Document:

ex101.htm

Exhibit 10.1

 

 

 

 

 

 

AGREEMENT AND PLAN OF SECURITIES EXCHANGE

 

BY AND AMONG

 

SHAMIKA 2 GOLD, INC.,

 

THE MILLENNIUM MINING TRUST

 

AND

 

THE MILLENNIUM INTERNATIONAL GROUP, PLC

 

 

DATED: DECEMBER 17, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

  

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THIS AGREEMENT AND PLAN OF SECURITIES EXCHANGE (hereinafter referred to as the “Agreement”), is entered into as of this 17th day of December, 2010, by and among Shamika 2 Gold, Inc., a Nevada corporation (“Shamika”), the representatives of a company to be organized under the laws of the Republic of Mauritius (“Newco”), The Millennium Mining Trust, a New York trust comprised of certain shareholders of Newco (the “Newco Common Holders”), The Millennium International Group, PLC, a public limited company organized under the laws of the Kingdom of Cambodia (“Millennium”, and collectively with the Newco Common Holders, the “Newco Holders”).  (Shamika, Newco and the Newco Holders are sometimes hereinafter collectively referred to as the “Parties” and individually as a “Party”).

 

W I T N E S S E T H

 

WHEREAS, Shamika is a publicly-owned Nevada corporation with 65,000,000 shares of common stock, par value $0.00001 per share, issued and outstanding (the “Shamika Common Stock”) and is quoted on the Over the Counter Bulletin Board (the “OTCBB”) under the symbol “AGDI”.

 

WHEREAS, Newco is a company to be organized under the laws of the Republic of Mauritius, of which shares representing approximately eighty-five percent (85%) of the outstanding equity (the “Newco Shares”), is owned as of the date hereof by the Newco Holders on the signature page hereto.

 

WHEREAS, Shamika shall acquire the Newco Shares from the Newco Holders, consisting of (i) Newco Shares from the Newco Common Holders solely in exchange for an aggregate for thirty-two million (32,000,000) newly issued shares of Shamika Common Stock (“Shamika Exchange Shares”) and (ii) Newco Shares from Millennium, solely in exchange for an aggregate for twenty-five million (25,000,000) Shamika Exchange Shares and five hundred thousand (500,000) shares of Shamika’s Series B Performing Preferred Stock, par value $0.001 per share (the “Performing Preferred Shares”), which entitles Millennium, among other things, to receive a dividend equal to forty-five percent (45%) of the net operating profit, after taxes of Millennium’s mining project operations in Samplant, Cambodia (the “Performing Preferred Shares”, collectively with the Exchange Shares, the “Exchange Shares”) pursuant to the terms and conditions set forth in this Agreement.

 

WHEREAS, immediately upon consummation of the Closing, (i) the Exchange Shares will be issued to the Newco Common Holders on a pro rata basis, in proportion to the ratio that the number Newco Shares held by such Newco Common Holders bears to the pro rata portion of Newco Shares held by all the Newco Common Holders as of the date of the Closing set forth on Schedule I and (ii) the Performing Preferred Shares will be issued to Millennium;

 

WHEREAS, the Newco Common Holders are in the process of forming Newco in accordance with the laws of the Republic of Mauritius, the Parties desire to consummate the Closing in escrow until Newco is formed, Millennium has exchanged all of its outstanding capitalization with and certain mining rights and assets are transferred to Newco pursuant to the terms and conditions set forth herein.

 

WHEREAS, following the Closing, Newco will be a subsidiary of Shamika the Exchange Shares will represent approximately forty-six and seven tenth percent (46.7%) of the total outstanding shares of Shamika Common Stock and one hundred percent (100%) of the total outstanding shares of Performing Preferred Shares, on a fully diluted basis.

 

WHEREAS, the Parties intend that the transaction contemplated herein (the “Transaction”) qualify as a reorganization and tax-free exchange under Section 368(a) of the Internal Revenue Code of 1986, as amended.

 

NOW THEREFORE, on the stated premises and for and in consideration of the foregoing recitals which are hereby incorporated by reference, the mutual covenants and agreements hereinafter set forth and the mutual benefits to the Parties to be derived herefrom and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the Parties hereto agree as follows:

 

ARTICLE I

 

PLAN OF EXCHANGE

 

1.1 The Exchange.  At the Closing (as hereinafter defined), the Exchange Shares shall be distributed as follows:

 

(a)           all of the Newco Shares held by the Newco Common Holders immediately prior to the Closing Date, representing approximately forty-six percent (46%) of the Newco capital stock issued and outstanding immediately prior to the Closing Date, shall be exchanged for thirty-two million (32,000,000) shares of Shamika Common Stock.  After the Closing Date, the Newco Common Holders shall no longer own any Newco Shares and the former Newco Shares shall represent the pro rata portion of the Exchange Shares issuable in exchange therefor pursuant to this Agreement.  Any fractional shares that would result from such exchange will be rounded up to the next highest whole number; and

 

(b)           all of the  Newco Shares held by Millennium immediately prior to the Closing Date, representing approximately thirty-nine percent (39%) of the Newco capital stock issued and outstanding immediately prior to the Closing Date, shall be exchanged for (i) twenty-five million (25,000,000) shares of Shamika Common Stock; and (ii) five hundred thousand (500,000) Performing Preferred Shares.  After the Closing Date, Millennium shall no longer own any Newco Shares and the former Newco Shares shall represent the pro rata portion of the Exchange Shares issuable in exchange therefor pursuant to this Agreement.  Any fractional shares that would result from such exchange will be rounded up to the next highest whole number

 

  

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1.2 Closing in Escrow.  At the Closing, the Exchange Shares, the Performing Shares and the Exchange Shares shall be held in escrow with Shamika’s counsel, Tarter Krinsky & Drogin, LLP (the “Escrow Agent”) until such time that the Escrow Agent has received satisfactory, documentary proof that Newco has been formed and the Millennium has consummated a securities exchange agreement with Newco whereby all of Millennium’s outstanding capitalization is transferred to Newco, thereby assigning all right, title and interest to Millennium’s license to mine approximately 100 square kilometers for gold and ruby mineralization in mining rights located on Samplant, Cambodia, (the “Mining Rights”) free and clear of all encumbrances (the “Contribution”).  Following satisfactory proof of the Contribution, and the ratification of this Agreement by Newco and the Newco Board of Directors, the Escrow Argent shall release the Shamika Exchange Shares to the Newco Holders, the Performing Preferred Shares to Millennium and the Newco Shares to Shamika.  If the Contribution has not occurred within ninety (90) days from the execution of this Agreement, Shamika shall have the right to terminate the Agreement, in accordance with Section 7.1(b) hereof.

 

1.3 Closing. The closing (“Closing”) of the transactions contemplated by this Agreement shall occur immediately following the execution of this Agreement providing the closing conditions set forth in Articles V and VI have been satisfied or waived (the “Closing Date”).

 

1.4 Closing Events.  At the Closing, each of the respective parties hereto shall execute, acknowledge, and deliver (or shall cause to be executed, acknowledged, and delivered) any and all stock certificates, officers’ certificates, opinions, financial statements, schedules, agreements, resolutions, rulings, or other instruments required by this Agreement to be so delivered at or prior to the Closing, and the documents and certificates provided in Sections 5.2, 5.4, 6.2, and 6.5, together with such other items as may be reasonably requested by the parties hereto and their respective legal counsel in order to effectuate or evidence the transactions contemplated hereby.  If agreed to by the parties, the Closing may take place through the exchange of documents (other than the exchange of stock certificates) by fax, email and/or express courier.  At the Closing, the Exchange Shares shall be issued in the names and denominations provided by Newco.

 

1.5 Standstill.  Until the earlier of the Closing or March 1, 2011 (the “No Shop Period”), neither Millennium, Newco nor the Newco Holders will (i) solicit or encourage any offer or enter into any agreement or other understanding, whether written or oral, for the sale, transfer or other disposition of any capital stock or assets of Newco to or with any other entity or person, except as contemplated by the Transaction, other than sales of goods and services by Newco in the ordinary course of its business; (ii) entertain or pursue any unsolicited communication, offer or proposal for any such sale, transfer or other disposition; or (iii) furnish to any person or entity (other than Shamika, and its authorized agents and representatives) any nonpublic information concerning Newco or its business, financial affairs or prospects for the purpose or with the intent of permitting such person or entity to evaluate a possible acquisition of any capital stock or assets of Newco.  If either Newco or any of the Newco Holders shall receive any unsolicited communication or offer, Newco or the Newco Holders, as applicable, shall immediately notify Shamika of the receipt of such communication or offer.

 

1.6 Exemption From Registration. Shamika and Newco intend that the Exchange Shares to be issued pursuant to Section 1.1 hereof will be issued in a transaction exempt from registration under the Securities Act of 1933, as amended (“Securities Act”), by reason of section 4(2) of the Securities Act and/or Rule 506 of Regulation D promulgated by the SEC thereunder.

 

ARTICLE II

 

REPRESENTATIONS, COVENANTS, AND WARRANTIES OF NEWCO

 

Newco represents and warrants to Shamika that the statements contained in this Article II are true and correct, to the knowledge of Newco. For purposes of this Article II, the phrase “to the knowledge of Newco” or any phrase of similar import shall be deemed to refer to the actual knowledge of the executive officers of Newco immediately before the Closing.

 

2.1 Organization.  Newco will be, upon formation, a corporation duly organized, validly existing, and in good standing under the laws of the Republic of Mauritius.  Newco will have the power and will be duly authorized, qualified, franchised, and licensed under all applicable laws, regulations, ordinances, and orders of public authorities to own all of its properties and assets and to carry on its business in all material respects, including qualification to do business as a foreign corporation in jurisdictions in which the character and location of the assets owned by it or the nature of the business transacted by it requires qualification except where the failure to be so qualified or in good standing, individually or in the aggregate, has not had and would not reasonably be expected to have a Newco Material Adverse Effect (as that term is defined below).  The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement in accordance with the terms hereof will not, violate any provision of Newco’s organizational documents.  Newco has taken all action required by laws, its memorandum of association, certificate of business registration, or otherwise to authorize the execution and delivery of this Agreement. Newco shall have full power, authority, and legal right and has taken or will take all action required by law, its memorandum of association and otherwise to consummate the transactions herein contemplated. For purposes of this Agreement, “Newco Material Adverse Effect” means a material adverse effect on the assets, business, condition (financial or otherwise) or results of operations of Newco or its subsidiaries taken as a whole.

 

2.2 Capitalization. The authorized capital stock of Newco shall be determined by Dr. Robert Lam and Robert Vivian. All of the issued and outstanding Newco Shares shall be duly authorized, validly issued, fully paid, nonassessable and free of all preemptive rights.  There shall be no notes or other indebtedness convertible into shares of any class of the Newco’s capital stock, outstanding or authorized options, warrants, rights, agreements or commitments to which Newco is a party or which would be binding upon Newco providing for the issuance or redemption of any of its capital stock.  There will be no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to Newco. There are no agreements to which the Newco is a party or by which it is bound with respect to the voting (including without limitation voting trusts or proxies), registration under the Securities Act, or sale or transfer (including without limitation agreements relating to pre-emptive rights, rights of first refusal, co-sale rights or “drag-along” rights) of any securities of Newco. To the knowledge of Newco, there are no agreements among other parties, to which Newco is not a party and by which it is not bound, with respect to the voting (including without limitation voting trusts or proxies) or sale or transfer (including without limitation agreements relating to rights of first refusal, co-sale rights or “drag-along” rights) of any securities of Newco. All of the issued and outstanding Newco Shares will be issued in compliance with applicable laws of its jurisdiction.

 

  

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2.3 Financial Statements.

 

(a)           Newco will file all local income tax returns required to be filed.  All such returns will be complete and accurate in all material respects.

 

(b)           Newco will have no liabilities with respect to the payment of federal, county, local, or other taxes (including any deficiencies, interest, or penalties), except for taxes accrued but not yet due and payable, for which Newco may be liable in its own right or as a transferee of the assets of, or as a successor to, any other corporation or entity.

 

(c)           No deficiency for any taxes has been proposed, asserted or assessed against Newco.  There has been no tax audit, nor has there been any notice to Newco by any taxing authority regarding any such tax audit, or, to the knowledge of Newco, is any such tax audit threatened with regard to any taxes or Newco tax returns.  Newco does not expect the assessment of any additional taxes of Newco for any period prior to the date hereof and has no knowledge of any unresolved questions concerning the liability for taxes of Newco.

 

(d)           Newco shall have provided to Shamika the audited balance sheets of Newco as of December 31, 2010, and the audited statements of income, shareholders’ equity and cash flows of Newco (collectively “Newco Financial Statements”) for the period ended December 31, 2010 (the “Newco Balance Sheet Date”).  The Newco Financial Statements will have been prepared from the books and records of Newco in accordance with International Accounting Standards (“IAS”) applied on a consistent basis throughout the periods covered thereby, fairly present the financial condition, results of operations and cash flows of Newco and the Subsidiaries as of the respective dates thereof and for the periods referred to therein, comply as to form with the applicable rules and regulations of the SEC for inclusion of such Newco Financial Statements in the Shamika filings with the SEC as required by the Securities Exchange Act of 1934 (the “Exchange Act”) and are consistent with the books and records of Newco and the Subsidiaries, except as provided in the notes thereto.

 

2.4 Disclosure. No representation or warranty by Newco contained in this Agreement or in any of the transaction documentation, and no statement contained in the any document, certificate or other instrument delivered or to be delivered by or on behalf of Newco pursuant to this Agreement or therein, contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary, in light of the circumstances under which it was or will be made, in order to make the statements herein or therein not misleading. Newco has disclosed to Shamika all material information relating to the business of Newco or the transactions contemplated by this Agreement.

 

2.5 Undisclosed Liabilities. Newco has no material liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated and whether due or to become due), except for (a) liabilities shown on the Newco Balance Sheets referred to in Section 2.3, (d) liabilities which have arisen since the Newco Balance Sheet Date in the Ordinary Course of Business (as defined herein) and (c) contractual and other liabilities incurred in the Ordinary Course of Business which are not required by IAS to be reflected on a balance sheet.  As used in this Agreement, “Ordinary Course of Business” means the ordinary course of Newco’s business, consistent with past custom and practice (including with respect to frequency and amount).

 

2.6 Absence of Certain Changes or Events.  Except as set forth in this Agreement or in the Newco Financial Statements.

 

(a)           except in the Ordinary Course of Business, there will not be (i) any material adverse change in the business, operations, properties, assets, or condition of Newco; or (ii) any damage, destruction, or loss to Newco (whether or not covered by insurance) materially and adversely affecting the business, operations, properties, assets, or condition of Newco;

 

(b)           Newco shall have not (i) borrowed or agreed to borrow any funds or incurred, or become subject to, any material obligation or liability (absolute or contingent) not otherwise in the ordinary course of business; (ii) paid any material obligation or liability not otherwise in the ordinary course of business (absolute or contingent) other than current liabilities reflected in or shown on the most recent Newco consolidated balance sheet, and current liabilities incurred since that date in the ordinary course of business; (iii) sold or transferred, or agreed to sell or transfer, any of its assets, properties, or rights not otherwise in the ordinary course of business; (iv) made or permitted any amendment or termination of any contract, agreement, or license to which they are a party not otherwise in the ordinary course of business if such amendment or termination is material, considering the business of Newco; or (v) issued, delivered, or agreed to issue or deliver any stock, bonds or other corporate securities including debentures (whether authorized and unissued or held as treasury stock).

 

2.7 Litigation and Proceedings.  There will be no actions, suits, proceedings, or investigations pending or, to the knowledge of Newco, threatened by or against Newco or affecting Newco, or its properties, at law or in equity, before any court or other governmental agency or instrumentality, domestic or foreign, or before any arbitrator of any kind.

 

2.8 No Conflict With Other Instruments.  The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of, or constitute an event of default under, any material indenture, mortgage, deed of trust, or other material contract, agreement, or instrument to which Newco is a party or to which any of its properties or operations are subject.

 

2.9 Contracts.  Newco has provided, or will provide Shamika, copies of all material contracts, agreements, franchises, license agreements, or other commitments to which Newco is a party or by which it or any of its assets, products, technology, or properties are bound.

 

2.10 Compliance With Laws and Regulations.  Newco has complied with all applicable statutes and regulations of any national, county, or other governmental entity or agency thereof, except to the extent that noncompliance would not materially and adversely affect the business, operations, properties, assets, or condition of Newco.

 

2.11 Approval of Agreement.  The board of directors of Newco (the “Newco Board”) and the Newco Holders will have authorized the execution and delivery of this Agreement by Newco and will have approved the transactions contemplated hereby prior to closing. This Agreement has been duly and validly executed and delivered by Newco and constitutes a valid and binding obligation of Newco, enforceable against Newco in accordance with its terms.

 

  

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2.12 Title and Related Matters.  Newco will have good and marketable title to all of its properties, interest in properties, and assets, real and personal, which are reflected in the Newco balance sheet or acquired after that date (except properties, interest in properties, and assets sold or otherwise disposed of since such date in the ordinary course of business), free and clear of all liens, pledges, charges, or encumbrances except: statutory liens or claims not yet delinquent.

 

2.13 Governmental Authorizations.  Newco will have all licenses, franchises, permits, and other government authorizations, that are legally required to enable it to conduct its business operations in all material respects as conducted on the date hereof. Except for compliance with federal and state securities or corporation laws, as hereinafter provided, no authorization, approval, consent, or order of, or registration, declaration, or filing with, any court or other governmental body is required in connection with the execution and delivery by Newco of this Agreement and the consummation by Newco of the transactions contemplated hereby.

 

2.14 Continuity of Business Enterprises.  Newco has no commitment or present intention to liquidate Newco or sell or otherwise dispose of a material portion of its business or assets following the consummation of the transactions contemplated hereby.

 

2.15 Ownership of Newco Shares.  Millennium and the Newco Holders are the legal and beneficial owners of approximately 85% of the Newco Shares, free and clear of any claims, charges, equities, liens, security interests, and encumbrances whatsoever, and the Newco Holders has full right, power, and authority to transfer, assign, convey, and deliver their respective Newco Shares; and delivery of such Newco Shares at the Closing will convey to Shamika good and marketable title to such Newco Shares free and clear of any claims, charges, equities, liens, security interests, and encumbrances except for any such claims, charges, equities, liens, security interests, and encumbrances arising out of such Newco Shares being held by Shamika.

 

2.16 Brokers. Newco has not entered into any contract with any person, firm or other entity that would obligate Newco or Shamika to pay any commission, brokerage or finders’ fee in connection with the transactions contemplated herein.

 

2.17 Subsidiaries and Predecessor Corporations.  Newco does not have any Subsidiaries (the “Subsidiary”).  For purposes of this Agreement, a “Subsidiary” shall mean any corporation, partnership, joint venture or other entity in which a Party has, directly or indirectly, an equity interest representing 50% or more of the equity securities thereof or other equity interests therein (collectively, the “Subsidiaries”).

 

2.18 Intellectual Property.  Newco owns or has the right to use all Intellectual Property (as defined below) necessary (i) to use, manufacture, market and distribute the products manufactured, marketed, sold or licensed, and to provide the services provided, by Newco or the Subsidiaries to other parties (together, the “Customer Deliverables”) and (ii) to operate the internal systems of Newco or the Subsidiaries that are material to its business or operations, including, without limitation, computer hardware systems, software applications and embedded systems (the “Internal Systems”; the Intellectual Property owned by or licensed to Newco or the Subsidiaries and incorporated in or underlying the Customer Deliverables or the Internal Systems is referred to herein as the “Newco Intellectual Property”). Each item of Newco Intellectual Property will be owned or available for use by the Surviving Corporation immediately following the Closing on substantially identical terms and conditions as it was immediately prior to the Closing. Newco has taken all reasonable measures to protect the proprietary nature of each item of Newco Intellectual Property. To the knowledge of Newco, (a) no other person or entity has any rights to any of Newco Intellectual Property owned by Newco except pursuant to agreements or licenses entered into by Newco and such person in the ordinary course, and (b) no other person or entity is infringing, violating or misappropriating any of Newco Intellectual Property. For purposes of this Agreement, “Intellectual Property” means all (i) patents and patent applications, (ii) copyrights and registrations thereof, (iii) computer software, data and documentation, (iv) trade secrets and confidential business information, whether patentable or unpatentable and whether or not reduced to practice, know-how, manufacturing and production processes and techniques, research and development information, copyrightable works, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information, (v) trademarks, service marks, trade names, domain names and applications and registrations therefor and (vi) other proprietary rights relating to any of the foregoing.

 

2.19 Certain Business Relationships With affiliates. Except as contemplated by employment agreements, consulting agreements and the agreements contemplated by the Transactions: (i) no affiliate of Newco (a) owns any property or right, tangible or intangible, which is used in the business of Newco (b) has any claim or cause of action against Newco or (c) owes any money to, or is owed any money by, Newco.

 

2.20 Title To and Mining Rights.  As a material inducement to enter into this Agreement, Newco represents and warrants that, following the Contribution, it shall have good and marketable title to the Mining Rights free and clear of all encumbrances. There shall be no outstanding options or rights to purchase the Mining Rights or any portion thereof. There shall be no pending or threatened eminent domain proceedings with respect to any portion of the Mining Rights. There shall be no injunction, decree, order or judgment outstanding, nor any action, claim, suit, arbitration or other proceeding, pending or threatened, relating to the ownership, occupancy or use of the Mining Rights by any person. Except for de minimis items, Newco owns the Mining Rights.

 

ARTICLE III

 

REPRESENTATIONS, COVENANTS, AND WARRANTIES OF SHAMIKA

 

Shamika represents and warrants to Newco that the statements contained in this Article III are true and correct, For purposes of this Article III, the phrase “to the knowledge of Shamika” or any phrase of similar import shall be deemed to refer to the actual knowledge of executive officers of Shamika, immediately before the Closing.

 

3.1 Organization.  Shamika is a corporation duly organized, validly existing, and in good standing under the laws of the State of Nevada, and has the corporate power and is duly authorized, qualified, franchised, and licensed under all applicable laws, regulations, ordinances, and orders of public authorities to own all of its properties and assets and to carry on its business in all material respects as it is now being conducted, and there is no jurisdiction in which it is not qualified in which the character and location of the assets owned by it or the nature of the business transacted by it requires qualification. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not, violate any provision of Shamika’s Articles of Incorporation or bylaws. Shamika has taken all action required by law, its Articles of Incorporation, its bylaws, or otherwise to authorize the execution and delivery of this Agreement, and Shamika has full power, authority, and legal right and has taken all action required by law, its Articles of Incorporation, bylaws, or otherwise to consummate the transactions herein contemplated.

 

  

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3.2 Capitalization. The authorized capital stock of Shamika consists of 310,000,000 shares, consisting of 300,000,000 shares of  Shamika Common Stock and 10,000,000 shares of Shamika preferred stock par value $0.00001 per share (the “Shamika Preferred Stock).  Immediately prior to the Closing, there shall be 65,000,000 shares of Shamika Common Stock issued and outstanding, and 100,000 shares of Series A Convertible Preferred Stock issued and outstanding.  All of the issued and outstanding shares of Shamika Common Stock are duly authorized, validly issued, fully paid, nonassessable and free of all preemptive rights.  The Board of Directors of Shamika have reserved for issuance 14,078,640 shares of Common Stock as follows: 3,000,000 shares in accordance with an incentive stock option plan; up to 4,000,000 shares of Shamika Common Stock and warrants to purchase an additional 2,000,000 shares of Shamika Common Stock pursuant to a private placement offering; the issuance of 3,600,000 additional founders’ shares; and a convertible promissory note initially convertible into 1,478,640 shares of Common Stock.  There are no other outstanding agreements or commitments to which Shamika is a party or which are binding upon Shamika providing for the issuance or redemption of any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to Shamika. There are no agreements to which Shamika is a party or by which it is bound with respect to the voting (including without limitation voting trusts or proxies), registration under the Securities Act, or sale or transfer (including without limitation agreements relating to pre-emptive rights, rights of first refusal, co-sale rights or “drag-along” rights) of any securities of Shamika. To the knowledge of Shamika, there are no agreements among other parties, to which Shamika is not a party and by which it is not bound, with respect to the voting (including without limitation voting trusts or proxies) or sale or transfer (including without limitation agreements relating to rights of first refusal, co-sale rights or “drag-along” rights) of any securities of Shamika. All of the issued and outstanding shares of Shamika Common Stock were issued in compliance with applicable federal and state securities laws. The Exchange Shares to be issued at the Closing pursuant to Section 1.1 hereof, when issued and delivered in accordance with the terms hereof, shall be duly and validly issued, fully paid and nonassessable and free of all preemptive rights.

 

3.3 Financial Statements.  The audited financial statements and unaudited interim financial statements of the Shamika included in the Shamika Reports (collectively, the “Shamika Financial Statements”) (i) complied as to form in all material respects with applicable accounting requirements and, as appropriate, the published rules and regulations of the SEC with respect thereto when filed, (ii) were prepared in accordance with IAS applied on a consistent basis throughout the periods covered thereby (except as may be indicated therein or in the notes thereto, and in the case of quarterly financial statements, as permitted by Form 10-Q under the Exchange Act), (iii) fairly present the consolidated financial condition, results of operations and cash flows of the Shamika as of the respective dates thereof and for the periods referred to therein, and (iv) are consistent with the books and records of the Shamika.

 

3.4 Securities Act and Exchange Act Filings.  Shamika has furnished or made available to Newco complete and accurate copies, as amended or supplemented, of its (a) Annual Report on Form 10-K for the Fiscal Year ended December 31, 2009, which contains audited financial statements for the period January 26, 2005 (inception) through December 31, 2009, and (b) all other reports filed by Shamika under Section 13 or 15(d) of the Exchange Act and all proxy or information statements filed by Shamika under subsections (a) or (c) of Section 14 of the Exchange Act with the SEC since July 21, 2005 (such documents are collectively referred to herein as the “Shamika Reports”). The Shamika Reports constitute all of the documents required to be filed by Shamika under Section 13 or subsections (a) or (c) of Section 14 of the Exchange Act with the SEC from July 21, 2005 through the date of this Agreement. Shamika Reports complied in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder when filed.  Each Shamika Report filed under the Exchange Act was filed on or before its due date (if any) or within the applicable extension period provided under the Exchange Act. As of their respective dates, Shamika Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

3.5 Undisclosed Liabilities. To the knowledge of Shamika, neither Shamika nor any Subsidiary has any material liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated and whether due or to become due), except for (a) liabilities shown on the Shamika Balance Sheets referred to in Section 2.3, (d) liabilities which have arisen since the Shamika Balance Sheet Date in the Ordinary Course of Business (as defined herein) and (c) contractual and other liabilities incurred in the Ordinary Course of Business which are not required by IAS to be reflected on a balance sheet.  As used in this Agreement, “Ordinary Course of Business” means the ordinary course of Shamika’s business, consistent with past custom and practice (including with respect to frequency and amount).

 

3.6 Absence of Certain Changes or Events.  Except as described herein or in the Shamika Reports:

 

(a)           There has not been (i) any material adverse change, financial or otherwise, in the business, operations, properties, assets, or condition of Shamika (whether or not covered by insurance) materially and adversely affecting the business, operations, properties, assets, or condition of Shamika;

 

(b)           Shamika has not (i) amended its Articles of Incorporation or by-laws; (ii) declared or made, or agreed to declare or make any payment of dividends or distributions of any assets of any kind whatsoever to shareholders or purchased or redeemed, or agreed to purchase or redeem, any of its capital stock; (iii) waived any rights of value which in the aggregate are extraordinary or material considering the business of Shamika; (iv) made any material change in its method of management, operation, or accounting; (v) entered into any other material transactions; (vi) made any accrual or arrangement for or payment of bonuses or special compensation of any kind or any severance or termination pay to any present or former officer or employee; (vii) increased the rate of compensation payable or to become payable by it to any of its officers or directors or any of its employees; or (viii) made any increase in any profit sharing, bonus, deferred compensation, insurance, pension, retirement, or other employee benefit plan, payment, or arrangement, made to, for, or with its officers, directors, or employees;

 

(c)           Shamika has not (i) granted or agreed to grant any options, warrants, or other rights for its stocks, bonds, or other corporate securities calling for the issuance thereof; (ii) borrowed or agreed to borrow any funds or incurred, or become subject to, any material obligation or liability (absolute or contingent) except liabilities incurred in the ordinary course of business; (iii) paid or agreed to pay any material obligation or liability (absolute or contingent) other than current liabilities reflected in or shown on the most recent Shamika balance sheet and current liabilities incurred since that date in the ordinary course of business and professional and other fees and expenses incurred in connection with the preparation of this Agreement and the consummation of the transactions contemplated hereby; (iv) sold or transferred, or agreed to sell or transfer, any of its assets, property, or rights (except assets, property, or rights not used or useful in its business which, in the aggregate have a value of less than $5,000), or canceled, or agreed to cancel, any debts or claims (except debts or claims which in the aggregate are of a value of less than $5,000); (v) made or permitted any amendment or termination of any contract, agreement, or license to which it is a party if such amendment or termination is material, considering the business of Shamika; or (vi) issued, delivered, or agreed to issue or deliver any stock, bonds, or other corporate securities including debentures (whether authorized and unissued or held as treasury stock), except in connection with this Agreement; and

 

(d)           To the best knowledge of Shamika, it has not become subject to any law or regulation which materially and adversely affects, or in the future may adversely affect, the business, operations, properties, assets, or condition of Shamika.

 

3.7 Title and Related Matters.  Except as set forth in the Shamika Reports, Shamika has good and marketable title to all of its properties, interest in properties, and assets, real and personal, which are reflected in the Shamika balance sheet or acquired after that date (except properties, interest in properties, and assets sold or otherwise disposed of since such date in the ordinary course of business), free and clear of all liens, pledges, charges, or encumbrances except:

 

  

6

  

 

(a)           statutory liens or claims not yet delinquent; and

 

(b)           such imperfections of title and easements as do not and will not materially detract from or interfere with the present or proposed use of the properties subject thereto or affected thereby or otherwise materially impair present business operations on such properties.

 

3.8 Litigation and Proceedings.  Except as set forth in the Shamika Reports, there are no actions, suits, or proceedings pending or, to the knowledge of Shamika, threatened by or against or affecting Shamika, at law or in equity, before any court or other governmental agency or instrumentality, domestic or foreign, or before any arbitrator of any kind.

 

3.9 Contracts.  Shamika is not a party to any material contract, agreement, or other commitment, except as specifically disclosed in its schedules to this Agreement.

 

3.10 No Conflict With Other Instruments.  The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of, or constitute a default under, any indenture, mortgage, deed of trust, or other material agreement or instrument to which Shamika is a party or to which it or any of its assets or operations are subject.

 

3.11 Governmental Authorizations.  Shamika is not required to have any licenses, franchises, permits, and other government authorizations, that are legally required to enable it to conduct its business operations in all material respects as conducted on the date hereof. Except for compliance with federal and state securities or corporation laws, as hereinafter provided, no authorization, approval, consent, or order of, or registration, declaration, or filing with, any court or other governmental body is required in connection with the execution and delivery by Shamika of this Agreement and the consummation by Shamika of the transactions contemplated hereby.

 

3.12 Compliance With Laws and Regulations. Each of Shamika and its Subsidiaries:

 

(a)           and the conduct and operations of their respective businesses, are in compliance with each applicable law (including rules and regulations thereunder) of any federal, state, local or foreign government, or any governmental entity, except for any violations or defaults that, individually or in the aggregate, have not had and would not reasonably be expected to have a Shamika Material Adverse Effect;

 

(b)           has complied with all federal and state securities laws and regulations, including being current in all of its reporting obligations under such federal and state securities laws and regulations;

 

(c)           has not, and the past and present officers, directors and affiliates of Shamika have not, been the subject of, nor does any officer or director of Shamika have any reason to believe that Shamika or any of its officers, directors or affiliates will be the subject of, any civil or criminal proceeding or investigation by any federal or state agency alleging a violation of securities laws;

 

(d)           has not been the subject of any voluntary or involuntary bankruptcy proceeding, nor has it been a party to any material litigation;

 

(e)           has not, and the past and present officers, directors and affiliates have not, been the subject of, nor does any officer or director of Shamika have any reason to believe that Shamika or any of its officers, directors or affiliates will be the subject of, any civil, criminal or administrative investigation or proceeding brought by any federal or state agency having regulatory authority over such entity or person;

 

(f)           does not and will not immediately prior to the Closing, have any liabilities, contingent or otherwise, including but not limited to notes payable and accounts payable, and is not a party to any executory agreements; and

 

(g)           is not a “blank check Company” as such term is defined by Rule 419 of the Securities Act.

 

3.13 Insurance.  Shamika has all necessary insurance to operate its business and the business of its subsidiaries.

 

3.14 Approval of Agreement.  The board of directors of Shamika (the “Shamika Board”) has authorized the execution and delivery of this Agreement by Shamika and has approved this Agreement and the transactions contemplated hereby.

 

3.15 Material Transactions of Affiliations.  Except as disclosed herein, there exists no material contract, agreement, or arrangement between Shamika and any person who was at the time of such contract, agreement, or arrangement an officer, director, or person owning of record or known by Shamika to own beneficially, 10% or more of the issued and outstanding common stock of Shamika and which is to be performed in whole or in part after the date hereof or was entered into not more than three years prior to the date hereof. Neither any officer, director, nor 10% stockholder of Shamika has, or has had during the last preceding full fiscal year, any known interest in any material transaction with Shamika which was material to the business of Shamika. Shamika has no commitment, whether written or oral, to lend any funds to, borrow any money from, or enter into any other material transaction with any such affiliated person.

 

3.16 Employment Matters.  Shamika has no employees other than its executive officers.

 

3.17 Brokers.  Shamika has not entered into any contract with any person, firm or other entity that would obligate Newco or Shamika to pay any commission, brokerage or finders’ fee in connection with the transactions contemplated herein.

 

  

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3.18 Subsidiaries.  Shamika has no Subsidiaries other than Shamika Gold Mining Sprl (the “Shamika Subsidiaries”).   The Shamika Subsidiaries are corporations duly organized, validly existing and in corporate and tax good standing under the laws of the jurisdiction of its respective incorporation. Shamika has delivered or made available to Newco complete and accurate copies of the charter, bylaws or other organizational documents of the Shamika Subsidiaries.  All of the issued and outstanding shares of capital stock of the Shamika Subsidiaries are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. All shares of the Shamika Subsidiaries are owned by Shamika free and clear of any restrictions on transfer (other than restrictions under the Securities Act and state securities laws), claims, security interests, options, warrants, rights, contracts, calls, commitments, equities and demands. There are no outstanding or authorized options, warrants, rights, agreements or commitments to which the Shamika or the Shamika Subsidiaries are a party to or which are binding on any of them providing for the issuance, disposition or acquisition of any capital stock of any Shamika Subsidiary. There are no outstanding stock appreciation, phantom stock or similar rights with respect to the Shamika Subsidiaries There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of the Shamika Subsidiaries.

 

3.19 Disclosure. No representation or warranty by Shamika contained in this Agreement or in any of the transaction documentation, and no statement contained in any document, certificate or other instrument delivered or to be delivered by or on behalf of Shamika pursuant to this Agreement or therein, contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary, in light of the circumstances under which it was or will be made, in order to make the statements herein or therein not misleading. Shamika has disclosed to Newco all material information relating to the business of Shamika or any Subsidiary or the transactions contemplated by this Agreement.

 

ARTICLE IV

 

SPECIAL COVENANTS

 

4.1 Formation of Newco.  As a material inducement to Shamika to execute the Agreement and perform as set forth herein, Millennium covenants and undertakes that it will use its best efforts to form Newco and effectuate the Contribution as quickly as commercially possible so that the Closing may occur.

 

4.2 Reimbursement of Millennium Expenses.  Upon final closing, Shamika shall reimburse Millennium for expenses related to field visits incurred in securing and examining the Mining Rights including, but not limited to, helicopter travel and security, up to the amount of ten thousand dollars ($10,000) and licensing fees incurred in acquiring the Mining Rights up to the amount of thirty-five thousand dollars ($35,000).

 

4.3 Current Report.  In connection with the Closing, Shamika shall file a current report on Form 8-K relating to this Agreement and the transactions contemplated hereby (the “Current Report”). Shamika shall cause the Current Report to be filed with the SEC no later than four business days of the Closing and to otherwise comply with all requirements of applicable federal and state securities laws.

 

4.4 Access to Properties and Records.  Shamika and Newco will each afford to the officers and authorized representatives of the other reasonable access to the properties, books, and records of Shamika or Newco in order that each may have full opportunity to make such reasonable investigation as it shall desire to make of the affairs of the other, and each will furnish the other with such additional financial and operating data and other information as to the business and properties of Shamika or Newco as the other shall from time to time reasonably request.

 

4.5 Delivery of Books and Records.  At the Closing, Newco shall deliver to Shamika, the originals of the corporate minute books, books of account, contracts, records, and all other books or documents of Newco.

 

4.6 Actions Prior to Closing by both Parties.

 

(a)           From and after the date of this Agreement until the Closing Date or as permitted or contemplated by this Agreement, Shamika and Newco will each: (i) carry on its business in substantially the same manner as it has heretofore; (ii) maintain and keep its properties in states of good repair and condition as at present, except for depreciation due to ordinary wear and tear and damage due to casualty; (iii) maintain in full force and effect insurance comparable in amount and in scope of coverage to that now maintained by it; (iv) perform in all material respects all of its obligation under material contracts, leases, and instruments relating to or affecting its assets, properties, and business; (v) use its best efforts to maintain and preserve its business organization intact, to retain its key employees, and to maintain its relationship with its material suppliers and customers; and (vi) fully comply with and perform in all material respects all obligations and duties imposed on it by all federal and state laws and all rules, regulations, and orders imposed by federal or state governmental authorities.

 

(b)           Except as set forth herein, from and after the date of this Agreement until the Closing Date, neither Shamika nor Newco will: (i) make any change in their organizational documents, charter documents or bylaws; (ii) take any action described in Section 2.6 in the case of Newco, or in Section 3.6, in the case of Shamika (all except as permitted therein or as disclosed in the applicable party’s schedules); (iii) enter into or amend any contract, agreement, or other instrument of any of the types described in such party’s schedules, except that a party may enter into or amend any contract, agreement, or other instrument in the ordinary course of business involving the sale of goods or services, or (iv) make or change any material tax election, settle or compromise any material tax liability or file any amended tax return.

 

4.7 Indemnification.

 

(a)           Newco hereby agrees to indemnify Shamika and each of the officers, agents and directors of Shamika as of the date of execution of this Agreement against any loss, liability, claim, damage, or expense (including, but not limited to, any and all expense whatsoever reasonably incurred in investigating, preparing, or defending against any litigation, commenced or threatened, or any claim whatsoever), to which it or they may become subject arising out of or based on any inaccuracy appearing in or misrepresentation made in Article II. The indemnification provided for in this paragraph shall not survive the Closing and consummation of the transactions contemplated hereby but shall survive the termination of this Agreement pursuant to Section 7.1(b) of this Agreement.

 

  

8

  

 

(b)           Shamika hereby agrees to indemnify Newco and each of the officers, agents and directors of Newco as of the date of execution of this Agreement against any loss, liability, claim, damage, or expense (including, but not limited to, any and all expense whatsoever reasonably incurred in investigating, preparing, or defending against any litigation, commenced or threatened, or any claim whatsoever), to which it or they may become subject arising out of or based on any inaccuracy appearing in or misrepresentation made under Article III. The indemnification provided for in this paragraph shall survive the Closing and consummation of the transactions contemplated hereby in accordance with the provisions of Section 1.6.

 

4.8 Plan of Reorganization.  This Agreement is intended to constitute a “plan of reorganization” within the meaning of Treasury Regulation Section 1.368-2(g).  From and after the date of this Agreement and until the Closing Date, each Party hereto shall use its reasonable best efforts to cause the Share Exchange to qualify, and will not knowingly take any action, cause any action to be taken, fail to take any action or cause any action to fail to be taken which action or failure to act could prevent the Share Exchange from qualifying as a reorganization under the provisions of Section 368(a) of the Code.

 

4.9 Project Financing.  With the understanding that Millennium International Group PLC has the responsibility to bring in Vietnamese strategic alliance partners with the necessary technology, know-how and equipment for the initial production on the mining concessions referred to in paragraphs (a) and (b) below, Shamika hereby agrees to provide the project financing, required for the realization of the exploration and exploitation projects related to:

 

(a) the 254km2 property in Samlaut District, Battambang and Pailin provinces, in the Kingdom of Cambodia;

 

(b) the 94km2 property in Kompovpur Village, Samlaut District, in Battambang province, Kingdom of Cambodia; and

 

(c) other Millennium International Group projects contributed to Shamika, subject to Shamika Board approval.

 

ARTICLE V

 

CONDITIONS PRECEDENT TO OBLIGATIONS OF SHAMIKA

 

The obligations of Shamika under this Agreement are subject to the satisfaction, at or before the Closing, of the following conditions:

5.1 Accuracy of Representations; Performance.  The representations and warranties made by Newco in this Agreement were true when made and shall be true at the Closing Date with the same force and effect as if such representations and warranties were made at and as of the Closing Date (except for changes therein permitted by this Agreement), and Newco shall have performed or complied with all covenants and conditions required by this Agreement to be performed or complied with by Newco prior to or at the Closing. Shamika may request to be furnished with a certificate, signed by a duly authorized officer of Newco and dated the Closing Date, to the foregoing effect.

 

5.2 Officer’s Certificates.  Shamika shall have been furnished with a certificate dated the Closing Date and signed by a duly authorized officer of Newco to the effect that no litigation, proceeding, investigation, or inquiry is pending or, to the best knowledge of Newco threatened, which might result in an action to enjoin or prevent the consummation of the transactions contemplated by this Agreement, or, by or against Newco which might result in any material adverse change in any of the assets, properties, business, or operations of Newco.

 

5.3 No Material Adverse Change.  Prior to the Closing Date, there shall not have occurred any material adverse change in the financial condition, business, or operations of Newco, nor shall any event have occurred which, with the lapse of time or the giving of notice, may cause or create any material adverse change in the financial condition, business, or operations.

 

5.4 Other Items. Shamika shall have received such further documents, certificates, or instruments relating to the transactions contemplated hereby as Shamika may reasonably request.

 

ARTICLE VI

 

CONDITIONS PRECEDENT TO OBLIGATIONS OF NEWCO

 

The obligations of Newco under this Agreement are subject to the satisfaction, at or before the Closing, of the following conditions:

 

6.1 Accuracy of Representations; Performance.  The representations and warranties made by Shamika in this Agreement were true when made and shall be true as of the Closing Date (except for changes therein permitted by this Agreement) with the same force and effect as if such representations and warranties were made at and as of the Closing Date, and Shamika shall have performed and complied with all covenants and conditions required by this Agreement to be performed or complied with by Shamika prior to or at the Closing.  Newco shall have been furnished with a certificate, signed by a duly authorized executive officer of Shamika and dated the Closing Date, to the foregoing effect.

 

6.2 Officer’s Certificate.  Newco shall have been furnished with a certificate dated the Closing Date and signed by a duly authorized executive officer of Shamika to the effect that no litigation, proceeding, investigation, or inquiry is pending or, to the best knowledge of Shamika threatened, which might result in an action to enjoin or prevent the consummation of the transactions contemplated by this Agreement.

 

  

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6.3 No Material Adverse Change.  Prior to the Closing Date, there shall not have occurred any material adverse change in the financial condition, business, or operations of Shamika nor shall any event have occurred which, with the lapse of time or the giving of notice, may cause or create any material adverse change in the financial condition, business, or operations of Shamika.

 

6.4 Good Standing.  Newco shall have received a certificate of good standing from the Secretary of State of the State of Nevada or other appropriate office, dated as of a date within ten days prior to the Closing Date certifying that Shamika is in good standing as a corporation in the State of Nevada and has filed all tax returns required to have been filed by it to date and has paid all taxes reported as due thereon.

 

6.5 Appointment of new Shamika Board Members.  At the Closing, Shamika shall appoint Dr. Robert Q. Lam and Christoph Eibl as members of the board of directors of Shamika.

 

6.6 Other Items.

 

(a)           Newco shall have received such further documents, certificates, or instruments relating to the transactions contemplated hereby as Newco may reasonably request.

 

(b)           Complete and satisfactory due diligence review of Shamika by Newco.

 

(c)           Approval of the Transaction by the Shamika Board.

 

(d)           There shall have been no material adverse changes in Shamika, financial or otherwise.

 

(e)           There shall be no Shamika Common Stock Equivalents outstanding as of immediately prior to the Closing except as disclosed in this Agreement.  For purposes of the foregoing, “Shamika Common Stock Equivalents” shall mean any subscriptions, warrants, options or other rights or commitments of any character to subscribe for or purchase from Shamika, or obligating Shamika to issue, any shares of any class of the capital stock of Shamika or any securities convertible into or exchangeable for such shares.

 

(g)           Any necessary third-party consents shall be obtained prior to Closing, including but not limited to consents necessary from Shamika’s lenders, creditors; vendors, and lessors.

 

ARTICLE VII

 

TERMINATION

 

7.1 Termination.

 

(a)           This Agreement may be terminated by either the Newco Board or the Shamika Board at any time prior to the Closing Date if: (i) there shall be any actual or threatened action or proceeding before any court or any governmental body which shall seek to restrain, prohibit, or invalidate the transactions contemplated by this Agreement and which, in the judgment of such board of directors, made in good faith and based on the advice of its legal counsel, makes it inadvisable to proceed with the exchange contemplated by this Agreement; (ii) any of the transactions contemplated hereby are disapproved by any regulatory authority whose approval is required to consummate such transactions or in the judgment of such board of directors, made in good faith and based on the advice of counsel, there is substantial likelihood that any such approval will not be obtained or will be obtained only on a condition or conditions which would be unduly burdensome, making it inadvisable to proceed with the exchange; (iii) there shall have been any change after the date of the latest balance sheets of Newco and Shamika, respectively, in the assets, properties, business, or financial condition of Newco and Shamika, which could have a materially adverse affect on the value of the business of Newco and Shamika respectively, as the case may be, dated as of the date of execution of this Agreement. In the event of termination pursuant to this paragraph (a) of Section 7.1, no obligation, right, or liability shall arise hereunder, and each party shall bear all of the expenses incurred by it in connection with the negotiation, drafting, and execution of this Agreement and the transactions herein contemplated; (iv) the Closing Date shall not have occurred by February 15, 2011; or (v) if Shamika shall not have provided responses satisfactory in Newco’s reasonable judgment to Newco’s request for due diligence materials.

 

(b)           This Agreement may be terminated at any time prior to the Closing by action of the Shamika Board if Newco shall fail to comply in any material respect with any of its covenants or agreements contained in this Agreement or if any of the representations or warranties of Newco contained herein shall be inaccurate in any material respect, and, in either case if such failure is reasonably subject to cure, it remains uncured for seven days after notice of such failure is provided to Newco. If this Agreement is terminated pursuant to this paragraph (b) of Section 7.1, this Agreement shall be of no further force or effect, and no obligation, right, or liability shall arise hereunder, except that Newco shall bear its own costs as well as the costs incurred by Shamika in connection with the negotiation, preparation, and execution of this Agreement and qualifying the offer and sale of securities contemplated hereby for exemption from the registration requirements of state and federal securities laws.

 

  

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(c)           This Agreement may be terminated at any time prior to the Closing by action of the Newco Board if Shamika shall fail to comply in any material respect with any of its covenants or agreements contained in this Agreement or if any of the representations or warranties of Shamika contained herein shall be inaccurate in any material respect, and, in either case if such failure is reasonably subject to cure, it remains uncured for seven days after notice of such failure is provided to Shamika.  If this Agreement is terminated pursuant to this paragraph (c) of Section 7.1, this Agreement shall be of no further force or effect, and no obligation, right, or liability shall arise hereunder, except that Shamika shall bear its own costs as well as the costs of Newco incurred in connection with the negotiation, preparation, and execution of this Agreement.

 

ARTICLE VIII

 

MISCELLANEOUS

 

8.1 Governing Law.  This Agreement shall be governed by, enforced, and construed under and in accordance with the laws of the United States of America and, with respect to matters of state law, with the laws of Nevada.  Any dispute arising under or in any way related to this Agreement will be determined exclusively in the Federal or State Courts, for the County of New York, State of New York.

 

8.2 Notices.  Any notices or other communications required or permitted hereunder shall be sufficiently given if personally delivered to it or sent by registered mail or certified mail, postage prepaid, or by prepaid telegram and any such notice or communication shall be deemed to have been given as of the date so delivered, mailed, or telegraphed.

 

8.3 Attorney’s Fees. In the event that any party institutes any action or suit to enforce this Agreement or to secure relief from any default hereunder or breach hereof, the breaching party or parties shall reimburse the non-breaching party or parties for all costs, including reasonable attorneys’ fees, incurred in connection therewith and in enforcing or collecting any judgment rendered therein.

 

8.4 Confidentiality.  Shamika, on the one hand, and Newco, on the other hand, will keep confidential all information and materials regarding the other Party designated by such Party as confidential.  The provisions of this Section 8.4 shall not apply to any information which is or shall become part of the public domain through no fault of the Party subject to the obligation from a third party with a right to disclose such information free of obligation of confidentiality. Shamika and Newco agree that no public disclosure will be made by either Party of the existence of the Transaction or the letter of intent or any of its terms without first advising the other Party and obtaining its prior written consent to the proposed disclosure, unless such disclosure is required by law, regulation or stock exchange rule.

 

8.5 Expenses.  Except as otherwise set forth herein, each party shall bear its own costs and expenses associated with the transactions contemplated by this Agreement.  Without limiting the generality of the foregoing, all costs and expenses incurred by Newco and Shamika after the Closing shall be borne by the surviving entity.  After the Closing, the costs and expenses of the Newco Holders shall be borne by the Newco Holders.

 

8.6 Schedules; Knowledge.  Each party is presumed to have full knowledge of all information set forth in the other party’s schedules delivered pursuant to this Agreement.

 

8.7 Third Party Beneficiaries.  This contract is solely between Shamika, Newco and the Newco Holders, and, except as specifically provided, no director, officer, stockholder, employee, agent, independent contractor, or any other person or entity shall be deemed to be a third party beneficiary of this Agreement.

 

8.8 Entire Agreement.  This Agreement represents the entire agreement between the parties relating to the transaction. There are no other courses of dealing, understandings, agreements, representations, or warranties, written or oral, except as set forth herein.

 

8.9 Survival.  The representations and warranties of the respective parties shall survive the Closing Date and the consummation of the transactions herein contemplated.

 

8.10 Counterparts.  This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which taken together shall be but a single instrument.

 

8.11 Amendment or Waiver.  Every right and remedy provided herein shall be cumulative with every other right and remedy, whether conferred herein, at law, or in equity, and may be enforced concurrently herewith, and no waiver by any party of the performance of any obligation by the other shall be construed as a waiver of the same or any other default then, theretofore, or thereafter occurring or existing. At any time prior to the Closing Date, this Agreement may be amended by a writing signed by all parties hereto, with respect to any of the terms contained herein, and any term or condition of this Agreement may be waived or the time for performance hereof may be extended by a writing signed by the party or parties for whose benefit the provision is intended.

 

8.12 Press Releases and Announcements.  No Party shall issue any press release or public announcement relating to the subject matter of this Agreement without the prior written approval of the other Parties; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law, regulation or stock market rule (in which case the disclosing Party shall use reasonable efforts to advise the other Parties and provide them with a copy of the proposed disclosure prior to making the disclosure).

 

(The rest of this page left intentionally blank.)

 

  

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IN WITNESS WHEREOF, the corporate parties hereto have caused this Agreement to be executed by their respective officers, hereunto duly authorized, as of the date first above-written.

 

	
SHAMIKA 2 GOLD, INC.

 

 

By:_____________________________

     Name:

     Title:

 

	
NEWCO

 

 

___________________________________

     ROBERT VIVIAN,

     as co-incorporator of Newco

 

 

___________________________________

     ROBERT Q. LAM,

     as co-incorporator of Newco

	  	  
	
THE MILLENNIUM MINING TRUST

 

 

By: ____________________________

      Robert Vivian, Co-Trustee

 

 

By:_____________________________

     Dr. Robert Q. Lam, Co-Trustee

 

 

 

	
THE MILLENNIUM INTERNATIONAL GROUP, PLC

 

 

By:_____________________________

     Name: Dr. Robert Q. Lam

     Title: Chief Executive Officer

 

	
WITNESS

 

 

By: ____________________________

      Tony Keogh

 

 

	
WITNESS

 

 

By:_____________________________

     Huy Lam

 

	  	  

 

  

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SCHEDULE I

	
 

Name

	
Approximate

Percentage of

Newco Shares

	
Number of Shamika

Exchange Shares

	  	  	  
	
The Millennium Mining Trust

	
46%

	
32,000,000

	  	  	  
	
The Millennium International Group, PLC

	
39%

	
25,000,000

	 	 	 
	
TOTAL

	
85%

	
57,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13ex101.htm

Exhibit 10.01

 

FORBEARANCE AGREEMENT

 

This Forbearance Agreement (“Agreement”) is made as of December 22, 2010, by and among BANK OF AMERICA, N.A. (“Bank”), a national banking association, having an office and place of business located at c/o Special Assets Group, 111 Westminster Street, Mail Sop RI1-102-15-01, Providence, Rhode Island 02903, and WPCS INTERNATIONAL INCORPORATED (“WPCS”), a corporation of the State of Delaware, WPCS INTERNATIONAL – SARASOTA, INC. (formerly Southeastern Communication Services, Inc., herein “Sarasota”) a corporation of the State of Florida, WPCS INTERNATIONAL – ST. LOUIS, INC. (formerly Heinz Corporation, herein “St. Louis”), a corporation of the State of Missouri, WPCS INTERNATIONAL – LAKEWOOD, INC. (formerly Quality Communications & Alarm Company, Inc., herein “Lakewood”), a corporation of the State of New Jersey, WPCS INTERNATIONAL – SUISUN CITY, INC. (formerly Walker Comm Inc., herein “Suisun City”), a corporation of the State of California, WPCS INTERNATIONAL – HARTFORD, INC. (formerly New England Communications Systems, Inc., herein “Hartford”), a corporation of the State of Connecticut, WPCS INTERNATIONAL - SEATTLE, INC. (formerly Major Electric Inc., herein “Seattle”), a corporation of the State of Washington, WPCS INTERNATIONAL – TRENTON, INC. (formerly Voacolo Electric Incorporated, herein “Trenton”), a corporation of the State of New Jersey, and WPCS INTERNATIONAL – PORTLAND, INC., a corporation of the State of Oregon (formerly Midway Electric Company, herein “Portland” and, collectively with WPCS, Sarasota, St. Louis, Lakewood, Suisun City, Hartford, Seattle, and Trenton, “Borrowers”).

 

BACKGROUND:

 

WHEREAS, the Bank extended a revolving line of credit of up to $15,000,000.00 (the “Loan”) to Borrowers pursuant to the terms of that certain Loan Agreement dated April 10, 2007 (the “Initial Agreement”), as extended and modified by (i) that certain Amendment No. 1 to Loan Documents dated March 21, 2008 (the “1st Amendment”), (ii) the Joinder and Amendment to Loan Documents No. 1 dated August 7, 2008 (the 1st Joinder Agreement”), (iii) that certain Joinder and Amendment to Loan Documents No. 2 dated June 30, 2009 (the “2nd Joinder Agreement”), (iii) that certain Amendment No. 3 to the Loan Documents dated April 10, 2010 (the “3rd Amendment”), and that certain Waiver and Amendment No. 4 to the Loan Documents dated September 14, 2010 (the “4th Amendment” and, collectively with the Initial Agreement, the 1st Amendment, the 1st Joinder Agreement, the 2nd Joinder Agreement, and the 3rd Amendment, the “Loan Agreement”); and

 

WHEREAS, prior to the execution of the 3rd Amendment, WPCS International – Auburn, Inc. (formerly Clayborn Contracting Group, Inc.), a corporation of the State of California (“Auburn”), WPCS International – Houston, Inc. (formerly Max Engineering, LLC), a limited liability company of the State of Texas, (“Houston”) and WPCS International -  Sacramento, Inc. (formerly Gomes & Gomes, Inc., d/b/a Empire Electric), a corporation of the State of California, (“Sacramento” and, collectively with Auburn and Houston, the “Merged Borrowers”) were co-borrowers under the Loan Agreement; and

 

WHEREAS, prior to the execution of the 3rd Amendment, each of the Merged Borrowers merged out of existence with one or more of the Borrowers as survivors; and

 

WHEREAS, as collateral and security for the payment of, inter alia, all indebtedness due to the Bank under the terms of the Loan Agreement, the Borrowers granted to the Bank, pursuant to the terms of that certain Security Agreement (Multiple Use) dated April 10, 2007 (as modified by the 1st Amendment, the 1st Joinder Agreement and the 2nd Joinder Agreement, the “Security Agreement”), a first priority lien and security interest upon, inter alia, all of Borrowers’ accounts, contract rights, chattel paper, instruments, deposit accounts, letter of credit rights, payment intangibles, general intangibles, books and records, all as more fully set forth in the Security Agreement (collectively, the “Personal Property Collateral”); and

 

  

1

  

 

WHEREAS, Bank duly perfected its first priority lien upon the Personal Property Collateral by filing the following financing statements under the Uniform Commercial Code (collectively, the “UCC’s”):

	
Debtor

	
Filing State

	
Filing Number

	
Filing Date

	  	  	  	  
	
WPCS

	
Delaware

	
71553170

	
04/19/07

	
Sarasota

	
FL

	
200705986371

20090087644X

	
07/09/07

07/15/09

	
St. Louis

	
MO

	
2007004880G

20090070694J

	
04/19/07

07/15/09

	
Lakewood

	
NJ

	
24128612

2529085

	
04/19/07

07/15/09

	
Suisun City

	
CA

	
077110973742

097202444355

	
04/19/07

07/14/09

	
Hartford

	
CT

	
0002451007

0002704681

	
04/19/07

07/15/09

	
Seattle

	
WA

	
2008-199-2016-6

2009-125-4745-1

2009-196-2486-5

	
07/17/08

05/01/09

07/14/09

	
Trenton

	
NJ

	
24854764

25290608

	
07/17/08

07/15/09

	
Portland

	
OR

	
8254869

	
05/01/09

WHEREAS, as collateral and security for the payment of, inter alia, all indebtedness due to the Bank under the terms of the Loan Agreement, WPCS granted to the Bank, pursuant to the terms of that certain Mortgage of Shares dated April 30, 2009 (the “Securities Mortgage”) and that certain Deed of Undertaking dated April 30, 2009 (the “Securities Deed” and, collectively with the Securities Mortgage, the “Securities Pledge Documents”), sixty-five (65) ordinary fully paid shares in WPCS Australia Pty Ltd (the “Securities Collateral” and, collectively with the Personal Property Collateral, the “Collateral”); and

 

WHEREAS, the Loan Agreement, the Security Agreement, the UCC’s, the Securities Pledge Documents, and all other documents and instruments executed and delivered to the Bank by any person or entity in connection with the Loan Agreement or the Obligations (as defined below) are referred to, collectively, in this Agreement as the “Loan Documents”; and

 

  

2

  

WHEREAS, as of the date of this Agreement, the Borrowers acknowledge and agree that certain Events of Default have occurred under Section 10.15 of the Loan Agreement (the “Existing Events of Default”), as a result of, inter alia, the Borrowers’ anticipated failure to comply, as of the fiscal period ended October 31, 2010, with (i) the $844,000.00 minimum EBITDA requirement set forth in Section 8.3 of the Loan Agreement; and (ii) the maximum Funded Debt to EBITDA ratio of 4.25 to 1.00 set forth in Section 8.25 of the Loan Agreement; and

 

WHEREAS, the Borrowers acknowledge and agree that: (i) the aforementioned Existing Events of Default have occurred; (ii) the Existing Events of Default constitute events of default under the Security Agreement and the Securities Pledge Documents; (iii) Bank has no obligation to make additional advances or to extend additional credit to Borrowers under the Loan Documents or otherwise; and (iv) by correspondence dated November 12, 2010, the Bank notified the Borrowers of the occurrence of the Existing Events of Default and the Bank’s express reservation of its rights and remedies with respect thereto; and

 

WHEREAS, the Borrowers acknowledge and agree that the aggregate amount due and owing under the Loan Agreements as of December 13, 2010 is at least Seven Million Six Hundred Thirty Two Thousand Nine Hundred Forty and 23/100 Dollars ($7,632,940.23) (the “Obligations”), consisting of principal outstanding under the Loan Agreement in the amount of $7,626,055.59, unpaid accrued interest, from December 3, 2010 through December 13, 2010, in the amount of $6,884.64, and other outstanding fees and costs; and

WHEREAS, the Borrowers have requested that the Bank forbear from taking present action to collect payment in full of the Loan and enforcing its rights under the Security Agreement and Bank has agreed to do so under the terms and conditions set forth in this Agreement,

 

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledge, the Bank and the Borrowers agree as follows:

 

1. Incorporation of Recitals and Definitions.  Each of the foregoing recitals is hereby acknowledged and affirmed as being accurate and complete and is hereby incorporated as part of this Agreement.  Terms not expressly defined herein shall have the meaning set forth in the Loan Documents.

 

2. Forbearance Period.  Subject to the satisfaction of the terms and conditions set forth herein, during the period from the date of this Agreement until the date which is the earliest to occur of (a) February 28, 2011, and (b) the date of the occurrence of any one or more of the Events of Termination set forth in this Agreement (the “Forbearance Period”), the Bank will not exercise or enforce its rights or remedies against the Borrowers to which the Bank would be entitled under the terms of the Loan Documents by reason of the occurrence of the Existing Events of Default; provided that such forbearance shall not act as a waiver of the Bank’s right to enforce any such right or remedy after the termination of the Forbearance Period.  Furthermore, nothing contained herein shall be construed as requiring the Bank to extend the Forbearance Period.

 

  

3

  

 

3. Forbearance Terms and Conditions.  Notwithstanding anything in the Loan Documents to the contrary, from on and after the date of this Agreement, the Bank and Borrowers agree as follows:

 

(a) Payments/Borrowing Base Requirements:

 

	
  

	
(i)

	
Line of Credit, Payments.  During the Forbearance Period, the Borrowers shall be permitted to borrow, repay and reborrow under the Loan in accordance with the terms of the Loan Agreement, as modified and reduced by this Agreement, and shall make monthly payments of all accrued interest on the third (3rd) day of each successive month. The Borrowers acknowledge that, notwithstanding any modifications to the terms of the Loan as set forth herein, upon the termination of the Forbearance Period the Bank will be entitled to enforce all of its available rights and/or remedies against the Borrowers by reason of the occurrence of the Existing Events of Default, including but not limited to the Bank’s right to accelerate and declare immediately due and payable all sums outstanding under the Loan, together with all other Obligations.

 

	
  

	
(ii)

	
Borrowing Base.  During the term of this Agreement, aggregate outstanding advances under the Loan shall be limited to the lesser of (x) Seven Million Six Hundred Thousand Dollars ($7,600,000.00), or (y) the Borrowing Base, as defined below. In the event that the outstanding principal balance of the Loan exceeds the maximum amount permitted to be outstanding at any time, such excess shall be due and payable immediately, without notice or demand.

 

“Borrowing Base” shall mean the aggregate sum of up to (x) seventy (70%) percent of Eligible Accounts Receivable (as defined in Schedule “A” hereto) which are not more than 90 days past original invoice date, plus (y) thirty (30%) percent of Eligible Inventory (as defined in Schedule “A” hereto) provided that, at no time shall advances against Eligible Inventory be permitted to exceed Five Hundred Thousand Dollars ($500,000.00).

 

After calculating the Borrowing Base as provided above, the Bank may deduct such reserves as the Bank may establish from time to time in its reasonable credit judgment, including, without limitation, reserves for rent at leased locations subject to statutory or contractual landlord’s liens, dilution, and the amount of estimated maximum exposure, as determined by the Bank from time to time, under any interest rate contracts which the Borrowers enter into with the Bank at any time (including interest rate swaps, caps, floors, options thereon, combinations thereof, or similar contracts).

 

	
  

	
(iii)

	
Borrowing Base Certificates.  (x) Not later than December 30, 2010 for the month ended November 30, 2010, and (y) thereafter, during the term of this Agreement, not less frequently than monthly, within thirty (30) days after the end of the month for which the Borrowing Base is being calculated, the Borrowers shall execute and deliver to Bank a Borrowing Base Certificate (in the form of Schedule “B” hereto), which shall be certified as true and accurate by Borrowers’ Chief Financial Officer.

 

  

4

  

(b) Interest.  Effective from and after January 3, 2011, the per annum interest rate applicable to the Loan shall increase to a fluctuating rate per annum equal at all time to the Prime Rate plus 200 basis points.

 

The “Prime Rate” is the rate of interest publicly announced from time to time by the Bank as its Prime Rate. The Prime Rate is set by the Bank based on various factors, including the Bank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. The Bank may price loans to its customers at, above, or below the Prime Rate. Any change in the Prime Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank's Prime Rate.

 

(c) Consultant.  At all times during the Forbearance Period, Borrowers shall retain a restructuring or management consultant (the “Consultant”) acceptable to Bank (the firm of Beesley Associates being currently acceptable), which Consultant (i) is expected to, by way of example and not in limitation, review the overall operations of the Borrowers and any subsidiaries, their budget and their business plan and make recommendations with respect thereto, and (ii) shall be permitted to discuss, directly with the Bank, the results of these reviews and their recommendations to Borrowers.

 

(d) Budget.  Not later than January 15, 2011, the Bank shall receive the Borrowers’ detailed budget and financial projections, on a month by month basis, for the period through April 30, 2011, as reviewed and commented on (in writing) by the Consultant.

 

(e) Access to Collateral.  At all times and from time to time during the Forbearance Period, at Borrowers’ cost, Bank shall, through its employees or agents, be provided access to Borrowers’ business properties and the Collateral in order to examine the Collateral and to examine, copy and make extracts from any and all books, records and documents in their possession or any independent contractor relating to their affairs or the Collateral.

 

(f) Field Exams. The Bank shall have the right to conduct a complete and independent field examination of Borrowers’ books and records, from time to time and in the Bank’s sole discretion. The Borrowers shall reimburse the Bank for all costs and expenses (including use of Bank personnel) incurred by the Bank in connection with the conduct of such field examinations immediately upon the Bank’s request.  The Borrowers shall fully cooperate with the Bank’s agents in the conduct of such field examinations and shall make available for review and inspection all books and records as requested by the Bank or the Bank’s agents.

 

  

5

  

 

4. Conditions to Effectiveness of Forbearance.  The Bank’s forbearance is further conditioned upon the execution by all parties of this Agreement and (a) the Bank’s receipt of the documents, instruments and agreements listed below, fully executed if applicable by all parties, and in form and substance satisfactory to the Bank, (b) the Bank’s receipt of the amounts specified below, in cash in immediately available funds, and (d) satisfaction of the other requirements set forth below:

 

(i)            Upon the execution of this Agreement, such enabling resolutions, officer certificates and other documents, agreements and instruments which Bank determines are reasonably necessary to memorialize or carry out the intents and purposes of this Agreement.

(ii)            Upon the execution of this Agreement, in the event that the outstanding principal balance of the Loan exceeds $7,600,000.00, then the Borrowers shall immediately make a payment to the Bank in an amount not less than such excess.

(iii)            Not later than December 29, 2010, as to all Borrowers and all locations, evidence of insurance policies covering hazard, general liability, business interruption or rent insurance, worker’s compensation and other types of insurance as may be required by the Bank in form and amounts and written by companies satisfactory to the Bank, each with standard lender loss payee clauses (providing breach of warranty protection and thirty days’ notice of cancellation) running in favor of the Bank, and naming the Bank as an additional insured thereunder, with evidence, from the insurer, of the payment of the premium therefore.

(iv)            Upon or before the execution of this Agreement, payment by Borrowers of the sum of $1,832.99, representing legal fees and costs incurred in conjunction with the 4th Amendment which remain unreimbursed.

(v)            Not later than December 29, 2010, payment by Borrowers of the out-of-pocket costs and expenses incurred by the Bank from the date of the 4th Amendment through the date of this Agreement in the aggregate amount of $23,954.64, consisting of field examiner fees and costs of $9,225.34 and legal fees and costs of $14,729.30.

(vi)            Payment by Borrowers of a forbearance fee in the amount of Thirty Five Thousand Dollars ($35,000.00) which shall be deemed fully earned, non-refundable and not subject to rebate or proration upon the execution of this Agreement.  Provided also, however, as an accommodation to the Borrowers, if not paid upon the execution of this Agreement, such forbearance fee shall be paid in two (2) equal installments of Seventeen Thousand Five Hundred Dollars ($17,500.00) each, which shall be due and payable on January 3, 2011 and January 31, 2011.

(vii)            No material adverse change has occurred in the condition, financial or otherwise, operations, properties, assets or prospects of Borrowers which has not been disclosed to the Bank prior to the date of this Agreement,  and the Borrowers hereby represent and warrant to Bank that, as of the date of this Agreement, all such occurrences have been disclosed.

(viii)            There being no material threatened or pending litigation or material contingent obligations with respect to the Borrowers, and the Borrowers hereby represent and warrant to Bank that, as of the date of this Agreement, there is no pending litigation and/or outstanding judgments against any of the Borrowers.

 

  

6

  

5. Cross-Default and Cross-Collateralization.  The Borrowers agree that (a) all Collateral previously, now or hereafter pledged by the Borrowers to the Bank as collateral security for the Loan and/or any other indebtedness, obligations or liabilities of any kind or description of Borrowers to Bank, whether now existing or hereafter arising, shall serve as security for the Loan and all such indebtedness, obligations or liabilities; and (b) a default by any of the Borrowers under the terms of any agreement between the Bank and the Borrowers shall constitute a default as to the Loan and all other indebtedness, obligations or liabilities of the Borrowers to the Bank and under all agreements between the Borrowers and the Bank.  Further, the Borrowers hereby agree to execute and deliver to the Bank any and all documents and to do all things that the Bank may require, in its sole and absolute discretion, to give effect to the cross-collateralization and cross-default of such obligations.

 

6. Ratification of Loan Documents and Obligations.  Except as expressly modified herein, all terms and conditions of the Loan Documents remain in full force and effect.  The Borrowers hereby reaffirm all of the terms, conditions, representations and warranties of the Loan Documents (except as expressly modified herein) and acknowledge that all of the Obligations are, by the Borrowers’ execution of this Agreement, ratified and confirmed in all respects.  The Borrowers acknowledge that all of their obligations, indebtedness and liabilities to Bank under the Loan Documents are joint and several.

 

7. Events of Termination.  The occurrence of any one or more of the following events shall constitute an “Event of Termination” hereunder, it being expressly acknowledged and agreed that TIME IS OF THE ESSENCE: (a) an event of default under the Loan Documents (other than the Existing Events of Default) or any event which, with notice or the passage of time, will constitute an Event of Default; (b) the failure of Borrowers to comply with the terms of this Agreement; (c) the initiation of any federal or state bankruptcy, insolvency or similar proceeding by any Borrower; (d) the initiation of any federal or state bankruptcy, insolvency or similar proceeding against any Borrower which is not dismissed or withdrawn within 60 days after the commencement of such proceeding; (e) the commencement of litigation or legal proceedings by any Borrower against the Bank or any of its affiliates. Upon the occurrence of any Event of Termination, Bank may, at its option and without notice to any Borrower, exercise any and all rights and remedies pursuant to the Loan Documents in such manner as Bank in its sole and exclusive discretion determines.

 

8. Release of Bank.  By execution of this Agreement, each of the Borrowers acknowledges and confirms that it does not have any offsets, defenses or claims against the Bank, or any of its subsidiaries, affiliates, officers, directors, employees, agents, attorneys, predecessors, successors or assigns whether asserted or unasserted.  To the extent that such offsets, defenses or claims may exist, the Borrowers and each of their respective successors, assigns, parents, subsidiaries, affiliates, predecessors, employees, agents, heirs and executors, as applicable (collectively, “Releasors”), jointly and severally, release and forever discharge the Bank, its subsidiaries, affiliates, officers, directors, employees, agents, attorneys, predecessors, successors and assigns, both present and former (collectively the “Bank Affiliates”) of and from any and all manner of actions, causes of action, suits, debts, controversies, damages, judgments, executions, claims and demands whatsoever, asserted or unasserted, in law or in equity, which Releasors ever had or now have against the Bank and/or Bank Affiliates, including, without limitation, any presently existing claim or defense whether or not presently suspected, contemplated or anticipated.

 

9. Lien And Setoff.  Each of the Borrowers hereby grants to Bank a lien, security interest and right of setoff as security for the Loan and all other indebtedness, obligations or liabilities of any kind or description of Borrowers to Bank, whether now existing or hereafter arising, upon and against all deposits, credits, collateral and property of such party, now or hereafter in the possession, custody, safekeeping or control of the Bank or any entity under the control of Bank of America, N.A., or in transit to any of them.  At any time, without demand or notice, Bank may setoff the same or any part thereof and apply the same to any obligation of the Borrowers, as applicable, even though unmatured and regardless of the adequacy of any other collateral securing such liabilities or obligations.  ANY AND ALL RIGHTS OF BORROWERS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THEIR LIABILITY UNDER THE LOAN DOCUMENTS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWERS, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

10. No Waiver by Bank.  Nothing in this Agreement shall extend to or affect in any way any of the Borrowers’ Obligations or any of the rights of Bank and remedies of Bank arising under the Loan Documents, and Bank shall not be deemed to have waived any or all of such rights or remedies with respect to any default or event or condition which, with notice or the lapse of time, or both, would become a default under the Loan Documents and which upon Borrowers’ execution and delivery of this Agreement might otherwise exist or which might hereafter occur.  The failure of the Bank at any time or times hereafter to require strict performance by the Borrowers of any of the provisions, warranties, terms and conditions contained herein in this Agreement or in the Loan Documents shall not waive, affect or diminish any right of the Bank at any time or times thereafter to demand strict performance thereof; and, no rights of the Bank hereunder shall be deemed to have been waived by any act or knowledge of the Bank, its agents, officers or employees, unless such waiver is contained in an instrument in writing signed by an officer of the Bank and directed to the Borrowers specifying such waiver.  No waiver by the Bank of any of its rights shall operate as a waiver of any other of its rights or any of its rights on a future occasion.  All terms and conditions of the Loan Documents remain in full force and effect except to the extent specifically modified by this Agreement.

 

  

7

  

 

11. Acknowledgment/Waiver of Legal Counsel.  Each of the Borrowers represent and warrant that (a) it is represented by legal counsel of their choice, or (b) it has knowingly and intentionally waived its right to have legal counsel of its choice review and represent it with respect to the negotiation and preparation of this Agreement; and, in either event that it is fully aware of the terms contained in this Agreement and has voluntarily and without coercion or duress of any kind, entered into this Agreement and the documents executed in connection with this Agreement.

 

12. Entire Agreement; Binding Affect.  This Agreement constitutes the entire and final agreement among the parties and there are no agreements, understandings, warranties or representations among the parties except as set forth herein.  This Agreement will inure to the benefit and bind the respective heirs, administrators, executors, representatives, successors and permitted assigns of the parties hereto.  Nothing in this Agreement or in the Loan Documents, expressed or implied, is intended to confer upon any party other than the parties hereto and thereto any rights, remedies, obligations or liabilities under or by reason of this Agreement or the Loan Documents.

 

13. Notices.  All notices, demands, requests, consents, approvals and other communications required or permitted hereunder must be in writing and will be effective upon receipt.  Such notices and other communications may be hand-delivered, sent by facsimile transmission with confirmation of delivery and a copy sent by first-class mail, or sent by nationally recognized overnight courier service, to a party’s address set forth below or to such other address as any party may give to the other in writing for such purpose:

 

To Bank:                                                Bank of America, N.A.

Attention:  Edmond T. Giorgi, V.P.

Special Assets Group

111 Westminster Street

Mail Stop RI1-102-15-01

Providence, Rhode Island 02903

Facsimile No.:  401-278-5356

With a copy to:                                    Wilson Elser Moskowitz Edelman & Dicker, LLP

                Attention:  Daniel F. Flores, Esq.

150 East 42nd Street

New York, New York 10017-5639

Facsimile No.:  212-490-3038

To Borrowers:                                       c/o WPCS International Incorporated

One East Uwchlan Avenue, Suite 301

Exton, Pennsylvania 19341

Attn:  Joseph A. Heater, CFO

Facsimile No.:  610-903-0401

With a copy to:                                     Sichenzia Ross Friedman Ference LLP

Attention:  Thomas A. Rose, Esq.

61 Broadway, 32nd Floor

New York, New York 10006

Facsimile No.:  212-930-9725

 

  

8

  

14. Fees, Costs and Expenses.  Borrowers shall pay to and reimburse Bank, immediately upon presentation of an invoice and to the extent not reimbursed as of the execution of this Agreement, for all out-of-pocket fees, costs and expenses (including but not limited to audit fees, search fees, and attorneys’ fees, costs and expenses) incurred by Bank at any time in connection with the administration of the Loan, the preparation and execution of this Agreement, or the Loan Documents, including but not limited to post-judgment attorneys’ fees, expenses and collection costs.

 

15. Governing Law, Jurisdiction and Venue.  It is the desire and intention of the parties that this Agreement shall be in all respects interpreted according to the laws of the State of New York (the “State”). Each Borrower specifically and irrevocably consents to the jurisdiction and venue of the federal and state courts of the State with respect to all matters concerning this Agreement or the Loan Documents or the enforcement of any of the foregoing.  Each Borrower agrees that the execution and performance of this Agreement shall have a State situs and accordingly, consents to personal jurisdiction in the State.

 

16. Organization and Authority.  Each Borrower represents and warrants that it is duly organized, validly existing and in legal good standing in the State of its incorporation as identified in the preamble to this Agreement and that it has the power and authority to enter into this Agreement.

 

17. Counterparts.  This Agreement may be executed in counterparts, each of which will be deemed an original document, but all of which will constitute a single document.  This document will not be binding on or constitute evidence of a contract between the parties until such time as a counterpart of this document has been executed by each of the parties and a copy thereof delivered to each party under this Agreement.

 

18. Captions.  Section headings and captions are provided for convenience of reference only and do not constitute part of the substance of this Agreement.

 

19. WAIVER OF JURY TRIAL.  EACH OF THE BORROWERS KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE OR HEREAFTER HAVE TO A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE UNDERLYING TRANSACTIONS.  EACH OF THE BORROWERS CERTIFIES THAT NEITHER THE BANK NOR ANY OF ITS REPRESENTATIVES, AGENTS OR COUNSEL HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WOULD NOT IN THE EVENT OF ANY SUCH SUIT, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO TRIAL BY JURY.

 

[SIGNATURE PAGES FOLLOW]

 

  

9

  

 

IN WITNESS WHEREOF, the parties have executed this Forbearance Agreement as an instrument under seal as of the day and year first written above.

 

	 	
BANK OF AMERICA, N.A.

	 
	 	 	 	 
	
 

	
By: 

	/s/ EDMOND T. GIORGI	 
	 	 	Edmond T. Giorgi,	 
	 	 	Vice President	 
	 	 	 	 

 

	
 ATTEST/WITNESS:  

 

	 	WPCS INTERNATIONAL INCORPORATED	 
	By:	
/s/HUIJUAN WANG  

	 	By: 	
/s/ JOSEPH HEATER

	 
	Print Name: 	Huijuan Wang   	 	Print Name:  	
Joseph Heater

	 
	Print Title:	
Witness

	 	Print Title:	
Authorized Signatory

	 

 

	
 

	 	
WPCS INTERNATIONAL – SARASOTA, INC.

 

	 
	By:	
/s/HUIJUAN WANG  

	 	By: 	
/s/ JOSEPH HEATER

	 
	Print Name: 	Huijuan Wang   	 	Print Name:  	
Joseph Heater

	 
	Print Title:	
Witness

	 	Print Title:	
Authorized Signatory

	 

 

	
 

	 	
WPCS INTERNATIONAL – ST. LOUIS, INC

 

	 
	By:	
/s/HUIJUAN WANG  

	 	By: 	
/s/ JOSEPH HEATER

	 
	Print Name: 	Huijuan Wang   	 	Print Name:  	
Joseph Heater

	 
	Print Title:	
Witness

	 	Print Title:	
Authorized Signatory

	 

                                                                          

	
 

	 	
WPCS INTERNATIONAL – LAKEWOOD, INC.

 

	 
	By:	
/s/HUIJUAN WANG  

	 	By: 	
/s/ JOSEPH HEATER

	 
	Print Name: 	Huijuan Wang   	 	Print Name:  	
Joseph Heater

	 
	Print Title:	
Witness

	 	Print Title:	
Authorized Signatory

	 

                                                            

	
 

	 	
WPCS INTERNATIONAL – SUISUN CITY, INC.

 

	 
	By:	
/s/HUIJUAN WANG  

	 	By: 	
/s/ JOSEPH HEATER

	 
	Print Name: 	Huijuan Wang   	 	Print Name:  	
Joseph Heater

	 
	Print Title:	
Witness

	 	Print Title:	
Authorized Signatory

	 

 

	
 

	 	
WPCS INTERNATIONAL – HARTFORD, INC.

 

	 
	By:	
/s/HUIJUAN WANG  

	 	By: 	
/s/ JOSEPH HEATER

	 
	Print Name: 	Huijuan Wang   	 	Print Name:  	
Joseph Heater

	 
	Print Title:	
Witness

	 	Print Title:	
Authorized Signatory

	 

[SIGNATURES CONTINUE ON NEXT PAGE]

 

  

10

  

 

	
 

	 	
WPCS INTERNATIONAL - SEATTLE, INC.

 

	 
	By:	
/s/HUIJUAN WANG  

	 	By: 	
/s/ JOSEPH HEATER

	 
	Print Name: 	Huijuan Wang   	 	Print Name:  	
Joseph Heater

	 
	Print Title:	
Witness

	 	Print Title:	
Authorized Signatory

	 

	
 

	 	
WPCS INTERNATIONAL – TRENTON, INC.

 

	 
	By:	
/s/HUIJUAN WANG  

	 	By: 	
/s/ JOSEPH HEATER

	 
	Print Name: 	Huijuan Wang   	 	Print Name:  	
Joseph Heater

	 
	Print Title:	
Witness

	 	Print Title:	
Authorized Signatory

	 

 

	
 

	 	
WPCS INTERNATIONAL – PORTLAND, INC.

 

	 
	By:	
/s/HUIJUAN WANG  

	 	By: 	
/s/ JOSEPH HEATER

	 
	Print Name: 	Huijuan Wang   	 	Print Name:  	
Joseph Heater

	 
	Print Title:	
Witness

	 	Print Title:	
Authorized Signatory

	 

 

[CORPORATE NOTARY ACKNOWLEDGMENT FOLLOWS]

 

  

11

  

 

CORPORATE ACKNOWLEDGMENT

 

	STATE OF ____________________ 	:
	SS 	:
	COUNTY OF____________________	:

 

BE IT REMEMBERED, that on this _____ day of December, 2010, before me the subscriber, a Notary Public of the State and County aforesaid, personally appeared Joseph Heater, being by me duly sworn on her oath, deposed and made proof to my satisfaction, that he is an authorized signatory of WPCS International Incorporated, WPCS International-Sarasota, Inc., WPCS International-St. Louis, Inc., WPCS International-Lakewood, Inc., WPCS International-Suisun City, Inc., WPCS International-Hartford, Inc., WPCS International-Seattle, Inc., and WPCS International-Trenton, Inc., and WPCS International Portland, Inc., the corporations named in the within instrument, that the execution of the within instrument was duly authorized by all requisite corporate action; and that he executed the within instrument in his capacity as such authorized signatory, as and for the voluntary act and deed of said corporation.

 

	 	
WITNESS my hand and seal the day and year aforesaid.

	 
	 	 	 	 
	 	 	 	 
	 	 	Notary Public	 
	 	 	 	 
	My commission expires:	 	 	 

  

12

  

SCHEDULE A

DEFINITION

“Eligible Accounts Receivable” shall mean those accounts receivable which are due and payable within 90 days from the original date of invoice; which are not outstanding more than 90 days after the original date of invoice; which comply with all of the terms, conditions, warranties and representations made to the Bank under the Loan Agreement and the other Loan Documents; and which are otherwise acceptable in all respects to the Bank.  Eligible Accounts Receivable shall not include the following: (a) accounts with respect to which the account debtor is an officer, director, employee, or agent of the Borrowers or an affiliate or subsidiary of Borrowers; (b) accounts with respect to which goods are placed on consignment, guaranteed sale, bill-and-hold, repurchase or return, or other terms by reason of which the payment by the account debtor may be conditional; (c) invoices for deposits, and rebills of amounts previously credited to the extent of credits issued more than fifteen (15) days prior to such rebill; (d) accounts with respect to which the account debtor is not domiciled in the United States of America; (e) accounts with respect to which the sale is on an installment sale, lease or other extended payment basis; (f) accounts with respect to which the account debtor is a federal governmental authority; (g) all accounts owing by any account debtor if fifty percent (50%) or more of the accounts due from such account debtor are deemed not to be eligible accounts hereunder; (h) accounts with respect to which the Bank does not for any reason have a perfected first priority security interest and lien; (i) accounts with respect to which the Borrowers are or may become liable to the account debtor for goods sold or services rendered by the account debtor to the Borrowers, to the extent of the Borrowers’ existing or potential liability to such account debtor; (j) accounts with respect to which the account debtor has disputed any liability, or the account debtor has made any claim with respect to any other account due to the Borrowers, or the account is otherwise subject to any right of setoff deduction, breach of warranty or other defense, dispute or counterclaim by the account debtor; (k) that portion of the accounts owed by any single account debtor which exceeds twenty percent (20%) of all of the accounts; (l) those portions of any accounts representing late fees, service charges, interest, retainage, amounts subject to rebate, or commission amounts, but only to the aggregate extent of such portions; (m) accounts of an account debtor where, to Borrowers’ knowledge, the account debtor is located in a state which requires a Notice of Business Activities Report or similar report to be filed and the applicable Borrower or the account debtor, as applicable, has not filed same for the current year, or where the Account Debtor is not otherwise authorized to transact business in said state, or where the account debtor is not in good standing in such state; (n) accounts owed by any account debtor which is insolvent or is the subject of an insolvency proceeding; (o) that portion or any accounts represented by contract rights, documents, instruments, chattel paper or general intangibles; (p) any and all accounts of an account debtor whose credit worthiness is not satisfactory to the Bank in its sole credit judgment based on information available to the Bank; (q) accounts deemed by the Bank to constitute customer deposits, advanced payments or prepayments; (r) accounts which are subject to an actual or contingent claim by a bonding company; and (s) the amount of any potential offset against accounts representing billings in excess of costs.  References to percentages of all accounts are based on dollar amount of accounts, and not number of accounts.  Anything to the contrary notwithstanding, the Bank shall have the right, in its sole and absolute discretion, to classify any accounts receivable as not being Eligible Accounts Receivable.

“Eligible Inventory” shall mean that portion of the Borrowers’ inventory of raw material and finished goods held for sale by the Borrowers, normally and currently saleable in the ordinary course of the Borrowers’ business, and which at all time pertinent hereto is of good and merchantable quality, free from defects, as to which the Bank has a perfected first priority security interest and lien, and which is located at premises (i) owned by the Borrowers; or (ii) as to which the landlord has delivered in favor of the Bank a duly executed landlord waiver (in form and substance acceptable to the Bank in its sole discretion); or (iii) such other premises which have been approved and been deemed by the Bank to be an acceptable location, in the Bank’s sole discretion; and as to which the Borrowers have satisfied all terms, conditions, warranties and representations of the Loan Agreement and the other Loan Documents; but Eligible Inventory does not include any of the following: (a) catalogs and other promotional materials of any kind; (b) work in process; (c) any returned items; (d) any damaged, defective or recalled items; (e) any obsolete items; (f) any items used as demonstrators, prototypes or salesmen’s samples; (g) any items of inventory which have been consigned to the Borrowers or as to which a person claims a lien; (h) any items of inventory which have been consigned by the Borrowers to a consignee; (i) packing and shipping materials; (j) inventory located in retail stores; and (k) inventory which in the reasonable judgment of the Bank is considered to be slow moving or otherwise not merchantable.  Eligible Inventory shall be valued at the lower of (a) cost, (b) market value, or (c) the valuation consistent with that employed in the preparation of the financial statements of the Borrowers required under the Loan Agreement.  Anything to the contrary notwithstanding, the Bank shall have the right, in its sole and absolute discretion, to classify any inventory as not being Eligible Inventory; provided also however, no Inventory sold or financed by Motorola Inc. shall be Eligible Inventory.

 

  

13

  

SCHEDULE B

 

FORM OF MONTHLY BORROWING BASE CERTIFICATE

Borrowing Base Certificate as of _________________

 

	
To: Bank of America

	  	
Re:  WPCS International Incorporated

	  
	
Att:

	  	  	
and its eight (8) subsidiary co-borrowers

	 
	  	  	  	
(the “Borrowers”)

	  	 
	
Accounts Receivable:

	  	  	  	  
	  	  	  	  	  	  
	
Total Accounts Receivable

	  	
$__________________

	  	  
	
Less:

	
A/R over 90 days past invoice

	  	
$__________________

	  	  
	 	
Other (Cross – Aged, Contra, Affiliated A/R

	  	  	  
	 	
per Forbearance Agreement Sch. A)

	  	
$__________________

	  	  
	  	  	  	  	  	  
	
Eligible Domestic Receivables

	  	
$__________________

	  	  
	
 

	 	
$__________________ (a)

	  	  
	  	  	  	  	  	  
	
Total Inventory as of  ___/___/___:

	  	
$__________________

	  	  
	
Less:

	
Inventory located in retail stores

	  	
$__________________

	  	  
	  	
Other (Packing Materials and other

	  	
$__________________

	  	  
	  	
per Forbearance Agreement Sch. A)

	  	  	  	  
	
Eligible Inventory

	  	
$__________________ (b)

	 	  
	  	  	 	  	  	  
	
Availability on Inventory (lessor of 30% of (b) or $500,000)

	
$__________________ (c)

	  	  
	  	  	  	
$__________________

	  	  
	
TOTAL AVAILABILITY on A/R & INV (a+c)

	 	
$__________________

	  	  
	
Plus Over – Advance (per Forbearance Agreement)

	 	  	  	  
	
TOTAL AVAILABILITY

	  	
$__________________ (d)

	  	  
	  	  	  	  	  	  
	
Maximum Availability : Revolving Credit

	  	
$7,600,000.00  (e)

	  	  
	  	  	  	  	  	  
	
Maximum amount that can be borrowed

	  	  	  	  
	
{ lessor of (d) or (e) }

	  	
$__________________ (f)

	 	  
	  	  	  	  	  	  
	
Outstanding on Revolving Credit Line

	  	  	  	  
	
(as of date hereof):

	  	
$__________________ (g)

	 	  
	  	  	  	  	  	  
	
Net Availability for borrowing on this date (f) minus (g)

	 	
$__________________

	  	  

The undersigned represents and warrants that:

(A)  The information provided above and in the accompanying supporting documentation is true, complete and correct,

and complies fully with the conditions, terms and covenants of the Forbearance Agreement dated 12 /22/ 10

(B)  Since the date of the last financial statement or certification furnished to the Bank:

(a) There has been no material adverse change in the financial condition or operations of the undersigned; and

(b) There is no event which is, or with notice or lapse of time or both would be, an Event of Termination under the Forbearance Agreement.

On behalf of WPCS International Incorporated and all other Borrowers

By: ________________________________________                                                                                                                     Date:  _____________

Name:

Title (as to each Borrower)

 

14

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