
pay to Lender the amounts set forth in Exhibit A. The
amount of principal included in each payment is that amount that
would amortize the Maximum Loan Amount ratably over a period of ten
(10) years.
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5.
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All
payments in cash under this Note shall be in immediately available
United States funds, without setoff or counterclaim. If
any payment of principal or interest under this Note shall be
payable on a day other than a business day such payment shall be
extended to the next succeeding business day and interest shall be
payable at the rate specified in this Note during such
extension. “ Maturity Date
” means
September 11, 2017 unless paid or prepaid in full or otherwise
accelerated in accordance with the terms of this
Note.
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6.
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The
Borrower shall pay the Lender a placement fee of three (3) points
on all funds advanced, which the Lender shall withhold from the
advances disbursed to the Borrower under this Note from time to
time.
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7.
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The principal amount hereof may be prepaid at any time, in whole or
in part, together with any interest accrued thereon, without
penalty or premium upon sixty (60) days prior written notice to the
Lender.
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8.
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As soon as reasonably practicable following the earlier to occur of
(i) the advancement by the Lender to the Borrower of the Maximum
Loan Amount; or (ii) written notice by the Borrower to the Lender
of Borrower’s intention to prepay in its entirety the
outstanding principal amount together with any interest accrued
thereon, the Borrower shall issue to the Lender an option to
purchase from the Borrower that number of shares of the
Borrower’s common stock, par value $0.001 per share (the
“Common Stock”) representing a percentage of the then
current number of shares of Common Stock issued and outstanding on
a fully diluted basis, which percentage shall be calculated as
follows: (a) _________% multiplied by (b) a fraction, the numerator
of which shall be the aggregate amount of funds advanced by the
Lender to the Borrower hereunder and the denominator of which shall
be the Maximum Loan Amount, and which option shall have an exercise
price of $3.00 per share, shall expire six months following the
date of issuance, and shall be in the form attached hereto as
Exhibit C.
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9.
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As soon as reasonably practicable following the earlier to occur of
(i) advancement by the Lender to the Borrower of the Maximum Loan
Amount; or (ii) written notice by the Borrower to the Lender of
Borrower’s intention to prepay in its entirety the
outstanding principal amount together with any interest accrued
thereon, the Borrower shall issue to the Lender a four (4) year
warrant to acquire that number of shares of Common Stock
representing a percentage of the then current number of shares of
Common Stock issued and outstanding on a fully diluted basis, which
percentage shall be calculated as follows: (a) _________%
multiplied by (b) a fraction, the numerator of which shall be the
aggregate amount of funds advanced by the Lender to the Borrower
hereunder and the denominator of which shall be the Maximum Loan
Amount, and which warrant shall have an exercise price of $3.00 per
share and shall be in the form attached hereto as Exhibit
D.
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10.
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The Lender shall have a right of first refusal with respect to the
financing of each of the next thirty projects undertaken by the
Borrower in connection with the execution of a discount energy
purchase or similar agreement. The Borrower shall
provide the Lender with written notice of each discount energy
purchase or similar agreement subject to the right of first refusal
and if the Lender wishes to exercise its right of first refusal
with respect to such agreement the Lender shall notify the Borrower
in writing of the same within ten (10) business days of the
Lender’s receipt of its right of first refusal notice
following which the two parties shall negotiate in good faith a
definitive agreement containing mutually agreeable terms and
conditions with respect to such financing. The right of
first refusal granted hereby shall terminate in the event that
termination of such right is a condition precedent to the Borrower
receiving subsequent financing from a third party financing source
and under such circumstances the right of first refusal shall
automatically terminate upon the receipt by Borrower of funds from
such third party financing source. In addition, the
right of first refusal granted hereby shall terminate immediately
upon the payment in full, whether by prepayment, on the Maturity
Date or otherwise, of the outstanding principal advanced by the
Lender to the Borrower hereunder, together with any interest
accrued thereon.
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11.
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If
this Note is not paid when due, the Lender may, at his election,
and upon written notice to the Borrower, do any one or more of the
following: (1) declare all obligations under this Note immediately
due and payable; and (2) exercise any one or more of the rights and
remedies granted to the Lender by any agreement and/or applicable
law.
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12.
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The
Lender shall hold all rights, preferences, privileges and remedies
granted to Lender pursuant to this Note and at law senior
(including with respect to lien and debt) to any and all other
debtors of the Borrower.
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13.
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The
Borrower hereby pledges and grants to the Lender a continuing
security interest in all of its right, title, and interest in and
to the Collateral (as such term is defined below), to secure the
prompt payment and performance of all of the Borrower’s
present and future debts, obligations, and liabilities of whatever
nature to the Lender, including, without limitation, all
obligations of the Borrower arising from or relating to this
Note. The Borrower hereby agrees to execute and deliver
such further documentation and take such further action as the
Lender may request in order to enforce and protect the aforesaid
security interest. The Borrower hereby authorizes the
Lender to file one or more financing statements or continuation
statements in respect thereof, and amendments thereto, relating to
all or any part of the Collateral without the signature of the
Borrower where permitted by law. “
Collateral ” means all of the Borrower’s
properties and assets of any nature, including, without limitation,
all of the Borrower’s right, title and interest in and to the
following property (whether now existing or hereafter arising or
acquired, wherever located):
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(a)
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All
present and future accounts, accounts receivable, agreements,
contracts, leases, contract rights, rights to payment, instruments,
documents, chattel paper, security agreements, guaranties, letters
of credit, undertakings, surety bonds, insurance policies, notes
and drafts, and all forms of obligations owing to the Borrower or
in which the Borrower may have any interest, however created or
arising and whether or not earned by performance;
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(b)
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All
goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles, and any
interest in any of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever
located;
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(c)
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All
other contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill,
trademarks, service marks, trade styles, trade names, patents,
patent applications, leases, license agreements, purchase orders,
customers 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 kind;
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(d)
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All
deposit accounts, securities, securities entitlements, securities
accounts, investment property, letters of credit and certificates
of deposit now owned or hereafter acquired and the Borrower’s
books relating to the foregoing;
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(e)
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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 now owned or hereafter
acquired; all claims for damages by way of any past, present and
future infringement of any of the foreign; and
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(f)
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All
the Borrower’s books and records relating to the foregoing
and any and all claims, rights and interests in any of the above
and all substitutions for, additions and accessions to and proceeds
thereof.
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14.
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The
Borrower agrees that it will not change its state of incorporation
or locations at which the Collateral is located without giving the
Lender at least thirty (30) days prior written notice
thereof. In addition, the Borrower agrees that it will
not (i) change its name, federal employer identification number,
corporate structure or identity, or (ii) create or operate under
any new fictitious name without giving the Lender at least thirty
(30) days prior written notice thereof.
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15.
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The
Lender shall have such rights and remedies with respect to the
Collateral as are available under the provisions of the Uniform
Commercial Code in the applicable jurisdiction, in addition to all
other rights and remedies existing at law, in equity, or by statute
or provided in this Note, which may be exercised without notice to,
or consent by, the Borrower.
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16.
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The
Borrower waives presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or
intent to accelerate, and all other notices and agrees that no
extension or indulgence of the Borrower or release, substitution or
nonenforcement of any security, or release or substitution of the
Borrower, any guarantor or any other party, whether with or without
notice, shall affect the obligations of the Borrower.
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17.
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Upon
commencement of any bankruptcy, reorganization, arrangement,
adjustment or debt, relief of debtors, dissolution, insolvency,
receivership or liquidation or similar proceeding of any
jurisdiction relating to the Borrow, all amounts owed by the
Borrower to the Lender shall become immediately due and payable
without presentment, demand, protest or notice of any kind in
connection with this Note.
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18.
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The
Borrower agrees to reimburse the holder or owner of this Note for
any and all costs and expenses (including without limitation
reasonable attorneys’ fees) incurred in collecting or
attempting to collect on this Note or incurred in any other matter
or proceeding relating to this Note.
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19.
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This
Note shall be interpreted and the rights and liabilities of the
parties hereto determined in accordance with the internal laws and
decisions of the State of Maryland without regard to conflict of
law principles. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED
IN MONTGOMERY COUNTY, MARYLAND WITH RESPECT TO ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE
AND HEREBY WAIVES ANY OBJECTION TO SUCH FORUM BASED ON FORUM
NON-CONVENIENS. IN ADDITION, THE LENDER AND THE BORROWER HEREBY
WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS
DIRECTLY OR INDIRECTLY TO THIS NOTE.
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20.
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Each
provision of this Note shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of
this Note shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Note. Whenever
in this Note reference is made to the Lender or the Borrower, such
reference shall be deemed to include, as applicable, a reference to
their respective successors and assigns; provided ,
however , that the obligations of the Borrower hereunder
shall not be assignable or otherwise transferable without the prior
written consent of the Lender. The provisions of this Note shall be
binding upon the Borrower and its successors and assigns and shall
inure to the benefit of the Lender and its successors and assigns.
The Borrower’s successors and assigns shall include, without
limitation, a receiver, trustee or debtor in possession of or for
the Borrower.
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21.
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The
Borrower acknowledges and agrees that there are no contrary
agreements, oral or written, establishing a term of this Note and
agrees that the terms and conditions of this Note may not be
amended, waived or modified except in a writing signed by an
officer of the Lender expressly stating that the writing
constitutes an amendment, waiver or modification of the terms of
this Note.
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22.
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THE
MAXIMUM INTEREST RATE PAYABLE PURSUANT TO THIS NOTE SHALL NOT
EXCEED THE HIGHEST APPLICABLE USURY CEILING.
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IN
WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed as of the date first set forth above.
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“BORROWER”
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Chapeau,
Inc.,
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a
Utah corporation
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By:__________________________
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Name: Guy
A. Archbold
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Title: Chief
Executive Officer
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EXHIBIT A
INTEREST
RATE SCHEDULE
Interest
shall accrue at a rate of twenty-two percent (22%) per annum
starting on the date of the first advance of principal
pursuant to the Note through the earlier of (i) the last day
of the month immediately preceding the first month for which
the Lender receives payment in cash for principal and interest
accrued thereon under the Note from payment for the Service (as
defined in the DEPA) pursuant to that certain Discount Energy
Purchase Agreement (the “DEPA”) with
____________________________
; or (ii) December 12, 2007; provided that, if the Lender has
not received a payment in cash as provided for in (i) above on
or before December 12, 2007 then interest shall accrue at a
rate of twenty-four percent (24%) per annum applicable
retroactively starting on the date of the first advance
pursuant to the Note through the last day of the month
immediately preceding the first month for which Lender
receives payment in cash for principal and interest accrued
thereon under the Note from payment for the Service
(such period, the “Start-Up Period”).
Following
the Start-Up Period, the Company shall pay to Lender an amount
equal to the payment to Borrower for Service in connection
with the DEPAs less: (i) the amount of direct costs of
providing the Service in connection with the DEPAs, including
contracted third-party service and maintenance of the
Equipment (as defined in the DEPAs) (run-hour equivalent to
$.0225 per kW); and (ii) premiums for property and liability
insurance coverages in connection with the Equipment and as
required under the DEPAs. The foregoing payment
shall first be applied to the principal as provided in and
subject to Section 4 of the Note. The remaining
amount shall be the interest payment as provided for in the
Note.
Payment
of interest accrued during the Start-Up Period shall be made
in units and each unit shall be comprised of: (a) one (1)
share of Common Stock, and (b) one (1) warrant (which shall be
in the form attached hereto as Exhibit D) to purchase one (1)
share of Common stock (each a
“Unit”). Payment for all interest
accrued during the Start-Up Period shall be made in a single
grant of Units in accordance with the methodology set forth
below. After the Start-Up Period, all payments of
accrued interest will be made in arrears in immediately
available United States funds, without setoff or counterclaim,
within 5 business days of the end of each
month.
The
number of Units to be issued in accordance with the foregoing
shall be determined by dividing the dollar amount of interest
accrued during the Start-Up Period by the lesser of (i) $2.25
or (ii) eighty percent (80%) of the closing price of the
Common Stock on the last day of the Start-Up
Period. Each warrant shall be exercisable for a
period of four (4) years from the date of issuance and the
exercise price shall be the average of the closing price of
the Common Stock on the last day of the Start-Up Period and
the closing prices of the preceding four days. In
the event the last day of the Start-Up Period or the preceding
four days are not dates for which a closing price of the
Common Stock exists, the immediately preceding day or days for
which a closing price exists shall be used for purposes of the
foregoing paragraph.
Any
and all Units issued under the Note shall be issued pursuant
to a form of stock purchase agreement the terms and conditions
of which shall be mutually agreed to by the Lender and the
Borrower and in accordance with all applicable federal and
state securities laws.
EXHIBIT B
SCHEDULE
OF ADVANCES
Funds
shall be advanced in the amounts and upon the occurrence of
the following events, unless otherwise mutually agreed to by
the Lender and the Borrower:
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1.
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$_______________
upon execution of the Note (the Lender and the Borrower acknowledge
and agree such amount represents fifty percent (50%) of the
aggregate funds to be advanced in connection with the project, for
which project the Borrower is in possession of the required engines
and such engines are ready for assembly.
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2.
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$_______________
when the Equipment (as that term is defined in the Borrower’s
form of Discount Energy Purchase Agreement “DEPA”) is
delivered to the _________ project location.
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3.
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$_______________
when the Equipment is commissioned for the __________ project and
the Borrower is eligible to commence commercial delivery of the
Service (as that term is defined in the DEPA) as set forth in the
__________ DEPA.
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EXHIBIT C
FORM
OF OPTION
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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.
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Option to Purchase Common Stock
of
Chapeau, Inc.
Void after __________ ___, 20__
This Option is issued to GORDON V. SMITH
(the “Optionee”) by Chapeau, Inc., a Utah corporation
(the “Company”), as of _______ ___, 20___ (the
“Option Issue Date”). This Option is issued
pursuant to that certain Secured Promissory Note dated as of
September 11, 2007 (the “Note”).
The
Company and the Optionee agree as follows:
Subject
to the terms and conditions set forth herein, the Company
grants to Optionee a nonqualified stock option (the
“Option”) to purchase __________ 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 of Three Dollars ($3.00)
per share (the “Exercise Price”).
The
Option granted hereunder is granted to Optionee in connection
with the Note, 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”).
The
Option shall terminate on, and shall not be exercisable after
5:00 p.m. Eastern on the six month anniversary of the Option
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 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 20 days prior to the consummation of any Disposition
Event; provided that the Optionee shall in any event have at
least 40 days after the Option Issue Date to exercise this
Option.
4.1
Exercisability . The Option shall be
immediately exercisable with respect to the entire number of
shares subject to the Option.
4.2
Notice of Exercise . &nb
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