<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1997
---------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to ___________
Commission File Number 33-1289-D
--------------
CHAPEAU, INC.
-----------------------------------------------------
(Exact name of registrant as specified in charter)
Utah 87-0431831
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer I.D No.)
incorporation or organization)
6074 Oak Canyon Drive, Salt Lake City, Utah 84117
- -------------------------------------------- --------------
Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (801) 272-7131
--------------
Securities registered pursuant to section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
None N/A
-------------------- ------------------------------------------
Securities registered pursuant to section 12(g) of the Act:
None
-----------------
(Title of class)
Check whether the Issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.(1) Yes [ ]
No [X] (2) Yes [ ] No [X]
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: ($2,166)
--------
(Cover page continued on next page)
<PAGE> 2
State the aggregate market value of the voting stock held by
nonaffiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within the past 60 days: The Company does not have an active trading market
and it is, therefore, difficult, if not impossible, to determine the market
value of the stock. The Company sold shares of its common stock at $0.015 per
share, after giving effect to the fifteen to one reverse split. Accordingly,
if $0.015 per share is used, the aggregate market value of the voting stock
held by nonaffiliates would be $6,600.
As of June 13, 1998, the Registrant had 1,320,000 shares of common
stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the part of the form 10-KSB (e.g., part I, part II, etc.) into which the
document is incorporated: (1) Any annual report to security holders; (2) Any
proxy or other information statement; and (3) Any prospectus filed pursuant to
rule 424(b) or (c) under the Securities Act of 1933: None<PAGE>
<PAGE> 3
TABLE OF CONTENTS
PART I Page
ITEM 1. DESCRIPTION OF BUSINESS 4
ITEM 2. DESCRIPTION OF PROPERTIES 5
ITEM 3. LEGAL PROCEEDINGS 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 5
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 6
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 6
ITEM 7. FINANCIAL STATEMENTS 7
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 7
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT 8
ITEM 10. EXECUTIVE COMPENSATION 10
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 12
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 13
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 14
<PAGE> 4
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company was organized under the laws of the State of Utah on
September 19, 1985, to provide a capital resource fund to be used to
participate in business opportunities. The Company completed a public
offering of its common stock in March of 1986. The Company received net
proceeds from the public offering of approximately $163,900, after deducting
underwriters' compensation and other costs of the offering totaling
approximately $37,215.
On May 13, 1987, the Company entered into an agreement with Pro Image,
Inc. for the purchase of licenses to open up to eighteen (18) Pro Image
stores. In 1987, the Company acquired Robert K. McIntosh, Inc., a closely
held corporation which owned a Pro Image franchise. In exchange for Robert K.
McIntosh, Inc., the Company issued 600,000 shares of its common stock and the
shareholders of Robert K. McIntosh, Inc., Robert K. McIntosh and Robert
McDonald, became members of the Company's board of directors. In December
1987, the Company also entered an agreement with Dave Carver to purchase a Pro
Image store in Long Beach, California.
The Company's efforts to become a franchisee of Pro Image stores proved
unsuccessful and the Company ceased all activity related to the Pro Image
stores. The Company used the proceeds of its public offering and all
additional funds it borrowed or raised to fund the Company's efforts in
starting and purchasing Pro Image stores.
After the Company ceased its Pro Image franchises, the Company
investigated several other business opportunities none of which proved
successful. The Company presently has no operations other then minimal
operations necessary to maintain its corporate status.
In 1997, the Company changed management and sold shares of its Common and
Preferred Stock in an effort to raise enough capital to cover past obligations
and provide capital for corporate cleanup. Through the sale of 13,200,000
shares of its Common Stock the Company raised $25,000. The Company raised an
additional $15,000 by the sale of 1,000,000 shares of its preferred stock (the
"1997 Series A Convertible Preferred Stock.") All shares were sold to two
individuals. (See Part III, Item 9. "Directors, Executive Officers -Key
Consultants.")
The Company is currently seeking potential business acquisition or
opportunities to enter in an effort to commence business operations. The
Company does not propose to restrict its search for a business opportunity to
any particular industry or geographical area and may, therefore, engage in
essentially any business in any industry. The Company has unrestricted
discretion in seeking and participating in a business opportunity, subject to
availability of such opportunities, economic conditions, and other factors.
The selection of a business opportunity in which to participate is
complex and risky. Additionally, as the Company has only limited resources, it
may be difficult to find good opportunities. There can be no assurance that
the Company will be able to identify and acquire any business opportunity
which will ultimately prove to be beneficial to the Company and its
shareholders. The Company will select any potential business opportunity based
on management's business judgment.
<PAGE> 5
The activities of the Company are subject to several significant risks
which arise primarily as a result of the fact that the Company has no specific
business and may acquire or participate in a business opportunity based on the
decision of management which potentially could act without the consent, vote,
or approval of the Company's shareholders. The risks faced by the Company are
further increased as a result of its lack of resources and its inability to
provide a prospective business opportunity with significant capital.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's administrative offices are located at 6074 Oak Canyon
Drive, Salt lake City, Utah, which are the offices of Donald McKean, the
president of the Company. Mr. McKean has allowed the Company to use this
office without charge.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of shareholders of the Company during
the fourth quarter of the fiscal year ended June 30, 1997. On May 20, 1998,
the Company held a special meeting of shareholders to reverse split or
consolidate the issued and outstanding stock of the Company on a fifteen (15)
to one basis and to elect directors. The reverse split was approved and
effective June 12, 1998. All directors were reelected.
<PAGE>
<PAGE> 6
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is not traded on any exchange or other
quotation service. The Company intends to request a symbol for its securities
when it is current in its corporate and SEC filings.
Since its inception, the Company has not paid any dividends on its Common
Stock, and the Company does not anticipate that it will pay dividends in the
foreseeable future. At June 15, 1998, the Company had approximately 63
shareholders.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
Overview
Since its organization, other than completing a public offering, the
Company's only business was as a franchisee of Pro Image stores in California.
After this business proved unsuccessful, the Company has been seeking other
potential acquisitions, mergers or business opportunities to activate its
business operations.
Liquidity and Capital Resources
As of June 30, 1997, the Company had no assets and liabilities of
$51,107. Working Capital at June 30, 1997, was a negative $51,107.
Liabilities at June 30, 1997, included $25,000 owed to former officers of the
Company. After the close of the fiscal year, the obligations to former
officers were satisfied. The funds used to pay the former officers and
directors were from sales of the Company's securities.
The Company has only incidental ongoing expenses primarily associated
with maintaining its corporate status and bringing the Company current in its
reporting obligations to the Securities and Exchange Commission. For the
twelve months ended June 30, 1997, the Company was inactive and had no
expenses except for nominal fees associated with maintaining its corporate
status. No revenue was received during the year ended June 30, 1997.
Since inception the Company has not had profitable operations with its
only active business being discontinued in 1989. The Company is unlikely to
generate any operating revenue until the Company locates a business
opportunity with which to acquire or merge. Management of the Company will be
investigating various business opportunities. These efforts may cost the
Company not only out of pocket expenses for its management but also expenses
associated with legal and accounting cost. There can be no guarantee that the
Company will receive any benefits from the efforts of management to locate
business opportunities.
The Company has had no employees since its inception and does not
intend to employ anyone in the future, unless its present business operations
were to change. The president of the Company is providing the Company with a
location for its offices on a "rent free basis." The Company is not paying
salaries or other form of compensation to any officers or directors of the
Company for their time and effort. The Company does intend to reimburse its
officers and directors for out of pocket cost.
<PAGE> 7
At June 30, 1997, the Company had a subscription receivable for $40,279
resulting from the sale of shares of the Company's stock. The subscription
receivable was collected following the close of the June 30, 1997, fiscal
year. The Company's financial statements contain a qualification as to the
Company's ability to continue in business. Management of the Company believes
it will be able to continue in business, but until the Company finds and
acquires, or merges with an ongoing business operation, the Company will
remain unprofitable and have to rely on management and others to fund its
ongoing operations.
Results of Operations
The Company has not had any operations during the fiscal year ended
June 30, 1997. The Company's only operations, presently, have involved the
preliminary investigation of one or more potential business opportunities,
none of which have come to fruition.
ITEM 7. FINANCIAL STATEMENTS
The financial statements of the Company are set forth immediately
following the signature page to this form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no disagreements with its certified public
accountants with respect to accounting practices or procedures or financial
disclosure.
<PAGE>
<PAGE> 8
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth as of May 28, 1998, the name, age, and
position of each executive officer and director and the term of office of each
director of the Company.
Name Age Position Director or
Officer Since
- -------------- ------- ---------- ---------------
Donald McKean 44 Director and President 1997
David A. O'Bagy 43 Director and Secretary/
Treasurer 1997
Neil Blosch 36 Director 1998
Set forth below is certain biographical information regarding each of
the Company's executive officers and directors.
Donald L. McKean was appointed the new president and a director of the
Company in June 1997. Mr. McKean has since 1994 been the vice president,
national account sales for Managed Health Network located in Los Angeles,
California where he is responsible for all marketing, sales and implementation
of new national accounts. From 1993 to 1994, Mr. McKean was the senior sales
executives for First Health/Alta Health Strategies in Salt Lake City, Utah.
Mr. McKean received a Bachelor of Arts in psychology and a master's degree in
social work from the University of Utah.
David A. O'Bagy was appointed the new secretary/treasurer and a
director of the Company in June 1997. Since 1985, Mr. O'Bagy has operated
O'Bagy & Associates a real estate firm in the Salt Lake City, Utah. Mr.
O'Bagy has been involved in real estate in Salt Lake City, Utah since 1977.
Mr. O'Bagy received a Bachelor of Science in accounting from the University of
Utah in 1977.
Neil Blosch was appointed a director of the Company in April 1998. Mr.
Blosch is a general contractor in Salt Lake City, Utah owning and operating
Sheer Structure, Inc. for the past fifteen years. Mr. Blosch received a
degree from the University of Utah.
Key Consultants:
Kirk Blosch and Jeff Holmes who are major shareholders of the Company
since their purchase of shares in the Company in 1997, have indicated they
will provide management consulting to the Company. (See: "Principal
Shareholders.") The Company anticipates that Mr. Blosch and Holmes will have
a substantial voice in any future business decisions of the Company. Set
forth below is certain biographical information regarding Messrs. Blosch and
Holmes:
<PAGE>
<PAGE> 9
Kirk Blosch, age 43, has been a general partner in the partnership of
Blosch and Holmes, a business consulting and private venture funding general
partnership since 1984. For the past fifteen years Mr. Blosch has been an
advisor for various public and private companies. During this time, Mr.
Blosch has also been involved in real estate development. During 1995 and
1996, Mr. Blosch provided bridge financing with his own funds for private
companies prior to their initial public offerings. In the first quarter of
1997, Mr. Blosch along with Mr. Holmes completed a private funding of Zevex
International, Inc., a medical product company, specializing in medical
devices and ultra sound technology. Zevex is traded on the American Stock
Exchange. Mr. Blosch graduated from the University of Utah in 1977 with a
Bachelor of Science in Speech Communications. Neil Blosch is the brother of
Kirk Blosch.
Jeff Holmes, age 44, has been a general partner in the partnership of
Blosch and Holmes since 1984. For the past 15 years, Mr. Holmes has acted as
a business consultant to various public and private companies. Mr. Holmes is
a former director of Point of Care Technologies, Inc. a publicly held
corporation, that has two disposable screening and diagnostic testing products
for the point of care healthcare industry. Mr. Holmes was the chairman of the
board of directors of Ion Laser Technology, a medical device company listed on
the American Stock Exchange, that has developed "Bright Smile" tooth whitening
procedure. Mr. Holmes was a director of McKee and Company, the parent company
of W.B. McKee Securities, Inc., a regional broker-dealer specializing in the
financing of public and private companies. Mr. Holmes along with Mr. Blosch
completed a private funding of Zevex. Mr. Holmes graduated from the
University of Utah in 1976 with a Bachelor of Science in Marketing and
Management.
Except as indicated below, to the knowledge of management, during the
past five years, no present or former director, or executive officer of the
Company:
(1) filed a petition under the federal bankruptcy laws or any
state insolvency law, nor had a receiver, fiscal agent or similar officer
appointed by a court for the business or property of such person, or any
partnership in which he was a general partner at or within two years before
the time of such filing, or any corporation or business association of which
he was an executive officer at or within two years before the time of such
filing;
(2) was convicted in a criminal proceeding or named subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from or otherwise
limiting, the following activities:
(i) acting as a futures commission merchant, introducing
broker, commodity trading advisor, commodity pool operator, floor broker,
leverage transaction merchant, associated person of any of the foregoing, or
as an investment advisor, underwriter, broker or dealer in securities, or as
an affiliate person, director or employee of any investment company, or
engaging in or continuing any conduct or practice in connection with such
activity;
<PAGE> 10
(ii) engaging in any type of business practice; or
(iii) engaging in any activity in connection with the
purchase or sale of any security or commodity or in connection with any
violation of federal or state securities laws or federal commodities laws;
(4) was the subject of any order, judgment, or decree, not
subsequently reversed, suspended, or vacated, of any federal or state
authority barring, suspending, or otherwise limiting for more than 60 days the
right of such person to engage in any activity described above under this
Item, or to be associated with persons engaged in any such activity;
(5) was found by a court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission to have violated any
federal or state securities law, and the judgment in such civil action or
finding by the Securities and Exchange Commission has not been subsequently
reversed, suspended, or vacated.
(6) was found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have violated any
federal commodities law, and the judgment in such civil action or finding by
the Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.
Compliance with Section 16(a) of the Exchange Act
The Company is not subject to the requirements of Section 16(a) of the
Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following tables set forth certain summary information concerning
the compensation paid or accrued for each of the Company's last three
completed fiscal years to the Company's or its principal subsidiaries chief
executive officer and each of its other executive officers that received
compensation in excess of $100,000 during such period (as determined at June
30, 1996, the end of the Company's last completed fiscal year):
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards and Payouts
---------------------------- ----------------------------------------
Name and Principal Other Annual Restricted Options/ LTIP All other
Position Year Salary Bonus($) Compensation Stock Awards SARs Payout Compensation
- ------------------ ---- ------ -------- ------------ ------------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Terrell Smith
President and CEO 1997 $ -0- -0- -0- -0- -0- -0- -0-
1996 $ -0- -0- -0- -0- -0- -0- -0-
1995 $ -0- -0- -0- -0- -0- -0- -0-
Donald McKean 1997 $ -0- -0- -0- -0- -0- -0- -0-
/TABLE
<PAGE>
<PAGE> 11
Cash Compensation
There was no cash compensation paid to any director or executive
officer of the Company during the fiscal years ended June 30, 1996, 1995, and
1994.
Bonuses and Deferred Compensation
None.
Compensation Pursuant to Plans.
None.
Pension Table
None.
Other Compensation
None
Compensation of Directors.
None.
Termination of Employment and Change of Control Arrangement
There are no compensatory plans or arrangements, including payments to
be received from the Company, with respect to any person named in Cash
Compensation set out above which would in any way result in payments to any
such person because of his resignation, retirement, or other termination of
such person's employment with the Company or its subsidiaries, or any change
in control of the Company, or a change in the person's responsibilities
following a changing in control of the Company.<PAGE>
<PAGE> 12
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of June 15, 1997, the name and the
number of shares of the Company's Common Stock, par value $0.001 per share,
held of record or beneficially by each person who held of record, or was known
by the Company to own beneficially, more than 5% of the 1,320,000 issued and
outstanding shares of the Company's Common Stock, and the name and
shareholdings of each director and of all officers and directors as a group.
<TABLE>
<CAPTION>
Title of Name of Beneficial Amount and Nature of Percent of
Class Owner Beneficial Ownership(1) Class
- --------- ------------------ ----------------------- -----------
<S> <C> <C> <C>
Common Kirk Blosch, IRA(2)
2081 South Lakeline Drive
Salt Lake City, Utah 440,000(D) 33.33%
Common Jeff Holmes(2)
600 Highway 50
Pinewild at Marla Bay, #101
Zephyr Cove, Nevada 89448 440,000(D) 33.33%
Common Cede & Co.
P.O. Box 222
Bowling Green Station
New York, New York 10274 81,193(I) 6.15%
Officers, Directors and Nominees:
Common Donald L. McKean -0- -0-
Common David O'Bagy -0- -0-
Common Neil Blosch -0- -0-
All Officers and Directors
as a Group (3 persons) -0- -0-
_____________________________
(1) Indirect and Direct ownership are referenced by an "I" or "D," respectively. All shares
owned directly are owned beneficially and of record and such shareholder has sole voting,
investment, and dispositive power, unless otherwise noted.
(2) Kirk Blosch and Jeff Holmes also purchased 500,000 shares each of the Company's 1997 Series A
Convertible Preferred Stock which converts into shares of Common Stock on a one (1) for eleven
(11) basis.
/TABLE
<PAGE>
<PAGE> 13
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others.
During the fiscal year ended June 30, 1997, there were no material
transactions, or series of similar transactions, since the beginning of the
Company's last fiscal year, or any currently proposed transactions, or series
of similar transactions, to which the Company was or is to be party, in which
the amount involved exceeds $60,000, and in which any director or executive
officer, or any security holder who is known by the Company to own of record
or beneficially more than 5% of any class of the Company's common stock, or
any member of the immediate family of any of the foregoing persons, has an
interest. Subsequent to the end of the June 1997 fiscal year, the Company
paid former officers and directors $25,000 to cover past obligations owed to
them by the Company.
Certain Business Relationships
During the fiscal year ended June 30, 1997, there were no material
transactions between the Company and its management of principal shareholders.
Indebtedness of Management
There were no material transactions, or series of similar transactions,
since the beginning of the Company's last fiscal year, or any currently
proposed transactions, or series of similar transactions, to which the Company
was or is to be a party, in which the amount involved exceeds $60,000 and in
which any director or executive officer, or any security holder who is known
to the Company to own of record or beneficially more than 5% of any class of
the Company's common stock, or any member of the immediate family of any of
the foregoing persons, has an interest.
Transactions with Promoters
The Company was organized more than five years ago; hence transactions
between the Company and its promoters or founders are not deemed to be
material.<PAGE>
<PAGE> 14
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following financial statements are
included in this report:
Title of Document Page
- ----------------- ----
Report of Jones, Jenson & Co., Certified Public Accountants 16
Balance Sheets as of June 30, 1997, and 1996 17
Statements of Operations for the fiscal years ended June 30, 1997,
and 1996 18
Statements of Stockholders' Equity for the years ended June 30, 1997,
and 1996, and from inception 19
Statements of Cash Flows for the fiscal years
ended June 30, 1997, and 1996 20
Notes to Financial Statements 22
(a)(2) Financial Statement Schedules. The following financial statement
schedules are included as part of this report:
None.
(a)(3) Exhibits. The following exhibits are included as part of this
report:
SEC
Exhibit Reference
Number Number Title of Document Location
- ------ --------- ----------------- --------
Item 3 Articles of Incorporation and Bylaws
- ------------------------------------------------------------
3.01 3 Articles of Incorporation Incorporated
by reference*
3.02 3 Bylaws Incorporated
by reference*
3.03 3 Designations of Rights, Privileges and
Preferences of the 1997 Series A
Convertible Preferred Stock This Filing
Item 4 Instruments Defining the Rights of Security Holders
- ---------------------------------------------------------------------------
4.01 4 Specimen Stock Certificate Incorporated
by reference*
* Incorporated by reference from the Company's registration statement on form
S-18 filed with the Commission, SEC file no. 33-1289-D.<PAGE>
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
Chapeau, Inc.
Date: July 21, 1998 By/S/ Donald McKean
------------------------------------------
Donald McKean, President and Director
(Principal Executive Officer)<PAGE>
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Chapeau, Inc.
Salt Lake City, Utah
We have audited the accompanying balance sheets of Chapeau, Inc. (a
development stage company) as of June 30, 1997 and 1996 and the related
statements of operations, stockholders' equity (deficit) and cash flows for
the years ended June 30, 1997, 1996 and 1995 and from inception on September
19, 1985 through June 30, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Chapeau, Inc. (a
development stage company) as of June 30, 1997 and 1996 and the results of
its operations and its cash flows for the years ended June 30, 1997, 1996
and 1995 and from inception on September 19, 1985 through June 30, 1997 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company is a development stage company with no
operating capital which raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters
are also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Jones, Jensen & Company
September 19, 1997
50 Main Street, Suite 1450
Salt Lake City, UT 84144
<PAGE> 17
CHAPEAU, INC.
(A Development Stage Company)
Balance Sheets
ASSETS
June 30,
1997 1996
----------- -----------
CURRENT ASSETS
Cash $ - $ -
Total Current Assets - -
----------- -----------
TOTAL ASSETS $ - $ -
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES
Note payable - related (Note 7) $ 25,000 $ -
Interest payable 279 -
Reserve for discontinued operations 25,828 23,662
----------- -----------
Total Current Liabilities 51,107 23,662
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock $0.001 par value;
5,000,000 shares authorized; 1,000,000
shares issued and outstanding 1,000 -
Common stock $0.001 par value;
325,000,000 shares authorized; 19,800,000
and 6,600,000 shares issued and outstanding,
respectively 19,800 6,600
Additional paid-in capital 221,971 196,171
Stock subscription receivable (Note 6) (40,279) -
Deficit accumulated during the development stage (253,599) (226,433)
---------- -----------
Total Stockholders' Equity (Deficit) (51,107) (23,662)
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ - $ -
========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE> 18
CHAPEAU, INC.
(A Development Stage Company)
Statements of Operations
From
Inception on
For the September 19,
Year Ended 1985 through
June 30, June 30,
1997 1996 1995 1997
---------- ---------- ---------- ----------
REVENUES $ - $ - $ - $ -
LOSS FROM DISCONTINUED
OPERATIONS (Note 4) 27,166 1,961 1,779 253,599
---------- ---------- ---------- ----------
NET LOSS $ (27,166) $ (1,961) $ (1,779) $ (253,599)
========== ========== ========== ==========
LOSS PER SHARE $ (0.00) $ (0.00) $ (0.00)
========== ========== ==========
WEIGHTED AVERAGE
OUTSTANDING SHARES 8,408,219 6,600,000 6,600,000
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE> 19
CHAPEAU, INC.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Preferred Stock Common Stock Paid-in Development
Shares Amount Shares Amount Capital Stage
--------- -------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
At inception on September 19, 1985 - $ - - $ - $ - $ -
Common stock issued for cash to
stockholders - - 1,500,000 1,500 13,500 -
Common stock issued for cash on
March 7, 1986 - - 4,022,300 4,022 159,878 -
Issuance of warrants to purchase
402,203 shares of common stock - - - - 40 -
Common stock issued for services
at approximately $0.03 per share - - 477,700 478 13,853 -
Common stock issued in acquisition
of Robert K. McIntosh & Associates,
Inc. in July, 1987 - - 600,000 600 8,900 -
Net loss from inception
through June 30, 1994 - - - - - (222,693)
--------- -------- --------- -------- ---------- ----------
Balance, June 30, 1994 - - 6,600,000 6,600 196,171 (222,693)
Net loss for the year ended
June 30, 1995 - - - - - (1,779)
--------- -------- --------- -------- ---------- ----------
Balance, June 30, 1995 - - 6,600,000 6,600 196,171 (224,472)
Net loss for the year ended
June 30, 1996 - - - - - (1,961)
--------- -------- --------- -------- ---------- ----------
Balance, June 30, 1996 - - 6,600,000 6,600 196,171 (226,433)
Issuance of preferred stock for
subscription receivable at $0.015
per share 1,000,000 1,000 - - 14,000 -
Issuance of common stock for
subscription receivable at $0.019
per share - - 13,200,000 13,200 11,800 -
Net loss for the year ended
June 30, 1997 - - - - - (27,166)
--------- -------- --------- -------- ---------- ----------
Balance, June 30, 1997 1,000,000 $ 1,000 19,800,000 $19,800 $ 221,971 $ (253,599)
========= ======== ========== ======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 20
CHAPEAU, INC.
(A Development Stage Company)
Statements of Cash Flows
From
Inception on
For the September 19,
Year Ended 1985 through
June 30, June 30,
1997 1996 1995 1997
---------- ---------- ---------- ----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Income (loss) from
operations $ (27,166) $ (1,961) $ (1,779) $ (253,599)
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Increase (decrease) in
accounts payable and
accrued expenses 2,166 1,961 1,779 25,828
(Increase) in interest
receivable (279) - - (279)
Increase in notes payable
and accrued interest 25,279 - - 25,279
Common stock issued for
services - - - 14,331
Common stock issued for
exchange of assets - - - 9,500
---------- ---------- ---------- ----------
Net Cash Provided (Used)
by Operating Activities - - - (178,940)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net Cash Provided (Used)
by Investing Activities - - - -
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of common stock
for cash - - - 216,155
Stock offering costs - - - (37,215)
---------- ---------- ---------- ----------
Net Cash Provided (Used)
by Financing Activities $ - $ - $ - $ 178,940
---------- ---------- ---------- ----------
The accompanying notes are an integral part of these financial statements.
<PAGE> 21
CHAPEAU, INC.
(A Development Stage Company)
Statements of Cash Flows (Continued)
From
Inception on
For the September 19,
Year Ended 1985 through
June 30, June 30,
1997 1996 1995 1997
---------- ---------- ---------- ----------
INCREASE (DECREASE)IN
CASH AND CASH
EQUIVALENTS $ - $ - $ - $ -
CASH AND CASH
EQUIVALENTS AT
BEGINNING OF PERIOD - - - -
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ - $ - $ - $ -
========== ========== ========== ==========
Cash Paid For:
Interest $ - $ - $ - $ -
Income taxes $ - $ - $ - $ -
NON CASH FINANCING
ACTIVITIES
Common stock issued
for services $ - $ - $ - $ 14,331
Common stock issued
for exchange
of assets $ - $ - $ - $ 9,500
Common stock issued
for notes receivable $ 25,000 $ - $ - $ 25,000
Preferred stock issued
for notes receivable $ 15,000 $ - $ - $ 15,000
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> 22
CHAPEAU, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1997 and 1996
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Chapeau, Inc. (the "Company") was organized under the laws of the State of
Utah on September 19, 1985. On July 27, 1987, the Company completed a plan of
reorganization with Robert K. McIntosh and Associates, Inc. (McIntosh). The
Company issued 600,000 shares of its restricted common stock to McIntosh in
exchange for all of the issued and outstanding shares of McIntosh. McIntosh
held one Pro Image franchise. At the time of acquisition, McIntosh became a
wholly owned subsidiary. Subsequent to this event, McIntosh was dissolved in
1989 and as a result is no longer a subsidiary of the Company.
In 1988, the Company was engaged in the operation of franchised sports
clothing stores (Pro-Image). The Company sold their final store in May, 1989
and has been inactive since that time. Presently, the Company has no active
operations and is seeking other business opportunities. The Company has
elected a June 30 year end.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual method of
accounting.
b. Provision for Taxes
The Company has a $253,599 net operating loss carryover as of June 30, 1997
which expires from 2000 to 2012. The potential tax benefit has been offset by
a valuation allowance for the same amount.
c. Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
d. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has not established revenues sufficient to cover its
operating costs and allow it to continue as a going concern. Management
intends to seek a merger with an existing, operating company, in the interim
it has committed to meeting the Company's minimal operating expenses.<PAGE>
<PAGE> 23
CHAPEAU, INC.
(A Development Stage Company)
Notes to the Financial Statements
June 30, 1997 and 1996
NOTE 4 - DISCONTINUED OPERATIONS
In 1989, the Company discontinued operations and was reclassified as a
development stage company. All revenues generated by the Company have been
netted against the expenses and are grouped into the discontinued operations
line on the statements of operations.
NOTE 5 - RESERVE FOR DISCONTINUED OPERATIONS
There are several tax and judgement liens claimed by the State of Utah and
two companies against the Company. The tax and judgement liens along with
interest, total approximately $25,000.
NOTE 6 - STOCK SUBSCRIPTION RECEIVABLE
The Company has two notes receivable from related parties for $25,000 and
$15,000. These notes bear interest at 8%. The notes are due within one year.
NOTE 7 - NOTE PAYABLE - RELATED
The Company has issued a note payable of $25,000 to former officers of the
Company. The note bears interest at 8% and is due within one year.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 51,107
<BONDS> 0
0
1,000
<COMMON> 241,971
<OTHER-SE> (293,878)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> (27,166)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,166)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
EXHIBIT 3.03
<PAGE> 1
CHAPEAU, INC.
DESIGNATION OF RIGHTS, PRIVILEGES, AND PREFERENCES OF
1997 SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to the provisions of section 16-10a-602, of the Utah Revised
Business Corporation Act, the above corporation (the "Corporation") hereby
adopts the following Designation of Rights, Privileges, and Preferences of
1997 Series A Convertible Preferred Stock (the "Designation"):
FIRST: The name of the Corporation is Chapeau, Inc.
SECOND: The following resolution establishing a series of convertible
preferred stock designated as the "1997 Series A Convertible Preferred Stock"
consisting of 1,000,000 shares of the Corporation's preferred stock, par value
$0.001, was duly adopted by the board of directors of the Corporation on June
30, 1997, in accordance with the articles of incorporation of the Corporation
and the corporation laws of the State of Utah:
RESOLVED, there is hereby created a series of preferred stock of the
Corporation to be designated as the "1997 Series A Convertible Preferred
Stock" consisting of 1,000,000 shares, par value $0.001, with the following
powers, preferences, rights, qualifications, limitations, and restrictions:
1. Liquidation.
1.01. In the event of any voluntary or involuntary liquidation (whether
complete or partial), dissolution, or winding up of the Corporation, the
holders of the 1997 Series A Convertible Preferred Stock shall be entitled to
be paid out of the assets of the Corporation available for distribution to its
shareholders, whether from capital, surplus, or earnings, an amount in cash
equal to $0.015 per share plus all unpaid dividends previously declared
thereon to the date of final distribution. No distribution shall be made on
any common stock or other series of preferred stock of the Corporation by
reason of any voluntary or involuntary liquidation (whether complete or
partial), dissolution, or winding up of the Corporation unless each holder of
any 1997 Series A Convertible Preferred Stock shall have received all amounts
to which such holder shall be entitled under this subsection.
1.02 If on any liquidation (whether complete or partial), dissolution, or
winding, up of the Corporation, the assets of the Corporation available for
distribution to holders of 1997 Series A Convertible Preferred Stock shall be
insufficient to pay the holders of outstanding 1997 Series A Convertible
Preferred Stock the full amounts to which they otherwise would be entitled
under section 1.01, the assets of the Corporation available for distribution to
holders of the 1997 Series A Convertible Preferred Stock shall be distributed
to them pro rata on the basis of the number of shares of 1997 Series A
Convertible Preferred Stock held by each such holder.
2. Voting Rights. The 1997 Series A Convertible Preferred Stock shall not
be entitled to vote as a separate class or as a single class with the Common
Stock of the Corporation, except to the extent that the consent of the holders
of the 1997 Series A Convertible Preferred Stock, voting as a class, is
specifically required by the provisions of the corporate law of the state of
Utah, as now existing or as hereafter amended.
<PAGE> 2
3. Subordination. Any payment of any dividends or any redemption hereunder
shall be subordinated to payment in full of all Senior Debt as defined herein.
"Senior Debt" shall mean the principal of and premium, if any, and interest on
all indebtedness of the Corporation to any financial institution, including,
but not limited to, (i) banks whether currently outstanding or hereinafter
created and whether or not such loans are secured or unsecured; (ii) any other
indebtedness, liability, obligation, contingent or otherwise of the
Corporation to guarantee endorsement of the contingent obligation with respect
to any indebtedness, liability, or obligation whether created, assumed, or
occurred by the Corporation and after the date of the creation of the 1997
Series A Convertible Preferred Stock, which is, when created, specifically
designated by the Corporation as Senior Debt; and (iii) any refunding,
renewals, or extensions of any indebtedness or similar obligations described
as Senior Debt in subparagraphs (i) and (ii) above.
4. Dividends.
4.01 The Corporation shall pay to the holders of the 1997 Series A
Convertible Preferred Stock out of the assets of the Corporation at any time
for the payment of dividends at the times so declared by the board of
directors of the Corporation and in the manner provided for in this section 4.
The dividend shall be twelve percent (12%) of the liquidation preference of
$0.015 per share, payable annually, if an when declared by the board of
directors. Dividends shall not be cumulative and the board of directors shall
be under no obligation to declare dividends.
4.02 Any payment of dividends declared and due under this section 4 with
respect to any shares of the 1997 Series A Convertible Preferred Stock shall
be made by means of a check drawn on funds immediately available for the
payment thereof to the order to the holder of such share at the address for
such record holder shown on the stock records maintained by or for the
Corporation, which check shall be mailed by United States first class mail,
postage prepaid. Any such payment shall be deemed to have been paid by the
Corporation on the date that such payment is deposited in the United States
mail as provided above; provided, that in the event the check or other medium
by which any payment shall be made shall prove not to be immediately
collectible on the date of payment, such payment shall not be deemed to have
been made until cash in the amount of such payment shall actually be received
by the person entitled to receive such payment.
4.03 Registration of transfer of any share of the 1997 Series A Convertible
Preferred Stock on the stock records maintained by or for the Corporation to a
person other than the transferor shall constitute a transfer of any right
which the transferor may have had to receive any declared but unpaid dividends
as of the date of transfer, and the Corporation shall have no further
obligation to the transferor with respect to such unpaid dividends.
5. Conversion.
5.01 Each share of the 1997 Series A Convertible Preferred Stock is
convertible into common stock, par value $0.001 (the "Common Stock"), of the
Corporation at the times, in the manner, and subject to the conditions
provided in this section 5.
<PAGE>
<PAGE> 3
5.02 Each share of the 1997 Series A Convertible Preferred Stock may be
converted at any time after its date of issuance at the election of the holder
on the presentation and surrender of the certificate representing the share,
duly endorsed, with written instructions specifying the number of shares of
the 1997 Series A Convertible Preferred Stock to be converted and the name and
address of the person to whom certificate(s) representing the Common Stock
issuable on conversion are to be issued at the principal office of the
Corporation.
5.03 Each share of 1997 Series A Convertible Preferred Stock shall be
convertible into Common Stock of the Corporation at the rate of eleven (11)
shares of Common Stock for each share of 1997 Series A Convertible Preferred
Stock surrendered (the "Conversion Rate"). The conversion rate shall be
subject to adjustment pursuant to section 5.04.
5.04 In order to prevent dilution of the rights granted hereunder, the
Conversion Rate and liquidated voting rights shall be subject to adjustment
from time to time in accordance with this section 5.04.
(a) In the event the Corporation shall declare a dividend or make any
other distribution on any capital stock of the Corporation payable in Common
Stock, options to purchase Common Stock, or securities convertible into Common
Stock of the Corporation or shall at any time subdivide (other than by means
of a dividend payable in Common Stock) its outstanding shares of Common Stock
into a greater number of shares or combine such outstanding stock into a
smaller number of shares, then in each such event, the Conversion Rate in
effect immediately prior to such combination shall be adjusted so that the
holders of the 1997 Series A Convertible Preferred Stock shall be entitled to
receive the kind and number of shares of Common Stock or other securities of
the Corporation which they would have owned or have been entitled to receive
after the happening of any of the events described above, had such shares of
the 1997 Series A Convertible Preferred Stock been converted immediately prior
to the happening of such event or any record date with respect thereto; an
adjustment made pursuant to this paragraph (a) shall become effective
immediately after the effective date of such event retroactive to the record
date for such event.
(b) If any capital reorganization or reclassification of the capital
stock of the Corporation, consolidation or merger of the Corporation with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holder of Common
Stock shall be entitled to receive stock, securities, or assets with respect
to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger, or sale, lawful
adequate provisions shall be made whereby the holders of the 1997 Series A
Convertible Preferred Stock shall thereafter, subject to prior redemption by
the Corporation, have the right to acquire and receive on conversion of the
1997 Series A Convertible Preferred Stock such shares of stock, securities, or
assets as would have been issuable or payable ( as part of the reorganization,
reclassification, consolidation, merger, or sale) with respect to or in
exchange for such number of outstanding shares of the Corporation's Common
Stock as would have been received on conversion of the 1997 Series A
Convertible Preferred Stock immediately before such reorganization,
reclassification, consolidation, merger, or sale. In any such case,
appropriate provisions shall be made with respect to the rights and interests
of the holders of the 1997 Series A Convertible Preferred Stock to the end
that the provisions hereof (including without limitations provisions for
adjustments of the Conversion rate and for the number of shares issuable on
<PAGE> 4
conversion of the 1997 Series A Convertible Preferred Stock) shall thereafter
be applicable in relation to any shares of stock, securities, or assets
thereafter deliverable on the conversion of the 1997 Series A Convertible
Preferred Stock. In the event of a merger or consolidation of the Corporation
with or into another corporation or the sale of all or substantially all of
its assets as a result of which a number of shares of Common Stock of the
surviving or purchasing corporation greater or lesser than the number of
shares of Common Stock of the Corporation outstanding immediately prior to
such merger, consolidation, or purchase are issuable to holders of Common
Stock of the Corporation, then the Conversion Rate in effect immediately prior
to such merger, consolidation, or purchase shall be adjusted in the same
manner as though there was a subdivision or combination of the outstanding
shares of Common Stock of the Corporation.
(c) No adjustment shall be made in the Conversion Rate of the number of
shares of Common Stock issuable on conversion of 1997 Series A Convertible
Preferred Stock:
(i) In connection with the offer and sale of any shares of 1997
Series A Convertible Preferred Stock;
(ii) In connection with the issuance of any Common Stock,
securities, or assets on conversion or redemption of shares of 1997 Series A
Convertible Preferred Stock;
(iii) In connection with the issuance of any shares of Common Stock,
Securities, or assets on account of the anti-dilution provisions set forth in
this section 5.04;
(iv) In connection with the purchase or other acquisition by the
Corporation of any capital stock, evidence of its indebtedness, or other
securities of the Corporation;
(v) In connection with the sale or exchange by the Corporation of
any Common Stock, evidence of its indebtedness, or other securities of the
Corporation, including securities containing the right to subscribe for or
purchase Common Stock or Convertible Preferred Stock of the Corporation; or
(vi) In connection with the proposed 15 to 1 reverse stock split of
the Corporation proposed by the board of directors on June 30, 1997, or the
next reverse split or consolidation of the Common Stock, so that the shares of
Common Stock to which the shares of 1997 Series A Convertible Preferred Stock
convert into will not be reduced by reason of the above described reverse
split. Accordingly, solely for purposes of illustration, if the Corporation
approves a 15 to 1 reverse split or any other form of reverse split or
consolidation, each share of the 1997 Series A Convertible Preferred Stock
would still convert into 11 shares of Common Stock.
5.05 The Corporation covenants and agrees that:
(a) The shares of Common Stock, securities, or assets issuable on any
conversion of any shares of 1997 Series A Convertible Preferred Stock shall
have been deemed to have been issued to the person on the Conversion Date, and
on the Conversion Date, such person shall be deemed for all purposes to have
become the record holder of such Common Stock, securities, or assets.
<PAGE>
<PAGE> 5
(b) All shares of Common Stock or other securities which may be issued
on any conversion of the 1997 Series A Convertible Preferred Stock will, on
issuance, be fully paid and nonassessable and free from all taxes, liens, and
charges with respect to the issue thereof. Without limiting the generality of
the foregoing, the Corporation will from time to time take all such action as
may be requisite to assure that the par value of the unissued Common Stock or
other securities acquirable on any conversion of the 1997 Series A Convertible
Preferred Stock is at all times equal to or less than the amount determined by
dividing the par value of a share of 1997 Series A Convertible Preferred Stock
by the number shares of Common Stock or other securities issuable on
conversion of such share.
(c) The issuance of certificates for Common Stock or other securities on
conversion of the 1997 Series A Convertible Preferred Stock shall be made
without charge to the registered holder thereof for any issuance tax in
respect thereof or other costs incurred by the Corporation in connection with
the conversion of the 1997 Series A Convertible Preferred Stock and the
related issuance of Common Stock or other securities.
6. Redemption
6.01 Subject to the requirements and limitations of the corporation laws of
the state of Utah, the Corporation shall have the right to redeem shares of
the 1997 Series A Convertible Preferred Stock on the following terms and
conditions.
6.02 The shares of the 1997 Series A Convertible Preferred Stock are
subject to redemption by the Corporation at any time after issuance pursuant
to written notice of redemption given to the holders thereof on not less than
30 days, specifying the date on which the 1997 Series A Convertible Preferred
Stock shall be redeemed (the "Redemption Date").
6.03 The redemption price for each share of 1997 Series A convertible
Preferred Stock shall be $2.00 per share plus any unpaid dividends, if
applicable, on such share as of the Redemption Date (the "Redemption Price").
The Redemption Price shall may be paid in part, or in full, with shares of
Common Stock. The number of shares of Common Stock issuable for each share
of the 1997 Series A Convertible Preferred Stock redeemed for accrued but
unpaid dividends shall be the sum of $2.00, plus all accrued but unpaid
dividends divided by an amount equal to the average of the closing bid price
for the Common Stock for the twenty (20) consecutive trading days immediately
prior to the redemption date.
6.04 Redemption of the 1997 Series A Convertible Preferred Stock shall be
made in the following manner:
(a) The Corporation shall notify the transfer agent of the Corporation's
Common Stock (the "Transfer Agent"), of its intention to redeem the 1997
Series A Convertible Preferred Stock. Such notice shall include a list of all
holders of the 1997 Series A Convertible Preferred Stock outstanding as of the
most recent practicable date and a statement of the number of shares of 1997
Series A Convertible Stock to be redeemed and the manner in which the
Redemption Price is to be paid. At least ten (10) days prior to the date that
written notice of redemption is given to the holders of the 1997 Series A
Convertible Preferred Stock, the Corporation shall make appropriate
arrangements with the Transfer Agent for the delivery of funds and/or Common
Stock necessary to make payment of the Redemption Price for all shares of the
1997 Series A Convertible Preferred Stock redeemed by the Corporation.
<PAGE> 6
(b) The holder of any shares of 1997 Series A Convertible Preferred
Stock so redeemed shall be required to tender the certificates representing
such shares, duly endorsed, to the Transfer Agent in exchange for payment of
the Redemption Price and reissuance of the balance of the 1997 Series A
Convertible Preferred Stock not otherwise converted or redeemed. On such
surrender, the Transfer Agent shall cause to be issued and delivered a check
or Common Stock, with all reasonable dispatch to the holder and such name or
names as the holder may designate. Subsequent to notice of redemption and
prior to the redemption date, shares of the 1997 Series A Convertible
Preferred Stock may still be converted to Common Stock pursuant to section 5
hereof.
(c) The Corporation may redeem a portion or all of the issued and
outstanding shares of the 1997 Series A Convertible Preferred Stock; provided,
that in the event that less than all of the outstanding shares of the 1997
Series A Convertible Preferred Stock are redeemed, such redemption shall be
pro rata determined on the basis of the number of shares of the 1997 Series A
Convertible Preferred Stock held by each holder reflected on the stock records
and the total number of shares of 1997 Series A Convertible Preferred Stock
outstanding.
(d) Following the expiration of a period of thirty (30) days following
the Redemption Date, the Transfer Agent shall provide to the Corporation a
complete accounting of the 1997 Series A Convertible Preferred Stock redeemed
and a list of all shares of 1997 Series A Convertible Preferred Stock
remaining unconverted and not returned to the Corporation for redemption. Any
certificates representing the 1997 Series A Convertible Preferred Stock
received by the Transfer Agent subsequent to the accounting by the Transfer
Agent to the Corporation will be promptly delivered to the Corporation. The
Corporation shall pay all costs associated with establishing and maintaining
any bank accounts for funds deposited with the Transfer Agent, including the
costs of issuing any checks or shares of Common Stock.
(e) The Corporation may not deliver notice of redemption to any holder
of the 1997 Series A Convertible Preferred Stock which would cause the
holder's election to convert the 1997 Series A Convertible Preferred Stock to
Common Stock or cash to be in violation of any federal or state securities
laws, including but not limited to, Section 16 of the Securities Exchange Act
of 1934, as amended.
7. Additional Provisions
7.01 No change in the provisions of the 1997 Series A Convertible Preferred
Stock set forth in this Designation affecting any interests of the holders of
any shares of 1997 Series A Convertible Preferred Stock shall be binding or
effective unless such change shall have been approved or consented to by the
holders of 1997 Series A Convertible Preferred Stock in the manner provided in
the corporation laws of the state of Utah, as the same may be amended from
time to time.
7.02 The shares of 1997 Series A Convertible Preferred Stock shall be
transferable only on the books of the Corporation maintained at its principal
office, on delivery thereof duly endorsed by the holder or by his duly
authorized attorney or representative or accompanied by proper evidence of
succession, assignment, or authority to transfer. In all cases of transfer by
an attorney, the original letter of attorney, duly approved, or an official
copy thereof, duly certified, shall be deposited and remain with the
Corporation.
<PAGE> 7
In case of transfer by executors, administrators, guardians, or other legal
representatives, duly authenticated evidence of their authority shall be
produced and may be required to be deposited and remain with the new
certificate representing the share of 1997 Series A Convertible Preferred
Stock so transferred to the person entitled thereto.
7.03 The Corporation shall not be required to issue any fractional shares
of Common Stock on the conversion or redemption of any share of 1997 Series A
Convertible Preferred Stock.
7.04 Any notice required or permitted to be given to the holders of the
1997 Series A Convertible Preferred Stock under this Designation shall be
deemed to have been duly given if mailed by first class mail, postage prepared
to such holders at their respective addresses appearing on the stock records
maintained by or for the Corporation and shall be deemed to have been given as
of the date deposited in the United States mail.
IN WITNESS WHEREOF, the foregoing Designation of Rights, Privileges, and
Preferences of 1997 Series A Convertible Preferred Stock of the Corporation
has been executed this 21st day of July, 1997.
ATTEST: CHAPEAU, INC.
/S/David A. O'Bagy, Secretary /S/Donald L. McKean, President
- ----------------------------- ------------------------------
STATE OF UTAH )
:ss
COUNTY OF SALT LAKE )
On July 21, 1997, before me the undersigned, a notary public in and for
the above county and state, personally appeared Donald L. McKean and David A.
O'Bagy, who being by me duly sworn, did state, each for himself, that he,
Donald L. McKean, is the president, and that he, David A. O'Bagy, is the
secretary, of Chapeau, Inc., a Utah corporation, and that the foregoing
Designation of Rights, and Preferences of 1997 Series A Convertible Preferred
Stock of Chapeau, Inc., was signed on behalf of such corporation by authority
of a resolution of its board of directors, and that the statements contained
therein are true.
WITNESS MY HAND AND OFFICIAL SEAL.
NOTARY PUBLIC
Cloyee Chatterly
910 West 2100 South
Salt Lake City, UT 84119
My Commission Expires
September 30, 2000
STATE OF UTAH
