EXECUTION COPY

 

 

AMENDMENT AGREEMENT

 

This Amendment Agreement (the “Agreement”), dated as of November 4, 2013 and
effective as of October 31, 2013, is by and between WPCS International
Incorporated, a Delaware corporation with offices located at One East Uwchlan
Avenue, Suite 301, Exton, Pennsylvania 19341 (the “Company”), and the holder
identified on the signature page hereto (“Holder”). This Agreement supplements
the Amendment, Waiver and Exchange Agreement, dated October 24, 2013 (“Exchange
Agreement”). In the event that any provision of this Agreement conflicts with
the Exchange Agreement, the provisions of this Agreement shall prevail.

 

R E C I T A L S

 

A. Prior to the date hereof, the Company has issued to the Holder (i) a senior
secured convertible note (as amended and waived prior to the date hereof, the
“Note”), which Note is convertible into shares of the Company’s common stock,
$0.0001 par value per share (the “Common Stock”) (as converted, collectively,
the “Conversion Shares”), in accordance with the terms of the Note and (ii) a
warrant (as amended and waived prior to the date hereof, the “Warrant”) to
purchase Common Stock (the “Warrant Shares”), in each case, pursuant to a
Securities Purchase Agreement, dated as of December 4, 2012 (as amended and
waived prior to the date hereof, the “Securities Purchase Agreement”) to the
Holder and certain other investors signatory thereto (the Holder and such other
investors collectively, the “Investors”). Capitalized terms not defined herein
shall have the meanings set forth in the Securities Purchase Agreement as
amended hereby.

 

B. The parties acknowledge and agree that if an Event of Default existed under
the Notes (as defined in the Securities Purchase Agreement) as of the date
hereof, the Investors would be entitled to redeem $3,405,667 in aggregate
principal and interest of the Notes for an Event of Default Redemption Price (as
defined in the Notes) of $41,506,563 (the greater of 125% of (x) the deemed
value of the shares of Common Stock underlying the Notes (the “Intrinsic Value”)
and (y) the outstanding principal and unpaid interest under the Notes (the “Base
Value”).

 

C. The Company and the Holder desire to enter into this Agreement, pursuant to
which, among other things, the Company and the Holder shall amend the Note (x)
to reduce the Event of Default Redemption Price by eliminating the Intrinsic
Value calculation and modifying the Base Value calculation and interest rate to
more accurately make-whole the Holder from the loss of interest from an early
redemption of the Note and the decreased value of a Note without such Intrinsic
Value rights and (y) to extend the maturity date to October 31, 2023.

 

C. Concurrently with the transactions contemplated hereby, Investors (other than
the Holder) (the “Other Holders”), which, together with the Holder, beneficially
own at least 51% of the aggregate principal amount of senior secured convertible
notes and related warrants of the Company (the “Required Holders”), are
executing agreements identical to this Agreement (other than proportional
changes in the numbers reflecting the different aggregate principal amount of
senior secured convertible notes and related warrants of the Company held by
each Other Holder and corresponding proportional changes to the number of shares
of Common Stock and new warrants to purchase Common Stock to be delivered to
such Other Holder in exchange for such portion of the applicable subordinated
convertible note being exchanged) (the “Other Agreements”, and together with
this Agreement, the “Agreements”).

 

 

 

 

A G R E E M E N T

 

1. Amendment. At the Effective Time (as defined below), effective as of October
31, 2013, the Transaction Documents shall be amended as follows:

 

1.1 The second sentence of Section 4(b) of the Note shall be amended and
restated as follows:

 

At any time after the earlier of the Holder’s receipt of an Event of Default
Notice and the Holder becoming aware of an Event of Default, the Holder may
require the Company to redeem (regardless of whether such Event of Default has
been cured) all or any portion of this Note by delivering written notice thereof
(the “Event of Default Redemption Notice”) to the Company, which Event of
Default Redemption Notice shall indicate the portion of this Note the Holder is
electing to have the Company redeem. Each portion of this Note subject to
redemption by the Company pursuant to this Section 4(b) shall be redeemed by the
Company at a price equal to the sum of (A) the Conversion Amount to be redeemed
and (B) the applicable Make-Whole Amount.

 

1.2 Section 30 of the Note shall be amended by adding the following as a new
Section 30(www):

 

(www) “Make-Whole Amount” means as of any given date, the amount of any Interest
that, but for any redemption hereunder on such given date, would have accrued
with respect to the Conversion Amount being redeemed under this Note at the
Interest Rate then in effect for the period from such given date through October
31, 2023, discounted to the present value of such interest using a discount rate
of 2.5% per annum.

 

1.3 The second sentence of Section 2 of the Note shall be amended and restated
as follows:

From and after the occurrence and during the continuance of any Event of
Default, the Interest Rate shall automatically be increased to twenty-five
percent (25%).

 

1.4 Section 30(kk) of the Note shall be amended and restated as follows:

 

“Interest Rate” means fifteen percent (15%) per annum, subject to adjustment as
set forth in Section 2.

 

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1.5 The defined term “Notes” shall be amended and restated as “the Notes (as
amended and waived pursuant to the Amendment, Waiver and Exchange Agreements and
the Amendment Agreements).

 

1.6 The defined term “Transaction Documents” shall be amended to include those
certain Amendment Agreements, dated as of November 4, 2013, and effective as of
October 31, 2013, each by and between the Company and each Buyer (the “Amendment
Agreements”).

 

1.7 Section 30(qq) of the Note shall be amended and restated as follows:

 

“Maturity Date” shall mean October 31, 2023; provided, however, the Maturity
Date may be extended at the option of the Holder (i) in the event that, and for
so long as, an Event of Default shall have occurred and be continuing or any
event shall have occurred and be continuing that with the passage of time and
the failure to cure would result in an Event of Default or (ii) through the date
that is twenty (20) Business Days after the consummation of a Fundamental
Transaction in the event that a Fundamental Transaction is publicly announced or
a Fundamental Transaction Notice is delivered prior to the Maturity Date,
provided further that if a Holder elects to convert some or all of this Note
pursuant to Section 3 hereof, and the Conversion Amount would be limited
pursuant to Section 3(d) hereunder, the Maturity Date shall automatically be
extended until such time as such provision shall not limit the conversion of
this Note.

 

2. Representations and Warranties.

 

2.1 Holder Bring Down. The Holder hereby makes the representations and
warranties as to itself only as set forth in Section 2 of the Securities
Purchase Agreement (as amended hereby) as if such representations and warranties
were made as of the date hereof and set forth in their entirety in this
Agreement, mutatis mutandis.

 

2.2 Company Bring Down. Except as set forth on Schedule 2.2 hereto and subject
to such disclosures set forth in the Company’s filings with the Securities and
Exchange Commission prior to the date hereof and in the 8-K Filing (as defined
below), the Company hereby makes the representations and warranties to the
Holder as set forth in Section 3 of the Securities Purchase Agreement (as
amended hereby) as if such representations and warranties were made as of the
date hereof and set forth in their entirety in this Amendment, mutatis mutandis.

 

3. Covenants.

 

3.1 Disclosure of Transactions and Other Material Information. On or before
9:30 a.m., New York time, on the first (1st) Business Day following the date
hereof, the Company shall file a Current Report on Form 8-K describing all the
material terms of the transactions contemplated by the Agreements in the form
required by the 1934 Act and attaching all the material agreements (including,
without limitation, this Agreement) (including all attachments, the “8-K
Filing”). On or prior to December 15, 2013 (such applicable date, the
“Disclosure Date”), the Company shall have disclosed all material, non-public
information (if any) delivered to any of the Buyers by the Company or any of its
Subsidiaries, or any of their respective officers, directors, employees or
agents in connection with the transactions contemplated by the Agreements.

 

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3.2 Fees. The Company shall reimburse Greenberg Traurig, LLP (counsel to the
lead Investor), on demand, for all reasonable, documented costs and expenses
incurred by it in connection with preparing and delivering this Agreement
(including, without limitation, all reasonable, documented legal fees and
disbursements in connection therewith, and due diligence in connection with the
transactions contemplated thereby) (the “Lead Investor Counsel Expenses”).

 

3.3 Holding Period. For the purposes of Rule 144, the Company acknowledges that
upon any conversion of the Notes (as amended hereby) the holding period of the
Conversion Shares issuable upon conversion of the Note may be tacked onto the
holding period of the Note, which holding period commenced as of the December 5,
2012, and the Company agrees not to take a position contrary to this Section
3.3. The Company agrees to take all actions, including, without limitation,
obtaining customary legal opinions necessary to comply with the foregoing.

 

4. MISCELLANEOUS.

 

4.1 Effective Time. The amendments in Section 1 of this Agreement shall be
effective as of October 31, 2013; upon the date each of the Required Holders
shall have executed each of their respective Amendment Agreements (the
“Effective Time”).

 

4.2 Miscellaneous Provisions. Section 9 of the Securities Purchase Agreement (as
amended hereby) is hereby incorporated by reference herein, mutatis mutandis.

 

4.3 Most Favored Nation. The Company hereby represents and warrants as of the
date hereof and covenants and agrees from and after the date hereof that none of
the terms offered to any Person with respect to any consent, release, amendment,
settlement or waiver relating to the terms, conditions and transactions
contemplated hereby (each a “Settlement Document”), is or will be more favorable
to such Person than those of the Holder and this Agreement. If, and whenever on
or after the date hereof, the Company enters into a Settlement Document, then
(i) the Company shall provide notice thereof to the Holder immediately following
the occurrence thereof and (ii) the terms and conditions of this Agreement, the
Transaction Documents and the Securities (other than any limitations on
conversion or exercise set forth therein) shall be, without any further action
by the Holder or the Company, automatically amended and modified in an
economically and legally equivalent manner such that the Holder shall receive
the benefit of the more favorable terms and/or conditions (as the case may be)
set forth in such Settlement Document, provided that upon written notice to the
Company at any time the Holder may elect not to accept the benefit of any such
amended or modified term or condition, in which event the term or condition
contained in this Agreement or the Securities (as the case may be) shall apply
to the Holder as it was in effect immediately prior to such amendment or
modification as if such amendment or modification never occurred with respect to
the Holder. The provisions of this Section 4.3 shall apply similarly and equally
to each Settlement Document.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.

 

COMPANY:

 

WPCS INTERNATIONAL INCORPORATED

 

By:_____________________________________

Name: Joseph Heater
Title: Chief Financial Officer

 

 

 

 

 

 

 

[Amendment Agreement]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.

 

HOLDER:

 

 

By:________________________________

Name:
Title:

 

 

 

 

 

 

[Amendment Agreement]

 

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SCHEDULE 3.2

 

The following are exceptions to the representations and warranties made by the
Company in the Securities Purchase Agreement, as if such representations and
warranties were made as of the date of this Agreement.

 

Section 3(b): The term “Stockholder Approval” should be replaced with the term
“Subsequent Stockholder Approval.” For purposes of this Agreement, “Subsequent
Stockholder Approval” means the approval of the Company’s stockholders, at
either (x) the next annual meeting of stockholders of the Company or (y) a
special meeting of stockholders of the Company, which shall be promptly called
and held not later than February 28, 2013 of resolutions providing for the
increase of the authorized shares of Common Stock of the Company to a sufficient
level in order to meet the Company’s obligations pursuant to the Transaction
Documents.

 

Section 3(c): For purposes of this representation, the term “Warrants” shall not
include the Exchange Warrants. In addition, the term “Stockholder Approval”
should be replaced with the term “Subsequent Stockholder Approval.”

 

Section 3(l): As of the date of this Agreement, the Company is deemed Insolvent
(as defined in the Securities Purchase Agreement).

 

Section 3(p): In October 2013, the Company discovered that one of the Australian
accountants submitted fraudulent invoices in August and September 2013 to Pride
and funds were transferred to her account totaling approximately $26,000. The
accountant has been criminally charged and the Company is currently seeking
restitution. As a result of further investigation, , the Company determined that
this accountant submitted additional fraudulent vendor invoices, which were paid
to her, between May 2012 and May 2013 in the aggregate amount of approximately
$259,000 The accountant has been criminally charged with additional counts of
fraud, and the Company is currently seeking further restitution.

 

As a result of these fraudulent payments, the Company has determined that there
exists a material weakness in its financial accounting controls and procedures.

 

Section 3(v): Pursuant to employment agreements with Myron Polulak, Curtis
LaChance and Robert Roller, such individuals were entitled to receive annual
bonuses of $38,226, $101,987 and $47,644, respectively. Such bonuses were
required to be paid within 30 days after July 29, 2013. Pursuant to their
employment agreements, failure to pay such bonus within 30 days of receipt from
the employee of such default in payment, would allow such employee to terminate
their employment agreement for “Good Reason”, which would entitle the employee
to receive a lump-sum severance payment equal to the amount owed to such
employee from the date of termination through the remaining term of the
employment agreement.

 

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The Company received notices from Curtis LaChance, Myron Polulak and Robert
Roller on September 9, 2013, September 30, 2013 and October 24, 2013,
respectively. The Company entered into a waiver agreement with Curtis LaChance,
Myron Polulak and Robert Roller on October 8, 2013, October 31, 2013 and
November 1, 2013, respectively.

 

Section 3(bb): See disclosure for Section 3(p).

 

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