Exhibit 10.1

WPCS International Incorporated

 

 

LETTER AGREEMENT

 

 

December 4, 2017

 

 

Dear Warrant Holders,

 

The Warrant ledger of WPCS International Incorporated (“WPCS”) indicates that
you own the Warrant to purchase Common Stock identified on Schedule A hereto
(the “Warrants”). The Warrants were issued pursuant to Section 2 of that certain
Securities Purchase Agreement dated as of July 15, 2015. Capitalized terms used
herein and not otherwise defined shall have the definitions ascribed to such
terms in the Securities Purchase Agreement and the Warrants. WPCS desires that
you exercise your Warrants in order to generate cash funds for WPCS. To
accomplish that WPCS is willing to reduce the Exercise Price of the Warrants and
issue an additional warrant to the Warrant Holders to purchase Common Stock on
terms nearly identical to the terms of the Warrants, as an inducement to you to
presently exercise the Warrants.

 

WPCS hereby temporarily allows the Warrants to be exercised for an Exercise
Price equal to the lower of $1.66 or the last consolidated bid closing price as
reported on the NASDAQ Stock Market for the Common Stock preceding the date WPCS
has received a countersigned copy of this Letter Agreement from all of the
holders of Warrants identified on Schedule A hereto (the “Effective Date”). This
Letter Agreement shall be null and void and of no force and effect unless WPCS
has received by the Business Day following the date of this Letter Agreement a
countersigned copy of this Letter Agreement from all the Warrant Holders
identified on Schedule A.

 

The reduction of the Exercise Price shall be effective only from the Effective
Date through 5:00 P.M. Eastern Standard Time on December 26, 2017, fifteen (15)
Trading Days thereafter (“End Date”). During that time the Warrants will be able
to be exercised to buy some or all of the Warrant Shares on the preferential
terms described in this Letter Agreement on a cash only basis as described in
Section 1(a) of your Warrant.

 

In addition to the potential reduction of the Exercise Price, if at least
one-half of the Warrants listed on Schedule A on the Effective Date (“Threshold
Amount”) are exercised by the End Date, the Warrant Holders of the Warrants
identified on Schedule A (regardless if the Warrants are assigned or transferred
by you after the Effective Date and exercised by such assignee or transferee)
will receive a warrant to purchase Common Stock substantially identical to the
Warrant, representing the right to acquire one share of Common Stock for each
Warrant Share acquired upon cash exercise of the Warrants after the Effective
Date and through the End Date (“Reload Warrant”). The Reload Warrant will be
identical to the Warrants and grant the Warrant Holders the same rights,
benefits and obligations as the Warrants except (i) for Reload Warrants issuable
upon exercise of the Threshold Amount, the Exercise Price will be equal to the
last consolidated bid closing price as reported on the NASDAQ Stock Market for
the Common Stock prior to the date of such exercise of the Threshold Amount,
(ii) once the Threshold Amount has been exercised, the Exercise Price of the
Reload Warrant issuable in connection with any additional exercise of the
Warrants will be equal to the last consolidated bid closing price as reported on
the NASDAQ Stock Market for the Common Stock prior to the exercise date of the
Warrants giving rise to the issuance of such Reload Warrant, (iii) the
Expiration Date shall be seven (7) years after the Exercise Date of the Warrant
which required the issuance of the Reload Warrant, and (iv) the Reload Warrant
may be exercised at all times on a cash basis and also on a cashless basis as
described in Section 2(d) of the Reload Warrant commencing six (6) months after
the Date of Issuance of the Reload Warrant and only in the event a Registration
Statement for the public resale of the Warrant Shares issuable upon exercise
thereof is not effective (unless the Warrant holder has waived its right to have
the resale of the Warrant Shares registered.). A form of Reload Warrant is
annexed hereto as Exhibit 1.

 

 1 

 

  

The Warrant Holder represents to WPCS that the Warrant Holder has entered into
an irrevocable agreement with Alpha Capital Anstalt to sell to Alpha Capital
Anstalt all the Warrants that are unexercised as of the End Date. Such sale will
take place promptly after the End Date or sooner as agreed to between Alpha and
the Warrant Holder.

 

Additionally, in lieu of registration rights granted pursuant to the Securities
Purchase Agreement and the Registration Rights Agreement referred to therein,
until the Expiration Date of the Reload Warrants and at a time when 1933 Act,
Rule 144b(1)(i) is unavailable for the resale of the Warrant Shares, if WPCS
determines to prepare and file with the SEC a registration statement relating to
an offering for its own account or the account of others under the 1933 Act of
any of its equity securities (but excluding Forms S-4 or S-8 and similar forms
which do not permit such registration), then WPCS shall send to each holder of
any of the Reload Warrants or Warrant Shares issued upon exercise of the Reload
Warrants (collectively, the “Securities”) written notice of such determination
and, if within fifteen calendar days after receipt of such notice, any such
holder shall so request in writing, WPCS shall include in such registration
statement all or any part of the Warrant Shares issuable upon exercise of the
Reload Warrants, that such holder requests to be registered. Inclusion of such
Warrant Shares issuable upon exercise of the Reload Warrants will be subject to
customary underwriter cutbacks applicable to all holders of registration rights
and minimum cutbacks in accordance with guidance provided by the SEC (including,
but not limited to Rule 415). The obligations of WPCS under this paragraph may
be waived by any holder of any of the Securities entitled to registration rights
under this paragraph, in which case the Warrants holder shall also be deemed to
have waived its right to exercise the Reload Warrant on a cashless basis with
respect to the Warrant Shares for which registration was waived. The holders
whose Warrant Shares are included or required to be included in such
registration statement are granted the same rights, benefits, liquidated or
other damages and indemnification granted to other holders of securities
included in such registration statement. In no event shall the liability of any
holder of Securities or permitted successor be greater in amount than the dollar
amount of the net proceeds actually received by such holder upon the sale of the
Warrant Shares pursuant to such registration or such lesser amount in proportion
to all other holders of securities included in such registration statement. All
expenses incurred by WPCS in complying with this paragraph, including, without
limitation, all registration and filing fees, printing expenses (if required),
fees and disbursements of counsel and independent public accountants for WPCS,
fees and expenses (including reasonable counsel fees) incurred in connection
with complying with state securities or “blue sky” laws, fees of the FINRA,
transfer taxes, and fees of transfer agents and registrars, are called
“Registration Expenses.” All underwriting discounts and selling commissions
applicable to the sale of the Securities are called "Selling Expenses." WPCS
will pay all Registration Expenses in connection with such registration
statement. Selling Expenses in connection with such registration statement shall
be borne by the holders of the Securities and will be apportioned among all such
holders in proportion to the number of Warrant Shares included in a registration
statement for a holder relative to all the securities included therein for all
selling holders, or as all holders may otherwise agree. It shall be a condition
precedent to the obligations of WPCS to complete the registration pursuant to
this paragraph with respect to the Warrant Shares of a particular holder that
such holder shall furnish to WPCS in writing such information and representation
letters, including a completed form of a securityholder questionnaire, with
respect to itself and the proposed distribution by it as WPCS may reasonably
request to assure compliance with federal and applicable state securities laws.

 

The Reload Warrant will be delivered within the same period after exercise of a
Warrant as the Warrant Shares are deliverable upon exercise of the Warrant. The
Reload Warrant will be deemed issued pursuant to the Securities Purchase
Agreement, including with respect to the representations, warranties and
undertakings therein contained, mutatis mutandis, which representations and
warranties are accurate as of the dates made.

 2 

 

  

The Warrant Shares issuable upon exercise of the Warrants are presently
registered for resale pursuant to an effective Registration Statement as
described in the Registration Rights Agreement referred to in the Securities
Purchase Agreement. WPCS will file a Form 8-K with the Securities and Exchange
Commission disclosing the effectuation of the reduction of the Exercise Price
and the other terms of this Letter Agreement within one (1) Business Day after
the Effective Date and file a “sticker” amendment to such effective Registration
Statement which must be effective for the public resale of the Warrant Shares
immediately upon filing.

 

 

 

[Signature Page to Follow]

 

 3 

 

  

If this proposal is acceptable to you, please indicate your consent below and
return this Letter Agreement to WPCS electronically.

 

  Very truly yours,       WPCS INTERNATIONAL INCORPORATED             By:       

 

 

Consented and Agreed by Warrant Holder:               By:         Dated:
December , 2017  

 

 

 

 4 

 

 

 

SCHEDULE A

 

 

HOLDER WARRANT NO.

NUMBER OF WARRANT

SHARES ISSUABLE

UPON CASH EXERCISE

OF WARRANT

IROQUOIS MASTER FUND LTD. 2015-1 1,055,481 IROQUOIS CAPITAL INVESTMENT GROUP
2015-2 81,190 AMERICAN CAPITAL MANAGEMENT, LLC 2015-3 81,190

 

 

 

 5 

 

 

Exhibit 1

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE 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 SELECTED BY THE HOLDER, 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.

 

WPCS International Incorporated

 

Warrant To Purchase Common Stock

 

Warrant No.: ____________

Number of Shares of Common Stock: ___________

Date of Issuance: __________ ___, 2017 ("Issuance Date")

 

WPCS International Incorporated, a Delaware corporation (the "Company"), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, _____________________________, 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, at any time or times on or after the Issuance
Date, but not after 11:59 p.m., New York time, on the Expiration Date, (as
defined below), _____________________________ (_______________) fully paid
nonassessable shares of Common Stock, subject to adjustment as provided herein
(the "Warrant Shares"). Except as otherwise defined herein, capitalized terms in
this Warrant to Purchase Common Stock (including any Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, this "Warrant") shall
have the meanings set forth in Section 17. This Warrant is one of the Warrants
to purchase Common Stock (the "SPA Warrants") deemed issued pursuant to Section
2 and subject to that certain Securities Purchase Agreement, dated as of July
14, 2015 (the "Subscription Date"), by and among the Company and the investors
(the "Buyers") referred to therein (the "Securities Purchase Agreement").
Capitalized terms used herein and not otherwise defined shall have the
definitions ascribed to such terms in the Securities Purchase Agreement.

 

1.                  EXERCISE OF WARRANT.

 

(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 at any time or times on or after the
Issuance Date, in whole or in part, by (i) delivery of this Warrant and 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 by wire transfer of immediately available
funds or (B) if the provisions of Section 1(d) are applicable, by notifying the
Company that this Warrant is being exercised pursuant to a Cashless Exercise (as
defined in Section 1(d)). 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 (1st) Trading Day following the date on which the Company has received the

 

  

 

Exercise Notice and this Warrant, the Company shall transmit by facsimile an
acknowledgment of confirmation of receipt of the Exercise Notice and this
Warrant to the Holder. On or before the third (3rd) Trading Day following the
date on which the Company has received the Exercise Notice and this Warrant, so
long as the Holder delivers the Aggregate Exercise Price (or notice of a
Cashless Exercise) on or prior to the second (2nd) Trading Day following the
date on which the Company has received the Exercise Notice and this Warrant (the
"Share Delivery Date") (provided that if the Aggregate Exercise Price (or notice
of a Cashless Exercise) has not been delivered by such date, the Share Delivery
Date shall be extended one (1) Trading Day after the Aggregate Exercise Price
(or notice of a Cashless Exercise) is delivered), the Company shall (X) provided
that the Company’s transfer agent (“Transfer Agent”) is participating in The
Depository Trust Company ("DTC") Fast Automated Securities Transfer Program and
the Warrant Shares are eligible to be issued without a restrictive legend,
credit such aggregate number of Warrant Shares 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 At Custodian system, or (Y) if the Transfer
Agent is not participating in the DTC Fast Automated Securities Transfer Program
or the Warrant Shares are not eligible to be issued without a restrictive
legend, issue and dispatch by overnight courier 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 Warrant Shares to
which the Holder is entitled pursuant to such exercise. The Company shall be
responsible for all fees and expenses of the Transfer Agent and all fees and
expenses with respect to the issuance of Warrant Shares via DTC, if any. Upon
delivery of this Warrant, the Exercise Notice and the Aggregate Exercise Price
(or notice of a Cashless Exercise) (such date of delivery being the “Exercise
Date”), 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 such Warrant Shares are credited to the
Holder's DTC account or the date of delivery of the certificates evidencing such
Warrant Shares, as the case may be. 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 (3) Trading 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 issuable
immediately prior to such exercise under this Warrant, less the number of
Warrant Shares with respect to which this Warrant is exercised. No fractional
Warrant Shares are to be issued upon the exercise of this Warrant, but rather
the number of Warrant Shares 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; provided, that the Company shall not be required to pay any tax or
governmental charge that may be imposed with respect to any applicable
withholding or the issuance or delivery of the Warrant Shares to any Person
other than the Holder, and no such issuance or delivery shall be made unless and
until such Person other than the Holder requesting such issuance has paid to the
Company the amount of any such tax, or has established to the satisfaction of
the Company that such tax has been paid. The Company's obligations to issue and
deliver Warrant Shares in accordance with the terms and subject to the
conditions hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination.

 

(b)   Exercise Price. For purposes of this Warrant, "Exercise Price" means
$______, subject to adjustment as provided herein.

 

(c)   Company's Failure to Timely Deliver Securities. If (I) the Company shall
fail for any reason or for no reason on or prior to the Share Delivery Date
either (a) if the Transfer Agent is not participating in the DTC Fast Automated
Securities Transfer Program and the Warrant Shares are eligible to be issued
without a restrictive legend, to issue to the Holder a certificate without any
restrictive legend 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 (b) if the Transfer Agent is participating in the DTC

 

 2 

 

Fast Automated Securities Transfer Program and the Warrant Shares are eligible
to be issued without a restrictive legend, 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 the Warrant Shares are
not eligible to be issued without a restrictive legend to issue and dispatch by
overnight courier to the address as specified in the Exercise Notice for
delivery on or before the Share Delivery Date a certificate, registered in the
Company’s share register in the name of the Holder or its designee, for the
number of Warrant Shares to which the Holder is entitled pursuant to such
exercise, or (II) after the Initial Effective Date (as defined in the
Registration Statement) and during the Registration Period (as defined in the
Registration Rights Agreement), (x) the Registration Statement (as defined in
the Registration Rights Agreement) covering the resale of all 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, (y)
the Company fails to promptly, but in no event later than as required pursuant
to the Registration Rights Agreement so notify the Holder and (z) the Company
fails to, on or prior to the Share Delivery Date, deliver the Warrant Shares
electronically without any restrictive legend by crediting such aggregate number
of Warrant Shares 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 At Custodian system (the event described in the immediately
foregoing clause (II) is hereinafter referred as a "Notice Failure") and either
a Notice Failure or an event described in clause (I) above (referred to herein
as an "Exercise Failure") occurs, then, in addition to all other remedies
available to the Holder, (X) the Company shall pay in cash to the Holder on each
day after the Share Delivery Date and during such Notice Failure or Exercise
Failure an amount equal to 1.0% of the product of (A) the sum of the number of
shares of Common Stock not issued to the Holder on or prior to the Share
Delivery Date and to which the Holder is entitled, and (B) any trading price of
the Common Stock selected by the Holder in writing as in effect at any time
during the period beginning on the applicable Exercise Date and ending on the
applicable Share Delivery Date, and (Y) the Holder, upon written notice to the
Company, may void its Exercise Notice with respect to, and retain or have
returned, as the case may be, any portion of this Warrant that has not been
exercised pursuant to such Exercise Notice; provided that the voiding of an
Exercise Notice shall not affect the Company's obligations to make any payments
which have accrued prior to the date of such notice pursuant to this Section
1(c) or otherwise. If the Company is required to pay liquidated damages
hereunder solely as a result of a Notice Failure, the liquidated damages related
thereto will cease to accrue upon delivery of a written notice to the Holder
specifying the correct status of the applicable Registration Statement. For the
avoidance of doubt, the Company acknowledges that the Company may be liable for
Registration Delay Payments pursuant to the Registration Rights Agreement in the
event of an Exercise Failure or Notice Failure. In addition to the foregoing, if
an Exercise Failure or Notice Failure occurs, and if on or after the Share
Delivery Date the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale through a broker 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 (3) Trading 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 and other out-of-pocket
expenses, 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 for such shares of Common Stock 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, as applicable, 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) any trading price of the Common
Stock selected by the Holder in writing as in effect at any time during the
period beginning on the applicable Exercise Date and ending on the applicable
Share Delivery Date. Nothing shall limit the Holder's right to pursue any other
remedies available to it hereunder, at law or in equity, including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver certificates representing
shares of Common Stock (or to electronically deliver such shares of Common
Stock) upon the exercise of this Warrant as required pursuant to the terms
hereof.

 

 3 

 

(d)   Cashless Exercise. Notwithstanding anything contained herein to the
contrary (other than Section 1(f) below), in addition to cash exercises of this
Warrant as described in Section 1(a) commencing six (6) months after the
Issuance Date and while the Registration Statement covering the resale of the
Warrant Shares is not available for the public resale of the Warrant Shares, the
Holder may, in its sole discretion (and without limiting the Holder’s rights and
remedies contained herein), exercise this Warrant with respect to the Warrant
Shares for which such Registration Statement is unavailable, in whole or in part
and, subject to the provisions of Section 1(a), 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 the number of
Warrant Shares as is computed using the following formula:

 

X =Y(A - B) ÷ A

 

Where:

 

X = the number of Warrant Shares to be issued to the Holder.

 

Y = the total number of Warrant Shares for which the Holder has elected to
exercise this Warrant pursuant to Section 1(a).

 

A = the Closing Bid Price of the Company’s Common Stock as of the applicable
Exercise Date.

 

B = the Exercise Price in effect under this Warrant as of the applicable
Exercise Date.

 

For purposes of Rule 144(d) promulgated under the 1933 Act, as in effect on the
date hereof, it is intended that the Warrant Shares issued in a Cashless
Exercise shall be deemed to have been acquired by the Holder, and the holding
period for the Warrant Shares shall be deemed to have commenced, on the date
this Warrant was originally issued pursuant to the Securities Purchase
Agreement.

 

(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. Notwithstanding anything to the contrary
contained herein, the Company shall not effect the exercise of any portion of
this Warrant, and the Holder shall not have the right to exercise any portion of
this Warrant, pursuant to the terms and conditions of this Warrant and any such
exercise shall be null and void and treated as if never made, to the extent that
after giving effect to such exercise, the Holder together with the other
Attribution Parties collectively would beneficially own in excess of 9.99% (the
"Maximum Percentage") of the number of 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
the Holder and the other Attribution Parties shall include the number of shares
of Common Stock held by the Holder and all other Attribution Parties plus 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 the number of shares of Common Stock which would be issuable upon (A)
exercise of the remaining, unexercised portion of this Warrant beneficially
owned by the Holder or any of the other Attribution Parties and (B) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Company (including, without limitation, any convertible notes or convertible
preferred stock or warrants, including the other SPA Warrants) beneficially
owned by the Holder or any other Attribution Party subject to a limitation on
conversion or exercise analogous to the limitation contained in this Section
1(f). For purposes of this Section 1(f), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities

 

 4 

 

Exchange Act of 1934, as amended (the "1934 Act"). For purposes of this Warrant,
in determining the number of outstanding shares of Common Stock the Holder may
acquire upon the exercise of this Warrant without exceeding the Maximum
Percentage, the Holder may rely on the number of outstanding shares of Common
Stock as reflected in (x) the Company's most recent Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public filing
with the Securities and Exchange Commission (the "SEC"), as the case may be, (y)
a more recent public announcement by the Company or (3) any other written notice
by the Company or the Transfer Agent setting forth the number of shares of
Common Stock outstanding (the "Reported Outstanding Share Number"). If the
Company receives an Exercise Notice from the Holder at a time when the actual
number of outstanding shares of Common Stock is less than the Reported
Outstanding Share Number, the Company shall (i) notify the Holder in writing of
the number of shares of Common Stock then outstanding and, to the extent that
such Exercise Notice would otherwise cause the Holder's beneficial ownership, as
determined pursuant to this Section 1(f), to exceed the Maximum Percentage, the
Holder must notify the Company of a reduced number of Warrant Shares to be
purchased pursuant to such Exercise Notice (the number of shares by which such
purchase is reduced, the "Reduction Shares") and (ii) as soon as reasonably
practicable, the Company shall return to the Holder any exercise price paid by
the Holder for the Reduction Shares. 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 or by electronic mail 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 this Warrant,
by the Holder and any other Attribution Party since the date as of which the
Reported Outstanding Share Number was reported. In the event that the issuance
of shares of Common Stock to the Holder upon exercise of this Warrant results in
the Holder and the other Attribution Parties being deemed to beneficially own,
in the aggregate, more than the Maximum Percentage of the number of outstanding
shares of Common Stock (as determined under Section 13(d) of the 1934 Act), the
number of shares so issued by which the Holder's and the other Attribution
Parties' aggregate beneficial ownership exceeds the Maximum Percentage (the
"Excess Shares") shall be deemed null and void and shall be cancelled ab initio,
and the Holder shall not have the power to vote or to transfer the Excess
Shares. As soon as reasonably practicable after the issuance of the Excess
Shares has been deemed null and void, the Company shall return to the Holder the
exercise price paid by the Holder for the Excess Shares. Upon delivery of a
written notice to the Company, the Holder may from time to time increase (with
such increase not effective until the sixty-first (61st) day after delivery of
such notice) or decrease the Maximum Percentage to any other percentage not in
excess of 9.99% as specified in such notice; provided that (i) any such increase
in the Maximum Percentage will not be effective until the sixty-first (61st) day
after such notice is delivered to the Company and (ii) any such increase or
decrease will apply only to the Holder and the other Attribution Parties and not
to any other holder of SPA Warrants that is not an Attribution Party of the
Holder. For purposes of clarity, the shares of Common Stock issuable pursuant to
the terms of this Warrant in excess of the Maximum Percentage shall not be
deemed to be beneficially owned by the Holder for any purpose including for
purposes of Section 13(d) or Rule 16a-1(a)(1) of the 1934 Act. No prior
inability to exercise this Warrant pursuant to this paragraph shall have any
effect on the applicability of the provisions of this paragraph with respect to
any subsequent determination of exercisability. 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 the extent necessary to
correct this paragraph or any portion of this paragraph which may be defective
or inconsistent with the intended beneficial ownership limitation contained in
this Section 1(f) or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitation contained in this
paragraph may not be waived and shall apply to a successor holder of this
Warrant.

 

(g)   Insufficient Authorized Shares. If at any time while this Warrant remains
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon exercise of this Warrant at least a number of shares of Common
Stock equal to the number of shares of Common Stock as shall from time to time
be necessary to effect the exercise of all of this Warrant then outstanding (the
"Required Reserve Amount" and the failure to have such sufficient number of
authorized and unreserved shares of Common Stock, an "Authorized Share
Failure"), then the Company shall immediately take all action necessary to
increase the Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for this Warrant
then outstanding. Without limiting the generality of the foregoing sentence, as
soon as practicable after the date of the occurrence of an Authorized Share
Failure, but in no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its commercially reasonable
efforts to solicit its stockholders' approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal. Notwithstanding the foregoing, if
any such time of an Authorized Share Failure, the Company is able to obtain the
written consent of a majority of the shares of its issued and outstanding Common
Stock to approve the increase in the number of authorized shares of Common Stock
without soliciting its stockholders, the Company may satisfy this obligation by
obtaining such consent and submitting for filing with the SEC an Information
Statement on Schedule 14C. In the event that upon any exercise of this Warrant,
the Company does not have sufficient authorized shares to deliver in
satisfaction of such exercise, then unless the Holder elects to void such
attempted exercise, the Holder may require the Company to pay to the Holder
within three (3) Trading Days of the applicable exercise, cash in an amount
equal to the product of (i) the quotient determined by dividing (x) the number
of Warrant Shares that the Company is unable to deliver pursuant to this Section
1(g), by (y) the total number of Warrant Shares issuable upon exercise of this
Warrant (without regard to any limitations or restrictions on exercise of this
Warrant) and (ii) the Black Scholes Value; provided, that (x) references to "the
day immediately following the public announcement of the applicable Fundamental
Transaction" in the definition of "Black Scholes Value" shall instead refer to
"the date the Holder exercises this Warrant and the Company cannot deliver the
required number of Warrant Shares because of an Authorized Share Failure" and
(y) clause (iii) of the definition of "Black Scholes Value" shall instead refer
to "the underlying price per share used in such calculation shall be the highest
Weighted Average Price during the period beginning on the date of the applicable
date of exercise and the date that the Company makes the applicable cash
payment."

 

 5 

 

 

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)   Intentionally Omitted.

 

(b)   Adjustment Upon Subdivision or Combination of Shares of Common Stock. If
the Company at any time on or after the Subscription Date subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced and the number of Warrant Shares will be proportionately
increased. If the Company at any time on or after the Subscription Date combines
(by combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased and the number of Warrant Shares will be proportionately decreased.
Any adjustment under this Section 2(b) shall become effective at the close of
business on the date the subdivision or combination becomes effective.

 

3.                  RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall
declare or make any dividend or other distribution of its assets (or rights to
acquire its assets) to holders of shares of Common Stock, by way of return of
capital or otherwise (including, without limitation, any distribution of cash,
stock or other securities, property, options, evidence of indebtedness or any
other assets by way of a

 

 6 

 

dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "Distribution"), at any time after
the issuance of this Warrant, then, in each such case, the Holder shall be
entitled, and the Company shall reserve the Holder’s pro rata share of the
Distribution pending complete exercise of this Warrant, to participate in such
Distribution to the same extent that the Holder would have participated therein
if the Holder had held the number of shares of Common Stock acquirable upon
complete exercise of this Warrant (without regard to any limitations or
restrictions on exercise of this Warrant, including without limitation, the
Maximum Percentage) immediately before the date of which a record is taken for
such Distribution, or, if no such record is taken, the date as of which the
record holders of shares of Common Stock are to be determined for the
participation in such Distribution (provided, however, that to the extent that
the Holder's right to participate in any such Distribution would result in the
Holder and the other Attribution Parties exceeding the Maximum Percentage, then
the Holder shall not be entitled to participate in such Distribution to such
extent (and shall not be entitled to beneficial ownership of such shares of
Common Stock as a result of such Distribution (and beneficial ownership) to such
extent).

 

4.      PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS; REGISTRATION RIGHTS.

 

(a)               Purchase Rights. In addition to any adjustments pursuant to
Section 2 above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to all of the record holders of any class of Common
Stock (the "Purchase Rights"), then the Holder will be entitled, and the Company
shall reserve the Holder’s pro rata share of the Purchase Rights pending
complete exercise of this Warrant, to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which the Holder could have
acquired if the Holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Warrant (without regard to any limitations or
restrictions on exercise of this Warrant, including without limitation, the
Maximum Percentage) immediately before the date on which a record is taken for
the grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of shares of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights (provided,
however, that to the extent that the Holder's right to participate in any such
Purchase Right would result in the Holder and the other Attribution Parties
exceeding the Maximum Percentage, then the Holder shall not be entitled to
participate in such Purchase Right to such extent (and shall not be entitled to
beneficial ownership of such shares of Common Stock as a result of such Purchase
Right (and beneficial ownership) to such extent).

 

(b)               Fundamental Transactions. In the event of any Fundamental
Transaction, this Warrant shall, immediately after such Fundamental Transaction,
remain outstanding and shall thereafter, be exercisable for the number of
Warrant Shares then exercisable under this Warrant, subject to appropriate
adjustment (in form and substance satisfactory to the Holder) in the Exercise
Price to the value per share for the Common Stock reflected by the terms of such
Fundamental Transaction, and a corresponding immediate adjustment to the number
of Warrant Shares acquirable upon exercise of this Warrant without regard to any
limitations or restrictions on exercise, if the value so reflected is less than
the Exercise Price in effect immediately prior to such consolidation, merger,
sale or similar transaction). The provisions of this Section 4(b) shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, sales or similar transactions. The Company shall not
effect any such Fundamental Transaction unless, prior to the consummation
thereof, the successor Person (if other than the Company) resulting from such
Fundamental Transaction, shall assume, by written instrument substantially
similar in form and substance to this Warrant and satisfactory to the Holder,
the obligation to deliver to the Holder the number of Warrant Shares then
exercisable under this Warrant, subject to adjustment, in accordance with the
foregoing provisions. Notwithstanding anything to the contrary contained herein,
with respect to any Fundamental Transaction, the Holder shall have the right to
elect prior to the consummation of such

 

 7 

 

Fundamental Transaction, to give effect to the exercise rights contained in
Section 1 instead of giving effect to the provisions contained in this Section
4(b) with respect to this Warrant.

 

(c)               Registration Rights. In lieu of the registration rights
granted pursuant to the Registration Rights Agreement, until the Expiration Date
and at a time when Rule 144b(1)(i) of the 1933 Act is unavailable for the resale
of the issued and issuable Warrant Shares, if the Company determines to prepare
and file with the SEC a registration statement relating to an offering for its
own account or the account of others under the 1933 Act of any of its equity
securities (but excluding Forms S-4 or S-8 and similar forms which do not permit
such registration), then the Company shall send to the Holder written notice of
such determination and, if within fifteen calendar days after receipt of such
notice, the Holder shall so request in writing, the Company shall include in
such registration statement all or any part of the Warrant Shares issuable upon
exercise of this Warrant that the Holder requests to be registered. Inclusion of
such issued and issuable Warrant Shares will be subject to customary underwriter
cutbacks applicable to all holders of registration rights and minimum cutbacks
in accordance with guidance provided by the SEC (including, but not limited to
Rule 415). The obligations of the Company under Section 4(c) may be waived by
any Holder entitled to registration rights under this Section 4(c) in which case
the Warrant Holder shall also be deemed to have waived its right to exercise
this Warrant on a cashless basis with respect to those Warrant Shares for which
registration was waived. The Holder whose Warrant Shares are included or
required to be included in such registration statement are granted the same
rights, benefits, liquidated or other damages and indemnification granted to
other holders of securities included in such registration statement. In no event
shall the liability of any Holder or permitted successor be greater in amount
than the dollar amount of the net proceeds actually received by such Holder upon
the sale of the Warrant Shares pursuant to such registration or such lesser
amount in proportion to all other holders of securities included in such
registration statement. All expenses incurred by the Company in complying with
Section 4(c), including, without limitation, all registration and filing fees,
printing expenses (if required), fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or “blue sky” laws, fees of the FINRA, transfer taxes, and fees of
transfer agents and registrars, are called “Registration Expenses.” All
underwriting discounts and selling commissions applicable to the sale of the
Warrant Shares are called "Selling Expenses." The Company will pay all
Registration Expenses in connection with such registration statement. Selling
Expenses in connection with such registration statement shall be borne by the
beneficial Holders of the Warrant Shares included in the registration statement
and will be apportioned among all such Holders in proportion to the number of
Warrant Shares included in a registration statement for a Holder relative to all
the securities included therein for all selling holders, or as all selling
holders may otherwise agree. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to Section 4(c)
with respect to the Warrant Shares of a particular Holder that such Holder shall
furnish to the Company in writing such information and representation letters,
including a completed form of a securityholder questionnaire, with respect to
itself and the proposed distribution by it as the Company may reasonably request
to assure compliance with federal and applicable state securities laws.

 

5.      NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation or Bylaws, or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, 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 Warrant, and will at all times in good faith carry out all of the
provisions of this Warrant and take all action as may be required to protect the
rights of the Holder. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the proper exercise of this Warrant by
the Holder, and (iii) shall, so long as any of the SPA Warrants are outstanding,
take all action necessary to reserve and keep available out of its

 

 8 

 

authorized and unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the SPA Warrants, the number of shares of Common Stock
as shall from time to time be necessary to effect the exercise of the SPA
Warrants then outstanding (without regard to any limitations on exercise).

 

6.      WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, the Holder, solely in such Person's capacity as a
holder of this Warrant, shall not be entitled to vote or receive dividends or be
deemed the holder of share capital of the Company for any purpose, nor shall
anything contained in this Warrant be construed to confer upon the Holder,
solely in such Person's capacity as the Holder of this Warrant, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the Holder of the Warrant Shares which such
Person is then entitled to receive upon the due exercise of this Warrant. In
addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on the Holder to purchase any securities (upon exercise of this
Warrant or otherwise) or as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Notwithstanding this Section 6, the Company shall provide the Holder with copies
of the same notices and other information given to the stockholders of the
Company generally, contemporaneously with the giving thereof to the
stockholders.

 

7.      REISSUANCE OF WARRANTS.

 

(a)               Transfer of Warrant. If this Warrant is to be transferred, the
Holder shall surrender this Warrant to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new Warrant (in
accordance with Section 7(d)), registered as the Holder may request,
representing the right to purchase the number of Warrant Shares being
transferred by the Holder and, if less than the total number of Warrant Shares
then underlying this Warrant is being transferred, a new Warrant (in accordance
with Section 7(d)) to the Holder representing the right to purchase the number
of Warrant Shares not being transferred.

 

(b)               Lost, Stolen or Mutilated Warrant. Upon receipt by the Company
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and, in the case of loss, theft or
destruction, of any indemnification undertaking by the Holder to the Company in
customary form and, in the case of mutilation, upon surrender and cancellation
of this Warrant, the Company shall execute and deliver to the Holder a new
Warrant (in accordance with Section 7(d)) representing the right to purchase the
Warrant Shares then underlying this Warrant.

 

(c)               Exchangeable for Multiple Warrants. This Warrant is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Warrant or Warrants (in accordance with Section 7(d))
representing in the aggregate the right to purchase the number of Warrant Shares
then underlying this Warrant, and each such new Warrant will represent the right
to purchase such portion of such Warrant Shares as is designated by the Holder
at the time of such surrender; provided, however, that no SPA Warrants for
fractional Warrant Shares shall be given.

 

(d)               Issuance of New Warrants. Whenever the Company is required to
issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i)
shall be of like tenor with this Warrant, (ii) shall represent, as indicated on
the face of such new Warrant, the right to purchase the Warrant Shares then
underlying this Warrant (or in the case of a new Warrant being issued pursuant
to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder
which, when added to the number of shares of Common Stock underlying the other
new Warrants issued in connection with such issuance, does not exceed the number
of Warrant Shares then underlying this Warrant), (iii) shall have an issuance
date, as

 

 9 

 

indicated on the face of such new Warrant which is the same as the Issuance
Date, and (iv) shall have the same rights and conditions as this Warrant.

 

8.      NOTICES. Whenever notice is required to be given under this Warrant,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9.4 of the Securities Purchase Agreement. The Company shall provide the
Holder with prompt written notice of all actions taken pursuant to this Warrant,
including in reasonable detail a description of such action and the reason
therefor. Without limiting the generality of the foregoing, the Company will
give written notice to the Holder (i) immediately upon any adjustment of the
Exercise Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen (15) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the shares of Common Stock, (B) with respect
to any grants, issuances or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property to holders of
shares of Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation; provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder. It is expressly understood and
agreed that the time of exercise specified by the Holder in each Exercise Notice
shall be definitive and may not be disputed or challenged by the Company.

 

9.      AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended or waived and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Required Holders, and with respect to any amendment, the amendment is in writing
and signed by the Company, except that any Holder may waive the Company’s
performance hereunder or provide consent as the only such Holder.

 

10.              GOVERNING LAW; JURISDICTION; JURY TRIAL. This Warrant shall be
governed by and construed and enforced in accordance with, and all questions
concerning the construction, validity, interpretation and performance of this
Warrant shall be governed by, the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than the State of New
York. The Company hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in The City of New York, Borough of
Manhattan, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. The Company hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to the Company at the address set forth in Section 9.4 of
the Securities Purchase Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. Nothing contained herein shall be deemed or operate to
preclude the Holder from bringing suit or taking other legal action against the
Company in any other jurisdiction to collect on the Company's obligations to the
Holder, to realize on any collateral or any other security for such obligations,
or to enforce a judgment or other court ruling in favor of the Holder. THE
COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED
HEREBY.

 

 10 

 

 

11.  CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted
by the Company and all the Buyers and shall not be construed against any Person
as the drafter hereof. The headings of this Warrant are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Warrant.

 

12.  DISPUTE RESOLUTION. 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 submit the disputed determinations or arithmetic calculations via
facsimile within two (2) Business Days of receipt of the Exercise Notice giving
rise to such dispute, as the case may be, to the Holder. If the Holder and the
Company are unable to agree upon such determination or calculation of the
Exercise Price or the Warrant Shares within three (3) Business Days of such
disputed determination or arithmetic calculation being submitted to the Holder,
then the Company shall, within two (2) Business Days submit via facsimile (a)
the disputed determination of the Exercise Price to an independent, reputable
investment bank selected by the Company and approved by the Holder or (b) the
disputed arithmetic calculation of the Warrant Shares to the Company's
independent, outside accountant. The Company shall cause at its expense the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than ten (10) Business Days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.

 

13.  REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies
provided in this Warrant shall be cumulative and in addition to all other
remedies available under this Warrant and the other Transaction Documents, at
law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit the right of the Holder to
pursue actual damages for any failure by the Company to comply with the terms of
this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the holder of this Warrant shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.

 

14.  TRANSFER. This Warrant and the Warrant Shares may be offered for sale,
sold, transferred, pledged or assigned without the consent of the Company.

 

15.  SEVERABILITY. If any provision of this Warrant is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Warrant so long as this Warrant as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

 

 11 

 

16.              DISCLOSURE. Upon receipt or delivery by the Company of any
notice in accordance with the terms of this Warrant, unless the Company has in
good faith determined that the matters relating to such notice do not constitute
material, nonpublic information relating to the Company or its Subsidiaries (as
defined in the Securities Purchase Agreement), the Company shall within four (4)
Business Days after any such receipt or delivery publicly disclose such
material, nonpublic information on a Current Report on Form 8-K or otherwise. In
the event that the Company believes that a notice contains material, nonpublic
information relating to the Company or its Subsidiaries, the Company so shall
indicate to such Holder contemporaneously with delivery of such notice, and in
the absence of any such indication, the Holder shall be allowed to presume that
all matters relating to such notice do not constitute material, nonpublic
information relating to the Company or its Subsidiaries.

 

17.  CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms
shall have the following meanings:

 

(a)   "1933 Act" means the Securities Act of 1933, as amended.

 

(b)   "Affiliate" means any Person that, directly or indirectly through one or
more intermediaries, controls or is controlled by or is under common control
with a Person, as such terms are used in and construed under Rule 405 under the
Securities Act.

 

(a)   "Attribution Parties" means, collectively, the following Persons and
entities: (i) any investment vehicle, including, any funds, feeder funds or
managed accounts, currently, or from time to time after the Issuance Date,
directly or indirectly managed or advised by the Holder's investment manager or
any of its Affiliates or principals, (ii) any direct or indirect Affiliates of
the Holder or any of the foregoing, (iii) any Person acting or who could be
deemed to be acting as a Group together with the Holder or any of the foregoing
and (iv) any other Persons whose beneficial ownership of the Company's Common
Stock would or could be aggregated with the Holder's and the other Attribution
Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the purpose
of the foregoing is to subject collectively the Holder and all other Attribution
Parties to the Maximum Percentage.

 

(b)   "Black Scholes Value" means the value of this Warrant based on the
Black-Scholes Option Pricing Model obtained from the "OV" function on Bloomberg
determined as of the day immediately following the public announcement of the
applicable Fundamental Transaction, or, if the Fundamental Transaction is not
publicly announced, the date the Fundamental Transaction is consummated, for
pricing purposes and reflecting (i) a risk-free interest rate corresponding to
the U.S. Treasury rate for a period equal to the remaining term of this Warrant
as of such date of request, (ii) an expected volatility equal to the greater of
100% and the 100 day volatility obtained from the HVT function on Bloomberg as
of the day immediately following the public announcement of the applicable
Fundamental Transaction, or, if the Fundamental Transaction is not publicly
announced, the date the Fundamental Transaction is consummated, (iii) the
underlying price per share used in such calculation shall be the sum of the
price per share being offered in cash, if any, plus the value of any non-cash
consideration, if any, being offered in the Fundamental Transaction, (iv) a zero
cost of borrow and (v) a 360 day annualization factor.

 

(c)   "Bloomberg" means Bloomberg Financial Markets.

 

(d)   "Business Day" means any day except any Saturday, any Sunday, any day
which is a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required by law
or other governmental action to close.

 

(e)   "Closing Bid Price" and "Closing Sale Price" means, for any security as of
any date, the last closing bid price and last closing trade price, respectively,
for such security on the

 

 12 

 

Principal Market, as reported by Bloomberg, or, if the Principal Market begins
to operate on an extended hours basis and does not designate the closing bid
price or the closing trade price, as the case may be, then the last bid price or
the last trade price, respectively, of such security prior to 4:00:00 p.m., New
York time, as reported by Bloomberg, or, if the Principal Market is not the
principal securities exchange or trading market for such security, the last
closing bid price or last trade price, respectively, of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the bid
prices, or the ask prices, respectively, of any market makers for such security
as reported in the OTC Link or "pink sheets" by OTC Markets Group Inc. (formerly
Pink OTC Markets Inc.). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of
such security on such date shall be the fair market value as mutually determined
by the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 12. All such determinations to be appropriately adjusted for
any stock dividend, stock split, stock combination, reclassification or other
similar transaction during the applicable calculation period.

 

(f)    "Common Stock" means (i) the Company's shares of Common Stock, par value
$0.0001 per share, and (ii) any share capital into which such Common Stock shall
have been changed or any share capital resulting from a reclassification of such
Common Stock.

 

(g)   "Convertible Securities" means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for shares of Common Stock.

 

(h)   "Eligible Market" means the Principal Market, the NYSE MKT LLC, The NASDAQ
Capital Market, The NASDAQ Global Market, The NASDAQ Global Select Market, or
The New York Stock Exchange, Inc.

 

(i)     “Equity Conditions” means: (i) the Company shall have complied in all
material respects with all applicable securities laws and regulations and all
rules and regulations of the Eligible Markets in respect of the offer, sale and
issuance of the Securities, (ii) the Common Stock (including all shares of
Common Stock to be received by Holder) shall be listed or designated for
quotation (as applicable) on an Eligible Market and no Trading Market Event (or
event which with notice or passage of time would be a Trading Market Event) has
occurred, nor shall delisting or suspension by any Eligible Market be pending or
threatened, unless upon the occurrence of such Trading Market Event, delisting
or suspension, the Common Stock would be eligible for listing or for quotation
(as applicable) on another Eligible Market, (iii) the Company shall be in
compliance in all material respects with all of its obligations under this
Warrant, (iv) each of the Registration Statement (as defined in the Securities
Purchase Agreement) and the prospectus contained therein shall be effective and
fully available for use with respect to the resale of all of the Registrable
Securities (as defined in the Registration Rights Agreement), including, without
limitation, any Warrant Shares issued pursuant to a cash exercise hereof,
(v) all Warrant Shares (including any Warrant Shares to be received upon
exercise or exchange of this Warrant and including any Warrant Shares to be
issued in a cash exercise, but taking into account the limitations of
Section 1(f)) shall be then (or upon such issuance (as the case may be)) freely
tradable by the Holder without restriction of any kind or nature (and the
Company shall have no knowledge of any fact which would reasonably be expected
to negate the foregoing in the foreseeable future), (vi) no limitation shall be
applicable with respect to the issuance of any Warrant Shares hereunder (other
than under Section 1(f)), and (vii) the Company is fully reporting under the
1934 Act and Rule 144 (as defined in the Securities Purchase Agreement). For
purposes hereof, a “Trading Market Event” shall mean if the Company or the
Common Stock or any shares of Common Stock issued or issuable hereunder shall
cease or fail to be listed for trading or quoted on any Eligible Market or shall
fall below any dollar threshold for listing or qualification or the Company
shall then not be in compliance with any applicable listing or qualification
standard (or will be with the passage of time).

 

 13 

 

 

(j)     "Expiration Date" means the date eighty-four (84) months after the
Issuance Date or, if such date falls on a day other than a Business Day or on
which trading does not take place on the Principal Market (a "Holiday"), the
next day that is not a Holiday.

 

(k)   "Fundamental Transaction" means (A) that the Company shall, directly or
indirectly, including through Subsidiaries, Affiliates or otherwise, in one or
more related transactions, (i) consolidate or merge with or into (whether or not
the Company is the surviving corporation) another Subject Entity, or (ii) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company or any of its "significant subsidiaries" (as
defined in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or
(iii) make, or allow one or more Subject Entities to make, or allow the Company
to be subject to or have its Common Stock be subject to or party to one or more
Subject Entities making, a purchase, tender or exchange offer that is accepted
by the holders of at least either (x) 50% of the outstanding shares of Common
Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any
shares of Common Stock held by all Subject Entities making or party to, or
Affiliated with any Subject Entities making or party to, such purchase, tender
or exchange offer were not outstanding; or (z) such number of shares of Common
Stock such that all Subject Entities making or party to, or Affiliated with any
Subject Entity making or party to, such purchase, tender or exchange offer,
become collectively the beneficial owners (as defined in Rule 13d-3 under the
1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv)
consummate a stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with one or more Subject Entities whereby all such Subject
Entities, individually or in the aggregate, acquire, either (x) at least 50% of
the outstanding shares of Common Stock, (y) at least 50% of the outstanding
shares of Common Stock calculated as if any shares of Common Stock held by all
the Subject Entities making or party to, or Affiliated with any Subject Entity
making or party to, such stock purchase agreement or other business combination
were not outstanding; or (z) such number of shares of Common Stock such that the
Subject Entities become collectively the beneficial owners (as defined in Rule
13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common
Stock, or (v) reorganize, recapitalize or reclassify its Common Stock, (B) that
the Company shall, directly or indirectly, including through subsidiaries,
Affiliates or otherwise, in one or more related transactions, allow any Subject
Entity individually or the Subject Entities in the aggregate to be or become the
"beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or
indirectly, whether through acquisition, purchase, assignment, conveyance,
tender, tender offer, exchange, reduction in outstanding shares of Common Stock,
merger, consolidation, business combination, reorganization, recapitalization,
spin-off, scheme of arrangement, reorganization, recapitalization or
reclassification or otherwise in any manner whatsoever, of either (x) at least
50% of the aggregate ordinary voting power represented by issued and outstanding
Common Stock, (y) at least 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock not held by all such Subject
Entities as of the date of this Warrant calculated as if any shares of Common
Stock held by all such Subject Entities were not outstanding, or (z) a
percentage of the aggregate ordinary voting power represented by issued and
outstanding shares of Common Stock or other equity securities of the Company
sufficient to allow such Subject Entities to effect a statutory short form
merger or other transaction requiring other stockholders of the Company to
surrender their shares of Common Stock without approval of the stockholders of
the Company or (C) directly or indirectly, including through subsidiaries,
Affiliates or otherwise, in one or more related transactions, the issuance of or
the entering into any other instrument or transaction structured in a manner to
circumvent, or that circumvents, the intent of this definition in which case
this definition shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this definition to the extent necessary to
correct this definition or any

 

 14 

 

portion of this definition which may be defective or inconsistent with the
intended treatment of such instrument or transaction.

 

(l)     "Group" means a "group" as that term is used in Section 13(d) of the
1934 Act and as defined in Rule 13d-5 thereunder.

 

(m) "Options" means any rights, warrants or options to subscribe for or purchase
shares of Common Stock or Convertible Securities.

 

(n)   "Parent Entity" of a Person means an entity that, directly or indirectly,
controls the applicable Person, including such entity whose common shares or
common stock or equivalent equity security is quoted or listed on an Eligible
Market (or, if so elected by the Required Holders, any other market, exchange or
quotation system), or, if there is more than one such Person or such entity, the
Person or such entity designated by the Required Holders or in the absence of
such designation, such Person or entity with the largest public market
capitalization as of the date of consummation of the Fundamental Transaction.

 

(o)   "Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.

 

(p)   "Principal Market" means the Nasdaq Capital Market.

 

(q)   "Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of the date of the Securities Purchase Agreement by and among
the Company and the Buyers.

 

(r)    "Required Holders" means the holders of the SPA Warrants representing at
least a majority of the shares of Common Stock underlying the SPA Warrants then
outstanding.

 

(s)    "Subject Entity" means any Person, Persons or Group or any Affiliate or
associate of any such Person, Persons or Group.

 

(t)     "Successor Entity" means one or more Person or Persons (or, if so
elected by the Holder, the Company or Parent Entity) formed by, resulting from
or surviving any Fundamental Transaction or one or more Person or Persons (or,
if so elected by the Holder, the Company or the Parent Entity) with which such
Fundamental Transaction shall have been entered into.

 

(u)   "Trading Day" means any day on which the Common Stock is traded on the
Principal Market, or, if the Principal Market is not the principal trading
market for the Common Stock, then on the principal securities exchange or
securities market on which the Common Stock is then traded; provided that
"Trading Day" shall not include any day on which the Common Stock is scheduled
to trade on such exchange or market for less than 4.5 hours or any day that the
Common Stock is suspended from trading during the final hour of trading on such
exchange or market (or if such exchange or market does not designate in advance
the closing time of trading on such exchange or market, then during the hour
ending at 4:00:00 p.m., New York time).

 

(v)   "Weighted Average Price" means, for any security as of any date, the
dollar volume-weighted average price for such security on the Principal Market
during the period beginning at 9:30:01 a.m., New York time (or such other time
as the Principal Market publicly announces is the official open of trading), and
ending at 4:00:00 p.m., New York time (or such other time as the Principal
Market

 

 15 

 

publicly announces is the official close of trading), as reported by Bloomberg
through its "Volume at Price" function or, if the foregoing does not apply, the
dollar volume-weighted average price of such security in the over-the-counter
market on the electronic bulletin board for such security during the period
beginning at 9:30:01 a.m., New York time (or such other time as such market
publicly announces is the official open of trading), and ending at 4:00:00 p.m.,
New York time (or such other time as such market publicly announces is the
official close of trading), as reported by Bloomberg, or, if no dollar
volume-weighted average price is reported for such security by Bloomberg for
such hours, the average of the highest Closing Bid Price and the lowest closing
ask price of any of the market makers for such security as reported in the OTC
Link or "pink sheets" by OTC Markets Group Inc. (formerly Pink OTC Markets
Inc.). If the Weighted Average Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Weighted Average Price of
such security on such date shall be the fair market value as mutually determined
by the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 12 with the term "Weighted Average Price" being substituted
for the term "Exercise Price." All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination,
reclassification or other similar transaction during the applicable calculation
period.

 

[Signature Page Follows]

 

 16 

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock
to be duly executed as of the Issuance Date set out above.

 

 

 

  WPCS INTERNATIONAL INCORPORATED               By:              Name:    
Title:  

 

 

    

  

 

EXHIBIT A

 

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

 

WPCS INTERNATIONAL INCORPORATED

The undersigned holder hereby exercises the right to purchase _________________
of the shares of Common Stock ("Warrant Shares") of WPCS International
Incorporated, a Delaware corporation (the "Company"), evidenced by the attached
Warrant to Purchase Common Stock (the "Warrant"). Capitalized terms used herein
and not otherwise defined shall have the respective meanings set forth in the
Warrant.

 

1. Form of Exercise Price. The Holder intends that payment of the Exercise Price
shall be made as:

 

____________ a "Cash Exercise" with respect to _________________ Warrant Shares;
and/or

 

____________ a "Cashless Exercise" with respect to _______________ Warrant
Shares.

 

2. Payment of Exercise Price. In the event that the holder has elected a Cash
Exercise with respect to some or all of the Warrant Shares to be issued pursuant
hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

 

3. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

 

    Electronic Delivery  DTC Participant:           DTC Number:          Account
Name:          Account Number:                  Physical Delivery  Address:    
                   

 

 

 

Date: _______________ __, ______

 

 

 

 

Name of Registered Holder

 

 

By:       Name:     Title:  

 

  

 

ACKNOWLEDGMENT

 

 

The Company hereby acknowledges this Exercise Notice and hereby directs
Interwest Transfer Company, Inc. to issue the above indicated number of shares
of Common Stock in accordance with the Exercise Notice.

 

  WPCS INTERNATIONAL INCORPORATED               By:              Name:    
Title: