NEITHER THE
ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISEABLE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
(B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED
IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Warrant
To Purchase Common Stock
Warrant No.:
2009-1
Number of Shares of Common Stock: 2,187,500
Date of Issuance: July 14, 2009 (“ Issuance Date
”)
Stinger
Systems, Inc., a Nevada corporation, (the “ Company
”), hereby certifies that, for good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, CASTLERIGG MASTER INVESTMENTS LTD., the registered
holder hereof or its permitted assigns (the “ Holder
”), is entitled, subject to the terms set forth below, to
purchase from the Company, at the Exercise Price (as defined below)
then in effect, upon surrender of this Warrant to Purchase Common
Stock (including any Warrants to purchase Common Stock issued in
exchange, transfer or replacement hereof, the “
Warrant ”), at any time or times on or after the date
hereof, but not after 11:59 p.m., New York time, on the
Expiration Date (as defined below), two million one hundred
eighty-seven thousand five hundred (2,187,500) fully paid
nonassessable shares of Common Stock (as defined below) (the
“ Warrant Shares ”) calculated in accordance
with the Purchase Formula (as defined below). Except as otherwise
defined herein, capitalized terms in this Warrant shall have the
meanings set forth in Section 16. The number of Warrant Shares
obtainable by the Holder under this Warrant shall be limited to the
aggregate amount of the Advance (as defined in the SPA Securities)
multiplied by One Hundred Twenty-Five Percent (125%) divided by the
Exercise Price in effect at the time of the purchase (the “
Purchase Formula ”). This Warrant is one of an issue
of Warrants to Purchase Common Stock (the “ SPA
Warrants ”) issued pursuant to Section 1 of that certain
Securities Purchase Agreement, dated as of July 14, 2009, by and
between the Buyers (as defined in the Securities Purchase
Agreement) and the Company (the “ Securities Purchase
Amendment ”).
(a)
Mechanics of Exercise . Subject to the terms and conditions
hereof (including, without limitation, the limitations set forth in
Section 1(f)), this Warrant may be exercised by the Holder on
any day on or after the date hereof in whole or in part, by
(i) delivery
of a written
notice, in the form attached hereto as Exhibit A (the
“ Exercise Notice ”), of the Holder’s
election to exercise this Warrant and (ii) (A) payment to the
Company of an amount equal to the applicable Exercise Price
multiplied by the number of Warrant Shares as to which this Warrant
is being exercised (the “ Aggregate Exercise Price
”) in cash or wire transfer of immediately available funds or
(B) by notifying the Company that this Warrant is being
exercised pursuant to a Cashless Exercise (as defined in
Section 1(d)). The Holder shall not be required to deliver the
original Warrant in order to effect an exercise hereunder.
Execution and delivery of the Exercise Notice with respect to less
than all of the Warrant Shares shall have the same effect as
cancellation of the original Warrant and issuance of a new Warrant
evidencing the right to purchase the remaining number of Warrant
Shares. On or before the first Business Day following the date on
which the Company has received each of the Exercise Notice and the
Aggregate Exercise Price (or notice of a Cashless Exercise) (the
“ Exercise Delivery Documents ”), the Company
shall transmit by facsimile an acknowledgment of confirmation of
receipt of the Exercise Delivery Documents to the Holder and the
Company’s transfer agent (the “ Transfer Agent
”). On or before the third Trading Day following the date on
which the Company has received all of the Exercise Delivery
Documents (the “ Share Delivery Date ”), the
Company shall (X) provided that the Transfer Agent is
participating in The Depository Trust Company (“ DTC
”) Fast Automated Securities Transfer Program, upon the
request of the Holder, credit such aggregate number of shares of
Common Stock to which the Holder is entitled pursuant to such
exercise to the Holder’s or its designee’s balance
account with DTC through its Deposit Withdrawal Agent Commission
system, or (Y) if the Transfer Agent is not participating in
the DTC Fast Automated Securities Transfer Program, deliver to be
received no later than the Share Delivery Date, to the address as
specified in the Exercise Notice, a certificate, registered in the
Company’s share register in the name of the Holder or its
designee, for the number of shares of Common Stock to which the
Holder is entitled pursuant to such exercise. Upon delivery of the
Exercise Notice and Aggregate Exercise Price referred to in clause
(ii)(A) above or notification to the Company of a Cashless Exercise
referred to in Section 1(d), the Holder shall be deemed for
all corporate purposes to have become the holder of record of the
Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of the certificates
evidencing such Warrant Shares. If this Warrant is submitted in
connection with any exercise pursuant to this Section 1(a) and the
number of Warrant Shares represented by this Warrant submitted for
exercise is greater than the number of Warrant Shares being
acquired upon an exercise, then the Company shall as soon as
practicable and in no event later than three Business Days after
any exercise and at its own expense, issue a new Warrant (in
accordance with Section 7(d)) representing the right to
purchase the number of Warrant Shares purchasable immediately prior
to such exercise under this Warrant, less the number of Warrant
Shares with respect to which this Warrant is exercised. No
fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common
Stock to be issued shall be rounded up to the nearest whole number.
The Company shall pay any and all taxes which may be payable with
respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.
(b)
Exercise Price . For purposes of this Warrant, “
Exercise Price ” means $0.20, subject to adjustment as
provided herein.
(c)
Company’s Failure to Timely Deliver Securities . If
the Company shall fail for any reason or for no reason to issue to
the Holder within three (3) Trading Days of
2
receipt of the
Exercise Delivery Documents, a certificate for the number of shares
of Common Stock to which the Holder is entitled and register such
shares of Common Stock on the Company’s share register or to
credit the Holder’s balance account with DTC for such number
of shares of Common Stock to which the Holder is entitled upon the
Holder’s exercise of this Warrant, then, in addition to all
other remedies available to the Holder, the Company shall pay in
cash to the Holder on each day after such third Trading Day that
the issuance of such shares of Common Stock is not timely effected
an amount equal to 1.5% of the product of (A) the sum of the
number of shares of Common Stock not issued to the Holder on a
timely basis and to which the Holder is entitled and (B) the
Closing Sale Price of the shares of Common Stock on the Trading Day
immediately preceding the last possible date which the Company
could have issued such shares of Common Stock to the Holder without
violating Section 1(a). In addition, if within three
(3) Trading Days after the Company’s receipt of the
facsimile copy of a Exercise Notice the Company shall fail to issue
and deliver a certificate to the Holder and register such shares of
Common Stock on the Company’s share register or credit the
Holder’s balance account with DTC for the number of shares of
Common Stock to which the Holder is entitled upon such
Holder’s exercise hereunder, and if on or after such Trading
Day the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a
sale by the Holder of shares of Common Stock issuable upon such
exercise that the Holder anticipated receiving from the Company (a
“ Buy-In ”), then the Company shall, within
three Business Days after the Holder’s request and in the
Holder’s discretion, either (i) pay cash to the Holder
in an amount equal to the Holder’s total purchase price
(including brokerage commissions, if any) for the shares of Common
Stock so purchased (the “ Buy-In Price ”), at
which point the Company’s obligation to deliver such
certificate (and to issue such shares of Common Stock) or credit
such Holder’s balance account with DTC shall terminate, or
(ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such shares of Common
Stock or credit such Holder’s balance account with DTC and
pay cash to the Holder in an amount equal to the excess (if any) of
the Buy-In Price over the product of (A) such number of shares
of Common Stock, times (B) the Closing Bid Price on the date
of exercise.
(d)
Cashless Exercise . Notwithstanding anything contained
herein to the contrary, if a registration statement covering the
resale of the Warrant Shares that are the subject of the Exercise
Notice (the “ Unavailable Warrant Shares ”) is
not available for the resale of such Unavailable Warrant Shares,
the Holder may, in its sole discretion, exercise this Warrant in
whole or in part and, in lieu of making the cash payment otherwise
contemplated to be made to the Company upon such exercise in
payment of the Aggregate Exercise Price, elect instead to receive
upon such exercise the “Net Number” of shares of Common
Stock determined according to the following formula (a “
Cashless Exercise ”):
Net
Number = (A x B) - (A x C)
For
purposes of the foregoing formula:
A=
the total number of shares with respect to which this Warrant is
then being exercised.
3
B=
the Closing Sale Price of the shares of Common Stock (as reported
by Bloomberg) on the date immediately preceding the date of the
Exercise Notice.
C=
the Exercise Price then in effect for the applicable Warrant Shares
at the time of such exercise.
(e)
Disputes . In the case of a dispute as to the determination
of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall promptly issue to the Holder the number
of Warrant Shares that are not disputed and resolve such dispute in
accordance with Section 12.
(f)
Limitations on Exercises . The Company shall not effect the
exercise of this Warrant, and the Holder shall not have the right
to exercise this Warrant, to the extent that after giving effect to
such exercise, such Person (together with such Person’s
affiliates) would beneficially own in excess of 9.99% (the “
Maximum Percentage ”) of the shares of Common Stock
outstanding immediately after giving effect to such exercise. For
purposes of the foregoing sentence, the aggregate number of shares
of Common Stock beneficially owned by such Person and its
affiliates shall include the number of shares of Common Stock
issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude
shares of Common Stock which would be issuable upon
(A) exercise of the remaining, unexercised portion of this
Warrant beneficially owned by such Person and its affiliates and
(B) exercise or conversion of the unexercised or unconverted
portion of any other securities of the Company beneficially owned
by such Person and its affiliates (including, without limitation,
any convertible notes or convertible preferred stock or warrants)
subject to a limitation on conversion or exercise analogous to the
limitation contained herein. Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership
shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the “
Exchange Act ”). For purposes of this Warrant, in
determining the number of outstanding shares of Common Stock, the
Holder may rely on the number of outstanding shares of Common Stock
as reflected in (1) the Company’s most recent Form 10-K,
Form 10-Q, Current Report on Form 8-K or other public filing with
the Securities and Exchange Commission, as the case may be,
(2) a more recent public announcement by the Company or
(3) any other notice by the Company or the Transfer Agent
setting forth the number of shares of Common Stock outstanding. For
any reason at any time, upon the written or oral request of the
Holder, the Company shall within one (1) Business Day confirm
orally and in writing to the Holder the number of shares of Common
Stock then outstanding. In any case, the number of outstanding
shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including
the SPA Securities and the SPA Warrants, by the Holder and its
affiliates since the date as of which such number of outstanding
shares of Common Stock was reported. By written notice to the
Company, the Holder may increase or decrease the Maximum Percentage
to any other percentage not in excess of 9.99% specified in such
notice; provided that (i) any such increase will not be
effective until the sixty-first (61 st )
day after such notice is delivered to the Company, and
(ii) any such increase or decrease will apply only to the
Holder and not to any other holder of SPA Warrants. The provisions
of this paragraph shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this Section
1(f) to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended beneficial ownership
limitation herein contained or to make changes or supplements
necessary or desirable to properly give effect to such
limitation.
4
2.
ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES .
The Exercise Price and the number of Warrant Shares shall be
adjusted from time to time as follows:
(a)
Adjustment upon Issuance of shares of Common Stock . If and
whenever on or after the Subscription Date the Company issues or
sells, or in accordance with this Section 2 is deemed to have
issued or sold, any shares of Common Stock (including the issuance
or sale of shares of Common Stock owned or held by or for the
account of the Company, but excluding shares of Common Stock deemed
to have been issued by the Company in connection with any Excluded
Securities) for a consideration per share (the “ New
Issuance Price ”) less than the Exercise Price (the
“ Applicable Price ”) in effect immediately
prior to such issue or sale or deemed issuance or sale (the
foregoing a “ Dilutive Issuance ”), then
immediately after such Dilutive Issuance, the Exercise Price then
in effect shall be reduced to an amount equal to the New Issuance
Price. Upon each such adjustment of the Exercise Price hereunder,
the number of Warrant Shares shall be adjusted to the number of
shares of Common Stock determined by multiplying the Exercise Price
in effect immediately prior to such adjustment by the number of
Warrant Shares acquirable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment. For purposes of
determining the adjusted Exercise Price under this
Section 2(a), the following shall be applicable:
(i) Issuance of
Options . If the Company in any manner grants any Options and
the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion,
exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option is less than the Applicable Price, then
such share of Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For
purposes of this Section 2(a)(i), the “lowest price per
share for which one share of Common Stock is issuable upon exercise
of such Options or upon conversion, exercise or exchange of such
Convertible Securities issuable upon exercise of any such
Options” shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the granting or sale
of the Option, upon exercise of the Option and upon conversion,
exercise or exchange of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Exercise
Price or number of Warrant Shares shall be made upon the actual
issuance of such shares of Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such shares of Common Stock upon conversion, exercise
or exchange of such Convertible Securities.
(ii) Issuance
of Convertible Securities . If the Company in any manner issues
or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof is less than the
Applicable Price,
5
then such share
of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the issuance or sale
of such Convertible Securities for such price per share. For the
purposes of this Section 2(a)(ii), the “lowest price per
share for which one share of Common Stock is issuable upon the
conversion, exercise or exchange thereof” shall be equal to
the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to one share of Common Stock
upon the issuance or sale of the Convertible Security and upon
conversion, exercise or exchange of such Convertible Security. No
further adjustment of the Exercise Price or number of Warrant
Shares shall be made upon the actual issuance of such shares of
Common Stock upon conversion, exercise or exchange of such
Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for
which adjustment of this Warrant has been or is to be made pursuant
to other provisions of this Section 2(a), no further
adjustment of the Exercise Price or number of Warrant Shares shall
be made by reason of such issue or sale.
(iii) Change in
Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any,
payable upon the issue, conversion, exercise or exchange of any
Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exercisable or exchangeable for
shares of Common Stock increases or decreases at any time, the
Exercise Price and the number of Warrant Shares in effect at the
time of such increase or decrease shall be adjusted to the Exercise
Price and the number of Warrant Shares which would have been in
effect at such time had such Options or Convertible Securities
provided for such increased or decreased purchase price, additional
consideration or increased or decreased conversion rate, as the
case may be, at the time initially granted, issued or sold. For
purposes of this Section 2(a)(iii), if the terms of any Option or
Convertible Security that were outstanding as of the date of
issuance of this Warrant are increased or decreased in the manner
described in the immediately preceding sentence, then such Option
or Convertible Security and the shares of Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or
decrease. No adjustment pursuant to this Section 2(a)(iii)
shall be made if such adjustment would result in an increase of the
Exercise Price then in effect or a decrease in the number of
Warrant Shares.
(iv)
Calculation of Consideration Received . In case any Option
is issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Options by the
parties thereto, the Options will be deemed to have been issued for
a consideration of $0.01. If any shares of Common Stock, Options or
Convertible Securities
6
are issued or
sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net amount
received by the Company therefor. If any shares of Common Stock,
Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of such consideration
received by the Company will be the fair value of such
consideration, except where such consideration consists of publicly
traded securities, in which case the amount of consideration
received by the Company will be the Closing Sale Price of such
security on the date of receipt. If any shares of Common Stock,
Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration
therefor will be deemed to be the fair value of such portion of the
net assets and business of the non-surviving entity
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