Exhibit 1.5
WARRANT AGREEMENT dated as of ____________ __, 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 172,500 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 $___ per share of Common Stock,
plus up to an additional 225,000 shares 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 the 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 __________
__, 2002 until 5:00 P.M., New York City time, on __________ __, 2005 (the
"Warrant Exercise Term"), up to an aggregate of 172,500 Shares at an initial
exercise price (subject to adjustment as provided in Article 8 hereof) of
$______ per Share [120% of the public offering price of the Shares] 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
1
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 $_____ 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 hereof, 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 is no longer reporting such information, or (iii) if the
2
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 may not be sold, transferred, assigned,
hypothecated or otherwise disposed of, in whole or in part, for a period of one
(1) year from the date hereof, except to officers or partners of GunnAllen or to
any member of the Selling Group participating
3
in the distribution to the public of the Common Stock and/or their respective
officers or partners, in which case such officers, employees or partners 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 purchaser
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 and applicable
state securities laws.
6. Price.
6.1 Initial and Adjusted Exercise Price. The initial exercise price
of each Warrant shall be $___ 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 five (5)
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 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"),
4
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. No such reduction shall reduce the
amount of securities of the Requesting Holders included in such Registration
Statement below one-third (1/3) of the total amount of securities included in
such Registration Statement. In no event will shares of any other selling
stockholder be included in such Registration Statement which would reduce the
number of shares which may be included by Requesting Holders without the written
consent of Requesting Holders of not less than fifty percent (50%) of the
Registrable Securities proposed to be sold in the offering. 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 Shares for the last ten (10)
trading days prior to the date the Requesting Holders exercise the rights set
forth 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
5
prospectus, as may be necessary (in the opinion of both counsel for the Company
and counsel for such Demand 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:
6
(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 Securities 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 Warrants and/or Shares 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 Warrants and/or Shares of 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 Securities 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
7
use its best 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 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 Section 5 of 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
Section 6 of the Underwriting Agreement.
8
(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 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 Article
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 Warrant Shares to be included in any Registration Statement filed
pursuant to Section 7.4 hereof, or file any Registration Statement 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 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 Warrant Shares in such registration
statement will not adversely affect the distribution or the offering price of
such Warrant Shares.
9
(j) In connection with any Registration Statement filed pursuant
to Section 7.3 hereof, the Company shall furnish 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 Warrants 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
(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
10
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 issue of additional shares
of Common Stock for which adjustment in the Exercise Price is provided in
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 of the Warrants, 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 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 of Warrants so designates in a notice given to the Company on or before
the date immediately preceding the date of the consummation of such transaction,
such Holder of such Warrants 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 of such Warrants had exercised such
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
11
possible to the adjustments provided for in 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 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 of the Warrants, (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, 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 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.
12
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, 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
13
(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 registered Holder of the Warrants, 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
of Warrant Certificates 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 affect
the interests of the Holders of Warrant Certificates.
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.
16. Termination. This Agreement shall terminate at the close of
business on _____________ __, 2006. 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
14
been resold to the public; provided, however, that the provisions of Section 7.5
shall survive such termination until the close of business on __________ __,
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 Underwriters 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 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
15
[SEAL] DIVERSIFIED SECURITY SOLUTIONS, INC.
By:
------------------------------
Name:
Title:
Attest:
--------------------------------------
Name:
Title:
GUNNALLEN FINANCIAL, INC.
By:
------------------------------
Name:
Title:
16
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, ____________, 2006
No. W- ________ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that ________________ or registered
assigns is the registered holder of _______ Warrants to purchase, at any time
from ______________, 2002 until 5:00 P.M. New York City time on _______________,
2005 ("Expiration Date") up to _______ 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 $____ 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 _______, 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 Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
1
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.
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: __________________, 2001 DIVERSIFIED SECURITY SOLUTIONS, INC.
[SEAL] By:
---------------------------------
Name:
Title:
Attest:
-----------------------------------
Name:
Title:
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)
1
[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)
-1-
