Exhibit 1.5
WARRANT AGREEMENT dated as of November 15, 2001 between
Diversified Security Solutions, Inc. a Delaware corporation (the "Company") and
GunnAllen Financial, Inc. ("GunnAllen").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to GunnAllen warrants
(the "Warrants") to purchase up to an aggregate of 150,000 shares (the "Shares")
of common stock of the Company, par value $.01 per share (the "Common Stock");
and
WHEREAS, GunnAllen has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof between the
the Company and GunnAllen (GunnAllen is also sometimes referred to herein as the
"Underwriter"), to act as the underwriter in connection with the Company's
proposed public offering (the "Public Offering") of 1,500,000 shares of Common
Stock at an initial public offering price of $7.00 per share of Common Stock,
plus up to an additional 225,000 shares of Common Stock pursuant to the
Underwriter's over-allotment option; and
WHEREAS, the Warrants issued pursuant to this Agreement are
being issued by the Company to GunnAllen or officers or partners of GunnAllen
and members of the selling group (the "Selling Group") and/or their officers or
partners, in consideration for, and as part of GunnAllen's compensation in
connection with, GunnAllen acting as the underwriter pursuant to the
Underwriting Agreement;
NOW, THEREFORE, in consideration of the foregoing premises,
the payment by GunnAllen to the Company of an aggregate of One Hundred Dollars
($100.00), the agreements herein set forth and other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Grant. GunnAllen, and/or its designees who are officers or
partners of GunnAllen or members of the Selling Group in connection with the
Public Offering, are hereby granted the right to purchase, at any time from
November 21, 2002 until 5:00 P.M., New York City time, on November 21, 2005 (the
"Warrant Exercise Term"), up to an aggregate of 150,000 Shares at an initial
exercise price (subject to adjustment as provided in Article 8 hereof) of $11.55
per Share subject to the terms and conditions of this Agreement. Except as set
forth herein, the Shares issuable upon exercise of the Warrants are in all
respects identical to the shares of Common Stock being purchased by the
Underwriter for resale to the public pursuant to the terms and provisions of the
Underwriting Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth as Exhibit A attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions and other
variations as required or permitted by this Agreement.
3. Exercise of Warrants.
3.1 Cash Exercise. The Warrants initially are
exercisable at a price of $11.55 per Share, payable in cash or by check to the
order of the Company, or any combination of cash or check, subject to adjustment
as provided in Article 8 hereof. Upon surrender of the Warrant Certificate with
the annexed Form of Election to Purchase duly executed, together with payment of
the Exercise Price (as hereinafter defined) for the Shares purchased at the
Company's principal offices, currently located at 000 Xxxxxxx Xxxxxx, Xxxxxx
Xxxxx, Xxx Xxxxxx 00000, the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the Shares so purchased. The purchase rights represented by
each Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of the Common Stock underlying
the Warrants). In the case of the purchase of less than all the Shares
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon the surrender thereof and shall execute and deliver a new
Warrant Certificate of like tenor for the balance of the Shares purchasable
thereunder.
3.2 Cashless Exercise. At any time during the Warrant
Exercise Term, the Holder may, at its option, exchange this Warrant, in whole or
in part (a "Warrant Exchange"), into the number of Shares determined in
accordance with this Section 3.2, by surrendering this Warrant at the principal
office of the Company or at the office of its transfer agent, accompanied by a
notice stating (i) such Holder's intent to effect such exchange, (ii) the number
of Shares to be exchanged and (iii) the date on which the Holder requests that
such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange
shall take place on the date specified in the Notice of Exchange or, if later,
the date the Notice of Exchange is received by the Company (the "Exchange
Date"). Certificates for the Shares issuable upon such Warrant Exchange and, if
applicable, a new Warrant of like tenor evidencing the balance of the Shares
remaining subject to this Warrant, shall be issued as of the Exchange Date and
delivered to the Holder within five (5) business days following the Exchange
Date. In connection with any Warrant Exchange, this Warrant shall represent the
right to subscribe for and acquire the number of Shares (rounded to the next
highest integer) equal to (i) the number of Shares specified by the Holder in
its Notice of Exchange (the "Total Number") less (ii) the number of Shares equal
to the quotient obtained by dividing (A) the product of the Total Number and the
existing Exercise Price (as hereinafter defined) by (B) the current market value
of a share of Common Stock. For purposes of this Section 3.2, the term "current
market value" shall mean the (i) last reported sale price on the last trading
day or, in case no such reported sale takes place on such day, the average last
reported sale price for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the Common
Stock is listed or admitted to trading, or by the Nasdaq National Market or
SmallCap Market (referred to hereinafter as "NASDAQ") if the Common Stock is not
listed or admitted to trading on any national securities exchange but is listed
or quoted upon NASDAQ, or (ii) if the Common Stock is not traded on a national
securities exchange or NASDAQ, the closing bid price on the last trading day,
or, in case no such reported bid takes place on such day, the average closing
bid price for the last three (3) trading days, as furnished by NASDAQ or similar
organization if NASDAQ
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is no longer reporting such information, or (iii) if the Common Stock is not
listed upon a principal exchange or quoted on NASDAQ, but quotes for the Common
Stock are available in the OTC Bulletin Board or "pink sheets" the closing bid
price on the last trading day, or, in case no such bid takes place on such day,
the average closing bid price for the last three (3) trading days as furnished
on the OTC Bulletin Board or (iv) in the event the Common Stock is not traded
upon a principal exchange and not listed on NASDAQ and quotes are not available
on the OTC Bulletin Board, the price as determined in good faith by resolution
of the Board of Directors of the Company, based on the best information
available to it.
4. Issuance of Certificates.
4.1 Issuance. Upon the exercise of the Warrants, the
issuance of certificates for the Shares shall be made forthwith (and in any
event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Article 5 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
4.2 Form of Certificates. The Warrant Certificates and
certificates representing the Shares shall be executed on behalf of the Company
by the manual or facsimile signature of the then present Chairman or Vice
Chairman of the Board of Directors or President or Vice President of the Company
under its corporate seal reproduced thereon, attested to by the manual or
facsimile signature of the then present Secretary or Assistant Secretary of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer. The
Warrant Certificates and, upon exercise of the Warrants, in part or in whole,
certificates representing the Shares shall bear a legend substantially similar
to the following:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be offered or sold except (i) pursuant to
an effective registration statement under the Act, (ii) to the
extent applicable, pursuant to Rule 144 under the Act (or any
similar rule under such Act relating to the disposition of
securities), or (iii) upon the delivery by the holder to the
Company of an opinion of counsel, reasonably satisfactory to
counsel to the Company, stating that an exemption from
registration under such Act is available."
5. Restriction on Transfer of Warrants. The Holder of a
Warrant Certificate, by its acceptance thereof, covenants and agrees that the
Warrants are being acquired as an investment and not with a view to the
distribution thereof, and that the Warrants
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may not be sold, transferred, assigned, hypothecated or otherwise disposed of,
in whole or in part, pursuant to Corporate Financing Rule 2710 (currently a
period of one (1) year from the date hereof), except to officers or partners
(but not directors) of GunnAllen or to any member of the Selling Group
participating in the distribution to the public of the Common Stock and/or their
respective officers or partners (each of the foregoing hereinafter referred to
as a "Transferee"), in which case such Transferee shall be entitled to receive a
replacement Warrant Certificate in accordance with Section 9 hereof upon
presentment of a properly executed Form of Assignment in the form set forth on
Exhibit A attached hereto and made a part hereof.
In connection with the transfer or exercise of Warrants, the
Transferee and Holder agree to execute any documents which may be reasonably
required by counsel to the Company to comply with the provisions of the Act (as
defined below) and applicable state securities laws.
6. Price.
6.1 Initial and Adjusted Exercise Price. The initial
exercise price of each Warrant shall be $11.55 per Share. The adjusted exercise
price shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Article 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The
Warrants and the Shares have not been registered for purposes of public
distribution under the Securities Act of 1933, as amended (the "Act").
7.2 Registrable Securities. As used herein the term
"Registrable Security" means each of the Shares and any shares of Common Stock
issued upon any stock split or stock dividend in respect of such Shares;
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security when, as of the date of
determination, (i) it has been effectively registered under the Act and disposed
of pursuant thereto, or (ii) it has ceased to be outstanding. The term
"Registrable Securities" means any and/or all of the securities falling within
the foregoing definition of a "Registrable Security." In the event of any
merger, reorganization, consolidation, recapitalization or other change in
corporate structure affecting the Common Stock, such adjustment shall be made in
the definition of "Registrable Security" as is appropriate in order to prevent
any dilution or enlargement of the rights granted pursuant to this Article 7.
7.3 Piggyback Registration. (a) If, at any time during
the four (4) years following the date of this Agreement, the Company proposes to
prepare and file one or more post-effective amendments to the registration
statement filed in connection
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with the Public Offering or any new registration statement or post-effective
amendments thereto covering equity or debt securities of the Company, or any
such securities of the Company held by its shareholders (other than in
connection with a merger or pursuant to a Form S-8 or a successor form) (for
purposes of this Article 7, collectively, a "Registration Statement"), it will
give written notice of its intention to do so by registered mail ("Notice"), at
least thirty (30) days prior to the filing of each such Registration Statement,
to all holders of the Registrable Securities. Upon the written request of such a
holder (a "Requesting Holder"), made within twenty (20) days after receipt of
the Notice, that the Company include any of the Requesting Holder's Registrable
Securities in the proposed Registration Statement, the Company shall, as to each
such Requesting Holder, use its best efforts to effect the registration under
the Act of the Registrable Securities which it has been so requested to register
("Piggyback Registration"), at the Company's sole cost and expense and at no
cost or expense to the Requesting Holders (other than underwriting discounts and
commissions applicable to the sale of such Registrable Securities and the fees
and disbursements, if any, of counsel or any advisor to the Requesting Holders),
provided that, if such Registration Statement relates to an underwritten public
offering and the managing underwriter advises the Company and the Requesting
Holders in writing that the number of Registrable Securities which can be
included in such offering must be limited, the Requesting Holders will agree to
reduce the number of Registrable Securities included in such Registration
Statement on a pro rata basis with any other selling security holder on whose
behalf other securities of the Company may be included therein for registration.
Notwithstanding the provisions of this Section 7.3(a), the Company shall have
the right at any time after it shall have given written notice pursuant to this
Section 7.3(a) (irrespective of whether any written request for inclusion of
Registrable Securities shall have already been made) to elect not to file any
such proposed Registration Statement, or to withdraw the same after the filing
but prior to the effective date thereof.
(b) Notwithstanding anything to the contrary contained herein, within
ten (10) days after the Requesting Holders exercise the rights set forth above,
the Company shall have the option to repurchase any and all of the Warrants
and/or the Shares requesting registration at the difference between the Exercise
Price and the average closing bid price of the Company's Common Stock for the
last ten (10) trading days prior to the date the Requesting Holders exercise the
rights set forth in Section 7.3(a) above. Such repurchase, if elected by the
Company, shall be in immediately available funds and shall close within two (2)
days after the Company's delivery of written notice of election of repurchase
specified in this Section 7.3(b).
7.4 Demand Registration
(a) At any time during the Warrant Exercise Term,
any "Demand Holder" (as such term is defined in Section 7.4(d) below) of the
Registrable Securities shall have the right (which right is in addition to the
Piggyback Registration rights provided for under Section 7.3 hereof),
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission"), on one occasion, at the sole expense of the
Company, a Registration Statement and such other documents, including a
prospectus, as may be necessary (in the opinion of both counsel for the Company
and counsel for such Demand
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Holders), in order to comply with the provisions of the Act, so as to permit a
public offering and sale of the Registrable Securities for nine (9) consecutive
months by such Demand Holders and any other Holders of the Warrants and/or
Shares who notify the Company within twenty (20) days after receiving notice
from the Company of such request.
(b) The Company covenants and agrees to give
written notice of any Demand Registration Request to all holders of the
Registrable Securities within ten (10) days from the date of the Company's
receipt of any such Demand Registration Request. After receiving notice from the
Company as provided in this Section 7.4(b), holders of Registrable Securities
may request the Company to include their Registrable Securities in the
Registration Statement to be filed pursuant to Section 7.4(a) hereof by
notifying the Company of their decision to have such securities included within
ten (10) days of their receipt of the Company's notice.
(c) In addition to the registration rights
provided for under Section 7.3 hereof and subsection (a) of this Section 7.4, at
any time during the Warrant Exercise Term, any Demand Holder (as defined below
in Section 7.4(d)) of Registrable Securities shall have the right, exercisable
by written request to the Company, to have the Company prepare and file with the
Commission, on one occasion in respect of all holders of Registrable Securities,
a Registration Statement so as to permit a public offering and sale of such
Registrable Securities for nine (9) consecutive months; provided, however, that
all costs incident thereto shall be at the expense of the holders of the
Registrable Securities included in such Registration Statement; and, provided,
further, that a Selling Group member, its officers or partners (and/or any
person who may acquire Warrants and/or Registrable Securities from a Selling
Group member, its officers or partners) shall not be entitled to exercise any
registration right pursuant to this Section 7.4(c) without the prior written
consent of GunnAllen. If a Demand Holder shall give notice to the Company at any
time of its or their desire to exercise the registration right granted pursuant
to this Section 7.4(c), then within ten (10) days after the Company's receipt of
such notice, the Company shall give notice to the other holders of Registrable
Securities advising them that the Company is proceeding with such registration
and offering to include therein the Registrable Securities of such holders,
provided they furnish the Company with such appropriate information in
connection therewith as the Company shall reasonably request in writing. Nothing
contained herein shall require the Company to undergo an audit of its financial
statements other than in the ordinary course of business.
(d) The term "Demand Holder" as used in this
Section 7.4 shall mean any holder or any combination of holders of Registrable
Securities, if included in such holders' Registrable Securities are that
aggregate number of Shares (including Shares already issued and Shares issuable
pursuant to the exercise of outstanding Warrants) as would constitute 50% or
more of the aggregate number of Shares (including Shares already issued and
Shares issuable pursuant to the exercise of outstanding Warrants) included in
all of the Registrable Securities, but in any event not less than 10,000 Shares.
(e) No right of any Demand Holder under this
Section 7.4 shall be deemed to have been exercised if with respect to such
right:
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(A) the requisite notice given by Demand
Holders pursuant to this Section 7.4 is withdrawn
prior to the date of filing of a Registration
Statement or if a Registration Statement filed by the
Company under the Act pursuant to this Section 7.4 is
withdrawn prior to its effective date, in either
case, by written notice to the Company from the
Holders of fifty percent (50%) or more of the
Registrable Securities to be included or which are
included in such Registration Statement stating that
such Holders have elected not to proceed with the
offering contemplated by such registration statement
because (i) a development in the Company's affairs
has occurred or has become known to such Demand
Holders subsequent to the date of the notice by the
Demand Holders to the Company requesting registration
of the Registrable Securities by the filing of such
Registration Statement which, in the judgment of such
Demand Holders or the managing underwriter of the
proposed public offering, adversely affects the
market price of such Shares or (ii) a Registration
Statement filed by the Company pursuant to this
Section 7.4, in the reasonable opinion of counsel for
such Demand Holders or the managing underwriter of
the proposed public offering, contains an untrue
statement of a material fact or omits to state a
material fact required to be stated therein or
necessary to make the statements therein not
misleading in light of the circumstances under which
made (other than any such statement or omission
relating to such Demand Holders and based on
information supplied or failed to be supplied by such
Demand Holders) and the Company has not, promptly
after written notice thereof, corrected such
statement or omission in an amendment filed to such
registration statement; or
(B) a Registration Statement pursuant to
this Section 7.4 shall have become effective under
the Act and (i) the underwriters shall not purchase
any Shares because of a failure of condition
contained in the underwriting agreement (other than a
condition to be performed by or within the control of
the Demand Holders) relating to the offering covered
by such Registration Statement or (ii) less than 85%
of the Shares included therein shall have been sold
as a result of any stop order, injunction or other
order or requirement of the Commission or other
governmental agency or court.
7.5 Covenants of the Company With Respect to
Registration. The Company covenants and agrees as follows:
(a) In connection with any registration under
Section 7.4 hereof, the Company shall file the Registration Statement as
expeditiously as possible, but in no event later than thirty (30) days following
receipt of any demand therefor (unless delayed by the failure of a holder of
Registrable Securities to promptly furnish such information necessary to
complete such registration statement), shall use its best
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efforts to have any such Registration Statement declared effective at the
earliest possible time and shall furnish each holder of Registrable Securities
such number of prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs, fees and
expenses in connection with all Registration Statements filed pursuant to
Sections 7.3 and 7.4(a) hereof (excluding any underwriting discounts and
commissions which may be incurred in connection with the sale of any Registrable
Securities) including, without limitation, the Company's legal and accounting
fees, printing expenses, and blue sky fees and expenses and the reasonable fees
and expenses of one counsel to the Holders of Registrable Securities (except for
the fees and expenses of counsel for the Holders when a registration is effected
pursuant to the terms of Section 7.4(c)).
(c) The Company will take all reasonably necessary
action which may be required in qualifying or registering the Registrable
Securities included in a Registration Statement for offering and sale under the
securities or blue sky laws of such states as are reasonably requested by the
holders of such securities, provided that the Company shall not be obligated to
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction.
(d) The Company shall indemnify any holder of the
Registrable Securities to be sold pursuant to any Registration Statement and any
underwriter or person deemed to be an underwriter under the Act and each person,
if any, who controls such holder or underwriter or person deemed to be an
underwriter within the meaning of Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), against all loss,
claim, damage, expense or liability (including all expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act, the Exchange Act or otherwise,
arising from such Registration Statement to the same extent and with the same
effect as the provisions pursuant to which the Company has agreed to indemnify
the Underwriters contained in Section 5 of the Underwriting Agreement and to
provide for just and equitable contribution as set forth in Section 6 of the
Underwriting Agreement.
(e) Any holder of Registrable Securities to be
sold pursuant to a Registration Statement, and its successors and assigns, shall
severally, and not jointly, indemnify, the Company, its officers and directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished in writing by or on behalf of such holder, or its
successors or assigns, for specific inclusion in such Registration Statement to
the same extent and with the same effect as the provisions contained in the
Underwriting Agreement pursuant to which the Underwriter has agreed to indemnify
the Company and to provide for just and equitable contribution as set forth in
the Underwriting Agreement.
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(f) Nothing contained in this Agreement shall be
construed as requiring any Holder to exercise its Warrants prior to the initial
filing of any Registration Statement or the effectiveness thereof.
(g) The Company shall deliver promptly to each
holder of Registrable Securities participating in the offering copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the Registration Statement and permit each holder of Registrable
Securities and underwriters to do such investigation, upon reasonable advance
notice, with respect to information contained in or omitted from the
Registration Statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"); provided that each such holder of Registrable Securities
agrees not to disclose such information without the prior written consent of the
Company. Such investigation shall include access to books, records and
properties and opportunities to discuss the business of the Company with its
officers and independent auditors, all to such reasonable extent and at such
reasonable times and as often as any such holder of Registrable Securities or
underwriter shall reasonably request.
(h) If required by the underwriter in connection
with an underwritten offering which includes Registrable Securities pursuant to
Section 7, the Company shall enter into an underwriting agreement with one or
more underwriters selected for such underwriting, such agreement shall contain
such representations, warranties and covenants by the Company and such other
terms as are customarily contained in agreements of that type used by the
underwriters. If required by the underwriter, the holders of Registrable
Securities shall be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities and may, at their option,
require that any or all the representations and warranties of the Company to or
for the benefit of such underwriters shall, to the extent that they may be
applicable, also be made to and for the benefit of such holders of Registrable
Securities. Such holders of Registrable Securities shall not be required to make
any representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such holders of Registrable Securities
and their intended methods of distribution.
(i) The Company shall not permit the inclusion of
any securities other than the Shares to be included in any Registration
Statement filed pursuant to Section 7.4 hereof, or file any Registration
Statement, other than registration statements on Form S-8 or a successor form,
subsequent to the receipt of any notice pursuant to Section 7.4 hereof and until
one hundred and eighty (180) days after the effectiveness of a Registration
Statement filed pursuant to Section 7.4 hereof or permit any other registration
statement, other than registration statements on Form S-8 or a successor form,
to be or remain effective during the effectiveness of a Registration Statement
filed pursuant to Section 7.4 hereof; provided, however, that in the event of an
underwritten public offering, the Company shall have the right to permit the
inclusion of such other securities if the managing underwriter of such offering
advises the Company or the Holders in writing that, in its opinion, the
inclusion of such securities other than the Shares in such
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registration statement will not adversely affect the distribution or the
offering price of such Shares.
(j) In connection with any Registration Statement
filed pursuant to Section 7.3 hereof, the Company shall furnish, or cause to be
furnished, to each Holder participating in any underwritten offering and to each
underwriter, a signed counterpart, addressed to such Holder or underwriter, of
(i) an opinion of counsel to the Company, dated the effective date of such
Registration Statement (and, if such registration includes an underwritten
public offering, an opinion dated the date of the closing under the underwriting
agreement), and (ii) a "cold comfort" letter, dated the effective date of such
Registration Statement (and, if such registration includes an underwritten
public offering, a letter dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who have issued a
report on the Company's financial statements included in such Registration
Statement, in each case covering substantially the same matters with respect to
such Registration Statement (and the prospectus included therein) and, in the
case of such accountants' letter, with respect to events subsequent to the date
of such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to underwriters in underwritten
public offerings of securities.
(k) The Company shall promptly notify each Holder
of Warrants and/or Shares covered by such Registration Statement, at any time
when a prospectus relating thereto is required to be delivered under the Act,
upon the Company's discovery that, or upon the happening of any event as a
result of which, the prospectus included in such Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made, and at the request of any such Holder promptly prepare and furnish to such
Holder and each underwriter, if any, a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made.
8. Adjustments of Exercise Price and Number of Shares.
8.1 Computation of Adjusted Price. In case the Company
shall at any time after the date hereof pay a dividend in shares of Common Stock
or make a distribution in shares of Common Stock, then upon such dividend or
distribution the Exercise Price in effect immediately prior to such dividend or
distribution shall forthwith be reduced to a price determined by dividing:
(a) an amount equal to the total number of shares
of Common Stock outstanding immediately prior to such dividend or distribution
multiplied by the Exercise Price in effect immediately prior to such dividend or
distribution, by
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(b) the total number of shares of Common Stock
outstanding immediately after such issuance or sale. For the purposes of any
computation to be made in accordance with the provisions of this Section 8.1,
the following provisions shall be applicable: Common Stock issuable by way of
dividend or other distribution on any stock of the Company shall be deemed to
have been issued immediately after the opening of business on the date following
the date fixed for the determination of stockholders entitled to receive such
dividend or other distribution.
8.2 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
8.3 Adjustment in Number of Shares. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Article 8, the number
of Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share, by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Shares issuable
upon exercise of the Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
8.4 Reclassification, Consolidation, Merger, etc. In
case the Company after the date hereof (i) shall consolidate with or merge into
any other person or entity and shall not be the continuing or surviving
corporation of such consolidation or merger, or (ii) shall permit any other
person or entity to consolidate with or merge into the Company and the Company
shall be the continuing or surviving person or entity but, in connection with
such consolidation or merger, the Common Stock shall be changed into or
exchanged for stock or other securities of any other person or entity or cash or
any other property, or (iii) shall transfer all or substantially all of its
properties or assets to any other person or entity, or (iv) shall effect a
capital reorganization or reclassification of the Common Stock (other than a
capital reorganization or reclassification resulting in the issuance of
additional shares of Common Stock for which adjustment in the Exercise Price is
otherwise provided in this Section 8), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Agreement and the Warrants, the
Holders, upon the exercise thereof at any time after the consummation of such
transaction, shall be entitled to receive (at the aggregate Exercise Price in
effect at the time of such consummation for all Common Stock issuable upon such
exercise immediately prior to such consummation), in lieu of the Common Stock or
other securities issuable upon such exercise prior to such consummation, the
highest amount of securities, cash or other property to which such Holders would
actually have been entitled as stockholders upon such consummation if such
Holders had exercised the rights represented by the Warrants immediately prior
thereto, subject to adjustments (subsequent to such consummation) as nearly
equivalent as possible to the adjustments provided for in this Section 8;
provided that if a purchase, tender or exchange offer shall have been made to
and accepted by the holders of more than 50% of the outstanding shares of Common
Stock, and if a Holder so designates in a notice given to the Company on or
before the date immediately
11
preceding the date of the consummation of such transaction, such Holder shall be
entitled to receive the highest amount of securities, cash or other property to
which such Holder would actually have been entitled as a stockholder if such
Holder had exercised his Warrants prior to the expiration of such purchase,
tender or exchange offer and accepted such offer, subject to adjustments (from
and after the consummation of such purchase, tender or exchange offer) as nearly
equivalent as possible to the adjustments provided for in this Section 8.
Notwithstanding anything contained in the Warrants to the contrary, the Company
will not effect any of the transactions described in clauses (i) through (iv) of
this Section 8.4 unless, prior to the consummation thereof, each person (other
than the Company) which may be required to deliver any stock, securities, cash
or property upon the exercise of the Warrants as provided herein shall assume,
by written instrument delivered to, and reasonably satisfactory to, the Holders,
(a) the obligations of the Company under this Agreement and the Warrants (and if
the Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Agreement and the Warrants) and (b) the
obligation to deliver to such Holders such shares of stock, securities, cash or
property as, in accordance with the foregoing provisions of this Section 8.4,
such Holders may be entitled to receive, and such person shall have similarly
delivered to such Holders an opinion of counsel for such person, which counsel
shall be reasonably satisfactory to such Holders, stating that this Agreement
and the Warrants shall thereafter continue in full force and effect and the
terms hereof (including, without limitation, all of the provisions of this
Section 8) shall be applicable to the stock, securities, cash or property which
such person may be required to deliver upon any exercise of the Warrants or the
exercise of any rights pursuant hereto.
8.5 Determination of Outstanding Shares of Common Stock.
The number of shares of Common Stock at any one time outstanding shall include
the aggregate number of shares issued or issuable upon the exercise of options,
rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities (excluding shares issuable upon the exercise of options
and warrants outstanding on the date hereof).
8.6 Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time prior to
the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or distribution
payable out of current or retained earnings) or otherwise distribute to its
shareholders any monies, assets, property, rights, evidences of indebtedness,
securities (other than shares of Common Stock), whether issued by the Company or
by another person or entity, or any other thing of value, the Holder or Holders
of the unexercised Warrants shall thereafter be entitled, in addition to the
shares of Common Stock or other securities receivable upon the exercise thereof,
to receive, upon the exercise of such Warrants, the same monies, property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
or distribution. At the time of any such dividend or distribution, the Company
shall make appropriate reserves to ensure the timely performance of the
provisions of this Section 8.6.
8.7 Subscription Rights for Shares of Common
12
Stock or Other Securities. In the case the Company or an affiliate of the
Company shall at any time after the date hereof and prior to the exercise of all
the Warrants issue any rights to subscribe for shares of Common Stock or any
other securities of the company or of such affiliate to all the shareholders of
the Company, the Holders of the unexercised Warrants shall be entitled, in
addition to the shares of Common Stock or other securities receivable upon the
exercise of the Warrants, to receive such rights at the time such rights are
distributed to the other shareholders of the Company.
9. Exchange and Replacement of Warrant Certificates.
9.1 Exchange. Each Warrant Certificate is exchangeable
without expense, upon the surrender hereof by the registered Holder at the
principal executive office of the Company, for a new Warrant Certificate of like
tenor and date representing in the aggregate the right to purchase the same
number of Shares in such denominations as shall be designated by the Holder
thereof at the time of such surrender.
9.2 Replacement. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
any Warrant Certificate, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and reimbursement to the
Company of all reasonable expenses incidental thereto, and upon surrender and
cancellation of the Warrants, if mutilated, the Company will make and deliver a
new Warrant Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock and shall not be required to issue scrip or pay cash in lieu of fractional
interests, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up to the nearest whole number of
shares of Common Stock.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number of shares of Common Stock as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of the Warrants
and payment of the Exercise Price thereof, all shares of Common Stock issuable
upon such exercise shall be duly and validly issued, fully paid, non-assessable
and not subject to the preemptive rights of any shareholder. As long as the
Warrants shall be outstanding, the Company shall use its best efforts to cause
all shares of Common Stock issuable upon the exercise of the Warrants to be
listed on or quoted by the exchange upon which the Company's Common Stock is
then listed or quoted.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holder or Holders the right
to vote or to consent or to receive notice as a shareholder in respect of any
meetings of shareholders for the election of directors or any other matter, or
as having any rights whatsoever as a shareholder of the Company. If, however, at
any time prior to the expiration of the Warrants and their exercise,
13
any of the following events shall occur:
(a) the Company shall take a record of the holders
of its shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on the
books of the Company; or
(b) the Company shall offer to all the holders of
its Common Stock any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of
the Company (other than in connection with a consolidation or merger) or a sale
of all or substantially all of its property, assets and business as an entirety
shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least twenty (20) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing of the transfer
books, as the case may be. Failure to give such notice or any defect therein
shall not affect the validity of any action taken in connection with the
declaration or payment of any such dividend or distribution, or the issuance of
any convertible or exchangeable securities or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
13. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, telecopied or mailed by registered or certified mail,
return receipt requested:
(a) If to a Holder, to the address of such Holder
as shown on the books of the Company; or
(b) If to the Company, to the address set forth in
Section 3 of this Agreement or to such other address as the Company may
designate by notice to the Holders.
14. Supplements and Amendments. The Company and GunnAllen may
from time to time supplement or amend this Agreement without the approval of any
Holders in order to cure any ambiguity, to correct or supplement any provision
contained herein which may be defective or inconsistent with any provisions
herein, or to make any other provisions in regard to matters or questions
arising hereunder which the Company and GunnAllen may deem necessary or
desirable and which the Company and GunnAllen deem not to adversely
14
affect the interests of the Holders.
15. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company and the Holders inure to the
benefit of their respective successors and assigns hereunder. Neither the
Warrants or the Shares may be sold, transferred, assigned or hypothecated for a
period of one year from the date of this Warrant Agreement, except to
Transferees.
16. Termination. This Agreement shall terminate at the close
of business on November 21, 2005. Notwithstanding the foregoing, this Agreement
will terminate on any earlier date when all Warrants have been exercised and all
the Shares issuable upon exercise of the Warrants have been resold to the
public; provided, however, that the provisions of Section 7.5 shall survive such
termination until the close of business on November 21, 2010.
17. Governing Law. This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of New York with respect to contracts made and to be wholly performed in
said State and for all purposes shall be construed in accordance with the laws
of said State. The Company, the Underwriter and any other registered holder or
holders agree of the Warrant Certificates (a) agree that any legal suit, action
or proceeding arising out of or relating to this Agreement shall be instituted
exclusively in New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, (b) waive
any objection which the they may have now or hereafter to the venue of any such
suit, action or proceeding, and (c) irrevocably consent to the jurisdiction of
the New York State Supreme Court, County of New York and the United States
District Court for the Southern District of New York in any such suit, action or
procedure. The Company, the Underwriters and any other registered holder or
holders of the Warrant Certificates, Warrants or the Shares further agree to
accept and acknowledge service of any and all process which may be served in any
suit, action or proceeding in the New York State Supreme Court, County of New
York and the United States District Court for the Southern District of New York,
and agree that service of process upon them mailed by certified mail to their
respective addresses shall be deemed in every respect effective service of
process upon them in any such suit, action or proceeding. In the event of
litigation between the parties arising hereunder, the prevailing party shall be
entitled to costs and reasonable attorney's fees.
18. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation, other than the Company
and GunnAllen and any other registered holder or holders of the Warrant
Certificates, Warrants or the Shares, any legal or equitable right, remedy or
claim under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of the Company and GunnAllen and any other holder or holders
of the Warrant Certificates, Warrants or the Shares.
19. Preservation of Rights. The Company will not, by amendment
of its certificate of incorporation or through any consolidation, merger,
reorganization, transfer of assets, 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 of this Agreement or the Warrants or the rights
15
represented thereby, but will at all times in good faith assist in the carrying
out of all such terms and in the taking of all such action as may be necessary
or appropriate in order to protect the rights of the Holders of the Warrants
against dilution or other impairment.
20. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
16
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] DIVERSIFIED SECURITY SOLUTIONS, INC.
By: /s/ Xxxxx Xxxxx
-----------------------------
Name: Xxxxx Xxxxx
Title: President
Attest:
/s/ Xxxxx X. Xxxxxxxx
-------------------------
Name: Xxxxx X. Xxxxxxxx
Title: Secretary
GUNNALLEN FINANCIAL, INC.
By: /s/ Xxxxxx X. Xxxxx
----------------------------------
Name: Xxxxxx X. Xxxxx
Title: Executive Vice President
17
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (I) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (II) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (III) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, NOVEMBER 21, 2005
No. W-1 150,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that GunnAllen Financial,
Inc. or registered assigns is the registered holder of 150,000 Warrants to
purchase, at any time from November 21, 2002 until 5:00 P.M. New York City time
on November 21, 2005 ("Expiration Date") up to 150,000 shares ("Shares") of
fully-paid and nonassessable common stock, par value $.01 per share ("Common
Stock"), of Diversified Security Solutions, Inc., a Delaware corporation (the
"Company"), at the initial exercise price, subject to adjustment in certain
events (the "Exercise Price"), of $11.55 per Share upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of November 15, 2001 ("Warrant Agreement") between the
Company and GunnAllen Financial, Inc. Payment of the Exercise Price may be made
in cash, or by certified or official bank check in New York Clearing House funds
payable to the order of the Company, or any combination of cash or check, or in
accordance with Section 3.2 of the Warrant Agreement.
No Warrant may be exercised after 5:00 P.M., New York City
time, on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to in a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
A-1
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax, or
other governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
Neither the Warrants or the Shares may be sold, transferred,
assigned or hypothecated pursuant to Corporate Financing Rule 2710 (currently a
period of one year from the date of this Warrant Certificate), except to
officers or partners (but not directors) of GunnAllen and members of the selling
group in connection with the Public Offering and/or their officers or partners.
A-2
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: November 21, 2001 DIVERSIFIED SECURITY SOLUTIONS, INC.
[SEAL] By:
Name: Xxxxx Xxxxx
Title: President
Attest:
Name:
Title:
A-3
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase Shares
and herewith tenders in payment for such Shares cash or a certified or official
bank check payable in New York Clearing House Funds to the order of ___________
in the amount of $_______ all in accordance with the terms hereof. The
undersigned requests that a certificate for such Shares be registered in the
name of ____________________, whose address is _____________________ and that
such Certificate be delivered to whose address is ___________________________.
[ ] The Undersigned hereby elects to exercise of the Warrants held by it in
accordance with Section 3.2 of the Warrant Agreement dated ________, 2001.
Dated: Signature:
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
--------------------------
(Insert Social Security or Other
Identifying Number of Holder)
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________________________ hereby
sells, assigns and transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________________________,
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated: Signature:
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
-------------------------
(Insert Social Security or Other
Identifying Number of Holder)
