Exhibit 10.1

 

STOCK PURCHASE AGREEMENT

AMONG

WPCS INTERNATIONAL INCORPORATED

NEW ENGLAND COMMUNICATIONS SYSTEMS, INC.

AND

MYRON POLULAK
CAROLYN WINDESHEIM
AND
GARY TALLMON

Dated on June 7, 2006, effective as of June 1, 2006

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TABLE OF CONTENTS
 
 

Section 
Page 
ARTICLE I SALE AND PURCHASE OF SHARES  
1.1 
Sale and Purchase of Shares
 1       ARTICLE II PURCHASE PRICE AND PAYMENT  
2.1 
Amount of Purchase Price
 1 2.2 
Payment of Purchase Price
 1 2.3 
Net Working Capital Adjustment
 2 2.4 
Additional Consideration
 2       ARTICLE III CLOSING AND TERMINATION   3.1
Closing Date
 3 3.2
Termination of Agreement
 3 3.3
Procedure Upon Termination
 4 3.4
Effect of Termination
 4       ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLERS   4.1 
Organization and Good Standing
 4 4.2
Authority
 4 4.3
Shares
 5 4.4
Basic Corporate Records
 5 4.5
Minute Books
 5 4.6
Subsidiaries and Affiliates
 6 4.7
Consents
 6 4.8
Financial Statements
 6 4.9
Records and Books Account
 7 4.10
Absence of Undisclosed Liabilities
 7 4.11
Taxes
 7 4.12
Account Receivable
 9 4.13
Inventory
 9 4.14
Machinery and Equipment
 10 4.15 
Title to Properties; Certain Real Property Matters
 10 4.16
Leases
 11 4.17
Patents, Software, Trademarks, Etc
 12 4.18
Insurance Policies
 12 4.19
Banking and Personnel Lists
 13 4.20
Lists of Contracts, Etc
 13 4.21
Compliance With the Law
 15 4.22
Litigation, Pending Labor Disputes
 15 4.23
Absence of Certain Changes or Events
 16 4.24
Employee Benefit Plans
 17

 
 
 
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4.25
Product Warranties and Product Liabilities
 18 4.26 
Assets
 18 4.27
Absence of Certain Commercial Practices
 19 4.28
 Licenses, Permits, Consents and Approvals
 19 4.29
 Environmental Matters
 19 4.30
 Broker
 21 4.31
Related Party Transactions
 21 4.32
 Patriot Act
 21 4.33
 Disclosure
 22       ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER   5.1
Organization and Good Standing
 22 5.2
Authority
 22 5.3
Conflicts; Consents of Third Parties
 22 5.4
Litigation
 23 5.5
Investment Intention
 23 5.6
Broker
 23       ARTICLE VI COVENANTS   6.1
Access to Information
 23 6.2
Conduct of the Business Pending the Closing
 24 6.3
Consents
 26 6.4
Other Actions
 26 6.5
No Solicitation
 26 6.6
Preservation of Records
 27 6.7
Publicity
 27 6.8
Use of Name
 27 6.9
Employment Agreements
 27 6.10
Board of Directors
 27 6.11
Vehicle Leases
 27 6.12
Gary Tallmon Consulting Agreement
 28 6.13
Financial Statements
 28 6.14
Tax Election
 28 6.15
Tax Matters
 28       ARTICLE VII CONDITIONS TO CLOSING   7.1
Conditions Precedent to Obligations of Purchaser
 30 7.2
Conditions Precedent to Obligations of the Sellers
 32       ARTICLE VIII DOCUMENTS TO BE DELIVERED   8.1
Documents to be Delivered by the Sellers
 33 8.2
Documents to be Delivered by the Purchaser
 33

 
 
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      ARTICLE IX INDEMNIFICATION   9.1
Indemnification
 33 9.2
Limitations on Indemnification for Breaches of Representations and Warranties
 34 9.3
Indemnification Procedures
 35 9.4
Tax Treatment of Indemnity Payments
 36       ARTICLE X MISCELLANEOUS   10.1
Payment of Sales, Use or Similar Taxes
 36 10.2
Survival of Representations and Warranties
 36 10.3
Expenses
 36 10.4
Specific Performance
 36 10.5
Further Assurances
 37 10.6
Submission to Jurisdiction; Consent to Service of Process
 37 10.7
Table of Contents and Headings
 37 10.8
Governing Law
 38 10.9
Table of Contents and Headings
 38 10.10
Notices
 38 10.11
 Severability
 39 10.12
 Binding Effect; Assignment
 39

 

 
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STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT is made effective as of June 1, 2006 (the
“Agreement”), among WPCS International Incorporated, a corporation existing
under the laws of Delaware (the “Purchaser”), New England Communications
Systems, Inc., a Connecticut corporation (the “Company”), and the shareholders
of the Company listed on the signature pages hereof (collectively the
“Sellers”).
 
W I T N E S S E T H:
 
WHEREAS, the Sellers own an aggregate of 3,000 shares of common stock, $1.00 par
value (the “Shares”), of the Company, which Shares constitute all of the issued
and outstanding shares of capital stock of the Company; and
 
WHEREAS, the Sellers desire to sell to Purchaser, and the Purchaser desires to
purchase from the Sellers, the Shares for the purchase price and upon the terms
and conditions hereinafter set forth;
 
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements hereinafter contained, the parties hereby agree as follows:
 
ARTICLE I
SALE AND PURCHASE OF SHARES
 
1.1 Sale and Purchase of Shares.
 
Upon the terms and subject to the conditions contained herein, on the Closing
Date each Seller shall sell, assign, transfer, convey and deliver to the
Purchaser, and the Purchaser shall purchase from each Seller, all Shares of the
Company owned by such Seller set forth opposite such Seller's name on Schedule
1.1 attached hereto.
 

ARTICLE II
PURCHASE PRICE AND PAYMENT
 
2.1 Amount of Purchase Price. The purchase price for the Shares shall be an
amount equal to (i) $3,216,540.85(Three Million Two Hundred Sixteen Thousand
Five Hundred Forty dollars and Eighty Five cents) payable to the Sellers (the
“Seller Purchase Price”), and (ii) $1,437,445.75 (One Million Four Hundred
Thirty Seven Four Hundred Forty Five dollars and Seventy Five cents) (the “Bank
Debt”), payable to the Company’s lender, TD Banknorth, N.A. (the “Bank”)(the
Bank Debt and the Seller Purchase Price, the “Purchase Price”), subject to
adjustment as set forth herein.
 
2.2 Payment of Purchase Price On the Closing Date, the Purchaser shall pay the
Seller Purchase Price to the Sellers and the Bank Debt to the Bank, which shall
be paid by wire transfer of immediately available funds into accounts designated
by the Sellers and the Bank and the Seller Purchase Price shall be allocated
among the Sellers in accordance with their pro rata ownership of the Shares as
set forth on Schedule 1.1. Notwithstanding the foregoing, up to $50,000 of the
Seller Purchase Price shall be paid by the Purchaser for the settlement of
vehicle leases currently charged to the Company, pursuant to the directions of
the Sellers.
 
 

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2.3 Net Working Capital Adjustment. 
 
(a) Within 15 business days after the effective date of the Closing (the
“Effective Date”), Sellers shall cause to be prepared and delivered to Purchaser
a draft final balance sheet of the Company as of the Effective Date, which shall
include a final calculation of the Net Working Capital of the Company (“Final
Net Working Capital”), as of the Effective Date, determined in accordance with
GAAP consistent with the Company’s historical procedures. “Net Working Capital”
shall mean the total of the Company’s Current Assets less its Current
Liabilities. “Current Assets” shall mean (i) cash and cash equivalents, (ii)
accounts receivable, (iii) inventory, (iv) prepaid expenses, (v) unbilled
revenues, and (vi) the aggregate dollar value of rental radios included in
inventory (“Radio Inventory”). “Current Liabilities” shall mean (a) accounts
payable, (b) advances and accrued expenses (including, without limitation,
compensation expenses including, without limitation, salary, hourly wages,
bonuses, sales commissions, benefits and vacation/sick days accruals), (c)
accrued Taxes, as hereinafter defined, and (d) unearned revenues. Unless within
thirty-five (35) business days of delivery of such draft final balance sheet by
Sellers to Purchaser, Sellers have received a written objection from Purchaser
to such draft final balance then such draft final balance sheet shall be
considered the final balance sheet of the Company as of the Effective Date (the
“Final Closing Balance Sheet”). If within thirty-five (35) business days of
delivery of the draft final balance sheet by Sellers to Purchaser, Seller
receives a written objection from Purchaser to such draft final balance sheet,
then the Sellers and Purchaser shall attempt to reconcile their differences
diligently and in good faith and any resolution by them shall be final, binding
and conclusive. If the Sellers and the Purchaser are unable to reach a
resolution with such effect within ten (10) business days of the Sellers’
receipt of the Purchaser’s written notice, the Sellers and the Purchaser shall
submit such dispute for resolution to an independent accounting firm mutually
appointed by the Sellers and the Purchaser (the “Independent Accounting Firm”),
which shall determine and report to the parties and such report shall be final,
binding and conclusive on the parties hereto. The fees and disbursements of the
Independent Accounting Firm shall be shared equally by the Sellers and the
Purchaser.
 
(b) If the Final Net Working Capital of the Company as of the Effective Date is
greater than $972,000 (the “Target Net Working Capital”), then Purchaser shall
pay to Sellers the amount by which the Final Net Working Capital, less the Radio
Inventory, is greater than the Target Net Working Capital. If the Final Net
Working Capital of the Company as of the Effective Date is less than the Target
Net Working Capital, then Sellers shall pay to Purchaser the difference between
the Final Net Working Capital and the Target Net Working Capital. To the extent
any payment is required pursuant to this section 2.3(b), such payment shall be
made by wire transfer of immediately available funds within thirty (30) days of
the date on which the determination of the Final Closing Balance Sheet becomes
final and shall be deemed to be an adjustment to the Seller Purchase Price.
 
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(c) In order to satisfy any amounts which the Sellers may be required to deliver
to the Purchaser as a result of a deficiency in the Target Net Working Capital,
$320,000 shall be deposited into an escrow account until the Final Working
Capital shall be determined and accepted by all parties and any deficiency in
the Target Net Working Capital shall have been paid from the escrow account to
the Purchaser (the “Escrowed Funds”). The Escrowed Funds shall be held for the
benefit of the Sellers in accordance with their pro rata ownership of the Shares
as set forth on Schedule 1.1. The Escrowed Funds shall be held in accordance
with the terms and conditions set forth in the escrow agreement attached hereto
as Exhibit 2.3 (the “Escrow Agreement”).
 
2.4 Additional Consideration. Within 105 days after December 31, 2006,
Purchaser, at Purchaser’s sole cost and expense, shall cause to be prepared and
delivered to Sellers financial statements of the Company for the fiscal year
ended December 31, 2006 (the “2006 Fiscal Year”), in accordance with GAAP
consistent with the Company’s historical procedures. For each $2.00 of the
Company’s earnings before interest and taxes for the 2006 Fiscal Year, the
Sellers shall be paid an aggregate additional amount of $1.00, up to a maximum
payment of $468,000 (the “Earn-out Payment”). Sellers shall have thirty (30)
days after receipt of said financial statements to review same. If within
thirty-five (35) business days of delivery of the financial statements by
Purchaser to Sellers, Purchaser receives a written objection from Sellers, then
Purchaser and Sellers shall attempt to reconcile their differences diligently
and in good faith and any resolution by them shall be finding and conclusive. If
the Sellers and the Purchaser are unable to reach a resolution within ten (10)
business days of the Purchaser’s receipt of the Sellers’ written notice, the
Sellers and the Purchaser shall submit such dispute for resolution to the
Independent Accounting Firm which shall determine and report to the parties, and
such report shall be final, binding and conclusive on the parties hereto. The
final 2006 Fiscal Year Company financial statements, as accepted by Sellers and
the Purchaser shall be referred to as the “Final 2006 Financials.” At the option
of the Purchaser, any amounts due to be paid for the Earn-out Payment may be
paid in cash or shares of the Purchaser’s common stock (valued at the last sale
price of the common stock on the date two days prior to the payment is due). The
Earn-out Payment shall be paid within ten days after receipt by the Sellers and
the Purchaser of the Final 2006 Financials. Any amounts payable to the Sellers,
if in cash, shall be paid to the order of each Seller or, at the Sellers'
option, by wire transfer of immediately available funds into accounts designated
by the Sellers and allocated among the Sellers in accordance with their pro rata
ownership of the Shares as set forth on Schedule 1.1. Any amounts payable to the
Sellers, if in shares of the Purchaser’s common stock, shall be made by shares
of the Purchaser’s common stock issued and registered in the name of each Seller
and allocated among the Sellers in accordance with their pro rata ownership of
the Shares as set forth on Schedule 1.1.
 

ARTICLE III
CLOSING AND TERMINATION
 
3.1 Closing Date. 
 
              Subject to the satisfaction of the conditions set forth in
Sections 7.1 and 7.2 hereof (or the waiver thereof by the party entitled to
waive that condition), the closing of the sale and purchase of the Shares
provided for in Section 1.1 hereof (the "Closing") shall take place at the
offices of Byrne & Storm, P.C., 330 Main Street, Hartford, Connecticut 06106 (or
at such other place as the parties may designate in writing) on June 7, 2006 and
effective as of June 1, 2006 or on such other date as the Sellers and the
Purchaser may designate in writing. The date on which the Closing shall be held
is referred to in this Agreement as the "Closing Date".
 
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3.2 Termination of Agreement.
 
              This Agreement may be terminated prior to the Closing as follows:
 
(a) At the election of the Sellers or the Purchaser on or after June 30, 2006,
if the Closing shall not have occurred by the close of business on such date,
provided that the terminating party is not in default of any of its obligations
hereunder;
 
(b) by mutual written consent of the Sellers' and the Purchaser; or
 
(c) by the Sellers or the Purchaser if there shall be in effect a final
nonappealable order of a governmental body of competent jurisdiction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby; it being agreed that the parties hereto shall
promptly appeal any adverse determination which is not nonappealable (and pursue
such appeal with reasonable diligence).
 
3.3 Procedure Upon Termination. 
 
            In the event of termination and abandonment by the Purchaser or the
Sellers, or both, pursuant to Section 3.2 hereof, written notice thereof shall
forthwith be given to the other party or parties, and this Agreement shall
terminate, and the purchase of the Shares hereunder shall be abandoned, without
further action by the Purchaser or the Sellers. If this Agreement is terminated
as provided herein, each party shall redeliver all documents, work papers and
other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the party
furnishing the same.
 
3.4 Effect of Termination.
 
            In the event that this Agreement is validly terminated as provided
herein, then each of the parties shall be relieved of their duties and
obligations arising under this Agreement after the date of such termination and
such termination shall be without liability to the Purchaser, the Company or any
Seller; provided, further, however, that nothing in this Section 3.4 shall
relieve the Purchaser or any Seller of any liability for a breach of this
Agreement.
 
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
 

             The Sellers hereby jointly and severally represent and warrant to
the Purchaser that:
 
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4.1. Organization and Good Standing of the Company. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation as set forth above. Except as otherwise
provided herein, the Company is not required to be qualified to transact
business in any other jurisdiction where the failure to so qualify would have an
adverse effect on the business of the Company. In this regard, the Company is
qualified to transact business in the States of Connecticut and Massachusetts.

4.2. Authority.
 
            (a) The Company has full power and authority (corporate and
otherwise) to carry on its business and has all permits and licenses that are
necessary to the conduct of its business or to the ownership, lease or operation
of its properties and assets, except where the failure to have such permits and
licenses would not have a material adverse effect on the Company’s business or
operations (“Material Adverse Effect”).

            (b) The execution of this Agreement and the delivery hereof to the
Purchaser and the sale contemplated herein have been, or will be prior to
Closing, duly authorized by the Company’s Board of Directors and by the
Company’s stockholders having full power and authority to authorize such
actions.
 
            (c) Subject to any consents required under Section 4.7 below, the
Sellers and the Company have the full legal right, power and authority to
execute, deliver and carry out the terms and provisions of this Agreement; and
this Agreement has been duly and validly executed and delivered on behalf of
Sellers and the Company and constitutes a valid and binding obligation of each
Seller and the Company enforceable in accordance with its terms.
 
            (d) Except as set forth in Section 4.2, neither the execution and
delivery of this Agreement, the consummation of the transactions herein
contemplated, nor compliance with the terms of this Agreement will violate,
conflict with, result in a breach of, or constitute a default under any statute,
regulation, indenture, mortgage, loan agreement, or other agreement or
instrument to which the Company or any Seller is a party or by which it or any
of them is bound, any charter, regulation, or bylaw provision of the Company, or
any decree, order, or rule of any court or governmental authority or arbitrator
that is binding on the Company or any Seller in any way, except where such would
not have a Material Adverse Effect.

4.3. Shares.
 
            (a) The Company’s authorized capital stock consists of 10,000 shares
of Common Stock, par value $1.00 per share, of which 3,000 shares have been
issued to Sellers and constitute the Shares as defined above. All of the Shares
are duly authorized, validly issued, fully paid and non-assessable.
 
            (b) The Sellers are the lawful record and beneficial owners of all
the Shares, free and clear of any liens, pledges, encumbrances, charges, claims
or restrictions of any kind, except as set forth in Section 4.3, and have, or
will have on the Closing Date, the absolute, unilateral right, power, authority
and capacity to enter into and perform this Agreement without any other or
further authorization, action or proceeding, except as specified herein.
 
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            (c) There are no authorized or outstanding subscriptions, options,
warrants, calls, contracts, demands, commitments, convertible securities or
other agreements or arrangements of any character or nature whatever under which
any Seller or the Company are or may become obligated to issue, assign or
transfer any shares of capital stock of the Company except as set forth in
Section 4.3. Upon the delivery to Purchaser on the Closing Date of the
certificate(s) representing the Shares, Purchaser will have good, legal, valid,
marketable and indefeasible title to all the then issued and outstanding shares
of capital stock of the Company, free and clear of any liens, pledges,
encumbrances, charges, agreements, options, claims or other arrangements or
restrictions of any kind.

4.4. Basic Corporate Records. The copies of the Articles of Incorporation of the
Company, (certified by the Secretary of State or other authorized official of
the jurisdiction of incorporation), and the Bylaws of the Company, as the case
may be (certified as of the date of this Agreement as true, correct and complete
by the Company’s secretary or assistant secretary), all of which have been
delivered to the Purchaser, are true, correct and complete as of the date of
this Agreement.

4.5. Minute Books. The minute books of the Company, which shall be exhibited to
the Purchaser between the date hereof and the Closing Date, each contain true,
correct and complete minutes and records of all meetings, proceedings and other
actions of the shareholders, Boards of Directors and committees of such Boards
of Directors of the Company, if any, except where such would not have a Material
Adverse Effect and, on the Closing Date, will, to the best of Sellers’
knowledge, contain true, correct and complete minutes and records of any
meetings, proceedings and other actions of the shareholders, respective Boards
of Directors and committees of such Boards of Directors of each such
corporation.

4.6. Subsidiaries and Affiliates. The Company does not have any ownership,
voting or profit and loss sharing percentage interest in any other corporations,
partnerships, businesses, entities, enterprises or organizations.
 

4.7. Consents. Except as set forth in Schedule 4.7, no consents or approvals of
any public body or authority and no consents or waivers from other parties to
leases, licenses, franchises, permits, indentures, agreements or other
instruments are (i) required for the lawful consummation of the transactions
contemplated hereby, or (ii) necessary in order that the business currently
conducted bythe Company can be conducted by the Purchaser in the same manner
after the Closing as heretofore conducted by the Company, nor will the
consummation of the transactions contemplated hereby result in creating,
accelerating or increasing any liability of the Company, except where the
failure of any of the foregoing would not have a Material Adverse Effect.

4.8. Financial Statements. The Sellers have delivered, or will deliver prior to
Closing, to the Purchaser copies of the following financial statements (which
include all notes and schedules attached thereto), all of which are true,
complete and correct, have been prepared from the books and records of the
Company in accordance with generally accepted accounting principles (“GAAP”)
consistently applied with past practice and fairly present the financial
condition, assets, liabilities and results of operations of the Company as of
the dates thereof and for the periods covered thereby:
 
 
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the unaudited reviewed balance sheet of the Company as at December 31, 2004 and
2005, and the related reviewed statements of operations, and of cash flows of
the Company for the period then ended and (ii) the unaudited compiled balance
sheet of the Company as of March 31, 2006 and the related compiled statement of
operations of the Company for the three month period then ended (such
statements, including the related notes and schedules thereto, are referred to
herein as the “Financial Statements.”
 

 

In such Financial Statements, the statements of operations do not contain any
items of special or nonrecurring income or any other income not earned in the
ordinary course of business except as set forth in Schedule 4.8, and the
financial statements for the interim periods indicated include all adjustments,
which consist of only normal recurring accruals, necessary for such fair
presentation. There are no facts, to the best of Sellers’ knowledge, that under
generally accepted accounting principles consistently applied, would alter the
information contained in the foregoing Financial Statements in any material way.

The Final Closing Balance Sheet will be complete and correct in all material
respects determined in accordance with GAAP.

For the purposes hereof, the balance sheet of the Company as of March 31, 2006
is referred to as the “Balance Sheet” and March 31, 2006 is referred to as the
“Balance Sheet Date”.

4.9. Records and Books of Account. The records and books of account of the
Company reflect all material items of income and expense and all material
assets, liabilities and accruals, have been, and to the Closing Date will be,
regularly kept and maintained in conformity with GAAP applied on a consistent
basis with preceding years.

4.10. Absence of Undisclosed Liabilities. Except as and to the extent reflected
or reserved against in the Company’s Financial Statements or disclosed in
Schedule 4.10, there are no liabilities or obligations of the Company of any
kind whatsoever, whether accrued, fixed, absolute, contingent, determined or
determinable, and including without limitation (i) liabilities to former,
retired or active employees of the Company under any pension, health and welfare
benefit plan, vacation plan or other plan of the Company, (ii) tax liabilities
incurred in respect of or measured by income for any period prior to the close
of business on the Balance Sheet Date, or arising out of transactions entered
into, or any state of facts existing, on or prior to said date, and
(iii) contingent liabilities in the nature of an endorsement, guarantee,
indemnity or warranty, and there is no condition, situation or circumstance
existing or which has existed that could reasonably be expected to result in any
liability of the Company, other than liabilities and contingent liabilities
incurred in the ordinary course of business since the Balance Sheet Date
consistent with the Company’s recent customary business practice, none of which
is materially adverse to the Company.
 

 
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4.11 Taxes.
 
               (a) For purposes of this Agreement, “Tax” or “Taxes” refers to:
(i) any and all federal, state, local and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities relating to taxes,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes and
escheatment payments, together with all interest, penalties and additions
imposed with respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts and including
any liability for taxes of a predecessor entity; (ii) any liability for the
payment of any amounts of the type described in clause (i) as a result of being
or ceasing to be a member of an affiliated, consolidated, combined or unitary
group for any period (including, without limitation, any liability under Treas.
Reg. Section 1.1502-6 or any comparable provision of foreign, state or local
law); and (iii) any liability for the payment of any amounts of the type
described in clause (i) or (ii) as a result of any express or implied obligation
to indemnify any other person or as a result of any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.

(b) (i) The Company has timely filed all federal, state, local and foreign
returns, estimates, information statements and reports (“Returns”) relating to
Taxes required to be filed by the Company with any Tax authority effective
through the Closing Date. All such Returns are true, correct and complete in all
respects, except for immaterial amounts where such would not have a Material
Adverse Effect. The Company has paid all Taxes shown to be due on such Returns.
Except as listed on Schedule 4.11 hereto, the Company is not currently the
beneficiary of any extensions of time within which to file any Returns. The
Sellers and the Company have furnished and made available to the Purchaser
complete and accurate copies of all income and other Tax Returns and any
amendments thereto filed by the Company in the last three (3) years.

(ii) The Company, as of the Closing Date, will have withheld and accrued or paid
to the proper authority all Taxes required to have been withheld and accrued or
paid, except for immaterial amounts where such would not have a Material Adverse
Effect.

(iii) The Company has not been delinquent in the payment of any Tax nor is there
any Tax deficiency outstanding or assessed against the Company. The Company has
not executed any unexpired waiver of any statute of limitations on or extending
the period for the assessment or collection of any Tax.

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(iv) There is no dispute, claim, or proposed adjustment concerning any Tax
liability of the Company either (A) claimed or raised by any Tax authority in
writing or (B)  based upon personal contact with any agent of such Tax
authority, and there is no claim for assessment, deficiency, or collection of
Taxes, or proposed assessment, deficiency or collection from the Internal
Revenue Service or any other governmental authority against the Company which
has not been satisfied. The Company is not a party to nor has it been notified
in writing that it is the subject of any pending, proposed, or threatened
action, investigation, proceeding, audit, claim or assessment by or before the
Internal Revenue Service or any other governmental authority, nor does the
Company have any reason to believe that any such notice will be received in the
future. Except as set forth on Schedule 4.11, neither the Internal Revenue
Service nor any state or local taxation authority has ever audited any income
tax return of the Company. The Company has not filed any requests for rulings
with the Internal Revenue Service. Except as provided to the Company’s
accountants, no power of attorney has been granted by the Company or its
Affiliates with respect to any matter relating to Taxes of the Company. There
are no Tax liens of any kind upon any property or assets of the Company, except
for inchoate liens for Taxes not yet due and payable.

(v) Except for immaterial amounts which would not have a Material Adverse
Effect, the Company has no liability for any unpaid Taxes which has not been
paid or accrued for or reserved on the Financial Statements in accordance with
GAAP, whether asserted or unasserted, contingent or otherwise.

(vi) There is no contract, agreement, plan or arrangement to which the Company
is a party as of the date of this Agreement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, would reasonably be expected to give
rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Internal Revenue Code of 1986, as amended
(the “Code”). There is no contract, agreement, plan or arrangement to which the
Company is a party or by which it is bound to compensate any individual for
excise taxes paid pursuant to Section 4999 of the Code.

(vii) The Company has not filed any consent agreement under Section 341(f) of
the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the
Code) owned by the Company.

(viii) The Company is not a party to, nor has any obligation under any
tax-sharing, tax indemnity or tax allocation agreement or arrangement.

(ix) None of the Company’s assets are tax exempt use property within the meaning
of Section 168(h) of the Code.

(x) The Company made a valid election under Section 1362 of the Code to be
treated as an S corporation as defined in Code Section 1361, which election was
acknowledged by the IRS and became effective on November 8, 1995. The election
has remained in effect since that date without revocation, cessation or
termination, and the Company has qualified to be taxed under the provisions of
Subchapter S of the Code and under applicable similar provisions of state income
tax law for all periods beginning on or after November 8, 1995.

4.12. Accounts Receivable. The accounts receivable of the Company shown on the
Balance Sheet Date, and those to be shown in the Financial Statements, are, and
will be, actual bona fide receivables from transactions in the ordinary course
of business representing valid and binding obligations of others for the total
dollar amount shown thereon, and as of the Balance Sheet Date were not (and
presently are not) subject to any recoupments, set-offs, or counterclaims. All
such accounts receivable are, and will be collectible in amounts not less than
the amounts (net of reserves) carried on the books of the Company, including the
Financial Statements, and will be paid in accordance with their terms. Except as
listed on Schedule 4.12 hereto, all such accounts receivable are and will be
actual bona fide receivables from transactions in the ordinary course of
business.

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4.13. Inventory. The inventories of the Company are located at the locations
listed on Schedule 4.13 attached hereto. The inventories of the Company shown on
its Balance Sheet (net of reserves) are carried at values which reflect the
normal inventory valuation policy of the Company of stating the items of
inventory at average cost in accordance with generally accepted accounting
principles consistently applied. Inventory acquired since the Balance Sheet Date
has been acquired in the ordinary course of business and valued as set forth
above. The Company will maintain the inventory in the normal and ordinary course
of business from the date hereof through the Closing Date. Notwithstanding the
foregoing, the Company is using commercially reasonable best efforts to sell
slow moving inventory prior to the Closing Date.

4.14. Machinery and Equipment. Except for items disposed of in the ordinary
course of business, all machinery, tools, furniture, fixtures, equipment,
vehicles, leasehold improvements and all other tangible personal property
(hereinafter “Fixed Assets”) of the Company currently being used in the conduct
of its business, or included in determining the net book value of the Company on
the Balance Sheet Date, together with any machinery or equipment that is leased
or operated by the Company, are in fully serviceable working condition and
repair. Said Fixed Assets shall be maintained in such condition from the date
hereof through the Closing Date. Except as described on Schedule 4.14 hereto,
all Fixed Assets owned, used or held by the Company are situated at its business
premises and are currently used in its business. Schedule 4.14 describes all
Fixed Assets owned by or an interest in which is claimed by any other person
(whether a customer, supplier or other person) for which the Company is
responsible (copies of all agreements relating thereto being attached to said
Schedule 4.14), and all such property is in the Company’s actual possession and
is in such condition that upon the return of such property in its present
condition to its owner, the Company will not be liable in any amount to such
owner. There are no outstanding requirements or recommendations by any insurance
company that has issued a policy covering either (i) such Fixed Assets or
(ii) any liabilities of the Company relating to operation of the Business, or by
any board of fire underwriters or other body exercising similar functions,
requiring or recommending any repairs or work to be done on any Fixed Assets or
any changes in the operations of the Business, any equipment or machinery used
therein, or any procedures relating to such operations, equipment or machinery.
All Fixed Assets of the Company are set forth on Schedule 4.14 hereto.

4.15. Real Property Matters. The Company does not own any real property as of
the date hereof and has not owned any real property during the three years
preceding the date hereof.
 
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4.16. Leases. All leases of real and personal property of the Company are
described in Schedule 4.16, are in full force and effect and constitute legal,
valid and binding obligations of the respective parties thereto enforceable in
accordance with their terms, except as limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting generally
the enforcement of creditor’s rights, and have not been assigned or encumbered.
The Company has performed in all material respects the obligations required to
be performed by it under all such leases to date and it is not in default in any
material respect under any of said leases, except as set forth in Schedule 4.16,
nor has it made any leasehold improvements required to be removed at the
termination of any lease, except signs. No other party to any such lease is in
material default thereunder. Except as noted on Schedule 4.16, none of the
leases listed thereon require the consent of a third party in connection with
the transfer of the Shares.

4.17. Patents, Software, Trademarks, Etc. The Company owns, or possesses
adequate licenses or other rights to use, all patents, software, trademarks,
service marks, trade names and copyrights and trade secrets, if any, necessary
to conduct its business as now operated by it. The patents, software,
trademarks, service marks, copyrights, trade names and trade secrets, if any,
registered in the name of or owned or used by or licensed to the Company and
applications for any thereof (hereinafter the “Intangibles”) are described or
referenced in Schedule 4.17. Sellers hereby specifically acknowledge that all
right, title and interest in and to all patents and software listed on Schedule
4.17 as patents owned by the Company are owned by the Company or the Company has
a right to use same and that the ownership of such patents and software will be
transferred as part of the Company to Purchaser as part of the transaction
contemplated hereby. No officer, director, shareholder or employee of the
Company or any relative or spouse of any such person owns any patents or patent
applications or any inventions, software, secret formulae or processes, trade
secrets or other similar rights, nor is any of them a party to any license
agreement, used by or useful to the Company or related to its business except as
listed in Schedule 4.17. All of said Intangibles are valid and in good standing
to the best of Sellers’ knowledge, and are free and clear of all liens, security
interests, charges, restrictions and encumbrances of any kind whatsoever, and
have not been licensed to any third party except as described in Schedule 4.17.
The Company has not been charged with, nor has it infringed, nor to the Sellers’
knowledge is it threatened to be charged with infringement of, any patent,
proprietary rights or trade secrets of others in the conduct of its business,
and, to the date hereof, neither the Sellers nor the Company has received any
notice of conflict with or violation of the asserted rights in intangibles or
trade secrets of others. The Company is not now manufacturing any goods under a
present permit, franchise or license, except as set forth in said Schedule 4.17.
The consummation of the transactions contemplated hereby will not alter or
impair any rights of the Company in any such Intangibles or in any such permit,
franchise or license, except as described in Schedule 4.17. The Intangibles and
the Company’s tooling, manufacturing and engineering drawings, process sheets,
specifications, bills of material and other like information and data are in
such form and of such quality and will be maintained in such a manner that the
Company can, following the Closing, design, produce, manufacture, assemble and
sell the products and provide the services heretofore provided by it so that
such products and services meet applicable specifications and conform with the
standards of quality and cost of production standards heretofore met by it. The
Company has the sole and exclusive right to use its corporate and trade names in
the jurisdictions where it transacts business.

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4.18. Insurance Policies. There is set forth in Schedule 4.18 a list and brief
description of all insurance policies on the date hereof held by the Company or
on which it pays premiums, including, without limitation, life insurance and
title insurance policies, which description includes the premiums payable by it
thereunder. Schedule 4.18 also sets forth, in the case of any life insurance
policy held by the Company, the name of the insured under such policy, the cash
surrender value thereof and any loans thereunder. All such insurance premiums in
respect of such coverage have been, and to the Closing Date will be, paid in
full, if due and owing . All claims, if any, made against the Company which are
covered by such policies have been, or are being, settled or defended by the
insurance companies that have issued such policies. Up to the Closing Date, such
insurance coverage will be maintained in full force and effect and will not be
cancelled, modified or changed without the express written consent of the
Purchaser, except to the extent the maturity dates of any such insurance
policies expiring prior to the Closing Date. No such policy has been, or to the
Closing Date will be, cancelled by the issuer thereof, and, to the knowledge of
the Sellers and the Company, between the date hereof and the Closing Date, there
shall be no increase in the premiums with respect to any such insurance policy
caused by any action or omission of the Sellers or of the Company.

4.19. Banking and Personnel Lists. The Sellers and the Company will deliver to
the Purchaser prior to the Closing Date the following accurate lists and summary
descriptions relating to the Company:

(i) The name of each bank in which the Company has an account or safe deposit
box and the names of all persons authorized to draw thereon or have access
thereto.

(ii) The names, current annual salary rates and total compensation for the
preceding fiscal year of all of the present directors and officers of the
Company, and any other employees whose current base accrual salary or annualized
hourly rate equivalent is $20,000 or more, together with a summary of the
bonuses, percentage compensation and other like benefits, if any, paid or
payable to such persons for the last full fiscal year completed, together with a
schedule of changes since that date, if any.

(iii) A schedule of workers’ compensation payments of the Company over the past
five full fiscal years and the fiscal year to date, a schedule of claims by
employees of the Company against the workers’ compensation fund for any reason
over such period, identification of all compensation and medical benefits paid
to date on each such claim and the estimated amount of compensation and medical
benefits to be paid in the future on each such claim.

(iv) The name of all pensioned employees of the Company whose pensions are
unfunded and are not paid or payable pursuant to any formalized pension
arrangements, their agent and annual unfunded pension rates.

4.20. Lists of Contracts, Etc. There is included in Schedule 4.20 a list of the
following items (whether written or oral) relating to the Company, which list
identifies and fairly summarizes each item:

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(i) All collective bargaining and other labor union agreements (if any); all
employment agreements with any officer, director, employee or consultant; and
all employee pension, health and welfare benefit plans, group insurance, bonus,
profit sharing, severance, vacation, hospitalization, and retirement plans,
post-retirement medical benefit plans, and any other plans, arrangements or
custom requiring payments or benefits to current or retiring employees.

(ii) All joint venture contracts of the Company or affiliates relating to the
Business;

(iii) All contracts of the Company relating to (a) obligations for borrowed
money, (b) obligations evidenced by bonds, debentures, notes or other similar
instruments, (c) obligations to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (d) obligations under capital leases, (e) debt of others secured by a
lien on any asset of the Company, and (f) debts of others guaranteed by the
Company.

(iv) All agreements of the Company relating to the supply of raw materials for
and the distribution of the products of its business, including without
limitation all sales agreements, manufacturer’s representative agreements and
distribution agreements of whatever magnitude and nature, and any commitments
therefor;

(v) All contracts that individually provide for aggregate future payments to or
from the Company of $25,000 or more, to the extent not included in (i) through
(iv) above;

(vi) All contracts of the Company that have a term exceeding one year and that
may not be cancelled without any liability, penalty or premium, to the extent
not included in (i) through (v) above;

(vii) A complete list of all outstanding powers of attorney granted by the
Company; and

(viii) All other contracts of the Company material to the business, assets,
liabilities, financial condition, results of operations or prospects of the
Business taken as a whole to the extent not included above.

Except as set forth in Schedule 4.20, (i) all contracts, agreements and
commitments of the Company set forth in Schedule 4.20 are valid, binding and in
full force and effect, and (ii) neither the Company nor, to the best of Sellers’
knowledge, any other party to any such contract, agreement, or commitment has
materially breached any provision thereof or is in default thereunder. Except as
set forth in Schedule 4.20, the sale of the Shares by the Sellers in accordance
with this Agreement will not result in the termination of any contract,
agreement or commitment of the Company set forth in Schedule 4.20, and
immediately after the Closing, each such contract, agreement or commitment will
continue in full force and effect without the imposition or acceleration of any
burdensome condition or other obligation on the Company resulting from the sale
of the Shares by the Sellers. True and complete copies of the contracts, leases,
licenses and other documents referred to in this Schedule 4.20 will be delivered
to the Purchaser, certified by the Secretary or Assistant Secretary of the
Company as true, correct and complete copies, not later than four weeks from the
date hereof or ten business days before the Closing Date, whichever is sooner.

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There are no pending disputes with customers or vendors of the Company regarding
quality or return of goods involving amounts in dispute with any one customer or
vendor, whether for related or unrelated claims, in excess of $5,000 except as
described on Schedule 4.20 hereto, all of which will be resolved to the
reasonable satisfaction of Purchaser prior to the Closing Date. To the best
knowledge of Sellers and the Company, there has not been any event, happening,
threat or fact that would lead them to believe that any of said customers or
vendors will terminate or materially alter their business relationship with the
Company after completion of the transactions contemplated by this Agreement.

4.21. Compliance With the Law. The Company is not in violation of any applicable
federal, state, local or foreign law, regulation or order or any other, decree
or requirement of any governmental, regulatory or administrative agency or
authority or court or other tribunal (including, but not limited to, any law,
regulation order or requirement relating to securities, properties, business,
products, manufacturing processes, advertising, sales or employment practices,
terms and conditions of employment, occupational safety, health and welfare,
conditions of occupied premises, product safety and liability, civil rights, or
environmental protection, including, but not limited to, those related to waste
management, air pollution control, waste water treatment or noise abatement),
except where such would not have a Material Adverse Effect. Except as set forth
in Schedule 4.21, the Company has not been and is not now charged with, or to
the best knowledge of the Sellers or the Company under investigation with
respect to, any violation of any applicable law, regulation, order or
requirement relating to any of the foregoing, nor, to the best knowledge of any
Seller or the Company after due inquiry, are there any circumstances that would
or might give rise to any such violation. The Company has filed all reports
required to be filed with any governmental, regulatory or administrative agency
or authority.

4.22. Litigation; Pending Labor Disputes. Except as specifically identified on
the Balance Sheet or footnotes thereto or set forth in Schedule 4.22:

(i) There are no legal, administrative, arbitration or other proceedings or
governmental investigations pending or, to the best knowledge of Sellers or the
Company, threatened, against the Sellers or the Company, relating to its
business or the Company or its properties (including leased property), or the
transactions contemplated by this Agreement, nor is there any basis known to the
Company or any Seller for any such action.

(ii) There are no judgments, decrees or orders of any court, or any governmental
department, commission, board, agency or instrumentality binding upon Sellers or
the Company relating to its business or the Company the effect of which is to
prohibit any business practice or the acquisition of any property or the conduct
of any business by the Company or which limit or control or otherwise adversely
affect its method or manner of doing business.
 
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(iii) No work stoppage has occurred and is continuing or, to the knowledge of
Sellers or the Company, is threatened affecting its business, and to the best of
Sellers’ knowledge, no question involving recognition of a collective bargaining
agent exists in respect of any employees of the Company.

(iv) There are no pending labor negotiations or, to the best of Sellers’
knowledge, union organization efforts relating to employees of the Company.

(v) There are no charges of discrimination (relating to sex, age, race, national
origin, handicap or veteran status) or unfair labor practices pending or, to the
best knowledge of the Sellers or the Company, threatened before any governmental
or regulatory agency or authority or any court relating to employees of the
Company.

4.23. Absence of Certain Changes or Events. The Company has not, since the
Balance Sheet Date, and except in the ordinary course of business consistent
with past practice and/or except as described on Schedule 4.23:

(i) Incurred any material obligation or liability (absolute, accrued, contingent
or otherwise), except in the ordinary course of its business consistent with
past practive or in connection with the performance of this Agreement, and any
such obligation or liability incurred in the ordinary course is not materially
adverse, except for claims, if any, that are adequately covered by insurance;

(ii) Discharged or satisfied any lien or encumbrance, or paid or satisfied any
obligations or liability (absolute, accrued, contingent or otherwise) other than
(a) liabilities shown or reflected on the Balance Sheet, and (b) liabilities
incurred since the Balance Sheet Date in the ordinary course of business that
were not materially adverse;

(iii) Increased or established any reserve or accrual for taxes or other
liability on its books or otherwise provided therefor, except (a) as disclosed
on the Balance Sheet, or (b) as may have been required under generally accepted
accounting principles due to income earned or expense accrued since the Balance
Sheet Date and as disclosed to the Purchaser in writing;

(iv) Mortgaged, pledged or subjected to any lien, charge or other encumbrance
any of its assets, tangible or intangible;

(v) Sold or transferred any of its assets or cancelled any debts or claims or
waived any rights, except in the ordinary course of business and which has not
been materially adverse;
 

 
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(vi) Disposed of or permitted to lapse any patents or trademarks or any patent
or trademark applications material to the operation of its business;

(vii) Incurred any significant labor trouble or granted any general or uniform
increase in salary or wages payable or to become payable by it to any director,
officer, employee or agent, or by means of any bonus or pension plan, contract
or other commitment increased the compensation of any director, officer,
employee or agent;

(viii) Authorized any capital expenditure for real estate or leasehold
improvements, machinery, equipment or molds in excess of $5,000.00 in the
aggregate;

(ix) Except for this Agreement or as otherwise disclosed herein or in any
schedule to this Agreement, entered into any material transaction ;

(x) Issued any stocks, bonds, or other corporate securities, or made any
declaration or payment of any dividend or any distribution in respect of its
capital stock; or

(xi) Experienced damage, destruction or loss (whether or not covered by
insurance) individually or in the aggregate materially and adversely affecting
any of its properties, assets or business, or experienced any other material
adverse change or changes individually or in the aggregate affecting its
financial condition, assets, liabilities or business.

4.24. Employee Benefit Plans.

(a) Schedule 4.24 lists a description of the only Employee Programs (as defined
below) that have been maintained (as such term is further defined below) by the
Company at any time during the five (5) years prior to the date hereof.

(b) There has not been any failure of any party to comply with any laws
applicable with respect to any Employee Program that has been maintained by the
Company, except where such would not have a Material Adverse Effect. With
respect to any Employee Programs now or heretofore maintained by the Company,
there has occurred no breach of any duty under the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”) or other applicable law which could
result, directly or indirectly in any taxes, penalties or other liability to the
Purchaser, the Company or any affiliate (as defined below), except for
immaterial exceptions which would not have a Material Adverse Effect. No
litigation, arbitration, or governmental administrative proceeding (or
investigation) or other proceeding (other than those relating to routine claims
for benefits) is pending or, to the best knowledge of the Company and Seller,
threatened with respect to any such Employee Program. 

(c) Except as set forth in Schedule 4.24 attached hereto, neither the Company
nor any affiliate has ever (i) provided health care or any other non-pension
benefits to any employees after their employment was terminated (other than as
required by Part 6 of Subtitle B of Title I of ERISA) or has ever promised to
provide such post-termination benefits or (ii) maintained an Employee Program
provided to such employees subject to Title IV of ERISA, Section 401(a) or
Section 412 of Code, including, without limitation, any Multiemployer Plan.

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(d) For purposes of this Section 4.24:
 
(i) “Employee Program” means (A) all employee benefit plans within the meaning
of ERISA Section 3(3), including, but not limited to, multiple employer welfare
arrangements (within the meaning of ERISA Section 3(40)), plans to which more
than one unaffiliated employer contributes and employee benefit plans (such as
foreign or excess benefit plans) which are not subject to ERISA; and (B) all
stock option plans, bonus or incentive award plans, severance pay policies or
agreements, deferred compensation agreements, supplemental income arrangements,
vacation plans, and all other employee benefit plans, agreements, and
arrangements not described in (A) above. In the case of an Employee Program
funded through an organization described in Code Section 501(c)(9), each
reference to such Employee Program shall include a reference to such
organization;

(ii) An entity “maintains” an Employee Program if such entity sponsors,
contributes to, or provides (or has promised to provide) benefits under such
Employee Program, or has any obligation (by agreement or under applicable law)
to contribute to or provide benefits under such Employee Program, or if such
Employee Program provides benefits to or otherwise covers employees of such
entity (or their spouses, dependents, or beneficiaries);

(iii) An entity is an “affiliate” of the Company for purposes of this
Section 3.24 if it would have ever been considered a single employer with the
Company under ERISA Section 4001(b) or part of the same “controlled group” as
the Company for purposes of ERISA Section 302(d)(8)(C); and

(iv) “Multiemployer Plan” means a (pension or non-pension) employee benefit plan
to which more than one employer contributes and which is maintained pursuant to
one or more collective bargaining agreements.

4.25. Product Warranties and Product Liabilities. The product warranties and
return policies of the Company in effect on the date hereof and the types of
products to which they apply are described on Schedule 4.25 hereto. Schedule
4.25 also sets forth all product liability claims involving amounts in
controversy in excess of $5,000 that are currently either pending or, to the
best of the Sellers’ and the Company’s knowledge, threatened against the
Company. The Company has not paid in the aggregate, or allowed as credits
against purchases, or received claims for more than one percent (1%) per year of
gross sales, as determined in accordance with GAAP consistently applied, during
the past three years pursuant to obligations under any warranty or any product
liability claim with respect to goods manufactured, assembled or furnished by
the Company. The future cost of performing all such obligations and paying all
such product liability claims with respect to goods manufactured, assembled or
furnished prior to the Closing Date will not exceed the average annual cost
thereof for said past three year period.

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4.26. Assets. The assets of the Company are located at the locations listed on
Schedule 4.26 attached hereto. Except as described in Schedule 4.26, the assets
of the Company are, and together with the additional assets to be acquired or
otherwise received by the Company prior to the Closing, will at the Closing Date
be, sufficient in all material respects to carry on the operations of the
business as now conducted by the Company. The Company is the only business
organization through which the Business is conducted. Except as set forth in
Schedule 4.16 or Schedule 4.26, all assets used by the Sellers and the Company
to conduct the Business are, and will on the Closing Date be, owned by the
Company.

4.27. Absence of Certain Commercial Practices. Except as described on Schedule
4.27, neither the Company nor any Seller has made any payment (directly or by
secret commissions, discounts, compensation or other payments) or given any
gifts to another business concern, to an agent or employee of another business
concern or of any governmental entity (domestic or foreign) or to a political
party or candidate for political office (domestic or foreign), to obtain or
retain business for the Company or to receive favorable or preferential
treatment, except for gifts and entertainment given to representatives of
customers or potential customers of sufficiently limited value and in a form
(other than cash) that would not be construed as a bribe or payoff.

4.28. Licenses, Permits, Consents and Approvals. The Company has, and at the
Closing Date will have, all licenses, permits or other authorizations of
governmental, regulatory or administrative agencies or authorities
(collectively, “Licenses”) required to conduct the Business, except for any
failures of such which would not have a Material Adverse Effect. All Licenses of
the Company are listed on Schedule 4.28 hereto. At the Closing, the Company will
have all such Licenses which are material to the conduct of the Business and
will have renewed all Licenses which would have expired in the interim. Except
as listed in Schedule 4.28, no registration, filing, application, notice,
transfer, consent, approval, order, qualification, waiver or other action of any
kind (collectively, a “Filing”) will be required as a result of the sale of the
Shares by Sellers in accordance with this Agreement (a) to avoid the loss of any
License or the violation, breach or termination of, or any default under, or the
creation of any lien on any asset of the Company pursuant to the terms of, any
law, regulation, order or other requirement or any contract binding upon the
Company or to which any such asset may be subject, or (b) to enable Purchaser
(directly or through any designee) to continue the operation of the Company and
the Business substantially as conducted prior to the Closing Date. All such
Filings will be duly filed, given, obtained or taken on or prior to the Closing
Date and will be in full force and effect on the Closing Date.

4.29. Environmental Matters. Except as set forth on Schedule 4.29 hereto:
 
(a) The operations of the Company, to the best knowledge of Sellers, are in
compliance with all applicable Laws promulgated by any governmental entity which
prohibit, regulate or control any hazardous material or any hazardous material
activity (“Environmental Laws”) and all permits issued pursuant to Environmental
Laws or otherwise except for where noncompliance or the absence of such permits
would not, individually or in the aggregate, have a Material Adverse Effect;
 
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(b)  The Company has obtained all permits required under all applicable
Environmental Laws necessary to operate its business, except for any failures of
such which would not have a Material Adverse Effect;
 
(c) The Company is not the subject of any outstanding written order or Contract
with any governmental authority or person respecting Environmental Laws or any
violation or potential violations thereof; and,
 
(d) The Company has not received any written communication alleging either or
both that the Company may be in violation of any Environmental Law, or any
permit issued pursuant to Environmental Law, or may have any liability under any
Environmental Law.

4.30 Broker. Except as specified in Schedule 4.30, neither the Company nor any
Seller has retained any broker in connection with any transaction contemplated
by this Agreement. Purchaser and the Company shall not be obligated to pay any
fee or commission associated with the retention or engagement by the Company or
Sellers of any broker in connection with any transaction contemplated by this
Agreement.

4.31. Related Party Transactions. Except as described in Schedule 4.31, all
transactions during the past five years between the Company and any current or
former shareholder or any entity in which the Company or any current or former
shareholder had or has a direct or indirect interest have been fair to the
Company as determined by the Board of Directors. No portion of the sales or
other on-going business relationships of the Company is dependent upon the
friendship or the personal relationships (other than those customary within
business generally) of any Seller, except as described in Schedule 4.31. During
the past five years, the Company has not forgiven or cancelled, without
receiving full consideration, any indebtedness owing to it by any Seller.

4.32 Patriot Act. The Company and the Sellers certify that the Company has not
been designated, and is not owned or controlled, by a “suspected terrorist” as
defined in Executive Order 13224. The Company and the Sellers hereby acknowledge
that the Purchaser seeks to comply with all applicable laws concerning money
laundering and related activities. In furtherance of those efforts, the Company
and the Sellers hereby represent, warrant and agree that: (i) none of the cash
or property that the Sellers have contributed or paid or will contribute and pay
to the Company has been or shall be derived from, or related to, any activity
that is deemed criminal under United States law; and (ii) no contribution or
payment by the Company to the Purchaser, to the extent that they are within the
Company’s control shall cause the Purchaser to be in violation of the United
States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. The Sellers shall promptly
notify the Purchaser if any of these representations ceases to be true and
accurate regarding the Sellers or the Company. The Sellers agree to provide the
Purchaser any additional information regarding the Company that the Purchaser
reasonably requests to ensure compliance with all applicable laws concerning
money laundering and similar activities.

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4.33. Disclosure. All statements contained in any schedule, certificate,
opinion, instrument, or other document delivered by or on behalf of the Sellers
or the Company pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed representations and warranties by each
Seller and the Company herein. No statement, representation or warranty by the
Sellers or the Company in this Agreement or in any schedule, certificate,
opinion, instrument, or other document furnished or to be furnished to the
Purchaser pursuant hereto or in connection with the transactions contemplated
hereby contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact required to be stated therein or necessary
to make the statements contained therein not misleading or necessary in order to
provide a prospective purchaser of the business of the Company with full and
fair disclosure concerning the Company, its business, and the Company’s affairs.

ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
 
5.1 Organization and Good Standing.
 
The Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
 
5.2 Authority.
 
(a) The execution and delivery of this Agreement and the consummation of the
transactions contemplated herein have been, or will prior to Closing be, duly
and validly approved and acknowledged by all necessary corporate action on the
part of the Purchaser.

(b) The execution of this Agreement and the delivery hereof to the Sellers and
the purchase contemplated herein have been, or will be prior to Closing, duly
authorized by the Purchaser’s Board of Directors having full power and authority
to authorize such actions.
 
5.3 Conflicts; Consents of Third Parties. 
 
(a) The execution and delivery of this Agreement, the acquisition of the Shares
by Purchaser and the consummation of the transactions herein contemplated, and
the compliance with the provisions and terms of this Agreement, are not
prohibited by the Articles of Incorporation or Bylaws of the Purchaser and will
not violate, conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any court order, indenture,
mortgage, loan agreement, or other agreement or instrument to which the
Purchaser is a party or by which it is bound.
 
(b) No consent, waiver, approval, order, permit or authorization of, or
declaration or filing with, or notification to, any person or governmental body
is required on the part of the Purchaser in connection with the execution and
delivery of this Agreement or the Purchaser Documents or the compliance by
Purchaser with any of the provisions hereof or thereof.
 
5.4 Litigation.
 
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There are no legal proceedings pending or, to the best knowledge of the
Purchaser, threatened that are reasonably likely to prohibit or restrain the
ability of the Purchaser to enter into this Agreement or consummate the
transactions contemplated hereby.
 
5.5 Investment Intention.
 
The Purchaser is acquiring the Shares for its own account, for investment
purposes only and not with a view to the distribution (as such term is used in
Section 2(11) of the Securities Act of 1933, as amended (the "Securities Act")
thereof. Purchaser understands that the Shares have not been registered under
the Securities Act and cannot be sold unless subsequently registered under the
Securities Act or an exemption from such registration is available.
 
5.6 Broker.
 
Except for Punk Ziegel & Company, the Purchaser has not retained any broker in
connection with any transaction contemplated by this Agreement. Sellers shall
not be obligated to pay any fee or commission associated with the retention or
engagement by the Purchaser of any broker in connection with any transaction
contemplated by this Agreement.
 
5.7 Patriot Act. The Purchaser certifies that neither the Purchaser nor any of
its subsidiaries has been designated, and is not owned or controlled, by a
“suspected terrorist” as defined in Executive Order 13224. The Purchaser hereby
acknowledge that the Company and the Sellers seek to comply with all applicable
laws concerning money laundering and related activities. In furtherance of those
efforts, the Purchaser hereby represent, warrant and agree that: (i) none of the
cash or property that the Purchaser has contributed or paid or will contribute
and pay to the Sellers has been or shall be derived from, or related to, any
activity that is deemed criminal under United States law; and (ii) no
contribution or payment by the Purchaser or any of its subsidiaries to the
Sellers, to the extent that they are within the Purchaser’s control shall cause
the Sellers or the Company to be in violation of the United States Bank Secrecy
Act, the United States International Money Laundering Control Act of 1986 or the
United States International Money Laundering Abatement and Anti-Terrorist
Financing Act of 2001. The Purchaser shall promptly notify the Sellers if any of
these representations ceases to be true and accurate regarding the Purchaser or
any of its subsidiaries. The Purchaser agrees to provide the Sellers any
additional information regarding the Purchaser or any of its subsidiaries that
the Sellers reasonably requests to ensure compliance with all applicable laws
concerning money laundering and similar activities.

ARTICLE VI
COVENANTS
 
6.1 Access to Information.
 
The Sellers and the Company agree that, prior to the Closing Date, the Purchaser
shall be entitled, through its officers, employees and representatives
(including, without limitation, its legal advisors and accountants), to make
such investigation of the properties, businesses and operations of the Company
and its Subsidiaries and such examination of the books, records and financial
condition of the Company and its Subsidiaries as it reasonably requests and to
make extracts and copies of such books and records. Any such investigation and
examination shall be conducted during regular business hours and under
reasonable circumstances, and the Sellers shall cooperate, and shall cause the
Company and its Subsidiaries to cooperate, fully therein. No investigation by
the Purchaser prior to or after the date of this Agreement shall diminish or
obviate any of the representations, warranties, covenants or agreements of the
Sellers contained in this Agreement or the Seller Documents. In order that the
Purchaser may have full opportunity to make such physical, business, accounting
and legal review, examination or investigation as it may reasonably request of
the affairs of the Company and its Subsidiaries, the Sellers shall cause the
officers, employees, consultants, agents, accountants, attorneys and other
representatives of the Company and its Subsidiaries to cooperate fully with such
representatives in connection with such review and examination.
 
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6.2 Conduct of the Business Pending the Closing.
 
(a) Except as otherwise expressly contemplated by this Agreement or with the
prior written consent of the Purchaser, the Sellers shall, and shall cause the
Company to:
 
(i) Conduct the respective businesses of the Company only in the ordinary course
consistent with past practice;
 
(ii) Use its best efforts to (A) preserve its present business operations,
organization (including, without limitation, management and the sales force) and
goodwill of the Company and (B) preserve its present relationship with Persons
having business dealings with the Company;
 
(iii) Maintain (A) all of the assets and properties of the Company in their
current condition, ordinary wear and tear excepted and (B) insurance upon all of
the properties and assets of the Company in such amounts and of such kinds
com-parable to that in effect on the date of this Agreement;
 
(iv) (A) maintain the books, accounts and records of the Company in the ordinary
course of business consistent with past practices, (B) continue to collect
accounts receivable and pay accounts payable utilizing normal procedures and
without discounting or accelerating payment of such accounts, and (C) comply
with all contractual and other obligations applicable to the operation of the
Company; and
 
(v) Comply in all material respects with applicable laws.
 
(b) Except as otherwise expressly contemplated by this Agreement or with the
prior written consent of the Purchaser, the Sellers shall not, and shall cause
the Company not to:
 
(i) Declare, set aside, make or pay any dividend or other distribution in
respect of the capital stock of the Company or repurchase, redeem or otherwise
acquire any outstanding shares of the capital stock or other securities of, or
other ownership interests in, the Company;
 
 
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(ii) Transfer, issue, sell or dispose of any shares of capital stock or other
securities of the Company or grant options, warrants, calls or other rights to
purchase or otherwise acquire shares of the capital stock or other securities of
the Company;
 
(iii) Effect any recapitalization, reclassification, stock split or like change
in the capitalization of the Company;
 
(iv) Amend the certificate of incorporation or by-laws of the Company;
 
(v) (A) materially increase the annual level of compensation of any employee of
the Company, (B) increase the annual level of compensation payable or to become
payable by the Company to any of its executive officers, (C) grant any unusual
or extraordinary bonus, benefit or other direct or indirect compensation to any
employee, director or consultant, (D) increase the coverage or benefits
available under any (or create any new) severance pay, termination pay, vacation
pay, company awards, salary continuation for disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, pension or other
employee benefit plan or arrangement made to, for, or with any of the directors,
officers, employees, agents or representatives of the Company or otherwise
modify or amend or terminate any such plan or arrangement or (E) enter into any
employment, deferred compensation, severance, consulting, non-competition or
similar agreement (or amend any such agreement) to which the Company is a party
or involving a director, officer or employee of the Company in his or her
capacity as a director, officer or employee of the Company;
 
(vi) Except for trade payables and for indebtedness for borrowed money incurred
in the ordinary course of business and consistent with past practice, borrow
monies for any reason or draw down on any line of credit or debt obligation, or
become the guarantor, surety, endorser or otherwise liable for any debt,
obligation or liability (contingent or otherwise) of any other Person, or change
the terms of payables or receivables;
 
(vii) Subject to any lien (except for leases that do not materially impair the
use of the property subject thereto in their respective businesses as presently
conducted), any of the properties or assets (whether tangible or intangible) of
the Company;
 
(viii) Acquire any material properties or assets or sell, assign, transfer,
convey, lease or otherwise dispose of any of the material properties or assets
(except for fair consideration in the ordinary course of business consistent
with past practice) of the Company except, with respect to the items listed on
Schedule 6.2(b)(viii) hereto, as previously consented to by the Purchaser;
 
(ix) Cancel or compromise any debt or claim or waive or release any material
right of the Company except in the ordinary course of business consistent with
past practice;
 
(x) Enter into any commitment for capital expenditures out of the ordinary
course;
 
 
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(xi) Permit the Company to enter into any transaction or to make or enter into
any Contract which by reason of its size or otherwise is not in the ordinary
course of business consistent with past practice;
 
(xii) Permit the Company to enter into or agree to enter into any merger or
consolidation with, any corporation or other entity, and not engage in any new
business or invest in, make a loan, advance or capital contribution to, or
otherwise acquire the securities of any other Person;
 
(xiii) Except for transfers of cash pursuant to normal cash management
practices, permit the Company to make any investments in or loans to, or pay any
fees or expenses to, or enter into or modify any Contract with, any Seller or
any Affiliate of any Seller; or
 
(xiv) Agree to do anything prohibited by this Section 6.2 or anything which
would make any of the representations and warranties of the Sellers in this
Agreement or the Seller Documents untrue or incorrect in any material respect as
of any time through and including the Effective Time.
 
6.3 Consents.
 
The Sellers shall use their best efforts, and the Purchaser shall cooperate with
the Sellers, to obtain at the earliest practicable date all consents and
approvals required to consummate the transactions contemplated by this
Agreement, including, without limitation, the consents and approvals referred to
in Section 4.7 hereof; provided, however, that neither the Sellers nor the
Purchaser shall be obligated to pay any consideration therefor to any third
party from whom consent or approval is requested.
 
6.4 Other Actions.
 
Each of the Sellers and the Purchaser shall use its best efforts to (i) take all
actions necessary or appropriate to consummate the transactions contemplated by
this Agreement and (ii) cause the fulfillment at the earliest practicable date
of all of the conditions to their respective obligations to consummate the
transactions contemplated by this Agreement.
 
6.5 No Solicitation.
 
The Sellers will not, and will not cause or permit the Company or any of the
Company's directors, officers, employees, representatives or agents
(collectively, the "Representatives") to, directly or indirectly, (i) discuss,
negotiate, undertake, authorize, recommend, propose or enter into, either as the
proposed surviving, merged, acquiring or acquired corporation, any transaction
involving a merger, consolidation, business combination, purchase or disposition
of any amount of the assets or capital stock or other equity interest in the
Company other than the transactions contemplated by this Agreement (an
"Acquisition Transaction"), (ii) facilitate, encourage, solicit or initiate
discussions, negotiations or submissions of proposals or offers in respect of an
Acquisition Transaction, (iii) furnish or cause to be furnished, to any Person,
any information concerning the business, operations, properties or assets of the
Company in connection with an Acquisition Transaction, or (iv) otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other Person to do or seek any of the foregoing.
The Sellers will inform the Purchaser in writing immediately following the
receipt by any Seller, the Company or any Representative of any proposal or
inquiry in respect of any Acquisition Transaction.
 
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6.6 Preservation of Records.
 
Subject to Section 9.4(e) hereof (relating to the preservation of Tax records),
the Sellers and the Purchaser agree that each of them shall preserve and keep
the records held by it relating to the business of the Company for a period of
three years from the Closing Date and shall make such records and personnel
available to the other as may be reasonably required by such party in connection
with, among other things, any insurance claims by, legal proceedings against or
governmental investigations of the Sellers or the Purchaser or any of their
Affiliates or in order to enable the Sellers or the Purchaser to comply with
their respective obligations under this Agreement and each other agreement,
document or instrument contemplated hereby or thereby.
 
6.7 Publicity.
 
None of the Sellers nor the Purchaser shall issue any press release or public
announcement concerning this Agreement or the transactions contemplated hereby
without obtaining the prior written approval of the other party hereto, which
approval will not be unreasonably withheld or delayed, unless, in the sole
judgment of the Purchaser or the Sellers, disclosure is otherwise required by
applicable Law or by the applicable rules of any stock exchange on which the
Purchaser lists securities, provided that, to the extent required by applicable
law, the party intending to make such release shall use its best efforts
consistent with such applicable law to consult with the other party with respect
to the text thereof. 
 
6.8 Use of Name. 
 
The Sellers hereby agrees that upon the consummation of the transactions
contemplated hereby, the Purchaser and the Company shall have the sole right to
the use of the name "New England Communications Systems, Inc." and the Sellers
shall not, and shall not cause or permit any Affiliate to, use such name or any
variation or simulation thereof.
 
6.9 Employment Agreements. 
 
On or prior to the Closing Date, each of Myron Polulak and Carolyn Windesheim
shall enter into an employment agreement with the Company, substantially in the
form of agreement attached hereto as Exhibit 6.9 (the “Employment Agreements”).
 
6.10 Board of Directors. 
 
The Board of Directors of the Company as of the Closing Date shall consist of
one executive officer of the Company and three members appointed by the
Purchaser.
 
6.11 Vehicle Leases.
 
 
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All leases related to vehicles which are not used directly for the business of
the Company shall be terminated or assumed by third parties on or prior to the
Closing Date.

6.12 Gary Tallmon Consulting Agreement.
 
On or prior to the Closing Date, Gary Tallmon shall enter into a consulting
agreement with the Company, substantially in the form of agreement attached
hereto as Exhibit 6.12 (the “Consulting Agreement”). The Consulting Agreement
shall become effective as of July 1, 2006.

6.13 Financial Statements.
 
The Sellers shall cooperate with the Purchaser, at Purchaser’s expense, to
provide all information required for the completion of audited financial
statements of the Company for the years ended December 31,2004 and 2005 to be
prepared and delivered no later than 60 days from the Closing Date.

6.14 Tax Election.
 
At the sole discretion of the Purchaser, the Sellers agree to make a timely
election under Internal Revenue Code Section 338(h)(10) (“338(h)(10) election”),
and Purchaser shall indemnify and hold harmless Sellers from and against any Tax
liabilities imposed on Sellers as a result of having made any such 338(h)(10)
election to the extent that such Tax liabilities exceed the Tax liabilities that
the Sellers would incur in the absence of such election (the “Purchaser Tax
Payments”). Within sixty (60) days of Purchaser’s requiring such 338(h)(10)
election, Sellers shall provide a tax opinion from certified public accountants
stating the extent of such Tax liabilities for the Sellers to the extent
Purchaser requires a 338(h)(10) election. Unless within thirty-five (35)
business days of delivery of such tax opinion by Sellers to Purchaser, Sellers
have received a written objection from Purchaser to such tax opinion then such
tax opinion shall be considered the final tax opinion with respect to this
matter (the “Final Tax Opinion”). If within thirty-five (35) business days of
delivery of the tax opinion by Sellers to Purchaser, Seller receives a written
objection from Purchaser to such tax opinion, then the Sellers and Purchaser
shall attempt to reconcile their differences diligently and in good faith and
any resolution by them shall be final, binding and conclusive. If the Sellers
and the Purchaser are unable to reach a resolution with such effect within ten
(10) business days of the Sellers’ receipt of the Purchaser’s written notice,
the Sellers and the Purchaser shall submit such dispute for resolution to an
independent tax accounting firm mutually appointed by the Sellers and the
Purchaser (the “Independent Tax Firm”), which shall determine and report to the
parties and such report shall be final, binding and conclusive on the parties
hereto. The fees and disbursements of the Independent Tax Firm shall be shared
equally by the Sellers and the Purchaser. In the event that the Sellers incur
any Tax obligations as a result of the 338(h)(10) election as determined by the
Final Tax Opinion which are in excess of amounts due had the transactions set
forth herein been taxed as a stock sale, then the amount that the Purchaser
shall be required to reimburse Sellers under this paragraph (1) shall be grossed
up to assure that Sellers do not incur any Tax cost as a result of the
338(h)(10) election and the reimbursement payments under this paragraph and (2)
shall take into account the highest marginal income tax rate applicable to
payments of this type at the applicable times as applies to any of the Sellers.
Any Purchaser Tax Payments shall be treated by the parties as additional Seller
Purchase Price and shall be paid to Sellers not less than seven (7) days prior
to the time Sellers are required to pay such amounts with a Federal tax return
or estimate.

 
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6.15 Tax Matters.
 
(a) Tax Periods Ending on or Before the Closing Date. The Sellers shall prepare
or cause to be prepared and file or cause to be filed all Tax Returns for the
Company for all periods ending on or prior to the Closing Date which are filed
after the Closing Date as soon as practicable and prior to the date due
(including any proper extensions thereof). The Sellers shall permit the Company
and the Purchaser to review and provide comments, if any, on each such Return
described in the preceding sentence prior to filing. Unless the Purchaser or the
Company provides comments to the Sellers, the Company shall deliver to the
Sellers each such Return signed by the appropriate officer(s) of the Company for
filing within ten (10) days following the Seller’s delivery to the Company and
the Purchaser of any such Return. The Sellers shall deliver to the Company
promptly after filing each such Return a copy of the filed Return and evidence
of its filing. The Sellers shall pay the costs and expenses incurred in the
preparation and filing of the Tax Returns on or before the date such costs and
expenses are due.

If the Company provides comments to the Sellers and at the end of such ten (10)
day period the Company and the Sellers have failed to reach written agreement
with respect to all of such disputed items, the parties shall submit the
unresolved items to arbitration for final determination. Promptly, but no later
than thirty (30) days after its acceptance of its appointment as arbitrator, the
arbitrator shall render an opinion as to the disputed items. The determination
of the arbitrator shall be conclusive and binding upon the parties. The Company
and the Sellers (as a group) shall each pay one half of the fees, costs and
expenses of the arbitrator. The prevailing party may be entitled to an award of
pre- and post-award interest as well as reasonable attorneys’ fees incurred in
connection with the arbitration and any judicial proceedings related thereto as
determined by the arbitrator.

(b) Tax Periods Beginning Before and Ending After the Closing Date. The Company
or the Purchaser shall prepare or cause to be prepared and file or cause to be
filed any Returns of the Company for Tax periods that begin before the Closing
Date and end after the Closing Date. To the extent such Taxes are not fully
reserved for in the Company’s financial statements, the Sellers shall pay to the
Company an amount equal to the unreserved portion of such Taxes that relates to
the portion of the Tax period ending on the Closing Date. Such payment, if any,
shall be paid by the Sellers within fifteen (15) days after receipt of written
notice from the Company or the Purchaser that such Taxes were paid by the
Company or the Purchaser for a period beginning prior to the Closing Date. For
purposes of this Section, in the case of any Taxes that are imposed on a
periodic basis and are payable for a Taxable period that includes (but does not
end on) the Closing Date, the portion of such Tax that relates to the portion of
such Tax period ending on the Closing Date shall (i) in the case of any Taxes
other than Taxes based upon or related to income or receipts, be deemed to be
the amount of such Tax for the entire Tax period multiplied by a fraction the
numerator of which is the number of days in the Tax period ending on the Closing
Date and the denominator of which is the number of days in the entire Tax period
(the “Pro Rata Amount”), and (ii) in the case of any Tax based upon or related
to income or receipts, be deemed equal to the amount that would be payable if
the relevant Tax period ended on the Closing Date. The Sellers shall pay to the
Company with the payment of any taxes due hereunder, the Sellers’ Pro Rata
Amount of the costs and expenses incurred by the Purchaser or the Company in the
preparation and filing of the Tax Returns. Any net operating losses or credits
relating to a Tax period that begins before and ends after the Closing Date
shall be taken into account as though the relevant Tax period ended on the
Closing Date. All determinations necessary to give effect to the foregoing
allocations shall be made in a reasonable manner as agreed to by the parties.

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(c) Refunds and Tax Benefits. Any Tax refunds that are received after the
Closing Date by the Sellers (other than tax refunds received in connection with
such Sellers individual tax Returns), the Purchaser or the Company, and any
amounts credited against Tax to which the Sellers, the Purchaser or the Company
become entitled, shall be for the account of the Company, and the Sellers shall
pay over to the Company any such refund or the amount of any such credit within
fifteen (15) days after receipt or entitlement thereto. In addition, to the
extent that a claim for refund or a proceeding results in a payment or credit
against Tax by a taxing authority to the Sellers, the Sellers shall pay such
amount to the Company within fifteen (15) days after receipt or entitlement
thereto.

(d) Cooperation on Tax Matters.

(i) The Purchaser, the Company and the Sellers shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of any Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. The Company and the Sellers agree (A) to retain all books and records
with respect to Tax matters pertinent to the Company relating to any taxable
period beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by the Purchaser or the Sellers, any
extensions thereof) of the respective tax periods, and to abide by all record
retention agreements entered into with any taxing authority, and (B) to give the
other party reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other party so requests, the
Company or the Sellers, as the case may be, shall allow the other party to take
possession of such books and records.

(ii) The Purchaser and the Sellers further agree, upon request, to use their
commercially reasonable best efforts to obtain any certificate or other document
from any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).

(iii) The Purchaser and the Sellers further agree, upon request, to provide the
other party with all information that either party may be required to report
pursuant to §6043 of the Code and all Treasury Department Regulations
promulgated thereunder.

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ARTICLE VII
CONDITIONS TO CLOSING
 
7.1 Conditions Precedent to Obligations of Purchaser. 
 
The obligation of the Purchaser to consummate the transactions contemplated by
this Agreement is subject to the fulfillment, on or prior to the Closing Date,
of each of the following conditions (any or all of which may be waived by the
Purchaser in whole or in part to the extent permitted by applicable law):
 
(a) all representations and warranties of the Sellers contained herein shall be
true and correct as of the date hereof;
 
(b) all representations and warranties of the Sellers contained herein qualified
as to materiality shall be true and correct, and the representations and
warranties of the Sellers contained herein not qualified as to materiality shall
be true and correct in all material respects, at and as of the Closing Date with
the same effect as though those representations and warranties had been made
again at and as of that time;
 
(c) the Sellers shall have performed and complied in all material respects with
all obligations and covenants required by this Agreement to be performed or
complied with by them on or prior to the Closing Date;
 
(d) the Purchaser shall have been furnished with certificates (dated the Closing
Date and in form and substance reasonably satisfactory to the Purchaser)
executed by each Seller certifying as to the fulfillment of the conditions
specified in Sections 7.1(a), 7.1(b) and 7.1(c) hereof;
 
(e) Certificates representing 100% of the Shares shall have been, or shall at
the Closing be, validly delivered and transferred to the Purchaser, free and
clear of any and all Liens;
 
(f) there shall not have been or occurred any Material Adverse Change;
 
(g) the Sellers shall have obtained all consents and waivers referred to in
Section 4.7 hereof, in a form reasonably satisfactory to the Purchaser, with
respect to the transactions contemplated by this Agreement;
 
(h) no Legal Proceedings shall have been instituted or threatened or claim or
demand made against the Sellers, the Company, or the Purchaser seeking to
restrain or prohibit or to obtain substantial damages with respect to the
consummation of the transactions contemplated hereby, and there shall not be in
effect any order by a governmental body of competent jurisdiction restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated hereby;
 
 
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(i) the Purchaser shall have received the written resignations of each director
of the Company, other than Myron Polulak;
 
(j)  the Employment Agreements shall have been executed by Myron Polulak,
Carolyn Windesheim and the Company and the Consulting Agreement shall have been
executed by Gary Tallmon and the Company;
 
(k) the Purchaser shall have received information satisfactory in its sole
discretion to verify the accuracy of the backlog and financial projections
delivered by the Sellers to the Purchaser; and
 
(l) On the Effective Date, the Company must have a GAAP working capital position
(current assets minus current liabilities) of at least $972,000.
 

7.2 Conditions Precedent to Obligations of the Sellers. 
 
The obligations of the Sellers to consummate the transactions contemplated by
this Agreement are subject to the fulfillment, prior to or on the Closing Date,
of each of the following conditions (any or all of which may be waived by the
Sellers in whole or in part to the extent permitted by applicable law):
 
(a) all representations and warranties of the Purchaser contained herein shall
be true and correct as of the date hereof;
 
(b) all representations and warranties of the Purchaser contained herein
qualified as to materiality shall be true and correct, and all representations
and warranties of the Purchaser contained herein not qualified as to materiality
shall be true and correct in all material respects, at and as of the Closing
Date with the same effect as though those representations and warranties had
been made again at and as of that date;
 
(c) the Purchaser shall have performed and complied in all material respects
with all obligations and covenants required by this Agreement to be performed or
complied with by Purchaser on or prior to the Closing Date;
 
(d) the Sellers shall have been furnished with certificates (dated the Closing
Date and in form and substance reasonably satisfactory to the Sellers) executed
by the Chief Executive Officer and Chief Financial Officer of the Purchaser
certifying as to the fulfillment of the conditions specified in Sections 7.2(a),
7.2(b) and 7.2(c);
 
(e) no Legal Proceedings shall have been instituted or threatened or claim or
demand made against the Sellers, the Company, or the Purchaser seeking to
restrain or prohibit or to obtain substantial damages with respect to the
consummation of the transactions contemplated hereby, and there shall not be in
effect any Order by a Governmental Body of competent jurisdiction restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated hereby;
 
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(f) the Employment Agreements shall have been executed by Myron Polulak, Carolyn
Windesheim and the Company and the Consulting Agreement shall have been executed
by Gary Tallmon and the Company; and
 
(g) appropriate actions shall have been taken to remove each Seller from any
personal guarantees provided on behalf of the Company or indemnification shall
have been provided for such guarantees which is acceptable in the sole
discretion of the Sellers.
 

ARTICLE VIII
DOCUMENTS TO BE DELIVERED
 
8.1 Documents to be Delivered by the Sellers. 
 
At the Closing, the Sellers shall deliver, or cause to be delivered, to the
Purchaser the following:
 
(a) stock certificates representing the Shares, duly endorsed in blank or
accompanied by stock transfer powers and with all requisite stock transfer tax
stamps attached;
 
(b) the certificates referred to in Section 7.1(d) and 7.1(e) hereof;
 
(c) copies of all consents and waivers referred to in Section 7.1(g) hereof;
 
(d) Employment Agreements, substantially in the form of Exhibit 6.9 hereto, duly
executed by each Seller;
 
(e) written resignations of each of the directors of the Company, other than
Myron Polulak;
 
(f) certificate of good standing with respect to the Company issued by the
Secretary of State of the State of incorporation, and for each state in which
the Company is qualified to do business as a foreign corporation; and
 
(g) such other documents as the Purchaser shall reasonably request.
 
8.2 Documents to be Delivered by the Purchaser. 
 
At the Closing, the Purchaser shall deliver to the Sellers the following:
 
(a) The Purchase Price;
 
(b) the certificates referred to in Section 7.2(d) hereof; and
 
(c) such other documents as the Sellers shall reasonably request.
 

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ARTICLE IX
INDEMNIFICATION
 
9.1 Indemnification.
 
(a) Subject to Section 9.2 hereof, the Sellers hereby agrees to jointly and
severally indemnify and hold the Purchaser, the Company, and their respective
directors, officers, employees, Affiliates, agents, successors and assigns
(collectively, the "Purchaser Indemnified Parties") harmless from and against:
 
(i) any and all liabilities of the Company of every kind, nature and
description, absolute or contingent, existing as against the Company prior to
and including the Closing Date or thereafter coming into being or arising by
reason of any state of facts existing, or any transaction entered into, on or
prior to the Closing Date, except to the extent that the same have been fully
provided for in the Balance Sheet, or disclosed in the notes thereto or were
incurred in the ordinary course of business between the Balance Sheet date and
the Closing Date;
 
(ii) subject to Section 10.3, any and all losses, liabilities, obligations,
damages, costs and expenses based upon, attributable to or resulting from the
failure of any representation or warranty of the Sellers set forth in Section 4
hereof, or any representation or warranty contained in any certificate delivered
by or on behalf of the Sellers pursuant to this Agreement, to be true and
correct in all respects as of the date made;
 
(iii) any and all losses, liabilities, obligations, damages, costs and expenses
based upon, attributable to or resulting from the breach of any covenant or
other agreement on the part of the Sellers under this Agreement;
 
(iv) any and all notices, actions, suits, proceedings, claims, demands,
assessments, judgments, costs, penalties and expenses, including reasonable
attorneys' and other professionals' fees and disbursements (collectively,
"Expenses") incident to any and all losses, liabilities, obligations, damages,
costs and expenses with respect to which indemnification is provided hereunder
(collectively, "Losses").
 
(b) Subject to Section 9.2, Purchaser hereby agrees to indemnify and hold the
Sellers and their respective Affiliates, agents, successors and assigns
(collectively, the "Seller Indemnified Parties") harmless from and against:
 
(i) any and all Losses based upon, attributable to or resulting from the failure
of any representation or warranty of the Purchaser set forth in Section 5
hereof, or any representation or warranty contained in any certificate delivered
by or on behalf of the Purchaser pursuant to this Agreement, to be true and
correct as of the date made;
 
(ii) any and all Losses based upon, attributable to or resulting from the breach
of any covenant or other agreement on the part of the Purchaser under this
Agreement or arising from the ownership or operation of the Company from and
after the Closing Date; and
 
(iii) any and all Expenses incident to the foregoing.
 
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9.2 Limitations on Indemnification for Breaches of Representations and
Warranties.
 
An indemnifying party shall not have any liability under Section 9.1(a)(ii) or
Section 9.1(b)(i) hereof unless the aggregate amount of Losses and Expenses to
the indemnified parties finally determined to arise thereunder based upon,
attributable to or resulting from the failure of any representation or warranty
to be true and correct, other than the representations and warranties set forth
in Sections 4.3, 4.11, 4.24 and 4.29 hereof, exceeds $25,000 (the “Basket”) and,
in such event, the indemnifying party shall be required to pay the entire amount
of such Losses and Expenses in excess of $25,000 (the “Deductible”).
 
9.3 Indemnification Procedures.
 
(a) In the event that any Legal Proceedings shall be instituted or that any
claim or demand ("Claim") shall be asserted by any Person in respect of which
payment may be sought under Section 9.1 hereof (regardless of the Basket or the
Deductible referred to above), the indemnified party shall reasonably and
promptly cause written notice of the assertion of any Claim of which it has
knowledge which is covered by this indemnity to be forwarded to the indemnifying
party. The indemnifying party shall have the right, at its sole option and
expense, to be represented by counsel of its choice, which must be reasonably
satisfactory to the indemnified party, and to defend against, negotiate, settle
or otherwise deal with any Claim which relates to any Losses indemnified against
hereunder. If the indemnifying party elects to defend against, negotiate, settle
or otherwise deal with any Claim which relates to any Losses indemnified against
hereunder, it shall within five (5) days (or sooner, if the nature of the Claim
so requires) notify the indemnified party of its intent to do so. If the
indemnifying party elects not to defend against, negotiate, settle or otherwise
deal with any Claim which relates to any Losses indemnified against hereunder,
fails to notify the indemnified party of its election as herein provided or
contests its obligation to indemnify the indemnified party for such Losses under
this Agreement, the indemnified party may defend against, negotiate, settle or
otherwise deal with such Claim. If the indemnified party defends any Claim, then
the indemnifying party shall reimburse the indemnified party for the Expenses of
defending such Claim upon submission of periodic bills. If the indemnifying
party shall assume the defense of any Claim, the indemnified party may
participate, at his or its own expense, in the defense of such Claim; provided,
however, that such indemnified party shall be entitled to participate in any
such defense with separate counsel at the expense of the indemnifying party if,
(i) so requested by the indemnifying party to participate or (ii) in the
reasonable opinion of counsel to the indemnified party, a conflict or potential
conflict exists between the indemnified party and the indemnifying party that
would make such separate representation advisable; and provided, further, that
the indemnifying party shall not be required to pay for more than one such
counsel for all indemnified parties in connection with any Claim. The parties
hereto agree to cooperate fully with each other in connection with the defense,
negotiation or settlement of any such Claim.
 
(b) After any final judgment or award shall have been rendered by a court,
arbitration board or administrative agency of competent jurisdiction and the
expiration of the time in which to appeal therefrom, or a settlement shall have
been consummated, or the indemnified party and the indemnifying party shall have
arrived at a mutually binding agreement with respect to a Claim hereunder, the
indemnified party shall forward to the indemnifying party notice of any sums due
and owing by the indemnifying party pursuant to this Agreement with respect to
such matter and the indemnifying party shall be required to pay all of the sums
so due and owing to the indemnified party by wire transfer of immediately
available funds within 10 business days after the date of such notice.
 
 
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(c) The failure of the indemnified party to give reasonably prompt notice of any
Claim shall not release, waive or otherwise affect the indemnifying party's
obligations with respect thereto except to the extent that the indemnifying
party can demonstrate actual loss and prejudice as a result of such failure.
 
9.4 Tax Treatment of Indemnity Payments. 
 
The Sellers and the Purchaser agree to treat any indemnity payment made pursuant
to this Article 9 as an adjustment to the Purchase Price for federal, state,
local and foreign income tax purposes.
 

ARTICLE X
MISCELLANEOUS
 
10.1 Payment of Sales, Use or Similar Taxes. 
 
All sales, use, transfer, intangible, recordation, documentary stamp or similar
Taxes or charges, of any nature whatsoever, applicable to, or resulting from,
the transactions contemplated by this Agreement shall be borne by the Sellers.
 
10.2 Survival of Representations and Warranties. 
 
The parties hereto hereby agree that the representations and warranties
contained in this Agreement or in any certificate, document or instrument
delivered in connection herewith, shall survive the execution and delivery of
this Agreement, and the Closing hereunder, regardless of any investigation made
by the parties hereto; provided, however, that any claims or actions with
respect thereto (other than claims for indemnifications with respect to the
representation and warranties contained in Sections 4.3, 4.11, 4.24 and 4.29
which shall survive for periods coterminous with any applicable statutes of
limitation) shall terminate unless within twenty four (24) months after the
Closing Date written notice of such claims is given to the Sellers or such
actions are commenced.
 
10.3 Expenses. 
 
Except as otherwise provided in this Agreement, the Sellers and the Purchaser
shall each bear its own expenses incurred in connection with the negotiation and
execution of this Agreement and each other agreement, document and instrument
contemplated by this Agreement and the consummation of the transactions
contemplated hereby and thereby, it being understood that in no event shall the
Company bear any of such costs and expenses.
 
 
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10.4 Specific Performance. 
 
The Sellers acknowledge and agree that the breach of this Agreement would cause
irreparable damage to the Purchaser and that the Purchaser will not have an
adequate remedy at law. Therefore, the obligations of the Sellers under this
Agreement, including, without limitation, the Sellers' obligation to sell the
Shares to the Purchaser, shall be enforceable by a decree of specific
performance issued by any court of competent jurisdiction, and appropriate
injunctive relief may be applied for and granted in connection therewith. Such
remedies shall, however, be cumulative and not exclusive and shall be in
addition to any other remedies which any party may have under this Agreement or
otherwise.
 
10.5 Further Assurances. 
 
The Sellers and the Purchaser each agrees to execute and deliver such other
documents or agreements and to take such other action as may be reasonably
necessary or desirable for the implementation of this Agreement and the
consummation of the transactions contemplated hereby.
 
10.6 Submission to Jurisdiction; Consent to Service of Process.
 
(a) The parties hereto hereby irrevocably submit to the non-exclusive
jurisdiction of any federal or state court located within the State of
Connecticut over any dispute arising out of or relating to this Agreement or any
of the transactions contemplated hereby and each party hereby irrevocably agrees
that all claims in respect of such dispute or any suit, action proceeding
related thereto may be heard and determined in such courts. The parties hereby
irrevocably waive, to the fullest extent permitted by applicable law, any
objection which they may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum for the
maintenance of such dispute. Each of the parties hereto agrees that a judgment
in any such dispute may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
 
(b) Each of the parties hereto hereby consents to process being served by any
party to this Agreement in any suit, action or proceeding by the mailing of a
copy thereof in accordance with the provisions of Section 10.10.
 
10.7 Entire Agreement; Amendments and Waivers.
 
This Agreement (including the schedules and exhibits hereto) represents the
entire understanding and agreement between the parties hereto with respect to
the subject matter hereof and can be amended, supplemented or changed, and any
provision hereof can be waived, only by written instrument making specific
reference to this Agreement signed by the party against whom enforcement of any
such amendment, supplement, modification or waiver is sought. No action taken
pursuant to this Agreement, including without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representation, warranty, covenant or
agreement contained herein. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a further or
continuing waiver of such breach or as a waiver of any other or subsequent
breach. No failure on the part of any party to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise of
any other right, power or remedy. All remedies hereunder are cumulative and are
not exclusive of any other remedies provided by law.
 
 
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10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut.
 
10.9 Table of Contents and Headings. 
 
The table of contents and section headings of this Agreement are for reference
purposes only and are to be given no effect in the construction or
interpretation of this Agreement.
 
10.10 Notices. 
 
All notices and other communications under this Agreement shall be in writing
and shall be deemed given when delivered personally or mailed by certified mail,
return receipt requested, to the parties (and shall also be transmitted by
facsimile to the Persons receiving copies thereof) at the following addresses
(or to such other address as a party may have specified by notice given to the
other party pursuant to this provision):
 

 
(a)
Purchaser:

WPCS International Incorporated
One East Uwchlan Avenue, Suite 301
Exton, Pennsylvania 19341
Attn: Andrew Hidalgo, President
Phone: (610) 903-0400
Facsimile: (610) 903-0401

Copy to:

Thomas A. Rose, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
New York, New York 10018
Phone: (212) 930-9700
Facsimile: (212) 930-9725

 
(b)
Sellers and Company:

Myron Polulak
Carolyn Windesheim
Gary Tallmon
New England Communications Systems, Inc.
15 Industrial Park Place
Middletown, Connecticut 06457
Phone: (860) 632-2678
Facsimile: (860) 613-0827

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Copy to:

Robert L. Iamonaco, Esq.
Byrne & Storm, P.C.
330 Main Street
Hartford, Connecticut 06106
Phone: (860) 525-3700
Facsimile: (860) 525-0287

 
10.11 Severability. 
 
If any provision of this Agreement is invalid or unenforceable, the balance of
this Agreement shall remain in effect.
 
10.12 Binding Effect; Assignment.
 
This Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns. Nothing in this Agreement
shall create or be deemed to create any third party beneficiary rights in any
person or entity not a party to this Agreement except as provided below. No
assignment of this Agreement or of any rights or obligations hereunder may be
made by either the Sellers or the Purchaser (by operation of law or otherwise)
without the prior written consent of the other parties hereto and any
attempted assignment without the required consents shall be void;
 
[intentionally blank]
 
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WPCS INTERNATIONAL INCORPORATED
 
   
   
    By:   /s/ ANDREW HIDALGO   

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Andrew Hidalgo,   President

       
SELLERS:
 
   
   
    By:   /s/ MYRON POLULAK  

--------------------------------------------------------------------------------

Myron Polulak

           
   
   
    By:   /s/  CAROLYN WINDESHEIM  

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Carolyn Windesheim

           
   
   
    By:   /s/ GARY TALLMON  

--------------------------------------------------------------------------------

Gary Tallmon   Title 

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ANNEX A
 

 
 Seller
 Voting  Non-Voting    Shares