EXHIBIT 4.2
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE
SHARES OF COMMON STOCK HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY
STATE SECURITIES LAWS AND NEITHER SUCH SHARES NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE 1933 ACT, OR (2) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT AND ANY
APPLICABLE STATE SECURITIES LAWS AND THE COMPANY SHALL HAVE
RECEIVED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY AS TO
SUCH EXEMPTION.
IN ADDITION, A SECURITIES PURCHASE AGREEMENT DATED AS OF JUNE
2, 2006 (THE "PURCHASE AGREEMENT"), A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE,
CONTAINS CERTAIN ADDITIONAL AGREEMENTS BETWEEN THE PARTIES
WITH RESPECT TO THIS WARRANT.
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FRANKLYN RESOURCES III, INC.
COMMON STOCK PURCHASE WARRANT "A"
Number of Shares: 5,314,286 Holder: Barron Partners LP
c/o Barron Capital Advisors LLC
Original Issue Date: June 2, 2006 Managing Partner
Attn: Andrew Barron Worden
730 Fifth Avenue, 9th Floor
Expiration Date: June 2, 2011 New York NY 10019
tel 212-659-7790
Exercise Price per Share: $.85 fax 646-607-2223
Franklyn Resources III, Inc., a Nevada corporation (the "Company"), hereby
certifies that, for value received, BARRON PARTNERS LP, or its registered
assigns (the "Warrant Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company up to five million eight hundred twenty
eight thousand five hundred seventy one (5,828,571) shares (as adjusted from
time to time as provided in Section 7 of this Warrant, the "Warrant Shares") of
common stock, $.001 par value (the "Common Stock"), of the Company at a price of
eighty five cents ($.85) per Warrant Share (as adjusted from time to time as
provided in Section 7, the "Exercise Price"), at any time and from time to time
from and after the date thereof and through and including 5:00 p.m. New York
City time on June 2, 2011 (the "Expiration Date"), and subject to the following
terms and conditions:
1. Registration of Warrant. The Company shall register this Warrant
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Warrant Holder hereof from time to time.
The Company may deem and treat the registered Warrant Holder of this Warrant as
the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Warrant Holder, and for all other purposes, and the Company
shall not be affected by notice to the contrary.
2. Investment Representation. The Warrant Holder by accepting this
Warrant represents that the Warrant Holder is acquiring this Warrant for its own
account or the account of an affiliate that is an accredited investor which has
been identified to and approved by (such approval not to be unreasonably
withheld or delayed) for investment purposes and not with the view to any
offering or distribution and that the Warrant Holder will not sell or otherwise
dispose of this Warrant or the underlying Warrant Shares in violation of
applicable securities laws. The Warrant Holder acknowledges that the
certificates representing any Warrant Shares will bear a legend indicating that
they have not been registered under the 1933 Act, and may not be sold by the
Warrant Holder except pursuant to an effective registration statement or
pursuant to an exemption from registration requirements of the 1933 Act and in
accordance with federal and state securities laws. If this Warrant was acquired
by the Warrant Holder pursuant to the exemption from the registration
requirements of the 1933 Act afforded by Regulation S thereunder, the Warrant
Holder acknowledges and covenants that this Warrant may not be exercised by or
on behalf of a Person during the one year distribution compliance period (as
defined in Regulation S) following the date hereof. "Person" means an
individual, partnership, firm, limited liability company, trust, joint venture,
association, corporation, or any other legal entity.
3. Validity of Warrant and Issue of Shares. The Company represents and
warrants that this Warrant has been duly authorized and validly issued and
warrants and agrees that all of Common Stock that may be issued upon the
exercise of the rights represented by this Warrant will, when issued upon such
exercise, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof other
than those incurred by the Holder. The Company further warrants and agrees that
during the Exercise Period, the Company will at all times have authorized and
reserved a sufficient number of Common Stock to provide for the exercise of the
rights represented by this Warrant.
4. Registration of Transfers and Exchange of Warrants.
a. Subject to compliance with the federal and state securities
laws, the Company shall register the transfer of any portion of this Warrant in
the Warrant Register, upon surrender of this Warrant with the Form of Assignment
attached hereto duly completed and signed, to the Company at the office
specified in or pursuant to Section 12. Upon any such registration or transfer,
a new warrant to purchase Common Stock, in substantially the form of this
Warrant (any such new warrant, a "New Warrant"), evidencing the portion of this
Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Warrant Holder. The acceptance of the New
Warrant by the transferee thereof shall be deemed the acceptance of such
transferee of all of the rights and obligations of a Warrant Holder of a
Warrant.
b. This Warrant is exchangeable, upon the surrender hereof by the
Warrant Holder to the office of the Company specified in or pursuant to Section
9 for one or more New Warrants, evidencing in the aggregate the right to
purchase the number of Warrant Shares which may then be purchased hereunder. Any
such New Warrant will be dated the date of such exchange.
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5. Exercise of Warrants.
a. Upon surrender of this Warrant with the Form of Election to
Purchase attached hereto duly completed and signed to the Company, at its
address set forth in Section 12, and upon payment and delivery of the Exercise
Price per Warrant Share multiplied by the number of Warrant Shares that the
Warrant Holder intends to purchase hereunder, in lawful money of the United
States of America, by wire transfer or by certified or official bank check or
checks, to the Company, all as specified by the Warrant Holder in the Form of
Election to Purchase, the Company shall promptly (but in no event later than 7
business days after the Date of Exercise (as defined herein)) issue or cause to
be issued and cause to be delivered to or upon the written order of the Warrant
Holder and in such name or names as the Warrant Holder may designate (subject to
the restrictions on transfer described in the legend set forth on the face of
this Warrant), a certificate for the Warrant Shares issuable upon such exercise,
with such restrictive legend as required by the 1933 Act. Any person so
designated by the Warrant Holder to receive Warrant Shares shall be deemed to
have become holder of record of such Warrant Shares as of the Date of Exercise
of this Warrant.
b. A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the Warrant Holder to be
purchased.
c. This Warrant shall be exercisable at any time and from time to
time during the Exercise Period for such number of Warrant Shares as is
indicated in the attached Form of Election To Purchase. If less than all of the
Warrant Shares which may be purchased under this Warrant are exercised at any
time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
d. (i) Notwithstanding anything contained herein to the contrary,
but subject to Section 5(e) and Section 6, the holder of this Warrant may, at
its election exercised in its sole discretion, exercise this Warrant in whole or
in part and, in lieu of making the cash payment otherwise contemplated to be
made to the Company upon such exercise in payment of the Aggregate Exercise
Price, elect instead to receive upon such exercise the "Net Number" of shares of
Common Stock determined according to the following formula (a "Cashless
Exercise"):
Net Number = (A x (B - C))/B
(ii) For purposes of the foregoing formula:
A= the total number shares with respect to which this
Warrant is then being exercised.
B= the last reported sale price (as reported by
Bloomberg) of the Common Stock on the trading day
immediately preceding the date of the Exercise
Notice.
C= the Warrant Exercise Price then in effect at the
time of such exercise.
e. The holder of this Warrant may not make a Cashless Exercise
(i) during the six (6) months following the Original Issue Date and (ii)
thereafter if the sale by the Holder of the Warrant Shares is covered by an
effective registration statement.
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6. Maximum Exercise. The Warrant Holder shall not be entitled to
exercise this Warrant on a Date of Exercise in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of Common Stock beneficially owned by the Warrant Holder and its
affiliates on the Date of Exercise, and (ii) the number of shares of Common
Stock issuable upon the exercise of this Warrant with respect to which the
determination of this limitation is being made on an Date of Exercise, which
would result in beneficial ownership by the Warrant Holder and its affiliates of
more than 4.9% of the outstanding shares of Common Stock on such date. This
Section 6 may be not be waived or amended. As used in this Warrant, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
7. Adjustment of Exercise Price and Number of Shares. The character of
the shares of stock or other securities at the time issuable upon exercise of
this Warrant and the Exercise Price therefore, are subject to adjustment upon
the occurrence of the following events, and all such adjustments shall be
cumulative:
a. Adjustment for Stock Splits, Stock Dividends,
Recapitalizations, Etc. The Exercise Price of this Warrant and the number of
shares of Common Stock or other securities at the time issuable upon exercise of
this Warrant shall be appropriately adjusted to reflect any stock dividend,
stock split, stock distribution, combination of shares, reverse split,
reclassification, recapitalization or other similar event affecting the number
of outstanding shares of stock or securities.
b. Adjustment for Reorganization, Consolidation, Merger, Etc. In
case of any consolidation or merger of the Company with or into any other
corporation, entity or person, or any other corporate reorganization, in which
the Company shall not be the continuing or surviving entity of such
consolidation, merger or reorganization (any such transaction being hereinafter
referred to as a "Reorganization"), then, in each case, the holder of this
Warrant, on exercise hereof at any time after the consummation or effective date
of such Reorganization (the "Effective Date"), shall receive, in lieu of the
shares of stock or other securities at any time issuable upon the exercise of
the Warrant issuable on such exercise prior to the Effective Date, the stock and
other securities and property (including cash) to which such holder would have
been entitled upon the Effective Date if such holder had exercised this Warrant
immediately prior thereto (all subject to further adjustment as provided in this
Warrant).
c. Certificate as to Adjustments. In case of any adjustment or
readjustment in the price or kind of securities issuable on the exercise of this
Warrant, the Company will promptly give written notice thereof to the holder of
this Warrant in the form of a certificate, certified and confirmed by the Board
of Directors of the Company, setting forth such adjustment or readjustment and
showing in reasonable detail the facts upon which such adjustment or
readjustment is based.
d. Sales of Common Stock at less than the Exercise Price. From
the date hereof until such time as Barron Partners LP holds no Securities, as
defined in the Purchase Agreement, except for (i) Exempt Issuances, as defined
in the Purchase Agreement, (ii) issuances covered by Sections 7(a), 7(b) and
7(e) hereof or (iii) an issuance of Common Stock upon exercise or upon
conversion of warrants, options or other convertible securities for which an
adjustment has already been made pursuant to this Section 7, as to all of which
this Section 7(d) does not apply, if the Company closes on the sale or issuance
of Common Stock at a price, or warrants, options, convertible debt or equity
securities with a exercise price per share or exercise price per share which is
less than the Exercise Price then in effect (such lower sales price, conversion
or exercise price, as the case may be, being referred to as the "Lower Price"),
the Exercise Price in effect from and after the date of such transaction shall
be is
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reduced to the Lower Price. For purpose of determining the exercise price of
warrants, the price, if any, paid per share for the warrants shall be added to
the exercise price of the warrants.
e. Price Adjustments Based on Pre-Tax Income Per Share.
i. In the event the Company's consolidated Pre-Tax Income,
as defined in the Purchase Agreement, for the year ended December 31, 2006 is
less than $.212 per share on a fully-diluted basis, then the Exercise Price
shall be reduced by the percentage shortfall, up to a maximum of 40%. Thus, if
Net Income for the year ended December 31, 2006 is $.1272 per share on a
fully-diluted basis, the Exercise Price shall be reduced by 40%. Such reduction
shall be made at the time the Company files its Form 10-KSB for the year ended
December 31, 2006, and shall apply to the Notes or all shares of the Series A
Preferred Stock, as the case may be, which are outstanding on the date the Form
10-KSB is filed, or, if not filed on time, on the date that filing was required.
ii. In the event the Company's consolidated Pre-Tax Income
for the year ended December 31, 2007 is less than $.353 per share on a
fully-diluted basis, then the Exercise Price shall be reduced by the percentage
shortfall, up to a maximum of 40%. Thus, if Pre-Tax Income for the year ended
December 31, 2008 is $.2118 per share on a fully-diluted basis, the Exercise
Price shall be reduced by 40%. Such reduction shall be made at the time the
Company files its Form 10-KSB for the year ended December 31, 2007, and shall
apply to the Notes or all shares of the Series A Preferred Stock, as the case
may be, which are outstanding on the date the Form 10-KSB is filed, or, if not
filed on time, on the date that filing was required.
iii. For purpose of determining Net Income Per Share and
Pre-Tax Income Per Share on a fully-diluted basis, all shares of Common Stock
issuable upon conversion of convertible securities and upon exercise of warrants
and options shall be deemed to be outstanding, regardless of whether (i) such
shares are treated as outstanding for determining diluted earnings per share
under GAAP, (ii) such securities are "in the money," or (iii) such shares may be
issued as a result of the 4.9% Limitation.
iv. An adjustment pursuant to Sections 7(d) or 7(e) of this
Warrant shall not affect the number of shares of Common Stock issuable upon
exercise of this Warrant.
8. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares that shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrants
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 8, be issuable
on the exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (ii)
round the number of Warrant Shares issuable, up to the next whole number.
9. Sale or Merger of the Company. Upon a Merger Transaction, the
restriction contained in Section 6 shall immediately be released and the Warrant
Holder will have the right to exercise this Warrant concurrently with such
Merger Transaction. For purposes of this Warrant, the term "Merger
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Transaction" shall mean a consolidation or merger of the Company into another
company or entity in which the Company is not the surviving entity or the sale
of all or substantially all of the assets of the Company to another company or
entity not controlled by the then existing stockholders of the Company.
10. Notice of Intent to Sell or Merge the Company. The Company will give
Warrant Holder ten (10) business days notice before any Merger Transaction.
11. Issuance of Substitute Warrant. In the event of a merger,
consolidation, recapitalization or reorganization of the Company or a
reclassification of Company shares of stock, which results in an adjustment to
the number of shares subject to this Warrant and/or the Exercise Price
hereunder, the Company agrees to issue to the Warrant Holder a substitute
Warrant reflecting the adjusted number of shares and/or Exercise Price upon the
surrender of this Warrant to the Company. However, in the event that the Company
does not issue a substitute warrant, the number and class of Warrant Shares or
other securities and the Exercise Price shall be adjusted as provided in this
Warrant, and this Warrant shall relate the adjusted number of Warrant Shares and
Exercise Price.
12. Notice. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given (i) on the date they are
delivered if delivered in person; (ii) on the date initially received if
delivered by facsimile transmission followed by registered or certified mail
confirmation; (iii) on the date delivered by an overnight courier service; or
(iv) on the date of delivery after it is mailed by registered or certified mail,
return receipt requested with postage and other fees prepaid as follows:
If to the Company:
-----------------
c/o Qingdao Sinogas General Machinery Corp.
45 Jinghua Road
Qingdao, Shandong, China, 266042
Attn: Bo Huang, CEO
Facsimile: (0532) 84851840
e-mail: QDZYTY@163.com
With a copy to:
--------------
Katsky Korins LLP
605 Third Avenue
New York, New York 10158
Attention: Asher S. Levitsky P.C.
Facsimile No.: (212) 716-3338
e-mail: alevitsky@katskykorins.com
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If to the Warrant Holder:
------------------------
at the address or telecopier number and to the attention of
the person shown on the Company's warrant register.:
13. Miscellaneous.
a. This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only by a writing signed by the Company and the Warrant
Holder.
b. Nothing in this Warrant shall be construed to give to any
person or corporation other than the Company and the Warrant Holder any legal or
equitable right, remedy or cause of action under this Warrant; this Warrant
shall be for the sole and exclusive benefit of the Company and the Warrant
Holder.
c. This Warrant shall be governed by, construed and enforced in
accordance with the internal laws of the State of New York without regard to the
principles of conflicts of law thereof.
d. The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
e. In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonably substitute therefore, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
f. The Warrant Holder shall not, by virtue hereof, be entitled to
any voting or other rights of a stockholder of the Company, either at law or
equity, and the rights of the Warrant Holder are limited to those expressed in
this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by the authorized officer as of the date first above stated.
Date:
FRANKLYN RESOURCES III, INC.
By:
-----------------------------------
Bo Huang, Chief Executive Officer
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FORM OF ELECTION TO PURCHASE
(To be executed by the Warrant Holder to exercise the right to
purchase shares of Common Stock under the foregoing Warrant)
To: Franklyn Resources III, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase
______________ shares of Common Stock ("Common Stock"), $.001 par value,
of Franklyn Resources III, Inc. and encloses the warrant and $____ for
each Warrant Share being purchased or an aggregate of $________________ in
cash or certified or official bank check or checks, which sum represents
the aggregate Exercise Price (as defined in the Warrant) together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of:
__________________________________________
__________________________________________
__________________________________________
(Please print name and address)
____________________________________________________________
(Please insert Social Security or Tax Identification Number)
If the number of shares of Common Stock issuable upon this exercise shall not be
all of the shares of Common Stock which the undersigned is entitled to purchase
in accordance with the enclosed Warrant, the undersigned requests that a New
Warrant (as defined in the Warrant) evidencing the right to purchase the shares
of Common Stock not issuable pursuant to the exercise evidenced hereby be issued
in the name of and delivered to:
__________________________________________
__________________________________________
__________________________________________
(Please print name and address)
Dated:______________________________ Name of Warrant Holder:
(Print)______________________________
(By:)________________________________
(Name:)______________________________
(Title:)_____________________________
Signature must conform in all
respects to name of Warrant Holder
as specified on the face of the
Warrant
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