Exhibit 10.01

 

AMENDMENT, WAIVER AND EXCHANGE AGREEMENT

 

This Amendment, Waiver and Exchange Agreement (the “Agreement”), dated as of
October 25, 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”).

 

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 (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 (the “Warrant”) to purchase Common Stock (the
“Warrant Shares”), in each case, pursuant to a Securities Purchase Agreement,
dated as of December 4, 2012 (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 Company and the Holder desire to enter into this Agreement, pursuant to
which, among other things (i) the Company and the Holder shall exchange such
portion of the Warrant exercisable into such number of shares of Common Stock as
described below the Holder’s name on the signature page of the Holder (without
regard to any limitation on exercise set forth therein) (such portion, the
“Exchanging Warrant”, and such remaining portion, the “Remaining Warrant”) for
(x) such number of shares of Common Stock as described below the Holder’s name
on the signature page of the Holder (the “Exchange Shares”) and (y) a new
warrant to purchase such number of shares of Common Stock issuable upon exercise
of the Exchanging Warrant as of the date hereof (without regard to any
limitation on exercise set forth therein), in the form attached hereto as
Exhibit A (the “Exchange Warrant”, and such shares of Common Stock issuable upon
exercise thereof, the “Exchange Warrant Shares”) and (ii) certain terms of the
Note and the Remaining Warrant shall be waived.

 

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”).

 

D. The Exchanging Warrant will be exchanged for the Exchange Shares and the
Exchange Warrant in an exchange made in reliance upon the exemption from
registration provided by Section 3(a)(9) of the Securities Act.

 

 

  

A G R E E M E N T

 

1.                  Waivers; Exchange. On the Closing Date (as defined below),
the Holder shall, and the Company shall, pursuant to Section 3(a)(9) of the
Securities Act, exchange (a) the Exchanging Warrant for the Exchange Shares and
the Exchange Warrant (collectively, the “Exchange”). On or prior to the Closing
(as defined below), the following transactions shall occur:

 

1.1              Delivery. On the Closing Date, (a) the Company shall (x)
deliver the Exchange Shares and the Exchange Warrant to the Holder and (y) duly
execute and deliver to the Holder the notice of Dilutive Issuance (as defined in
the Note) in the form attached hereto as Exhibit B and (b) the Exchanging
Warrant shall be extinguished. The Exchange Shares and the Exchange Warrant
shall be issued in accordance with the instructions set forth on the signature
page of the Holder.

 

1.2              Other Documents. The Company and the Holder shall execute
and/or deliver such other documents and agreements as are customary and
reasonably necessary to effectuate the Amendment and the Exchange.

 

1.3              No Additional Consideration. The parties acknowledge and agree
that the Exchange Shares and the Exchange Warrant shall be issued to the Holder
in exchange for the Exchanging Warrant without the payment of any additional
consideration.

 

1.4              Closing. Upon confirmation that the Required Holders shall have
executed the Amendment, Waiver and Exchange Agreements and satisfaction of the
conditions of this Section 1, the closing of the Exchange (the “Closing”) shall
occur on October 30, 2013 or such other date as is mutually acceptable to the
Holder and the Company (the “Closing Date”).

 

1.5              Remaining Warrant Waiver.

 

(a)          Effective as of the time immediately prior to the Closing Date and
until the Warrant expires, the Holder hereby irrevocably waives Sections 2(b),
2(d), 2(e), 2(f), 2(h) and 4(c) of the Warrant, which thereafter shall be of no
further force or effect.

 

(b)         Effective as of the Effective Time and through February 28, 2013,
the Holder hereby waives any default that may occur pursuant to Section 1(g)
under the Warrant.

 

1.6             Note Waiver.

 

(a)          Effective as of the second Trading Day after the Effective Time (as
defined below), the Holder hereby irrevocably waives Sections 5(c), 7(a), 7(c),
7(d), 7(e) and 7(f) of the Note, which thereafter shall be of no further force
or effect.

 

(b)         Effective as of the Effective Time, the Holder hereby waives the
default that has occurred pursuant to Section 4(a)(iii) under the Note solely as
a result of the Company’s receipt from the Staff of the Listing Qualifications
Department of The NASDAQ Stock Market LLC indicating that the Company’s common
stock would be subject to delisting from The NASDAQ Capital Market on October
16, 2013. The parties acknowledge and agree that the foregoing waiver solely
related to the Company’s receipt of such notice and not the occurrence of any
such delisting from the NASDAQ Capital Market after the date hereof.

 

2

 

(c)          Effective as of the Effective Time and through February 28, 2013,
the Holder hereby waives any default that may occur pursuant to Section 4(a)(v)
under the Note.

 

(d)         Effective as of the Effective Time and at all times thereafter, the
Holder hereby waives (i) the default that has occurred pursuant to Section
4(a)(xvi) under the Note as a result of the outstanding lien filed against WPCS
International – Suisun City, Inc. as a result of the failure to pay payroll
taxes and (ii) any future default that may occur pursuant to Section 4(a)(xvi)
under the Note as a result of the failure of the Company and its Subsidiaries to
pay payroll taxes; provided, that the Indebtedness with respect to any such
default or defaults does not exceed, in the aggregate, $250,000.

 

(e)          Effective as of the Effective Time and at all times thereafter, the
Holder hereby waives the right, upon the occurrence of an Event of Default, to
require the Company to redeem the Note at the Event of Default Redemption Price
pursuant to Section 4(b) upon the later of (i) such Event of Default being cured
by the Company and (ii) 10 Trading Days after the Event of Default Notice is
provided to the Holder pursuant to Section 4(b) of the Note. The parties
acknowledge and agree that the foregoing waiver relates to each specific Event
of Default that may occur and any future Event of Default will remain subject to
the Holder’s right to redeem the Note at the Event of Default Redemption Price,
subject to the above waiver.

 

(f)          Effective as of the Effective Time and through February 28, 2013,
the Holder hereby waives any Authorized Share Failure (as defined in the Note)
that may occur pursuant to Section 9(b) under the Note.

 

(g)         Effective as of the Effective Time, the Holder hereby waives Section
4(a)(xvi) of the Note solely with respect to a breach of Section 13(n) of the
Note resulting from the inclusion of any payroll liabilities owed to Andrew
Hidalgo pursuant to the Separation Agreement, dated as of July 24, 2013, by and
between the Company and Andrew Hidalgo in the definition of “Payroll
Liabilities” in Section 30(ww) of the Note.

 

1.7              Valuation. The parties hereto acknowledge and agree that,
solely for purpose of determining the New Issuance Price (as defined in the
Note) pursuant to Section 7(a) of the Note with respect to the Dilutive Issuance
(as defined in the Note) contemplated hereby, (x) the Exchange Shares and the
Exchange Warrants hereunder consist of units of one Exchange Share and Exchange
Warrants to purchase four (4) shares of Common Stock and (y) the value of the
portion of the Exchanging Warrant exchanged for each such unit shall be deemed
to be equal to $7.52.

 

1.8              Reservation of Shares. The Company hereby represents and
warrants that as of the date hereof, the Company has reserved an aggregate of
12,866,937 shares of Common Stock for issuance in connection with any conversion
and/or exercise, as applicable, of the Notes and/or Warrants of the Holder and
the Other Holders (collectively, the “Initial Reservation Amount”, and the
number of shares of Common Stock set forth as reserved for the Holder’s
conversion and/or exercise, as applicable of the Note, the Remaining Warrant and
the Exchange Warrant, as set forth below the Holder’s signature hereto, the
“Share Reserve Allocation”). Notwithstanding anything set forth in the
Securities Purchase Agreement, the Note, the Remaining Warrant or the Exchange
Warrant to the contrary, the Holder hereby acknowledges and agrees that, until
such time as the Company shall have increased its number of authorized shares
(whether pursuant to stockholder approval, merger, or otherwise) (the
“Authorization Increase”), (x) the Company shall not be required to reserve more
than the Initial Reservation Amount for the conversion and/or exercise, as
applicable, of the Notes and/or Warrants of the Holder and the Other Holders and
(y) the Holder shall not be entitled to convert and/or exercise, as applicable,
the Note, the Remaining Warrant and/or the Exchange Warrant (including, without
limitation, any cash exercise or conversion pursuant to Section 9(b) of the Note
or 1(g) of the Remaining Warrant or the Exchange Warrant) after the Holder shall
have converted and/or exercised the Note, the Remaining Warrant and/or the
Exchange Warrant into such number of shares of Common Stock equal to the
Holder’s Share Reserve Allocation.

 

3

 

 

2.                  AMENDMENTS TO TRANSACTION DOCUMENTS.

 

2.1              Amendments to Transaction Documents; Waivers.

 

(a)          Effective as of the Closing Date, each of the Transaction Documents
are hereby amended as follows:

 

(i)     The defined term “Warrant Shares” is hereby amended to include “each of
the “Exchange Shares” (as defined in the Amendment, Waiver and Exchange
Agreements)”.

 

(ii)     The defined term “Warrants” is hereby amended to include “each
“Exchange Warrant” and “Remaining Warrant”) (as defined in the Amendment, Waiver
and Exchange Agreements)”.

 

(iii)     The defined term “Transaction Documents” is hereby amended to include
the Amendment, Waiver and Exchange Agreements.

 

(iv)     The defined term “Amendment, Waiver and Exchange Agreements” shall mean
“those certain Amendment, Waiver and Exchange Agreements, dated as of October
25, 2013, each by and between the Company and each Buyer”.

  

3.                  Representations and Warranties.

 

3.1              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.

 

3.2              Company Bring Down. Except as set forth on Schedule 3.2 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.

 

4

 

4.                  Covenants.

 

4.1              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 Closing Date, 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 and the form of the Exchanged
Warrants) (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.

 

4.2              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”).

 

4.3              Holding Period. For the purposes of Rule 144, the Company
acknowledges that the holding period of the Exchanging Warrant may be tacked
onto the holding period of each of the Exchange Shares and the Exchange Warrant,
and the Company agrees not to take a position contrary to this Section 4.3. The
Company agrees to take all actions, including, without limitation, obtaining
customary legal opinions necessary to comply with the foregoing.

 

4.4              Lock-Up.

 

(a)          During the period commencing on the date hereof and ending on the
earlier of (x) the Disclosure Date and (y) December 15, 2013 (the “Restricted
Period”), the Holder shall not (i) sell, offer to sell, contract or agree to
sell, hypothecate, pledge, grant any option to purchase, make any short sale or
otherwise dispose of or agree to dispose of, directly or indirectly, any
securities of the Company, or establish or increase a put equivalent position or
liquidate or decrease a call equivalent position within the meaning of Section
16 of the 1934 Act with respect to any securities of the Company owned directly
by the Holder (including holding as a custodian) or with respect to which the
undersigned has beneficial ownership within the rules and regulations of the SEC
(including, without limitation, the Note, the Exchange Shares, the Remaining
Warrant, the Exchange Warrant and/or any shares of Common Stock issuable upon
conversion or exercise thereof, as applicable) or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of any securities of the Company, owned
directly by the undersigned (including holding as a custodian) or with respect
to which the undersigned has beneficial ownership within the rules and
regulations of the Securities and Exchange Commission (including, without
limitation, the Note, the Exchange Shares, the Remaining Warrant, the Exchange
Warrant and/or any shares of Common Stock issuable upon conversion or exercise
thereof, as applicable), whether any such transaction is to be settled by
delivery of such securities, in cash or otherwise, (collectively, the “Holder
Securities”).

 

5

 

(b)         The foregoing restriction is expressly agreed to preclude the Holder
or any affiliate of the Holder from engaging in any hedging or other transaction
which is designed to or which reasonably could be expected to lead to or result
in a sale or disposition of the Holder’s Securities even if the Holder’s
Securities would be disposed of by someone other than the Holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any of the Holder’s
Securities or with respect to any security that includes, relates to, or derives
any significant part of its value from the Holder’s Securities.

 

(c)          Notwithstanding the foregoing, the Holder may transfer the Holder’s
Securities to any person that agrees to be bound in writing by the restrictions
set forth in this Section 4.4. The Holder also agrees and consents to the entry
of stop transfer instructions with the Company’s transfer agent and registrar
against the transfer of the Holder’s Securities except in compliance with the
foregoing restrictions.

 

5.                  MISCELLANEOUS.

 

5.1              Effective Time. The waiver in Section 1.6 of this Agreement
shall be effective upon the later of (x) the time the Company shall have paid
Lead Investor Counsel Expenses to Greenberg Traurig LLP by wire transfer of U.S.
dollars and immediately available funds in accordance with the written
instructions of Greenberg Traurig LLP delivered to the Company and (y) the date
each of the Required Holders shall have received such shares of Common Stock and
warrants to Purchase Common Stock in exchange for the Notes subject to exchange
as contemplated by each of their respective Amendment, Waiver and Exchange
Agreements (the “Effective Time”).

 

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

 

6

 

5.3              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 other Exchange 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 5.3 shall apply
similarly and equally to each Settlement Document.

 

 

 

 

[The remainder of the page is intentionally left blank]

 

7

 

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, Waiver and Exchange Agreement] 

 

 

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

 

 

  HOLDER:                 By:        

 

  

 

Aggregate Number of Warrant Shares of Exchanging Warrant and Exchange Warrant:  
        Aggregate Number of Exchange Shares:           Share Reserve Allocation:
          Address for delivery of the Exchange Warrant and Exchange Shares:    
                 

 

 

[Amendment, Waiver and Exchange Agreement]

 

 

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 this incident, the Company has undertaken a further
investigation, which is still in progress. At this time, the Company believes
that this accountant submitted additional fraudulent vendor invoices, which were
paid, between May 2012 and May 2013 in the aggregate amount of approximately
$250,000. If these, or other fraudulent activities are proven, the Company
expects the accountant will be criminally charged with additional counts of
fraud. If that occurs, the Company will seek 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.

 

 

 

 

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
on October 8, 2013, and is current in the payment terms of such waiver
agreement. The Company is currently negotiating with Myron Polulak to enter into
a similar waiver agreement. The Company intends to negotiate with Robert Roller
to enter into a similar waiver agreement.

 

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

 

 

11