ex_10-2.htm


    
      

    

     

    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.

     

    JAYHAWK
ENERGY, INC.

     

    WARRANT
AGREEMENT

    


    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 6240 E.
Seltice Way, Suite C, Post Falls, Idaho 83854 (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.

     

    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 $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.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

       

    

    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:

     

    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.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    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

        
          

        

      

      
         

      

       

    

    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.

     

    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, 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.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

       

    

    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

     

    (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.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    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.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    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.

     

    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,
Inc. Attention: President, 6240 E. Seltice Way, Suite C, Post Falls, Idaho
83854, 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.

     

    
      
         


      

      
        8

        
          

        

      

      
         


      

    


    IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly
authorized officer as of the date first written above.

     

     

    
      	 
      	
              JAYHAWK
      ENERGY, INC.

            
	 
      	
              a
      Colorado corporation

            
	 
      	 
      
	 
      	 
      
	 
      	
              By:_________________________________________

            
	 
      	
              Name:
      Lindsay Gorrill

            
	 
      	
              Title:
      President 

            


    

     


    
      
         


      

      
        9

        
          

        

      

      
         


      

    


    NOTICE
OF EXERCISE

     

    To:           Jayhawk
Energy, Inc.

     

    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:

     

    
      	 
      	
              ________________________

            
	 
      	
              (Name)

            
	 
      	
              ________________________

            
	 
      	
              (Address)

            


    

     

    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.

    


    
      	
              ________________________

            	
              ________________________

            
	
              (Date)

            	
              (Signature)

            
	 
      	 
      
	 
      	
              ________________________

            
	 
      	
              (Print
      name)