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Exhibit 10.3
 

 
REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (the “Agreement”) is made as of this 20th day
of March, 2008 by and among Chapeau, Inc., a Utah corporation (“Chapeau”), and
TEFCO, LLC, a Virginia limited liability company (“Shareholder”).
 
RECITALS
 
A. Chapeau and Shareholder entered into that certain Turnkey Project
Acquisition, Loan and Security Agreement dated as of an even date herewith (the
“Acquisition Agreement”), pursuant to which Shareholder (i) received the Note,
Option and Warrant and (ii) will receive Interest Shares.
 
B Chapeau has agreed to grant to Shareholder the registration rights described
in this Agreement with respect to the Registrable Securities, as defined below.
 
C. Capitalized terms not otherwise defined herein shall have the meaning
therefor, as set forth in the Acquisition Agreement.
 
AGREEMENT
 
NOW, THEREFORE, Chapeau and the Shareholders hereby covenant and agree as
follows:
 
1.         Definitions.  As used in this Agreement, the following terms shall
have the following respective meanings:
 
           “Additional Stock” shall have the meaning therefor, as set forth in
Section 11(b) below.
 
“Affiliate” shall have the meaning therefor, as set forth in the Exchange Act.
 
“Anti-Dilution Event” shall mean any issuance of Additional Stock without
consideration or for consideration per share less than the Purchase Price of any
Registrable Securities then held by a Holder.
 
“Commission” shall mean the United States Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
 
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder, all as the same shall be
in effect at the time.
 
“Holder” shall mean the Shareholder and any Affiliate thereof, including without
limitation, any member of Shareholder.
 
“Purchase Price” shall collectively mean the Exercise Price of the shares of
Common Stock underlying each of the Option and the Warrant.
 

 
 

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“Register,” “registered” and “registration” each shall refer to a registration
effected by preparing and filing a registration statement or statements or
similar documents in compliance with the Securities Act and the declaration or
ordering of effectiveness of such registration statement or document by the
Commission.
 
“Registrable Securities” shall mean (i) the shares of Common Stock issuable (A)
pursuant to the Option and the Warrant, (B) in connection with the payment of
interest due under the Note and (C) in payment of the Facilities Fee,  (ii) any
and all Interest Shares issuable pursuant to the terms of the Acquisition
Agreement, (iii) any shares of Common Stock held by any Holder, (iv) any
additional shares of Common Stock issued or issuable pursuant to any
Anti-Dilution Event and (v) any security of Chapeau exchangeable, convertible or
exercisable into shares Common Stock issued as a dividend or other distribution
with respect to, in exchange for or in replacement of such shares of Common
Stock, including upon any stock split, merger or similar transaction.
 
“Requisite Period” shall mean the period commencing on the effective date of the
registration statement and ending on the earlier of (i) the date on which the
sale of all Registrable Securities covered thereby is completed and (ii) two (2)
years after such effective date.
 
“Rule 144” shall mean Rule 144 under the Securities Act, or any similar or
successor rules or regulations hereafter adopted by the Commission.
 
“Rule 145” shall mean Rule 145 under the Securities Act, or any similar or
successor rules or regulations hereafter adopted by the Commission.
 
           “Securities Act” shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder, all as the same
shall be in effect at the applicable time.
 
“Target Effective Date” shall mean the date 180 days after the (i) Anticipated
Filing Date and (ii) date that the registration statement is actually filed with
the Commission.
 
2.         Registration.   Chapeau shall prepare and file a registration
statement with the Commission with respect to all Registrable Securities then
held by Shareholder as soon as possible but no later than one (1) year from the
Closing Date (the “Anticipated Filing Date”). Chapeau shall use its best efforts
to have the registration statement declared effective on or before the Target
Effective Date and shall keep such registration statement effective for the
Requisite Period.
 
3.
Piggyback Registration.

 
(a)        If Chapeau at any time from the date of this Agreement through the
fifth anniversary of the Closing Date, proposes to register any of its
securities under the Securities Act for sale to the public, whether for its own
account or for the account of other security holders or both (except with
respect to registration statements on Forms S-4, S-8 and any successor forms
thereto as well as registrations that do not permit secondary resales, a
registration relating to the offer and sale of debt securities, a registration
relating to an employee benefit plan, a registration relating to a corporation
reorganization or other Rule 145 transaction), each such time it will give
written notice to such effect to all holders of outstanding Registrable
Securities at least thirty (30) days prior to such filing.  Upon the written
request of any such holder received by Chapeau within twenty (20) days after the
provision of any such notice by Chapeau to register any of its Registrable
Securities, Chapeau will cause the Registrable Securities as to which
registration shall have been so requested to be included in the securities to be
covered by the registration statement proposed to be filed by Chapeau, or to the
extent required to permit the sale or other disposition by the holder of such
Registrable Securities so registered (a "Piggyback Registration").

 
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(b)        If the registration of which Chapeau gives notice is for a registered
public offering involving a firm commitment underwriting, Chapeau shall so
advise the holders of Registrable Securities as a part of the written notice
given pursuant to Section 3(a).  In such event, the right of any such holder to
registration pursuant to this Section 3 shall be conditioned upon such holder’s
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein.  All holders
proposing to distribute their securities through such underwriting shall
(together with Chapeau and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by Chapeau.

(c)        If the underwriters advise Chapeau in writing that marketing factors
require a limitation of the number of shares to be underwritten, the
underwriters may exclude  some or all of the Registrable Securities from such
registration statement in accordance with the following allocation: First, to
Chapeau for securities to be sold for its own account; second each Holder shall
have the right to include in such registration statement such number (but only
such number) of shares as shall bear the same relationship to the total number
of shares which the managing underwriter or underwriters will permit to be
included in such registration statement by any shareholder of Chapeau as the
number of shares owned by such Holder bears to the total number of shares owned
by all shareholders of Chapeau.

4.         Registration Procedures.  In connection with the registration of any
Registrable Securities under the Securities Act, Chapeau will, as expeditiously
as possible:
 
(a)        prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become effective not later than the Target Effective Date and to
remain effective for the Requisite Period;

(b)        prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for the
Requisite Period and comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement in accordance with the intended method of disposition set
forth in such registration statement for such period;

(c)        furnish to each Holder and to each underwriter such number of copies
of the registration statement and the prospectus included therein (including
each preliminary prospectus) as such persons reasonably may request in order to
facilitate the intended disposition of the Registrable Securities covered by
such registration statement;

 
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(d)        use its best efforts (i) to register or qualify the Registrable
Securities covered by such registration statement under the securities or “blue
sky” laws of such jurisdictions as the Holders or, in the case of an
underwritten public offering, the managing underwriter, reasonably shall
request, (ii) to prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements, and take such other
actions, as may be necessary to maintain such registration and qualification in
effect at all times for the period of distribution contemplated thereby and
(iii) to take such further action as may be necessary or advisable to enable the
disposition of the Registrable Securities in such jurisdictions, provided, that
Chapeau shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction;

(e)        use its best efforts to list the Registrable Securities covered by
such registration statement with any securities exchange on which the Common
Stock of Chapeau is then listed;

(f)         immediately notify each Holder and each underwriter under such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
of which Chapeau has knowledge as a result of which the prospectus contained in
such registration statement, as then in effect, includes any untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing and promptly amend or supplement such registration
statement to correct any such untrue statement or omission;

(g)        notify each Holder of the issuance by the Commission of any stop
order suspending the effectiveness of the registration statement or the
initiation of any proceedings for that purpose and make every reasonable effort
to prevent the issuance of any stop order and, if any stop order is issued, to
obtain the lifting thereof at the earliest possible time;

(h)        if the offering is an underwritten offering, enter into a written
agreement with the managing underwriter selected in the manner herein provided
in such form and containing such provisions as are usual and customary in the
securities business for such an arrangement between such underwriter and
companies of Chapeau' size and investment stature, including, without
limitation, customary indemnification and contribution provisions;

(i)         if the offering is an underwritten offering, at the request of any
Holder, use its best efforts to furnish to such Holder on the date that
Registrable Securities are delivered to the underwriters for sale pursuant to
such registration: (i) a copy of an opinion dated such date of counsel
representing Chapeau for the purposes of such registration, addressed to the
underwriters, stating that such registration statement has become effective
under the Securities Act and that (A) to the best knowledge of such counsel, no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or contemplated
under the Securities Act, (B) the registration statement, the related prospectus
and each amendment or supplement thereof comply as to form in all material
respects with the requirements of the Securities Act (except that such counsel
need not express any opinion as to financial statements or other financial or
statistical information contained therein) and (C) to such other effects as
reasonably may be requested by counsel for the underwriters; and (ii) a copy of
a letter dated such date from the independent public accountants retained by
Chapeau, addressed to the underwriters, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of Chapeau included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request;

 
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(j)         take all actions reasonably necessary to facilitate the timely
preparation and delivery of certificates (not bearing any legend restricting the
sale or transfer of such securities) representing the Registrable Securities to
be sold pursuant to the registration statement and to enable such certificates
to be in such denominations and registered in such names as any Holder or
underwriter may reasonably request; and

(k)        take all other reasonable actions necessary to expedite and
facilitate the registration of the Registrable Securities pursuant to the
registration statement.

In connection with each registration hereunder, the Holders of Registrable
Securities will furnish to Chapeau in writing such information with respect to
themselves and the proposed distribution by them as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
 
5.         Liquidated Damages. If the registration statement is (a) not filed on
or before the Anticipated Filing Date and/or (b) not effective on or before the
Target Effective Date then Chapeau shall owe the Shareholder 0.5% of the value
of the Registrable Securities underlying such registration statement for each
week, or portion thereof, of delay in such filing and/or effectiveness, up to a
maximum of 2% of such value. Chapeau shall pay the liquidated damages noted
above at the end of each week during which such damages have accrued and, to the
extent that such damages are not paid when due, all unpaid amounts shall accrue
dividends at a rate equal to 8% per annum. Liquidated damages shall be paid to
the Shareholder by wire transfer of immediately available funds to the account
designated thereby. The parties hereto agree that the liquidated damages
provided in this Section 5 constitute a reasonable estimate as of the date
hereof of the damages that will be suffered by the Shareholder by reason of the
registration statement to be filed or to be declared effective, as the case may
be, in accordance with the terms of this Agreement. The right of Shareholder to
receive liquidated damages pursuant to this Section 5 is not intended to be and
shall not be construed to be an exclusive remedy and Shareholder shall have the
right to pursue any and all other available remedies at law or in equity for any
breach by Chapeau of any obligation under this Agreement. For purposes of this
Section 5, the value of the Registrable Securities underlying a registration
statement shall be calculated based on the volume weighted average closing price
per share of Common Stock on the over the counter bulletin board, or such other
exchange, market or listing service on which shares of Common Stock trade
subsequent to the date of this Agreement, over the course of the thirty (30) day
period prior to the date of calculation of such liquidated damages.
 
6.
Expenses.

 
 
 
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All expenses incurred by Chapeau in connection with the registration of
Registrable Securities pursuant to this Agreement, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel and independent public accountants for Chapeau, fees
and expenses (including counsel fees) incurred in connection with complying with
state securities or “blue sky” laws, fees of the National Association of
Securities Dealers, Inc. (the “NASD”), and fees of transfer agents and
registrars and, in the event of a Piggyback Registration, the reasonable fees
and disbursements of one counsel for the Holders in an aggregate amount not to
exceed $25,000 (but excluding any Selling Expenses), are called “Registration
Expenses.”  For purposes of this Agreement, “Selling Expenses” include all
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, as well as fees and disbursements of counsel, if any,
for the Holders. Chapeau will pay all Registration Expenses in connection with
any registration statement filed hereunder, and the Selling Expenses in
connection with each such registration statement shall be borne by the
participating Holders in proportion to the number of Registrable Securities sold
by each or as they may otherwise agree.
 
7.
Indemnification and Contribution.

 
(a)        In the event of a registration of any of the Registrable Securities
under the Securities Act pursuant to the terms of this Agreement, Chapeau will
indemnify and hold harmless and pay and reimburse, each Holder thereunder, each
underwriter of such Registrable Securities thereunder and each other person, if
any, who controls such Holder or underwriter within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such Holder, underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
were registered under the Securities Act pursuant hereto or any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation or alleged violation of
the Securities Act or any state securities or blue sky laws and will reimburse
each such Holder, each such underwriter and each such controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, that Chapeau will not be liable in any such case if and to the extent
that any such loss, claim, damage or liability arises out of or is based upon
Chapeau' reliance on an untrue statement or alleged untrue statement or omission
or alleged omission so made in conformity with information furnished by any such
Holder, any such underwriter or any such controlling person in writing
specifically for use in such registration statement or prospectus, provided,
further, that the indemnity  agreement contained in this Section 7(a) shall not
apply to amounts paid in settlement of any such loss, claims, damage, liability
or action if such settlement is effected without  the consent of Chapeau, which
consent shall not be unreasonably withheld or delayed.  Furthermore, that
Chapeau shall not be liable in any such case to the extent that any such loss,
claim, damage or liability (or action in respect thereof) arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission in such registration statement, which untrue statement or
alleged untrue statement or omission or alleged omission is completely corrected
in an amendment or supplement to the registration statement and the undersigned
indemnitees thereafter fail to deliver or cause to be delivered such
registration statement as so amended or supplemented prior to or currently with
the sale of the Registrable Shares to the person asserting such loss, claim,
damage or liability (or actions in respect thereof) or expense after Chapeau has
timely furnished the undersigned with the same.

 
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(b)        In the event of a registration of any of the Registrable Securities
under the Securities Act pursuant hereto each Holder thereunder, severally and
not jointly, will indemnify and hold harmless Chapeau, each person, if any, who
controls Chapeau within the meaning of the Securities Act, each officer of
Chapeau who signs the registration statement, each director of Chapeau, each
underwriter and each person who controls any underwriter within the meaning of
the Securities Act, against all losses, claims, damages or liabilities, joint or
several, to which Chapeau or such officer, director, underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon reliance on any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Registrable Securities were registered under the Securities Act
pursuant hereto or any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse Chapeau and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, that such Holder will be liable hereunder in any
such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Holder, as such, furnished in
writing to Chapeau by such Holder specifically for use in such registration
statement or prospectus, and provided, that the liability of each Holder
hereunder shall be limited to the proceeds received by such Holder from the sale
of Registrable Securities covered by such registration statement.
Notwithstanding the foregoing, the indemnity provided in this Section 7(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or expense if such settlement is effected without the consent of such
indemnified party, which consent shall not be unreasonably withheld.

(c)        Promptly after receipt by an indemnified party hereunder of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 7 and shall only relieve it
from any liability which it may have to such indemnified party under this
Section 7 if and to the extent the indemnifying party is materially prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
reasonably satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 7 for any legal expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation and of liaison with counsel so selected,
provided that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded based upon written advise of its counsel that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, then the indemnified party shall have the right to select a separate
counsel and to assume such legal defenses and otherwise to participate in the
defense of such action, with the expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.

 
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(d)        In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any Holder
exercising rights under this Agreement, or any controlling person of any such
Holder, makes a claim for indemnification pursuant to this Section 7 but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 7 provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of any such selling Holder or any such controlling person in circumstances
for which indemnification is provided under this Section 7; then, and in each
such case, Chapeau and such Holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that such Holder is responsible for the
portion represented by the percentage that the public offering price of its
Registrable Securities offered by the registration statement bears to the public
offering price of all securities offered by such registration statement, and
Chapeau is responsible for the remaining portion; provided that, in any such
case, (A) no such holder will be required to contribute any amount in excess of
the public offering price of all such Registrable Securities offered by it
pursuant to such registration statement and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.

8.         Changes in Capital Stock.   If, and as often as, there is any change
in the capital stock of Chapeau by way of a stock split, stock dividend,
combination or reclassification, or through a merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof so that the rights and
privileges granted hereby shall continue as so changed.
 
9.         Rule 144 Reporting.   With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, or
pursuant to a registration on Form S-3, at all times after ninety (90) days
after any registration statement covering a public offering or resale of
securities of Chapeau under the Securities Act shall have become effective,
Chapeau agrees to:
 
(a)        make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;

 
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(b)        file with the Commission in a timely manner all reports and other
documents required of Chapeau under the Exchange Act; and

(c)        furnish to each holder of Registrable Securities forthwith upon
request a written statement by Chapeau as to its compliance with the reporting
requirements of such Rule 144 and of the Exchange Act, a copy of the most recent
annual or quarterly report of Chapeau, and such other reports and documents so
filed by Chapeau as such holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing such holder to sell any
Registrable Securities without registration.

10.       Assignment of Registration Rights.   The rights to have Chapeau
register Registrable Securities pursuant to this Agreement may be assigned by
the Shareholders to transferees or assignees of such securities; provided that
the transferees or assignees have acquired at least 50,000 of the Registrable
Securities from a Shareholder in a transaction exempt from the registration
requirements of applicable federal and state securities laws, and Chapeau
receives an opinion of counsel reasonably satisfactory to Chapeau that such
transaction is exempt from such registration requirements; that Chapeau is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned and provided,
further that the transferee or assignee of such rights assumes in writing the
obligations of such holder under this Agreement. The term “Holder” as used in
this Agreement shall include such permitted assigns.
 
11.       Anti-Dilution Adjustments.   Following an Anti-Dilution Event, the
Purchase Price for some or all of the Registrable Shares shall be subject to
adjustment from time to time as follows:
 
(a)        Adjustment Formula.  Whenever the Purchase Price with respect to any
Registrable Shares then held by a Holder is adjusted pursuant to this Section
11, the new Purchase Price shall be determined by multiplying such Purchase
Price then in effect by a fraction, (x) the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
(the “Outstanding Common”) plus the number of shares of Common Stock that the
aggregate consideration received by Chapeau for such issuance would purchase at
such Purchase Price; and (y) the denominator of which shall be the number of
shares of Outstanding Common plus the number of shares of such Additional
Stock.  For purposes of the foregoing calculation, the term “Outstanding Common”
shall include shares of Common Stock deemed issued pursuant to Section 11(d)
below.
 
(b)       Definition of “Additional Stock”.  For purposes of this Agreement,
“Additional Stock” shall mean any shares of Common Stock issued (or deemed to
have been issued pursuant to Section 11(d)) by Chapeau after the Closing Date)
other than
 
(i)         Capital stock (or options, warrants or rights therefor) issued
pursuant to stock dividends, stock splits or similar transactions;
 
(ii)        Shares of Common Stock issued or issuable to employees, consultants
or directors of Chapeau directly or pursuant to a stock option plan or
restricted stock plan approved by the Board of Directors of Chapeau;
 
 
 
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(iii)       Shares of Common Stock issuable upon conversion or exercise of
convertible or exercisable securities outstanding as of the Closing Date
including, without limitation, warrants, notes or options;
 
(iv)       Capital stock, or warrants, options or rights to purchase capital
stock, issued in connection with bona fide corporate partnering transactions,
acquisitions, mergers or similar transactions, the terms of which are approved
by the Board of Directors of Chapeau;
 
(v)        Shares of Common Stock issued or issuable upon exercise of the Option
or the Warrant; and
 
 
(vi)       Shares of capital stock issued to parties that are providing the
Company with equipment leases, real property leases, loans, credit lines,
guaranties of indebtedness, in each case which transactions are approved by the
Board of Directors of Chapeau, provided that, for purposes of this Section
11(b), the definition of “Additional Stock” shall include issuances of the type
and nature described in this Section 11(b)(vi) on and after Chapeau has issued
an aggregate of two percent (2%) of its shares of capital stock then issued and
outstanding pursuant to the exception set forth herein.
 
(c)        Determination of Consideration.   In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the amount of
cash paid therefor before deducting any reasonable discounts, commissions or
other expenses allowed, paid or incurred by Chapeau for any underwriting or
otherwise in connection with the issuance and sale thereof.  In the case of the
issuance of the Common Stock for a consideration in whole or in part other than
cash, the consideration other than cash shall be deemed to be the fair value
thereof as determined by the Board of Directors irrespective of any accounting
treatment.

(d)        Deemed Issuances of Common Stock.  In the case of the issuance of
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (the “Common
Stock Equivalents”), the following provisions shall apply for all purposes of
this Section 11:

(i)         The aggregate maximum number of shares of Common Stock deliverable
upon conversion, exchange or exercise (assuming the satisfaction of any
conditions to convertibility, exchangeability or exercisability, including,
without limitation, the passage of time, but without taking into account
potential anti-dilution adjustments) of any Common Stock Equivalents and
subsequent conversion, exchange or exercise thereof shall be deemed to have been
issued at the time such securities were issued or such Common Stock Equivalents
were issued and for a consideration equal to the consideration, if any, received
by Chapeau for any such securities and related Common Stock Equivalents
(excluding any cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any, to be received by
Chapeau (without taking into account potential anti-dilution adjustments) upon
the conversion, exchange or exercise of any Common Stock Equivalents (the
consideration in each case to be determined in the manner provided in Section
11(c)).

 
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(ii)        In the event of any change in the number of shares of Common Stock
deliverable or in the consideration payable to Chapeau upon purchase, exchange
or exercise of any Common Stock Equivalents, other than a change resulting from
the anti-dilution provisions thereof, the relevant Purchase Price, to the extent
in any way affected by or computed using such Common Stock Equivalents, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the purchase, exchange or exercise of such Common Stock Equivalents.

(iii)       Upon the termination or expiration of the convertibility,
exchangeability or exercisability of any Common Stock Equivalents, the Purchase
Price, to the extent in any way affected by or computed using such Common Stock
Equivalents, shall be recomputed to reflect the issuance of only the number of
shares of Common Stock (and Common Stock Equivalents that remain convertible,
exchangeable or exercisable) actually issued upon the conversion, exchange or
exercise of such Common Stock Equivalents.

(e)        No Increased Purchase Price.  Notwithstanding any other provisions of
this Section 11, no adjustment of the Purchase Price shall have the effect of
increasing the Purchase Price above the Purchase Price in effect immediately
prior to such adjustment.

14.
Miscellaneous.

 
(a)        All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including without
limitation transferees of any Registrable Securities), whether so expressed or
not.

(b)        All notices, requests, consents and other communications hereunder
shall be in writing and shall be delivered in person, mailed by certified or
registered mail, return receipt requested, or sent by telecopier, addressed (i)
if to Chapeau, at; (ii) if to any other party hereto, at the address of such
party set forth beneath such party's signature to this Agreement; and (iii) if
to any subsequent holder of Registrable Securities, to it at such address as may
have been furnished to Chapeau in writing by such holder; or, in any case, at
such other address or addresses as shall have been furnished in writing to
Chapeau (in the case of a holder of Registrable Securities) or to the holders of
Registrable Securities (in the case of Chapeau) in accordance with the
provisions of this paragraph.

(c)        This Agreement shall be governed by and construed in accordance with
the laws of the State of Virginia applicable to contracts entered into and to be
performed wholly within said State.

(d)        All disputes arising under or related to this Agreement shall be
resolved via arbitration in the manner set forth in Section 11.11 of the
Acquisition Agreement.

(e)        This Agreement may not be amended or modified without the written
consent of Chapeau and the holders of at least a majority of the Registrable
Securities.

(f)         Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof. No waiver shall be effective unless and
until it is in writing and signed by the party granting the waiver.

 
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(g)        This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.

(h)        If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.

(i)         The obligations set forth in this Agreement shall terminate upon the
earlier of (i) the consummation of a Change in Control, as defined in the
Acquisition Agreement, (ii) the date that all Holders are eligible to sell all
of Registrable Securities under Rule 144 within any three month period and (iii)
the date that is six (6) years after the date of this Agreement.
 

 
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date
first written above.
 

 
CHAPEAU, INC.
 

 
By: /s/ Guy A. Archbold
Name:  Guy A. Archbold
Title:     Chief Executive Officer
 

 
SHAREHOLDER:
 
TEFCO, LLC
 
By: /s/ Mark Mason
Name:
Mark Mason

Title:
Manager

 
 
 

 
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