UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest reported): November 13, 2002
WPCS INTERNATIONAL INCORPORATED
(Exact name of registrant as specified in charter)
Delaware 0-26277 98-0204758
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
140 South Village Avenue, Suite 20, Exton, Pennsylvania 19341
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 903-0400
ITEM 1. ACQUISITION OR DISPOSITION OF ASSETS
Acquisition of Invisinet, Inc.
On November 13, 2002 the Company entered into and completed an Agreement and
Plan of Merger with Invisinet Acquisitions Inc., a Delaware corporation wholly
owned by the Company (the "Subsidiary"), Invisinet, Inc. a Delaware corporation
("Invisinet"), J. Johnson LLC, a Delaware corporation ("Johnson") and E. J. von
Schaumburg ("von Schaumburg"). Pursuant to the terms of the Agreement and Plan
of Merger the Company acquired (the "Acquisition") all of the issued and
outstanding shares of capital stock of Invisinet from Johnson and von Schaumburg
in exchange for an aggregate of 1,000,000 newly issued shares of the Company's
common stock (the "Shares"). As part of the Acquisition, the Company's Board of
Directors appointed Norm Dumbroff, the principal of Johnson, as a member of the
Company's Board of Directors and appointed von Schaumburg as the Company's
Executive Vice-President of Strategic Development.
Invisinet is in the business of providing fixed wireless solutions and services
for internal and external fixed wireless connectivity. Invisinet commenced
business in July, 2000 and has offices in Morristown, New Jersey and West
Chicago, Illinois. Invisinet's customer base includes such companies as EPS,
Tyco, Associated Press International, USX, FEMA and Fidelity Investments.
Invisinet offers to its customers wireless products and services focused on
wireless network implementation. Invisinet also provides strategic network
planning and consulting services, assisting customers in developing wireless
strategies.
The 1,000,000 shares of common stock issued in the merger were not registered
under the Securities Act of 1933, as amended (the "Act") and were issued in the
reliance upon the exemption from registration provided by section 4(2) of the
Act, on the basis that the Acquisition is a transaction not involving a public
offering. All certificates evidencing the Shares bear a customary form of
investment legend and may not be sold, pledged, hypothecated or otherwise
transferred unless first registered under the Act or pursuant to an available
exemption from such registration requirements.
As part of the Acquisition, the Company caused the Subsidiary and Invisinet to
be merged pursuant to a Certificate of Merger filed with the Delaware Secretary
of State on November 13, 2002. Invisinet survived the merger and the Company
intends to continue to hold the surviving company as a wholly owned subsidiary
and to continue its operations. The Company believes that the merger will
qualify as a tax-free reorganization of Invisinet pursuant to section 351 and
368(a)(1)(B) of the Internal Revenue Code of 1996, as amended.
The amount of consideration paid to Johnson and von Schaumburg for Invisinet was
determined through arm's-length negotiations between these parties and the
Company. Other than as disclosed herein there are no material relationships
between Johnson, von Schaumburg and the Company or any of its affiliates, any
directors or officers of the Company, or any associate of such directors or
officers.
Following the closing of the merger, the Company had 10,025,632 shares of its
common stock issued and outstanding.
Appointment of New Director and Officer
The Agreement and Plan of Merger required that the Company appoint Norm Dumbroff
as a director of the Company and von Schaumburg as Executive Vice-President of
Strategic Development of the Company.
Mr. Dumbroff has been the President and Chief Executive Officer of WAV,
Inc. (formerly POS Information Systems) since 1990. Prior to this he was an
engineer with Hughes Aircraft. Mr. Dumbroff holds a Bachelor of Science in
Computer Science from Albright College in Reading, Pennsylvania.
Mr. von Schaumburg has served as President and Chief Executive Office of
Invisinet since July, 2000. From 1988 to 2000 Mr. von Schaumburg was employed by
AT&T and Lucent Technologies. Mr. von Schaumburg holds a Bachelor in Science in
Finance from Saint Bonaventure University in Saint Bonaventure, New York and a
Masters of Business Administration from Fairleigh Dickinson University in
Madison, New Jersey.
Assignment of Account Receivable
As part of the Acquisition, WAV, Inc., a company controlled by Norm Dumbroff,
issued to Invisinet a promissory note in the amount of $172,514.04 in exchange
for the assignment by Invisinet to WAV, Inc. of an account receivable in the
amount of $154,514.06 and certain other consideration.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of businesses acquired.
1. Audited Financial Statements of Invisinet for the period from inception
to December 31, 2000 and for the year ended December 31, 2001.
2. Unaudited Financial Statements of Invisinet for the nine month period
ended September 30, 2002.
(b) Proforma Financial Information
Proforma Financial Information will be filed by amendment.
(c) Exhibits.
3. Agreement and Plan of Merger by and among WPCS International
Incorporated, Invisinet Acquisitions Inc., Invisinet, Inc., J. Johnson LLC and
E. J. von Schaumburg made as of the 13th day of November, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WPCS International Incorporated
Date: November 26, 2002 /s/ ANDREW HIDALGO
Andrew Hidalgo, President
Invisinet, Inc.
Year Ended December 31, 2001 and Period from July 10, 2000 (Inception) through
December 31, 2000
Invisinet, Inc.
Year Ended December 31, 2001 and Period from
July 20, 2000 (Inception) through December 31, 2000
C o n t e n t s
Reference Page
Independent Auditor's Report 1
Balance Sheets Exhibit A 2
Statements of Loss and Accumulated Deficit Exhibit B 3
Statements of Cash Flows Exhibit C 4
Notes to Financial Statements 5 - 7
Independent Auditor's Report on Supplemental Information 8
Operating Expenses Schedule B-1 9
Independent Auditor's Report
Stockholders
Invisinet, Inc.
West Chicago, Illinois
We have audited the accompanying balance sheets of Invisinet, Inc. as of
December 31, 2001 and 2000, and the related statements of loss and accumulated
deficit and cash flows for the year ended December 31, 2001 and the period from
July 10, 2000 (inception) through December 31, 2000.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Invisinet, Inc. as of December
31, 2001 and 2000, and the results of its operations and its cash flows for the
year ended December 31, 2001 and the period from July 10, 2000 (inception)
through December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming Invisinet,
Inc. will continue as a going concern. As more fully described in Note 2, the
company has incurred operating losses since inception. These losses raise
substantial doubt about the company' s ability to continue as a going concern.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets and the
amounts and classifications of liabilities that may result from the outcome of
this uncertainty.
Also, as discussed in Note 5, the company purchases the majority of its
inventory from a company related through common ownership and management at
terms that this related company offers to its best customers. In addition, a
nonrecurring discretionary management fee charged in 2000 to another related
company had a significant impact on earnings. The financial statements are not
necessarily indicative of the results of operations or related effects on the
financial position that would occur if the above related party transactions and
relationships were not present.
/s/Blackman Kallick Bartelstein, LLP
Chicago, Illinois
September 23, 2002
Exhibit A
Invisinet, Inc.
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
------------- --------------
Current Assets
Cash $ 30,911 $ 119,656
Receivables (Net of allowance for doubtful accounts
of $7,000 in 2001 and $5,000 in 2000) 99,861 211,401
Due from related party - 63,577
Inventory (Net of valuation reserve of
$14,825 in 2001 and $5,825 in 2000) 22,758 17,130
Prepaid expenses 5,117 -
------------- --------------
Total Current Assets 158,647 411,764
Computer Equipment (Net of accumulated depreciation
of $6,777 in 2001 and $2,825 in 2000) 10,730 17,507
Deposits 350 350
------------- --------------
$ 169,727 $ 429,621
============= ==============
Liabilities and Stockholder's Deficit
Current Liabilities
Note payable - Related party $ 439,000 $ 439,000
Accounts payable
Trade 28,906 18,035
Related party 111,339 181,291
Accrued expenses
Salaries, wages and other compensation 5,735 16,596
Other expenses and taxes 45,031 10,675
------------- --------------
Total Current Liabilities 630,011 665,597
------------- --------------
Stockholder's Deficit
Common stock - $.01 par value; authorized -
10,000 shares; issued and outstanding - 1,000 shares 1,000 1,000
Accumulated deficit (461,284) (236,976)
------------- --------------
Total Stockholder's Deficit (460,284) (235,976)
------------- --------------
$ 169,727 $ 429,621
============= ==============
The accompanying notes are an integral part of the financial statements.
- 2 -
Exhibit B
Invisinet, Inc.
Statements of Loss and Accumulated Deficit
Year Ended December 31, 2001 and Period from
July 10, 2000 (Inception) through December 31, 2000
2001 2000
------------- --------------
Net Sales $ 1,414,190 $ 531,817
Cost of Sales 1,170,638 426,180
------------- --------------
Gross Profit 243,552 105,637
Operating Expenses 432,740 458,471
------------- --------------
Loss from Operations (189,188) (352,834)
------------- --------------
Other Expense (Income)
Management fee income - (120,922)
Interest 35,120 5,064
------------- --------------
Total Other Expense (Income), Net 35,120 (115,858)
------------- ---------------
Net Loss (224,308) (236,976)
Accumulated Deficit, Beginning of Period (236,976) -
------------- --------------
Accumulated Deficit, End of Period $ (461,284) $ (236,976)
============= ==============
The accompanying notes are an integral part of the financial statements.
- 3 -
Exhibit C
Invisinet, Inc.
Statements of Cash Flows
Year Ended December 31, 2001 and Period from
July 10, 2000 (Inception) through December 31, 2000
2001 2000
------------- -------------
Cash Flows from Operating Activities
Net loss $ (224,308) $ (236,976)
------------- -------------
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 6,777 2,825
Provision for losses on receivables - Customers 2,646 7,400
(Increase) decrease in
Receivables 108,894 (218,801)
Due from (to) related party 63,577 (63,577)
Inventories (5,628) (17,130)
Prepaid expenses and deposits (5,117) (350)
Increase (decrease) in
Accounts payable (59,081) 178,994
Accrued expenses 23,495 27,271
------------- -------------
Total Adjustments 135,563 (83,368)
------------- -------------
Net Cash Used in Operating Activities (88,745) (320,344)
------------- -------------
Cash Flows from Financing Activities
Borrowings under line-of-credit - Related party - 439,000
Proceeds from issuance of common stock - 1,000
------------- -------------
Net Cash Provided by Financing Activities - 440,000
------------- -------------
Net (Decrease) Increase in Cash (88,745) 119,656
Cash, Beginning of Period 119,656 -
------------- -------------
Cash, End of Period $ 30,911 $ 119,656
============= ==============
The accompanying notes are an integral part of the financial statements.
- 4 -
Invisinet, Inc.
Notes to Financial Statements
Year Ended December 31, 2001 and Period from
July 10, 2000 (Inception) through December 31, 2000
Note 1 - Industry Operations
The company is a value-added reseller of portable transaction computers that
sells to end-users throughout the United States. The company grants credit to
substantially all of its customers.
Note 2 - Going Concern
The accompanying financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America on a going-concern
basis which assumes that the company will be able to realize its assets and
discharge its liabilities in the normal course of business for the foreseeable
future.
The company has incurred operating losses since inception, which created a
deficit in stockholder's equity as of December 31, 2001. The company' s
continuation as a going concern is dependent upon attaining profitable
operations and the ability to maintain adequate financing or capital. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets and the
amounts and classifications of liabilities that may result from the outcome of
this uncertainty.
Note 3 - Summary of Significant Accounting Policies
Cash
The company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The company has not experienced any losses in
such accounts. The company believes it is not exposed to any significant credit
risk on cash.
Depreciation
The company's policy is to depreciate the cost of computer equipment over the
estimated useful life of the asset, which is determined to be three years, by
use of the straight-line method.
Inventory
Inventory is valued at the lower of cost (first-in, first-out) or market, and
consists primarily of finished goods on hand and demonstrator inventory on loan
to customers.
5
Invisinet, Inc.
Notes to Financial Statements
Year Ended December 31, 2001 and Period from
July 10, 2000 (Inception) through December 31, 2000
Note 3 - Summary of Significant Accounting Policies (Continued)
Revenue Recognition
Sales are recognized when the goods are shipped to the customers.
Income Taxes
The company has elected to be taxed as an S Corporation under the provisions of
the Internal Revenue Code. Accordingly, the accompanying financial statements do
not reflect income taxes, except for state replacement tax.
Management Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates.
Note 4 - Note Payable - Related Party
The company has borrowings under a line-of-credit agreement with the majority
stockholder in the amount of $439,000 as of December 31, 2001 and 2000.
Borrowings on this line bear interest at 8% per annum. Accrued interest on the
note as of December 31, 2001 and 2000 was $40,184 and $5,064, respectively, and
is included in accrued other expenses and taxes on the balance sheet. This note
is automatically renewed for successive periods of one year unless written
notice of termination is given prior to the renewal date of August 1st by the
majority stockholder. In the event of any termination or nonrenewal by the
majority stockholder, the note is due and payable in cash within ten business
days after the date of termination and nonrenewal. As of December 31, 2001 and
2000, maximum additional borrowings under the line-of-credit were $61,000.
6
Invisinet, Inc.
Notes to Financial Statements
Year Ended December 31, 2001 and Period from
July 10, 2000 (Inception) through December 31, 2000
Note 5 - Related Party Transactions
The company pays a management fee to a company, related through common ownership
and management, equivalent to approximately 2% of the company' s net sales, for
the use of facilities, personnel and equipment. Management fees for the years
ended December 31, 2001 and 2000 were approximately $28,000 and $24,907,
respectively. The company also purchases the majority of its inventory from the
same related company, at terms that this related company offers to its best
customers. Purchases of inventory from the related company for the years ended
December 31, 2001 and 2000 were approximately $759,000 and $314,000,
respectively. In 2000, the company purchased computer equipment in the amount of
$20,332 from the related company. The company owed approximately $111,339 and
$181,291 to the related company as of December 31, 2001 and 2000, respectively.
In addition, the company charged a discretionary management fee to a separate
company, related through common ownership and management, during 2000 of
$120,922. The balance due from this related company was $0 and $63,577 as of
December 31, 2001 and 2000, respectively.
The financial statements are not necessarily indicative of the results of
operations or related effects on the financial position that would occur if the
above related party transactions and relationships were not present.
See additional related party disclosures in Note 4.
Note 6 - Major Customers
For the year ended December 31, 2001, sales to one major customer amounted to
more than 10% of total revenue. The amount of revenue from this customer was
$195,698. There was no receivable balance due from this customer as of December
31, 2001.
For the year ended December 31, 2000, sales to two major customers amounted to
more than 10% of total revenue. The amount of revenue from these customers was
$78,511 and $69,453, respectively. The receivable balances to these major
customers were $26,934 and $85, respectively.
Note 7 - Common Stock Restriction Agreement
The company's founding minority stockholder is obligated under a stock
restriction agreement to forfeit his 150 shares in whole or in part if he ceases
to be an employee of the company or an affiliate prior to July 10, 2004. The
shares vest and become nonforfeitable on a pro rata basis of 25% per year
beginning with July 10, 2001. As the shares had no significant value as of the
date of issuance, no compensation expense has been recorded.
7
Independent Auditor's Report on Supplemental Information
Board of Directors
Invisinet, Inc.
West Chicago, Illinois
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole of Invisinet, Inc. for the year ended
December 31, 2001 and the period from July 10, 2000 (inception) through December
31, 2000. The following supplemental Schedule B-1 is presented for analysis
purposes and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation for the basic financial statements taken as a
whole.
September 23, 2002
8
Schedule B-1
Invisinet, Inc.
Operating Expenses
Year Ended December 31, 2001 and Period from
July 10, 2000 (Inception) through December 31, 2000
2001 2000
------------- --------------
Leased employees $ 326,145 $ 333,476
Accounting 1,256 -
Advertising 3,500 22,300
Vehicles 566 1,627
Bad debts 2,646 7,400
Bank and credit card fees 2,008 842
Consulting - 3,156
Depreciation 6,777 2,825
Insurance 8,772 3,655
Legal 2,751 6,646
Meals and entertainment 1,227 1,416
Management fee 28,000 24,907
Postage 320 194
Rent 3,658 4,907
Supplies 2,287 2,246
Telephone 19,889 9,924
Travel 21,230 32,734
Miscellaneous 1,708 216
------------- --------------
Total $ 432,740 $ 458,471
============= ==============
See independent auditor's report on supplemental information.
- 9 -
Invisinet, Inc.
Nine Months Ended September 30, 2002
Invisinet, Inc.
Nine Months Ended September 30, 2002
C o n t e n t s
Reference Page
Accountants' Review Report 1
Balance Sheet Exhibit A 2
Statement of Loss and Accumulated Deficit Exhibit B 3
Statement of Cash Flows Exhibit C 4
Notes to Financial Statements 5 - 7
Accountants' Supplemental Review Report 8
Operating Expenses Schedule B-1 9
Stockholders
Invisinet, Inc.
West Chicago, Illinois
We have reviewed the accompanying balance sheet of Invisinet, Inc. as of
September 30, 2002, and the related statements of loss and accumulated deficit
and cash flows for the nine months ended September 30, 2002.
A review consists principally of inquiries of company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with auditing standards generally accepted in the United
States of America, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming Invisinet,
Inc. will continue as a going concern. As more fully described in Note 2, the
company has incurred operating losses since inception. These losses raise
substantial doubt about the company' s ability to continue as a going concern.
The financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets and the
amounts and classifications of liabilities that may result from the outcome of
this uncertainty.
Also, as discussed in Note 5, the company purchases the majority of its
inventory from a company related through common ownership and management at
terms more favorable than those terms given to other customers. In addition, the
company received management services and certain compensation at no charge in
2002 and also had some liability balances forgiven or assumed as part of a
merger agreement effective September 30, 2002. See Notes 4, 5 and 8. The
financial statements are not necessarily indicative of the results of operations
or related effects on the financial position that would occur if the above
related party transactions and relationships were not present.
/s/ Blackman Kallick Bartelstein, LLP
Chicago, Illinois
November 13, 2002
Exhibit A
Invisinet, Inc.
Balance Sheet
September 30, 2002
Assets
Current Assets
Cash $ 34,401
Receivables (Net of allowance for doubtful
accounts of $13,000) 159,438
Due from related party 164,514
Inventory (Net of valuation reserve of
$14,825) 13,286
Prepaid expenses 2,372
--------------
Total Current Assets 374,011
Computer Equipment (Net of accumulated depreciation
of $12,530) 5,003
Deposits 350
--------------
$ 379,364
==============
Liabilities and Stockholder's Deficit
Current Liabilities
Note payable - Related party $ 600,000
Accounts payable
Trade 222,120
Related party 14,372
Accrued expenses 4,928
--------------
Total Current Liabilities 841,420
--------------
Stockholder's Equity (Deficit)
Common stock - $.01 par value; authorized -
10,000 shares; issued and outstanding - 1,000
shares 1,000
Additional paid-in capital 62,472
Accumulated deficit (525,528)
--------------
Total Stockholder's Deficit (462,056)
--------------
$ 379,364
==============
See accountants' review report.
The accompanying notes are an integral part of the
financial statements.
- 2 -
Exhibit B
Invisinet, Inc.
Statement of Loss and Accumulated Deficit
Nine Months Ended September 30, 2002
Net Sales $ 891,242
Cost of Sales 680,203
--------------
Gross Profit 211,039
Operating Expenses 274,986
--------------
Loss from Operations (63,947)
Interest Expense (297)
--------------
Net Loss (64,244)
Accumulated Deficit, Beginning of Period (461,284)
--------------
Accumulated Deficit, End of Period $ (525,528)
==============
See accountants' review report.
The accompanying notes are an integral part of the
financial statements.
- 3 -
Exhibit C
Invisinet, Inc.
Statement of Cash Flows
Nine Months Ended September 30, 2002
Cash Flows from Operating Activities
Net loss $ (64,244)
-------------
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 4,383
Provision for losses on receivables - Customers 6,000
(Increase) decrease in
Receivables (220,091)
Inventories 9,472
Prepaid expenses and deposits 2,745
Increase in
Accounts payable 109,879
Accrued expenses (5,654)
--------------
Total Adjustments (93,266)
--------------
Net Cash Used in Operating Activities (157,510)
Net Cash Provided by Financing Activities -
Borrowings under
line-of-c redit - Related party 161,000
-------------
Net Increase in Cash 3,490
Cash, Beginning of Period 30,911
-------------
Cash, End of Period $ 34,401
=============
See accountants' review report.
The accompanying notes are an integral part of the
financial statements.
- 4 -
Invisinet, Inc.
Notes to Financial Statements
Nine Months Ended September 30, 2002
Note 1 - Industry Operations
The company is a value-added reseller of portable transaction computers that
sells to end-users throughout the United States. The company grants credit to
substantially all of its customers.
Note 2 - Going Concern
The accompanying financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America on a going-concern
basis which assumes that the company will be able to realize its assets and
discharge its liabilities in the normal course of business for the foreseeable
future.
The company has incurred operating losses since inception, which created a
deficit in stockholder's equity as of September 30, 2002. The company' s
continuation as a going concern is dependent upon attaining profitable
operations and the ability to maintain adequate financing or capital. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets and the
amounts and classifications of liabilities that may result from the outcome of
this uncertainty.
Note 3 - Summary of Significant Accounting Policies
Cash
The company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The company has not experienced any losses in
such accounts. The company believes it is not exposed to any significant credit
risk on cash.
Depreciation
The company's policy is to depreciate the cost of computer equipment over the
estimated useful life of the asset, which is determined to be three years, by
use of the straight-line method.
Inventory
Inventory is valued at the lower of cost (first-in, first-out) or market, and
consists primarily of finished goods on hand and demonstrator inventory on loan
to customers.
Revenue Recognition
Sales are recognized when the goods are shipped to the customers.
See accountants' review report.
- 5 -
Invisinet, Inc.
Notes to Financial Statements
Nine Months Ended September 30, 2002
Note 3 - Summary of Significant Accounting Policies
(Continued)
Income Taxes
The company has elected to be taxed as an S Corporation under the provisions of
the Internal Revenue Code. Accordingly, the accompanying financial statements do
not reflect income taxes, except for state replacement tax.
Management Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates.
Note 4 - Note Payable - Related Party
The company has borrowings under a line-of-credit agreement with the majority
stockholder in the amount of $600,000 as of September 30, 2002. Borrowings on
this line bear interest at 8% per annum. In conjunction with the merger
agreement (Note 8), the majority stockholder waived the accrual of interest of
$30,633 for the nine months ended September 30, 2002. In addition, the majority
stockholder forgave the remaining interest accrual of $40,184 with the amount
being contributed to capital as of September 30, 2002. This note is
automatically renewed for successive periods of one year unless written notice
of termination is given prior to the renewal date of August 1st by the majority
stockholder. In the event of any termination or nonrenewal by the majority
stockholder, the note is due and payable in cash within ten business days after
the date of termination and nonrenewal. As of September 30, 2002, there were no
maximum additional borrowings available under the line-of-credit.
Note 5 - Related Party Transactions
The company pays a management fee to a company, related through common ownership
and management, equivalent to approximately 2% of the company's net sales, for
the use of facilities, personnel and equipment. The related company waived the
management fee of approximately $13,000 for the nine months ended September 30,
2002, in connection with the merger described in Note 8 . The company also
purchases the majority of its inventory from the same related company, at terms
that this related company offers to its best customers. However, also in
connection with the merger described in Note 8, the related company gave a
volume discount to the company of approximately $21,000 for the nine months
ended September 30, 2002, which made the overall terms more favorable than those
given to other customers. Purchases of inventory from the related company for
the nine months ended September 30, 2002 was approximately $163,000. During the
nine months ended September 30, 2002, the company sold computer equipment in the
amount of $1,344 to the related company. The company owed approximately $14,372
to the related company as of September 30, 2002.
6
Invisinet, Inc.
Notes to Financial Statements
Nine Months Ended September 30, 2002
Note 5 - Related Party Transactions (Continued)
In addition, a company related through common ownership and management, assumed
an outstanding customer receivable balance of $154,514 as of September 30, 2002.
The balance is included in due from related party in the accompanying balance
sheet.
The financial statements are not necessarily indicative of the results of
operations or related effects on the financial position that would occur if the
above related party transactions and relationships were not present.
See additional related party disclosures in Notes 4 and 8.
Note 6 - Major Customers
For the period ended September 3 0, 2002, sales to four major customers amounted
to more than 10% of total revenue. The amount of revenue from each such customer
was $162,514, $139,764, $99,514, and $96,839. The receivable balance from each
customer was $0, $1,532, $53,521, and $35,978, respectively, as of September 30,
2002.
Note 7 - Common Stock Restriction Agreement
The company's founding minority stockholder is obligated under a stock
restriction agreement to forfeit his 150 shares in whole or in part if he ceases
to be an employee of the company or an affiliate prior to July 10, 2004. The
shares vest and become nonforfeitable on a pro rata basis of 25% per year
beginning with July 10, 2001. As the shares had no significant value as of the
date of issuance, no compensation expense has been recorded.
Note 8 - Merger Agreement
The company entered into a merger agreement, with an un related company, on
November 13, 2002 with an effective date as of September 30, 2002. As part of
the agreement, the stockholders of the company, or a company owned by the
majority stockholder, forgave or assumed the following accrued expenses owed by
the company as of the beginning of the year, along with adjusting certain 2002
expenses as described in Note 5, as of September 30, 2002:
Interest $ 40,184
Legal fees 22,288
-----------
Total $ 62,472
The above forgiveness or assumption was treated as a contribution to capital by
the stockholders.
7
Board of Directors
Invisinet, Inc.
West Chicago, Illinois
Our report on our review of the basic financial statements of Invisinet, Inc.
for the nine months ended September 30, 2002 appears on page one. The review was
made for the purpose of expressing limited assurance that there are no material
modifications that should be made to the financial statements in order for them
to be in conformity with accounting principles generally accepted in the United
States of America. The information included in the accompanying schedule of
operating expenses is presented only for supplemental analysis purposes. Such
information has been subjected to the inquiry and analytical procedures applied
in our review of the basic financial statements , and we are not aware of any
material modification that should be made thereto.
November 13, 2002
Schedule B-1
Invisinet, Inc.
Operating Expenses
Nine Months Ended September 30, 2002
Leased employees $ 211,545
Bad debts 6,000
Bank and credit card fees 1,624
Depreciation 4,383
Insurance 2,180
Professional fees 23,377
Rent 2,103
Supplies 1,138
Telephone 7,829
Travel 13,078
Miscellaneous 1,729
--------------
Total $ 274,986
See accountants' supplemental review report.
- 9 -
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made as of the
13th day of November, 2002
AMONG:
WPCS INTERNATIONAL INCORPORATED, a corporation formed pursuant to the laws
of the State of Delaware and having an office for business located at 140 South
Village Avenue, Suite 20, Exton, Pennsylvania 19341
("WPCS")
AND:
INVISINET ACQUISITIONS INC., a body corporate formed pursuant to the laws
of the State of Delaware and a wholly owned subsidiary of WPCS
(the "Acquirer")
AND:
INVISINET, INC., a body corporate formed pursuant to the laws of the State
of Delaware and having an office for business located at 15 Manor Drive,
Morristown, NJ 07960
("Invisinet")
AND:
J. JOHNSON LLC, a body corporate formed pursuant to the laws of the State
of Delaware and having an office for business located at 245 West Roosevelt
Road, Boulevard 7, Suite 48, West Chicago, IL 60185
("Johnson")
AND:
E.J. VON SCHAUMBURG, an individual having an address at 15 Manor Drive,
Morristown, NJ 07960
("von Schaumburg", and together with Johnson the "Invisinet Shareholders")
WHEREAS:
A. Invisinet is a Delaware corporation engaged in the business of providing
fixed wireless solutions and services for internal and external fixed wireless
connectivity;
B. The Invisinet Shareholders own 1,000 Invisinet Shares, being 100% of the
presently issued and outstanding Invisinet Shares;
C. WPCS is a reporting company whose common stock is quoted on the NASD
"Bulletin Board" and which is engaged in the business of providing fixed
wireless telecommunications services;
D. The respective Boards of Directors of WPCS, Invisinet and the Acquirer
deem it advisable and in the best interests of WPCS, Invisinet and the Acquirer
that the Acquirer merge with and into Invisinet (the "Merger") pursuant to this
Agreement and the Certificate of Merger, and the applicable provisions of the
laws of the State of Delaware; and
E. It is intended that the Merger shall qualify for United States federal
income tax purposes as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended.
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the premises
and the mutual covenants, agreements, representations and warranties contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
Definitions
1.1 In this Agreement the following terms will
have the following meanings:
(a) "Acquisition Shares" means the 1,000,000 WPCS Common Shares
to be issued to the Invisinet Shareholders at Closing pursuant to
the terms of the Merger;
(b) "Agreement" means this agreement and plan of merger among
WPCS, the Acquirer, Invisinet, and the Invisinet Shareholders;
(c) "Bonus Share Agreement" means the bonus share agreement to
be entered into on the Closing Date between WPCS and von
Schaumburg in the form attached hereto as Schedule "L";
(d) "Closing" means the completion, on the Closing Date, of the
transactions contemplated hereby in accordance with Article 9
hereof;
(e) "Closing Date" means the day on which all conditions
precedent to the completion of the transaction as contemplated
hereby have been satisfied or waived;
(f) "Commission" means the Securities and Exchange Commission;
(g) "Effective Time" means the date of the filing of an
appropriate Certificate of Merger in the form required by the
State of Delaware, which certificate shall provide that the
Merger shall become effective upon such filing;
(h) "Employment Agreement" means the employment agreement to be
entered into on the Closing Date between Invisinet and von
Schaumburg in the form attached hereto as Schedule "K";
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended;
(j) "Invisinet Accounts Payable and Liabilities" means all
accounts payable and liabilities of Invisinet, due and owing or
otherwise constituting a binding obligation of Invisinet (other
than a Invisinet Material Contract) as of September 30, 2002 as
set forth in Schedule "A" hereto;
(k) "Invisinet Accounts Receivable" means all accounts
receivable and other debts owing to Invisinet, as of September
30, 2002 as set forth in Schedule "B" hereto;
(l) "Invisinet Assets" means the undertaking and all the
property and assets of the Invisinet Business of every kind and
description wheresoever situated including, without limitation,
Invisinet Equipment, Invisinet Inventory, Invisinet Material
Contracts, Invisinet Accounts Receivable, Invisinet Cash,
Invisinet Intangible Assets and Invisinet Goodwill, and all
credit cards, charge cards and banking cards issued to Invisinet;
(m) "Invisinet Bank Accounts" means all of the bank accounts,
lock boxes and safety deposit boxes of Invisinet or relating to
the Invisinet Business as set forth in Schedule "C" hereto;
(n) "Invisinet Business" means all aspects of the business
conducted by Invisinet;
(o) "Invisinet Cash" means all cash on hand or on deposit to the
credit of Invisinet on the Closing Date;
(p) "Invisinet Debt to Related Parties" means the debts owed by
Invisinet and its subsidiaries to any of the Invisinet
Shareholders or to any family member thereof, or to any
affiliate, director or officer of Invisinet or the Invisinet
Shareholders as described in Schedule "D";
(q) "Invisinet Equipment" means all machinery, equipment,
furniture, and furnishings used in the Invisinet Business,
including, without limitation, the items more particularly
described in Schedule "E" hereto;
(r) "Invisinet Financial Statements" means collectively, audited
financial statements of Invisinet for the years ended December
31, 2000 and 2001, together with an unqualified auditors' report
thereon, and the unaudited financial statements nine month
periods ended September 30, 2001 and 2002, together with an
auditor's review and engagement report thereon, all of which are
to be prepared in accordance with United States generally
accepted accounting principles and the requirements of Item 310
of Regulation SB as promulgated by the Securities and Exchange
Commission, true copies of which are attached as Schedule "F"
hereto;
(s) "Invisinet Goodwill" means the goodwill of the Invisinet
Business together with the exclusive right of WPCS to represent
itself as carrying on the Invisinet Business in succession of
Invisinet subject to the terms hereof, and the right to use any
words indicating that the Invisinet Business is so carried on
including the right to use the name "Invisinet" or "Invisinet
International" or any variation thereof as part of the name of or
in connection with the Invisinet Business or any part thereof
carried on or to be carried on by Invisinet, the right to all
corporate, operating and trade names associated with the
Invisinet Business, or any variations of such names as part of or
in connection with the Invisinet Business, all telephone listings
and telephone advertising contracts, all lists of customers,
books and records and other information relating to the Invisinet
Business, all necessary licenses and authorizations and any other
rights used in connection with the Invisinet Business;
(t) "Invisinet Insurance Policies" means the public liability
insurance and insurance against loss or damage to Invisinet
Assets and the Invisinet Business as described in Schedule
"G" hereto;
(u) "Invisinet Intangible Assets" means all of the intangible
assets of Invisinet, including, without limitation, Invisinet
Goodwill, all trademarks, logos, copyrights, designs, and other
intellectual and industrial property of Invisinet and its
subsidiaries;
(v) "Invisinet Inventory" means all inventory and supplies of
the Invisinet Business as of September 30, 2002 as set forth in
Schedule "H" hereto;
(w) "Invisinet Material Contracts" means the burden and benefit
of and the right, title and interest of Invisinet in, to and
under all trade and non-trade contracts, engagements or
commitments, whether written or oral, to which Invisinet is
entitled in connection with the Invisinet Business whereunder
Invisinet is obligated to pay or entitled to receive the sum of
$10,000 or more including, without limitation, any pension plans,
profit sharing plans, bonus plans, loan agreements, security
agreements, indemnities and guarantees, any agreements with
employees, lessees, licensees, managers, accountants, suppliers,
agents, distributors, officers, directors, attorneys or others
which cannot be terminated without liability on not more than one
month's notice, and those contracts listed in Schedule "I"
hereto; and
(x) "Invisinet Shares" means all of the issued and outstanding
shares of Invisinet's equity stock;
(y) "Merger" means the merger, at the Effective Time, of
Invisinet and the Acquirer pursuant to this Agreement and Plan of
Merger;
(z) "Merger Consideration" means the Acquisition Shares;
(aa) "Place of Closing" means the offices of Vedder, Price et al.
in Chicago, Illinois 60601, or such other place as WPCS and
Invisinet may mutually agree upon;
(bb) "Registration Rights Agreement" means the registration
rights agreement to be entered into on the Closing Date between
WPCS, Johnson and von Schaumburg in respect of the Acquisition
Shares in the form attached hereto as Schedule "M";
(cc) "SEC Reports" means all forms, reports and documents filed
and required to be filed by WPCS with the Commission under the
Exchange Act from June 7, 2002 through the date hereof;
(dd) "Securities Act" means the Securities Act of 1933, as
amended;
(ee) "State Corporation Law" means the General Corporation Law of
the State of Delaware;
(ff) "Stockholder's Agreement" means the certain Stockholder
Agreement dated as of July 10, 2000, by and among Invisinet and
E. J. von Schaumburg;
(gg) "Surviving Company" means the Invisinet following the merger
with the Acquirer;
(hh) "WPCS Business" means all aspects of any business conducted
by WPCS and its subsidiaries;
(ii) "WPCS Common Shares" means the shares of common stock in the
capital of WPCS; and
(jj) "WPCS Financial Statements" means, collectively, the audited
consolidated financial statements of WPCS for the fiscal years
ended April 30, 2000 and 2002, together with the unqualified
auditors' report thereon, and the unaudited financial statements
three month periods ended July 31, 2001 and 2002, true copies of
which are attached as Schedule "J" hereto.
Any other terms defined within the text of this Agreement will have the meanings
so ascribed to them.
Captions and Section Numbers
1.2 The headings and section references in this Agreement are for convenience of
reference only and do not form a part of this Agreement and are not intended to
interpret, define or limit the scope, extent or intent of this Agreement or any
provision thereof.
Section References and Schedules
1.3 Any reference to a particular "Article", "section", "paragraph", "clause" or
other subdivision is to the particular Article, section, clause or other
subdivision of this Agreement and any reference to a Schedule by letter will
mean the appropriate Schedule attached to this Agreement and by such reference
the appropriate Schedule is incorporated into and made part of this Agreement.
The Schedules to this Agreement are as follows:
Information concerning Invisinet
Schedule "A" Invisinet Accounts Payable and Liabilities
Schedule "B" Invisinet Accounts Receivable
Schedule "C" Invisinet Bank Accounts
Schedule "D" Invisinet Debts to Related Parties (including accounts payable
aging ledger)
Schedule "E" Invisinet Equipment
Schedule "F" Invisinet Financial Statements
Schedule "G" Invisinet Insurance Policies
Schedule "H" Invisinet Inventory
Schedule "I" Invisinet Material Contracts
Information concerning WPCS
Schedule "J" WPCS Financial Statements
Agreements
Schedule "K" Form of Employment Agreement
Schedule "L" Form of Bonus Share Agreement
Schedule "M" Form of Registration Rights Agreement
Severability of Clauses
1.4 If any part of this Agreement is declared or held to be invalid for any
reason, such invalidity will not affect the validity of the remainder which will
continue in full force and effect and be construed as if this Agreement had been
executed without the invalid portion, and it is hereby declared the intention of
the parties that this Agreement would have been executed without reference to
any portion which may, for any reason, be hereafter declared or held to be
invalid.
ARTICLE 2
THE MERGER
The Merger
2.1 At Closing, the Acquirer shall be merged with and into Invisinet pursuant to
this Agreement and Plan of Merger and the separate corporate existence of the
Acquirer shall cease and Invisinet, as it exists from and after the Closing,
shall be the Surviving Company.
Effect of the Merger
2.2 The Merger shall have the effect provided therefor by the State Corporation
Law. Without limiting the generality of the foregoing, and subject thereto, at
Closing (i) all the rights, privileges, immunities, powers and franchises, of a
public as well as of a private nature, and all property, real, personal and
mixed, and all debts due on whatever account, including without limitation
subscriptions to shares, and all other choses in action, and all and every other
interest of or belonging to or due to Invisinet or the Acquirer, as a group,
subject to the terms hereof, shall be taken and deemed to be transferred to, and
vested in, the Surviving Company without further act or deed; and all property,
rights and privileges, immunities, powers and franchises and all and every other
interest shall be thereafter as effectually the property of the Surviving
Company, as they were of Invisinet and the Acquirer, as a group, and (ii) all
debts, liabilities, duties and obligations of Invisinet and the Acquirer, as a
group, subject to the terms hereof, shall become the debts, liabilities and
duties of the Surviving Company and the Surviving Company shall thenceforth be
responsible and liable for all debts, liabilities, duties and obligations of
Invisinet and the Acquirer, as a group, and neither the rights of creditors nor
any liens upon the property of Invisinet or the Acquirer, as a group, shall be
impaired by the Merger, and may be enforced against the Surviving Company.
Certificate of Incorporation; Bylaws; Directors and Officers
2.3 The Certificate of Incorporation of the Surviving Company from and after the
Closing shall be the Certificate of Incorporation of Invisinet until thereafter
amended in accordance with the provisions therein and as provided by the
applicable provisions of the State Corporation Law. The Bylaws of the Surviving
Company from and after the Closing shall be the Bylaws of Invisinet as in effect
immediately prior to the Closing, continuing until thereafter amended in
accordance with their terms, the Certificate of Incorporation of the Surviving
Company and as provided by the State Corporation Law. The Directors of the
Acquirer at the Effective Time shall continue to be the Directors of Invisinet.
Conversion of Securities
2.4 At the Effective Time, by virtue of the Merger and without any action on the
part of the Acquirer, Invisinet or the Invisinet Shareholders, the shares of
capital stock of each of Invisinet and the Acquirer shall be converted as
follows:
(a) Capital Stock of the Acquirer. Each issued and outstanding share of the
Acquirer's capital stock shall continue to be issued and outstanding and shall
be converted into one share of validly issued, fully paid, and non-assessable
common stock of the Surviving Company. Each stock certificate of the Acquirer
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of capital stock of the Surviving Company.
(b) Conversion of Invisinet Shares. Each Invisinet Share that is issued and
outstanding at the Effective Time shall automatically be cancelled and
extinguished and converted, without any action on the part of the holder
thereof, into the right to receive at the time and in the amounts described in
this Agreement an amount of Acquisition Shares equal to the number of
Acquisition Shares divided by the number of the Invisinet Shares outstanding
immediately prior to Closing. All such Invisinet Shares, when so converted,
shall no longer be outstanding and shall automatically be cancelled and retired
and shall cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the right to
receive the Acquisition Shares paid in consideration therefor upon the surrender
of such certificate in accordance with this Agreement.
Adherence with Applicable Securities Laws
2.5 The Invisinet Shareholders agree that they are acquiring the Acquisition
Shares for investment purposes and will not offer, sell or otherwise transfer,
pledge or hypothecate any of the Acquisition Shares issued to them (other than
pursuant to an effective Registration Statement under the Securities Act)
directly or indirectly unless:
(a) the sale is to WPCS;
(b) the sale is made pursuant to the exemption from registration under the
Securities Act, provided by Rule 144 thereunder; or
(c) the Acquisition Shares are sold in a transaction that does not require
registration under the Securities Act, or any applicable United States state
laws and regulations governing the offer and sale of securities, and the vendor
has furnished to WPCS an opinion of counsel to that effect or such other written
opinion as may be reasonably required by WPCS.
The Invisinet Shareholders acknowledge that the certificates
representing the Acquisition Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT. THEY MAY NOT BE MORTGAGED, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR
SUCH SHARES UNDER THE SECURITIES ACT OF 1933 AND OTHER APPLICABLE
SECURITIES LAWS OR AN OPINION OF COUNSEL FOR THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT AND OTHER APPLICABLE
SECURITIES LAWS. THE HOLDER MAY BE REQUIRED TO PROVIDE AN OPINION AT
THE HOLDER'S COST TO THE COMPANY THAT SUCH TRANSFER IS PERMITTED
WITHOUT REGISTRATION UNDER APPLICABLE STATE SECURITIES LAWS, WHICH
OPINION MUST BE ACCEPTABLE TO THE COMPANY'S COUNSEL.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF WPCS
Representations and Warranties
3.1 WPCS represents and warrants in all material respects to the Invisinet
Shareholders, with the intent that Invisinet Shareholders will rely thereon in
entering into this Agreement and in approving and completing the transactions
contemplated hereby, that:
WPCS - Corporate Status and Capacity
(a) Incorporation. WPCS is a corporation duly incorporated and validly
subsisting under the laws of the State of Delaware, and is in good standing with
the office of the Secretary of State for the State of Delaware;
(b) Carrying on Business. WPCS carries on business primarily in the
Commonwealth of Pennsylvania and does not carry on any material business
activity in any other jurisdiction. WPCS has an office in Exton, Pennsylvania
and in no other locations. The nature of the Invisinet Business does not require
WPCS to register or otherwise be qualified to carry on business in any other
jurisdiction;
(c) Corporate Capacity. WPCS has the corporate power, capacity and
authority to own its assets and to enter into and complete this Agreement;
(d) Reporting Status; Listing. WPCS's common stock is registered under
Section 12(b) or 12(g) of the Exchange Act and WPCS is required to file current
reports with the Commission pursuant to section 13(a) of the Exchange Act. The
WPCS Common Shares are quoted on the NASD "Bulletin Board" under the symbol
"WPCS";
(e) SEC Reports. WPCS has timely filed all SEC Reports with the Commission
under the Exchange Act. The SEC Reports, at the time filed, complied as to form
in all material respects with the requirements of the Exchange Act. None of the
SEC Reports, including without limitation any financial statements or schedules
included therein, contains any untrue statements of a material fact or omits to
stare a material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading;
Acquirer - Corporate Status and Capacity
(f) Incorporation. The Acquirer is a corporation duly incorporated and
validly subsisting under the laws of the State of Delaware, and is in good
standing with the office of the Secretary of State for the State of Delaware;
(g) Carrying on Business. Other than corporate formation and organization,
the Acquirer has not carried on business activities to date.
(h) Corporate Capacity. The Acquirer has the corporate power, capacity and
authority to enter into and complete this Agreement;
WPCS - Capitalization
(i) Authorized Capital. The authorized capital of WPCS consists of
30,000,000 WPCS Common Shares, $0.0001 par value and 5,000,000 shares of
preferred stock. $0.0001 par value, of which 9,025,632 WPCS Common Shares and
519 shares of Series B Convertible Preferred Stock are presently issued and
outstanding;
(j) No Option. No person, firm or corporation has any agreement or option
or any right capable of becoming an agreement or option for the acquisition of
WPCS Common Shares or for the purchase, subscription or issuance of any of the
unissued shares in the capital of WPCS, except for an option to purchase 11,111
WPCS Common Shares at $2.75 per share expiring April 30, 2003;
Acquirer - Capitalization
(k) Authorized Capital. The authorized capital of the Acquirer consists of
100 shares of common stock, $0.0001 par value, of which one share of common
stock is presently issued and outstanding;
(l) No Option. No person, firm or corporation has any agreement or option
or any right capable of becoming an agreement or option for the acquisition of
any common or preferred shares in Acquirer or for the purchase, subscription or
issuance of any of the unissued shares in the capital of Acquirer;
WPCS - Records and Financial Statements
(m) Charter Documents. The charter documents of WPCS and the Acquirer have
not been altered since the incorporation of each, respectively, except as filed
in the record books of WPCS or the Acquirer, as the case may be;
(n) Corporate Minute Books. The corporate minute books of WPCS and its
subsidiaries are complete and each of the minutes contained therein accurately
reflect the actions that were taken at a duly called and held meeting or by
consent without a meeting. All actions by WPCS and its subsidiaries which
required director or shareholder approval are reflected on the corporate minute
books of WPCS and its subsidiaries. WPCS and its subsidiaries are not in
violation or breach of, or in default with respect to, any term of their
respective Certificates of Incorporation (or other charter documents) or
by-laws;
(o) WPCS Financial Statements. The WPCS Financial Statements present
fairly, in all material respects, the assets and liabilities (whether accrued,
absolute, contingent or otherwise) of WPCS, on a consolidated basis, as of the
respective dates thereof, and the results of operations and changes in financial
position of WPCS during the periods covered thereby, in all material respects
and have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods indicated;
(p) WPCS Accounts Payable and Liabilities. There are no material
liabilities, contingent or otherwise, of WPCS or its subsidiaries which are not
reflected in the WPCS Financial Statements except those incurred in the ordinary
course of business since the date of the said schedule and the WPCS Financial
Statements, and neither WPCS nor its subsidiaries have guaranteed or agreed to
guarantee any debt, liability or other obligation of any person, firm or
corporation;
(q) WPCS Accounts Receivable. All the accounts receivable of WPCS result
from bona fide business transactions and services actually rendered without, to
the knowledge and belief of WPCS, any claim by the obligor for set-off or
counterclaim;
(r) No Debt to Related Parties. Neither WPCS nor its subsidiaries are, and
on Closing will not be, materially indebted to any affiliate, director or
officer of WPCS except accounts payable on account of bona fide business
transactions of WPCS incurred in normal course of the WPCS Business, including
employment agreements, none of which are more than 30 days in arrears;
(s) No Related Party Debt to WPCS. No director or officer or affiliate of
WPCS is now indebted to or under any financial obligation to WPCS or its
subsidiaries on any account whatsoever, except for advances on account of travel
and other expenses not exceeding $5,000 in total;
(t) No Dividends. No dividends or other distributions on any shares in the
capital of WPCS have been made, declared or authorized since the date of WPCS
Financial Statements;
(u) No Payments. No payments of any kind have been made or authorized since
the date of the WPCS Financial Statements to or on behalf of officers,
directors, shareholders or employees of WPCS or its subsidiaries or under any
management agreements with WPCS or its subsidiaries, except payments made in the
ordinary course of business and at the regular rates of salary or other
remuneration payable to them;
(v) No Pension Plans. There are no pension, profit sharing, group insurance
or similar plans or other deferred compensation plans affecting WPCS or its
subsidiaries;
(w) No Adverse Events. Since July 31, 2002,
(i) there has not been any material adverse change in the properties,
results of operations, financial position or condition (financial or
otherwise) of WPCS, its subsidiaries, its assets or liabilities or any
damage, loss or other change in circumstances materially affecting WPCS,
the WPCS Business or WPCS' right to carry on the WPCS Business, other than
changes in the ordinary course of business,
(ii) there has not been any damage, destruction, loss or other event
(whether or not covered by insurance) materially and adversely affecting
WPCS, its subsidiaries, or the WPCS Business,
(iii) there has not been any material increase in the compensation
payable or to become payable by WPCS to any of WPCS' officers, employees or
agents or any bonus, payment or arrangement made to or with any of them,
(iv) the WPCS Business has been and continues to be carried on in the
ordinary course,
(v) WPCS has not waived or surrendered any right of material value,
(vi) Neither WPCS nor its subsidiaries have discharged or satisfied or
paid any lien or encumbrance or obligation or liability other than current
liabilities in the ordinary course of business, and
(vii) no capital expenditures in excess of $10,000 individually or
$30,000 in total have been authorized or made.
WPCS - Income Tax Matters
(x) Tax Returns. All tax returns and reports of WPCS and its subsidiaries
required by law to be filed have been filed and are true, complete and correct,
and any taxes payable in accordance with any return filed by WPCS and its
subsidiaries or in accordance with any notice of assessment or reassessment
issued by any taxing authority have been so paid;
(y) Current Taxes. Adequate provisions have been made for taxes payable for
the current period for which tax returns are not yet required to be filed and
there are no agreements, waivers, or other arrangements providing for an
extension of time with respect to the filing of any tax return by, or payment
of, any tax, governmental charge or deficiency by WPCS or its subsidiaries. WPCS
is not aware of any contingent tax liabilities or any grounds which would prompt
a reassessment including aggressive treatment of income and expenses in filing
earlier tax returns;
WPCS - Applicable Laws and Legal Matters
(z) Licenses. WPCS and its subsidiaries hold all licenses and permits as
may be requisite for carrying on the WPCS Business in the manner in which it has
heretofore been carried on, which licenses and permits have been maintained and
continue to be in good standing except where the failure to obtain or maintain
such licenses or permits would not have a material adverse effect on the WPCS
Business;
(aa) Applicable Laws. Neither WPCS nor its subsidiaries have been charged
with or received notice of breach of any laws, ordinances, statutes,
regulations, by-laws, orders or decrees to which they are subject or which apply
to them the violation of which would have a material adverse effect on the WPCS
Business, and to WPCS' knowledge, neither WPCS nor its subsidiaries are in
breach of any laws, ordinances, statutes, regulations, bylaws, orders or decrees
the contravention of which would result in a material adverse impact on the WPCS
Business;
(bb) Pending or Threatened Litigation. There is no material litigation or
administrative or governmental proceeding pending or threatened against or
relating to WPCS, its subsidiaries, or the WPCS Business nor does WPCS have any
knowledge of any deliberate act or omission of WPCS or its subsidiaries that
would form any material basis for any such action or proceeding;
(cc) No Bankruptcy. Neither WPCS nor its subsidiaries have made any
voluntary assignment or proposal under applicable laws relating to insolvency
and bankruptcy and no bankruptcy petition has been filed or presented against
WPCS or its subsidiaries and no order has been made or a resolution passed for
the winding-up, dissolution or liquidation of WPCS or its subsidiaries;
(dd) Labor Matters. Neither WPCS nor its subsidiaries are party to any
collective agreement relating to the WPCS Business with any labor union or other
association of employees and no part of the WPCS Business has been certified as
a unit appropriate for collective bargaining or, to the knowledge of WPCS, has
made any attempt in that regard;
(ee) Finder's Fees. Neither WPCS nor its subsidiaries are party to any
agreement which provides for the payment of finder's fees, brokerage fees,
commissions or other fees or amounts which are or may become payable to any
third party in connection with the execution and delivery of this Agreement and
the transactions contemplated herein;
Execution and Performance of Agreement
(ff) Authorization and Enforceability. The execution and delivery of this
Agreement, and the completion of the transactions contemplated hereby, have been
duly and validly authorized by all necessary corporate action on the part of
WPCS and the Acquirer;
(gg) No Violation or Breach. The execution and performance of this
Agreement will not:
(i) violate the charter documents of WPCS or the Acquirer or result in
any breach of, or default under, any loan agreement, mortgage, deed of
trust, or any other agreement to which WPCS or its subsidiaries are party,
(ii) give any person any right to terminate or cancel any agreement or
any right or rights enjoyed by WPCS or its subsidiaries,
(iii) result in any alteration of WPCS' or its subsidiaries'
obligations under any agreement to which WPCS or its subsidiaries are
party,
(iv) result in the creation or imposition of any lien, encumbrance or
restriction of any nature whatsoever in favor of a third party upon or
against the assets of WPCS,
(v) result in the imposition of any tax liability to WPCS or its
subsidiaries relating to the assets of WPCS, or
(vi) violate any court order or decree to which either WPCS or its
subsidiaries are subject;
The WPCS Business
(hh) Maintenance of Business. Since the date of the WPCS Financial
Statements, WPCS and its subsidiaries have not entered into any material
agreement or commitment except in the ordinary course and except as disclosed
herein;
(ii) Subsidiaries. Except for the Acquirer, WPCS does not own any
subsidiaries and does not otherwise own, directly or indirectly, any shares or
interest in any other corporation, partnership, joint venture or firm other than
WPCS Incorporated, a Delaware corporation;
WPCS - Acquisition Shares
(jj) Acquisition Shares. The Acquisition Shares when delivered to the
holders of Invisinet Shares pursuant to the Merger shall be validly issued and
outstanding as fully paid and non-assessable shares and the Acquisition Shares
shall be transferable upon the books of WPCS, in all cases subject to the
provisions and restrictions of all applicable securities laws; and
(kk) Securities Law Compliance. Except as set forth in the SEC Reports,
WPCS has not issued any shares of its common stock (or securities convertible
into or exercisable for shares of common stock) since June 1, 2002. Neither WPCS
nor any person acting on its behalf has taken or will take any action
(including, without limitation, any offering of any securities of WPCS under
circumstances which would require the integration of such offering with the
offering of the Acquisition Shares issued to the Invisinet Shareholders) which
subject the issuance or sale of such shares to the Invisinet Shareholders to the
registration requirements of Section 5 of the Securities Act.
Non-Merger and Survival
3.2 The representations and warranties of WPCS contained herein will be true at
and as of Closing in all material respects as though such representations and
warranties were made as of such time. Notwithstanding the completion of the
transactions contemplated hereby, the waiver of any condition contained herein
(unless such waiver expressly releases a party from any such representation or
warranty) or any investigation made by the Invisinet Shareholders, the
representations and warranties of WPCS shall survive the Closing for a period of
two (2) years.
Indemnity
3.3 WPCS agrees to indemnify and save harmless the Invisinet Shareholders from
and against any and all claims, demands, actions, suits, proceedings,
assessments, judgments, damages, costs, losses and expenses, including any
payment made in good faith in settlement of any claim (subject to the right of
WPCS to defend any such claim), resulting from the breach by it of any
representation or warranty made under this Agreement or from any
misrepresentation in or omission from any certificate or other instrument
furnished or to be furnished by WPCS to the Invisinet Shareholders hereunder
provided that (i) each individual claim or series of related claims exceeds
$10,000 and (ii) the amount of all such claims shall not exceed the greater of
(A) $250,000 or (B) the gross amount realized by the Invisinet Shareholders from
the sale of the Acquisition Shares.
ARTICLE 4
COVENANTS OF WPCS
Covenants
4.1 WPCS covenants and agrees with Invisinet that it will:
(a) Conduct of Business. Until the Closing, conduct its business diligently
and in the ordinary course consistent with the manner in which it generally has
been operated up to the date of execution of this Agreement;
(b) Access. Until the Closing, give the Invisinet Shareholders and their
representatives full access to all of the properties, books, contracts,
commitments and records of WPCS, and furnish to the Invisinet Shareholders and
their representatives all such information as they may reasonably request;
(c) Procure Consents. Until the Closing, take all reasonable steps required
to obtain, prior to Closing, any and all third party consents required to permit
the Merger;
(d) Public Information. Make and keep public information available, as
those terms are understood and defined in Rule 144; and
(b) SEC Filings. File with the Commission in a timely manner, all reports
and other documents required of WPCS under the Securities Act and the Exchange
Act.
Authorization
4.2 WPCS hereby agrees to authorize and direct any and all federal, state,
municipal, foreign and international governments and regulatory authorities
having jurisdiction respecting WPCS and its subsidiaries to release any and all
information in their possession respecting WPCS and its subsidiaries to
Invisinet. WPCS shall promptly execute and deliver to Invisinet any and all
consents to the release of information and specific authorizations which
Invisinet reasonably requires to gain access to any and all such information.
Reports Under Exchange Act
4.3 With a view to making available to the Invisinet Shareholders the benefits
of Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Invisinet
Shareholders to sell securities of WPCS to the public without registration and
without imposing restrictions arising under the federal securities laws on the
purchases thereof ("Rule 144"), and provided that the 1 year holding period
imposed by paragraph d of Rule 144 has been met, WPCS agrees to furnish to each
Invisinet Shareholder, so long as such Invisinet Shareholder owns WPCS Common
Shares, promptly upon request, (i) a written statement by WPCS that it has
complied with the reporting requirements of Rule 144, the Securities Act and the
Exchange Act, (ii) a copy of the most recent annual or quarterly report of WPCS
and such other reports and documents so filed by WPCS and (iii) such other
information as may be reasonably requested to permit the Invisinet Shareholders
to sell such securities pursuant to Rule 144 without registration.
Survival
4.4 The covenants set forth in this Article shall survive the Closing for
the benefit of the Invisinet Shareholders.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF
THE INVISINET SHAREHOLDERS
Representations and Warranties
5.1 The Invisinet Shareholders jointly and severally represent and warrant in
all material respects to WPCS, with the intent that it will rely thereon in
entering into this Agreement and in approving and completing the transactions
contemplated hereby, that:
Invisinet - Corporate Status and Capacity
(a) Incorporation. Invisinet is a corporation duly incorporated and validly
subsisting under the laws of the State of Delaware, and is in good standing with
the office of the Secretary of State for the State of Delaware;
(b) Carrying on Business. Invisinet carries on business primarily in the
States of New Jersey and Illinois and does not carry on any material business
activity in any other jurisdiction. Invisinet has an office in Morristown, New
Jersey and Schaumburg, Illinois and in no other locations. The nature of the
Invisinet Business does not require Invisinet to register or otherwise be
qualified to carry on business in any other jurisdiction;
(c) Corporate Capacity. Invisinet has the corporate power, capacity and
authority to own Invisinet Assets and to carry on the Business of Invisinet and
Invisinet and Johnson to have the corporate power, capacity and authority to
enter into and complete this Agreement;
Invisinet - Capitalization
(d) Authorized Capital. The authorized capital of Invisinet consists of
10,000 shares of common stock, $0.01 par value per share;
(e) Ownership of Invisinet Shares. The issued and outstanding share capital
of Invisinet will on Closing consist of 1,000 common shares (being the Invisinet
Shares), which shares on Closing shall be validly issued and outstanding as
fully paid and non-assessable shares. The Invisinet Shareholders will be at
Closing the registered and beneficial owner of 1,000 Invisinet Shares. The
Invisinet Shares owned by the Invisinet Shareholders will on Closing be free and
clear of any and all liens, charges, pledges, encumbrances, restrictions on
transfer and adverse claims whatsoever;
(f) No Option. No person, firm or corporation has any agreement, option,
warrant, preemptive right or any other right capable of becoming an agreement or
option for the acquisition of Invisinet Shares held by the Invisinet
Shareholders or for the purchase, subscription or issuance of any of the
unissued shares in the capital of Invisinet;
(g) No Restrictions. There are no restrictions on the transfer, sale or
other disposition of Invisinet Shares contained in the charter documents of
Invisinet or under any agreement, other than as set forth in the Stockholder's
Agreement;
Invisinet - Records and Financial Statements
(h) Charter Documents. The charter documents of Invisinet have not been
altered since its incorporation date, except as filed in the record books of
Invisinet;
(i) Corporate Minute Books. The corporate minute books of Invisinet are
complete and each of the minutes contained therein accurately reflect the
actions that were taken at a duly called and held meeting or by consent without
a meeting. All actions by Invisinet which required director or shareholder
approval are reflected on the corporate minute books of Invisinet. Invisinet is
not in violation or breach of, or in default with respect to, any term of its
Certificates of Incorporation (or other charter documents) or by-laws;
(j) Invisinet Financial Statements. The Invisinet Financial Statements
present fairly, in all material respects, the assets and liabilities (whether
accrued, absolute, contingent or otherwise) of Invisinet as of the respective
dates thereof, and the results of operations and changes in financial position
of Invisinet during the periods covered thereby, in all material respects, and
will be prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods indicated;
(k) Invisinet Accounts Payable and Liabilities. There are no material
liabilities, contingent or otherwise, of Invisinet which are not disclosed in
Schedule "A" hereto or reflected in the Invisinet Financial Statements except
those incurred in the ordinary course of business since the date of the said
schedule and the Invisinet Financial Statements, and Invisinet has not
guaranteed or agreed to guarantee any debt, liability or other obligation of any
person, firm or corporation. Without limiting the generality of the foregoing,
all accounts payable and liabilities of Invisinet as of September 30, 2002 are
described in Schedule "A" hereto;
(l) Invisinet Accounts Receivable. All Invisinet Accounts Receivable result
from bona fide business transactions and services actually rendered without, to
the knowledge and belief of Invisinet, any claim by the obligor for set-off or
counterclaim;
(m) Invisinet Bank Accounts. All of the Invisinet Bank Accounts, their
location, numbers and the authorized signatories thereto are as set forth in
Schedule "C" hereto;
(n) No Debt to Related Parties. Except as disclosed in Schedule "D" hereto,
Invisinet is not, and on Closing will not be, materially indebted to the
Invisinet Shareholders nor to any family member thereof, nor to any affiliate,
director or officer of Invisinet or the Invisinet Shareholders except accounts
payable on account of bona fide business transactions of Invisinet incurred in
normal course of Invisinet Business, including employment agreements with the
Invisinet Shareholders and attached to Schedule "D" hereto is an accounts
payable aging ledger;
(o) No Related Party Debt to Invisinet. Neither the Invisinet Shareholders
nor any director, officer or affiliate of Invisinet are now indebted to or under
any financial obligation to Invisinet on any account whatsoever, except for
advances on account of travel and other expenses not exceeding $5,000 in total;
(p) No Dividends. No dividends or other distributions on any shares in the
capital of Invisinet have been made, declared or authorized since the date of
the Invisinet Financial Statements;
(q) No Payments. No payments of any kind have been made or authorized since
the date of the Invisinet Financial Statements to or on behalf of the Invisinet
Shareholders or to or on behalf of officers, directors, shareholders or
employees of Invisinet or under any management agreements with Invisinet, except
(i) payments made in the ordinary course of business and at the regular rates of
salary or other remuneration payable to them, and (ii) monthly management fees
payable to Wav, Inc. in an amount equal to two percent (2%) of the monthly gross
revenue of Invisinet;
(r) No Pension Plans. There are no pension, profit sharing, group insurance
or similar plans or other deferred compensation plans affecting Invisinet;
(s) No Adverse Events. Since the date of the Invisinet Financial
Statements, except as described in Schedule "A" hereto:
(i) there has not been any material adverse change in the properties,
results of operations, financial position or condition of Invisinet, its
liabilities or the Invisinet Assets or any damage, loss or other change in
circumstances materially affecting Invisinet, the Invisinet Business or the
Invisinet Assets or Invisinet's right to carry on the Invisinet Business,
other than changes in the ordinary course of business,
(ii) there has not been any damage, destruction, loss or other event
(whether or not covered by insurance) materially and adversely affecting
Invisinet, the Invisinet Business or the Invisinet Assets,
(iii) there has not been any material increase in the compensation
payable or to become payable by Invisinet to the Invisinet Shareholders or
to any of Invisinet's officers, employees or agents or any bonus, payment
or arrangement made to or with any of them,
(iv) the Invisinet Business has been and continues to be carried on in
the ordinary course,
(v) Invisinet has not waived or surrendered any right of material
value,
(vi) Invisinet has not discharged or satisfied or paid any lien or
encumbrance or obligation or liability other than current liabilities in
the ordinary course of business, and
(vii) no capital expenditures in excess of $10,000 individually or
$30,000 in total have been authorized or made;
Invisinet - Income Tax Matters
(t) Tax Returns. All tax returns and reports of Invisinet required by law
to be filed have been filed and are true, complete and correct, and any taxes
payable in accordance with any return filed by Invisinet or in accordance with
any notice of assessment or reassessment issued by any taxing authority have
been so paid;
(u) Current Taxes. Adequate provisions have been made for taxes payable for
the current period for which tax returns are not yet required to be filed and
there are no agreements, waivers, or other arrangements providing for an
extension of time with respect to the filing of any tax return by, or payment
of, any tax, governmental charge or deficiency by Invisinet. Invisinet is not
aware of any contingent tax liabilities or any grounds which would prompt a
reassessment including aggressive treatment of income and expenses in filing
earlier tax returns;
Invisinet - Applicable Laws and Legal Matters
(v) Licenses. Invisinet holds all licenses and permits as may be requisite
for carrying on the Invisinet Business in the manner in which it has heretofore
been carried on, which licenses and permits have been maintained and continue to
be in good standing except where the failure to obtain or maintain such licenses
or permits would not have a material adverse effect on the Invisinet Business;
(w) Applicable Laws. Invisinet has not been charged with or received notice
of breach of any laws, ordinances, statutes, regulations, by-laws, orders or
decrees to which it is subject or which applies to it the violation of which
would have a material adverse effect on the Invisinet Business, and, to
Invisinet's knowledge, Invisinet is not in breach of any laws, ordinances,
statutes, regulations, by-laws, orders or decrees the contravention of which
would result in a material adverse impact on the Invisinet Business;
(x) Pending or Threatened Litigation. Except as described in Schedule "A"
attached hereto, there is no material litigation or administrative or
governmental proceeding pending or threatened against or relating to Invisinet,
the Invisinet Business, or any of the Invisinet Assets, nor does Invisinet have
any knowledge of any deliberate act or omission of Invisinet that would form any
material basis for any such action or proceeding;
(y) No Bankruptcy. Invisinet has not made any voluntary assignment or
proposal under applicable laws relating to insolvency and bankruptcy and no
bankruptcy petition has been filed or presented against Invisinet and no order
has been made or a resolution passed for the winding-up, dissolution or
liquidation of Invisinet;
(z) Labor Matters. Invisinet is not a party to any collective agreement
relating to the Invisinet Business with any labor union or other association of
employees and no part of the Invisinet Business has been certified as a unit
appropriate for collective bargaining or, to the knowledge of Invisinet, has
made any attempt in that regard and Invisinet has no reason to believe that any
current employees will leave Invisinet's employ as a result of this Merger;
(aa) Finder's Fees. Invisinet is not a party to any agreement which
provides for the payment of finder's fees, brokerage fees, commissions or other
fees or amounts which are or may become payable to any third party in connection
with the execution and delivery of this Agreement and the transactions
contemplated herein;
Execution and Performance of Agreement
(bb) Authorization and Enforceability. The execution and delivery of this
Agreement, and the completion of the transactions contemplated hereby, have been
duly and validly authorized by all necessary corporate action on the part of
Invisinet and the Invisinet Shareholders;
(cc) No Violation or Breach. The execution and performance of this
Agreement will not
(i) violate the charter documents of Invisinet or result in any breach
of, or default under, any loan agreement, mortgage, deed of trust, or any
other agreement to which Invisinet is a party,
(ii) give any person any right to terminate or cancel any agreement
including, without limitation, Invisinet Material Contracts, or any right
or rights enjoyed by Invisinet,
(iii) result in any alteration of Invisinet's obligations under any
agreement to which Invisinet is a party including, without limitation, the
Invisinet Material Contracts,
(iv) result in the creation or imposition of any lien, encumbrance or
restriction of any nature whatsoever in favor of a third party upon or
against the Invisinet Assets,
(v) result in the imposition of any tax liability to Invisinet
relating to Invisinet Assets or the Invisinet Shares, or
(vi) violate any court order or decree to which either Invisinet is
subject;
Invisinet Assets - Ownership and Condition
(dd) Business Assets. The Invisinet Assets comprise all of the property and
assets of the Invisinet Business, and neither the Invisinet Shareholders nor any
other person, firm or corporation owns any assets used by Invisinet in operating
the Invisinet Business, whether under a lease, rental agreement or other
arrangement, other than as disclosed in Schedules "E" or "I" hereto;
(ee) Title. Invisinet is the legal and beneficial owner of the Invisinet
Assets, free and clear of all mortgages, liens, charges, pledges, security
interests, encumbrances or other claims whatsoever, save and except as disclosed
in Schedules "E" or "I" hereto;
(ff) No Option. No person, firm or corporation has any agreement or option
or a right capable of becoming an agreement for the purchase of any of the
Invisinet Assets;
(gg) Invisinet Insurance Policies. Invisinet maintains the public liability
insurance and insurance against loss or damage to the Invisinet Assets and the
Invisinet Business as described in Schedule "G" hereto;
(hh) Invisinet Material Contracts. The Invisinet Material Contracts listed
in Schedule "I" constitute all of the material contracts of Invisinet;
(ii) No Default. There has not been any default in any material obligation
of Invisinet or any other party to be performed under any of Invisinet Material
Contracts, each of which is in good standing and in full force and effect and
unamended (except as specifically disclosed in Schedule "I"), and Invisinet is
not aware of any default in the obligations of any other party to any of the
Invisinet Material Contracts;
(jj) No Compensation on Termination. There are no agreements, commitments
or understandings relating to severance pay or separation allowances on
termination of employment of any employee of Invisinet. Invisinet is not obliged
to pay benefits or share profits with any employee after termination of
employment except as required by law;
Invisinet Assets - Invisinet Equipment
(kk) Invisinet Equipment. The Invisinet Equipment has been maintained in a
manner consistent with that of a reasonably prudent owner and such equipment is
in good working condition;
Invisinet Assets - Invisinet Goodwill and Other Assets
(ll) Invisinet Goodwill. Invisinet carries on the Invisinet Business only
under the name "Invisinet, Inc." and variations thereof and under no other
business or trade names. Invisinet does not have any knowledge of any
infringement by Invisinet of any patent, trademark, copyright or trade secret;
The Business of Invisinet
(mm) Maintenance of Business. Since the date of the Invisinet Financial
Statements, the Invisinet Business has been carried on in the ordinary course
and Invisinet has not entered into any material agreement or commitment except
in the ordinary course; and
(nn) Subsidiaries. Invisinet does not own any subsidiaries and does not
otherwise own, directly or indirectly, any shares or interest in any other
corporation, partnership, joint venture or firm and Invisinet does not own any
subsidiary and does not otherwise own, directly or indirectly, any shares or
interest in any other corporation, partnership, joint venture or firm.
Non-Merger and Survival
5.2 The representations and warranties of the Invisinet Shareholders contained
herein will be true at and as of Closing in all material respects as though such
representations and warranties were made as of such time. Notwithstanding the
completion of the transactions contemplated hereby, the waiver of any condition
contained herein (unless such waiver expressly releases a party from any such
representation or warranty) or any investigation made by WPCS, the
representations and warranties of the Invisinet Shareholders shall survive the
Closing for a period of two (2) years.
Indemnity
5.3 The Invisinet Shareholders jointly and severally agree to indemnify and save
harmless WPCS from and against any and all claims, demands, actions, suits,
proceedings, assessments, judgments, damages, costs, losses and expenses,
including any payment made in good faith in settlement of any claim (subject to
the right of the Invisinet Shareholders to defend any such claim), resulting
from the breach by any of them of any representation or warranty of such party
made under this Agreement or from any misrepresentation in or omission from any
certificate or other instrument furnished or to be furnished by Invisinet or the
Invisinet Shareholders to WPCS hereunder provided that (i) each individual claim
or series of related claims exceeds $10,000 and (ii) the amount of all such
claims shall not exceed the greater of (A) $250,000 or (B) the gross amount
realized by the Invisinet Shareholders from the sale of the Acquisition Shares.
ARTICLE 6
COVENANTS OF INVISINET AND
THE INVISINET SHAREHOLDERS
Covenants
6.1 Invisinet and the Invisinet Shareholders
covenant and agree with WPCS that they will:
(a) Conduct of Business. Until the Closing, conduct the Invisinet Business
diligently and in the ordinary course consistent with the manner in which the
Invisinet Business generally has been operated up to the date of execution of
this Agreement;
(b) Preservation of Business. Until the Closing, use their best efforts to
preserve the Invisinet Business and the Invisinet Assets and, without
limitation, preserve for WPCS Invisinet's relationships with their suppliers,
customers and others having business relations with them;
(c) Access. Until the Closing, give WPCS and its representatives full
access to all of the properties, books, contracts, commitments and records of
Invisinet relating to Invisinet, the Invisinet Business and the Invisinet
Assets, and furnish to WPCS and its representatives all such information as they
may reasonably request;
(d) Procure Consents. Until the Closing, take all reasonable steps required
to obtain, prior to Closing, any and all third party consents required to permit
the Merger and to preserve and maintain the Invisinet Assets, including the
Invisinet Material Contracts, notwithstanding the change in control of Invisinet
arising from the Merger; and
(e) Reporting and Internal Controls. From and after the Effective Time,
forthwith take all required actions to implement internal controls on the
business of the Surviving Company to ensure that the Surviving Company complies
with Section 13(b)(2) of the Exchange Act.
Authorization
6.2 Invisinet hereby agrees to authorize and direct any and all federal, state,
municipal, foreign and international governments and regulatory authorities
having jurisdiction respecting Invisinet to release any and all information in
their possession respecting Invisinet to WPCS. Invisinet shall promptly execute
and deliver to WPCS any and all consents to the release of information and
specific authorizations which WPCS reasonably require to gain access to any and
all such information.
Survival
6.3 The covenants set forth in this Article
shall survive the Closing for the benefit of WPCS.
ARTICLE 7
CONDITIONS PRECEDENT
Conditions Precedent in favor of WPCS
7.1 WPCS' obligations to carry out the transactions contemplated hereby are
subject to the fulfillment of each of the following conditions precedent on or
before the Closing:
(a) all documents or copies of documents required to be executed and
delivered to WPCS hereunder will have been so executed and delivered;
(b) all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Invisinet or the Invisinet Shareholders at or
prior to the Closing will have been complied with or performed;
(c) WPCS shall have completed its review and inspection of the books and
records of Invisinet and shall be satisfied with same in all material respects;
(d) Johnson shall convert, as of the Closing Date, the debt owing to it by
Invisinet of $600,000, as well as all interest accrued thereon, into equity of
Invisinet through an additional capital contribution in respect of the 850
Invisinet Shares presently held by Johnson;
(e) WAV, Inc. shall have forgiven any and all interest due to it accrued on
any accounts payable of Invisinet due to WAV, Inc;
(f) title to the Invisinet Shares held by the Invisinet Shareholders and to
the Invisinet Assets will be free and clear of all mortgages, liens, charges,
pledges, security interests, encumbrances or other claims whatsoever;
(g) the Certificate of Merger shall be executed by Invisinet in form
acceptable for filing with the Delaware Secretary of State;
(h) subject to Article 8 hereof, there will not have occurred
(i) any material adverse change in the financial position or condition
of Invisinet, its liabilities or the Invisinet Assets or any damage, loss
or other change in circumstances materially and adversely affecting the
Invisinet Business or the Invisinet Assets or Invisinet's right to carry on
the Invisinet Business, other than (i) changes described in the Schedule
"A" hereto and (ii) changes in the ordinary course of business, none of
which has been materially adverse, or
(ii) any damage, destruction, loss or other event, including changes
to any laws or statutes applicable to Invisinet or the Invisinet Business
(whether or not covered by insurance) materially and adversely affecting
Invisinet, the Invisinet Business or the Invisinet Assets; and
(i) the transactions contemplated hereby shall have been approved by all
other regulatory authorities having jurisdiction over the subject matter hereof,
if any.
Waiver by WPCS
7.2 The conditions precedent set out in the preceding section are inserted for
the exclusive benefit of WPCS and any such condition may be waived in whole or
in part by WPCS at or prior to Closing by delivering to Invisinet and the
Invisinet Shareholders a written waiver to that effect signed by WPCS. In the
event that the conditions precedent set out in the preceding section are not
satisfied on or before the Closing, WPCS shall be released from all obligations
under this Agreement.
Conditions Precedent in Favor of Invisinet and the
Invisinet Shareholders
7.3 The obligations of Invisinet and the Invisinet Shareholders to carry out the
transactions contemplated hereby is subject to the fulfillment of each of the
following conditions precedent on or before the Closing:
(a) all documents or copies of documents required to be executed and
delivered to Invisinet hereunder will have been so executed and delivered;
(b) all of the terms, covenants and conditions of this Agreement to be
complied with or performed by WPCS at or prior to the Closing will have been
complied with or performed;
(c) Invisinet shall have completed its review and inspection of the books
and records of WPCS and its subsidiaries and shall be satisfied with same in all
material respects;
(d) WPCS will have delivered the Acquisition Shares to be issued pursuant
to the terms of the Merger to the Invisinet Shareholders at the Closing and the
Acquisition Shares will be registered on the books of WPCS in the name of the
Invisinet Shareholders at the Effective Time;
(e) title to the Acquisition Shares will be free and clear of all
mortgages, liens, charges, pledges, security interests, encumbrances or other
claims whatsoever;
(f) the Certificate of Merger shall be executed by the Acquirer in form
acceptable for filing with the Delaware Secretary of State;
(g) subject to Article 8 hereof, there will not have occurred
(i) any material adverse change in the financial position or condition
of WPCS, its subsidiaries, their assets of liabilities or any damage, loss
or other change in circumstances materially and adversely affecting WPCS or
the WPCS Business or WPCS' right to carry on the WPCS Business, other than
changes in the ordinary course of business, none of which has been
materially adverse, or
(ii) any damage, destruction, loss or other event, including changes
to any laws or statutes applicable to WPCS or the WPCS Business (whether or
not covered by insurance) materially and adversely affecting WPCS, its
subsidiaries or its assets; and
(j) the transactions contemplated hereby shall have been approved by all
other regulatory authorities having jurisdiction over the subject matter hereof,
if any.
Waiver by Invisinet and the Invisinet Shareholders
7.4 The conditions precedent set out in the preceding section are inserted for
the exclusive benefit of Invisinet and the Invisinet Shareholders and any such
condition may be waived in whole or in part by Invisinet or the Invisinet
Shareholders at or prior to the Closing by delivering to WPCS a written waiver
to that effect signed by Invisinet and the Invisinet Shareholders. In the event
that the conditions precedent set out in the preceding section are not satisfied
on or before the Closing Invisinet and the Invisinet Shareholders shall be
released from all obligations under this Agreement.
Nature of Conditions Precedent
7.5 The conditions precedent set forth in this Article are conditions of
completion of the transactions contemplated by this Agreement and are not
conditions precedent to the existence of a binding agreement. Each party
acknowledges receipt of the sum of $1.00 and other good and valuable
consideration as separate and distinct consideration for agreeing to the
conditions of precedent in favor of the other party or parties set forth in this
Article.
Termination
7.6 Notwithstanding any provision herein to the contrary, if the Closing does
not occur on or before November 15, 2002, this Agreement will be at an end and
will have no further force or effect, unless otherwise agreed upon by the
parties in writing.
Confidentiality
7.7 Notwithstanding any provision herein to the contrary, the parties hereto
agree that the existence and terms of this Agreement are confidential and that
if this Agreement is terminated pursuant to the preceding section the parties
agree to return to one another any and all financial, technical and business
documents delivered to the other party or parties in connection with the
negotiation and execution of this Agreement and shall keep the terms of this
Agreement and all information and documents received from Invisinet and WPCS and
the contents thereof confidential and not utilize nor reveal or release same,
provided, however, that WPCS may be required to issue news releases regarding
the execution and consummation of this Agreement and file a Current Report on
Form 8-K with the Securities and Exchange Commission respecting the proposed
Merger contemplated hereby together with such other documents as are required to
maintain the currency of WPCS' filings with the Securities and Exchange
Commission.
No-Shop Provision
7.8 From the date hereof until the close of business on November 15, 2002, the
parties hereto agree that they shall not, nor will they cause their directors,
officers, employees, agents and representatives to, directly or indirectly,
solicit or entertain offers from, hold meetings or discussions with, or in any
manner encourage, accept or consider any proposal of, any other person relating
to the acquisition of Invisinet, shares of Invisinet's capital stock, securities
convertible into or exchangeable for shares of Invisinet's capital stock, or
Invisinet's assets or business, in whole or in part, whether directly or
indirectly, through purchase, merger, consolidation, original issuance, or
otherwise. Invisinet and the Invisinet Shareholders will immediately notify WPCS
in writing regarding any such contact from the date hereof until the close of
business on November 15, 2002.
ARTICLE 8
RISK
Material Change in the Business of Invisinet
8.1 If any material loss or damage to the Invisinet Business occurs prior to
Closing and such loss or damage, in WPCS' reasonable opinion, cannot be
substantially repaired or replaced within sixty (60) days, WPCS shall, within
two (2) days following any such loss or damage, by notice in writing to
Invisinet, at its option, either:
(a) terminate this Agreement, in which case no party will be under any
further obligation to any other party; or
(b) elect to complete the Merger and the other transactions contemplated
hereby, in which case the proceeds and the rights to receive the proceeds of all
insurance covering such loss or damage will, as a condition precedent to WPCS'
obligations to carry out the transactions contemplated hereby, be vested in
Invisinet or otherwise adequately secured to the satisfaction of WPCS on or
before the Closing Date.
Material Change in the WPCS Business
8.2 If any material loss or damage to the WPCS Business occurs prior to Closing
and such loss or damage, in Invisinet's reasonable opinion, cannot be
substantially repaired or replaced within sixty (60) days, Invisinet shall,
within two (2) days following any such loss or damage, by notice in writing to
WPCS, at its option, either:
(a) terminate this Agreement, in which case no party will be under any
further obligation to any other party; or
(b) elect to complete the Merger and the other transactions contemplated
hereby, in which case the proceeds and the rights to receive the proceeds of all
insurance covering such loss or damage will, as a condition precedent to
Invisinet's obligations to carry out the transactions contemplated hereby, be
vested in WPCS or otherwise adequately secured to the satisfaction of Invisinet
on or before the Closing Date.
ARTICLE 9
CLOSING
Closing
9.1 The Merger and the other transactions contemplated by this Agreement will be
closed at the Place of Closing in accordance with the closing procedure set out
in this Article.
Documents to be Delivered by Invisinet
9.2 On or before the Closing, Invisinet and
the Invisinet Shareholders will deliver or cause to
be delivered to WPCS:
(a) the original or certified copies of the charter documents of Invisinet
and all corporate records documents and instruments of Invisinet, the corporate
seal of Invisinet and all books and accounts of Invisinet;
(b) all reasonable consents or approvals required to be obtained by
Invisinet for the purposes of completing the Merger and preserving and
maintaining the interests of Invisinet under any and all Invisinet Material
Contracts and in relation to Invisinet Assets;
(c) certified copies of such resolutions of the shareholders and director
of Invisinet as are required to be passed to authorize the execution, delivery
and implementation of this Agreement;
(d) evidence satisfactory to WPCS and its counsel, acting reasonably, that
Invisinet has fully paid its auditors for the cost of preparing, reviewing and
delivering the Invisinet Financial Statements and that the cost thereof did not
exceed $15,000;
(e) an acknowledgement from Invisinet and the Invisinet Shareholders of the
satisfaction of the conditions precedent set forth in section 7.3 hereof;
(f) a bank draft drawn upon the Invisinet Bank Accounts for the balance of
these accounts made payable to WPCS in the amount of not less than $130,000 and
a copy of a letter of Invisinet dated as of the Closing Date directing that the
Invisinet Bank Accounts be closed effective as of such date;
(g) the written release by all employees of Invisinet of accrued wages and
interest, if any, due to them by Invisinet;
(h) a Officer's Certificate executed by von Schaumburg stating that the
working capital of Invisinet at the Closing Date (being current assets less
current liabilities) is not less that $130,000;
(i) the Employment Agreement, duly executed by Invisinet and von
Schaumburg;
(j) the Bonus Share Agreement, duly executed by von Schaumburg;
(k) the Registration Rights Agreement, duly executed by Johnson and von
Schaumburg;
(l) documentation acceptable to WPCS, acting reasonably, evidencing the
release by WAV, Inc. of the 2% monthly management fee paid by Invisinet to WAV,
Inc.;
(m) the Certificate of Merger, duly executed by Invisinet; and
(n) such other documents as WPCS may reasonably require to give effect to
the terms and intention of this Agreement.
Documents to be Delivered by WPCS
9.3 On or before the Closing, WPCS shall
deliver or cause to be delivered to Invisinet and the
Invisinet Shareholders:
(a) share certificates representing the Acquisition Shares duly registered
in the names of the Invisinet Shareholders;
(b) certified copies of such resolutions of the directors of WPCS as are
required to be passed to authorize the execution, delivery and implementation of
this Agreement;
(c) a certified copy of a resolution of the directors of WPCS dated as of
the Closing Date appointing Norm Dumbroff as a director of WPCS;
(d) a certified copy of a resolution of the directors of WPCS dated as of
the Closing Date appointing von Schaumburg as executive Vice-President of
Strategic Development of WPCS;
(e) an acknowledgement from WPCS of the satisfaction of the conditions
precedent set forth in section 7.1 hereof;
(f) the Bonus Share Agreement, duly executed by WPCS;
(g) the Registration Rights Agreement, duly executed by WPCS;
(h) the Certificate of Merger, duly executed by the Acquirer; and
(i) such other documents as Invisinet may reasonably require to give effect
to the terms and intention of this Agreement.
ARTICLE 10
POST-CLOSING MATTERS
Forthwith after the Closing, WPCS, Invisinet and the Invisinet
Shareholders agree to use all their best efforts to:
(a) file the Certificate of Merger with Secretary of State of the State of
Delaware;
(b) remove the present directors of Invisinet from office and appoint
Andrew Hidalgo as the sole director of Invisinet;
(c) issue a news release reporting the Closing;
(d) file a Form 8-K with the Securities and Exchange Commission disclosing
the terms of this Agreement and, not more than 60 days following the filing of
such Form 8-K, to file and amended Form 8-K which includes audited financial
statements of Invisinet as well as pro forma financial information of Invisinet
and WPCS as required by Regulation SB as promulgated by the Securities and
Exchange Commission; and
(e) file reports on Form 3 (and Form 13D, where applicable) with the
Securities and Exchange Commission disclosing the acquisition of the Acquisition
Shares by the Invisinet Shareholders.
ARTICLE 11
GENERAL PROVISIONS
Arbitration
11.1 The parties hereto shall attempt to resolve any dispute, controversy,
difference or claim arising out of or relating to this Agreement by negotiation
in good faith. If such good negotiation fails to resolve such dispute,
controversy, difference or claim within thirty (30) days after any party
delivers to any other party a notice of its intent to submit such matter to
arbitration, then any party to such dispute, controversy, difference or claim
may submit such matter to arbitration.
Any action or proceeding seeking to enforce any provision of, or
based upon any right arising out of, this Agreement shall be settled by binding
arbitration by a panel of three (3) arbitrators in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and
governed by the laws of the State of Delaware (without regard to the
choice-of-law rules or principles of that jurisdiction). Judgment upon the award
may be entered in any court located in the State of Delaware, and all the
parties hereto hereby consent to submit to the jurisdiction of such courts and
expressly waive any objections or defense based upon lack of personal
jurisdiction or venue.
Each of the plaintiff and defendant party to the arbitration shall
select one (1) arbitrator (or where multiple plaintiffs and/or defendants exist,
one (1) arbitrator shall be chosen collectively by such parties comprising the
plaintiffs and one (1) arbitrator shall be chosen collectively by those parties
comprising the defendants) and then the two (2) arbitrators shall mutually agree
upon the third arbitrator. Where no agreement can be reached on the selection of
either a third arbitrator or an arbitrator to be named by either a group of
plaintiffs or a group of defendants, any implicated party may apply to a judge
of the courts of the State of Delaware, to name an arbitrator. The location of
any arbitration shall be in the State of Delaware. Process in any such action or
proceeding may be served on any party anywhere in the world.
Notice
11.2 Any notice required or permitted to be given by any party will be deemed to
be given when in writing and delivered to the address for notice of the intended
recipient by personal delivery, prepaid single certified or registered mail, or
Facsimile. Any notice delivered by mail shall be deemed to have been received on
the fourth business day after and excluding the date of mailing, except in the
event of a disruption in regular postal service in which event such notice shall
be deemed to be delivered on the actual date of receipt. Any notice delivered
personally or by Facsimile shall be deemed to have been received on the actual
date of delivery.
Addresses for Service
11.3 The address for service of notice of each
of the parties hereto is as follows:
(a) WPCS or the Acquirer:
WPCS International Incorporated
140 South Village Avenue, Suite 20
Exton, Pennsylvania 19341
Attn: Andrew Hidalgo, President
Phone: (610) 903-0400
Facsimile: (610) 903-0401
(b) Invisinet
Invisinet, Inc.
Attention: President
15 Manor Drive
Morristown, NJ 07960
Phone: (973) 540-9828
Facsimile: (973) 540-9853
(c) the Invisinet Shareholders
J. Johnson LLC
Attention: President
245 West Roosevelt Road, Boulevard 7
Suite 48, West Chicago, IL 60185
Phone: (630) 818-1002
Facsimile: (630) 818-4450
E.J. von Schaumburg
15 Manor Drive
Morristown, NJ 07960
Phone: (973) 879-4408
Facsimile: (973) 879-4408
Change of Address
11.4 Any party may, by notice to the other parties change its address for notice
to some other address in North America and will so change its address for notice
whenever the existing address or notice ceases to be adequate for delivery by
hand. A post office box may not be used as an address for service.
Further Assurances
11.5 Each of the parties will execute and deliver such further and other
documents and do and perform such further and other acts as any other party may
reasonably require to carry out and give effect to the terms and intention of
this Agreement.
Time of the Essence
11.6 Time is expressly declared to be the
essence of this Agreement.
Entire Agreement
11.7 The provisions contained herein constitute the entire agreement among
Invisinet, the Invisinet Shareholders, the Acquirer and WPCS respecting the
subject matter hereof and supersede all previous communications, representations
and agreements, whether verbal or written, among Invisinet, the Invisinet
Shareholders, the Acquirer and WPCS with respect to the subject matter hereof.
Enurement
11.8 This Agreement will enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators, successors
and permitted assigns.
Assignment
11.9 This Agreement is not assignable without the prior written consent of
the parties hereto.
Counterparts
11.10 This Agreement may be executed in counterparts, each of which when
executed by any party will be deemed to be an original and all of which
counterparts will together constitute one and the same Agreement. Delivery of
executed copies of this Agreement by Facsimile will constitute proper delivery,
provided that originally executed counterparts are delivered to the parties
within a reasonable time thereafter.
Applicable Law
11.11 This Agreement is subject to the laws of the
State of Delaware.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF the parties have executed this Agreement effective as of the
day and year first above written.
WPCS INTERNATIONAL
INCORPORATED
"Andrew Hidalgo"
By: --------------------
"Diana Schiendaft" Andrew Hidalgo, President
Witness
- ---------------------
Diana Schiendaft
1827 W. Chase
Chicago IL 60626
INVISINET ACQUISITIONS INC.
"Andrew Hidalgo"
"Diana Schiendaft" By: --------------------
Andrew Hidalgo, President
Witness
- ---------------------
Diana Schiendaft
1827 W. Chase
Chicago IL 60626
INVISINET, INC.
"E.J. von Schaumburg"
"Diana Schiendaft" By: ---------------------
E.J. von Schaumburg,
President
Witness
Diana Schiendaft
1827 W. Chase
Chicago IL 60626
This is page 31 to the Agreement and Plan of Merger dated November 13, 2002
between WPCS International Incorporated., Invisinet Acquisitions Inc.,
Invisinet, Inc., J. Johnson LLC and E.J. von Schaumburg.
J. JOHNSON LLC
"Norm Dumbroff"
By: -------------------
"Diana Schiendaft" Norm Dumbroff, President
Diana Schiendaft
1827 W. Chase
Chicago IL 60626
"E.J. von Schaumburg"
"Diana Schiendaft" -------------------
E.J. VON SCHAUMBURG
Diana Schiendaft
1827 W. Chase
Chicago IL 60626
This is page 32 to the Agreement and Plan of Merger dated November 13,,
2002 between WPCS International Incorporated., Invisinet Acquisitions Inc.,
Invisinet, Inc., J. Johnson LLC and E.J. von Schaumburg.