DCAR DropCar Inc

WPCS INTERNATIONAL INCORPORATED AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

ASSET PURCHASE AGREEMENT

This ASSET PURCHASE AGREEMENT (the “Agreement” ), entered into this 31 ^st day of March, 2014, is by and among EC Company, an Oregon corporation with a principal place of business at 2121 NW Thurman Street, Portland, Oregon 97210 (“ Purchaser ”), WPCS INTERNATIONAL – SEATTLE, inc. , a Washington corporation with a principal place of business at 15241 NE 90 ^th Street, Redmond, Washington 98052 ( “WPCS-Seattle” ), and WPCS INTERNATIONAL INCORPORATED (“ WPCS ”), a Delaware corporation with a principal place of business at One East Uwchlan Avenue, Suite 301, Exton, Pennsylvania 19341 (WPCS-Seattle and WPCS are collectively referred to as the “ Sellers ” and each individually as a “ Seller ”).

Sellers and Purchaser are collectively referred to herein as the “Parties” .

WITNESSETH

WHEREAS , the Sellers desire to cease the operation of the Business (as defined herein);

WHEREAS , Purchaser desires to purchase from the Sellers, and the Sellers desire to sell and transfer to Purchaser, the assets of the Sellers relating to the Business, other than the Excluded Assets (both as defined herein) upon the terms and conditions contained in this Agreement.

NOW, THEREFORE , in consideration of the mutual covenants and promises contained in this Agreement, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the Parties hereby agree as follows:

ARTICLE 1
DEFINITIONS

1.1          Defined Terms . As used in this Agreement, the following terms have the following meanings:

(a)            “Accounts Payable” means all bona fide accounts payable of Sellers related to the Business set forth on Schedule 1.1(a) and all accounts payable incurred in the ordinary course of business between the date of this Agreement and the Closing Date and set forth on the Supplemental Disclosure Schedules (as defined in Section 6.4(a)).

(b)            “Accounts Receivable” means all bona fide accounts receivable, notes receivable, and other amounts payable to Sellers, including Work in Process, in connection with the Business, as of the Closing Date, set forth on Schedule 1.1(b) , but specifically excluding the Delinquent Receivables.

(c)            “Affiliate” means, as to any Person, any other Person who directly or indirectly controls, is under common control with or is controlled by such Person. As used in this definition, “control” (including, “controlled by” and “under common control with”) means possession, directly or indirectly, of power to direct or cause the direction of management or policies of such Person (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise).

(d)            “Agreement” means, unless the context otherwise requires, this Asset Purchase Agreement together with the Schedules and Exhibits attached hereto, and the certificates and instruments to be executed and delivered in connection herewith.

(e)            “Assumed Contracts” means all written Contracts and all written customer orders, customer contracts, customer quotes, requests for proposals and requests for quotes of the Business delivered on or prior to the Closing Date or to be delivered following the Closing Date, set forth on Schedule 1.1(e) , but specifically excluding any oral modifications or change orders. Copies of all Assumed Contracts for more than $25,000, including without limitation any change orders, have been provided by the Sellers to Purchaser prior to the Closing Date.

(f)            “Assumed Liabilities ” means (i) the Accounts Payable of Sellers, and (ii) liabilities under the Assumed Contracts arising or performed after the Closing Date, but specifically excluding any other liabilities of the Sellers, including without limitation any Excluded Liabilities.

(g)            “Business” means the electrical contracting business conducted directly by the Sellers in the States of Washington and Oregon. For purposes of this definition, currently conducted by the Sellers means in support of the business of WPCS-Seattle and excludes all other subsidiaries of WPCS.

(h)            “ Business Records ” means originals or true copies of all operating data and financial records of Sellers relating to the Business, including accounting and bookkeeping books and records, purchase and sale orders and invoices, sales and sales promotional data, advertising materials, marketing analyses, past and present price lists, past and present customer service files, credit files, written operating methods and procedures, other financial information related to the Purchased Assets, reference catalogues, insurance files, personnel records, records relating to potential acquisitions and other financial records, on whatever media, pertaining to the Business, or to customers or suppliers of, or any other parties having contracts or other business relationships with, the Business. For purposes of clarity, communications of WPCS as well as correspondence and communications that are subject to a legally recognized privilege (such as the attorney-client privilege) or represent materials tendered to the Sellers pursuant to a non-disclosure agreement are not deemed “Business Records” for purposes of this Agreement.

(i)            “Cash” means all cash of WPCS-Seattle.

(j)            “Charter Documents” means each Parties’ articles or certificate of incorporation and bylaws in effect on the date hereof.

(k)            “Closing Date” means the date that the Closing occurs as determined by the mutual agreement of the Parties.

(l)            “COBRA” means the provisions of Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code and all regulations thereunder.

(m)           “ Code ” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

(n)            “Confidential Information” has the meaning set forth in Section 6.7(d) .

(o)            “Contracts” means any agreement, contract, license, lease, instrument, note, bond, mortgage, indenture, guarantee or other legally binding commitment or obligation, whether oral or written, listed on Schedule 1.1(o) .

(p)            “Customer Lists” means the benefit of WPCS-Seattle’s relationships with customers and all past and current customer lists and lists of potential customers of the Business (collectively, the “Customers” , and each a “Customer” ).

(q)            “Deferred Liabilities” means all deferred liabilities of WPCS-Seattle related to the Business, including any deferred liabilities to Affiliates of WPCS-Seattle.

(r)            “Delinquent Receivables” means all accounts receivable, notes receivable, and other amounts payable to Sellers in connection with the Business, that are 180 days or more past due as of the Closing Date, including, without limitation, those listed on Schedule 1.1(r) (except for any undisputed billed or unbilled retainage that is 180 days or more past due as of the Closing Date).

(s)            “Directly Competitive” means engaging in or providing products, goods, services, support or technology similar to those provided by the Business in the States of Washington, Idaho, Montana or Oregon, including, without limitation, engaging in or providing such products, goods, services, support or technology in WPCS-Seattle’s electrical contracting business, market and service segments and/or that compete with WPCS-Seattle’s products, goods, services, support or technology as of the Closing Date.

(t)            “Encumbrance” means any claim, lien, pledge, option, charge, easement, security interest, right-of-way, encroachment, reservation, restriction, encumbrance, or other right of any Person, or any other restriction or limitation of any nature whatsoever, affecting title to any of the Purchased Assets.

(u)            “Enforceability Limitations” means (i) bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to creditors’ rights and (ii) the discretion of the appropriate Governmental Authority with respect to commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

(v)            “Environmental Claim” means any notice of violation, notice of potential or actual responsibility or liability, or Proceeding (including those for contribution and/or indemnity) by any Governmental Authority or other Person for any damage (including personal injury, tangible or intangible property damage, natural resource damage, indirect or consequential damages, investigative costs, removal, response or remediation costs, nuisance, pollution, contamination or other adverse effects on the environment or for fines, penalties or restrictions or conditions on environmental Permits) resulting from or relating to the following conditions, circumstances or acts existing or occurring before the Closing Date: (i) the presence of, a Release or threatened Release into the environment of, or exposure to, any Hazardous Substances, at, in, by or from any of the Facilities, (ii) the generation, manufacture, processing, distribution, use, handling, transportation, storage, treatment or disposal of any Hazardous Substances at or in connection with the operation of any of the Facilities, (iii) the violation, or alleged violation, of any Environmental Laws at or in connection with the operation of any of the Facilities, or (iv) the non-compliance or alleged non-compliance with any Environmental Laws at or in connection with the operation of any of the Facilities.

(w)            “Environmental Laws” means any applicable Governmental Requirements and any licenses, permits, notices or other requirements issued pursuant thereto, enacted, promulgated or issued by any Governmental Authority in any jurisdiction, in effect as of the Closing Date, relating to pollution or protection of public health or the environment (including any air, surface water, groundwater, land surface or sub-surface strata, whether outside, inside or under any structure), or to the identification, reporting, generation, manufacture, processing, distribution, use, handling, treatment, storage, disposal, transporting, presence, Release or threatened Release of, any Hazardous Substances. Without limiting the generality of the foregoing, Environmental Laws include the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Toxic Substances Control Act, as amended, the Hazardous Materials Transportation Act, as amended, the Resource Conservation and Recovery Act, as amended, the Clean Water Act, as amended, the Safe Drinking Water Act, as amended, the Clean Air Act, as amended, the Occupational Safety and Health Act, as amended and all similar or analogous laws enacted, promulgated or lawfully issued by any Governmental Authority.

(x)            “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.

(y)            “Excluded Assets” means the following assets of WPCS-Seattle:

(i)             the Cash;

(ii)           any rights of WPCS-Seattle under this Agreement and the other Transaction Documents;

(iii)          any Tax records of WPCS-Seattle, subject to applicable law;

(iv)          any Insurance of WPCS Seattle;

(v)           any rights specifically relating to Excluded Contracts, the Employee Benefit Plans and the documents evidencing or otherwise relating to the foregoing;

(vi)          any rights under any “Leases” as defined in Section 4.14 hereof; and

(vii)        the items described on Schedule 1.1(y)(vii) .

(z)            “Excluded Contracts” means all Contracts other than Assumed Contracts, including, without limitation, those Contracts set forth on Schedule 1.1(z) .

(aa)          “Excluded Liabilities” means any claims, lawsuits, liabilities, obligations, or any other debts or obligations of the Sellers or relating to the Business incurred or existing on or prior to the Closing Date, whether the same are known, unknown, accrued, contingent or otherwise (except to the extent an Assumed Liability), including, without limitation, the following:

(i)            any liability or obligation of the Sellers arising out of or in connection with the negotiation or preparation of this Agreement or any Transaction Document prepared in connection herewith or the consummation and performance of the transactions contemplated hereby;

(ii)           any Deferred Liabilities;

(iii)          the accounts payables of Sellers, except for the Accounts Payables;

(iv)         any liabilities or obligations associated with the Excluded Assets;

(v)          any amounts owed to or for the benefit of employees of WPCS-Seattle, including, but not limited to, amounts relating to wages, payroll, bonuses, commissions, benefits, vacations, sick pay, paid time off, personal days earned or accrued prior to the Closing Date (whenever payable), short-term disability, costs or liabilities, severance pay or union benefits, or any other liabilities or obligations (collectively, “ Payroll Liabilities ”) which relate to services performed prior to the Closing Date;

(vi)          any liability or obligation under the Excluded Contracts and other agreements to which any Seller is a party accruing prior to the Closing Date, to the extent not an Assumed Contract;

(vii)         any claim, liability or obligation of the Sellers, or any consolidated group of which any Seller is a member or shareholder, for any federal, state, county or local Taxes of any and all types, or any interest or penalties thereon, accrued for, applicable to or arising from any period prior to the Closing Date;

(viii)       any liability or obligation arising out of or in connection with the Business and operations of the Sellers, the Purchased Assets or the Assumed Contracts prior to the Closing Date, including without limitation any warranty claim for any services performed by or goods sold by the Sellers prior to the Closing Date;

(ix)          any liability or obligation for any borrowings of any Seller, including all short-term or long-term debt, except as otherwise provided herein;

(x)           any liability or obligation of any Seller to any Affiliate, any shareholder or any shareholder’s affiliated entities or family members;

(xi)          by reason of or for any default, breach or penalty, whether known or unknown, any liability or obligation under any agreement, contract or other arrangement or commitment of any Seller arising prior to the Closing Date; and

(xii)         any liability with respect to checks written on bank accounts of Sellers prior to the Closing Date that have not cleared as of the Closing Date.

(bb)        “Facilities” means any real property ever owned or leased by WPCS or any of their predecessors.

(cc)         “Financial Statements” means (a) the audited, consolidated balance sheet of WPCS as of April 30, 2013 and the related statement of operations (including related notes, if any) for the twelve (12) months ended April 30, 2013, and (b) the unaudited, consolidated balance sheet of WPCS as of December 31, 2013 and the related statement of operations (including related notes, if any) for the eight (8) months ended December 31, 2013 (the “Interim Financial Statements” ), as delivered to Purchaser.

(dd)         “GAAP” means, with respect to all accounting matters and issues, generally accepted accounting principles as in effect from time to time in the United States applied (to the extent applicable) consistent with the Financial Statements.

(ee)         “Governmental Authority” means any federal, state, local or foreign government, or any political subdivision of any of the foregoing, or any court, agency or other entity, body, organization or group, exercising any executive, legislative, judicial, quasi-judicial, regulatory or administrative function of government, or any supranational body.

(ff)         “Governmental Requirement” means any published law, statute, regulation, ordinance, rule, directive or code, and any order, judgment, writ, injunction, decree or award of any Governmental Authority, in each case, now in effect.

(gg)        “Hazardous Substances” means any pollutants, contaminants, substances, hazardous and/or toxic chemicals, carcinogens, wastes, and any ignitable, corrosive, reactive, toxic or other hazardous substances or materials, whether solids, liquids or gases (including petroleum and its derivatives, PCBs, asbestos, radioactive materials, waste waters, sludge, slag and any other substance, material or waste), as defined in or regulated by any Environmental Laws or as determined by any Governmental Authority.

(hh)       “Indemnified Party” means any Seller pursuant to Section 9.4 or Purchaser pursuant to Section 9.2 .

(ii)         “Indemnifying Party” means any Seller pursuant to Section 9.2 or Purchaser pursuant to Section 9.4 .

(jj)        “Intellectual Property” means all intellectual property, including, without limitation, (i) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto and all patents, patent applications and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions and re-examinations thereof, (ii) all trademarks and service marks (other than those identified as “DEAD” by the United States Patent and Trademark Office as of the date of this Agreement), trade dress, logos, trade names and corporate names (other than those identified as “INACTIVE” or otherwise discontinued), together with all translations, adaptations, derivations and combinations thereof and including all goodwill associated therewith, and all applications, registrations and renewals in connection therewith, (iii) all copyrightable works, copyrights and all applications, registrations and renewals in connection therewith, (iv) all mask works and all applications, registrations and renewals in connection therewith, (v) all trade secrets and confidential business information (including ideas, know-how, compositions, supplier lists, pricing and cost information and business and marketing plans and proposals), (vi) all computer software (including data and related documentation and software installed on hard disk drives) other than (A) off-the-shelf computer software subject to shrink-wrap or click-wrap licenses or (B) Microsoft Exchange Online and other email hosting services, (vii) all copies and tangible embodiments of any of the foregoing (in whatever form or medium), (viii) all website URLS and website domain names of WPCS-Seattle, and specifically excluding that of WPCS, (ix) Customer files and Supplier files, and (x) any testimonial releases provided to Purchaser. Notwithstanding anything else to the foregoing, Intellectual Property shall not include “WPCS”, “WPCS International Incorporated”, “WPCS-Seattle” or any variation thereof.

(kk)          “Inventory” means all raw material, work-in-process and finished goods inventories of the Business, wherever located, including, without limitation, that which is listed on Schedule 1.1(kk) .

(ll)            “Knowledge” means the actual knowledge of any officer or director of the Sellers.

(mm)         “Losses” means all losses, liabilities, deficiencies, damages (including indirect or consequential damages), encumbrances, fines, penalties, claims, costs and expenses (including all fines, penalties and other amounts paid pursuant to a judgment, compromise or settlement), court costs and reasonable legal and accounting fees and disbursements.

(nn)          “Material Adverse Effect” means:

(i)            with respect to the Sellers, an effect that is or would reasonably be expected to be materially adverse (A) to the Business or the Purchased Assets, results of operations or financial condition of WPCS-Seattle, which will in any event include any adverse effect on the Business, Purchased Assets, prospects, revenue, or net income of WPCS-Seattle in excess of (I) $100,000 for purposes of Section 8.6; or (II) $20,000 for any other purpose of this Agreement; or (B) to WPCS-Seattle’s ability to perform any of its material obligations under this Agreement or to consummate the transactions contemplated in this Agreement; or

(ii)           with respect to Purchaser, an effect that is or would reasonably be expected to be materially adverse (A) to the business, results of operation or financial condition of Purchaser; or (B) to Purchaser’s ability to perform any of its material obligations under this Agreement or to consummate the transactions contemplated in the Agreement; provided, however, that in determining whether a Material Adverse Effect has occurred there shall be excluded any effect on the referenced Party the cause of which is: (A) general changes in conditions in the financial markets or in the global or United States economy so long as any such change does not materially affect the referenced Party to a materially different extent than other similarly situated Persons, and (B) the announcement or disclosure of the transactions contemplated hereby.

(oo)         “Other Current Assets” means all current assets of the Business, including, without limitation, those listed on Schedule 1.1(oo) .

(pp)          “Permits” means all permits, licenses, consents, franchises, approvals and other authorizations required from any Governmental Authority, including, without limitation, the States of Washington or Oregon, or any city, county or other jurisdiction in connection with the operation of the Business or the ownership of the Purchased Assets, which is necessary to conduct the Business as presently conducted, including, without limitation, those set forth on Schedule 4.6(b) .

(qq)          “Person” means any Governmental Authority, individual, association, joint venture, partnership, corporation, limited liability company, trust or other entity.

(rr)          “Proceeding” means any claim, demand, action, suit, litigation, dispute, inquiry, order, writ, injunction, judgment, assessment, decree, grievance, arbitral action, investigation or other proceeding.

(ss)          “Purchased Assets” means all right, title and interest of Sellers in and to all of the assets of Sellers relating to the Business of whatsoever nature, tangible or intangible, real or personal, including the following (except to the extent an Excluded Asset):

(i)            the Accounts Receivable and the Delinquent Receivables;

(ii)           all interest in and claims and rights under the Assumed Contracts, including unbilled Work in Process;

(iii)          the Business Records;

(iv)          the Customer Lists;

(v)           the Supplier Lists;

(vi)          the Other Current Assets;

(vii)         the Intellectual Property owned by Sellers used in the Business, in whole or in part;

(viii)        the telephone and facsimile numbers used in the Business;

(ix)          the Tangible Personal Property;

(x)           the Inventory;

(xi)          prepaid expenses, credits, security and other deposits, and rights to refunds or reimbursements, including, without limitation, those items relating to the Purchased Assets and listed on Schedule 4.24 (collectively, the “Deposits” );

(xii)         all of WPCS-Seattle’s right, title and interest in all software utilized or planned to be utilized by WPCS-Seattle in the operation of the Business, except Microsoft Exchange Online and other email hosting services;

(xiii)        the Permits, to the extent the same are transferable;

(xiv)         all rights and interests to any covenant not to compete granted to WPCS-Seattle by any other Person; and

(xv)          all other assets related to the Business, except the Excluded Assets.

(tt)           “Purchase Price” means the consideration set forth in Section 2.4(a) below.

(uu)          “Related Person” means any shareholder, director, officer or employee of WPCS-Seattle or any other direct or indirect beneficial owner of WPCS-Seattle, any Person related to any such shareholder, director, officer, employee or beneficial owner by blood or marriage, or any limited liability company, partnership, corporation, trust or other entity in which any such person has a substantial interest as a member, partner, shareholder, trustee or otherwise.

(vv)          “Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, migrating, dumping or disposing into the environment which could give rise to an Environmental Claim or which is required to be reported pursuant to 40 C.F.R. 302 or 355, or any analogous Environmental Law.

(ww)          “Representative” means any officer, director, principal, attorney, accountant, agent, employee or other representative of any Person.

(xx)          “Securities Laws” means the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.

(yy)          “Supplier Lists” means the benefit of all of WPCS-Seattle’s relationships with suppliers and all past and current supplier lists and lists of potential suppliers of the Business (collectively, the “Suppliers” , and each a “Supplier” ).

(zz)           “Tangible Personal Property” means all tangible personal property of the Business owned or leased by WPCS-Seattle or in which WPCS-Seattle has any interest, including, without limitation, all Inventory, computer hardware, furniture and fixtures, transportation equipment, vehicles, equipment, machinery, servers, ancillary equipment, parts, components, cosigned material, resale products, leasehold improvements, tooling, supplies and other tangible assets, where ever located, together with any transferable manufacturer or vendor warranties related thereto, including, without limitation, those listed on Schedule 1.1(zz) .

(aaa)         “Tax” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, startup, occupation, premium, windfall profits, environmental (including taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), health, unemployment, disability, real property, personal property, intangible property, sales, use, transfer, registration, value added, goods and services, alternative or add-on minimum, estimated, or other tax or similar obligation of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not.

(bbb)         “Tax Liability” means liability for any Taxes owing by WPCS-Seattle to any Governmental Authority attributable to the operations and activities of, or otherwise incurred by or existing with respect to, WPCS-Seattle for any period ending on or prior to the Closing Date, including Taxes computed through the Closing Date with respect to any partial year on a closing-of-the-books basis as if such partial year ended at the close of business on the Closing Date.

(ccc)         “Tax Return” means any return, declaration, report, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto, and any amendment thereof.

(ddd)         “Transaction Documents” means this Agreement, the Escrow Agreement and the bills of sale, assignments, instruments and other documents described in Sections 3.1(a) and 3.2(b) .

(eee)         “ Work in Process ” means all work in process in connection with the Business, as of the Closing Date, under the Assumed Contracts set forth on Schedule 1.1(eee) , which the Parties acknowledge and agree specifically excludes any oral modifications or change orders.

1.2            Usage of Terms . Except where the context otherwise requires, words importing the singular number include the plural number and vice versa. Use of the word “including” means “including, without limitation.”

1.3            References to Articles, Sections, Exhibits and Schedules . All references in this Agreement to Articles, Sections (and other subdivisions), Exhibits and Schedules refer to the corresponding Articles, Sections (and other subdivisions), Exhibits and Schedules of or attached to this Agreement, unless the context expressly, or by necessary implication, otherwise requires.

ARTICLE 2
PURCHASE AND SALE OF PURCHASED ASSETS

2.1            Transfer of Purchased Assets . Subject to the terms and conditions contained in this Agreement, on the Closing Date, the Sellers, shall sell, convey, transfer, assign and deliver, or cause to be sold, transferred, assigned and delivered, to Purchaser, and Purchaser shall purchase and acquire from the Sellers, as applicable, all of the Purchased Assets, free and clear of any Encumbrances, and the Sellers, as applicable, shall retain the Excluded Assets.

2.2            Assumed Liabilities . On the Closing Date, Purchaser shall assume and agree to pay or perform in accordance with their terms the Assumed Liabilities. Purchaser shall provide evidence to the Sellers as reasonably requested from time to time that the Assumed Liabilities have been paid in full.

2.3            Excluded Liabilities . On the Closing Date, Sellers shall retain and pay or perform in accordance with their terms the Excluded Liabilities, and Purchaser shall not assume any obligation for or in respect of the Excluded Liabilities. The Sellers shall provide evidence to Purchaser as reasonably requested from time to time that the Excluded Liabilities have been paid in full.

2.4            Consideration .

(a)          As consideration for the sale, transfer, assignment, conveyance and delivery of the Purchased Assets, Purchaser shall pay Sellers an amount equal to TWO MILLION SEVEN HUNDRED THIRTY THOUSAND ONE HUNDRED TWENTY-THREE Dollars ($2,730,123.00) increased/decreased by (i) the amount by which the Estimated NABSV (as defined below) based on the Estimated Closing Date Balance Sheet (defined below) is more/less than the Target NABSV (as defined below), and/or (ii) the Post-Closing Adjustment Amount (defined below) (as so adjusted, the “ Purchase Price ”).

(b)          On the Closing Date, Purchaser shall (i) deposit an amount equal to the Payroll Liabilities (calculated as of the last day of the calendar month prior to the Closing Date) plus $250,000.00 (the “Escrowed Funds”) into an escrow account maintained by Sichenzia Ross Friedman Ference LLP (the “ Escrow Account ”); and (ii) pay the balance of the Purchase Price to the Sellers (the “ Closing Payment ”). The Escrowed Funds shall be held in accordance with the terms and conditions set forth in the escrow agreement attached hereto as Exhibit 2.4(b) (the “ Escrow Agreement ”), but shall provide for, without limitation, the payment of the Payroll Liabilities and to ensure the proper transfer of the Purchased Assets and the transfer of title.

2.5       Net Asset Balance Sheet Value Adjustment .

(a)       Net Asset Balance Sheet Value; Targeted Net Asset Balance Sheet Value . For purposes of this Agreement, “ Net Asset Balance Sheet Value ” or “ NABSV ” means the total of (i) Accounts Receivable, furniture and fixtures, computers and software, office equipment, machinery and equipment, vehicles and equipment and cost and estimated earnings in excess of billings, minus (ii) billings in excess of cost and estimated earnings and Accounts Payable of the Sellers, in each case computed in accordance with GAAP and consistent with historical practice; provided, however, that there shall be a five percent (5%) discount on Accounts Receivable and a two percent (2%) discount on all Work in Process. For purposes of this Agreement, “ Target Net Asset Balance Sheet Value ” or “ Target NABSV ” means $2,730,123, calculated on December 31, 2013 as set forth in the Target NABSV attached hereto as Exhibit 2.5(a) .

(b)       Estimated NABSV; Preliminary NABSV Adjustment . Not less than ten (10) business days prior to the Closing Date, the Sellers shall provide to Purchaser a calculation of the NABSV as of the last day of the calendar month prior to the Closing Date (the “ Estimated NABSV ”), together with a copy of the balance sheet of the Company as of such date upon which such calculation is based (the “ Estimated Closing Date Balance Sheet ”), which shall be prepared in a manner consistent with the preparation of the Financial Statements and the Target NABSV, including schedules, the Payroll Liabilities and list of specific asset categories as reasonably requested by Purchaser. The Sellers shall also deliver or, if requested by Purchaser, make available to Purchaser at the offices of WPCS-Seattle in Redmond, Washington, any documents or materials necessary to determine the Estimated NABSV, including without limitation the Accounts Receivables, Delinquent Receivables, Work in Process, Assumed Contracts and any other materials reasonably requested by Purchaser. If Purchaser objects in any way either to the Sellers’ calculation of the Estimated NABSV or the Estimated Closing Date Balance Sheet, then Purchaser shall notify the Sellers in writing of such objection within seven (7) business days following its receipt of the Estimated NABSV. At the Closing, if the Estimated NABSV is more/less than the Target NABSV, the Purchase Price shall be increased/decreased on a dollar-for-dollar basis in the amount of such shortfall (the “ NABSV Adjustment ”).

(c)        NABSV; Resolution Procedures . Not later than forty (40) days after the Closing Date, the Sellers shall prepare and deliver to Purchaser its calculation of the NABSV as of the Closing Date (the “ Closing Date NABSV ”), together with a copy of the balance sheet upon which such calculation is based (the “ Closing Date Balance Sheet ”), which shall be prepared in a manner consistent with the preparation of the Financial Statements and the Target NABSV, including schedules and list of specific asset categories as reasonably requested by Purchaser. If Purchaser objects in any way either to the Sellers’ calculation of the Closing Date NABSV or to the Closing Date Balance Sheet, then Purchaser shall notify the Sellers in writing of such objection within thirty (30) days following its receipt of the Closing Date NABSV. If, for any reason, Purchaser fails to give the Sellers notice of any such objection within such 30-day period, then, for purposes of this Section 2.5(c) , the Sellers’ calculation of the Closing Date NABSV shall be deemed to be the actual NABSV and shall be used as the basis for making any further adjustments to the Purchase Price described in Section 2.5(d) . If, however, Purchaser notifies the Sellers of such an objection within such 30-day period, then the Sellers and Purchaser shall, for a period of time not to exceed ten (10) days (unless otherwise agreed in writing by the Parties) after the date upon which the Sellers receives Purchaser’s objection notice (such period of time being hereinafter referred to as the “ Resolution Period ”), work together diligently and in good faith to resolve any and all such objections. If, at or before the end of the Resolution Period, the Sellers and Purchaser resolve their disputes regarding the calculation of the Closing Date NABSV or the Closing Date Balance Sheet, as applicable, then the calculation of the Closing Date NABSV as so agreed to by the Sellers and Purchaser shall be deemed to be the actual NABSV and shall be used as the basis for making any further adjustments to the Purchase Price described in Section 2.5(d) . If, at the end of the Resolution Period, the Sellers and Purchaser have not resolved their disputes regarding the calculation of the Closing Date NABSV or the Closing Date Balance Sheet, as applicable, then such disputes shall, within two (2) days after the expiration of the Resolution Period, be submitted to EisnerAmper (the “ Independent Accounting Firm ”) for final determination. The Independent Accounting Firm shall only have the authority to resolve matters expressly submitted to it for resolution. The Parties shall each pay fifty percent (50%) of the costs and expenses of the Independent Accounting Firm and be responsible, at each Party’s sole cost and expense, for any attorneys’ fees and other expenses incurred by such Party in its calculation of the Closing Date NABSV. The Independent Accounting Firm’s resolution of any disputes hereunder shall be made within thirty (30) days of the submission of such dispute thereto, shall be set forth in a written statement delivered to the Sellers and Purchaser, shall be conclusive and binding on the Parties for all purposes and shall be used as the basis for making any further adjustments to the Purchase Price described in Section 2.5(d) .

(d)       Further Adjustment to Purchase Price . The “ Post Closing Adjustment Amount ” (which may be a positive or negative number) will be equal to the amount determined by subtracting the Closing Date NABSV, as determined pursuant to Section 2.5(c) , from the Purchase Price paid at Closing, as determined pursuant to Section 2.5(b) . If the Post Closing Adjustment Amount is positive, then the Sellers, jointly and severally, shall pay to Purchaser an amount equal to the Post Closing Adjustment Amount. If the Post Closing Adjustment Amount is negative, the Purchaser shall pay to the Sellers an amount equal to the Post Closing Adjustment Amount. Any amounts owed to the Sellers or Purchaser, as applicable, pursuant to this Section 2.5(d) shall be paid to the Sellers or Purchasers, as applicable, within three (3) days of the final determination thereof (the “ Adjustment Date ”) by wire transfer of immediately available funds, cashier’s check or certified check.

(e)       The Sellers and Purchaser agree to treat any payments made pursuant to Section 2.5(d) as an adjustment to the NABSV Adjustment and the Purchase Price for all Tax purposes and to cooperate in connection with the preparation and filing of any Tax Return, claim for refund or other required or optional filings relating to any Tax matters related thereto, the preparation of any Tax audit related thereto, the preparation of any Tax protest related thereto or the prosecution or defense of any Proceeding relating to any such Tax matters, in each case in accordance with Section 6.9.

2.6            Taxes; Proration .   Sellers will be responsible for the payment of any sales, use, transfer, excise, stamp or other similar Taxes and all recording fees and similar charges imposed by reason of the transfer of the Purchased Assets pursuant to this Agreement and any deficiency, interest or penalty with respect to such Taxes. Sellers shall promptly remit (without delay or extension) the same to the applicable taxing authorities and provide evidence to Purchaser as reasonably requested from time to time that such Taxes have been paid in full. Seller agrees to notify Purchaser promptly of receipt of any bills or other communications relating to such Taxes, fees and charges and shall prepare and file, and shall fully cooperate with the other Parties with respect to the preparation and filing of, any returns or other filings relating to such Taxes, fees and charges.

2.7            Allocation of Purchase Price . The Purchase Price shall be allocated as set forth on Schedule 2.7 hereto in accordance with Section 1060 of the Code. Each of the Parties hereto agrees to prepare and file all tax returns (including IRS Form 8594) in a manner consistent with such allocation and to report this transaction for Federal and State income tax purposes in accordance with such allocation of the Purchase Price and shall use their reasonable efforts to sustain such allocation in any subsequent tax audit or dispute.

ARTICLE 3
CLOSING

3.1            Closing . The closing of the transactions contemplated by this Agreement will be held at 10:00 a.m. local time on the Closing Date at the offices of WPCS-Seattle in Redmond, Washington or any other place as Purchaser and Sellers shall mutually agree (the “Closing” ). The Closing will be effective as of 11:59 p.m. eastern time on the Closing Date.

(a)            Conveyances at Closing . Upon the terms and conditions contained in this Agreement, on the Closing Date, Sellers shall deliver to Purchaser (i) one or more bills of sale conveying in the aggregate all of the Purchased Assets, (ii) one or more assignments of the Intellectual Property owned by Sellers or used in the Business in recordable form, (iii) one or more assignments of the Assumed Contracts of Sellers, (iv) such other instruments as are reasonably requested by Purchaser to enable title to vest in Purchaser in and to the Purchased Assets in accordance with the provisions of this Agreement and (v) such other documents and agreements as are contemplated in Article 8 of this Agreement.

(b)           All of such instruments will be in form and substance, and will be executed and delivered in a manner, reasonably satisfactory to Purchaser and Sellers, but will not diminish the status of title to the Purchased Assets required to be delivered pursuant to this Agreement.

3.2            Assumptions at Closing .

(a)            Upon the terms and conditions contained in this Agreement, on the Closing Date, Purchaser will deliver to Sellers (i) one or more bills of sale acquiring in the aggregate all of the Purchased Assets, (ii) one or more assignments of the Assumed Contracts of Sellers, (iii) an assumption of the Assumed Liabilities, (iv) such other instruments of assumption evidencing Purchaser’ assumption of the Assumed Liabilities as Sellers reasonably deem necessary and (v) such other documents and agreements as are contemplated by Article 7 of this Agreement.

(b)            All such instruments will be in form and substance, and will be executed and delivered in a manner, reasonably satisfactory to Sellers and Purchaser, but will not increase or decrease the Assumed Liabilities required to be assumed by Purchaser pursuant to this Agreement.

3.3            Certificates and Other Document . Each of the Parties shall deliver or cause to be delivered the certificates and other documents and items described in Articles 6, 7 and 8 .

3.4            Non-Transferable Assets . The Parties understand and agree that certain Purchased Assets may not be immediately transferable or assignable to Purchaser, and Purchaser may in its sole discretion allow Sellers to retain certain of such assets after the Closing Date (the “Non-Transferable Assets” ), and this Agreement will not constitute an assignment of any such Non-Transferable Assets. In such event, (i) Sellers shall use their best efforts to obtain any consent or authorization which may be required to transfer or assign the Non-Transferable Assets to Purchaser or to remove or eliminate any impediment preventing the transfer or assignment of the Non-Transferable Assets to Purchaser, (ii) Sellers shall grant to Purchaser full use and benefit of its interest in the Non-Transferable Assets to the extent permitted by the terms of or applicable to such Non-Transferable Assets, it being the intent of the Parties that, to the extent not inconsistent with the foregoing, Purchaser shall have the benefit of the Non-Transferable Assets as though it were the sole owner thereof, (iii) Sellers shall take all actions necessary to preserve the value of the Non-Transferable Assets, (iv) Sellers shall not transfer or assign the Non-Transferable Assets to any Person other than Purchaser or Purchaser’s assigns, (v) Sellers shall transfer or assign the Non-Transferable Assets to Purchaser at the earliest date, if any, on which such transfer or assignment can be effected and (vi) subject to clauses (i) through (iv) above, Purchaser will be responsible for obligations relating to such Non-Transferable Assets arising or occurring on or after the Closing Date as if they had been transferred or assigned to Purchaser in accordance with the terms of this Agreement. Upon the request of Purchaser, Sellers shall enforce, for the account and on behalf of Purchaser, any rights of Sellers arising under or in connection with any Non-Transferable Asset.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLERS

Except as set forth under the corresponding section of the disclosure schedules delivered concurrently herewith (the “Disclosure Schedules” ), which Disclosure Schedules shall (i) be deemed a part hereof and shall qualify any representation, warranty or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, each Seller, jointly and severally, hereby represent and warrant to Purchaser, and acknowledges that such representations and warranties are material inducements to Purchaser entering into this Agreement, as follows:

4.1            Organization and Authority of Sellers to Conduct Business . Each Seller is duly organized, validly existing and in good standing under the laws of the state in which it is incorporated. Schedule 4.1 sets forth each jurisdiction where each Seller is qualified to do business. WPCS-Seattle is duly licensed or qualified to do business as a foreign corporation and is in good standing in all States in which the character of the Purchased Assets or nature of the Business requires it to be so licensed or qualified and in which the failure to qualify and be in good standing would not have a Material Adverse Effect on the Business, financial condition or operations of WPCS-Seattle. WPCS-Seattle has full corporate power and authority to conduct the Business as it is presently being conducted and to own, operate and lease its properties and assets therein, to execute and deliver this Agreement, to sell, convey, transfer, assign and deliver the Purchased Assets to Purchaser and to consummate the transactions contemplated by this Agreement.

4.2            Subsidiaries . WPCS-Seattle has no subsidiaries and does not own, directly or indirectly, capital stock or other voting securities of any corporation or other Person.

4.3            Power and Authority; Binding Effect . Subject to any consents required under Sections 4.5 and 4.6 below, each Seller has all necessary power and authority and has taken all action necessary to authorize, execute and deliver this Agreement and the Transaction Documents, to consummate the transactions contemplated by this Agreement and the Transaction Documents, and to perform its obligations under this Agreement and the Transaction Documents. Each Seller has delivered to Purchaser copies of all resolutions of such Seller’s board of directors and/or shareholders with respect to the transactions contemplated by this Agreement and the Transaction Documents, certified by the Secretary of such Seller in form reasonably satisfactory to counsel for Purchaser. Subject to any consents required under Sections 4.5 and 4.6 below, no other action on the part of any Seller is required to authorize the execution and delivery of this Agreement and the Transaction Documents and to consummate the transactions contemplated hereby. This Agreement and the Transaction Documents has been duly executed and delivered by Sellers and constitutes a legal, valid and binding obligation of each Seller enforceable in accordance with its terms, except as such enforcement may be limited by the Enforceability Limitations.

4.4            Title; Condition of Tangible Personal Property .

(a) Sellers have and at the Closing Purchaser will receive, good, valid and marketable title, free and clear of all Encumbrances to all of the Purchased Assets except (a) liens for Taxes not yet due and payable, and (b) such imperfections of title, easements and Encumbrances, if any, as are not material in character, amount or extent. The Purchased Assets, together with any properties, assets and rights licensed or leased by Sellers and disclosed in Schedule 4.4(a) , constitute all tangible and intangible assets that Sellers have used, held or are necessary in connection with the operation of the Business as conducted on the date hereof. There are no facts or conditions affecting any Purchased Assets which would reasonably be expected to materially interfere with the current use, occupancy or operation of such Purchased Assets. Except as set forth on Schedule 4.4(a) , Sellers have conducted the Business only through Sellers and not through any other divisions or any direct or indirect subsidiaries and no part of the Business is operated by Sellers through any entity other than Sellers.

(b)           The Tangible Personal Property is operational and in a condition adequate and sufficient for use in the Business as it has been conducted to date, ordinary wear and tear excepted.

4.5            No Conflict; Governmental Authorization; Required Filings and Consents .

(a)            Except as set forth on Schedule 4.5(a) , neither the execution, delivery and performance of this Agreement or the Transaction Documents by any Seller nor the consummation of any of the transactions contemplated by this Agreement or the Transaction Documents do, or will, directly or indirectly (with or without notice or lapse of time or both), (i) contravene, violate or conflict with any Seller’s Charter Documents, (ii) result in any breach of, violate or constitute a default (or an event which with notice or lapse of time or both would become a default) under, terminate or cancel or give to others any rights of termination, acceleration or cancellation of (with or without notice or lapse of time or both), any Contract, agreement, indenture or other instrument to which any Seller is a party or by which the Business is bound, or (iii) result in the creation of an Encumbrance of any nature whatsoever on any of the properties or Purchased Assets of any Seller or the Shareholder or materially affect the Business or (iv) result in the termination of any material license, franchise, lease or permit to which any Seller is a party or by which it or the Purchased Assets are bound.

(b)            The execution and delivery of this Agreement and the Transaction Documents by each Seller does not, and the performance of this Agreement and the Transaction Documents, the consummation of the transactions contemplated by the Agreement and the Transaction Documents by such Seller will not, require any consent of or filing with or notification to, any Governmental Authority or any other Person.

4.6            Compliance with Laws and Permits .

(a)             To the Knowledge of the Sellers, except as set forth on Schedule 4.6(a) , WPCS-Seattle has been at all times during the last three (3) years, and WPCS-Seattle is now being, operated in compliance with applicable Governmental Requirements of the federal government, the State of WPCS-Seattle’s incorporation and any State where WPCS-Seattle is qualified to do business, and are not aware of any instances of non-compliance which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on WPCS-Seattle, the Business or the Purchased Assets of WPCS-Seattle, and no written notice has been received by any Seller alleging such non-compliance. This Section 4.6 does not apply to environmental or pollution-related Governmental Requirements or matters, it being the intent and agreement of the Parties that such matters be exclusively the subject of Section 4.21 .

(b)           Schedule 4.6(b) identifies all Permits issued in connection with the Business and currently in effect, and includes (i) the Governmental Authority that issued the Permit, (ii) the expiration date of each Permit, and (iii) the fact that the Permit is not transferable to Purchaser, if applicable. To the Sellers’ Knowledge, WPCS-Seattle holds and is in compliance with all Permits and the Permits constitute all permits, consents, licenses, franchises, authorizations and approvals required, used in the operation of or necessary to conduct the Business of WPCS-Seattle as currently conducted. All of the Permits are valid and in full force and effect, no material violations have been experienced, noted or recorded and no material violations are expected, and no Proceeding is pending or, to the Knowledge WPCS-Seattle, threatened to revoke or limit any of the Permits.

4.7            Financial Statements; Unknown Liabilities .

(a)             Sellers have delivered to Purchaser the Financial Statements. The Financial Statements fairly present the financial condition and the results of operations of Sellers as of their respective dates and for the periods then ended in accordance with GAAP consistently applied. The books and records of Sellers from which the Financial Statements were prepared fairly reflect the assets, liabilities and operations of Sellers and the Financial Statements are in conformity therewith.

(b)            There are, and as of the Closing Date there will be, no liabilities or obligations of any nature, whether absolute, accrued, contingent, known, matured, unmatured or otherwise, and whether or not required to be disclosed or provided for in financial statements in accordance with GAAP, including without limitation, material unreserved negative contractual obligations, litigation or contingent liabilities other than customary service and product warranty obligations, which are not material in nature, of WPCS-Seattle except (i) liabilities and obligations reflected in the Financial Statements, (ii) liabilities relating to facts, circumstances or events specifically disclosed on the Disclosure Schedules, and (iii) liabilities and obligations incurred between the date of the Interim Financial Statements and the Closing Date in the ordinary course of the Business of WPCS-Seattle (none of which results from, arises out of or relates to any breach of contract, breach of contractual warranty, tort, infringement or violation of Governmental Requirement).

4.8            Tax Matters .

(a)            (i) WPCS-Seattle has correctly and timely filed all Tax Returns that were required by law to be filed on or prior to the Closing Date, (ii) to the best of the WPCS-Seattle’s Knowledge, as of the Closing Date, WPCS-Seattle will have in good faith withheld and accrued or paid to the proper authority all Taxes required to have been withheld and accrued or paid, (iii) all such Tax Returns were correct and complete in all material respects when filed, (iv) except as set forth on Schedule 4.8(a) , WPCS-Seattle is not currently the beneficiary of any extension of time within which to file any Tax Return and (v) no notice has been received by Sellers and no claim has been made within the last five (5) years by any Governmental Authority with respect to the Business or in a jurisdiction where WPCS-Seattle does not file Tax Returns that they are or may be subject to taxation by that jurisdiction. There are no Encumbrances on any of the Purchased Assets that arose in connection with any failure (or alleged failure) to pay any Tax, except for inchoate liens for Taxes not yet due and payable.

(b)            There is no material dispute or claim concerning any Tax Liability arising from the Business or the Purchased Assets, either (i) claimed or raised by any Governmental Authority in writing or (ii) as to which either Seller has Knowledge. Schedule 4.8(b) lists all income Tax Returns filed with respect to the Business for any taxable period ended on or after April 30, 2013, indicates those Tax Returns which have been audited, and indicates those Tax Returns that currently are the subject of audit. Sellers have delivered to Purchaser correct and complete copies of all income Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by WPCS-Seattle for any taxable period ended on or after April 30, 2013.