THE SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH
SECURITIES HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OF 1933,
AS AMENDED, (II) SUCH SECURITIES MAY BE SOLD PURSUANT TO RULE 144(K), OR (III)
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT
THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933 OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.
SUBJECT TO THE PROVISIONS OF SECTION 10 HEREOF, THIS WARRANT SHALL BE VOID
AFTER 5:00 P.M. EASTERN TIME ON NOVEMBER 16, 2009 (the "EXPIRATION DATE").
No.
WPCS INTERNATIONAL INCORPORATED
WARRANT TO PURCHASE SHARES OF
COMMON STOCK, PAR VALUE $0.0001 PER SHARE
For VALUE RECEIVED, SF Capital Partners Ltd. ("Warrantholder"), is entitled
to purchase, subject to the provisions of this Warrant, from WPCS International
Incorporated, a Delaware corporation ("Company"), at any time not later than
5:00 P.M., Eastern time, on the Expiration Date (as defined above), at an
exercise price per share equal to $0.70 (the exercise price in effect being
herein called the "Warrant Price"), shares ("Warrant Shares") of the Company's
Common Stock, par value $0.0001 per share ("Common Stock"). The number of
Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time as described herein.
Section 1. Registration. The Company shall maintain books for the transfer
and registration of the Warrant. Upon the initial issuance of this Warrant, the
Company shall issue and register the Warrant in the name of the Warrantholder.
Section 2. Transfers. As provided herein, this Warrant may be transferred
only pursuant to a registration statement filed under the Securities Act of
1933, as amended (the "Securities Act"), or an exemption from such registration.
Subject to such restrictions, the Company shall transfer this Warrant from time
to time upon the books to be maintained by the Company for that purpose, upon
surrender thereof for transfer properly endorsed or accompanied by appropriate
instructions for transfer and such other documents as may be reasonably required
by the Company, including, if required by the Company, an opinion of its counsel
to the effect that such transfer is exempt from the registration requirements of
the Securities Act, to establish that such transfer is being made in accordance
with the terms hereof, and a new Warrant shall be issued to the transferee and
the surrendered Warrant shall be canceled by the Company.
Section 3. Exercise of Warrant. Subject to the provisions hereof, the
Warrantholder may exercise this Warrant in whole or in part at any time prior to
its expiration upon surrender of the Warrant, together with delivery of the duly
executed Warrant exercise form attached hereto as Appendix A (the "Exercise
Agreement") and payment by cash, certified check or wire transfer of funds (or,
in certain circumstances, by cash-less exercise as provided below) for the
aggregate Warrant Price for that number of Warrant Shares then being purchased,
to the Company during normal business hours on any business day at the Company's
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the Warrantholder). The Warrant Shares so purchased
shall be deemed to be issued to the Warrantholder or the Warrantholder's
designee, as the record owner of such shares, as of the close of business on the
date on which this Warrant shall have been surrendered (or evidence of loss,
theft or destruction thereof and security or indemnity satisfactory to the
Company), the Warrant Price shall have been paid and the completed Exercise
Agreement shall have been delivered. Certificates for the Warrant Shares so
purchased, representing the aggregate number of shares specified in the Exercise
Agreement, shall be delivered to the Warrantholder within a reasonable time, not
exceeding three (3) business days, after this Warrant shall have been so
exercised. The certificates so delivered shall be in such denominations as may
be requested by the Warrantholder and shall be registered in the name of the
Warrantholder or such other name as shall be designated by the Warrantholder. If
this Warrant shall have been exercised only in part, then, unless this Warrant
has expired, the Company shall, at its expense, at the time of delivery of such
certificates, deliver to the Warrantholder a new Warrant representing the number
of shares with respect to which this Warrant shall not then have been exercised.
As used herein, "business day" means a day, other than a Saturday or Sunday, on
which banks in New York City are open for the general transaction of business.
Each exercise hereof shall constitute the re-affirmation by the Warrantholder
that the representations and warranties contained in Section 5 of the Purchase
Agreement (as defined below) are true and correct in all material respects with
respect to the Warrantholder as of the time of such exercise.
Section 4. Compliance with the Securities Act of 1933. Except as provided
in the Purchase Agreement (as defined below), the Company may cause the legend
set forth on the first page of this Warrant to be set forth on each Warrant or
similar legend on any security issued or issuable upon exercise of this Warrant,
unless counsel for the Company is of the opinion as to any such security that
such legend is unnecessary.
Section 5. Payment of Taxes. The Company will pay any documentary stamp
taxes attributable to the initial issuance of Warrant Shares issuable upon the
exercise of the Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for Warrant Shares in a
name other than that of the Warrantholder in respect of which such shares are
issued, and in such case, the Company shall not be required to issue or deliver
any certificate for Warrant Shares or any Warrant until the person requesting
the same has paid to the Company the amount of such tax or has established to
the Company's reasonable satisfaction that such tax has been paid. The
Warrantholder shall be responsible for income taxes due under federal, state or
other law, if any such tax is due.
2
Section 6. Mutilated or Missing Warrants. In case this Warrant shall be
mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and
substitution of and upon cancellation of the mutilated Warrant, or in lieu of
and substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and for the purchase of a like number of Warrant Shares, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction of the Warrant, and with respect to a lost, stolen or
destroyed Warrant, reasonable indemnity or bond with respect thereto, if
requested by the Company.
Section 7. Reservation of Common Stock. The Company hereby represents and
warrants that there have been reserved, and the Company shall at all applicable
times keep reserved until issued (if necessary) as contemplated by this Section
7, out of the authorized and unissued shares of Common Stock, sufficient shares
to provide for the exercise of the rights of purchase represented by this
Warrant. The Company agrees that all Warrant Shares issued upon due exercise of
the Warrant shall be, at the time of delivery of the certificates for such
Warrant Shares, duly authorized, validly issued, fully paid and non-assessable
shares of Common Stock of the Company.
Section 8. Adjustments. Subject and pursuant to the provisions of this
Section 8, unless waived in a particular case by the Warrantholder, the Warrant
Price and number of Warrant Shares subject to this Warrant shall be subject to
adjustment from time to time as set forth hereinafter.
(a) If the Company shall, at any time or from time to time while this
Warrant is outstanding, pay a dividend or make a distribution on its Common
Stock in shares of Common Stock, subdivide its outstanding shares of Common
Stock into a greater number of shares or combine its outstanding shares of
Common Stock into a smaller number of shares or issue by reclassification of its
outstanding shares of Common Stock any shares of its capital stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then the number of Warrant Shares
purchasable upon exercise of the Warrant and the Warrant Price in effect
immediately prior to the date upon which such change shall become effective,
shall be adjusted by the Company so that the Warrantholder thereafter exercising
the Warrant shall be entitled to receive the number of shares of Common Stock or
other capital stock which the Warrantholder would have received if the Warrant
had been exercised immediately prior to such event upon payment of a Warrant
Price that has been adjusted to reflect a fair allocation of the economics of
such event to the Warrantholder. Such adjustments shall be made successively
whenever any event listed above shall occur.
(b) If any capital reorganization, reclassification of the capital
stock of the Company, consolidation or merger of the Company with another
corporation in which the Company is not the survivor, or sale, transfer or other
disposition of all or substantially all of the Company's assets to another
corporation shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger, sale, transfer or other disposition,
lawful and adequate provision shall be made whereby each Warrantholder shall
thereafter have the right to purchase and receive upon the basis and upon the
terms and conditions herein specified and in lieu of the Warrant Shares
immediately theretofore issuable upon exercise of the Warrant, such shares of
stock, securities or assets as would have been issuable or payable with respect
3
to or in exchange for a number of Warrant Shares equal to the number of Warrant
Shares immediately theretofore issuable upon exercise of the Warrant, had such
reorganization, reclassification, consolidation, merger, sale, transfer or other
disposition not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of each Warrantholder to the end
that the provisions hereof (including, without limitation, provision for
adjustment of the Warrant Price) shall thereafter be applicable, as nearly
equivalent as may be practicable in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. The Company shall not
effect any such consolidation, merger, sale, transfer or other disposition
unless prior to or simultaneously with the consummation thereof the successor
corporation (if other than the Company) resulting from such consolidation or
merger, or the corporation purchasing or otherwise acquiring such assets or
other appropriate corporation or entity shall assume the obligation to deliver
to the Warrantholder, at the last address of the Warrantholder appearing on the
books of the Company, such shares of stock, securities or assets as, in
accordance with the foregoing provisions, the Warrantholder may be entitled to
purchase, and the other obligations under this Warrant. The provisions of this
paragraph (b) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales, transfers or other
dispositions.
(c) In case the Company shall fix a payment date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends or distributions referred to in Section 8(a)), or
subscription rights or warrants, the Warrant Price to be in effect after such
payment date shall be determined by multiplying the Warrant Price in effect
immediately prior to such payment date by a fraction, the numerator of which
shall be the total number of shares of Common Stock outstanding multiplied by
the Market Price (as defined below) per share of Common Stock immediately prior
to such payment date, less the fair market value (as determined by the Company's
Board of Directors in good faith) of said assets or evidences of indebtedness so
distributed, or of such subscription rights or warrants, and the denominator of
which shall be the total number of shares of Common Stock outstanding multiplied
by such Market Price per share of Common Stock immediately prior to such payment
date. "Market Price" as of a particular date (the "Valuation Date") shall mean
the following: (a) if the Common Stock is then listed on a national stock
exchange, the closing sale price of one share of Common Stock on such exchange
on the last trading day prior to the Valuation Date; (b) if the Common Stock is
then quoted on The Nasdaq Stock Market, Inc. ("Nasdaq"), the National
Association of Securities Dealers, Inc. OTC Bulletin Board (the "Bulletin
Board") or such similar exchange or association, the closing sale price of one
share of Common Stock on Nasdaq, the Bulletin Board or such other exchange or
association on the last trading day prior to the Valuation Date or, if no such
closing sale price is available, the average of the high bid and the low asked
price quoted thereon on the last trading day prior to the Valuation Date; or (c)
if the Common Stock is not then listed on a national stock exchange or quoted on
Nasdaq, the Bulletin Board or such other exchange or association, the fair
market value of one share of Common Stock as of the Valuation Date, shall be
determined in good faith by the Board of Directors of the Company and the
4
Warrantholder. If the Common Stock is not then listed on a national securities
exchange, the Bulletin Board or such other exchange or association, the Board of
Directors of the Company shall respond promptly, in writing, to an inquiry by
the Warrantholder prior to the exercise hereunder as to the fair market value of
a share of Common Stock as determined by the Board of Directors of the Company.
In the event that the Board of Directors of the Company and the Warrantholder
are unable to agree upon the fair market value in respect of subpart (c) hereof,
the Company and the Warrantholder shall jointly select an appraiser, who is
experienced in such matters. The decision of such appraiser shall be final and
conclusive, and the cost of such appraiser shall be borne equally by the Company
and the Warrantholder. Such adjustment shall be made successively whenever such
a payment date is fixed.
(d) An adjustment to the Warrant Price shall become effective
immediately after the payment date in the case of each dividend or distribution
and immediately after the effective date of each other event which requires an
adjustment.
(e) In the event that, as a result of an adjustment made pursuant to
this Section 8, the Warrantholder shall become entitled to receive any shares of
capital stock of the Company other than shares of Common Stock, the number of
such other shares so receivable upon exercise of this Warrant shall be subject
thereafter to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant Shares
contained in this Warrant.
(f) Except as provided in subsection (g) hereof, if and whenever the
Company shall issue or sell, or is, in accordance with any of subsections (f)(l)
through (f)(7) hereof, deemed to have issued or sold, any shares of Common Stock
for no consideration or for a consideration per share less than the Warrant
Price in effect immediately prior to the time of such issue or sale, then and in
each such case (a "Trigger Issuance") the then-existing Warrant Price, shall be
reduced, as of the close of business on the effective date of the Trigger
Issuance, to the lowest price per share at which any share of Common Stock was
issued or sold or deemed to be issued or sold; provided, however, that in no
event shall the Warrant Price after giving effect to such Trigger Issuance be
greater than the Warrant Price in effect prior to such Trigger Issuance.
For purposes of this subsection (f), the following subsections (f)(l)
to (f)(7) shall also be applicable:
(f)(1) Issuance of Rights or Options. In case at any time
the Company shall in any manner grant (directly and not by assumption
in a merger or otherwise) any warrants or other rights to subscribe
for or to purchase, or any options for the purchase of, Common Stock
or any stock or security convertible into or exchangeable for Common
Stock (such warrants, rights or options being called "Options" and
such convertible or exchangeable stock or securities being called
"Convertible Securities") whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (i)
the sum (which sum shall constitute the applicable consideration) of
(x) the total amount, if any, received or receivable by the Company as
consideration for the granting of such Options, plus (y) the aggregate
5
amount of additional consideration payable to the Company upon the
exercise of all such Options, plus (z), in the case of such Options
which relate to Convertible Securities, the aggregate amount of
additional consideration, if any, payable upon the issue or sale of
such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise
of such Options) shall be less than the Warrant Price in effect
immediately prior to the time of the granting of such Options, then
the total number of shares of Common Stock issuable upon the exercise
of such Options or upon conversion or exchange of the total amount of
such Convertible Securities issuable upon the exercise of such Options
shall be deemed to have been issued for such price per share as of the
date of granting of such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be outstanding for
purposes of adjusting the Warrant Price. Except as otherwise provided
in subsection 8(f)(3), no adjustment of the Warrant Price shall be
made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such Options or upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible
Securities.
(f)(2) Issuance of Convertible Securities. In case the
Company shall in any manner issue (directly and not by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or
not the rights to exchange or convert any such Convertible Securities
are immediately exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange (determined by
dividing (i) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible
Securities, plus (y) the aggregate amount of additional consideration,
if any, payable to the Company upon the conversion or exchange
thereof, by (ii) the total number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities)
shall be less than the Warrant Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of
shares of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall be deemed to have been issued for
such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be
outstanding for purposes of adjusting the Warrant Price, provided that
(a) except as otherwise provided in subsection 8(f)(3), no adjustment
of the Warrant Price shall be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible
Securities and (b) no further adjustment of the Warrant Price shall be
made by reason of the issue or sale of Convertible Securities upon
exercise of any Options to purchase any such Convertible Securities
for which adjustments of the Warrant Price have been made pursuant to
the other provisions of subsection 8(f).
6
(f)(3) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase
price provided for in any Option referred to in subsection 8(f)(l)
hereof, the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
subsections 8(f)(l) or 8(f)(2), or the rate at which Convertible
Securities referred to in subsections 8(f)(l) or 8(f)(2) are
convertible into or exchangeable for Common Stock shall change at any
time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Warrant Price in
effect at the time of such event shall forthwith be readjusted to the
Warrant Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate,
as the case may be, at the time initially granted, issued or sold. On
the termination of any Option for which any adjustment was made
pursuant to this subsection 8(f) or any right to convert or exchange
Convertible Securities for which any adjustment was made pursuant to
this subsection 8(f) (including without limitation upon the redemption
or purchase for consideration of such Convertible Securities by the
Company), the Warrant Price then in effect hereunder shall forthwith
be changed to the Warrant Price which would have been in effect at the
time of such termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such termination, never
been issued.
(f)(4) Stock Dividends. Subject to the provisions of this
Section 8(f), in case the Company shall declare a dividend or make any
other distribution upon any stock of the Company (other than the
Common Stock) payable in Common Stock, Options or Convertible
Securities, then any Common Stock, Options or Convertible Securities,
as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.
(f)(5) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
net amount received by the Company therefor, after deduction therefrom
of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the
amount of the consideration other than cash received by the Company
shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Company,
after deduction of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in
connection therewith. In case any Options shall be issued in
connection with the issue and sale of other securities of the Company,
together comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued for such
consideration as determined in good faith by the Board of Directors of
the Company. If Common Stock, Options or Convertible Securities shall
be issued or sold by the Company and, in connection therewith, other
Options or Convertible Securities (the "Additional Rights") are
issued, then the consideration received or deemed to be received by
the Company shall be reduced by the fair market value of the
Additional Rights (as determined using the Black-Scholes option
pricing model or another method mutually agreed to by the Company and
the Warrantholder). The Board of Directors of the Company shall
7
respond promptly, in writing, to an inquiry by the Warrantholder as to
the fair market value of the Additional Rights. In the event that the
Board of Directors of the Company and the Warrantholder are unable to
agree upon the fair market value of the Additional Rights, the Company
and the Warrantholder shall jointly select an appraiser, who is
experienced in such matters. The decision of such appraiser shall be
final and conclusive, and the cost of such appraiser shall be borne
evenly by the Company and the Warrantholder.
(f)(6) Record Date. In case the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
(f)(7) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held
by or for the account of the Company or any of its wholly-owned
subsidiaries, and the disposition of any such shares (other than the
cancellation or retirement thereof) shall be considered an issue or
sale of Common Stock for the purpose of this subsection (f).
(g) Anything herein to the contrary notwithstanding, the Company shall
not be required to make any adjustment of the Warrant Price in the case of the
issuance of (A) capital stock, Options or Convertible Securities issued to
directors, officers, employees or consultants of the Company in connection with
their service as directors of the Company, their employment by the Company or
their retention as consultants by the Company pursuant to an equity compensation
program approved by the Board of Directors of the Company or the compensation
committee of the Board of Directors of the Company, (B) shares of Common Stock
issued upon the conversion or exercise of Options or Convertible Securities
issued prior to the date hereof, (C) securities issued pursuant to that certain
Purchase Agreement dated November ___, 2004, among the Company and the Investors
named therein (the "Purchase Agreement") and securities issued upon the exercise
or conversion of those securities, and (D) shares of Common Stock issued or
issuable by reason of a dividend, stock split or other distribution on shares of
Common Stock (but only to the extent that such a dividend, split or distribution
results in an adjustment in the Warrant Price pursuant to the other provisions
of this Warrant) (collectively, "Excluded Issuances").
(h) Upon any adjustment to the Warrant Price pursuant to Section 8(f)
above, the number of Warrant Shares purchasable hereunder shall be adjusted by
multiplying such number by a fraction, the numerator of which shall be the
Warrant Price in effect immediately prior to such adjustment and the denominator
of which shall be the Warrant Price in effect immediately thereafter.
Section 9. Fractional Interest. The Company shall not be required to issue
fractions of Warrant Shares upon the exercise of this Warrant. If any fractional
share of Common Stock would, except for the provisions of the first sentence of
this Section 9, be deliverable upon such exercise, the Company, in lieu of
delivering such fractional share, shall pay to the exercising Warrantholder an
amount in cash equal to the Market Price of such fractional share of Common
Stock on the date of exercise.
Section 10. Extension of Expiration Date. If the Company fails to cause any
Registration Statement covering Registrable Securities (unless otherwise defined
herein, capitalized terms are as defined in the Registration Rights Agreement
relating to the Warrant Shares (the "Registration Rights Agreement")) to be
declared effective prior to the applicable dates set forth therein, or if any of
the events specified in Section 2(c)(ii) of the Registration Rights Agreement
occurs, and the Blackout Period (whether alone, or in combination with any other
Blackout Period) continues for more than 60 days in any 12 month period, or for
more than a total of 90 days, then the Expiration Date of this Warrant shall be
extended one day for each day beyond the 60-day or 90-day limits, as the case
may be, that the Blackout Period continues.
Section 11. Benefits. Nothing in this Warrant shall be construed to give
any person, firm or corporation (other than the Company and the Warrantholder)
any legal or equitable right, remedy or claim, it being agreed that this Warrant
shall be for the sole and exclusive benefit of the Company and the
Warrantholder.
8
Section 12. Notices to Warrantholder. Upon the happening of any event
requiring an adjustment of the Warrant Price, the Company shall promptly give
written notice thereof to the Warrantholder at the address appearing in the
records of the Company, stating the adjusted Warrant Price and the adjusted
number of Warrant Shares resulting from such event and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. Failure to give such notice to the Warrantholder or any
defect therein shall not affect the legality or validity of the subject
adjustment.
Section 13. Identity of Transfer Agent. The Transfer Agent for the Common
Stock is Interwest Transfer Co., Inc. Upon the appointment of any subsequent
transfer agent for the Common Stock or other shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrant, the Company will mail to the Warrantholder a statement setting forth
the name and address of such transfer agent.
Section 14. Notices. Unless otherwise provided, any notice required or
permitted under this Warrant shall be given in writing and shall be deemed
effectively given as hereinafter described (i) if given by personal delivery,
then such notice shall be deemed given upon such delivery, (ii) if given by
telex or facsimile, then such notice shall be deemed given upon receipt of
confirmation of complete transmittal, (iii) if given by mail, then such notice
shall be deemed given upon the earlier of (A) receipt of such notice by the
recipient or (B) three days after such notice is deposited in first class mail,
postage prepaid, and (iv) if given by an internationally recognized overnight
air courier, then such notice shall be deemed given one business day after
delivery to such carrier. All notices shall be addressed as follows: if to the
Warrantholder, at its address as set forth in the Company's books and records
and, if to the Company, at the address as follows, or at such other address as
the Warrantholder or the Company may designate by ten days' advance written
notice to the other:
If to the Company:
WPCS International Incorporated
140 South Village Avenue
Suite 20
Exton, Pennsylvania 19341
Attention:
Fax:
With a copy to:
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
New York, New York 10010
Attention: Marc Ross, Esq.
Fax: (212) 930-9725
Section 15. Registration Rights. The initial Warrantholder is entitled to
the benefit of certain registration rights with respect to the shares of Common
Stock issuable upon the exercise of this Warrant as provided in the Registration
Rights Agreement, and any subsequent Warrantholder may be entitled to such
rights.
Section 16. Successors. All the covenants and provisions hereof by or for
the benefit of the Warrantholder shall bind and inure to the benefit of its
respective successors and assigns hereunder.
Section 17. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
This Warrant shall be governed by, and construed in accordance with, the
internal laws of the State of New York, without reference to the choice of law
provisions thereof. The Company and, by accepting this Warrant, the
Warrantholder, each irrevocably submits to the exclusive jurisdiction of the
courts of the State of New York located in New York County and the United States
District Court for the Southern District of New York for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this Warrant
and the transactions contemplated hereby. Service of process in connection with
any such suit, action or proceeding may be served on each party hereto anywhere
in the world by the same methods as are specified for the giving of notices
under this Warrant. The Company and, by accepting this Warrant, the
Warrantholder, each irrevocably consents to the jurisdiction of any such court
in any such suit, action or proceeding and to the laying of venue in such court.
The Company and, by accepting this Warrant, the Warrantholder, each irrevocably
waives any objection to the laying of venue of any such suit, action or
proceeding brought in such courts and irrevocably waives any claim that any such
9
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. EACH OF THE COMPANY AND, BY ITS ACCEPTANCE HEREOF, THE
WARRANTHOLDER HEREBY WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
LITIGATION WITH RESPECT TO THIS WARRANT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.
Section 18. Call Provisions.
(a) Subject to the provisions of clauses (b) and (c) below, in the
event that the closing bid price of a share of Common Stock as traded on the
Over-the-Counter Bulletin Board (or such other exchange or stock market on which
the Common Stock may then be listed or quoted) equals or exceeds $2.10
(appropriately adjusted for any stock split, reverse stock split, stock dividend
or other reclassification or combination of the Common Stock occurring after the
date hereof) for at least twenty-five (25) trading days during any period of
thirty (30) consecutive trading days during which the Registration Statement (as
defined in the Registration Rights Agreement) has been effective (the "Trading
Condition"), the Company, upon thirty (30) days prior written notice (the
"Notice Period") given to the Warrantholder within one business day immediately
following the end of such twenty (20) trading day period, may call this Warrant
at a redemption price equal to $0.01 per share of Common Stock then purchasable
pursuant to this Warrant; provided that (i) the Company simultaneously calls all
Company Warrants (as defined below) on the same terms and (ii) all of the shares
of Common Stock issuable hereunder either (A) are registered pursuant to an
effective Registration Statement (as defined in the Registration Rights
Agreement) which has not been suspended and for which no stop order is in
effect, and pursuant to which the Warrantholder is able to sell such shares of
Common Stock at all times during the Notice Period or (B) no longer constitute
Registrable Securities (as defined in the Registration Rights Agreement).
Notwithstanding any such notice by the Company, the Warrantholder shall have the
right to exercise this Warrant prior to the end of the Notice Period.
(b) In any three-month period, no more than the lesser of (i) 20% of
the aggregate amount of Warrants initially issued to a Warrantholder or (ii) the
number of Warrants held by the Warrantholder, may be called by the Company and
the Company may not call additional Warrants in any subsequent three-month
period unless all the conditions specified in Section 18(a) are again met
(including without limitation, the Trading Condition) at the time that any
subsequent call notice is given.
(c) In connection with any transfer or exchange of less than all of
this Warrant, the transferring Warrantholder shall deliver to the Company an
agreement or instrument executed by the transferring Warrantholder and the new
Warrantholder allocating between them on whatever basis they may determine in
their sole discretion any subsequent call of this Warrant by the Company, such
that after giving effect to such transfer the Company shall have the right to
call the same number of Warrants that it would have had if the transfer or
exchange had not occurred.
Section 19. Cashless Exercise. Notwithstanding any other provision
contained herein to the contrary, from and after the first anniversary of the
Closing Date (as defined in the Purchase Agreement) and so long as the Company
10
is required under the Registration Rights Agreement to have effected the
registration of the Warrant Shares for sale to the public pursuant to a
Registration Statement (as such term is defined in the Registration Rights
Agreement), if the Warrant Shares may not be freely sold to the public for any
reason (including, but not limited to, the failure of the Company to have
effected the registration of the Warrant Shares or to have a current prospectus
available for delivery or otherwise, but excluding the period of any Allowed
Delay (as defined in the Registration Rights Agreement), the Warrantholder may
elect to receive, without the payment by the Warrantholder of the aggregate
Warrant Price in respect of the shares of Common Stock to be acquired, shares of
Common Stock equal to the value of this Warrant or any portion hereof by the
surrender of this Warrant (or such portion of this Warrant being so exercised)
together with the Net Issue Election Notice annexed hereto as Appendix B duly
executed, at the office of the Company. Thereupon, the Company shall issue to
the Warrantholder such number of fully paid, validly issued and nonassessable
shares of Common Stock as is computed using the following formula:
X = Y (A - B)
---------
A
where
X = the number of shares of Common Stock which the Warrantholder has
then requested be issued to the Warrantholder;
Y = the total number of shares of Common Stock covered by this Warrant
which the Warrantholder has surrendered at such time for cash-less exercise
(including both shares to be issued to the Warrantholder and shares to be
canceled as payment therefor);
A = the "Market Price" of one share of Common Stock as at the time the
net issue election is made; and
B = the Warrant Price in effect under this Warrant at the time the net
issue election is made.
Section 20. Limitations on Exercise.
(a) Notwithstanding anything to the contrary contained herein, the
number of Warrant Shares that may be acquired by the Warrantholder upon any
exercise of this Warrant (or otherwise in respect hereof) shall be limited to
the extent necessary to insure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned by
such Warrantholder and its Affiliates (as such term is defined in the Purchase
Agreement) and any other Persons (as such term is defined in the Purchase
Agreement) whose beneficial ownership of Common Stock would be aggregated with
the Warrantholder's for purposes of Section 13(d) of the Securities Exchange Act
11
of 1934, as amended (the "Exchange Act"), does not exceed 4.999% of the total
number of issued and outstanding shares of Common Stock (including for such
purpose the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
This provision shall not restrict the number of shares of Common Stock which a
Warrantholder may receive or beneficially own in order to determine the amount
of securities or other consideration that such Holder may receive in the event
of a transaction contemplated by Section 8 of this Warrant. By written notice to
the Company, the Warrantholder may waive the provisions of this Section 20(a),
but any such waiver will not be effective until the 61st day after delivery of
such notice, nor will any such waiver effect any other Warrantholder.
(b) Notwithstanding anything to the contrary contained herein, the
number of Warrant Shares that may be acquired by the Warrantholder upon any
exercise of this Warrant (or otherwise in respect hereof) shall be limited to
the extent necessary to insure that, following such exercise (or other
issuance), the total number of shares of Common Stock then beneficially owned by
such Warrantholder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Warrantholder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 9.999% of the
total number of issued and outstanding shares of Common Stock (including for
such purpose the shares of Common Stock issuable upon such exercise). For such
purposes, beneficial ownership shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
This provision shall not restrict the number of shares of Common Stock which a
Holder may receive or beneficially own in order to determine the amount of
securities or other consideration that such Holder may receive in the event of a
transaction contemplated by Section 8 of this Warrant. This restriction may not
be waived.
Section 21. No Rights as Stockholder. Prior to the exercise of this
Warrant, the Warrantholder shall not have or exercise any rights as a
stockholder of the Company by virtue of its ownership of this Warrant.
Section 22. Amendment; Waiver. This Warrant is one of a series of Warrants
of like tenor issued by the Company pursuant to the Purchase Agreement and
initially covering an aggregate of 25,000,000 shares of Common Stock
(collectively, the "Company Warrants"). Any term of this Warrant may be amended
or waived (including the adjustment provisions included in Section 8 of this
Warrant) upon the written consent of the Company and the holders of Company
Warrants representing at least 50% of the number of shares of Common Stock then
subject to all outstanding Company Warrants (the "Majority Holders"); provided,
that (x) any such amendment or waiver must apply to all Company Warrants; and
(y) the number of Warrant Shares subject to this Warrant, the Warrant Price and
the Expiration Date may not be amended, and the right to exercise this Warrant
may not be altered or waived, without the written consent of the Warrantholder.
Notwithstanding the provisions of the preceding sentence, any Warrantholder
shall have the right to waive for itself only any adjustment in the Warrant
Price pursuant to Section 8 hereof.
Section 23. Section Headings. The section headings in this Warrant are for
the convenience of the Company and the Warrantholder and in no way alter,
modify, amend, limit or restrict the provisions hereof.
12
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed, as of the 16th day of November, 2004.
WPCS INTERNATIONAL INCORPORATED
By:/s/ Andrew Hidalgo
------------------
Name: Andrew Hidalgo
Title: Chief Executive Officer
13
APPENDIX A
WPCS INTERNATIONAL INCORPORATED
WARRANT EXERCISE FORM
To WPCS International Incorporated:
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant ("Warrant") for, and to purchase thereunder by
the payment of the Warrant Price and surrender of the Warrant, _______________
shares of Common Stock ("Warrant Shares") provided for therein, and requests
that certificates for the Warrant Shares be issued as follows:
-------------------------------------
Name
-------------------------------------
Address
-------------------------------------
Federal Tax ID or Social Security No.
and delivered by (certified mail to the above address, or (electronically
(provide DWAC Instructions:___________________), or (other (specify):
__________________________________________).
and, if the number of Warrant Shares shall not be all the Warrant Shares
purchasable upon exercise of the Warrant, that a new Warrant for the balance of
the Warrant Shares purchasable upon exercise of this Warrant be registered in
the name of the undersigned Warrantholder or the undersigned's Assignee as below
indicated and delivered to the address stated below.
Dated: ___________________, ____
Note: The signature must correspond with
Signature:________________________
the name of the Warrantholder as written
on the first page of the Warrant in every ---------------------------
particular, without alteration or enlargement Name (please print)
or any change whatever, unless the Warrant
has been assigned.
---------------------------
---------------------------
Address
---------------------------
Federal Identification or
Social Security No.
Assignee:
---------------------------
---------------------------
---------------------------
14
APPENDIX B
WPCS INTERNATIONAL INCORPORATED
NET ISSUE ELECTION NOTICE
To: WPCS International Incorporated
Date:[_________________________]
The undersigned hereby elects under Section 19 of this Warrant to surrender
the right to purchase [____________] shares of Common Stock pursuant to this
Warrant and hereby requests the issuance of [_____________] shares of Common
Stock. The certificate(s) for the shares issuable upon such net issue election
shall be issued in the name of the undersigned or as otherwise indicated below.
- -----------------------------------------
Signature
- -----------------------------------------
Name for Registration
- -----------------------------------------
Mailing Address
17