JAYHAWK ENERGY, INC. WARRANT AGREEMENT
THIS
WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR QUALIFIED UNDER ANY
APPLICABLE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND QUALIFICATION UNDER SUCH STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION AND/OR QUALIFICATION IS NOT REQUIRED.
July
30, 2008
THIS CERTIFIES THAT, for value
received, __________ (the “Investor”), or
Investor’s assigns (Investor and Investor’s assigns being the “Holder”), is entitled
to subscribe for and purchase at any time during the Exercise Period from
Jayhawk Energy, Inc., a Nevada corporation, with an office located at 0000 X.
Xxxxxxx Xxx, Xxxxx X, Xxxx Xxxxx, Xxxxx 00000 (the “Company”), a number
of shares of Common Stock equal to the Share Number at a per share price equal
to the Exercise Price in effect at such time. This Warrant is issued in
conjunction with the Convertible Promissory Note dated as of July 30, 2008, by
and between the Company and the Investor.
(a)
“Aggregate Warrant Price” shall mean the dollar value obtained by
multiplying $2.10 by 400,000.
(b)
“Common Stock” shall mean the common stock of the Company.
(c)
“Exercise Period” shall mean the period commencing on July 30, 2008, and
ending on July 30, 2010.
(d)
“Exercise Price” shall mean $2.10 per share of Common Stock.
(e)
“Exercise Shares” shall mean any Common Stock acquired upon exercise of
this Warrant.
(f)
“Share Number”, at any time, shall mean (i) the Aggregate Warrant Price
minus the aggregate exercise price previously paid upon exercise of this
Warrant, divided by (ii) the Exercise Price then in effect.
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(a)
The rights represented by this Warrant may be exercised as a whole or in
part at any time during the Exercise Period, by delivery of the following to the
Company at its address set forth above (or at such other address as it may
designate by notice in writing to the Holder):
(i) An
executed Notice of Exercise in the form attached hereto;
(ii) Payment
of the Exercise Price either in cash or by check; and
(iii) This
Warrant.
(b)
Upon the exercise of the rights represented by this Warrant, a certificate
or certificates for the Exercise Shares so purchased, registered in the name of
the Holder or persons affiliated with the Holder, if the Holder so designates
(and such designation is in compliance with applicable securities laws and any
stockholders, investor rights or similar agreement), shall be issued and
delivered to the Holder as promptly as practicable after the rights represented
by this Warrant shall have been so exercised.
(c)
The person in whose name any certificate or certificates for Exercise
Shares are to be issued upon exercise of this Warrant shall be deemed to have
become the holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price was made, irrespective of the date
of delivery of such certificate or certificates, except that, if the date of
such surrender and payment is a date when the stock transfer books of the
Company are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
(a)
In lieu of paying the Exercise Price in cash or by check as provided in
Section 2.1, the Holder may elect a “Net Issue Exercise” pursuant to which the
Holder will receive Exercise Shares equal to the value (as determined below) of
this Warrant (or the portion thereof being exercised) by surrender of this
Warrant at the principal office of the Company together with an executed Notice
of Exercise in the form attached hereto in which event the Company shall issue
to the Holder a number of Exercise Shares computed using the following
formula:
X = Y (A-B)
A
2
Where:
X = the
number of Exercise Shares to be issued to the Holder;
Y = the
number of Exercise Shares purchasable under the Warrant or, if only a portion of
the Warrant is being exercised, the portion of the Warrant being exercised (at
the date of such exercise);
A = the
Fair Market Value of one share of the Company’s Common Stock (at the date of
such exercise); and
B = the
Exercise Price (as adjusted to the date of such exercise).
(b)
For purposes of the above calculation, “Fair Market Value” shall be
determined as follows:
(i)
If the Common Stock is listed on any established stock exchange or a
national market system, including, without limitation, The Nasdaq Stock Market’s
Global Select or Global Market, the Fair Market Value of a share of Common Stock
will be the average closing sales price for such stock (or the closing bid, if
no sales are reported) as quoted on that system or exchange (or the system or
exchange with the greatest volume of trading in Common Stock), over the five (5)
trading day period ending on the trading day immediately preceding the day the
Warrant is being exercised, as reported in the Wall Street Journal or any other
source the Company considers reliable.
(ii)
If the Common Stock is quoted on The Nasdaq Stock Market ( but not on The
Nasdaq Stock Market’s Global Select or Global Market) or is regularly quoted
elsewhere by recognized securities dealers but selling prices are not reported,
the Fair Market Value of a share of Common Stock will be the average mean
between the high bid and low asked prices for the Common Stock over the five (5)
trading day period ending on the trading day immediately preceding the day the
Warrant is being exercised, as reported in the Wall Street Journal or any other
source the Company considers reliable.
(iii)
If the Common Stock is not traded as set forth above, the Fair Market
Value will be determined in good faith by the Board of Directors of the
Company.
(c)
If this Warrant is not exercised in full by a Net Issue Exercise, then,
the “Share Number” in effect immediately after such partial exercise shall be
appropriately adjusted to take into account the effect of the Net Issue
Exercise.
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(a)
The Holder understands that the Warrant and the Exercise Shares have not
been registered under the Act, on the basis that no distribution or public
offering of the stock of the Company is to be effected, or registered or
qualified under any applicable state securities laws. The Holder realizes that
the basis for the exemption may not be present if, notwithstanding its
representations, the Holder has a present intention of acquiring the securities
for a fixed or determinable period and, in the future, selling (in connection
with a distribution or otherwise), granting any participation in, or otherwise
distributing the securities. The Holder has no such present
intention.
(b)
The Holder recognizes that the Warrant and the Exercise Shares must be
held indefinitely unless they are subsequently registered under the Act or an
exemption from such registration is available. The Company has no obligation to
register the Warrant or the Exercise Shares of the Company, or to comply with
any exemption from such registration.
(c)
The Holder is aware that neither the Warrant nor the Exercise Shares may
be sold pursuant to Rule 144 adopted under the Act unless certain conditions are
met, including, among other things, the existence of a public market for the
shares, the availability of certain current public information about the
Company, and the resale following the required holding period under Rule 144.
For so long as the Warrants are outstanding and for the two-year period
thereafter, the Company will use its best efforts to satisfy these
conditions.
(d)
The Holder is aware of the Company’s business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision regarding its investment in the Company. The
Holder is experienced in making investments of this type and has such knowledge
and background in financial and business matters that the Holder is capable of
evaluating the merits and risks of this investment and protecting its own
interests. The Holder has had an opportunity to ask questions of, and receive
answers from, the Company and its officers and employees regarding the business,
financial affairs and other aspects of the Company, and has further had the
opportunity to obtain information (to the extent the Company possesses or can
acquire such information without unreasonable effort or expense) which the
Holder deems necessary to evaluate an investment in the Company and to verify
the accuracy of information otherwise provided to the Holder.
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(a)
Except for transfers by the Holder to its affiliates in compliance with
all applicable securities laws, the Holder further agrees not to make any
disposition of all or any part of the Warrant or Exercise Shares in any event
unless and until:
(i)
The Company shall have received a letter secured by the Holder from the
Securities and Exchange Commission stating that no action will be recommended to
the Commission with respect to the proposed disposition; or
(ii)
There is then in effect a registration statement under the Act covering
such proposed disposition and such disposition is made in accordance with said
registration statement; or
(iii)
The Holder shall have shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, for the Holder to the effect
that such disposition will not require registration of such Warrant or Exercise
Shares under the Act or any applicable state securities laws.
(b)
The Holder understands and agrees that all certificates evidencing the
Exercise Shares to be issued to the Holder may bear the following legend (in
addition to any legend required under applicable state securities laws, the
Company’s Bylaws, or as provided elsewhere in this Warrant):
THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”) OR QUALIFIED UNDER ANY APPLICABLE SECURITIES LAWS. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
QUALIFICATION UNDER SUCH STATE SECURITIES LAWS OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND/OR QUALIFICATION
IS NOT REQUIRED.
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5.4
In each case of an adjustment or readjustment of the Exercise Price
pursuant to this Section 5, the Company, at its expense, shall compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to the Holder at the Holder’s
address as shown in the Company’s books. The certificate shall set forth such
adjustment or readjustment, showing in reasonable detail the facts upon which
such adjustment or readjustment is based, including a statement of, if
applicable, the type and amount, if any, of other property which at the time
would be received upon exercise of this Warrant.
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10. Notices,
Etc. All notices
and other communications required or permitted hereunder shall be in writing and
shall be sent by express mail or other form of rapid communications, if
possible, and if not then such notice or communication shall be mailed by
first-class mail, postage prepaid, addressed in each case to the party entitled
thereto at the following addresses: (a) if to the Company, to Jayhawk Energy,
Inc. Attention: President, 0000 X. Xxxxxxx Xxx, Xxxxx X, Xxxx Xxxxx, Xxxxx
00000, and (b) if to the Holder, to such address as originally furnished to the
Company by the Holder, or at such other address as one party may furnish to the
other in writing. Notice shall be deemed effective on the date dispatched if by
personal delivery, two days after mailing if by express mail, or three days
after mailing if by first-class mail.
13. Governing
Law; Forum. This
Warrant and all rights, obligations, and liabilities hereunder shall be governed
by the internal laws of the State of Colorado and any actions related hereto
shall be brought in a court of competent jurisdiction located in the County of
Broomfield, State of Colorado.
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a
Colorado corporation
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By:_________________________________________
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Name:
Xxxxxxx Xxxxxxx
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Title:
President
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9
NOTICE
OF EXERCISE
1.
The undersigned hereby elects to purchase ________ shares of the Common
Stock of Jayhawk Energy, Inc. (the “Company”) pursuant to
the terms of the attached Warrant, and tenders herewith payment of the exercise
price in full pursuant to the terms of Section 2.1 of the attached Warrant, or
by net issue exercise pursuant to the terms of Section 2.2 of the attached
Warrant, together with all applicable transfer taxes, if any.
2.
Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
________________________
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(Name)
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________________________
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(Address)
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3.
The undersigned represents that (i) the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment purposes
only and not with a view to, or for resale in connection with, the distribution
thereof and that the undersigned has no present intention of distributing or
reselling such shares; (ii) the undersigned is aware of the Company’s
business affairs and financial condition and has acquired sufficient information
about the Company to reach an informed and knowledgeable decision regarding its
investment in the Company; (iii) the undersigned is experienced in making
investments of this type and has such knowledge and background in financial and
business matters that the undersigned is capable of evaluating the merits and
risks of this investment and protecting the undersigned’s own interests; (iv)
the undersigned is an “accredited investor” as defined in Rule 501 under the
Securities Act of 1933, as amended (the “ Securities Act ”);
(v) the undersigned understands that the shares of Common Stock issuable upon
exercise of this Warrant have not been registered under the Securities Act by
reason of a specific exemption from the registration provisions of the
Securities Act, which exemption depends upon, among other things, the bona fide
nature of the investment intent as expressed herein, and, because such
securities have not been registered under the Securities Act, they must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available; (vi) the undersigned is aware
that the aforesaid shares of Common Stock may not be sold pursuant to Rule 144
adopted under the Securities Act unless certain conditions are met and until the
undersigned has held the shares for the number of years prescribed by Rule 144;
and (vii) the undersigned agrees not to make any disposition of all or any part
of the aforesaid shares of Common Stock unless and until there is then in effect
a registration statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with said registration
statement, or the undersigned has provided the Company with an opinion of
counsel satisfactory to the Company, stating that such registration is not
required.
________________________
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________________________
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(Date)
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(Signature)
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________________________
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(Print
name)
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