Item 1.01 Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
As previously reported on a Form 8-K filed
on September 6, 2017, WPCS International Incorporated (“
WPCS
”), DC Acquisition Corporation (“
Merger
Sub
”), a wholly-owned subsidiary of WPCS, and DropCar, Inc. (“
DropCar
”) entered into an Agreement
and Plan of Merger, dated as of September 6, 2017 (the “
Merger Agreement
”), pursuant to which, among other things,
subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into
DropCar, with DropCar surviving as a wholly-owned subsidiary of WPCS (the “
Merger
”). As a result of the Merger,
the DropCar stockholders will acquire a majority of the issued and outstanding shares of WPCS, the senior executive officers of
DropCar will become the senior executive officers of WPCS and persons designated by DropCar will become a majority of the members
of the WPCS board of directors.
On December 4, 2017, WPCS, Merger Sub and
DropCar entered into Amendment No. 3 to the Merger Agreement (“
Amendment No. 3
”). The primary purpose of Amendment
No. 3 is to make certain changes to the definition of Exchange Ratio that were agreed to by the parties in connection with the
Repricing Offer described below. The principal changes to the definition of Exchange Ratio are as follows:
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1.
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The number of shares of WPCS common stock that are deemed to be outstanding at the time of the Merger was increased to 6,530,681.
Previously it had been 6,118,689.
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2.
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WPCS equity allocation percentage was increased to 16.01%. It had previously been 15%. Consequently, DropCar’s equity
allocation percentage is reduced to 83.99% from 85%.
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As a result of the foregoing changes, the
number of shares of WPCS common stock that will be issued to DropCar’s securityholders and advisors will be reduced, although
the DropCar securityholders and advisors will still own a majority of the issued and outstanding shares of WPCS common stock following
the Merger. The reduction in the number of shares to be issued by WPCS in the Merger will result in a reduction in the number of
shares of WPCS common stock that will be allocated to DropCar’s advisors in connection with the Merger. Thus, the Advisory/Commitment
Allocation Percentage was reduced to 15.6% from 15.8%.
Amendment No. 3 also includes a revised Exhibit
D, which sets forth the formula for adjusting the equity allocation percentages in the event WPCS Net Cash (as defined in the Merger
Agreement) at the time of the Merger is more or less than $419,000. The change in the formula reflects the changes set forth in
paragraphs 1 and 2 above.
Finally, Amendment No. 3 includes a new exhibit,
B-3, which is the form of an Amended and Restated Support Agreement, dated as of December 4, 2017, which was executed by Alpha
Capital Anstalt (“
Alpha
”), DropCar’s largest stockholder, DropCar and WPCS, and which supersedes the Support
Agreement that Alpha had previously entered into with DropCar in which it agreed to vote any shares of WPCS common stock that it
owns on the record date for the Special Meeting in favor of the Merger. The Amended and Restated Support Agreement provides that
Alpha will own 9.99% of the outstanding shares of WPCS common stock on the record date for the Special Meeting (as a result of
conversion of shares of WPCS convertible preferred stock and/or exercise of warrants).
The preceding summary does not purport to
be complete and is qualified in its entirety by reference to Amendment No. 3 and the form of Amended and Restated Support Agreement
with Alpha, which are filed as Exhibits 2.1 and 2.2, respectively, to this Current Report on Form 8-K and which are incorporated
herein by reference.
Repricing Offer
On December 4, 2017,
WPCS offered (the “
Repricing Offer Letter
”) the holders of its Series H-1 Warrants (the “
Holders
”)
the opportunity to exercise such Warrants for cash at a reduced exercise price of $1.21 per share (the “
Reduced Exercise
Price
”) provided such Series H-1 Warrants are exercised for cash on or before 5:00 P.M. Eastern Standard time on December
26, 2017 (the “
End Date
”). In addition, if more than 50% of the Series H-1 Warrants are exercised for cash
by the Holders prior to the End Date, WPCS will issue to the initial holders of the Series H-1 Warrants a “reload”
warrant covering one share for each Series H-1 Warrant exercised during that period with a strike price equal to the fair market
value of a share of WPCS common stock on the date such reload warrant becomes issuable (the “
Reload Warrants
”).
The terms of the Reload Warrants would be substantially identical to the terms of the Series H-1 Warrants except that: (i) the
expiration date of the reload warrant would be seven (7) years from the date of issuance; (ii) the Reload Warrants would have
more limited cashless exercise rights than the H-1 Warrants; and (iii) WPCS’ obligation to register the resale of the shares
issuable upon exercise of the Reload Warrants will be deferred. Finally, the Holders have entered into an irrevocable agreement
with Alpha pursuant to which they have agreed to sell to Alpha any Series H-1 Warrants that are unexercised as of the End Date. Such sale will take place promptly after the End Date. WPCS received acceptance of the Reduced Exercise Price offer from all of the Holders on December 5, 2017.
If the Holders exercise
all their Series H-1 Warrants, the aggregate gross proceeds to WPCS will be approximately $1,474,000.
The description of
terms and conditions of the Repricing Offer Letter and the Reload Warrants set forth herein do not purport to be complete and
are qualified in their entirety by reference to the full text of the form of Repricing Offer Letter and the Reload Warrants, which
is attached hereto as Exhibit 10.1 and 10.2, respectively.