Form of Warrant Agreement to Purchase Shares of Common Stock.
Form
of Warrant Agreement to Purchase Shares of Common Stock.
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.
January
16, 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 000 Xxxxxxxxxxx Xxxx., Xxxxx 000, Xxxxxxxxxx, XX 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 shares of the Company’s Common Stock
issued pursuant to the Subscription Agreement dated as of January 16, 2008,
by
and between the Company and the Investor.
1. Definitions.
As used herein, the following terms shall have the following respective
meanings:
(a)
“Aggregate Warrant Price” shall mean the dollar value obtained by
multiplying $1.60 by ___________.
(b)
“Common Stock” shall mean the common stock of the Company.
(c)
“Exercise Period” shall mean the period commencing on January 16, 2008,
and ending on January 15, 2009.
(d)
“Exercise Price” shall mean $1.60 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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2. Exercise
of Warrant.
2.1
General; Exercise of Warrant .
(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.
2.2
Net Issue Exercise .
(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:
2
X
= Y
(A-B)
A
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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3. Covenants
of the Company.
3.1
Covenants as to Exercise Shares . The Company covenants and agrees
that all Exercise Shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued and
outstanding, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issuance thereof. The Company further covenants
and
agrees that the Company will at all times during the Exercise Period have
authorized and reserved, free from preemptive rights, a sufficient number of
shares of its Common Stock to provide for the exercise of the rights represented
by this Warrant. If at any time during the Exercise Period the number of
authorized but unissued shares of Common Stock shall not be sufficient to permit
exercise of this Warrant, the Company will take such corporate action as may,
in
the opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for
such
purposes.
3.2
No Impairment . Except and to the extent as waived or consented to
by the Holder, the Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to
be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and
in
the taking of all such action as may be necessary or appropriate in order to
protect the exercise rights of the Holder against impairment.
3.3
Notices of Record Date . In the event of any taking by the Company
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend which is the same as cash dividends paid in previous
quarters) or other distribution, the Company shall mail to the Holder, at least
ten (10) days prior to the date specified herein, a notice specifying the date
on which any such record is to be taken for the purpose of such dividend or
distribution.
4. Representations
of Holder.
4.1
Acquisition of Warrant for Personal Account . The Holder represents
and warrants that it is acquiring the Warrant and any shares of capital stock
issued or issuable upon exercise or conversion of the Warrant for investment
purposes only and not with a view to or for resale in connection with any
distribution or public offering thereof within the meaning of the Act (as
defined below). The Holder also represents that the entire legal and beneficial
interests of the Warrant and Exercise Shares the Holder is acquiring is being
acquired for, and will be held for, the account of the Holder only.
4.2
Accredited Investor; Off-Shore Transaction; Not a U.S. Person . The
Holder represents and warrants that, unless not a “U.S. Person” as defined
below, the Holder it is an “accredited investor” as such term is defined in Rule
501 under the Securities Act of 1933, as amended (the “ Act ”). The
Holder shall provide the Company with such additional information as the Company
may reasonably request with respect to the Holder’s status as an “accredited
investor.” The exercise of this Warrant and the transactions contemplated herein
may constitute an “off-shore transaction,” as that term is defined in Rule
902(h) of Regulations S promulgated under the Securities Act. If the Holder
is
not an accredited investor, then the Holder is not a “U.S. Person,” as that term
is defined in Rule 902(k) of Regulation S promulgated under the Securities
Act.
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4.3
Securities Are Not Registered .
(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, the resale following the required holding period under Rule 144 and
the
number of shares being sold during any three (3) month period not exceeding
specified limitations. 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.
4.4
Disposition of Warrant and Exercise Shares .
(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
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(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.
5. Adjustments
and Notices. The Exercise Price and the number of
Exercise Shares issuable upon exercise of this Warrant shall be subject to
adjustment from time to time in accordance with this Section 5.
5.1
Subdivision, Stock Dividends or Combinations . In case the Company
shall at any time after the commencement of the Exercise Period subdivide the
outstanding Common Stock or shall issue a stock dividend with respect to the
Common Stock, the Exercise Price in effect immediately prior to such subdivision
or the issuance of such dividend shall be proportionately decreased, and in
case
the Company shall at any time after the commencement of the Exercise Period
combine the outstanding shares of Common Stock, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased, in
each case effective at the close of business on the date of such subdivision,
dividend, or combination, as the case may be.
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5.2
Reclassification, Exchange, Substitution, In-Kind Distribution .
Upon any reclassification, exchange, substitution or other event after the
commencement of the Exercise Period that results in a change of the number
and/or class of the securities issuable upon exercise or conversion of this
Warrant or upon the payment after the commencement of the Exercise Period of
a
dividend in securities or property other than shares of Common Stock, the Holder
shall be entitled to receive, upon exercise or conversion of this Warrant,
the
number and kind of securities and property that Holder would have received
if
this Warrant had been exercised or converted immediately before the record
date
for such reclassification, exchange, substitution, or other event or immediately
prior to the record date for such dividend. The Company or its successor shall
promptly issue to Holder a new warrant for such new securities or other
property. The new warrant shall provide for adjustments, which shall be as
nearly equivalent as may be practicable to the adjustments provided for in
this
Section 5, including, without limitation, adjustments to the Warrant Price
and
to the number of securities or property issuable upon exercise or conversion
of
the new warrant. The provisions of this Section 5.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events and
successive dividends.
5.3
Consolidation, Merger, Sale and the Like . In case of any (i)
merger or consolidation of the Company into or with another corporation where
the Company is not the surviving corporation (but including a merger for the
purpose of reincorporating in a new domicile) (ii) sale, transfer or lease
(but
not including a transfer or lease by pledge or mortgage to a bona fide lender)
of all or substantially all of the assets of the Company or (iii) sale by
the Company’s stockholders of 50% or more of the Company’s outstanding
securities in one or more related transactions, the Company, or such successor
or purchasing corporation, as the case may be, shall duly execute and deliver
to
the Holder hereof a new warrant so that the Holder shall have the right to
receive upon exercise or conversion of the unexercised or unconverted portion
of
this Warrant, at a total purchase price not to exceed that payable upon the
exercise or conversion of the unexercised or unconverted portion of this
Warrant, and in lieu of shares of Common Stock theretofore issuable upon
exercise or conversion of this Warrant, the kind and amount of shares of stock,
or other securities, money and other property in lieu of such shares of stock,
receivable upon or as a result of such reorganization, merger, or sale by a
holder of the number of shares of Common Stock for which this Warrant is
exercisable or convertible immediately prior to such event. Such new warrant
shall provide for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 5. The provisions
of
this Section 5.3 shall similarly apply to successive reorganizations,
mergers, and sales.
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.
6. Fractional
Shares. No fractional shares shall be issued upon
the exercise of this Warrant as a consequence of any adjustment pursuant hereto.
All Exercise Shares (including fractions) issuable upon exercise of this Warrant
may be aggregated for purposes of determining whether the exercise would result
in the issuance of any fractional share. No payments shall be made by the
Company in respect of any fractional shares otherwise issuable pursuant to
this
Warrant.
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7. No
Stockholder Rights. This Warrant in and of itself
shall not entitle the Holder to any voting rights or other rights as a
stockholder of the Company.
8. Transfer
of Warrant. Subject to applicable laws, the restriction on transfer
set forth on the first page of this Warrant and in Section 4.4 and the terms
of
any applicable stockholders, investor rights, or similar agreements, this
Warrant and all rights hereunder are transferable, by the Holder in person
or by
duly authorized attorney, upon delivery of this Warrant and the form of
assignment attached hereto to any transferee designated by Holder, provided
that
the transferee shall have signed an investment letter in form and substance
satisfactory to the Company and agreed to be bound by the provisions of this
Warrant. Notwithstanding anything to the contrary, no partial transfer of this
Warrant shall be permitted.
9. Lost,
Stolen, Mutilated or Destroyed Warrant. If this
Warrant is lost, stolen, mutilated, or destroyed, the Company may, on such
terms
as to indemnity or otherwise as it may reasonably impose (which shall, in the
case of a mutilated Warrant, include the surrender thereof), issue a new Warrant
of like denomination and tenor as the Warrant so lost, stolen, mutilated, or
destroyed. Any such new Warrant shall constitute an original contractual
obligation of the Company, whether or not the allegedly lost, stolen, mutilated,
or destroyed Warrant shall be at any time enforceable by anyone.
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, Attention: President, 000 Xxxxxxxxxxx Xxxx., Xxxxx 000,
Xxxxxxxxxx, XX 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.
11.
Amendment. This
Warrant may be amended or otherwise modified only by a writing signed by the
Company and the Holder.
12. Acceptance.
Receipt of this Warrant by the Holder shall constitute acceptance of and
agreement to all of the terms and conditions contained herein.
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.
[NEXT
PAGE IS SIGNATURE PAGE]
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IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
duly
authorized officer as of the date first written above.
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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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________________________
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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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________________________
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(Date)
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(Signature)
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________________________
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(Print
name)
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