We are pleased to invite you to attend a special meeting
of the stockholders of Scio Diamond Technology Corporation, which we refer to as Scio or the Company, which we will be held
at our offices located at 411 University Ridge, Suite 110, Greenville, SC 29601, on Friday, June 7, 2019 at 9:00 a.m.,
local time.
At the special meeting, you will be asked
to consider and vote upon a proposal to authorize the proposed sale, which we refer to as the sale transaction, of Scio’s
assets to Adamas One Corp, a Nevada Corporation, which we refer to as Adamas, pursuant to the terms of the Amended Asset Purchase
Agreement, dated as of January 31, 2019, between SCIO and Adamas, which we refer to as the Asset Purchase Agreement. Specifically,
under the Asset Purchase Agreement, we have agreed to sell to Adamas all of the assets of Scio. We estimate that the purchase price
or consideration that Adamas will pay or cause to be paid in the sale transaction is approximately $5.8M in cash and Adamas stock.
Before turning to additional information
or detail with respect to the proposed transaction, the Company wishes to provide additional detail surrounding the state of the
business. As many stockholders will be aware based on information previously shared and disclosed, the business has struggled to
turn the corner over the past several years.
When control of the Company transitioned
in 2014, the Company had roughly $3.4 million in outstanding liabilities and debt and a cash balance of approximately $2,000, as
well as ongoing investigations by the Securities and Exchange Commission and the Department of Justice into the conduct of certain
prior directors. Those investigations resulted in the criminal indictment of one such director.
Nevertheless, the Company believed that
its intellectual property, expertise and technical know-how remained sound and preserved the potential for success. In this spirit,
the Company worked hard to continue to enhance its processes and the quality of the goods produced combined with the establishment
of a robust sales channel for distribution. Such efforts required the continued infusion of capital. To this end, with the exception
of one director appointed by the former control group, the Board joined in the efforts of many existing and new stockholders in
infusing additional capital into the Company. At its conclusion, the Company raised $5.7 million in additional capital since the
Company transitioned control, of which the existing directors accounted for 12%.
Although the Company made substantial progress
in these efforts, it struggled to finally turn the tide against the debt and liabilities and capital structure inherited. One of
the key distribution channels also failed to successfully create traction for Scio’s colored stones. Given these continuing
struggles along with the downward pressure created on the stock price caused by the substantial sales of former directors prohibiting
our ability to raise additional capital, the Company expanded its efforts to look to additional paths to maximizing value for the
stockholders, including efforts to license or otherwise develop continuing revenues from its core intellectual property. During
this time period, the Board of Directors has evaluated any and all opportunities, including potential sale transactions, that would
maximize stockholder value. We would also note that throughout the period since the transition of control in 2014, no director
received compensation, equity incentives or any other remuneration for their service to the Company. Frequently, the directors
paid for their personal travel on behalf of the Company. Nonetheless, the directors have been persistent in their efforts on behalf
of the Company.
During the course of these efforts, the
Board of Directors considered a number of different transactions that were presented. In evaluating these options, the Board sought
and pursued proposals that (1) would maximize the amount of value for the Company at close in the interests of all stakeholders,
(2) came from an entity or group that had the resources to grow the business going forward, and (3) also presented stockholders
with the opportunity to benefit from the business going forward in the event the acquiring entity could successfully achieve the
potential believed to exist in the business. These efforts culminated in the current proposed transaction presented to the stockholders
and upon which the stockholders are entitled to vote at the upcoming special meeting.
The proposed transaction is anticipated
to produce approximately $4 million in cash for the Company to satisfy outstanding liabilities, including both secured and unsecured
debts. In addition, the buyer intends to infuse the business with $5 + million in additional capital and resources to grow the
business. And finally, the Company will receive 900,000 shares of the successor entity which the Company intends to hold indefinitely
in order to permit the stockholders to benefit from the business going forward. The Company expects that, if ultimately distributed
to stockholders, the stock will be in a public traded entity, at some future date.
The Company has also provided unaudited
financial information through June, 2018. Normally the Company would provide audited financial statements, however it does not
have the financial resources available to have audited financial statements prepared. The absence of audited financial statements
may preclude a stockholder from evaluating the risks attendant with the proposed transaction and whether the proposed transaction
may in fact be favorable for the stockholders or Company. If you feel that such information is important to your decision, you
should vote against the transaction.
We encourage you to read the enclosed proxy
statement and the annexes and exhibits to the proxy statement carefully in their entirety.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of December
31, 2018, the beneficial ownership of the outstanding common stock by: (i) the persons or groups known to us to be the beneficial
owners of more than five (5%) percent of the shares of our outstanding common stock; (ii) each of our named executive officers
and current directors; and (iii) our directors and executive officers as a group. Unless otherwise indicated, each of the
stockholders named in the table below has sole voting and dispositive power with respect to such shares of common stock.
Name and Address of Beneficial Owner
|
|
Amount and
Nature of
Beneficial
Ownership(1)(2)
|
|
|
Percentage
of
Beneficial
Ownership
|
|
Directors and Named Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karl Leaverton
|
|
|
|
|
|
|
|
|
411 University Ridge, Suite 110, Greenville, SC 29601
|
|
|
333,333
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
|
Gerald McGuire
|
|
|
|
|
|
|
|
|
411 University Ridge, Suite 110, Greenville, SC 29601
|
|
|
800,000
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
Bernard McPheely
|
|
|
|
|
|
|
|
|
411 University Ridge, Suite 110, Greenville, SC 29601
|
|
|
832,935
|
(3)
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
Jonathan Pfohl
411 University Ridge, Suite 110, Greenville, SC 29601
|
|
|
535,000
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
Lewis Smoak
|
|
|
|
|
|
|
|
|
411 University Ridge, Suite 110, Greenville, SC 29601
|
|
|
1,010,000
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
All directors and named executive officers as a group (8 persons)
|
|
|
3,511,268
|
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
Other 5% Stockholders
|
|
|
|
|
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes shares for which the named person has sole voting and investment power, has shared voting and investment power, or
holds in an IRA or other retirement plan and shares held by the named person’s spouse.
|
|
(2)
|
For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares
of common stock which that person has the right to acquire within 60 days following December 31, 2018. For purposes of computing
the percentage of outstanding shares of common stock held by each person or group of persons named above, any shares which that
person or persons has or have the right to acquire within 60 days following December 31, 2018, is deemed to be outstanding, but
is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.
|
|
(3)
|
Mr. McPheely owns 817,935 common shares issued through the Bernard M. McPheely Revocable Trust u/a DTD May 25, 2011
.
His spouse directly holds 15,000 shares.
|
INFORMATION ABOUT THE
ACQUIRING COMPANY
ADAMAS ONE CORP.
This section of information has been provided by Adamas One
Corp., which is solely responsible for the information and representations in this section.
Business
.
History
Adamas One Corp. (“Adamas”)
was incorporated on September 6, 2018 in the State of Nevada for the purpose to acquire existing technology to seek to efficiently
and effectively produce man-made socially and Eco friendly diamonds. Adamas proposes to seek, investigate and, if warranted, acquire
an interest in one or more business opportunity ventures.
Adamas has entered into an asset purchase
agreement with Scio Diamond Technology Corporation (“Scio”), whereby it has agreed to acquire certain assets of Scio,
consisting primarily of diamond growing machines and intellectual property related thereto, for which Adamas is to pay Scio an
aggregate of 1,250,000 shares of common stock and the payment to certain secured lenders of $3.55 million in cash.
At the anticipated time of closing the transaction with Scio
Diamond Technology Corporation, Adamas One Corp. will still be a private entity. It will NOT be a publicly reporting entity, and
will NOT have any securities registered with the SEC. It is the intention of Adamas to follow the steps to become a public entity
as soon as is practical. As such, several of the risks identified below highlight risks of Adamas One Corp., the anticipated public
entity. These are included so as to provide a complete and thorough background to Scio’s shareholders who are viewing this
information as part of this proxy solicitation.
Business Overview
General
Our activities center on the acquisition
of patented Diamond Technology that can be used to produce finished diamonds for retail and jewelry, rough unfinished diamond materials
for wholesale and industrial uses. Adamas is in the initial phases of purchasing and commercializing the Diamond Technology and
our goal is to become a preferred manufacturer of single crystal diamond and a leading global supplier of diamond materials for
multiple applications. Adamas hopes to further shape the evolution of various markets for products and to leverage the technical
foundation of the Diamond Technology by expanding into strategic partnerships with select industry leaders with distribution channels
already in place to capture high value application opportunities.
Adamas will be a materials company that
has purchased proprietary technology through which high quality single crystal diamond materials are produced through a chemical
vapor deposition (“CVD”) process (the “Diamond Technology”). Our primary mission is the development of
a profitable and sustainable commercial production model for the manufacture and sales of diamond materials, which are suitable
for known, emerging and anticipated industrial, technology and consumer applications. Adamas intends to pursue progressive development
of core diamond materials technologies and related intellectual property that Adamas hopes will evolve into product opportunities
across various applications. We believe these opportunities may be monetized though a combination of end product sales, joint ventures
and licensing arrangements with third parties, and through continued development of intellectual property. Anticipated application
opportunities for Our diamond materials include the following: precision cutting devices, diamond gemstone jewelry, and other medical
science technology.
Our Technology
We are acquiring our Diamond Technology
primarily from Scio. Scio focused solely on diamond and developing a process by which large, single-crystal diamond could be grown
in a controlled laboratory environment.
The core Diamond Technology that is being
acquired by Adamas is based on a CVD diamond growth system. Diamond wafers produced through the Diamond Technology CVD process
have been shown to be exceptionally pure, and possess low levels of structural defects. Advances in this technology have dramatically
improved the quality, and lowered the cost of high-quality diamond.
The Diamond Technology provides a materials
production platform and is supported by intellectual property, including trade secrets, recipes and 36 issued patents (28 in the
United States and 8 in foreign jurisdictions).
The Diamond Technology utilizes CVD growth
technology to produce diamond crystals. This technology utilizes a highly scalable manufacturing process for producing large size,
high-quality diamond crystals at a low cost. Unlike the high-pressure, high-temperature process, known as HPHT, the Diamond Technology
process allows for concurrent production of multiple diamond crystals in a short time period.
The diamond crystals are grown on small
slices of diamond called “seeds”, These seeds are either grown internally or acquired from third parties. Over time,
the technology has been able to transition to larger seeds than previously used. This transition allows the technology to see a
substantial increase in the size of the finished diamond material it is producing.
The Diamond Technology can also be scaled
through larger capacity diamond growing platforms. Through further R&D Adamas believes it will enable it to increase production
by almost fifty percent over the current process in its production with maximum seed size scaling.
Industry
The current market for laboratory-grown
diamonds remains largely unknown and uncertain. Sales of laboratory-grown diamond into the gemstone market are thought to be small
but growing because of awareness, acceptability and pricing. The industrial market for these products is more developed, but it
is diffused globally and Adamas is unable to reliably estimate its size or breadth.
In addition to opportunities in the diamond
gemstone market and precision cutting market, we will continue to explore other opportunities for our diamond materials through
applications where the unique properties of diamond may be desirable and advantageous, including: alternative energy, optoelectronics,
communications, biotechnology, water treatment, quantum computing and the diamond device arenas.
Competitive factors that will influence
the market for our products include product quality, consistency of supply and price. We believe that we will be able to compete
on the basis of these factors. We believe that we will be able to reliably and efficiently produce lab-grown diamond possessing
substantially the same qualities and characteristics of their mined diamond counterparts.
Gemstones
Within the gemstone industry, our single-crystal
diamond can be used in jewelry products requiring the highest quality gemstones and can be regularly grown in matched color sets
ranging in polished sizes from 5-points (0.05 carats) to over 2 carats. Our diamond may be well suited for jewelry featuring matching
diamonds of various sizes, clarities and colors, diamond engagement rings, and fashion jewelry. The potential consistency and other
potential characteristics of lab-grown diamond gemstones grown using the Diamond Technology may provide advantages over their mined
counterparts in areas that matter to jewelers, jewelry manufacturers and consumers, with potential characteristics such as:
|
1.
|
Equal quality and brilliance of diamond product;
|
|
2.
|
Matched sizes, colors and clarities (particularly in goods ranging in sizes from 0.05 - 0.50 carats);
|
|
3.
|
Consistency of diamond finish due to high quality;
|
|
4.
|
Opportunity for color palette of diamond gemstones; and
|
|
5.
|
Lack of negative issues that surround mined diamonds that are generally related to environmental and social concerns.
|
We will seek to establish and maintain market
acceptance through consumer education and industry cooperation. We intend to educate retailers and consumers on the physical properties
of our lab-grown diamond as compared to mined diamond and quality of our lab-grown diamond.
Commercial, Industrial and Technological Applications
Diamond has exceptional qualities for use
in advanced electronics and optics applications, but to date, development progress has been slow because of, among other things,
mined diamond’s relative scarcity and high cost. Diamond’s unique hardness, clarity and thermal characteristics have
made it highly desirable for scientific use for decades. However, material consistency issues and economics have created barriers
to mass application adoption of diamond. We believe that our patented technology and production approach will give us the ability
to improve the quality and lower the cost of producing diamond materials, creating the opportunity for usage in a wider range of
applications.
The demand for computing and communications
products has increased significantly. As devices become more intelligent and ubiquitous, the need for connectivity at very high
speeds, data intensive storage needs and ever-faster computer processors are pushing the limits of conventional silicon-based devices.
Diamond enables these technologies to move past their current limitations and may be able to facilitate the development of next-generation
devices in key areas such as wireless networking, optical storage, and high speed computing.
Adamas anticipates several opportunities
to monetize our patented technology and production approach in various technological applications. Pursuit of these opportunities
is expected to be directed in part in concert with strategic partners.
Several of diamond’s properties provide
significant advantages over other materials used in devices/systems such as high power switches, radiation detectors, and microwave
windows suitable for use in plasma fields or other nuclear reactor high-electromagnetic interference (“EMI”) environments.
Industrial diamonds already comprise what
we estimate is a $1 billion-plus market per year, but consist of low-quality diamonds that have primarily been utilized in rudimentary
cutting and polishing devices. These diamond materials are largely in the form of diamond grit and diamond dust. Through the introduction
of higher-quality relatively large diamond materials, substantial growth is anticipated for the industrial diamond market. As previously
noted, we have initially experienced this in precision cutting devices.
The diamond and diamond-like materials historically
used in the development of these non-gem applications have various limitations that have formerly impeded progress in optoelectronics
and other technology applications. As our production volume increases and manufacturing costs continue to decrease due to our capacity
expansion, we anticipate that our diamond materials will provide a viable and potentially economically preferred alternative for
many of these highly-valued electronic, optical and industrial applications.
In order to more fully explore the opportunities
discussed above, we intend to acquire production of high quality diamond materials and to pursue related commercial opportunities.
Currently, we intend to continue to explore opportunities in the precision cutting devices market while concurrently seeking distribution
opportunities for our lab-grown diamond gemstones.
The Industry and Competition
Lab-grown diamond gemstones and diamond
materials for use in industrial applications face competition from established producers and sellers of mined diamonds, including
companies such as De Beers, and other known and current and potential future manufacturers of lab-grown diamonds. Our competitors
include large multi-national gemstone diamond companies as well as start-up and development-stage gemstone diamond and technology
companies, some of whom we may not be aware. Many of our competitors have significantly greater financial, technical, manufacturing
and marketing resources and greater access to distribution channels than the Company. Many of our competitors may be able to devote
substantially greater resources to promotion and systems development than we can. Barriers to developing competitive technology
in our market may not be sufficient to prevent competitors from entering the industry, and current and new competitors may be able
to develop competing diamond at a relatively low cost. We believe that our success will depend heavily upon whether we can achieve
significant market acceptance before our potential competitors are able to introduce broadly accepted competitive products.
Companies that produce lab-grown diamonds
and who may compete with Adamas in one or more of its markets include Element Six, a privately held subsidiary of De Beers, AOTC
Group NV (Netherlands), Pure Grown Diamond/IIa Technologies (USA, Singapore & Malaysia), Washington Diamond/Carnegie Institute,
Sumitomo Electric Industries, Ltd., Diamond Foundry and Cornes Technologies (Japan). Other companies could seek to introduce
lab-grown diamonds or other competing diamonds or to develop competing processes for production of lab-grown diamonds and diamond
materials. We believe that competition will increase as demand for diamond materials increases for use in industrial and technology
applications and as lab-grown diamonds continue to gain market acceptance.
Our Product(s)
We intend to produce on a large scale high
quality finished and raw diamond materials and to pursue related commercial opportunities.
Government Regulations
Laboratory technology activities are subject
to various federal, state, foreign and local laws and regulations, which govern research, lab development, taxes, labor standards,
occupational health, and waste disposal, protection of the environment, mine safety, hazardous substances and several other matters.
We believe that we are in compliance in all material respects with applicable technology, health, safety and environmental statutes
and the regulations promulgated by the relevant jurisdictions. Currently, there are no costs associated with our compliance with
such regulations and laws. Certain federal and state laws and regulations govern the testing, creation and sale of the types of
diamond we intend to produce. The United States Federal Trade Commission (“FTC”) and other comparable regulatory authorities
in the United States and in foreign countries may extensively and rigorously regulate our lab-grown diamond, product development
activities and manufacturing processes. In the United States, the FTC regulates the introduction and labeling of gemstone diamond.
We may be required to:
|
·
|
Obtain clearance before we can market and sell our lab-grown diamond;
|
|
·
|
Satisfy content requirements applicable to our labeling, sales and promotional materials;
|
|
·
|
Comply with manufacturing and reporting requirements; and
|
|
·
|
Undergo rigorous inspections.
|
The process of obtaining marketing clearance
for new gemstone diamond from the FTC may prove costly and time consuming. The FTC has approved use of the term “cultured”
to describe the diamond Adamas intends to sell as gemstones. The FTC has stated its newest guidelines in regards to lab grown diamonds
in its September 2018 ruling in which the Federal Trade Commission recently amended its Jewelry Guides to help prevent deception
in jewelry marketing. With new guidance for the jewelry industry, its wide-ranging ruling is a welcome relief to the man-made diamond
industry and a migraine-sized headache for the mined-diamond industry. At the end of the day, it’s consumers who will benefit
most from the new ruling.
The FTC based its decision in favor of scientific
facts, not the mined-diamond industry lobby, giving consumers real information on which to make informed diamond purchasing decisions.
The ruling is simplicity itself
.
A
diamond is a diamond no matter whether it is grown in a lab or comes out of the ground.
“The Commission no longer defines
a ‘diamond’ by using the term ‘natural’ because it is no longer accurate to define diamonds as ‘natural’ when
it is now possible to create products that have essentially the same optical, physical, and chemical properties as mined diamonds,”
the FTC ruled.
This brings much needed clarity to consumers
who have been confused by the convoluted language previously specified by the FTC to market man-made diamonds. Before it was necessary
for laboratory diamond marketers to precede the word diamond with terms like “laboratory-grown,” “laboratory-created”
or worse “synthetic.”
Another
change giving fits to the mined-diamond industry is now laboratory-diamonds can call their products gems or gemstones. Previously
banned words for lab-grown diamonds also included stone, real, genuine and birthstone. The FTC calls their previous guidelines
in this regard, “circular, inadequate guidance that relied on highly subjective judgments.”
Without a doubt, the most significant change
for marketing lab-grown diamonds is now the man-made diamond industry can call its products cultured. This has been the term the
mined-diamond industry has fought hardest against, since it drew direct references from something consumers clearly understand
– cultured pearls – rather than obfuscating consumers with complicated and confusing terminology.
The parallels between cultured pearls and
cultured diamonds are precise. A lab-grown diamond requires a crystalize diamond seed to grow, just like a seed is manually placed
in an oyster to grow a cultured pearl.
Our lab-grown diamonds must also comply
with similar laws and regulations of foreign countries in which we market such diamond. In general, the extent and complexity of
gemstone diamond regulation is increasing worldwide. This trend may continue, and the cost and time required to obtain marketing
clearance in any given country may increase as a result. Should it prove necessary, there can be no assurances that our lab-grown
diamond will obtain any necessary foreign clearances on a timely basis, or at all.
Federal, state, local and foreign laws and
regulations (especially those regarding approval of gemstone diamond) are always subject to change, and could have a material adverse
effect on the testing and sale of our lab-grown diamond and, therefore, our business.
Research and Development
Our research and development activities
have been limited to date. We expect to invest in new technology and intellectual property development to further improve production
efficiencies and develop new products in the future.
Environmental Regulations
Our operations will be subject to local,
state and federal laws and regulations governing environmental quality and pollution control. To date, our compliance with these
regulations has had no material effect on our operations, capital, earnings, or competitive position, and the cost of such compliance
has not been material. We are unable to assess or predict at this time what effect additional regulations or legislation could
have on our activities.
Employees
As of January 1, 2019, we had 2 employees,
our founder and CEO, Mr. Grdina and our Production Manager, Mr. Stephen Adams. During the calendar year ending December 31, 2019
(dependent on our financing and available working capital), Mr. Grdina will devote at least 20 hours a week to us and may increase
the number of hours as necessary. Mr. Grdina is allowed to devote this time to Adamas as he is not limited or restricted from being
involved with us by his other business operations. Mr. Grdina currently has no agreement with Adamas which provides for payment
of his services. We may be limited in seeking the employment of others to assist in future operations. Our founder and CEO’s
current plan is to provide all administrative and planning work without any cash compensation while he seeks other sources of funding
for Adamas and its business plan.
Mr. Grdina has been compensated through
the form of common stock in Adamas, and will forego any payments for his services until after the completion of the acquisition
of Scio’s assets. It is his belief that these actions are in the best interest of Adamas and its prospective investors. We
may in the future use other employees, independent contractors and consultants to assist in many aspects of our business on an
“as needed” or per project basis pending adequate financial resources being available or their ability to defer payment
for their services.
Risk Factors
.
RISKS RELATED TO THE BUSINESS
Adamas is and will continue to be completely dependent
on the services of its founder, president, and CEO, John Grdina, the loss of whose services may cause its business operations to
cease, and Adamas will need to engage and retain qualified employees and consultants to further implement its strategy.
Our operations and business strategy are
completely dependent upon the knowledge and business connections of Mr. Grdina, our founder and CEO. He is under no contractual
obligation to remain employed by us. If he should choose to leave us for any reason, or if he becomes ill and is unable to work
for an extended period of time before we have hired additional personnel, our operations will likely fail. Even if we are able
to find personnel, it is uncertain whether we could find someone who could develop and execute our business along the lines described
herein. We will fail without the services of Mr. Grdina or an appropriate replacement(s).
We intend to acquire key-man life insurance
on the life of Mr. Grdina naming Adamas as the beneficiary when and if we obtain the necessary resources to do so and he is insurable.
We have not yet procured such insurance, and there is no guarantee that we will be able to obtain such key-man life insurance in
the future. Accordingly, it is important that we are able to attract, motivate and retain highly qualified and talented personnel
or independent contractors to further our business efforts.
Mr. Grdina’s outside employment commitments
do not limit or restrict him from being involved with Adamas.
Because we have recently commenced business operations,
we face a risk of business failure.
We were formed on September 6, 2018. Most
of our efforts to date have been related to executing our business plan, raising capital, negotiating the acquisition transaction
with Scio and commencing business operations. Through December 31, 2018 we have had no revenues. We face a risk of business failure.
The likelihood of success must be considered in light of the expenses, complications and delays frequently encountered in connection
with the establishment and expansion of new business and the competitive environment in which we will operate. There can be no
assurance that future revenues from sales of our intended products or services will occur or be significant enough or that we will
be able to sell at a profit, if at all. Future revenues or profits, if any, will depend on many factors, including, but not limited
to, initial (and continued) market acceptance of our products or services and the successful implementation of the planned strategy.
Adamas will have only recently acquired
assets through the Scio acquisition, but will take some time to develop products or services that are saleable in the marketplace.
We may not be able fully develop any product or service in the future because of a lack of funds or financing to do so. In order
for us to fully develop products or services, we must be able to secure the necessary financing and distribution chain. In the
early stages of operations, we will attempt to keep costs to a minimum. The cost to develop our products or services as currently
outlined may very well be in excess of $4,000,000.
Our future profitability, if any, could
be materially and adversely impacted if our products or services were to experience poor operating results. Our ability to achieve
profitability will be dependent on the ability of our future products or services to generate sufficient operating cash flow to
fund future growth or acquisitions. There can be no assurance that our future results of operations will be profitable or that
our strategy will be successful or even begin to generate any revenues.
We may not have or ever have the resources or ability
to implement and manage our growth strategy.
Although we expect to experience growth
based on the ability to implement and execute our business strategy, significant operations may never occur because the business
plan may never be fully implemented because of the lack of funds in order to do so. If our growth strategy is implemented, of which
no assurances can be provided, a significant strain on management, operating systems or financial resources may be imposed. Failure
by the Company’s management to manage this expected growth, if it occurs, or unexpected difficulties are encountered during
this growth, could have a material adverse impact on our results of operations or financial condition.
Our ability to operate profitable revenue
generating products or service lines (if we are able to establish any product or service lines at all) will depend upon a number
of factors, including: (i) identifying appropriate and satisfactory sales channels; (ii) generating sufficient funds from our then-existing
operations or obtaining third-party financing or additional capital to develop new product or service lines; (iii) our management
team and our financial and accounting controls; and (iv) staffing, training and retention of skilled personnel, if any at all.
These factors most likely will be beyond our control and may be adversely affected by the economy or actions taken by competing
businesses. Moreover, potential products or services that may meet our focus and other criteria for developing new products or
services, if we are able to develop or acquire at all, are believed to be severely limited. There can be no assurance that Adamas
will be able to execute and manage a growth strategy effectively or at all.
We may not be successful in hiring technical personnel
because of the competitive market for qualified people.
Our future success depends largely on its
ability to attract, hire, train and retain highly qualified personnel to develop and manufacture our products. Competition for
such personnel may be intense. There can be no assurance that Adamas will be successful in attracting and retaining the specific
personnel it requires to conduct and expand its operations successfully or to differentiate itself from its competitors. Our results
of operations and growth prospects could be materially adversely affected if Adamas were unable to attract, hire, train and retain
such qualified personnel.
Fluctuations in our financial results make quarterly comparisons
and financial forecasting difficult.
Our future or projected quarterly operating
results may vary and reduced levels of earnings or continued losses may be experienced in one or more quarters. Fluctuations in
our quarterly operating results could result from a variety of factors, including changes in the levels of revenues, the size and
timing of orders, changes in the mix of future projects, the timing of new offerings by Adamas or its competitors, new office openings
by the Company, changes in pricing policies by Adamas or its competitors, market acceptance of new and enhanced services offered
by Adamas or its competitors, changes in operating expenses, availability of qualified personnel, disruption in sources of related
product and services, the effect of potential acquisitions and industry and general economic factors. Adamas will have limited
or no control over many of these factors. Our expenses we believe will be based upon, in part, on its expectation as to future
or projected revenues. If revenue levels are below expectations, operating results are likely to be adversely affected.
Because of these fluctuations and uncertainties,
our future operating results may fail to meet the expectations of investors. If this happens, any trading price of our common stock
could be materially adversely affected.
There are significant potential conflicts of interest.
Our personnel will be required to commit
substantial time to our affairs and, accordingly, these individual(s) (particularly our founder and CEO) may have a conflict of
interest in allocating management time among business activities. In the course of other business activities, certain key personnel
(particularly our founder and CEO) may become aware of business opportunities which may be appropriate for presentation to us,
as well as other businesses with which they are affiliated. As such, there may be conflicts of interest in determining to which
entity a particular business opportunity should be presented to. We cannot provide any assurance that our efforts to eliminate
the potential impact of conflicts of interest will be effective.
Our internal controls may be inadequate, which could cause
our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing
and maintaining adequate internal control over our financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control
over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial
officer and effected by the Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures that:
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·
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pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions
of our assets;
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·
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provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of Adamas are being made only in accordance with
authorizations of management and/or directors of the Company; and
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·
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provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial statements.
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Our internal controls may be inadequate
or ineffective, which could cause financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Investors relying upon this misinformation may make an uninformed investment decision.
Failure to achieve and maintain an effective
internal control environment could cause us to face regulatory action and also cause investors to lose confidence in our reported
financial information, either of which could have a material adverse effect on our business, financial condition, results of operations
and future prospects.
The costs of being a public company could result in us
being unable to continue as a going concern.
As a public company, we will be required
to comply with numerous financial reporting and legal requirements, including those pertaining to audits and internal control.
The costs of maintaining all public reporting requirements could be significant and may preclude us from seeking financing or equity
investment on terms acceptable to us and our stockholders. We estimate these costs to be in excess of $150,000 per year and may
be higher if our business volume or business activity increases significantly. Our current estimate of costs does not include the
necessary expenses associated with compliance, documentation and specific reporting requirements of Section 404 as we will not
be subject to the full reporting requirements of Section 404 until we exceed $75 million in market capitalization or we decide
to opt-out of the “emerging growth company” as defined under the JOBS Act. This exemption is available to us under
the JOBS Act or until we have been public for more than five years.
If our revenues are insufficient or non-existent,
and/or we cannot satisfy many of these costs through the issuance of shares or debt, we may be unable to satisfy these costs in
the normal course of business. This would certainly result in our being unable to continue as a going concern.
Having only one director limits our ability to establish
effective independent corporate governance procedures and increases the control of our founder, president, and CEO.
We have only one director who serves as
our sole officer. Accordingly, we cannot establish board committees comprised of independent members to oversee such functions
as compensation or audit issues. In addition, currently a vote of the board is decided in favor of the chairman (who is our sole
officer), which gives him complete control over all corporate issues.
Until we have a larger board of directors
that include independent members, if ever, there will be limited oversight of our CEO’s (and founder’s) decisions and
activities with little ability for minority stockholders to challenge or reverse such activities and decisions, even if they are
not in the best interests of minority stockholders.
RISKS RELATED TO OUR COMMON STOCK
Stockholders may be diluted significantly through our
efforts to obtain financing and satisfy obligations through issuance of additional shares.
We do not have a committed source of financing.
Wherever possible, our Board of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances,
we believe that the non-cash consideration will consist of restricted shares of our common stock. Our Board of Directors has authority,
without action or vote of the stockholders, to issue all or part of the authorized (100,000,000) shares but unissued (84,853,234)
shares. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares, possibly
at a discount to market. These actions will result in dilution of the ownership interests of existing stockholders, further dilute
common stock book value, and that dilution may be material.
The interests of stockholders may be hurt because we can
issue shares to individuals or entities that support existing management with such issuances serving to enhance existing management’s
ability to maintain control of our company.
Our Board of Directors has authority, without
action or vote of the stockholders, to issue all or part of the authorized but unissued common shares. Such issuances may be issued
to parties or entities committed to supporting existing management and the interests of existing management which may not be the
same as the interests of other stockholders. Our ability to issue shares without stockholder approval serves to enhance existing
management’s ability to maintain control of our company.
Our articles of incorporation provide for indemnification
of officers and directors at our expense and limit their liability that may result in a major cost to us and hurt the interests
of our stockholders because corporate resources may be expended for the benefit of officers and directors.
Our Articles of Incorporation provide for
indemnification as follows: “Except as hereinafter provided, the officers and directors of the corporation shall not be personally
liable to the corporation or its stockholders for damages for breach of fiduciary duty as a director or officer. This limitation
on personal liability shall not apply to acts or omissions which involve intentional misconduct, fraud, knowing violation of law,
or unlawful distributions prohibited by Nevada Revised Statutes Section 78.300”.
We have been advised that, in the opinion
of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising
under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling
person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in
connection with our activities, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent)
submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if
it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely
to materially reduce the market and price for our shares, if such a market ever develops.
Currently, there is no established public market for our
securities, and there can be no assurances that any established public market will ever develop or that our common stock will be
quoted for trading and, even if quoted, it is likely to be subject to significant price fluctuations.
There has not been any established trading
market for our common stock, and there is currently no established public market whatsoever for our securities. We intend to contact
a market maker to file an application to trade our common stock on the Over-the-Counter Market. There can be no assurance that
the market maker’s application when filed will be accepted nor can we estimate as to the time period that the application
will require. We are not permitted to file such application on our own behalf. If the application is accepted, there can be no
assurances as to whether:
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(i)
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any market for our shares will develop;
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(ii)
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the prices at which our common stock will trade; or
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(iii)
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the extent to which investor interest in us will lead to the development of an active, liquid trading market. Active trading
markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors.
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If we become able to have our shares of
common stock quoted on the Over-the-Counter market, we will then try, through a broker-dealer and its clearing firm, to become
eligible with the Depository Trust Adamas (“DTC”) to permit our shares to trade electronically. If an issuer is not
“DTC-eligible,” then its shares cannot be electronically transferred between brokerage accounts, which, based on the
realities of the marketplace as it exists today, means that shares of a Adamas will not be traded (technically the shares can be
traded manually between accounts, but this may take many days and is not a realistic option for issuers relying on broker dealers
for stock transactions. What this boils down to is while DTC-eligibility is not a requirement to trade on the Over-the-Counter
market, it is a necessity to process trades if a company’s stock is going to trade with any volume. There are no assurances
that our shares will ever become DTC-eligible or, if they do, how long it will take.
In addition, our common stock is unlikely
to be followed by any financial analysts, and there may be few institutions acting as market makers for our common stock. Either
of these factors could adversely affect the liquidity and trading price of our common stock. Until our common stock is fully distributed
and an orderly market develops in our common stock, if ever, the price at which it trades is likely to fluctuate significantly.
Prices for our common stock will be determined in the marketplace and may be influenced by many factors, including the depth and
liquidity of the market for shares of our common stock, developments affecting our business, including the impact of the factors
referred to elsewhere in these Risk Factors, investor perception of Adamas and general economic and market conditions. No assurances
can be provided that an orderly or liquid market will ever develop for our common stock.
Any market that develops in shares of our common stock
will be subject to the penny stock regulations and restrictions pertaining to low priced stocks that will create a lack of liquidity
and make trading difficult or impossible.
The trading of our securities, if any, will
be in the Over-the-Counter market. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations
as to the price of, our securities.
Rule 3a51-1 of the Exchange Act establishes
the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a minimum bid price
of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions
which are not available to us. It is likely that our shares will be considered to be penny stocks for the immediately foreseeable
future. This classification severely and adversely affects any market liquidity for our common stock.
For any transaction involving a penny stock,
unless exempt, the penny stock rules require that a broker or dealer approve a person’s account for transactions in penny
stocks and the broker or dealer receive from the investor a written agreement to the transaction setting forth the identity and
quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the
broker or dealer must obtain financial information and investment experience and objectives of the person and make a reasonable
determination that the transactions in penny stocks are suitable for that person and that that person has sufficient knowledge
and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver,
prior to any transaction in a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, which,
in highlight form, sets forth:
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the basis on which the broker or dealer made the suitability determination; and
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that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
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Disclosure also has to be made about the
risks of investing in penny stock in both public offerings and in secondary trading and commissions’ payable to both the
broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Additionally, monthly statements have to be sent disclosing recent price
information for the penny stock held in the account and information on the limited market in penny stocks.
Because of these regulations, broker-dealers
may not wish to engage in the above-referenced necessary paperwork and disclosures or may encounter difficulties in their attempt
to sell shares of our common stock, which may affect the ability of selling stockholders or other holders to sell their shares
in any secondary market and have the effect of reducing the level of trading activity in any secondary market. These additional
sales practice and disclosure requirements could impede the sale of our securities, if and when our securities become publicly
traded. In addition, the liquidity for our securities may decrease, with a corresponding decrease in the price of our securities.
Our shares, in all probability, will be subject to such penny stock rules for the foreseeable future and our stockholders will,
in all likelihood, find it difficult to sell their securities.
The market for penny stocks has experienced numerous frauds
and abuses that could adversely impact investors in our stock.
Adamas management believes that the market
for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
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Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
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Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
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“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by sales persons;
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Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
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Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level,
along with the inevitable collapse of those prices with consequent investor losses.
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Any trading market that may develop may be restricted
by virtue of state securities “Blue Sky” laws that prohibit trading absent compliance with individual state laws. These
restrictions may make it difficult or impossible to sell shares in those states.
There is currently no established public
market for our common stock, and there can be no assurance that any established public market will develop in the foreseeable future.
Transfer of our common stock may also be restricted under the securities or securities regulations laws promulgated by various
states and foreign jurisdictions, commonly referred to as “Blue Sky” laws. Absent compliance with such individual state
laws, our common stock may not be traded in such jurisdictions. Because the securities registered hereunder have not been registered
for resale under the blue sky laws of any state, the holders of such shares and persons who desire to purchase them in any trading
market that might develop in the future, should be aware that there may be significant state blue sky law restrictions upon the
ability of investors to sell the securities and of purchasers to purchase the securities. These restrictions prohibit the secondary
trading of our common stock. We currently do not intend to and may not be able to qualify securities for resale in at least 17
states which do not offer manual exemptions (or may offer manual exemptions but may not to offer one to us if we are considered
to be a shell company at the time of application) and require shares to be qualified before they can be resold by our stockholders.
Accordingly, investors should consider the secondary market for our securities to be a limited one.
Our board of directors (consisting of one person, our
founder, president, and CEO) has the authority, without stockholder approval, to issue preferred stock with terms that may not
be beneficial to common stockholders and with the ability to affect adversely stockholder voting power and perpetuate their control
over us.
Our articles of incorporation allow us to
issue shares of preferred stock without any vote or further action by our stockholders. Our Board of Directors has the authority
to fix and determine the relative rights and preferences of preferred stock. Our Board of Directors has the authority to issue
preferred stock without further stockholder approval, including large blocks of preferred stock. As a result, our Board of Directors
could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon
liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right
to the redemption of the shares, together with a premium, prior to the redemption of our common stock.
The ability of our founder and CEO to control our business
may limit or eliminate minority stockholders’ ability to influence corporate affairs.
Upon the completion of this Offering, our
founder and CEO will beneficially own an aggregate of 60 percent of our common stock. Because of his beneficial stock ownership,
our founder, and CEO will be in a position to continue to elect our Board of Directors, decide all matters requiring stockholder
approval and determine our policies. The interests of our founder and CEO may differ from the interests of other stockholders with
respect to the issuance of shares, business transactions with or sales to other companies, selection of officers and directors
and other business decisions. Minority stockholders would have no way of overriding decisions made by our founder and CEO. This
level of control may have an adverse impact on the market value of our shares because our founder and CEO may institute or undertake
transactions, policies or programs that may result in losses, may not take any steps to increase our visibility in the financial
community or may sell sufficient numbers of shares to significantly decrease our price per share.
All of our presently issued and outstanding common shares
are restricted under Rule 144 of the Securities Act, as amended. When the restriction on any or all of these shares is lifted,
and the shares are sold in the open market, the price of our common stock could be adversely affected.
All of the presently outstanding shares
of common stock (15,146,766 shares) are “restricted securities” as defined under Rule 144 promulgated under the Securities
Act and may only be sold pursuant to an effective registration statement or an exemption from registration, if available. Rule
144 provides in essence that a person who is not an affiliate and has held restricted securities for a prescribed period of at
least six (6) months if purchased from a reporting issuer or twelve (12) months (as is the case herein) if purchased from a non-reporting
Company, may, under certain conditions, sell all or any of his shares without volume limitation, in brokerage transactions. Affiliates,
however, may not sell shares in excess of one percent of our outstanding common stock every three months. As a result of revisions
to Rule 144 which became effective on February 15, 2008, there is no limit on the amount of restricted securities of an SEC reporting
company that may be sold by a non-affiliate (i.e., a stockholder who has not been an officer, director or control person for at
least 90 consecutive days) after the restricted securities have been held by the owner for the aforementioned prescribed period
of time. A sale under Rule 144 or under any other exemption from the Act, if available, or pursuant to registration of shares of
common stock of present stockholders, may have a depressive effect upon the price of the common stock in any market that may develop.
We do not expect to pay cash dividends in the foreseeable
future.
We have never paid cash dividends on our
common stock. We do not expect to pay cash dividends on our common stock at any time in the foreseeable future. The future payment
of dividends directly depends upon our future earnings, capital requirements, financial requirements and other factors that our
Board of Directors will consider. Since we do not anticipate paying cash dividends on our common stock, return on your investment,
if any, will depend solely on an increase, if any, in the market value of our common stock.
Because we are not subject to compliance with rules requiring
the adoption of certain corporate governance measures, our stockholders have limited protection against interested director transactions,
conflicts of interest and similar matters.
The Sarbanes-Oxley Act of 2002, as well
as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and the NASDAQ Stock Market, as a result
of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed
to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges
or the NASDAQ Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and
because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required,
we have not yet adopted these measures.
Because none of our directors (currently
one person) are independent directors, we do not currently have independent audit or compensation committees. As a result, these
directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate
governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may
leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar
matters and investors may be reluctant to provide us with funds necessary to expand our operations.
We intend to comply with all corporate governance
measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract
and retain qualified officers, directors and members of board committees required to provide for our effective management as a
result of Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations
by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal
risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles. The
perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from
accepting these roles. Some of these corporate governance measures have been metered by the JOBS Act of 2012.
For all of the foregoing reasons and
others set forth herein, an investment in our securities in any market that may develop in the future involves a high degree of
risk.
Properties
.
Adamas currently maintains an executive
office at 1600 N. 80th St., Suite C, Scottsdale, Arizona 85260. Additionally, Mr. Grdina occasionally will utilize his home office
to conduct business on Adamas’ behalf. Mr. Grdina does not receive any remuneration for the use of his home office. Adamas
does not believe that it will need to obtain additional office space at any time in the foreseeable future until its business plan
is more fully implemented. Adamas will have offices and a manufacturing facility in Greenville, SC after completion of the Scio
acquisition.
Security Ownership of Certain Beneficial Owners and Management
.
The following table presents information,
to the best of Adamas’ knowledge, about the beneficial ownership of its common stock as of January 1, 2019, held by those
persons known to beneficially own more than 4.99% of its capital stock and by its directors and executive officers. The percentage
of beneficial ownership for the following table is based on 15,146,766 shares of common stock outstanding.
Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose.
Under these rules, beneficial ownership includes those shares of common stock over which the stockholder has sole or shared voting
or investment power. It also includes (unless footnoted) shares of common stock that the stockholder has a right to acquire within
60 days after January 1, 2019 through the exercise of any option, warrant or other right. The percentage ownership of the outstanding
common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that
only the person or entity whose ownership is being reported has converted options or warrants into shares of our common stock.
Name of Officer, Director or Beneficial Owner
(1)
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Number
of Shares
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Percent of Outstanding
Shares of Common Stock
(2)
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John Grdina, sole officer and director
(3)
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11,600,000
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76.6
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%
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Directors, Officers and Beneficial Owners as a Group
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11,600,000
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76.6
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%
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(1)
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As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of,
security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition
of, a security). The address of each person is care of Adamas, 10645 N. Tatum Road, Phoenix, Arizona 85028.
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(2)
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Figures are rounded to the nearest tenth of a percent.
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(3)
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Includes (i) 9,500,000 shares held by Diamond Technologies, LLC, a company controlled by Mr. Grdina, and (ii) 1,500,000 shares
held by two of Mr. Grdina’s children.
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This table does not reflect
issuance of the 1,250,000 shares in the proposed transaction with Scio Diamond Technologies, Inc.
Directors and Executive Officers
.
All directors of Adamas hold office until
the next annual meeting of the security holders or until their successors have been elected and qualified. Officers of Adamas are
appointed by its Board and hold office until their death, resignation or removal from office. Adamas’ director and executive
officer, his age, positions held, and duration as such, are as follows:
Name
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Age
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Title
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Date First Appointed
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John “Jay” Grdina
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51
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CEO/President, Secretary, Treasurer and Chairman of the Board (sole director)
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September 6, 2018
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John “Jay” Grdina
- Mr.
Grdina is the sole officer and director of Adamas. Prior to founding Adamas, Mr. Grdina was the founder of AMMO, Inc. (OTCQB: POWW),
a publicly traded and SEC reporting issuer, where he served from 2016- 2019. From 2012 through 2015 Mr. Grdina was previously a
director and executive officer of NOHO, Inc., a publicly traded and SEC reporting issuer. Mr. Grdina was the founder and former
CEO of Club Jenna, Inc., which was sold to Playboy Enterprises in 2006. While at Playboy Enterprises from 2006 to 2009, Mr. Grdina
was a Senior Vice President and the President of Production at Playboy responsible for all aspects of Television and Video Production.
After serving as a Senior Vice President for Playboy, he went on to create the celebrity blogging sensations TheDirty.com and Kikster.com.
Mr. Grdina was named one of Details Magazine’s Most Successful Men (#10) under the Age of 37 in America. Additionally, he
has been the subject of feature articles for both Forbes and Rolling Stone.
Certain Relationships and Related Transactions, and Director
Independence
.
The only promoter of Adamas is Mr. Grdina,
founder, sole officer and director. Because Mr. Grdina is our sole officer and director, he is not considered independent under
any stock exchange listing rules.
Adamas issued 600,000 shares of its common
stock to Mr. Grdina, in exchange for $600 in cash and 9,500,000 shares of its common stock to Diamond Technologies, LLC, a company
controlled by Mr. Grdina, for $9,500 in cash.
Legal Proceedings
.
There are no material, existing or pending
legal proceedings against Adamas, nor is Adamas involved as a plaintiff in any material proceeding or pending litigation. There
are no proceedings in which Adamas’ director, officer or any affiliates, or any registered or beneficial stockholder, is
an adverse party or has a material interest adverse to Adamas’ interest.
Market Price of and Dividends on Common Equity and Related
Stockholder Matters
.
Market for our Common Stock
Adamas’ common stock is not listed
on any stock exchange or quotation service. Adamas intends to register its common stock with the SEC and apply for quotation of
its common stock on a stock exchange or quotation service during fiscal 2019.
Stockholders of Record
As of January 1, 2019, an aggregate of 15,146,766
shares of our common stock were issued and outstanding and owned by 24 stockholders of record.
Recent Sales of Unregistered Securities
.
From its inception (September 6, 2018) through
December 31, 2018, Adamas issued and sold a total of 15,146,766 shares of common stock to its founders for cash consideration of
$15,146.77.
All of the above-described issuances were exempt from registration
pursuant to Section 4(a)(2) and/or Regulation D of the Securities Act as transactions not involving a public offering. With respect
to each transaction listed above, no general solicitation was made by either Adamas or any person acting on its behalf. All such
securities issued pursuant to such exemptions are restricted securities as defined in Rule 144(a)(3) promulgated under the
Securities Act, appropriate legends have been placed on the documents evidencing the securities, and may not be offered or sold
absent registration or pursuant to an exemption therefrom.
Description of Securities
.
Introduction.
Adamas was incorporated
under the laws of the State of Nevada on September 6, 2018. Adamas is authorized to issue 100,000,000 shares of common stock and
10,000,000 shares of preferred stock.
Preferred Stock.
Adamas’ articles
of incorporation authorizes the issuance of 10,000,000 shares of preferred stock with designation, rights and other preferences
determined from time to time by its Board of Directors. No shares of preferred stock have been designated, issued or are outstanding
as of January 1, 2019. Accordingly, Adamas’ Board of Directors is empowered, without stockholder approval, to issue up to
10,000,000 shares of preferred stock with voting, liquidation, conversion, and other rights that could adversely affect the rights
of holders of its common stock. Adamas has no current intention to issue any shares of preferred stock, there can be no assurance
that it will not do so in the future.
Among other rights, Adamas’ Board
of Directors may determine, without further vote or action by its stockholders:
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the number of shares and the designation of the series;
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whether to pay dividends on the series and, if so, the dividend rate, whether dividends will be cumulative and, if so, from
which date or dates, and the relative rights of priority of payment of dividends on shares of the series;
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whether the series will have voting rights in addition to the voting rights provided by law and, if so, the terms of the voting
rights;
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whether the series will be convertible into or exchangeable for shares of any other class or series of stock and, if so, the
terms and conditions of conversion or exchange;
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whether or not the shares of the series will be redeemable and, if so, the dates, terms and conditions of redemption and whether
there will be a sinking fund for the redemption of that series and, if so, the terms and amount of the sinking fund; and
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the rights of the shares of the series in the event of Adamas’ voluntary or involuntary liquidation, dissolution or winding
up and the relative rights or priority, if any, of payment of shares of the series.
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Adamas presently does not have plans to
issue any shares of preferred stock. However, preferred stock could be used to dilute a potential hostile acquirer. Accordingly,
any future issuance of preferred stock or any rights to purchase preferred shares may have the effect of making it more difficult
for a third party to acquire control of Adamas. This may delay, defer or prevent a change of control in Adamas or an unsolicited
acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings attributable to, and assets available
for distribution to, the holders of Adamas common stock and could adversely affect the rights and powers, including voting rights,
of the holders of Adamas common stock.
Common Stock.
Adamas’ certificate of incorporation
authorizes the issuance of 100,000,000 shares of common stock. There were 15,146,766 shares of common stock issued and outstanding
at January 1, 2019 held by 24 stockholders. The holders of our common stock:
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have equal ratable rights to dividends from funds legally available for payment of dividends when, as and if declared by the
Board of Directors;
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·
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are entitled to share ratably in all of the assets available for distribution to holders of common stock upon liquidation,
dissolution or winding up of Adamas’ affairs;
|
|
·
|
do not have preemptive, subscription or conversion rights, or redemption or access to any sinking fund; and
|
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·
|
are entitled to one non-cumulative vote per share on all matters submitted to stockholders for a vote at any meeting of stockholders.
|
Authorized but Unissued Capital Stock.
Nevada law does
not require stockholder approval for the issuance of authorized shares. These additional shares may be used for a variety of corporate
purposes, including future public or private offerings to raise additional capital or to facilitate corporate acquisitions.
One of the effects of the existence of unissued
and unreserved common stock (or preferred stock) may be to enable Adamas’ Board of Directors to issue shares to persons friendly
to current management, which issuance could render more difficult or discourage an attempt to obtain control of Adamas’ Board
of Directors by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of its management
and possibly deprive the stockholders of opportunities to sell their shares of common stock at prices higher than prevailing market
prices.
Stockholder Matters.
As an issuer of “penny stock”
the protection provided by the federal securities laws relating to forward-looking statements does not apply to Adamas if its shares
are considered to be penny stocks which they currently are and probably will be for the foreseeable future. Although the federal
securities law provide a safe harbor for forward-looking statements made by a public Adamas that files reports under the federal
securities laws, this safe harbor is not available to issuers of penny stocks. As a result, Adamas will not have the benefit of
this safe harbor protection in the event of any claim that the material provided by it contained a material misstatement of fact
or was misleading in any material respect because of Adamas’ failure to include any statements necessary to make the statements
not misleading.
As a Nevada corporation, Adamas is subject
to the Nevada Revised Statutes (“NRS” or “Nevada law”). Certain provisions of Nevada law described below
create rights that might be deemed material to its stockholders. Other provisions might delay or make more difficult acquisitions
of Adamas stock or changes in its control or might also have the effect of preventing changes in its management or might make it
more difficult to accomplish transactions that some of its stockholders may believe to be in their best interests.
Directors’ Duties
. Section 78.138 of Nevada law
allows Adamas’ directors and officers, in exercising their powers to further Adamas’ interests, to consider the interests
of its employees, suppliers, creditors and customers. They can also consider the economy of the state and the nation, the interests
of the community and of society and Adamas’ long-term and short-term interests and stockholders, including the possibility
that these interests may be best served by Adamas’ continued independence. Adamas’ directors may resist a change or
potential change in control if they, by a majority vote of a quorum, determine that the change or potential change is opposed to
or not in Adamas’ best interest. Adamas’ Board of Directors may consider these interests or have reasonable grounds
to believe that, within a reasonable time, any debt which might be created as a result of the change in control would cause Adamas’
assets to be less than its liabilities, render Adamas insolvent, or cause Adamas to file for bankruptcy protection
Dissenters’ Rights
. Among the rights granted under
Nevada law which might be considered material is the right for stockholders to dissent from certain corporate actions and obtain
payment for their shares (see NRS 92A.380-390). This right is subject to exceptions, summarized below, and arises in the event
of mergers or plans of exchange. This right normally applies if stockholder approval of the corporate action is required either
by Nevada law or by the terms of the articles of incorporation.
A stockholder does not have the right to
dissent with respect to any plan of merger or exchange, if the shares held by the stockholder are part of a class of shares which
are:
|
·
|
listed on a national securities exchange,
|
|
·
|
included in the national market system by the FINRA, or
|
|
·
|
held of record by not less than 2,000 holders.
|
This exception notwithstanding, a stockholder
will still have a right of dissent if it is provided for in the articles of incorporation or if the stockholders are required under
the plan of merger or exchange to accept anything but cash or owner’s interests, or a combination of the two, in the surviving
or acquiring entity, or in any other entity falling in any of the three categories described above in this paragraph.
Inspection Rights
. Nevada law also specifies that stockholders
are to have the right to inspect Adamas records (see NRS 78.105). This right extends to any person who has been a stockholder of
record for at least six months immediately preceding its demand. It also extends to any person holding, or authorized in writing
by the holders of, at least 5% of outstanding shares. Stockholders having this right are to be granted inspection rights upon five
days’ written notice. The records covered by this right include official copies of:
|
i.
|
the articles of incorporation, and all amendments thereto,
|
|
ii.
|
bylaws and all amendments thereto; and
|
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iii.
|
a stock ledger or a duplicate stock ledger, revised annually, containing the names, alphabetically arranged, of all persons
who are stockholders of the corporation, showing their places of residence, if known, and the number of shares held by them, respectively.
|
In lieu of a stock ledger or duplicate stock
ledger, Nevada law provides that a corporation may keep a statement setting out the name of the custodian of the stock ledger or
duplicate stock ledger, and the present and complete post office address, including street and number, if any, where the stock
ledger or duplicate stock ledger specified in this section is kept.
Control Share Acquisitions and Certain Business Combinations
.
Sections 78.378 to 78.3793 of Nevada law contain provisions that may prevent any person acquiring a controlling interest in a Nevada-registered
Adamas from exercising voting rights. Further, Sections 78.411 to 78.444 of the Nevada law could have restricted Adamas’
ability to engage in a wide variety of transactions with an “interested stockholder”.
To the extent that these rights support
the voting power of minority stockholders, these rights may also be deemed material. These provisions would be applicable to Adamas
as soon as it has 200 stockholders of record (and that has a class of securities registered under Section 12 of the Securities
Exchange Act of 1934 for business combinations) with at least 100 of these having addresses in Nevada as reflected on its stock
ledger and/or . While Adamas does not yet have the required number of stockholders in Nevada or elsewhere, it is possible that
at some future point Adamas may reach these numbers and, accordingly, these provisions would be become applicable. However, Adamas
has exempted itself from the restrictions imposed by NRS 78.378 to 78.3793 and 78.411 to 78.444 in its articles of incorporation.
Dividends
We do not anticipate the payment of cash
dividends on our common stock in the foreseeable future.
Indemnification of Directors and Officers
.
None of Adamas’ directors will have
personal liability to it or any of its stockholders for monetary damages for breach of fiduciary duty as a director involving any
act or omission of any such director since provisions have been made in Adamas’ articles of incorporation limiting such liability.
The foregoing provisions will not eliminate or limit the liability of a director (i) for any breach of the director’s duty
of loyalty to Adamas or its stockholders, (ii) for acts or omissions not in good faith or, which involve intentional misconduct
or a knowing violation of law, (iii) under applicable Sections of the Nevada Revised Statutes, (iv) the payment of dividends in
violation of Section 78.300 of the Nevada Revised Statutes or, (v) for any transaction from which the director derived an improper
personal benefit.
Adamas’ bylaws provide for indemnification
of its directors, officers, and employees in most cases for any liability suffered by them or arising out of their activities as
directors, officers, and employees of Adamas if they were not engaged in willful misfeasance or malfeasance in the performance
of his or her duties; provided that in the event of a settlement the indemnification will apply only when the Board of Directors
approves such settlement and reimbursement as being for the best interests of the corporation. The Bylaws, therefore, limit the
liability of directors to the maximum extent permitted by Nevada law (Section 78.751).
Adamas’ officers and directors are
accountable to it as fiduciaries, which means they are required to exercise good faith and fairness in all dealings affecting Adamas.
In the event that a stockholder believes the officers and/or directors have violated their fiduciary duties to Adamas, the stockholder
may, subject to applicable rules of civil procedure, be able to bring a class action or derivative suit to enforce the stockholder’s
rights, including rights under certain federal and state securities laws and regulations to recover damages from and require an
accounting by management. Stockholders who have suffered losses in connection with the purchase or sale of their interest in Adamas
in connection with such sale or purchase, including the misapplication by any such officer or director of the proceeds from the
sale of these securities, may be able to recover such losses from Adamas.
Important
Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on June 7, 2019
You may obtain
copies of our public filings, including this Proxy Statement, the Amended Asset Purchase Agreement, the Registration Rights agreement
and the form of proxy relating to the Special Meeting, without charge from the Securities and Exchange Commission’s (the
“
SEC’s
”) website at
www.sec.gov
.
COMMUNICATIONS WITH THE BOARD
The Board welcomes communications from stockholders.
Generally, stockholders who have questions or concerns should contact our Investor Relations department at (864) 751-4880 or via
electronic mail at
investorrelations@sciodiamond.com
. Stockholders and other interested parties may contact any member (or
all members) of the Board, the non-management directors as a group, any committee of the Board or any chairperson of any such committee
by mail or electronic mail. To communicate with the Board, any individual director, the non-management group or any committee of
directors by mail, correspondence should be addressed to the Board or any such individual directors or group or committee of directors
by either name or title and sent to Scio Diamond Technology Corporation, Attention Investor Relations, 411 University Ridge, Suite
110, Greenville, SC 29601. To communicate with any of our directors electronically, Stockholders should send an email addressed
to the Board or any such individual directors or group or committee of directors by either name or title to
investorrelations@sciodiamond.com
.
All communications received as set forth
in the preceding paragraph will be opened by the Investor Relations department for the sole purpose of determining whether the
contents represent a message to our directors. The Investor Relations department will forward copies of all correspondence that,
in the opinion of the Investor Relations department, deal with the functions of the Board or its committees or that it otherwise
determines requires the attention of any member, group or committee of the Board.
The Company has not held an annual meeting
in recent years and does not plan to hold one, so no date for presenting shareholder proposals can be provided.
###
APPENDIX A: Asset Purchase Agreement
AMENDED ASSET PURCHASE
AGREEMENT
This Amended Asset Purchase
Agreement, dated as of January 31, 2019 (this “
Agreement
”), by and between
SCIO DIAMOND TECHNOLOGY CORPORATION
,
a Nevada corporation (“
Seller
”) and
ADAMAS ONE CORP.
, a Nevada corporation (“
Buyer
”).
This Amended Agreement amends, supersedes and replaces the Asset Purchase Agreement between the parties dated as of November 30,
2018, in its entirety.
Recitals
WHEREAS
, Seller
is engaged exclusively in the business of designing, manufacturing, marketing, selling and distributing man-made diamond technology
(when referring to the business of Seller, the “
Business
”);
WHEREAS
, Heritage
Gemstone Investors, LLL, a South Carolina limited liability company (“
HGI
”) and certain other secured lenders,
currently hold secured promissory notes totaling $2.994 Million Dollars, which are currently in default, inclusive of principal
and accrued interest payable by Seller to HGI and certain other pari passu secured lenders pro rata (the “
Secured Debt
”);
WHEREAS
, Buyer wishes
to purchase the Secured Debt from HGI and the other secured lenders and subsequently exchange the Secured Debt as partial consideration
for the purchase of substantially all of the Assets of Seller;
WHEREAS
, Seller
wishes to sell, assign, transfer, convey and deliver to Buyer following the purchase of the Secured Debt by Buyer, and Buyer wishes
to purchase from Seller (in exchange for cancellation of the Secured Debt and other consideration set forth herein), substantially
all of the Assets, and assume from Seller certain specified Liabilities, of the Business, subject to the terms and conditions set
forth herein; and
NOW, THEREFORE
,
in consideration of the mutual covenants and agreements hereinafter set forth and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01 Definitions.
The following terms have the meanings specified or referred to in this
Article I
:
“
Accounts Receivable
”
has the meaning set forth in Section 2.02(b).
“
Acquisition Proposal
”
has the meaning set forth in Section 6.03(a).
“Act”
means the Securities Act of 1933, as amended.
“
Action
”
means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, notice of violation, proceeding, litigation,
citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at
law or in equity.
“
Affiliate
”
of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such Person. The term “control” (including the terms “controlled by” and
“under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction
of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
“
Agreement
”
has the meaning set forth in the preamble.
“
Allocation Schedule
”
has the meaning set forth in Section 2.08.
“Anticorruption
Laws”
has the meaning set forth in Section 4.34(a).
“
Assigned Contracts
”
has the meaning set forth in Section 2.02(d).
“
Assignment and
Assumption Agreement
” has the meaning set forth in Section 3.02(a)(iii).
“
Assignment and
Assumption of Lease
” has the meaning set forth in Section 3.02(a)(vi).
“
Assumed Liabilities
”
has the meaning set forth in Section 2.04.
“
Balance Sheet
”
has the meaning set forth in Section 4.06.
“
Balance Sheet
Date
” has the meaning set forth in Section 4.06.
“
Basket
”
has the meaning set forth in Section 8.04(a).
“
Bill of Sale
”
has the meaning set forth in Section 3.02(a)(ii).
“
Books and Records
”
has the meaning set forth in Section 2.02(n).
“
Business
”
has the meaning set forth in the recitals.
“
Business Day
”
means any day except Saturday, Sunday or any other day on which commercial banks located in New York, New York are authorized or
required by Law to be closed for business.
“
Buyer
”
has the meaning set forth in the preamble.
“
Buyer Closing
Certificate
” has the meaning set forth in Section 7.03(g).
“
Buyer Indemnitees
”
has the meaning set forth in Section 8.02.
“
CERCLA
”
means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.
“
Certifications
”
shall mean all product certifications and ratings.
“
Claim Threshold
”
has the meaning set forth in Section 6.16(d).
“
Claim Threshold
Date
” has the meaning set forth in Section 6.16(b).
“
Closing
”
has the meaning set forth in Section 3.01.
“
Closing Date
”
has the meaning set forth in Section 3.01.
“
Code
”
means the Internal Revenue Code of 1986, as amended.
“
Contracts
”
means all contracts, leases, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other
agreements, commitments and legally binding arrangements, whether written or oral.
“
Debt Purchase
Agreements
” has the meaning set forth in Section 2.01.
“
Deed
”
has the meaning set forth in Section 3.02(a)(v).
“
Direct Claim
”
has the meaning set forth in Section 8.05(c).
“
Disclosure Schedules
”
means the Disclosure Schedules delivered by Seller and Buyer concurrently with the execution and delivery of this Agreement.
“
Dollars
”
or
“
$
” means the lawful currency of the United States.
“Effective Time”
shall have the meaning set forth in Section 3.01.
“
Encumbrance
”
means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option,
security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including
any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.
“
Environmental
Attributes
” means any emissions and renewable energy credits, energy conservation credits, benefits, offsets and allowances,
emission reduction credits or words of similar import or regulatory effect (including emission reduction credits or allowances
under all applicable emission trading, compliance or budget programs, or any other federal, state or regional emission, renewable
energy or energy conservation trading or budget program) that have been held, allocated to or acquired for the development, construction,
ownership, lease, operation, use or maintenance of the Business or the Purchased Assets in each case as of: (a) the date of this
Agreement; and (b) future years for which allocations have been established and are in effect as of the date of this Agreement.
“
Environmental
Claim
” means any Action, Governmental Order, lien, fine, penalty or, as to each, any settlement or judgment arising therefrom,
by or from any Person alleging Liability of whatever kind or nature (including Liability or responsibility for the costs of enforcement
proceedings, investigations, cleanup, governmental response, removal or remediation, natural resources damages, property damages,
personal injuries, medical monitoring, penalties, contribution, indemnification and injunctive relief) arising out of, based on
or relating to: (a) the presence, Release of, or exposure of any Person to, any Hazardous Materials or the investigation, sampling,
monitoring, treatment, remediation, storage, removal or cleanup of Hazardous Materials; or (b) any actual or alleged non-compliance
with any Environmental Law or term or condition of any Environmental Permit.
“
Environmental
Law
” means any and all applicable Laws and any Governmental Order or binding agreement with any Governmental Authority:
(a) relating to pollution (or the cleanup thereof) or the protection or clean-up of natural resources, endangered or threatened
species, human health or safety, or the environment (including ambient air, soil, surface water or groundwater, or subsurface strata);
or (b) concerning the presence of, exposure to, or the management, manufacture, use, containment, storage, recycling, reclamation,
reuse, treatment, generation, discharge, remission, release, transportation, processing, production, disposal or remediation of
any Hazardous Materials. The term “Environmental Law” includes, but it not limited to, the following (including their
implementing regulations and any state analogs): the Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. §§ 9601 et seq.; the Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended by the Hazardous and Solid Waste Amendments of
1984, 42 U.S.C. §§ 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended by the Clean Water Act of
1977, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. §§ 2601 et
seq.; the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Clean Air Act of
1966, as amended by the Clean Air Act Amendments of 1990, 42 U.S.C. §§ 7401 et seq.; and the Occupational Safety and
Health Act of 1970, as amended, 29 U.S.C. §§ 651 et seq.
“
Environmental
Notice
” means any written directive, notice of violation or infraction, or notice respecting any Environmental Claim
relating to actual or alleged non-compliance with any Environmental Law or any term or condition of any Environmental Permit.
“
Environmental
Permit
” means any Permit, letter, clearance, consent, waiver, closure, exemption, decision or other action required under
or issued, granted, given, authorized by or made pursuant to any Environmental Law.
“Exchange Act”
means the Securities Exchange Act of 1934, as amended.
“
Excluded Assets
”
has the meaning set forth in Section 2.02.
“
Excluded Liabilities
”
has the meaning set forth in Section 2.05.
“FCPA”
has the meaning set forth in Section 4.35(a).
“
Financial Statements
”
has the meaning set forth in Section 4.06.
“
Financing
”
has the meaning set forth in Section 7.02(q).
“
FIRPTA Certificate
”
has the meaning set forth in Section 7.02(n).
“
GAAP
”
means United States generally accepted accounting principles in effect from time to time.
“
Governmental
Authority
” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality
of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority
or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the
force of Law), or any arbitrator, court or tribunal of competent jurisdiction.
“
Governmental
Order
” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any
Governmental Authority.
“
Hazardous Materials
”
means any material, substance, chemical, waste, product, derivative, compound, mixture, solid, liquid, mineral or gas, in each
case, whether naturally occurring or manmade, that is hazardous, acutely hazardous, toxic, or words of similar import or regulatory
effect under Environmental Laws, including any petroleum or petroleum-derived products, radon, radioactive materials or wastes,
asbestos in any form, lead or lead-containing materials, urea formaldehyde foam insulation and polychlorinated biphenyls.
“
Indebtedness
”
means (a) all obligations of Seller for borrowed money, whether current or funded, secured or unsecured; (b) all obligations of
Seller for the deferred purchase price of any property or services; (c) all obligations of Seller under capital leases or leases
that in accordance with GAAP are or will be required to be capitalized; (d) all obligations, contingent or otherwise, of Seller
in respect of bankers’ acceptance or letters of credit; (e) all obligations of Seller to independent contractors or otherwise
related to independent contractor services; (f) all obligations of Seller related to employee bonuses or other incentive payments
for calendar year 2016; (g) all obligations of Seller relating to any of Seller’s vehicles; and (h) all obligations, contingent
or otherwise, of Seller in respect of any accrued interest, success fees, prepayment penalties, and other costs and expenses associated
with the repayment of any of the foregoing.
“
Indemnified Party
”
has the meaning set forth in Section 8.05.
“
Indemnifying
Party
” has the meaning set forth in Section 8.05.
“
Initial Reimbursement
Amount
” has the meaning set forth in Section 6.16(b).
“
Initial Warranty
Costs Statement
” has the meaning set forth in Section 6.16(b).
“
Insurance Policies
”
has the meaning set forth in Section 4.20.
“
Intellectual
Property
” means all intellectual property and industrial property rights and assets, and all rights, interests and protections
that are associated with, similar to, or required for the exercise of, any of the foregoing, however arising, pursuant to the Laws
of any jurisdiction, whether registered or unregistered, including any and all: (a) trademarks, service marks, trade names, brand
names, logos, trade dress, design rights and other similar designations of source, sponsorship, association or origin, together
with the goodwill connected with the use of and symbolized by, and all registrations, applications and renewals for, any of the
foregoing; (b) internet domain names, whether or not trademarks, registered in any top-level domain by any authorized private registrar
or Governmental Authority, web addresses, web pages, websites and related content, accounts with Twitter, Facebook and other social
media companies and the content found thereon and related thereto, and URLs; (c) works of authorship, expressions, designs and
design registrations, whether or not copyrightable, including copyrights, author, performer, moral and neighboring rights, and
all registrations, applications for registration and renewals of such copyrights; (d) inventions, discoveries, trade secrets, business
and technical information and know-how, databases, data collections and other confidential and proprietary information and all
rights therein; (e) patents (including all reissues, divisionals, provisionals, continuations and continuations-in-part, re-examinations,
renewals, substitutions and extensions thereof), patent applications, other patent rights and any other Governmental Authority-issued
indicia of invention ownership (including inventor’s certificates, petty patents and patent utility models); (f) software
and firmware, including data files, source code, object code, application programming interfaces, architecture, files, records,
schematics, computerized databases and other related specifications and documentation; (g) semiconductor chips and mask works;
(h) royalties, fees, income, payments and other proceeds now or hereafter due or payable with respect to any and all of the foregoing;
and (i) all rights to any Actions of any nature available to or being pursued by Seller to the extent related to the foregoing,
whether accruing before, on or after the date hereof, including all rights to and claims for damages, restitution and injunctive
relief for infringement, dilution, misappropriation, violation, misuse, breach or default, with the right but no obligation to
sue for such legal and equitable relief, and to collect, or otherwise recover, any such damages.
“
Intellectual
Property Agreements
” means all licenses, sublicenses, consent to use agreements, settlements, coexistence agreements,
covenants not to sue, permissions and other Contracts (including any right to receive or obligation to pay royalties or any other
consideration), whether written or oral, relating to any Intellectual Property that is used in or necessary for the conduct of
the Business as currently conducted to which Seller is a party, beneficiary or otherwise bound.
“
Intellectual
Property Assets
” means all Intellectual Property that is owned by Seller or an Affiliate and used in or necessary for
the conduct of the Business as currently conducted.
“
Intellectual
Property Assignments
” has the meaning set forth in Section 3.02(a)(iv).
“
Intellectual
Property Registrations
” means all Intellectual Property Assets that are subject to any issuance, registration, application
or other filing by, to or with any Governmental Authority or authorized private registrar in any jurisdiction, including registered
trademarks, domain names and copyrights, issued and reissued patents and pending applications for any of the foregoing.
“
Interim Balance
Sheet
” has the meaning set forth in Section 4.06.
“
Interim Balance
Sheet Date
” has the meaning set forth in Section 4.06.
“
Interim Financial
Statements
” has the meaning set forth in Section 4.06.
“
Inventory
”
has the meaning set forth in Section 2.02(c).
“
Knowledge of
Seller or Seller’s Knowledge
” or any other similar knowledge qualification, means the actual or constructive knowledge,
after due inquiry, of Gerald McGuire, Jonathan Pfohl, Bernard McPheely, Bruce Likely, Karl Leaverton, Lewis Smoak and Ben Wolkowitz.
“
Law
”
means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement
or rule of law of any Governmental Authority.
“
Leased Real Property
”
has the meaning set forth in Section 4.14(b).
“
Leases
”
has the meaning set forth in Section 4.14(b).
“
Liabilities
”
means liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent,
accrued or unaccrued, matured or unmatured or otherwise.
“
Losses
”
means losses, damages, Liabilities, deficiencies, Actions, judgments, interest, awards, penalties, fines, costs or expenses of
whatever kind, including reasonable attorneys’ fees, loss of future revenue or income, loss of business reputation or opportunity
relating to a breach of this Agreement, loss based on diminution in value or multiple of earnings and the cost of enforcing any
right to indemnification hereunder and the cost of pursuing any insurance recovery.
“
Material Adverse
Effect
” means any event, occurrence, fact, condition or change that is, or could reasonably be expected to become, individually
or in the aggregate, materially adverse to (a) the Business, results of operations, condition (financial or otherwise) or assets
of Seller relating to the Business, (b) the value of the Purchased Assets, or (c) the ability of Seller to consummate the transactions
contemplated hereby on a timely basis.
“
Material Contracts
”
has the meaning set forth in Section 4.10(a).
“
Material Customers
”
has the meaning set forth in Section 4.19(a).
“
Material Suppliers
”
has the meaning set forth in Section 4.19(a).
“
Nevada Tax Claim
”
has the meaning set forth in Section 8.04(e)(ii).
“
Nevada Sales
Tax Claim
” has the meaning set forth in Section 8.04 (e)(iii).
“
Non-Disclosure
Agreement
” means that certain Non-Disclosure Agreement, dated as of May 7, 2018, between Seller and Buyer.
“
Owned Real Property
”
has the meaning set forth in Section 4.14(a).
“
Permits
”
means all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained,
or required to be obtained, from Governmental Authorities.
“
Permitted Encumbrances
”
has the meaning set forth in Section 4.11.
“
Person
”
means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated
organization, trust, association or other entity.
“
Pre-Closing Tax
Period
” means any taxable period ending on or before the Closing Date and, with respect to any taxable period beginning
before and ending after the Closing Date, the portion of such taxable period ending on and including the Closing Date.
“
Previous Statement
”
has the meaning set forth in Section 6.16(d).
“
Product Claims
”
has the meaning set forth in Section 4.28.
“
Purchase Price
”
has the meaning set forth in Section 2.06(a).
“
Purchased Assets
”
has the meaning set forth in Section 2.02.
“
Real Property
”
means, collectively, the Owned Real Property and the Leased Real Property.
“
Release
”
means any actual or threatened release, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, dumping, abandonment, disposing or allowing to escape or migrate into or through the environment (including ambient air
(indoor or outdoor), surface water, groundwater, land surface or subsurface strata or within any building, structure, facility
or fixture).
“
Representative
”
means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants
and other agents of such Person.
“
Reviewed Financial
Statements
” has the meaning set forth in Section 4.06.
“SEC”
means the United States Securities and Exchange Commission.
“SEC Documents”
has the meaning set forth in Section 4.22(d).
“
Section 503
”
has the meaning set forth in Section 4.25(e).
“Secured Debt”
has the meaning set forth in the recitals.
“
Seller
”
has the meaning set forth in the preamble.
“
Seller Closing
Certificate
” has the meaning set forth in Section 7.02(k).
“
Seller Indemnitees
”
has the meaning set forth in Section 8.03.
“
Shares
”
shall mean shares of Buyer’s restricted common stock, $0.001 par value per share, to be issued to Seller as part of the Purchase
Price.
“
South Carolina
Employer Contribution Claim”
has the meaning set forth in Section 8.04(iv).
“
South Carolina
Tax Claim”
has the meaning set forth in Section 8.04(e)(i).
“Stockholder”
shall mean the Persons holding shares of the Seller’s equity securities.
“
Subsequent Reimbursement
Amount
” has the meaning set forth in Section 6.16(c).
“
Subsequent Warranty
Costs Statement
” has the meaning set forth in Section 6.16(c).
“
Tangible Personal
Property
” has the meaning set forth in Section 2.02(f).
“
Taxes
”
means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, documentary,
franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated,
excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits,
customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties
with respect thereto and any interest in respect of such additions or penalties.
“
Tax Clearance
Certificate
” has the meaning set forth in Section 6.15.
“
Tax Return
”
means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
“
Third Party Claim
”
has the meaning set forth in Section 8.05(a).
“
Transaction Documents
”
means this Agreement, the Assignment and Assumption Agreement, the Assignment and Assumption of Lease, the Deed, the Intellectual
Property Assignment, the Real Property Purchase Agreement, the Debt Purchase Agreements, the Registration Rights Agreement, and
the other agreements, instruments and documents required to be delivered at the Closing.
“
Union
”
has the meaning set forth in Section 4.25(b).
“
VEVRAA
”
has the meaning set forth in Section 4.25(e).
“
WARN Act
”
means the federal Worker Adjustment and Retraining Notification Act of 1988, and similar state, local and foreign Laws related
to plant closings, relocations, mass layoffs and employment losses.
“
Warranty Claims
”
has the meaning set forth in Section 6.16(a).
“
Warranty Costs
”
has the meaning set forth in Section 6.16(a).
“Warranty Policies”
has the meaning set forth in 6.16(d).
ARTICLE II
Purchase
and Sale
Section 2.01
Purchase
and Assumption of Secured Debt.
At the Closing, HGI and the other secured lenders shall sell, assign, transfer, convey
and deliver to Buyer, and Buyer shall purchase from HGI and the other secured lenders, free and clear of any Encumbrances, all
of their respective rights, title and interest in, to and under the Secured Debt pursuant to the Debt Purchase and Assumption Agreements
(the “
Debt Purchase Agreements
”) attached hereto as Exhibits A and B. Additionally, HGI shall sell, assign,
transfer, convey and deliver to Buyer title to any and all diamond growers currently leased from HGI to Seller.
Section 2.02
Purchase
and Sale of Assets.
Subject to the terms and conditions set forth herein, at the Closing, Seller shall sell, assign,
transfer, convey and deliver to Buyer, and Buyer shall purchase from Seller, free and clear of any Encumbrances other than Permitted
Encumbrances, all of Seller’s right, title and interest in, to and under all of the assets, properties and rights of every
kind and nature, whether real, personal or mixed, tangible or intangible (including goodwill), wherever located and whether now
existing or hereafter acquired (other than the Excluded Assets), which relate to, or are used or held for use in connection with,
the Business (collectively, the “
Purchased Assets
”), including the following:
(a)
security
deposits;
(b)
all
accounts or notes receivable held by Seller, and any security, claim, remedy or other right related to any of the foregoing (“
Accounts
Receivable
”);
(c)
all
inventory, finished goods, raw materials, work in progress, packaging, supplies, parts and other inventories (“
Inventory
”);
(d)
all
Contracts, including Intellectual Property Agreements, including those Contracts set forth on Schedule 2.02(d) of the Disclosure
Schedules (the “
Assigned Contracts
”);
(e)
all
Intellectual Property Assets;
(f)
all
furniture, fixtures, equipment, machinery, tools, tooling as set forth on Schedule 2.02(f) of the Disclosure Schedules, vehicles,
office equipment, supplies, computers, telephones and other tangible personal property (the “
Tangible Personal Property
”);
(g)
all
Owned Real Property and Leased Real Property;
(h)
all
Permits, including Environmental Permits, to the extent assignable, which are held by Seller and required for the conduct of the
Business as currently conducted or for the ownership and use of the Purchased Assets, including those set forth on Section 4.22(b)
and Section 4.23(b) of the Disclosure Schedules;
(i)
all
Certifications, including those set forth on Schedule 4.22(c) of the Disclosure Schedules;
(j)
all
rights to any Actions of any nature available to or being pursued by Seller to the extent related to the Business, the Purchased
Assets or the Assumed Liabilities, whether arising by way of counterclaim or otherwise;
(k)
all
prepaid expenses, credits, advance payments, claims, security, refunds, rights of recovery, rights of set-off, rights of recoupment,
deposits, charges, sums and fees (including any such item relating to the payment of Taxes);
(l)
all
of Seller’s rights under warranties, indemnities and all similar rights against third parties to the extent related to the
Purchased Assets;
(m)
all
insurance benefits, including rights and proceeds, arising from or relating to the Business, the Purchased Assets or the Assumed
Liabilities;
(n)
originals,
or where not available, copies, of all books and records, including, but not limited to, books of account, ledgers and general,
financial and accounting records, machinery and equipment maintenance files, customer lists, customer purchasing histories, price
lists, distribution lists, supplier lists, production data, quality control records and procedures, customer complaints and inquiry
files, research and development files, records and data (including all correspondence with any Governmental Authority), sales material
and records (including pricing history, total sales, terms and conditions of sale, sales and pricing policies and practices), strategic
plans, internal financial statements, marketing and promotional surveys, material and research and files relating to the Intellectual
Property Assets and the Intellectual Property Agreements but excluding personnel files unless the consent of the transferring employee
has been received (“
Books and Records
”); and
(o)
all
goodwill and the going concern value of the Business.
Section 2.03
Excluded
Assets.
Notwithstanding the foregoing, the Purchased Assets shall not include the following assets (collectively, the
“
Excluded Assets
”):
(a)
cash
and cash equivalents, other than security deposits;
(b)
the
corporate seals, organizational documents, minute books, stock books, Tax Returns, books of account or other records having to
do with the corporate organization of Seller;
(c)
the
assets, properties and rights specifically set forth on Schedule 2.03(d) of the Disclosure Schedules; and
(d)
the
rights which accrue or will accrue to Seller under the Transaction Documents.
Section 2.04
Assumed
Liabilities.
Subject to the terms and conditions set forth herein, Buyer shall assume and agree to pay, perform and
discharge as and when due only the following Liabilities of Seller (collectively, the “
Assumed Liabilities
”),
and no other Liabilities:
(a)
50%
of negotiated past due rent for the Next Center Location; and
(b)
Selected
trade payables, listed on the Interim Balance Sheet up to $x [to be agreed upon].
Section 2.05
Excluded
Liabilities.
Notwithstanding the provisions of Section 2.04 or any other provision in this Agreement to the contrary,
Buyer shall not assume and shall not be responsible to pay, perform or discharge any Liabilities of Seller or any of its Affiliates
of any kind or nature whatsoever other than the Secured Debt and the Assumed Liabilities (the “
Excluded Liabilities
”).
Seller shall each cause their respective Affiliates to, pay and satisfy in due course all Excluded Liabilities which they are obligated
to pay and satisfy. Without limiting the generality of the foregoing, the Excluded Liabilities shall include, but shall not be
limited to, the following Liabilities of Seller or any Stockholder or any Affiliate:
(a)
any
Liabilities arising or incurred in connection with the negotiation, preparation, investigation and performance of this Agreement,
the other Transaction Documents and the transactions contemplated hereby and thereby, including the fees and expenses of counsel,
accountants, consultants, advisers and others;
(b)
any
Liability for (i) Taxes of or relating to the Business for any period or the Purchased Assets or the Assumed Liabilities for any
Pre-Closing Tax Period; (ii) Taxes that arise out of the consummation of the transactions contemplated by this Agreement or that
are the responsibility of Seller pursuant to Section 6.14; or (iii) other Taxes of any kind or description (including any Liability
for Taxes that becomes a Liability of Buyer under any common law doctrine of de facto merger or transferee or successor liability
or otherwise by operation of contract or Law);
(c)
any
Liabilities relating to or arising out of the Excluded Assets;
(d)
any
Liabilities in respect of any pending or threatened Action arising out of, relating to or otherwise in respect of the operation
of the Business or the Purchased Assets to the extent such Action relates to such operation on or prior to the Closing Date;
(e)
any
product Liability or similar claim for injury to a Person or property which arises out of or is based upon any express or implied
representation, warranty, agreement or guaranty made by Seller, or by reason of the improper performance or malfunctioning of a
product, improper design or manufacture, failure to adequately package, label or warn of hazards or other related product defects
of any products at any time manufactured or sold or any service performed by Seller;
(f)
any
recall, design defect or similar claims of any products manufactured or sold or any service performed by Seller;
(g)
any
Liabilities to any present or former employees, officers, directors, retirees, independent contractors or consultants of Seller,
including any Liabilities associated with any claims for wages or other benefits, commissions, bonuses, expense reimbursement,
paid sick leave, accrued vacation or other paid time off, workers’ compensation, severance, retention, termination or other
payments, except for Secured Debt;
(h)
any
Environmental Claims, or Liabilities under Environmental Laws, to the extent arising out of or relating to facts, circumstances
or conditions existing on or prior to the Closing Date or otherwise to the extent arising out of any actions or omissions of Seller;
(i)
any
trade accounts payable (i) to the extent not accounted for on the Interim Balance Sheet; (ii) which constitute intercompany payables
owing to Affiliates of Seller; (iii) which constitute debt, loans or credit facilities to financial institutions; or (iv) which
did not arise in the ordinary course of the Business;
(j)
any
Liabilities relating or arising from unfulfilled commitments, quotations, purchase orders, customer orders or work orders that
(i) do not constitute part of the Purchased Assets issued by Sellers’ customers to Seller on or before the Closing Date;
(ii) did not arise in the ordinary course of the Business; or (iii) are not validly and effectively assigned to Buyer pursuant
to this Agreement;
(k)
any
Liabilities to indemnify, reimburse or advance amounts to any present or former officer, director, employee or agent (including
with respect to any breach of fiduciary obligations by same), except for indemnification of same pursuant to Section 8.03 as Seller
Indemnitees;
(l)
any
Liabilities under any other Contract, including Intellectual Property Agreements, (i) which are not validly and effectively assigned
to Buyer pursuant to this Agreement; (ii) which do not conform to the representations and warranties with respect thereto contained
in this Agreement; or (iii) to the extent such Liabilities arise out of or relate to a breach by Seller of such Contracts prior
to the Closing Date;
(m)
any
Liabilities associated with debt, loans or credit facilities of Seller and/or the Business owing to financial institutions; and
(n)
any
Liabilities arising out of, in respect of or in connection with the failure by Seller or any of its Affiliates to comply with any
Law or Governmental Order.
Section 2.06
Purchase
Price.
The aggregate purchase price for the Purchased Assets shall be (i) the cancellation of the Secured Debt, plus
(ii) the issuance of one million two hundred fifty thousand (1,250,000) shares of Buyer’s common stock (the “
Shares
”)
to Seller, with nine hundred thousand (900,000) of such Shares subject to the terms of the Registration Rights Agreement attached
hereto as Exhibit
C
, plus (iii) the assumption of the Assumed Liabilities ((i), (ii), and (iii) collectively, the “
Purchase
Price
”).
Section 2.07
Buyer
agrees to take all actions necessary or desirable to facilitate the private sale of three hundred fifty thousand (350,000) of the
Shares by Seller within ten (10) days of Closing, including introducing Seller to potential purchasers of the Shares at a price
of two dollars ($2.00) per Share. Seller intends to sell the 350,000 Shares in order to generate cash to settle outstanding unsecured
debts. Further, if Seller is not able to sell such Shares for at least $2.00 per share within such time period, Buyer agrees, within
ten (10) days following notice from Seller, to purchase any remaining Shares from Seller, or arrange for such purchase by a third
party, for $2.00 per share.
Section 2.08
Allocation
of Purchase Price.
Seller and Buyer agree that the Purchase Price and the Assumed Liabilities (plus other relevant items)
shall be allocated among the Purchased Assets for all purposes (including Tax and financial accounting) as shown on the allocation
schedule (the “
Allocation Schedule
”). A draft of the Allocation Schedule shall be prepared by Buyer and delivered
to Seller within sixty (60) days following the Closing Date.
Section 2.09
Withholding
Tax.
Buyer shall be entitled to deduct and withhold from the Purchase Price all Taxes and other sum that Buyer may be
required to deduct and withhold under any provision of state or federal law applicable to the transaction contemplated by this
Agreement. All such withheld amounts shall be treated as delivered to Seller hereunder.
Section
2.10 Third Party Consents.
To the extent that Seller’s rights
under any Contract or Permit constituting a Purchased Asset, or any other Purchased Asset, may not be assigned to Buyer without
the consent of another Person which has not been obtained, this Agreement shall not constitute an agreement to assign the same
if an attempted assignment would constitute a breach of such Contract or Permit or be unlawful, and Seller, at its expense, shall
use its reasonable best efforts to obtain any such required consent(s) as promptly as possible. If any such consent shall not be
obtained or if any attempted assignment would be ineffective or would impair Buyer’s rights under the Purchased Asset in
question so that Buyer would not in effect acquire the benefit of all such rights, Seller, to the maximum extent permitted by Law
and the Purchased Asset, shall act after the Closing as Buyer’s agent in order to obtain for it without cost to Buyer the
benefits thereunder and shall cooperate, to the maximum extent permitted by Law and the Purchased Asset, with Buyer in any other
reasonable arrangement designed to provide such benefits to Buyer. Notwithstanding any provision in this Section 2.10 to the contrary,
Buyer shall not be deemed to have waived its rights under Section 7.02(d) hereof unless and until Buyer either provides written
waivers thereof or elects to proceed to consummate the transactions contemplated by this Agreement at Closing.
ARTICLE III
Closing
Section 3.01
Closing.
Subject to the terms and conditions of this Agreement, the consummation of the transactions contemplated by this Agreement (the
“
Closing
”) shall take place at the offices of DeMint Law, PLLC, 3753 Howard Hughes Parkway, Second Floor Suite
314, Las Vegas, Nevada 89169, at 10:00am, local time, on the second (2
nd
) Business Day after all of the conditions to
Closing set forth in Article VII are either satisfied or waived (other than conditions which, by their nature, are to be satisfied
on the Closing Date), or at such other time, date or place as Seller and Buyer may mutually agreed upon in writing. The date on
which the Closing is to occur is herein referred to as the “
Closing Date
”. The Closing will be deemed effective
as of 12:01 AM on the Closing Date (the “
Effective Time
”).
Section 3.02
Closing
Deliverables.
(a)
At
the Closing, Seller shall deliver to Buyer the following:
(i)
a bill of sale in form and substance satisfactory to Buyer (the “
Bill of Sale
”) and duly executed by Seller,
transferring the tangible personal property included in the Purchased Assets to Buyer;
(ii)
an assignment and assumption agreement in form and substance satisfactory to Buyer (the “
Assignment and Assumption Agreement
”)
and duly executed by Seller, effecting the assignment to and assumption by Buyer of the Purchased Assets and the Assumed Liabilities;
(iii)
assignments in form and substance satisfactory to Buyer (the “
Intellectual Property Assignments
”) and duly executed
by Seller, transferring all of Seller’s right, title and interest in and to the Intellectual Property Assets to Buyer;
(iv)
with respect to each Lease, an Assignment and Assumption of Lease in form and substance satisfactory to Buyer (each, an “
Assignment
and Assumption of Lease
”) and duly executed by Seller;
(v)
a power of attorney in form and substance satisfactory to Buyer and duly executed by Seller;
(vi)
the Seller Closing Certificate;
(vii)
the FIRPTA Certificate;
(viii)
with respect to each parcel of Owned Real Property, the Real Property Purchase Agreement, duly executed by Seller;
(ix)
such other customary instruments of transfer, assumption, filings or documents, in form and substance satisfactory to Buyer, as
may be required to give effect to this Agreement;
(x)
new promissory notes evidencing the Secured Debt, which will be immediately cancelled upon Closing; and
(xi)
any and all Inventory as well as associated certificates and documents thereof.
(b)
At
the Closing, Buyer shall deliver to Seller the following:
(i)
the Purchase Price;
(ii)
the Assignment and Assumption Agreement duly executed by Buyer;
(iii)
with respect to each Lease, an Assignment and Assumption of Lease duly executed by Buyer;
(iv)
a stock certificate for the Shares;
(v)
the Buyer Closing Certificate;
(vi)
the certificates of the Secretary or Assistant Secretary of Buyer required by Section 7.03(h) and Section 7.03(i).
(c)
At
the Closing, HGI and the other secured debt holders shall deliver to Seller the following:
(i)
the Debt Assignment Agreement; and
(ii)
original promissory notes evidencing the Secured Debt.
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF SELLER
Except as set forth in
the correspondingly numbered Section of the Disclosure Schedules, Seller represents and warrants to Buyer that the statements contained
in this Article IV are true, correct and complete as of the date hereof, each of which representations and warranties is hereby
deemed material, and Buyer, in executing and delivering this Agreement, has relied upon the truthfulness, correctness and completeness
of each such representation and warranty.
Section 4.01
Organization
and Qualification of Seller.
Seller is a corporation duly organized, validly existing and in good standing under the
Laws of the State of Nevada and has full corporate power and authority to own, operate or lease the properties and assets now owned,
operated or leased by it and to carry on the Business as currently conducted. Section 4.01 of the Disclosure Schedules sets forth
each jurisdiction in which Seller is licensed or qualified to do Business, and Seller is duly licensed or qualified to do Business
and is in good standing in each jurisdiction in which the ownership of the Purchased Assets or the operation of the Business as
currently conducted makes such licensing or qualification necessary. There has not been any claim by any jurisdiction to the effect
that Seller is required to qualify or otherwise be authorized to do business as a foreign corporation therein. The copies of the
articles of incorporation of Seller, as amended to date (certified by the Nevada Secretary of State) and the Bylaws of Seller,
as amended to date (certified by Seller’s Secretary), which have been delivered to Buyer or its counsel, are true, accurate
and complete copies of those documents as in effect on the date hereof. The minute books of Seller, copies of which have been delivered
to Buyer or its counsel, contain accurate records of all meetings of its Board of Directors, any committees thereof and stockholders,
and accurately reflect all transactions referred to therein.
Section 4.02 Authorization
and Authority.
Seller has full power and authority to enter into this Agreement and the other Transaction Documents to which
each is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by Seller of this Agreement and any other Transaction Document to which it is a party, the
performance by Seller of its obligations hereunder and thereunder and the consummation by Seller of the transactions contemplated
hereby and thereby have been duly authorized by all requisite corporate action on the part of Seller. This Agreement has been duly
executed and delivered by Seller and (assuming due authorization, execution and delivery by Buyer) this Agreement constitutes a
legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms. When each other Transaction
Document to which Seller is or will be a party has been duly executed and delivered by Seller (assuming due authorization, execution
and delivery by each other party thereto), such Transaction Document will constitute a legal and binding obligation of Seller enforceable
against it in accordance with its terms.
Section 4.03 Capitalization.
The entire issued and authorized equity of Seller is disclosed in Section 4.03 of the Disclosure Schedules. Except as disclosed
in Section 4.03 of the Disclosure Schedules, all of the issued and outstanding equity of Seller has been duly authorized, validly
issued, fully paid, and non-assessable and is not subject to, nor was it issued in violation of, any pre-emptive rights, rights
of first refusal or similar rights. Except as disclosed in Section 4.03 of the Disclosure Schedules, Seller does not have outstanding
any equity or securities convertible or exchangeable into equity, or containing any profit participation features, nor any rights
or options to subscribe for or to purchase its equity. Except as disclosed in Section 4.03 of the Disclosure Schedules, Seller
has not violated any Laws applicable to the issuance and sale of securities in connection with the offer, sale or issuance of
its equity.
Section 4.04 Subsidiaries.
Except as disclosed in Section 4.04 of the Disclosure Schedules, Seller has not made any investment in, nor owns, any of the capital
stock of, or any other proprietary interest in, any other corporation, partnership, limited liability company or other Person.
Section 4.05
No
Conflicts; Consents.
The execution, delivery and performance by Seller of this Agreement and the other Transaction Documents
to which each is a party, and the consummation by Seller of the transactions contemplated hereby and thereby, do not and will not:
(a) conflict with or result in a violation or breach of, or default under, any provision of the articles of incorporation of Seller
(as amended to date), the bylaws of Seller (as amended to date), or other organizational documents of Seller; (b) conflict with
or result in a violation or breach of any provision of any Law or Governmental Order applicable to Seller, the Business or the
Purchased Assets; (c) except as set forth on Schedule 4.05 of the Disclosure Schedules, require the consent, notice or other action
by or to any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without
notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right
to accelerate, terminate, modify or cancel any Contract or Permit to which Seller is a party or by which Seller or the Business
is bound or to which any of the Purchased Assets are subject (including any Assigned Contract); or (d) result in the creation or
imposition of any Encumbrance other than Permitted Encumbrances on the Purchased Assets. To the Knowledge of Seller, no consent,
approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with
respect to Seller in connection with the execution and delivery of this Agreement or any of the other Transaction Documents or
the consummation of the transactions contemplated hereby and thereby.
Section 4.06
Financial
Statements.
Complete copies of the reviewed financial statements consisting of the balance sheet of Seller as at March
31, in each of the years ended March 31, 2018, 2017 and 2016 and the related statements of income and retained earnings, Stockholder’s
equity and cash flow for the years then ended (the “
Reviewed Financial Statements
”), and unaudited financial
statements consisting of the balance sheet of Seller as at August 31, 2018 and the related statements of income and retained earnings,
Stockholder’s equity and cash flow for the five (5) month period then ended (the “
Interim Financial Statements
”
and together with the Reviewed Financial Statements, the “
Financial Statements
”) are included in the Disclosure
Schedules. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods
involved (except as set forth on Schedule 4.06 of the Disclosure Schedules), subject, in the case of the Interim Financial Statements,
to normal and recurring year-end adjustments (the effect of which will not be materially adverse) and the absence of notes (that,
if presented, would not differ materially from those presented in the Reviewed Financial Statements). The Financial Statements
are based on the Books and Records of Seller, and fairly present the financial condition of Seller as of the respective dates they
were prepared and the results of the operations of Seller for the periods indicated. The balance sheet of Seller as at March 31,
2018 is referred to herein as the “
Balance Sheet
” and the date thereof as the “
Balance Sheet Date
”
and the balance sheet of Seller as at August 31, 2018 is referred to herein as the “
Interim Balance Sheet
” and
the date thereof as the “
Interim Balance Sheet Date
.” Except as set forth on Schedule 4.06 of the Disclosure
Schedules, Seller maintains a standard system of accounting for the Business established and administered in accordance with GAAP.
Section 4.07
Undisclosed
Liabilities.
To Seller’s Knowledge, Seller has no Liabilities, except those which are listed on Schedule 4.07
of the Disclosure Schedules, and those which are adequately reflected or reserved against in the Interim Balance Sheet as of the
Interim Balance Sheet Date, and there was no basis for the assertion against Seller of any Liability not so reflected or reserved
against therein. Seller has no Liability that does not relate to the Business.
Section 4.08
Absence
of Certain Changes, Events and Conditions.
Except as set forth on Schedule 4.08 of the Disclosure Schedules, since the
Balance Sheet Date, there has not been any:
(a)
entry
into any Contract that would constitute a Material Contract or amendment of any Material Contract;
(b)
incurrence,
assumption or guarantee of any Indebtedness for borrowed money or other Liability in connection with the Business except unsecured
current obligations and Liabilities incurred in the ordinary course of Business consistent with past practice;
(c)
transfer,
assignment, sale or other disposition of any of the Purchased Assets shown or reflected in the Balance Sheet, except for the sale
of Inventory in the ordinary course of Business;
(d)
cancellation
of any debts or claims or amendment, termination or waiver of any rights constituting Purchased Assets;
(e)
transfer,
assignment or grant of any license or sublicense of any material rights under or with respect to any Intellectual Property Assets
or Intellectual Property Agreements;
(f)
material
damage, destruction or loss, or any material interruption in use, of any Purchased Assets, whether or not covered by insurance;
(g)
acceleration,
termination, material modification to or cancellation of any Assigned Contract or Permit;
(h)
material
capital expenditures which would constitute an Assumed Liability;
(i)
imposition
of any Encumbrance upon any of the Purchased Assets;
(j)
any
loan to (or forgiveness of any loan to), or entry into any other transaction with, any current or former directors, officers or
employees of Seller;
(k)
adoption
of any plan of merger, consolidation, reorganization, liquidation or dissolution or filing of a petition in bankruptcy under any
provisions of federal or state bankruptcy Law or consent to the filing of any bankruptcy petition against Seller under any similar
Law;
(l)
purchase,
lease or other acquisition of the right to own, use or lease any property or assets in connection with the Business for an amount
in excess of $10,000, individually (in the case of a lease, per annum) or $50,000 in the aggregate (in the case of a lease, for
the entire term of the lease, not including any option term), except for purchases of Inventory or supplies in the ordinary course
of Business consistent with past practice; or
(m)
any
Contract to do any of the foregoing, or any action or omission that would result in any of the foregoing.
Section 4.09 Adverse
Developments.
Since the Interim Balance Sheet Date there have been no material adverse changes in the Purchased Assets or Seller,
there has been no act or omission on the part of Seller or, to Seller’s knowledge, others which would form the basis for
the assertion against Seller of any material Liability, no other event has occurred which could be reasonably expected to have
a Material Adverse Effect upon the Purchased Assets or Seller, and there is no development or, to Seller’s Knowledge, threatened
development of a nature which could be reasonably expected to have a Material Adverse Effect upon the Purchased Assets or Seller.
Section 4.10
Material
Contracts.
(a)
Schedule
4.10(a) of the Disclosure Schedules sets forth each of the following Contracts (x) by which any of the Purchased Assets are bound
or affected or (y) to which Seller is a party or by which it is bound in connection with the Business or the Purchased Assets (such
Contracts, together with all Contracts concerning the occupancy, management or operation of any Real Property (including, brokerage
contracts) listed or otherwise disclosed on Schedule 4.14(a) of the Disclosure Schedules and all Intellectual Property Agreements
listed on Schedule 4.15(b) of the Disclosure Schedules, being “
Material Contracts
”):
(i)
all Contracts involving aggregate consideration in excess of $10,000 and which, in each case, cannot be cancelled without penalty
or without more than ten (10) days’ notice;
(ii)
all Contracts that require Seller to purchase or sell a stated portion of the requirements or outputs of the Business or that contain
“take or pay” provisions;
(iii)
all Contracts that provide for the indemnification of any Person or the assumption of any Tax, environmental or other Liability
of any Person;
(iv)
all Contracts that relate to the acquisition or disposition of any business, a material amount of stock or assets of any
other Person or any real property (whether by merger, sale of stock, sale of assets or otherwise);
(v)
all broker, distributor, dealer, manufacturer’s representative, franchise, agency, sales promotion, market research, marketing
consulting and advertising Contracts;
(vi)
all employment agreements and Contracts with independent contractors or consultants (or similar arrangements) which are not cancellable
without material penalty or without more than ten (10) days’ notice and all non-competition, non-solicitation and confidentiality
agreements from current and former independent contractors, consultants and employees of Seller that are currently in effect;
(vii)
except for Contracts relating to trade receivables, all Contracts relating to Indebtedness (including guarantees);
(viii)
all Contracts with any Governmental Authority (“
Government Contracts
”);
(ix)
all Contracts that limit or purport to limit the ability of Seller to compete in any line of business or with any Person
or in any geographic area or during any period of time;
(x)
all joint venture, partnership or similar Contracts;
(xi)
all Contracts for the sale of any of the Purchased Assets or for the grant to any Person of any option, right of first refusal
or preferential or similar right to purchase any of the Purchased Assets;
(xii)
all powers of attorney with respect to the Business or any Purchased Asset;
(xiii)
all collective bargaining agreements or Contracts with any Union; and
(xiv)
all other Contracts that are material to the Purchased Assets or the operation of the Business and not previously disclosed
pursuant to this Section 4.10.
(b)
Each
Material Contract is valid and binding on Seller in accordance with its terms and is in full force and effect. To Seller’s
Knowledge, none of Seller or any other party thereto is in breach of or default under (or is alleged to be in breach of or default
under) in any material respect, or has provided or received any notice of any intention to terminate, any Material Contract. No
event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of default under any Material
Contract or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation
or the loss of any benefit thereunder. Complete and correct copies of each Material Contract (including all modifications, amendments
and supplements thereto and waivers thereunder) have been made available to Buyer. There are no material disputes pending or threatened
under any Contract included in the Purchased Assets.
Section 4.11
Title
to Purchased Assets.
Seller owns and has good and valid title to, or a valid leasehold interest in, all of the Purchased
Assets. All the Purchased Assets (including leasehold interests) are free and clear of Encumbrances except for the following (collectively
referred to as “
Permitted Encumbrances
”):
(a)
those
items set forth on Schedule 4.11 of the Disclosure Schedules;
(b)
liens
for Taxes not yet due and payable;
(c)
easements,
rights of way, zoning ordinances and other similar encumbrances affecting Real Property which are not, individually or in the aggregate,
material to the Business or the Purchased Assets, which do not prohibit or interfere with the current operation of any Real Property
and which do not render title to any Real Property unmarketable; or
(d)
other
than with respect to Owned Real Property, liens arising under original purchase price conditional sales contracts and equipment
leases with third parties entered into in the ordinary course of Business consistent with past practice which are not, individually
or in the aggregate, material to the Business or the Purchased Assets.
Section 4.12
Condition
of Assets.
The buildings, plants, structures, furniture, fixtures, machinery, equipment, tooling, vehicles and other
items of tangible personal property included in the Purchased Assets are structurally sound, and are in good operating condition
and repair. None of such buildings, plants, structures, furniture, fixtures, machinery, equipment, tooling, vehicles and other
items of tangible personal property included in the Purchased Assets are in need of maintenance or repairs except for ordinary,
routine maintenance and repairs that are not material in nature or cost. For purposes of this Section 4.12 only, Purchased Assets
shall exclude Seller’s machinery described on Schedule 4.12 of the Disclosure Schedules.
Section 4.13 Sufficiency
of Assets.
The Purchased Assets constitute, as of the Closing Date, all of the material properties, rights, interests and
other tangible and intangible assets necessary to enable the Buyer to conduct the Business in all material respects in the manner
in which the Business is currently being conducted by the Seller and are sufficient for the continued conduct of the Business
after the Closing in substantially the same manner as conducted prior to the Closing. None of the Excluded Assets are material
to the Business.
Section 4.14
Real
Property.
(a)
Schedule
4.14(a) of the Disclosure Schedules sets forth each parcel of real property owned by Seller and used in or necessary for the conduct
of the Business as currently conducted (together with all buildings, fixtures, structures and improvements situated thereon and
all easements, rights-of-way and other rights and privileges appurtenant thereto, collectively, the “
Owned Real Property
”),
including with respect to each property, the address location and use. Seller has delivered to Buyer copies of the deeds and other
instruments (as recorded) by which Seller acquired each parcel of Owned Real Property, and copies of all title Insurance Policies,
opinions, abstracts and surveys in the possession of Seller with respect to such parcel. With respect to each parcel of Owned Real
Property:
(i)
Seller has good and marketable fee simple title, free and clear of all Encumbrances, except Permitted Encumbrances;
(ii)
Seller has not leased or otherwise granted to any Person the right to use or occupy such Owned Real Property or any portion thereof;
and
(iii)
there are no unrecorded outstanding options, rights of first offer or rights of first refusal to purchase such Owned Real Property
or any portion thereof or interest therein.
(b)
Schedule
4.14(b) of the Disclosure Schedules sets forth each parcel of real property leased by Seller and used in or necessary for the conduct
of the Business as currently conducted (together with all right, title and interest of Seller in and to leasehold improvements
relating thereto, including, but not limited to, security deposits, reserves or prepaid rents paid in connection therewith, collectively,
the “
Leased Real Property
”), and a true and complete list of all leases, subleases, licenses, concessions and
other agreements (whether written or oral), including all amendments, extensions renewals, guaranties and other agreements with
respect thereto, pursuant to which Seller holds any Leased Real Property (collectively, the “
Leases
”). Seller
has delivered to Buyer a true and complete copy of each Lease. With respect to each Lease:
(i)
such Lease is valid, binding, enforceable and in full force and effect, and Seller enjoys peaceful and undisturbed possession of
the Leased Real Property;
(ii)
Seller is not in breach or default under such Lease, and to Seller’s Knowledge, no event has occurred or circumstance exists
which, with the delivery of notice, passage of time or both, would constitute such a breach or default, and Seller has paid all
rent due and payable under such Lease;
(iii)
Seller has not received nor given any notice of any default or event that with notice or lapse of time, or both, would constitute
a default by Seller under any of the Leases and, to the Knowledge of Seller, no other party is in default thereof, and no party
to any Lease has exercised any termination rights with respect thereto;
(iv)
Seller has not subleased, assigned or otherwise granted to any Person the right to use or occupy such Leased Real Property
or any portion thereof; and
(v)
Seller has not pledged, mortgaged or otherwise granted an Encumbrance on its leasehold interest in any Leased Real Property.
(c)
Seller
has not received any written notice of (i) material violations of building codes and/or zoning ordinances or other governmental
or regulatory Laws affecting the Real Property, (ii) existing, pending or threatened condemnation proceedings affecting the Real
Property, or (iii) existing, pending or threatened zoning, building code or other moratorium proceedings, or similar matters, which
could reasonably be expected to materially and adversely affect the ability to operate the Real Property as currently operated.
Neither the whole nor any material portion of any Real Property has been damaged or destroyed by fire or other casualty.
(d)
The
Real Property is sufficient for the continued conduct of the Business after the Closing in substantially the same manner as conducted
prior to the Closing and constitutes all of the real property necessary to conduct the Business as currently conducted.
Section 4.15
Intellectual
Property.
(a)
Schedule
4.15(a) of the Disclosure Schedules sets forth all (i) Intellectual Property Registrations and (ii) Intellectual Property Assets,
including software, that are not registered but that are material to the operation of the Business. All required filings and fees
related to the Intellectual Property Registrations have been timely filed with and paid to the relevant Governmental Authorities
and authorized registrars, and all Intellectual Property Registrations are otherwise in good standing. Seller has provided Buyer
with true and complete copies of all file histories, documents, Certificates, office actions, correspondence and other materials
related to all Intellectual Property Registrations.
(b)
Schedule
4.15(b) of the Disclosure Schedules sets forth all Intellectual Property Agreements. Seller has provided Buyer with true and complete
copies of all such Intellectual Property Agreements, including all modifications, amendments and supplements thereto and waivers
thereunder. Each Intellectual Property Agreement is valid and binding on Seller in accordance with its terms and is in full force
and effect. None of Seller or, to Seller’s Knowledge, any other party thereto is in breach of or default under (or is alleged
to be in breach of or default under) in any material respect, or has provided or received any notice of breach or default of or
any intention to terminate, any Intellectual Property Agreement. To Seller’s Knowledge, no event or circumstance has occurred
that, with notice or lapse of time, or both, would constitute an event of default under any Intellectual Property Agreement or
result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss
of any benefit thereunder.
(c)
Seller
is the sole and exclusive legal and beneficial, and with respect to the Intellectual Property Registrations, record, owner of
all right, title and interest in and to the Intellectual Property Assets, and has the valid right to use all other Intellectual
Property used in or necessary for the conduct of the Business as currently conducted, in each case free and clear of Encumbrances
other than Permitted Encumbrances. Without limiting the generality of the foregoing, Seller has entered into binding, written
agreements with every current and former employee of Seller, and with every current and former independent contractor, whereby
such employees and independent contractors (i) assign to Seller any ownership interest and right they may have in the Intellectual
Property Assets; and (ii) acknowledge Seller’s exclusive ownership of all Intellectual Property Assets. Seller has provided
Buyer with true and complete copies of all such agreements.
(d)
The
Intellectual Property Assets and Intellectual Property licensed under the Intellectual Property Agreements are all of the Intellectual
Property necessary to operate the Business as presently conducted. The consummation of the transactions contemplated by this Agreement
will not result in the loss or impairment of or payment of any additional amounts with respect to, nor require the consent of any
other Person in respect of, Buyer’s right to own, use or hold for use any Intellectual Property as owned, used or held for
use in the conduct of the Business as currently conducted.
(e)
Seller’s
rights in the Intellectual Property Assets are valid, subsisting and enforceable. Seller has taken all reasonable steps to maintain
the Intellectual Property Assets and to protect and preserve the confidentiality of all trade secrets included in the Intellectual
Property Assets, including requiring all Persons having access thereto to execute written non-disclosure agreements.
(f)
The
conduct of the Business as currently and formerly conducted, and the Intellectual Property Assets and Intellectual Property licensed
under the Intellectual Property Agreements as currently or formerly owned, licensed or used by Seller, have not infringed, misappropriated,
diluted or otherwise violated, and have not, do not and will not infringe, dilute, misappropriate or otherwise violate, the Intellectual
Property or other rights of any Person. No Person has infringed, misappropriated, diluted or otherwise violated, or is currently
infringing, misappropriating, diluting or otherwise violating, any Intellectual Property Assets.
(g)
There
are no Actions (including any oppositions, interferences or re-examinations) settled, pending or threatened (including in the form
of offers to obtain a license): (i) alleging any infringement, misappropriation, dilution or violation of the Intellectual Property
of any Person by Seller in connection with the Business; (ii) challenging the validity, enforceability, registerability or ownership
of any Intellectual Property Assets or Seller’s rights with respect to any Intellectual Property Assets; or (iii) by Seller
or any other Person alleging any infringement, misappropriation, dilution or violation by any Person of any Intellectual Property
Assets. Seller is not subject to any outstanding or prospective Governmental Order (including any motion or petition therefor)
that does or would restrict or impair the use of any Intellectual Property Assets.
Section 4.16
Inventory.
All Inventory, whether or not reflected on the Interim Balance Sheet, consists of a quality and quantity usable and
salable in the ordinary course of Business consistent with past practice, except for obsolete, damaged, defective or slow-moving
items that have been written off or written down to the lower of fair market value or cost or for which adequate reserves have
been established. All Inventory is owned by Seller free and clear of all Encumbrances, and no Inventory is held on a consignment
basis. The quantities of each item of Inventory (whether raw materials, work-in-process or finished goods) are not excessive,
but are reasonable in the present circumstances of Seller.
Section 4.17 OMITTED.
Section 4.18 Backlog.
Schedule 4.18 of the Disclosure Schedules sets forth a true and complete description of Seller’s backlog as of the date hereof.
Section 4.19 Customers
and Suppliers.
(a)
Schedule
4.19(a) of the Disclosure Schedules sets forth (i) a true, complete and correct customer list showing the twenty (20) largest customers
by gross purchases from Seller for each of the two (2) most recent fiscal years (collectively, the “
Material Customers
”),
and (ii) a true, complete and correct supplier list showing (A) the twenty (20) largest suppliers by gross sales to Seller for
each of the two (2) most recent fiscal years and (B) all suppliers of Seller who are the sole source of such supply (collectively,
the “
Material Suppliers
”).
(b)
Except
as set forth on Schedule 4.19(b) of the Disclosure Schedules, during the twelve (12)-month period ending on the date of this Agreement,
no Material Customer or Material Supplier has (whether as a result of the transactions contemplated by this Agreement or otherwise)
(i) stopped, or indicated an intention to stop, trading with or supplying Seller, (ii) materially reduced, or indicated an intention
to materially reduce, its trading with or provision of goods or services to Seller, or (iii) changed, or indicated an intention
to change, materially, the terms and conditions on which it is prepared to trade with or supply Seller. During the twelve (12)-month
period ending on the date of this Agreement, no Material Customer has notified Seller of its intention to return products sold
by Seller with an aggregate value in excess of Ten Thousand Dollars ($10,000). To the Knowledge of Seller, no facts, conditions
or events (except customary contractual restrictions prohibiting assignment) exist which are reasonably likely to give rise to
a claim by Seller against any of its customers or suppliers or any claim by a customer or supplier against Seller. During the twelve
(12)-month period ending on the date of this Agreement, Seller has not entered into any Contract with customers or suppliers, except
in the ordinary course of business.
Section 4.20
Insurance.
Schedule 4.20 of the Disclosure Schedules sets forth (a) a true and complete list of all current policies or binders
of fire, liability, product liability, umbrella liability, real and personal property, workers’ compensation, vehicular,
fiduciary liability and other casualty and property insurance maintained by Seller or its Affiliates and relating to the Business,
the Purchased Assets or the Assumed Liabilities (collectively, the “
Insurance Policies
”); and (b) with respect
to the Business, the Purchased Assets or the Assumed Liabilities, a list of all pending claims and the claims history for Seller
since March 31, 2016. There are no claims related to the Business, the Purchased Assets or the Assumed Liabilities pending under
any such Insurance Policies as to which coverage has been questioned, denied or disputed or in respect of which there is an outstanding
reservation of rights. Neither Seller nor any of its Affiliates has received any written notice of cancellation of, premium increase
with respect to, or alteration of coverage under, any of such Insurance Policies. All premiums due on such Insurance Policies
have either been paid or, if not yet due, accrued. All such Insurance Policies (a) are in full force and effect and enforceable
in accordance with their terms; (b) are provided by carriers who are financially solvent; and (c) have not been subject to any
lapse in coverage. None of Seller or any of its Affiliates is in default under, or has otherwise failed to comply with, in any
material respect, any provision contained in any such Insurance Policy. The Insurance Policies are of the type and in the amounts
customarily carried by Persons conducting a business similar to the Business and are sufficient for compliance with all applicable
Laws and Contracts to which Seller is a party or by which it is bound. True and complete copies of the Insurance Policies have
been made available to Buyer.
Section 4.21 Legal
Proceedings; Governmental Orders.
Except as disclosed in Section 4.21 of the Disclosure Schedules,
(a)
There
are no Actions pending or, to Seller’s Knowledge, threatened against or by Seller (i) relating to or affecting the Business,
the Purchased Assets or the Assumed Liabilities; or (ii) that challenge or seek to prevent, enjoin or otherwise delay the transactions
contemplated by this Agreement. No event has occurred or circumstances exist that may give rise to, or serve as a basis for, any
such Action.
(b)
There
are no outstanding Governmental Orders and no unsatisfied judgments, penalties or awards against, relating to or affecting the
Business.
Section 4.22 Compliance
With Laws; Permits; Certifications; SEC Reports.
(a)
Seller
has complied, and is now complying, with all Laws applicable to the conduct of the Business as currently conducted or the ownership
and use of the Purchased Assets.
(b)
All
Permits required for Seller to conduct the Business as currently conducted or for the ownership and use of the Purchased Assets
have been obtained by Seller and are valid and in full force and effect. All fees and charges with respect to such Permits as of
the date hereof have been paid in full. Schedule 4.22(b) of the Disclosure Schedules sets forth all current Permits issued to Seller
which are related to the conduct of the Business as currently conducted or the ownership and use of the Purchased Assets, including
the names of the Permits and their respective dates of issuance and expiration. To Seller’s Knowledge, no event has occurred
that, with or without notice or lapse of time or both, would reasonably be expected to result in the revocation, suspension, lapse
or limitation of any Permit set forth on Schedule 4.22(b) of the Disclosure Schedules.
(c)
Schedule
4.22(c) of the Disclosure Schedules sets forth a true and complete list of all Certifications held by Seller. All such Certifications
are in full force and effect and, to Seller’s Knowledge, no suspension or cancellation of any such Certifications is threatened.
(d)
Seller’s
issued and outstanding shares of common stock are registered pursuant to Section 12(g) of the Exchange Act, and Seller, except
as set forth on Schedule 4.22(d) of the Disclosure Schedules, has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC under the Exchange Act for the three (3) years preceding the date of this Agreement (or
such shorter period as Seller was required by law or regulation to file such material) (all of the foregoing filed within the period
of three (3) years preceding the date hereof or amended after the date hereof and all exhibits included therein and financial statements
and schedules thereto and documents incorporated by reference therein, being hereinafter referred to as the “
SEC Documents
”)
on timely basis or has received a valid extension of such time of filing and has filed any such SEC Document prior to the expiration
of any such extension. Seller has delivered to Buyer or its representatives, or made available through the SEC’s
website at
http://www.sec.gov
, true and complete copies of the SEC Documents. As
of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the
time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of Seller included in the SEC Documents
complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed
or summary statements) and fairly present in all material respects the financial position of Seller as of the dates thereof and
the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). No other information provided by or on behalf of Seller to Buyer which is not included
in the SEC Documents contains any untrue statement of a material fact or omits to state any material fact necessary in order to
make the statements therein, in the light of the circumstance under which they are or were made and not misleading.
(e)
Seller
is in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 to small business issuers that are
effective as of the date hereof, and any and all applicable rules and regulations promulgated by the SEC thereunder that are effective
as of the date hereof.
(f)
Neither
Seller nor any of its Affiliates is an "investment company" within the meaning of the Investment Company Act of 1940,
as amended.
Section 4.23 Environmental
Matters.
(a)
The
operations of Seller with respect to the Business and the Purchased Assets are currently and have been in compliance with all
Environmental Laws. Seller has not received from any Person, with respect to the Business or the Purchased Assets, and to the
Knowledge of Seller there is no threatened: (i) Environmental Notice or Environmental Claim; or (ii) written request for information
pursuant to Environmental Law, which, in each case, either remains pending or unresolved, or is the source of ongoing obligations
or requirements as of the Closing Date.
(b)
Seller
has obtained and is in material compliance with all Environmental Permits (each of which is set forth on Schedule 4.23(b) of the
Disclosure Schedules) and all such Environmental Permits are in full force and effect and shall be maintained in full force and
effect by Seller through the Closing Date in accordance with Environmental Law, no outstanding written notice of revocation, cancellation
or termination of any Environmental Permit has been received by Seller, and there are no Actions pending or, to the Knowledge of
Seller, threatened that seek the revocation, cancellation or termination of any Environmental Permit. Seller is not aware of any
condition, event or circumstance that might prevent or impede, after the Closing Date, the conduct of the Business as currently
conducted or the ownership, lease, operation or use of the Purchased Assets. With respect to each such Environmental Permit, Seller
has undertaken, or will undertake prior to the Closing Date, all measures necessary to facilitate transferability of the same,
and Seller is not aware of any condition, event or circumstance that might prevent or impede the transferability of the same, and
has not received any Environmental Notice or written communication regarding any material adverse change in the status or terms
and conditions of the same.
(c)
None
of the Business or the Purchased Assets or any real property currently or formerly owned, leased or operated by Seller in connection
with the Business is listed on, or has been proposed for listing on, the National Priorities List (or CERCLIS) under CERCLA, or
any similar state list.
(d)
There
has been no Release of Hazardous Materials under any Environmental Law with respect to the Business or the Purchased Assets or
any real property currently or formerly owned, leased or operated by Seller in connection with the threatened Business, and Seller
has not received an Environmental Notice that any of the Business or the Purchased Assets or any real property currently or formerly
owned, leased or operated by Seller in connection with the Business (including soils, groundwater, surface water, buildings and
other structure located thereon) has been contaminated with any Hazardous Material.
(e)
Schedule
4.23(e) of the Disclosure Schedules sets forth a complete and accurate list of all active or abandoned aboveground or underground
storage tanks owned or operated by Seller in connection with the Business or the Purchased Assets.
(f)
Schedule
4.23(f) of the Disclosure Schedules sets forth a complete and accurate list of all off-site Hazardous Materials treatment, storage,
or disposal facilities or locations used by Seller and any predecessors in connection with the Business or the Purchased Assets
as to which Seller may retain Liability, and none of these facilities or locations has been placed or proposed for placement on
the National Priorities List (or CERCLIS) under CERCLA, or any similar state list, and Seller has not received any Environmental
Notice regarding potential liabilities with respect to such off-site Hazardous Materials treatment, storage, or disposal facilities
or locations used by Seller.
(g)
Seller
has not retained or assumed, by contract or operation of Law any Liabilities of any Person under Environmental Law.
(h)
Seller
has provided or otherwise made available to Buyer and set forth on Schedule 4.23(h) of the Disclosure Schedules: (i) any and all
environmental reports, studies, audits, records, sampling data, site assessments, risk assessments, economic models and other similar
documents with respect to the Business or the Purchased Assets or any real property currently or formerly owned, leased or operated
by Seller in connection with the Business which are in the possession or control of Seller related to compliance with Environmental
Laws, Environmental Claims or an Environmental Notice or the Release of Hazardous Materials; and (ii) any and all material documents
concerning planned or anticipated capital expenditures required to reduce, offset, limit or otherwise control pollution and/or
emissions, manage waste or otherwise ensure compliance with current or future Environmental Laws (including costs of remediation,
pollution control equipment and operational changes).
(i)
To
Seller’s Knowledge, there is no condition, event or circumstance arising from or relating to compliance with Environmental
Laws that might, after the Closing Date, prevent, impede or materially increase the costs associated with the ownership, lease,
operation, performance or use of the Business or the Purchased Assets as currently carried out.
(j)
Seller
owns and controls all Environmental Attributes (a complete and accurate list of which is set forth on Schedule 4.23(j) of the Disclosure
Schedules) and has not entered into any Contract or pledge to transfer, lease, license, guarantee, sell, mortgage, pledge or otherwise
dispose of or encumber any Environmental Attributes as of the date hereof. There is no condition, event or circumstance that might
prevent, impede or materially increase the costs associated with the transfer (if required) to Buyer of any Environmental Attributes
after the Closing Date.
Section 4.24 OMITTED.
Section 4.25 Employment
Matters.
(a)
Schedule
4.25(a) of the Disclosure Schedules contains a list of all persons who are employees, independent contractors or consultants of
the Business as of the date hereof, including any employee who is on a leave of absence of any nature, paid or unpaid, authorized
or unauthorized, and sets forth for each such individual the following: (i) name; (ii) status, title and/or position
(including whether an employee or contractor, whether full-or part-time and whether exempt or non-exempt); (iii) hire date;
(iv) current annual base compensation rate; (v) commission, bonus and any other incentive-based compensation; and (vi) a
description of the fringe benefits provided to each such individual as of the date hereof. As of the date hereof, all compensation,
including wages, commissions and bonuses payable to all employees, independent contractors and consultants of the Business for
services performed on or prior to the date hereof have been paid in full and there are no outstanding agreements, understandings
or commitments of Seller with respect to any compensation, commissions or bonuses.
(b)
Seller
is not, and has never been, a party to, bound by or negotiated any collective bargaining agreement or other Contract with a union,
works council or labor organization (collectively, “
Union
”), and there is not, and has never been, any Union
representing or purporting to represent any employee of Seller, and no Union or group of employees is seeking or has sought to
organize employees for the purpose of collective bargaining. There has never been, nor has there been any threat of, any strike,
slowdown, work stoppage, lockout, concerted refusal to work overtime or other similar labor disruption or dispute affecting Seller
or any employees of the Business. Seller has no duty to bargain with any Union.
(c)
Seller
is and has been in compliance in all material respects with all applicable Laws pertaining to employment and employment practices
to the extent they relate to employees of the Business, including all Laws relating to labor relations, equal employment opportunities,
fair employment practices, employment discrimination, harassment, retaliation, reasonable accommodation, disability rights or benefits,
immigration, wages, hours, employee classification or overtime compensation, child labor, hiring, promotion and termination of
employees, working conditions, meal and break periods, privacy, health and safety, workers’ compensation, leaves of absence
(including paid sick leave) and unemployment insurance. All individuals characterized and treated by Seller as consultants or independent
contractors of the Business are properly treated as independent contractors under all applicable Laws. All employees of the Business
classified as exempt under the Fair Labor Standards Act and state and local wage and hour Laws are properly classified in all material
respects. There are no Actions against Seller pending, or to Seller’s Knowledge, threatened to be brought or filed, by or
with any Governmental Authority or arbitrator in connection with the employment of any current or former applicant, employee, consultant,
volunteer, intern or independent contractor of the Business, including any claim relating to unfair labor practices, employment
discrimination, harassment, retaliation, equal pay, wages and hours or any other employment related matter arising under applicable
Laws.
(d)
Seller
has complied in all material respects with the WARN Act, and it has no plans to undertake any action in the future that would trigger
the WARN Act.
(e)
With
respect to each Government Contract, Seller is and has been in compliance with Executive Order No. 11246 of 1965 (“
E.O.
11246
”), Section 503 of the Rehabilitation Act of 1973 (“
Section 503
”) and the Vietnam Era Veterans’
Readjustment Assistance Act of 1974 (“
VEVRAA
”), including all implementing regulations. Seller maintains and
complies with affirmative action plans in compliance with E.O. 11246, Section 503 and VEVRAA, including all implementing regulations.
Seller is not, and has not been for the past five (5) years, the subject of any audit, investigation or enforcement action by any
Governmental Authority in connection with any Government Contract or related compliance with E.O. 11246, Section 503 and VEVRAA.
Seller has not been debarred, suspended or otherwise made ineligible from doing business with the United States government or any
government contractor.
Section 4.26 Taxes.
(a)
All
Tax Returns required to be filed by Seller for any Pre-Closing Tax Period have been, or will be, timely filed. Such Tax Returns
are, or will be, true, complete and correct in all respects. All Taxes due and owing by Seller (whether or not shown on any Tax
Return) have been, or will be, timely paid.
(b)
Seller
has withheld and paid each Tax required to have been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, customer, stockholder or other party, and complied with all information reporting and backup
withholding provisions of applicable Law.
(c)
No
extensions or waivers of statutes of limitations have been given or requested with respect to any Taxes of Seller.
(d)
All
deficiencies asserted, or assessments made, against Seller as a result of any examinations by any taxing authority have been fully
paid.
(e)
Seller
is not a party to any Action by any taxing authority. There are no pending or threatened Actions by any taxing authority.
(f)
There
are no Encumbrances for Taxes upon any of the Purchased Assets nor is any taxing authority in the process of imposing any Encumbrances
for Taxes on any of the Purchased Assets (other than for current Taxes not yet due and payable).
(g)
Seller
is not a “foreign person” as that term is used in Treasury Regulations Section 1.1445-2.
(h)
Seller
is not, and has not been, a party to, or a promoter of, a “reportable transaction” within the meaning of Section 6707A(c)(1)
of the Code and Treasury Regulations Section 1.6011 4(b).
(i)
None
of the Purchased Assets is (i) required to be treated as being owned by another person pursuant to the so-called “safe harbor
lease” provisions of former Section 168(f)(8) of the Code; (ii) subject to Section 168(g)(1)(A) of the Code; or (iii) subject
to a disqualified leaseback or long-term agreement as defined in Section 467 of the Code.
(j)
None
of the Purchased Assets is tax-exempt use property within the meaning of Section 168(h) of the Code.
Section 4.27 Brokers.
No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection
with the transactions contemplated by this Agreement or any other Transaction Document based upon arrangements made by or on behalf
of Seller.
Section 4.28 Products
Liability.
There is no Action before any Governmental Authority involving Seller based upon breach of product warranty, strict
liability in tort, negligent design, negligent manufacture of product, defects in design, manufacture, materials or workmanship,
negligent provision of services, or any other allegation of liability, including or resulting in product recalls, arising from
the materials, design, testing, manufacture, packaging, labeling (including instruction for use), documentation or sale of products
(collectively, “
Product Claims
”; and, to the Knowledge of Seller, there is no basis for any such Product Claim.
To the Knowledge of Seller, there are no material errors in any published technical documentation, specifications, manuals or user
guides provided in the ordinary course of business to customers of the Business. To Seller’s Knowledge, there have been no
material defects in design, manufacturing, materials or workmanship, including any failure to warn, or any breach of express or
implied warranties or representations, which involve any product manufactured (or to be manufactured), shipped, sold, installed
or delivered by or on behalf of Seller. There have been no product recalls by Seller with respect to any products manufactured
(or to be manufactured), shipped, sold, installed or delivered by or on behalf of Seller, or to the Knowledge of Seller any investigation
or consideration of or decision made by any Person or Governmental Authority concerning whether to undertake or not to undertake
any recall. All manufacturing standards applied, testing procedures used, and product specifications disclosed to customers by
Seller have complied in all material respects with all requirements established by any applicable Law or any Governmental Authority.
Section 4.29 Solvency.
Seller is executing this Agreement in good faith, for fair value and without intent to hinder, delay or to defraud its present
and future creditors.
Section 4.30
Prior
Names and Addresses.
Except as set forth on Schedule 4.30 of the Disclosure Schedules, Seller has used no Business name
and has had no Business address other than its current name and the Business address set forth herein.
Section 4.31
Transactions
with Directors, Officers and Affiliates
.
Except as set forth on Schedule 4.31 of the Disclosure Schedules, since March
31, 2016, there have been no agreements or arrangements between or among Seller and HGI or any of their Affiliates or any of their
respective directors, officers or employees under which Seller (a) leases any real property (either to or from such Person), (b)
licenses technology (either to or from such Person), (c) is obligated to purchase any tangible or intangible asset from or sell
such asset to such Person, (d) purchases products or services from such Person, (c) pays, or receives commissions, rebates or other
payments or (f) provides or receives any other material benefit. To the Knowledge of Seller and HGI or any of their Affiliates
or any of their respective directors, officers or employees or any spouse or relative of any of such Persons has been a director
or officer of, or has had any direct or indirect interest in, any Person with which Seller has had a Business relationship, including
as a supplier, customer or sales representative of Seller or which has competed with or been engaged in any business of the kind
being conducted by the Business or in connection with the Purchased Assets.
Section 4.32
Indebtedness
Owed to Affiliates; Payments to Affiliates
.
Schedule 4.32 of the Disclosure Schedules sets forth all (a) Indebtedness
or Liability of any nature of Seller that is owed to the HGI or any of its Affiliates or any of their respective directors, officers
or employees or to any stockholder, partner or member of any of the foregoing (or any spouse or relative of any such Person) and
(b) payments of any nature made by Seller to any of the foregoing Persons (excluding payments made in the ordinary course of Business
to any employee or officer of Seller who is not related to HGI) since March 31, 2016.
Section 4.33
Interest
in Assets.
No Person other than Seller owns any real or personal property or rights, tangible or intangible, used in
or related, directly or indirectly, to the Business.
Section 4.34 Rebates
or Reimbursements.
Except as set forth on Schedule 4.34 of the Disclosure Schedules Seller is not, has never been, is not
required, and has never been required to provide or receive any rebate or other reimbursement to any customer, supplier or any
Person with whom Seller has or has had a Business relationship.
Section 4.35 Anticorruption;
Antiboycott Laws.
(a)
Seller,
including its employees, directors, agents or other Persons acting on their behalf, have not, directly or indirectly, taken any
action that would cause Seller to be in violation of the Foreign Corrupt Practices Act of 1977, as amended (the “
FCPA
”),
or any other anticorruption or anti-bribery Laws applicable to Seller (collectively with the FCPA, the “
Anticorruption
Laws
”). Seller, including its employees, directors, agents or other Persons acting on their behalf, have not, directly
or indirectly, corruptly given, loaned, paid, promised, offered or authorized payment of money or anything of value to any “foreign
official” as defined in the FCPA or, in violation of Law, to any other government official, to secure any improper advantage
or to obtain or retain business for any Person or to achieve any other purpose prohibited by the Anticorruption Laws. Seller has
established and implemented reasonable internal controls and procedures intended to ensure compliance with the Anticorruption Laws.
(b)
Seller,
including its employees, directors, agents or other Persons acting on their behalf, have not, directly or indirectly, taken any
action that would cause Seller to be in violation of Law applicable to then-current export control or trade embargoes.
(c)
Seller
has not violated the antiboycott prohibitions contained in 50 U.S.C. 4607 and 15 C.F.R. 760 or taken any action that can be penalized
under Section 999 of the Code.
Section 4.36 F
ull
Disclosure.
No representation or warranty by Seller in this Agreement and no statement contained in the Disclosure
Schedules to this Agreement or any certificate or other document furnished or to be furnished to Buyer pursuant to this Agreement
contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements contained
therein, in light of the circumstances in which they are made, not misleading.
Section 4.37 Investment
Representations
.
(a)
The
Shares to be issued by Buyer to Seller hereunder will be acquired for investment for Seller’s own account, not as nominee
or agent, and not with a view to or for sale or resale in connection with any distribution of any part thereof, and Seller has
no present intention of selling or granting any participation in, or otherwise distributing the same. Seller does not have any
contract, undertaking, agreement or arrangement with any Person to sell, transfer or grant participations to any Person, with respect
to any of the Shares.
(b)
Seller
acknowledges that it has, by reason of its business or financial experience, the capacity to protect its own interests in connection
with the transaction and that it is able to bear the economic risk of its investment in the Share.
(c)
Seller
has adequate means of providing for current needs and contingencies, has no need for liquidity in the investment, and is able
to bear the economic risk of an investment in the Shares. Seller represents that Seller is able to bear the economic risk of the
investment and at the present time could afford a complete loss of such investment. Seller has had a full opportunity to inspect
the books and records of Buyer and to make any and all inquiries of Buyer’s officers and directors regarding Buyer and its
business, as Seller has deemed appropriate.
(d)
Seller
will not sell or otherwise transfer the Shares without registration under the Act or an exemption therefrom and fully understands
and agrees that Seller must bear the economic risk of Seller’s purchase for an indefinite period of time because, among other
reasons, the Shares have not been registered under the Act or under the securities laws of any state and, therefore, cannot be
resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Act and under the applicable
securities laws of such states or unless an exemption from such registration is available.
ARTICLE V
Representations
and warranties of buyer
Buyer represents and warrants to Seller that
the statements contained in this Article V are true and correct as of the date hereof.
Section 5.01
Organization
of Buyer.
Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the State of
Nevada.
Section 5.02 Authority
of Buyer.
Buyer has full corporate power and authority to enter into this Agreement and the other Transaction Documents to
which Buyer is a party, to carry out its obligations hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery by Buyer of this Agreement and any other Transaction Document to which Buyer is a party,
the performance by Buyer of its obligations hereunder and thereunder and the consummation by Buyer of the transactions contemplated
hereby and thereby have been duly authorized by all requisite corporate action on the part of Buyer. This Agreement has been duly
executed and delivered by Buyer, and (assuming due authorization, execution and delivery by Seller) this Agreement constitutes
a legal, valid and binding obligation of Buyer enforceable against Buyer in accordance with its terms. When each other Transaction
Document to which Buyer is or will be a party has been duly executed and delivered by Buyer (assuming due authorization, execution
and delivery by each other party thereto), such Transaction Document will constitute a legal and binding obligation of Buyer enforceable
against it in accordance with its terms.
Section 5.03 No
Conflicts; Consents.
The execution, delivery and performance by Buyer of this Agreement and the other Transaction Documents
to which it is a party, and the consummation by Buyer of the transactions contemplated hereby and thereby, do not and will not:
(a) conflict with or result in a violation or breach of, or default under, any provision of the certificate of incorporation,
bylaws or other organizational documents of Buyer; (b) conflict with or result in a violation or breach of any provision of any
Law or Governmental Order applicable to Buyer; or (c) except as set forth on Schedule 5.03 of the Disclosure Schedules, require
the consent, notice or other action by or to any Person under any Contract to which Buyer is a party. No consent, approval, Permit,
Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to Buyer
in connection with the execution and delivery of this Agreement and the other Transaction Documents and the consummation of the
transactions contemplated hereby and thereby, except for such consents, approvals, Permits, Governmental Orders, declarations,
filings or notices the failure of which to obtain would not, in the aggregate, have a Material Adverse Effect.
Section 5.04 Brokers.
No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with
the transactions contemplated by this Agreement or any other Transaction Document based upon arrangements made by or on behalf
of Buyer.
Section 5.05 Legal
Proceedings.
There are no Actions pending or, to Buyer’s knowledge, threatened against or by Buyer or any Affiliate of
Buyer that challenge or seek to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement.
ARTICLE VI
Covenants
Section 6.01
Conduct
of Business Prior to the Closing.
From the date hereof until the Closing, Seller shall (x) conduct the Business in the
ordinary course of Business consistent with past practice; and (y) use reasonable best efforts to maintain and preserve intact
its current Business organization, operations and franchise and to preserve the rights, franchises, goodwill and relationships
of its employees, customers, lenders, suppliers, regulators and others having relationships with the Business. Without limiting
the foregoing, from the date hereof until the Closing Date, Seller shall:
(a)
preserve
and maintain all Permits required for the conduct of the Business as currently conducted or the ownership and use of the Purchased
Assets;
(b)
pay
the debts, Taxes and other obligations of the Business as and when due;
(c)
continue
to collect Accounts Receivable in a manner consistent with past practice, without discounting such Accounts Receivable;
(d)
maintain
the properties and assets included in the Purchased Assets in the same condition as they were on the date of this Agreement, subject
to reasonable wear and tear;
(e)
continue
in full force and effect without modification all Insurance Policies, except as required by applicable Law;
(f)
defend
and protect the properties and assets included in the Purchased Assets from infringement or usurpation;
(g)
perform
all of its obligations under all Assigned Contracts;
(h)
maintain
the Books and Records in accordance with past practice;
(i)
comply
in all material respects with all Laws applicable to the conduct of the Business or the ownership and use of the Purchased Assets;
(j)
retain
the services of Seller’s key employees; and
(k)
not
take or permit any action that would cause any of the changes, events or conditions described in Section 4.09 to occur.
Section 6.02
Access
to Information.
From the date hereof until the Closing, Seller shall (a) afford Buyer and its Representatives full and
free access, during normal business hours, to and the right to inspect all of the Real Property, properties, assets, premises,
Books and Records, Contracts and other documents and data related to the Business; (b) furnish Buyer and its Representatives with
such financial, operating and other data and information related to the Business as Buyer or any of its Representatives may reasonably
request; and (c) instruct the Representatives of Seller to cooperate with Buyer in its investigation of the Business. Without limiting
the foregoing, Seller shall permit Buyer and its Representatives to conduct environmental due diligence of the Real Property, including
the collecting and analysis of samples of indoor or outdoor air, surface water, groundwater or surface or subsurface land on, at,
in, under or from the Real Property. Any investigation pursuant to this Section 6.02 shall be conducted in such manner as not to
interfere unreasonably with the conduct of the Business or any other businesses of Seller. No investigation by or on behalf of
Buyer or other information received by or on behalf of Buyer shall operate as a waiver or otherwise affect any representation,
warranty or agreement given or made by Seller in this Agreement.
Section 6.03
No
Solicitation of Other Bids.
(a)
Seller
shall not, and shall not cause, authorize or permit any of its Affiliates or any of its or their Representatives to, directly or
indirectly, (i) encourage, solicit, initiate, facilitate or continue inquiries regarding an Acquisition Proposal; (ii) enter into
discussions or negotiations with, or provide any information to, any Person concerning a possible Acquisition Proposal; or (iii)
enter into any agreements or other instruments (whether or not binding) regarding an Acquisition Proposal. Seller shall immediately
cease and cause to be terminated, and shall cause its Affiliates and all of its and their Representatives to immediately cease
and cause to be terminated, all existing discussions or negotiations with any Persons conducted heretofore with respect to, or
that could lead to, an Acquisition Proposal. For purposes hereof, “
Acquisition Proposal
” means any inquiry,
proposal or offer from any Person (other than Buyer or any of its Affiliates) relating to the direct or indirect disposition, whether
by sale, merger or otherwise, of all or any portion of Seller, the Business or the Purchased Assets.
(b)
In
addition to the other obligations under this Section 6.03, Seller shall immediately advise Buyer orally and in writing of any
Acquisition Proposal, any request for information with respect to any Acquisition Proposal, or any inquiry with respect to or
which could reasonably be expected to result in an Acquisition Proposal, the material terms and conditions of such request, Acquisition
Proposal or inquiry, and the identity of the Person making the same.
(c)
Seller
agrees that the rights and remedies for noncompliance with this Section 6.03 shall include having such provision specifically enforced
by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach shall cause
irreparable injury to Buyer and that money damages would not provide an adequate remedy to Buyer.
Section 6.04
Notice
of Certain Events.
(a)
From
the date hereof until the Closing, Seller shall promptly notify Buyer in writing of:
(i)
any fact, circumstance, event or action the existence, occurrence or taking of which (A) has had, or could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect, (B) has resulted in, or could reasonably be expected to result
in, any representation or warranty made by Seller hereunder not being true and correct or (C) has resulted in, or could reasonably
be expected to result in, the failure of any of the conditions set forth in Section 7.02 to be satisfied;
(ii)
any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(iii)
any notice or other communication from any Governmental Authority in connection with the transactions contemplated by this Agreement;
and
(iv)
any Actions commenced or, to Seller’s Knowledge, threatened against, relating to or involving or otherwise affecting the
Business, the Purchased Assets or the Assumed Liabilities.
(b)
Buyer’s
receipt of information pursuant to this Section 6.04 shall not operate as a waiver or otherwise affect any representation, warranty
or agreement given or made by Seller in this Agreement (including Section 8.02 and Section 9.01(b)) and shall not be deemed to
amend or supplement the Disclosure Schedules.
Section 6.05
Employees
and Employee Benefits.
(a)
Commencing
on the Closing Date, Seller shall terminate all employees of the Business as of the Closing Date. It has been the expressed intent
of Buyer to offer at-will employment to some of the active employees of Seller, with such employment to commence the day following
the Closing Date. Seller acknowledges that Buyer’s offering to hire Seller’s employees pursuant to this Section 6.05(a)
forms a basis of the bargain hereunder. Notwithstanding the foregoing, Buyer shall not be required to offer employment to Seller’s
pre-Closing employees (i) if such pre-Closing employee fails to satisfy the conditions of any offer of employment by Buyer, or
(ii) should Buyer determine, in its sole discretion, that there is a reasonable business concern and/or character concern to support
declining to extend an offer of employment to such pre-Closing employee. Seller acknowledges that any pre-Closing employees of
Seller will be hired by Buyer on an “at will” basis. Seller shall bear any and all obligations and Liability under
the WARN Act (“
WARN Act Liability
”) resulting from employment losses of pre-Closing Seller employees pursuant
to this Section 6.05 or otherwise, whether prior to, on or after the Closing Date; provided that Seller shall not be responsible
for WARN Act Liability resulting from any employment losses of individuals actually employed and terminated by Buyer post-Closing.
(b)
Seller
shall be solely responsible, and Buyer shall have no obligations whatsoever for, any compensation or other amounts payable to any
current or former employee, officer, director, independent contractor or consultant of the Business, including hourly pay, commission,
bonus, salary, paid sick leave, accrued vacation or other paid time off, fringe, pension or profit sharing benefits or severance
pay for any period relating to the service with Seller at any time on or prior to the Closing Date and Seller shall pay all such
amounts to all entitled Persons on or prior to the Closing Date.
(c)
Seller
shall remain solely responsible for the satisfaction of all claims for medical, dental, life insurance, health, accident or disability
benefits brought by or in respect of current or former employees, officers, directors, independent contractors or consultants of
the Business or the spouses, dependents or beneficiaries thereof, which claims relate to events occurring on or prior to the Closing
Date. Seller also shall remain solely responsible for all worker’s compensation claims of any current or former employees,
officers, directors, independent contractors or consultants of the Business which relate to events occurring on or prior to the
Closing Date, including any claim for exacerbation of injuries that accrued prior to the Closing due to conduct or events occurring
post-Closing. Seller shall pay, or cause to be paid, all such amounts to the appropriate persons as and when due.
(d)
Seller
has no employee benefit plans and therefore no portion of the assets of any plan, fund, program or arrangement, written or unwritten,
heretofore sponsored or maintained by Seller, including benefit plans (and no amount attributable to any such plan, fund, program
or arrangement), shall be transferred to Buyer, and Buyer shall not be required to continue any such plan, fund, program or arrangement
after the Closing Date. The amounts payable on account of all benefit arrangements shall be determined with reference to the date
of the event by reason of which such amounts became payable, without regard to conditions subsequent, and Buyer shall not be liable
for any Action for insurance, reimbursement or other benefits payable by reason of any event which occurs on or prior to the Closing
Date.
(e)
Each
employee of the Business who becomes employed by Buyer in connection with the transactions contemplated by this Agreement shall
be eligible to receive the salary and benefits maintained for employees of Buyer. Following the Closing, Seller shall not enforce
against any employee so hired by Buyer any confidentiality obligation or any customer or client non-solicitation or non-compete
obligation with respect to such employee’s employment with Buyer, and Seller will undertake any steps necessary to assign
such obligations to Buyer.
(f)
If
requested by Buyer, Seller shall notify the South Carolina Department of Employment Training and Rehabilitation or such other employment
agency to which Seller reports of the transactions contemplated by this Agreement in the form and manner required by such authorities,
if the failure to make such notifications or receive any available clearance certificate (an “
Employment Clearance Certificate
”)
could subject Buyer to any Liability of Seller. If any such authority asserts that Seller is liable for any payments thereto, Seller
shall promptly pay any and all such amounts and shall provide evidence to Buyer that such Liabilities have been paid in full.
Section 6.06
Confidentiality.
The Non-Disclosure Agreement is incorporated herein by reference and shall remain in full force and effect after the
Closing.
Section 6.07
Governmental
Approvals and Consents.
(a)
Each
party hereto shall, as promptly as possible, (i) make, or cause or be made, all filings and submissions required under any Law
applicable to such party or any of its Affiliates; and (ii) use reasonable best efforts to obtain, or cause to be obtained, all
consents, authorizations, orders and approvals from all Governmental Authorities that may be or become necessary for its execution
and delivery of this Agreement and the performance of its obligations pursuant to this Agreement and the other Transaction Documents.
Each party shall cooperate fully with the other party and its Affiliates in promptly seeking to obtain all such consents, authorizations,
orders and approvals. The parties hereto shall not willfully take any action that will have the effect of delaying, impairing or
impeding the receipt of any required consents, authorizations, orders and approvals.
(b)
Seller
and Buyer shall use reasonable best efforts to give all notices to, and obtain all consents from, all third parties that are set
forth on Schedule 4.05 and Schedule 5.03 of the Disclosure Schedules.
(c)
Without
limiting the generality of the parties’ undertakings pursuant to subsections (a) and (b) above, each of the parties hereto
shall use all reasonable best efforts to:
(i)
respond
to any inquiries by any Governmental Authority regarding antitrust or other matters with respect to the transactions
contemplated by this Agreement or any other Transaction Document;
(ii)
avoid
the imposition of any order or the taking of any action that would restrain, alter or enjoin the transactions contemplated by
this Agreement or any other Transaction Document; and
(iii)
in the event any Governmental Order adversely affecting the ability of the parties to consummate the transactions contemplated
by this Agreement or any other Transaction Document has been issued, to have such Governmental Order vacated or lifted as soon
as practicable.
(d)
All
analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments, and proposals made by or on
behalf of either party before any Governmental Authority or the staff or regulators of any Governmental Authority, in connection
with the transactions contemplated by this Agreement (but, for the avoidance of doubt, not including any interactions between Seller
with Governmental Authorities in the ordinary course of Business, any disclosure which is not permitted by Law or any disclosure
containing confidential information) shall be disclosed to the other party hereunder in advance of any filing, submission or attendance,
it being the intent that the parties will consult and cooperate with one another, and consider in good faith the views of one another,
in connection with any such analyses, appearances, meetings, discussions, presentations, memoranda, briefs, filings, arguments,
and proposals. Each party shall give notice to the other party with respect to any meeting, discussion, appearance or contact with
any Governmental Authority or the staff or regulators of any Governmental Authority, with such notice being sufficient to provide
the other party with the opportunity to attend and participate in such meeting, discussion, appearance or contact.
(e)
Notwithstanding
the foregoing, nothing in this Section 6.07 shall require, or be construed to require, Buyer or any of its Affiliates to agree
to (i) sell, hold, divest, discontinue or limit, before or after the Closing Date, any assets, businesses or interests of Buyer
or any of its Affiliates; (ii) any conditions relating to, or changes or restrictions in, the operations of any such assets, businesses
or interests which, in either case, could reasonably be expected to result in a Material Adverse Effect or materially and adversely
impact the economic or business benefits to Buyer of the transactions contemplated by this Agreement and the other Transaction
Documents; or (iii) any material modification or waiver of the terms and conditions of this Agreement.
Section 6.08
Books
and Records.
(a)
In
order to facilitate the resolution of any claims made against or incurred by Seller prior to the Closing, or for any other reasonable
purpose, for a period of seven (7) years after the Closing, Buyer shall:
(i)
retain the Books and Records (including personnel files) relating to periods prior to the Closing in a manner reasonably consistent
with the prior practices of Seller; and
(ii)
upon reasonable notice, afford Seller’s Representatives reasonable access (including the right to make, at Seller’s
expense, photocopies), during normal business hours, to such Books and Records.
(b)
In
order to facilitate the resolution of any claims made by or against or incurred by Buyer after the Closing, or for any other reasonable
purpose, for a period of seven (7) years following the Closing, Seller shall:
(i)
retain the books and records (including personnel files) of Seller which relate to the Business and its operations for
periods prior to the Closing; and
(ii)
upon reasonable notice, afford the Buyer’s Representatives reasonable access (including the right to make, at Buyer’s
expense, photocopies), during normal business hours, to such books and records.
(c)
Neither
Buyer nor Seller shall be obligated to provide the other party with access to any Books or Records (in the case of Buyer) or books
or records (in the case of Seller) (in each case including personnel files) pursuant to this Section 6.08 where such access would
violate any Law.
(d)
Seller
shall not destroy any Books and Records without giving Buyer thirty (30) days’ prior written notice of such destruction.
Following receipt of such notice, if Buyer advises Seller in writing within such thirty (30) day period that it requests such Books
and Records, Seller shall promptly deliver such Books and Records to Buyer at Buyer’s expense. If Buyer does not receive
such notice, Seller shall be free to destroy such Books and Records.
Section 6.09
Closing
Conditions
.
From the date hereof until the Closing, each party hereto shall use reasonable best efforts to take such
actions as are necessary to expeditiously satisfy the closing conditions set forth in Article VII hereof.
Section 6.10
Public
Announcements.
Seller shall not make any public announcements in respect of this Agreement or the transactions contemplated
hereby or otherwise communicate with any news media without the prior written consent of Buyer.
Section 6.11
Bulk
Sales Laws.
The parties hereby waive compliance with the provisions of any bulk sales, bulk transfer or similar Laws
of any jurisdiction that may otherwise be applicable with respect to the sale of any or all of the Purchased Assets to Buyer; it
being understood that any Liabilities arising out of the failure of Seller to comply with the requirements and provisions of any
bulk sales, bulk transfer or similar Laws of any jurisdiction which would not otherwise constitute Assumed Liabilities shall be
treated as Excluded Liabilities.
Section 6.12
Receivables.
From and after the Closing, if Seller or any of its Affiliates receives or collects any funds relating to any Accounts
Receivable or any other Purchased Asset, Seller or its Affiliate shall remit such funds to Buyer within two (2) Business Days after
its receipt thereof. Seller and its Affiliates shall maintain any bank accounts to which customers remit payments for a period
of no less than six (6) months after the Closing Date.
Section 6.13 OMITTED.
Section 6.14
Transfer
Taxes.
All transfer, documentary, sales, use, stamp, registration, value added and other such Taxes and fees (including
any penalties and interest) incurred in connection with this Agreement and the other Transaction Documents (including any real
property transfer Tax and any other similar Tax) shall be borne and paid equally by Seller and Buyer when due. Buyer and Seller
shall at their own respective expense, timely file any Tax Return or other document with respect to such Taxes or fees (and Buyer
and Seller shall cooperate with respect thereto as necessary), and the expenses that shall be borne equally by Seller, on the
one hand, and Buyer, on the other hand.
Section 6.15
Tax
Clearance Certificates.
If requested by Buyer, Seller shall notify all of the taxing authorities in the jurisdictions
that impose Taxes on Seller or where Seller has a duty to file Tax Returns of the transactions contemplated by this Agreement in
the form and manner required by such taxing authorities, if the failure to make such notifications or receive any available tax
clearance certificate (a “
Tax Clearance Certificate
”) could subject Buyer to any Taxes of Seller. If any taxing
authority asserts that Seller is liable for any Tax, Seller shall promptly pay any and all such amounts and shall provide evidence
to Buyer that such Liabilities have been paid in full or otherwise satisfied.
Section 6.16 Warranty
Obligations.
(a)
Effective
upon the consummation of the Closing, Buyer shall assume and agree to pay, perform and/or discharge as and when due any and all
Liabilities of Seller under the Warranty Policies with respect to warranty Claims arising out of any and all products of the Business
manufactured, sold and/or shipped by Seller on or prior to the Closing Date (“
Warranty Claims
”), but only to
the extent that aggregate Warranty Costs, as hereinafter defined, are less than the Claim Threshold, as hereinafter defined. Seller
shall reimburse Buyer for all of its costs and expenses in connection with each such Warranty Claim (“
Warranty Costs
”),
including the cost of repair or replacement with respect thereto, the cost of materials and labor employed in connection therewith,
and allocations of overhead as determined by Buyer in its sole and absolute discretion which shall be final, conclusive and binding,
but only to the extent that the aggregate of such Warranty Costs exceeds the Claim Threshold.
(b)
Subsequent
to the date upon which aggregate Warranty Costs exceed the Claim Threshold, as determined by Buyer (the “
Claim Threshold
Date
”), Buyer shall deliver to Seller an itemized written statement (the “
Initial Warranty Costs Statement
”)
setting forth (i) all Warranty Claims received up to the date of such Initial Warranty Costs Statement (including Warranty Claims
through the Claim Threshold Date); (ii) the remedial action taken with respect to each such Warranty Claim; (iii) the Warranty
Costs to date with respect to each such Warranty Claim, based upon Buyer’s processing of, and performance with respect to,
such Warranty Claim up to the date of such Initial Warranty Costs Statement; and (iv) the extent to which the aggregate Warranty
Costs have exceeded the Claim Threshold (any such excess, the “
Initial Reimbursement Amount
”). Seller shall
pay to Buyer the Initial Reimbursement Amount not later than fifteen (15) days after Seller’s receipt of the Initial Warranty
Costs Statement.
(c)
From
time to time subsequent to Buyer’s delivery of the Initial Warranty Costs Statement to Seller, but in no event more frequently
than monthly, Buyer shall deliver an itemized written statement to Seller (the “
Subsequent Warranty Costs Statement
”)
setting forth, with respect to all Warranty Claims received and/or processed and/or with respect to which services were performed
during the period of time since the date of the Previous Statement, as hereinafter defined, (i) the remedial action taken with
respect to each such Warranty Claim since the date of the Previous Statement; and (ii) the Warranty Costs with respect to each
such Warranty Claim since the date of the Previous Statement, based upon Buyer’s processing of, and performance with respect
to, such Warranty Claim up to the date of such Subsequent Costs Statement (such Warranty Costs, in the aggregate, the “
Subsequent
Reimbursement Amount
”). Seller shall pay to Buyer the Subsequent Reimbursement Amount not later than fifteen (15) days
after Seller’s receipt of each Subsequent Warranty Costs Statement. For purposes of this Agreement, “
Claim Threshold
”
shall mean Fifty Thousand Dollars ($50,000.00) based upon Seller’s aggregate revenue for the most recent six (6) month period
(multiplied by 0.5%); “
Previous Statement
” shall mean the Initial Warranty Costs Statement or the immediately
preceding Subsequent Warranty Costs Statement delivered by Buyer, as the case may be; and “
Warranty Policies
”
shall mean the warranty policies of Seller in effect with respect to the relevant product as of the date hereof.
(d)
The
provisions of this Section 6.16 shall not relieve Seller of its obligation of indemnity relating to or arising out of product liability
claims with respect to products manufactured and sold by Seller on or prior to the date hereof pursuant to and in accordance with
the provisions of Article VIII hereof.
Section 6.17 Rebates.
In the event that any customer of Seller is entitled to a rebate based upon sales volume or otherwise for the calendar year during
which the sale of the Purchased Assets occurs (the “
Closing Year
”), Seller shall reimburse Buyer for a proportionate
amount of the Rebate for each customer based upon the ratio of gross sales by Seller to such customer from April 1 of the Closing
Year to the date hereof to aggregate gross sales by Seller and Buyer to such customer for the Closing Year. Seller hereby represents
and warrants to Buyer that no Rebates are due to any customer for any period prior to the date hereof.
Section 6.18 Accounts
Payable
. Seller agrees that any and all accounts payable as of the date hereof that are not Assumed Liabilities shall be satisfied
by Seller following the consummation of the transactions contemplated by this Agreement in a timely manner, and in any event, as
and when due.
Section 6.19
Phone
and Fax Numbers, URLS.
Seller shall use reasonable best efforts to transfer to Buyer the phone and fax numbers and URLs
set forth on Schedule 6.19 of the Disclosure Schedules.
Section 6.20
Customer
and other Business Relationships
.
Seller shall satisfy the Excluded Liabilities in a manner that is not detrimental
to any of Buyer’s business relationships. Seller shall refer to Buyer all inquiries relating to the Business. Neither Seller,
nor any of its officers, employees, agents, or Representatives shall take any action that would tend to diminish the value of the
Purchase Assets after the Closing or that would interfere with the business of Buyer to be engaged in after the Closing, including
disparaging the name or business of Buyer.
Section 6.21
Further
Assurances.
Following the Closing, each of the parties hereto shall, and shall cause their respective Affiliates to,
execute and deliver such additional documents, instruments, conveyances and assurances and take such further actions as may be
reasonably required to carry out the provisions hereof and give effect to the transactions contemplated by this Agreement and the
other Transaction Documents.
Section 6.22 Power
of Attorney.
Without limitation of any provision of this Agreement, effective upon the date hereof, Seller constitutes and
appoints Buyer and its successors and assigns, and each of them, the true and lawful attorney of Seller, with full power of substitution,
in their own names or in the name of Seller, but for their own benefit and at their own expense, (i) to institute and prosecute
all proceedings which any of them may deem proper in order to collect, assert or enforce any claim, right or title of any kind
in or to the Purchased Assets transferred or intended to be transferred to Buyer hereunder, and to do all such acts and things
in relation thereto as any of them shall deem advisable; and (ii) to take all Actions which they may deem proper in order to provide
for them the benefits under any Claims, Contracts, Permits, Certifications, sales orders, or other documents or instruments transferred
or intended to be transferred to Buyer hereunder. Seller acknowledges that the foregoing powers are coupled with an interest and
are not revocable in any manner or for any reason.
ARTICLE VII
Conditions
to closing
Section 7.01
Conditions
to Obligations of All Parties.
The obligations of each party to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions:
(a)
No
Governmental Authority shall have enacted, issued, promulgated, enforced or entered any Governmental Order which is in effect and
has the effect of making the transactions contemplated by this Agreement illegal, otherwise restraining or prohibiting consummation
of such transactions or causing any of the transactions contemplated hereunder to be rescinded following completion thereof.
(b)
Seller
shall have received all consents, authorizations, orders and approvals from the Governmental Authorities referred to in Section
4.05 and Buyer shall have received all consents, authorizations, orders and approvals from the Governmental Authorities referred
to in Section 5.03, in each case in form and substance reasonably satisfactory to Buyer and Seller, and no such consent, authorization,
order and approval shall have been revoked.
Section 7.02
Conditions
to Obligations of Buyer.
The obligations of Buyer to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment or Buyer’s waiver, at or prior to the Closing, of each of the following conditions:
(a)
The
representations and warranties of Seller contained in this Agreement, the other Transaction Documents and any certificate or other
writing delivered pursuant hereto shall be true and correct in all respects (in the case of any representation or warranty qualified
by materiality or Material Adverse Effect) or in all material respects (in the case of any representation or warranty not qualified
by materiality or Material Adverse Effect) on and as of the date hereof and on and as of the Closing Date with the same effect
as though made at and as of such date (except those representations and warranties that address matters only as of a specified
date, the accuracy of which shall be determined as of that specified date in all respects).
(b)
Seller
shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this
Agreement and each of the other Transaction Documents to be performed or complied with by it and/or any of them prior to or on
the Closing Date;
provided, that
, with respect to agreements, covenants and conditions that are qualified by materiality,
Seller shall have performed such agreements, covenants and conditions, as so qualified, in all respects and all transactions contemplated
by the Real Estate Purchase Agreement shall have been consummated.
(c)
No
Action shall have been commenced against Buyer or Seller which would prevent the Closing. No injunction or restraining order shall
have been issued by any Governmental Authority, and be in effect, which restrains or prohibits any transaction contemplated hereby.
(d)
All
approvals, consents and waivers that are set forth on Schedule 4.05 of the Disclosure Schedules shall have been received, and executed
counterparts thereof shall have been delivered to Buyer at or prior to the Closing.
(e)
From
the date of this Agreement, there shall not have occurred any Material Adverse Effect, nor shall any event or events have occurred
that, individually or in the aggregate, with or without the lapse of time, could reasonably be expected to result in a Material
Adverse Effect.
(f)
Seller
shall have delivered to Buyer duly executed counterparts to the Transaction Documents (other than this Agreement) and such other
documents and deliveries set forth in Section 3.02(a).
(g)
Buyer
shall have received all Permits that are necessary for it to conduct the Business as conducted by Seller as of the Closing Date.
(h)
All
Encumbrances relating to the Purchased Assets shall have been released in full, other than Permitted Encumbrances, and Seller shall
have delivered to Buyer written evidence, in form satisfactory to Buyer in its sole discretion, of the release of such Encumbrances.
(i)
Buyer
shall have received a Certificate, dated the Closing Date and signed by a duly authorized officer of Seller, that each of the conditions
set forth in Section 7.02(a) and Section 7.02(b) have been satisfied (the “
Seller Closing Certificate
”).
(j)
Buyer
shall have received a Certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Seller certifying that
attached thereto are true and complete copies of all resolutions adopted by the board of directors of Seller authorizing the execution,
delivery and performance of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated
hereby and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection
with the transactions contemplated hereby and thereby.
(k)
Buyer
shall have received a Certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Seller certifying the
names and signatures of the officers of Seller authorized to sign this Agreement, the Transaction Documents and the other documents
to be delivered hereunder and thereunder.
(l)
Buyer
shall have received a Certificate pursuant to Treasury Regulations Section 1.1445-2(b) (the “
FIRPTA Certificate
”)
that Seller is not a foreign person within the meaning of Section 1445 of the Code duly executed by Seller.
(m)
Seller
shall have changed its corporate name so that it no longer contains the name SCIO Diamond or any derivative thereof.
(n)
Seller
shall have received consent from its Stockholders, as required by Nevada law and SEC rules and regulations, approving this Agreement
and the transactions contemplated thereby.
(o)
Seller
shall have delivered to Buyer such other documents or instruments as Buyer reasonably requests and are reasonably necessary to
consummate the transactions contemplated by this Agreement.
Section 7.03
Conditions
to Obligations of Seller.
The obligations of Seller to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment or Seller’s waiver, at or prior to the Closing, of each of the following conditions:
(a)
The
representations and warranties of Buyer contained in this Agreement, the other Transaction Documents and any certificate or other
writing delivered pursuant hereto shall be true and correct in all respects (in the case of any representation or warranty qualified
by materiality or Material Adverse Effect) or in all material respects (in the case of any representation or warranty not qualified
by materiality or Material Adverse Effect) on and as of the date hereof and on and as of the Closing Date with the same effect
as though made at and as of such date (except those representations and warranties that address matters only as of a specified
date, the accuracy of which shall be determined as of that specified date in all respects).
(b)
Buyer
shall have duly performed and complied in all material respects with all agreements, covenants and conditions required by this
Agreement and each of the other Transaction Documents to be performed or complied with by it prior to or on the Closing Date;
provided,
that
, with respect to agreements, covenants and conditions that are qualified by materiality, Buyer shall have performed such
agreements, covenants and conditions, as so qualified, in all respects.
(c)
No
injunction or restraining order shall have been issued by any Governmental Authority, and be in effect, which restrains or prohibits
any material transaction contemplated hereby.
(d)
All
approvals, consents and waivers that are listed on Schedule 5.03 of the Disclosure Schedules shall have been received, and executed
counterparts thereof shall have been delivered to Seller at or prior to the Closing.
(e)
Buyer
shall have delivered to Seller duly executed counterparts to the Transaction Documents (other than this Agreement) and such other
documents and deliveries set forth in Section 3.02(b).
(f)
Seller
shall have received a Certificate, dated the Closing Date and signed by a duly authorized officer of Buyer, that each of the conditions
set forth in Section 7.03(a) and Section 7.03(b) have been satisfied (the “
Buyer Closing Certificate
”).
(g)
Seller
shall have received a Certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Buyer certifying that attached
thereto are true and complete copies of all resolutions adopted by the board of directors of Buyer authorizing the execution, delivery
and performance of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby
and thereby, and that all such resolutions are in full force and effect and are all the resolutions adopted in connection with
the transactions contemplated hereby and thereby.
(h)
Seller
shall have received a Certificate of the Secretary or an Assistant Secretary (or equivalent officer) of Buyer certifying the names
and signatures of the officers of Buyer authorized to sign this Agreement, the Transaction Documents and the other documents to
be delivered hereunder and thereunder.
(i)
Seller
shall have received consent from its Stockholders, as required by Nevada law and SEC rules and regulations, approving this Agreement
and the transactions contemplated thereby.
(j)
Buyer
shall have delivered to Seller such other documents or instruments as Seller reasonably requests and are reasonably necessary to
consummate the transactions contemplated by this Agreement.
ARTICLE VIII
Indemnification
Section 8.01 Survival.
Subject to the limitations and other provisions of this Agreement, the representations and warranties contained herein shall survive
the Closing and shall remain in full force and effect until April 30, 2019;
provided, that
the representations and warranties
in (i) Section 4.01, Section 4.02, Section 4.11, Section 4.12, Section 4.13 Section 4.23, Section 4.27, Section 4.28, Section 4.29,
Section 5.01, Section 5.02 and Section 5.04 shall survive indefinitely; and (ii) Section 4.25, Section 4.26, Section 4.27, Section
4.28, Section 4.29, Section 4.31, Section 4.32, Section 4.33, Section 4.34 and Section 4.35 shall survive for the full period of
all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof) plus ninety (90) days. All
covenants and agreements of the parties contained herein shall survive the Closing indefinitely or for the period explicitly specified
therein. Notwithstanding the foregoing, any claims asserted in good faith with reasonable specificity (to the extent known at such
time) and in writing by notice from the non-breaching party to the breaching party prior to the expiration date of the applicable
survival period shall not thereafter be barred by the expiration of the relevant representation or warranty and such claims shall
survive until finally resolved.
Section 8.02 Indemnification
by Seller.
Subject to the other terms and conditions of this Article VIII, Seller shall indemnify and defend each of Buyer
and its Affiliates and their respective Representatives (collectively, the “
Buyer Indemnitees
”) against, and
shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred or
sustained by, or imposed upon, the Buyer Indemnitees based upon, arising out of, with respect to or by reason of:
(a)
any
material inaccuracy in or breach of any of the representations or warranties of Seller contained in this Agreement, the other Transaction
Documents or in any certificate or instrument delivered by or on behalf of Seller pursuant to this Agreement, as of the date such
representation or warranty was made or as if such representation or warranty was made on and as of the Closing Date (except for
representations and warranties that expressly relate to a specified date, the inaccuracy in or breach of which will be determined
with reference to such specified date);
(b)
any
material breach or non-fulfillment of any covenant, agreement or obligation to be performed by Seller pursuant to this Agreement,
the other Transaction Documents or any certificate or instrument delivered by or on behalf of Seller pursuant to this Agreement;
(c)
any
Excluded Asset or any Excluded Liability (including any Liability under the WARN Act resulting from employment Losses pursuant
to Section 6.05 or otherwise whether prior to, on or after the Closing Date); or
(d)
any
Third Party Claim based upon, resulting from or arising out of the business, operations, properties, assets or obligations of Seller
or any of its Affiliates (other than the Purchased Assets or the Assumed Liabilities) conducted, existing or arising on or prior
to the Closing Date.
Section 8.03
Indemnification
by Buyer.
Subject to the other terms and conditions of this Article VIII, Buyer shall indemnify and defend Seller and
its respective Affiliates and its respective Representatives (collectively, the “
Seller Indemnitees
”) against,
and shall hold each of them harmless from and against, and shall pay and reimburse each of them for, any and all Losses incurred
or sustained by, or imposed upon, the Seller Indemnitees based upon, arising out of, with respect to or by reason of:
(a)
any
material inaccuracy in or breach of any of the representations or warranties of Buyer contained in this Agreement or in any certificate
or instrument delivered by or on behalf of Buyer pursuant to this Agreement, as of the date such representation or warranty was
made or as if such representation or warranty was made on and as of the Closing Date (except for representations and warranties
that expressly relate to a specified date, the inaccuracy in or breach of which will be determined with reference to such specified
date);
(b)
any
material breach or non-fulfillment of any covenant, agreement or obligation to be performed by Buyer pursuant to this Agreement;
or
(c)
any
Assumed Liability.
Section 8.04 Certain
Limitations.
The indemnification provided for in Section 8.02 and Section 8.03 shall be subject to the following limitations:
(a)
Seller
shall not be liable to the Buyer Indemnitees for indemnification under Section 8.02(a) until the aggregate amount of all Losses
in respect of indemnification under Section 8.02(a) exceeds 0.5% of the Purchase Price (including amounts allocated to or payable
under the Real Property Purchase Agreement for the Owned Real Property) (the “
Basket
”), in which event Seller
shall be required to pay or be liable for all such Losses from the first dollar.
(b)
Buyer
shall not be liable to the Seller Indemnitees for indemnification under Section 8.03(a) until the aggregate amount of all Losses
in respect of indemnification under Section 8.03(a) exceeds the Basket, in which event Buyer shall be required to pay or be liable
for all such Losses from the first dollar.
(c)
Notwithstanding
the foregoing, the limitations set forth in Section 8.04(a) and Section 8.04(b) shall not apply to Losses based upon, arising out
of, with respect to or by reason of any inaccuracy in or breach of any representation or warranty in Section 4.01, Section 4.02,
Section 4.11, Section 4.12, Section 4.13, Section 4.23, Section 4.25, Section 4.26, Section 4.27, Section 4.28, Section 4.29, Section
4.30, Section 4.31, Section 4.32, Section 4.33, Section 4.34, Section 4.35, Section 5.01, Section 5.02 and Section 5.04.
(d)
For
purposes of this Article VIII, any inaccuracy in or breach of any representation or warranty shall be determined without regard
to any materiality, Material Adverse Effect or other similar qualification contained in or otherwise applicable to such representation
or warranty and shall be disregarded in determining the amount of Losses of which a Person is entitled to indemnification under
this Article VIII.
(e)
For
the avoidance of doubt, and notwithstanding anything to the contrary contained in this Section 8.04, any Loss relating to any of
the following shall be paid by the Seller, and shall not be subject to the Basket:
(i)
Any amounts owed, or which become due and owing, with respect to claims made by the State of South Carolina or any of its taxing
authorities (including interest, penalties, and expenses with respect thereto) for sales/use tax returns to be filed by the Seller
relating to the last six (6) calendar years and the stub period prior to the Closing (each a “
South Carolina Tax Claim
”).
(ii)
Any amounts owed, or which become due and owing, with respect to claims made by the State of Nevada or any of its taxing authorities
(including interest, penalties, and expenses with respect thereto) for sales/use tax returns to be amended and filed by the Seller
relating to the last three (3) calendar years and the stub period prior to the Closing (each a “
Nevada Tax Claim
”).
(iii)
Any amounts owed, or which become due and owing, with respect to sales tax arising out of or relating to the consummation of this
Agreement, including without limitation, any tax claims arising under Nevada Revised Statutes §360.525 (each a “
Nevada
Sales Tax Claim
”).
(iv)
Any amounts owed, or which become due and owing, to the South Carolina Department of Employment Training and Rehabilitation or
such other employment agency, including without limitation, any claims arising under Nevada Revised Statutes §612.695 (each
a “
South Carolina Employer Contribution Claim
”).
Section 8.05
Indemnification
Procedures.
The party making a claim under this Article VIII is referred to as the “
Indemnified Party
”,
and the party against whom a claim is asserted under this Article VIII is referred to as the “
Indemnifying Party
”.
(a)
Third
Party Claims
. If any Indemnified Party receives notice of the assertion or commencement of any Action made or brought by any
Person who is not a party to this Agreement or an Affiliate of a party to this Agreement or a Representative of the foregoing (a
“
Third Party Claim
”) against such Indemnified Party with respect to which the Indemnifying Party is obligated
to provide indemnification under this Agreement, the Indemnified Party shall give the Indemnifying Party reasonably prompt written
notice thereof, but in any event not later than thirty (30) calendar days after receipt of such notice of such Third Party Claim.
The failure to give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations,
except and only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by
the Indemnified Party shall describe the Third Party Claim in reasonable detail, shall include copies of all material written evidence
thereof and shall indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the
Indemnified Party. The Indemnifying Party shall have the right to participate in, or by giving written notice to the Indemnified
Party, to assume the defense of any Third Party Claim at the Indemnifying Party’s expense and by the Indemnifying Party’s
own counsel, and the Indemnified Party shall cooperate in good faith in such defense;
provided, that
if the Indemnifying
Party is Seller, such Indemnifying Party shall not have the right to defend or direct the defense of any such Third Party Claim
that (x) is asserted directly by or on behalf of a Person that is a supplier or customer of the Business, or (y) seeks an injunction
or other equitable relief against the Indemnified Party. In the event that the Indemnifying Party assumes the defense of any Third
Party Claim, subject to Section 8.05(b), it shall have the right to take such action as it deems necessary to avoid, dispute, defend,
appeal or make counterclaims pertaining to any such Third Party Claim in the name and on behalf of the Indemnified Party. The Indemnified
Party shall have the right to participate in the defense of any Third Party Claim with counsel selected by it subject to the Indemnifying
Party’s right to control the defense thereof. The fees and disbursements of such counsel shall be at the expense of the Indemnified
Party,
provided, that
if in the reasonable opinion of counsel to the Indemnified Party, (A) there are legal defenses available
to the Indemnified Party that are different from or additional to those available to the Indemnifying Party; or (B) there exists
a conflict of interest between the Indemnifying Party and the Indemnified Party that cannot be waived, the Indemnifying Party shall
be liable for the reasonable fees and expenses of counsel to the Indemnified Party in each jurisdiction for which the Indemnified
Party determines counsel is required. If the Indemnifying Party elects not to compromise or defend such Third Party Claim, fails
to promptly notify the Indemnified Party in writing of its election to defend as provided in this Agreement, or fails to diligently
prosecute the defense of such Third Party Claim, the Indemnified Party may, subject to Section 8.05(b), pay, compromise, defend
such Third Party Claim and seek indemnification for any and all Losses based upon, arising from or relating to such Third Party
Claim. Seller and Buyer shall cooperate with each other in all reasonable respects in connection with the defense of any Third
Party Claim, including making available (subject to the provisions of Section 6.06) records relating to such Third Party Claim
and furnishing, without expense (other than reimbursement of actual out-of-pocket expenses) to the defending party, management
employees of the non-defending party as may be reasonably necessary for the preparation of the defense of such Third Party Claim.
(b)
Settlement
of Third Party Claims
. Notwithstanding any other provision of this Agreement, the Indemnifying Party shall not enter into settlement
of any Third Party Claim without the prior written consent of the Indemnified Party, except as provided in this Section 8.05(b).
If a firm offer is made to settle a Third Party Claim without leading to Liability or the creation of a financial or other obligation
on the part of the Indemnified Party and provides, in customary form, for the unconditional release of each Indemnified Party from
all Liabilities and obligations in connection with such Third Party Claim and the Indemnifying Party desires to accept and agree
to such offer, the Indemnifying Party shall give written notice to that effect to the Indemnified Party. If the Indemnified Party
fails to consent to such firm offer within ten (10) calendar days after its receipt of such notice, the Indemnified Party may continue
to contest or defend such Third Party Claim and in such event, the maximum Liability of the Indemnifying Party as to such Third
Party Claim shall not exceed the amount of such settlement offer. If the Indemnified Party fails to consent to such firm offer
and also fails to assume defense of such Third Party Claim, the Indemnifying Party may settle the Third Party Claim upon the terms
set forth in such firm offer to settle such Third Party Claim. If the Indemnified Party has assumed the defense pursuant to Section
8.05(a), it shall not agree to any settlement without the written consent of the Indemnifying Party (which consent shall not be
unreasonably withheld, conditioned or delayed).
(c)
Direct
Claims
. Any Action by an Indemnified Party on account of a Loss which does not result from a Third Party Claim (a “
Direct
Claim
”) shall be asserted by the Indemnified Party giving the Indemnifying Party reasonably prompt written notice thereof,
but in any event not later than thirty (30) days after the Indemnified Party becomes aware of such Direct Claim. The failure to
give such prompt written notice shall not, however, relieve the Indemnifying Party of its indemnification obligations, except and
only to the extent that the Indemnifying Party forfeits rights or defenses by reason of such failure. Such notice by the Indemnified
Party shall describe the Direct Claim in reasonable detail, shall include copies of all material written evidence thereof and shall
indicate the estimated amount, if reasonably practicable, of the Loss that has been or may be sustained by the Indemnified Party.
The Indemnifying Party shall have thirty (30) days after its receipt of such notice to respond in writing to such Direct Claim.
The Indemnified Party shall allow the Indemnifying Party and its professional advisors to investigate the matter or circumstance
alleged to give rise to the Direct Claim, and whether and to what extent any amount is payable in respect of the Direct Claim and
the Indemnified Party shall assist the Indemnifying Party’s investigation by giving such information and assistance (including
access to the Indemnified Party’s premises and personnel and the right to examine and copy any accounts, documents or records)
as the Indemnifying Party or any of its professional advisors may reasonably request. If the Indemnifying Party does not so respond
within such thirty (30) day period, the Indemnifying Party shall be deemed to have rejected such claim, in which case the Indemnified
Party shall be free to pursue such remedies as may be available to the Indemnified Party on the terms and subject to the provisions
of this Agreement.
Section 8.06
Payments.
Once a Loss is agreed to by the Indemnifying Party or finally adjudicated to be payable pursuant to this Article VIII, the Indemnifying
Party shall satisfy its obligations within fifteen (15) Business Days of such final, non-appealable adjudication by wire transfer
of immediately available funds. The parties hereto agree that should an Indemnifying Party not make full payment of any such obligations
within such fifteen (15) Business Day period, any amount payable shall accrue interest from and including the date of agreement
of the Indemnifying Party or final, non-appealable adjudication to the date such payment has been made at a rate per annum equal
to three percent (3%). Such interest shall be calculated daily on the basis of a 365 day year and the actual number of days elapsed,
compounded monthly.
Section 8.07
Tax
Treatment of Indemnification Payments.
All indemnification payments made under this Agreement shall be treated by the
parties as an adjustment to the Purchase Price for Tax purposes, unless otherwise required by Law.
Section 8.08
Effect
of Investigation.
The representations, warranties and covenants of the Indemnifying Party, and the Indemnified Party’s
right to indemnification with respect thereto, shall not be affected or deemed waived by reason of any investigation made by or
on behalf of the Indemnified Party (including by any of its Representatives) or by reason of the fact that the Indemnified Party
or any of its Representatives knew or should have known that any such representation or warranty is, was or might be inaccurate
or by reason of the Indemnified Party’s waiver of any condition set forth in Section 7.02 or Section 7.03, as the case may
be.
Section 8.09
Payment;
Right of Setoff.
Pending final determination of any Action in accordance with the provisions of this Article VIII, Buyer
shall have the right to withhold from and offset against any amounts due to Seller, pursuant to this Agreement or otherwise, the
amount of such Action.
Section 8.10
Other
Matters Related to Indemnity.
An Indemnified Party shall use reasonable best efforts to file an insurance Action in
respect of any matter subject to indemnification hereunder if such Indemnified Party has a reasonable likelihood of recovering
insurance proceeds in respect of such matter.
Section 8.11
Other
Rights and Remedies.
The indemnification rights of the parties under this Article VIII are independent of and in addition
to such rights and remedies as the parties may have at Law or in equity or otherwise for any misrepresentation, breach of warranty
or failure to fulfill any agreement or covenant hereunder on the part of any party hereto, including the right to seek specific
performance, rescission or restitution, none of which rights or remedies shall be affected or diminished hereby.
ARTICLE IX
Termination
Section 9.01
Termination.
This Agreement may be terminated at any time prior to the Closing:
(a)
by
the mutual written consent of Seller and Buyer
(b)
by
Buyer by written notice to Seller if:
(i)
Buyer is not then in material breach of any provision of this Agreement and/or any Transaction Document and there has been a breach,
inaccuracy in or failure to perform any representation, warranty, covenant or agreement made by Seller pursuant to this Agreement
and/or any Transaction Document that would give rise to the failure of any of the conditions specified in Article VII and such
breach, inaccuracy or failure has not been cured by Seller within ten (10) days of Seller’s receipt of written notice of
such breach from Buyer; or
(ii)
any of the conditions set forth in Section 7.01 or Section 7.02 shall not have been, or if it becomes apparent that any of such
conditions will not be, fulfilled by the Closing Date, unless such failure shall be due to the failure of Buyer to perform or comply
with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing;
(c)
by
Seller by written notice to Buyer if:
(i)
Seller is not then in material breach of any provision of this Agreement and there has been a breach, inaccuracy in or failure
to perform any representation, warranty, covenant or agreement made by Buyer pursuant to this Agreement that would give rise to
the failure of any of the conditions specified in Article VII and such breach, inaccuracy or failure has not been cured by Buyer
within ten (10) days of Buyer’s receipt of written notice of such breach from Seller; or
(ii)
any of the conditions set forth in Section 7.01 or Section 7.03 shall not have been, or if it becomes apparent that any of such
conditions will not be, fulfilled by the Closing Date unless such failure shall be due to the failure of Seller to perform or comply
with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to the Closing; or
(d)
by
Buyer or Seller in the event that (i) there shall be enacted any Law that makes consummation of the transactions contemplated by
this Agreement illegal or otherwise prohibited or (ii) any Governmental Authority shall have issued a Governmental Order restraining
or enjoining the transactions contemplated by this Agreement, and such Governmental Order shall have become final and non-appealable.
Section 9.02
Effect
of Termination.
In the event of the termination of this Agreement in accordance with this Article IX, this Agreement
shall forthwith become void and there shall be no Liability on the part of any party hereto except:
(a)
as
set forth in this Article IX and Section 6.06 and Article X hereof; and
(b)
that
nothing herein shall relieve any party hereto from Liability for any willful breach of any provision hereof.
ARTICLE X
Miscellaneous
Section 10.01
Expenses.
Except as otherwise expressly provided herein, all costs and expenses, including fees and disbursements of counsel, financial advisors
and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses, whether or not the Closing shall have occurred.
Section 10.02
Notices.
All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed
to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent
by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document
(with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent
after normal business hours of the recipient or (d) on the third (3
rd
) day after the date mailed, by certified or registered
mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in accordance with this Section 10.02):
If to Seller:
|
SCIO Diamond Technology Corporation
411 University Ridge, Suite D
Greenville, SC 29601
Facsimile:
Telephone: (864) 751-4880
E-mail:
|
|
|
with a copy to:
|
Best & Flanagan LLP
60 South Sixth Street, Suite 2700
Minneapolis, MN 55402
Attention: David Young
Telephone: (612) 339-7121
Email:
dyoung@bestlaw.com
|
If to Buyer:
|
Adamas One Corp.
10645 N. Tatum Road
Phoenix, AZ 85028
Attn: John G. Grdina
Facsimile:
Telephone: (864) 751-4880
E-mail:
|
|
|
with a copy to:
|
DeMint Law, PLLC
3753 Howard Hughes Pkwy
Second Floor Suite 314
Las Vegas, Nevada 89169
Facsimile: (702) 442-7995
E-mail:
anthony@demintlaw.com
Attention: Anthony N. DeMint, Esq.
|
Section 10.03
Interpretation;
Representation by Counsel.
For purposes of this Agreement, (a) the words “include,” “includes”
and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or”
is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto” and
“hereunder” refer to this Agreement as a whole. Unless the context otherwise requires, references herein: (x) to Articles,
Sections, Disclosure Schedules and Exhibits mean the Articles and Sections of, and Disclosure Schedules and Exhibits attached to,
this Agreement; (y) to an agreement, instrument or other document means such agreement, instrument or other document as amended,
supplemented and modified from time to time to the extent permitted by the provisions thereof; and (z) to a statute means such
statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder.
The Disclosure Schedules and Exhibits referred to herein shall be construed with, and as an integral part of, this Agreement to
the same extent as if they were set forth verbatim herein. The parties acknowledge that they have been represented by counsel in
connection with this Agreement and the transactions contemplated hereby. Accordingly, any rule or law or any legal decision that
would require the interpretation of any claimed ambiguities in this Agreement against the party that drafted it has no application
and is expressly waived by the parties. The provisions of this Agreement shall be interpreted in a reasonable manner to give effect
to the intent of the parties hereto.
Section
10.04
Headings.
The headings in this Agreement
are for reference only and shall not affect the interpretation of this Agreement.
Section 10.05
Severability.
If any term or provision of this Agreement is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality
or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term
or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable,
the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally
contemplated to the greatest extent possible.
Section
10.06
Entire Agreement.
This Agreement, the
other Transaction Documents and the Non-Disclosure Agreement and the exhibits and schedules to this Agreement and/or the
Transaction Documents and/or Non-Disclosure Agreement, as applicable schedules and constitute the sole and entire agreement
of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersede all prior and
contemporaneous understandings and agreements, both written and oral, with respect to such subject matter, including
specifically, the Asset Purchase Agreement between the parties dated as of November 30, 2018. In the event of any
inconsistency between the statements in the body of this Agreement and those in the other Transaction Documents, the exhibits
and schedules to this Agreement and/or the Transaction Documents and/or Non-Disclosure Agreement, as applicable schedules
(other than an exception expressly set forth as such in the Disclosure Schedules), the statements in the body of this
Agreement will control.
Section
10.07
Successors and Assigns.
This Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted
assigns. No party may assign its rights or obligations hereunder without the prior written consent of the other parties,
which consent shall not be unreasonably withheld or delayed;
provided, however
, that prior to the Closing Date, Buyer
may, without the prior written consent of Seller, assign all or any portion of its rights under this Agreement to one or more
of its direct or indirect wholly-owned subsidiaries. No assignment shall relieve the assigning party of any of its
obligations hereunder.
Section
10.08
No Third-party Beneficiaries.
Except as
provided in Article VIII, this Agreement is for the sole benefit of the parties hereto and their respective successors and
permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. Nothing contained in this
Agreement, expressed or implied, shall give any employee or Seller (or their spouses, dependents or beneficiaries) or any
other Person, other than the parties to this Agreement, any rights or remedies of any nature whatsoever, including but
not limited to any right to continued employment or service, and no provision of this Agreement shall create any third party
beneficiary rights in any current or former employee, director, consultant or other service provider of Seller to enforce the
provisions of this Agreement or any other matter related thereto or be construed as an amendment of any employee benefit
plan, program, policy or arrangement.
Section
10.09
Amendment and Modification; Waiver.
This
Agreement may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by
any party of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party
so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not
expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or
after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this
Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right,
remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege.
Section 10.10
Governing
Law; Submission to Jurisdiction; Waiver of Jury Trial.
(a)
This
Agreement shall be governed by and construed in accordance with the internal laws of the State of Nevada without giving effect
to any choice or conflict of law provision or rule (whether of the State of Nevada or any other jurisdiction).
(b)
ANY
LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY MAY BE INSTITUTED IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEVADA OR THE COURTS OF
THE STATE OF NEVADA LOCATED IN THE CITY OF LAS VEGAS AND COUNTY OF CLARK, AND EACH PARTY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF SUCH COURTS IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL TO SUCH PARTY’S
ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING BROUGHT IN ANY SUCH COURT.
THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING IN SUCH
COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c)
EACH
PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS IS LIKELY
TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER TRANSACTION
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY TO THIS AGREEMENT CERTIFIES AND ACKNOWLEDGES THAT (A)
NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE
FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.10(c).
Section 10.11
Specific
Performance.
The parties agree that irreparable damage would occur if any provision of this Agreement were not performed
in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition
to any other remedy to which they are entitled at law or in equity.
Section 10.12
Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed
to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission
shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
Section 10.13 Facsimile,
Electronic and .pdf Signatures.
Signatures hereon which are transmitted via facsimile, electronically and/or by .pdf shall
be deemed original signatures.
Section
10.14. Liquidation
. Notwithstanding anything in this Agreement to the contrary, all of the Sellers obligations
under this Agreement shall terminate upon its complete liquidation after the Closing, if any.
[
Remainder of page intentionally
left blank. Signature page follows.
]
IN WITNESS WHEREOF
,
the parties hereto have caused this Agreement to be executed as of the date set forth above by their respective officers thereunto
duly authorized.
Seller:
|
|
SCIO Diamond Technology Corporation
|
|
a Nevada corporation
|
|
By:
|
/s/ Gerald McGuire
|
|
|
Gerald McGuire, President
|
|
Buyer:
|
|
Adamas One Corp.
|
|
a Nevada corporation
|
|
By:
|
/s/ John Grdina
|
|
|
John Grdina, CEO/President
|
|
Schedule
|
|
Description
|
2.02(d)
|
|
Assigned Contracts
|
2.02(f)
|
|
Tangible Personal Property
|
2.03(d)
|
|
Excluded Assets
|
4.01
|
|
Jurisdictions of Seller
|
4.03
|
|
Capitalization of Seller
|
4.04
|
|
Seller Subsidiaries
|
4.05
|
|
Conflicts/Required Consents of Seller
|
4.06
|
|
Seller Financial Statements
|
4.07
|
|
Liabilities of Seller
|
4.08
|
|
Material Changes in Seller
|
4.10
|
|
Material Contracts of Seller
|
4.11
|
|
Permitted Encumbrances
|
4.12
|
|
Seller’s Machinery Condition of Assets
|
4.14(a)
|
|
Owned Real Property
|
4.14(b)
|
|
Leased Real Property
|
4.15 (a) and (b)
|
|
Intellectual Property of Seller
|
4.18
|
|
Backlog of Seller
|
4.19(a) and (b)
|
|
Material Customers and Suppliers
|
4.20
|
|
Insurance
|
4.21
|
|
Legal Proceedings
|
4.22
|
|
Permits and Certifications of Seller; SEC Reports
|
4.23
|
|
Environmental Matters
|
4.25
|
|
Employee Information Relating to Seller
|
4.30
|
|
Business Names Used by Seller
|
4.31
|
|
Related Party Transactions of Seller
|
4.32
|
|
Affiliate Indebtedness of Seller
|
4.34
|
|
Rebates
|
5.03
|
|
Conflicts/Required Consents of Buyer
|
6.19
|
|
Phone, Fax and URLs
|
|
|
|
Exhibit
|
|
Description
|
A
|
|
HGI Debt Purchase and Assumption Agreement
|
B
|
|
Other Holders Debt Purchase and Assumption Agreement
|
C
|
|
Registration Rights Agreement
|
Appendix B
AMENDED REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS
AGREEMENT (this “
Agreement
”), dated as of January 31, 2019, by and between by and between
Adamas One Corp.
,
a Nevada corporation, with headquarters located at 10645 N. Tatum Road, Phoenix, Arizona 85028 (“
Adamas
”), and
SCIO Diamond Technology Corporation
, a Nevada corporation (“
SCIO
”). Capitalized terms used herein and
not otherwise defined herein shall have the respective meanings set forth in the Amended Asset Purchase Agreement by and between
the parties hereto, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the
“
Purchase Agreement
”). This Amended Agreement amends, supersedes and replaces the Registration Rights Agreement
entered into between the parties dated as of November 30, 2018 in its entirety.
WHEREAS:
A. In
connection with the Asset Purchase Agreement, (i) Adamas has agreed, upon the terms and subject to the conditions set forth in
the Purchase Agreement, to issue SCIO One Million Two Hundred Fifty Thousand (1,250,000) shares of Adamas’ common stock (the
“
Common Stock
”), par value $0.001 per share.
B. To
induce SCIO to execute and deliver the Purchase Agreement, Adamas has agreed to provide certain registration rights under the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder, or any similar successor statute (collectively,
the “
Securities Act
”), and applicable state securities laws.
NOW, THEREFORE,
in consideration of
the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Adamas and SCIO hereby agree as follows:
As used in this Agreement,
the following terms shall have the following meanings:
a. “
Person
”
means any individual or entity including but not limited to any corporation, a limited liability company, an association, a partnership,
an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.
b. “
Register
”,
“
registered
”, and “
registration
” refer to a registration effected by preparing and filing
one or more registration statements of Adamas in compliance with the Securities Act and/or pursuant to Rule 415 under the Securities
Act or any successor rule providing for offering securities on a continuous basis (“
Rule 415
”), and the declaration
or ordering of effectiveness of such registration statement(s) by the United States Securities and Exchange Commission (the “
SEC
”).
c. “
Registrable
Securities
” means 900,000 shares of Common stock and any shares of common stock issued to SCIO as a result of any stock
split, stock dividend, recapitalization, exchange or similar event or otherwise with respect thereto.
d. “
Registration
Statement
” means one or more registration statements of Adamas covering only the sale of the Registrable Securities.
a.
Mandatory
Registration
. Adamas shall, upon SCIO’s written request at any time after the date of the Closing under the Purchase
Agreement, file, within ninety (90) calendar days, with the SEC an initial Registration Statement covering the Registrable Securities
as shall be permitted to be included thereon in accordance with applicable SEC rules, regulations and interpretations so as to
permit the resale or other distribution of such Registrable Securities by SCIO, including but not limited to under Rule 415 under
the Securities Act at then prevailing market prices (and not fixed prices), as mutually determined by both Adamas and SCIO in consultation
with their respective legal counsel, subject to the aggregate number of authorized shares of Adamas’ Common Stock then available
for issuance in its Articles of Incorporation. The initial Registration Statement shall register only Three Hundred Thousand (300,000)
of the Registrable Securities for resale and distribution; the remaining Six Hundred Thousand (600,000) shares shall be subject
to Section 2.c. below and the Lock-Up/Leak Out provisions set forth on Addendum A attached hereto. SCIO and its counsel shall have
a reasonable opportunity to review and comment upon such Registration Statement and any amendment or supplement to such Registration
Statement and any related prospectus prior to its filing with the SEC, and Adamas shall give due consideration to all reasonable
comments. SCIO shall furnish all information reasonably requested by Adamas for inclusion therein. Adamas shall use its reasonable
best efforts to have the Registration Statement and any amendment declared effective by the SEC at the earliest possible date.
Adamas shall use reasonable best efforts to keep the Registration Statement effective, including but not limited to pursuant to
Rule 415 promulgated under the Securities Act and available for the resale by anyone acquiring from SCIO all of the Registrable
Securities covered thereby at all times until the earlier of (i) the date as of which such acquiror may sell all of the Registrable
Securities without restriction pursuant to Rule 144 promulgated under the Securities and (ii) the date on which such acquirer shall
have sold all the Registrable Securities covered thereby and no Available Amount remains under the Purchase Agreement (the “
Registration
Period
”). The Registration Statement (including any amendments or supplements thereto and prospectuses contained therein)
shall 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 in which they were made, not misleading.
b.
Rule
424 Prospectus.
Adamas shall, as required by applicable securities regulations, from time to time file with the SEC, pursuant
to Rule 424 promulgated under the Securities Act, the prospectus and prospectus supplements, if any, to be used in connection with
sales of the Registrable Securities under the Registration Statement. SCIO and its counsel shall have a reasonable opportunity
to review and comment upon such prospectus prior to its filing with the SEC, and Adamas shall give due consideration to all such
comments. SCIO shall use its reasonable best efforts to comment upon such prospectus within one (1) Business Day from the date
SCIO receives the pre-filing version of such prospectus.
c.
Additional
Registration Statements
. At SCIO’s request, Adamas shall file new Registration Statements (“
New Registration
Statements
”), so as to cover any such remaining Registrable Securities (up to 900,000 shares of Common Stock in the aggregate),
(subject to the limitations set forth in Section 2(a)) in accordance with the following: (i) no earlier than the nine month anniversary
of the filing of the initial Registration Statement, file a New Registration Statement covering an additional Three Hundred Thousand
(300,000) shares of common stock, and (ii) no earlier than the fifteen month anniversary of the filing of the initial Registration
Statement, file a New Registration Statement covering the remaining Three Hundred Thousand (300,000) shares of common stock. Subject
to any limits that may be imposed by the SEC pursuant to Rule 415 under the Securities Act, Adamas shall use its reasonable best
efforts to cause New Registration Statement(s) to become effective as soon as practicable following the filing thereof. Unless
the Registration Period has ended, in the event that any of the shares of Common Stock are not included in the Registration Statements,
or have not been included in any New Registration Statement and Adamas files any other registration statement under the Securities
Act (other than on Form S-4, Form S-8, or with respect to other employee related plans or rights offerings) (“
Other Registration
Statement
”) then Adamas shall include in such Other Registration Statement first all of such shares of Common stock
that have not been previously registered, and second any other securities Adamas wishes to include in such Other Registration Statement.
d.
Offering
.
If the staff of the SEC (the “Staff”) or the SEC seeks to characterize any offering pursuant to a Registration Statement
filed pursuant to this Agreement as constituting an offering of securities that does not permit such Registration Statement to
become effective and be used for resales by SCIO, or its distributees, under Rule 415 at then-prevailing market prices (and not
fixed prices), or if after the filing of the initial Registration Statement with the SEC pursuant to Section 2(a), Adamas is otherwise
required by the Staff or the SEC to reduce the number of Registrable Securities included in such initial Registration Statement,
then Adamas shall reduce the number of Registrable Securities to be included in such initial Registration Statement (with the prior
consent, which shall not be unreasonably withheld, of SCIO and its legal counsel as to the specific Registrable Securities to be
removed therefrom) until such time as the Staff and the SEC shall so permit such Registration Statement to become effective and
be used as aforesaid. Unless the Registration Period has ended, in the event of any reduction in Registrable Securities pursuant
to this paragraph, Adamas shall file one or more New Registration Statements in accordance with Section 2(c) until such time as
all Registrable Securities have been included in Registration Statements that have been declared effective and the prospectus contained
therein is available for use by SCIO or its distributees. Notwithstanding any provision herein or in the Purchase Agreement to
the contrary, Adamas’s obligations to register Registrable Securities (and any related conditions to SCIO’s obligations)
shall be qualified as necessary to comport with any requirement of the SEC or the Staff as addressed in this Section 2(d).
With respect to the Registration
Statement and whenever any Registrable Securities are to be registered pursuant to Section 2 including on any New Registration
Statement, Adamas shall use its reasonable best efforts to effect the registration of the Registrable Securities in accordance
with the intended method of disposition thereof and, pursuant thereto, Adamas shall have the following obligations:
a. Adamas
shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to any registration
statement and the prospectus used in connection with such registration statement, which prospectus is to be filed pursuant to
Rule 424 promulgated under the Securities Act, as may be necessary to keep the Registration Statement or any New Registration
Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities of Adamas covered by the Registration Statement or any New Registration
Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods
of disposition by the seller or sellers thereof as set forth in such registration statement.
b. Adamas
shall permit SCIO to review and comment upon the Registration Statement or any New Registration Statement and all amendments and
supplements thereto at least two (2) Business Days prior to their filing with the SEC, and not file any document in a form to which
SCIO reasonably objects. SCIO shall use its reasonable best efforts to comment upon the Registration Statement or any New Registration
Statement and any amendments or supplements thereto within two (2) Business Days from the date SCIO receives the final version
thereof. Adamas shall furnish to SCIO, without charge any correspondence from the SEC or the staff of the SEC to Adamas or its
representatives relating to the Registration Statement or any New Registration Statement.
c. Upon
request of SCIO, Adamas shall furnish to SCIO (in digital format if possible), (i) promptly after the same is prepared and filed
with the SEC, at least one copy of such registration statement and any amendment(s) thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits, (ii) upon the effectiveness of any registration statement,
a copy of the prospectus included in such registration statement and all amendments and supplements thereto (or such other number
of copies as SCIO may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus,
as SCIO may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by
SCIO. For the avoidance of doubt, any filing available to SCIO via the SEC’s live EDGAR system shall be deemed “furnished
to SCIO” hereunder.
d. As
promptly as practicable after becoming aware of such event or facts, Adamas shall notify SCIO in writing of the happening of any
event or existence of such facts as a result of which the prospectus included in any registration statement, as then in effect,
includes an untrue statement of a material fact or omits 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, and promptly prepare a supplement
or amendment to such registration statement to correct such untrue statement or omission, and deliver a copy of such supplement
or amendment to SCIO (or such other number of copies as SCIO may reasonably request). Adamas shall also promptly notify SCIO in
writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a registration
statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to SCIO by
email or facsimile on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments
or supplements to any registration statement or related prospectus or related information, and (iii) of Adamas’ reasonable
determination that a post-effective amendment to a registration statement would be appropriate.
e. Adamas
shall use its reasonable best efforts to prevent the issuance of any stop order or other suspension of effectiveness of any registration
statement, or the suspension of the qualification of any Registrable Securities for sale in any jurisdiction and, if such an order
or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify SCIO
of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
f. Adamas
shall (i) cause all the Registrable Securities to be listed on each securities exchange on which securities of the same class or
series issued by Adamas are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules
of such exchange, or (ii) secure designation and quotation of all the Registrable Securities on the OTC market. Adamas shall pay
all fees and expenses in connection with satisfying its obligation under this Section.
g. Adamas
shall cooperate with SCIO to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to any registration statement and enable such certificates to be
in such denominations or amounts as SCIO may reasonably request and registered in such names as SCIO may request.
h. Adamas
shall at all times provide a transfer agent and registrar with respect to its Common Stock.
i. If
reasonably requested by SCIO, Adamas shall (i) immediately incorporate in a prospectus supplement or post-effective amendment such
information as SCIO believes should be included therein relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable Securities being sold, the purchase price being paid
therefor and any other terms of the offering of the Registrable Securities; (ii) make all required filings of such prospectus supplement
or post-effective amendment as soon as practicable upon notification of the matters to be incorporated in such prospectus supplement
or post-effective amendment; and (iii) supplement or make amendments to any registration statement.
j. Adamas
shall use its reasonable best efforts to cause the Registrable Securities covered by any registration statement to be registered
with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable
Securities.
k. Within
three (3) Business Days after any registration statement which includes the Registrable Securities is ordered effective by the
SEC, Adamas shall deliver, and shall cause legal counsel for Adamas to deliver, to the transfer agent for such Registrable Securities
(with copies to SCIO) confirmation that such registration statement has been declared effective by the SEC. Thereafter, if requested
by SCIO at any time, Adamas shall require its counsel to deliver to SCIO a written confirmation whether or not the effectiveness
of such registration statement has lapsed at any time for any reason (including, without limitation, the issuance of a stop order)
and whether or not the registration statement is current and available to SCIO for sale of all of the Registrable Securities.
l. Adamas
shall take all other reasonable actions necessary to expedite and facilitate disposition by SCIO of Registrable Securities pursuant
to any registration statement.
a. Adamas
shall notify SCIO in writing of the information Adamas reasonably requires from SCIO in connection with any registration statement
hereunder. SCIO shall furnish to Adamas such information regarding itself, the Registrable Securities held by it and the intended
method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such registration as Adamas may reasonably request.
b. SCIO
agrees to cooperate with Adamas as reasonably requested by Adamas in connection with the preparation and filing of any registration
statement hereunder.
c. SCIO
agrees that, upon receipt of any notice from Adamas of the happening of any event or existence of facts of the kind described in
Section 3(e) or the first sentence of 3(d), SCIO will immediately discontinue disposition of Registrable Securities pursuant to
any registration statement(s) covering such Registrable Securities until SCIO’s receipt of the copies of the supplemented
or amended prospectus contemplated by Section 3(e) or the first sentence of 3(d). Notwithstanding anything to the contrary, Adamas
shall cause its transfer agent to promptly deliver shares of Common Stock without any restrictive legend in accordance with the
terms of the Purchase Agreement in connection with any sale of Registrable Securities with respect to which SCIO has entered into
a contract for sale prior to SCIO’s receipt of a notice from Adamas of the happening of any event of the kind described in
Section 3(e) or the first sentence of Section 3(d) and for which SCIO has not yet settled.
|
5.
|
EXPENSES OF REGISTRATION
.
|
All reasonable expenses,
other than sales or brokerage commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections
2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees
and disbursements of counsel for Adamas, shall be paid by Adamas.
a. To
the fullest extent permitted by law, Adamas will, and hereby does, indemnify, hold harmless and defend SCIO, each Person, if any,
who controls SCIO, the members, the directors, officers, partners, employees, agents, representatives of SCIO and each Person,
if any, who controls SCIO within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the “
Exchange
Act
”) (each, an “
Indemnified Person
”), against any losses, claims, damages, liabilities, judgments,
fines, penalties, charges, costs, attorneys’ fees, amounts paid in settlement or expenses, joint or several, (collectively,
“
Claims
”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation
or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“
Indemnified Damages
”),
to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in the
Registration Statement, any New Registration Statement or any post-effective amendment thereto or in any filing made in connection
with the qualification of the offering under the securities or other “
blue sky
” laws of any jurisdiction in
which Registrable Securities are offered (“
Blue Sky Filing
”), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement
or alleged untrue statement of a material fact contained in the final prospectus (as amended or supplemented, if Adamas files any
amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary
to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading,
(iii) any violation or alleged violation by Adamas of the Securities Act, the Exchange Act, any other law, including, without limitation,
any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant
to the Registration Statement or any New Registration Statement or (iv) any material violation by Adamas of this Agreement (the
matters in the foregoing clauses (i) through (iv) being, collectively, “
Violations
”). Adamas shall reimburse
each Indemnified Person promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by
an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information
about SCIO furnished in writing to Adamas by such Indemnified Person expressly for use in connection with the preparation of the
Registration Statement, any New Registration Statement or any such amendment thereof or supplement thereto, if such prospectus
was timely made available by Adamas pursuant to Section 3(c) or Section 3(e); (ii) with respect to any superseded prospectus, shall
not inure to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities
that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material
fact contained in the superseded prospectus was corrected in the revised prospectus, as then amended or supplemented, if such revised
prospectus was timely made available by Adamas pursuant to Section 3(c) or Section 3(e), and the Indemnified Person was promptly
advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Indemnified Person,
notwithstanding such advice, used it; (iii) shall not be available to the extent such Claim is based on a failure of SCIO to deliver
or to cause to be delivered the prospectus made available by Adamas, if such prospectus was timely made available by Adamas pursuant
to Section 3(c) or Section 3(e); and (iv) shall not apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of Adamas, which consent shall not be unreasonably withheld. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer
of the Registrable Securities by SCIO pursuant to Section 9.
b. Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall,
if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party
a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel
with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented
by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party
in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim.
The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action,
claim or proceeding effectuated without its written consent, provided, however, that the indemnifying party shall not unreasonably
withhold, delay or condition its consent. No indemnifying party shall, without the consent of the Indemnified Party or Indemnified
Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability
in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated
to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating
to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified
Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability
to defend such action.
c. The
indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
d. The
indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party
or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject
to pursuant to the law.
To the extent any indemnification
by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however,
that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation;
and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received
by such seller from the sale of such Registrable Securities.
|
8.
|
REPORTS AND DISCLOSURE UNDER THE SECURITIES ACTS
.
|
With a view to making
available to SCIO the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the
SEC that may at any time permit SCIO to sell securities of Adamas to the public without registration (“
Rule 144
”),
Adamas agrees, at Adamas’s sole expense, to:
a. make
and keep public information available, as those terms are understood and defined in Rule 144;
b. use
reasonable efforts to file with the SEC in a timely manner all reports and other documents required of Adamas under the Securities
Act and the Exchange Act so long as Adamas becomes subject to such requirements and the filing of such reports and other documents
is required for the applicable provisions of Rule 144;
c. furnish
to SCIO so long as SCIO owns Registrable Securities, promptly upon request, (i) a written statement by Adamas that it has complied
with the reporting and or disclosure provisions of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent
annual or quarterly report of Adamas and such other reports and documents so filed by Adamas, and (iii) such other information
as may be reasonably requested to permit SCIO to sell such securities pursuant to Rule 144 without registration; and
d. take
such additional action as is requested by SCIO to enable SCIO to sell the Registrable Securities pursuant to Rule 144, including,
without limitation, delivering all such legal opinions, consents, certificates, resolutions and instructions to Adamas’ Transfer
Agent as may be requested from time to time by SCIO and otherwise fully cooperate with SCIO and SCIO’s broker to effect such
sale of securities pursuant to Rule 144.
|
9.
|
ASSIGNMENT OF REGISTRATION RIGHTS
.
|
Adamas shall not assign
this Agreement or any rights or obligations hereunder without the prior written consent of SCIO. SCIO may not assign, other than
to its distributees, its rights under this Agreement without the written consent of Adamas.
|
10.
|
AMENDMENT OF REGISTRATION RIGHTS
.
|
No provision of this Agreement
may be amended or waived by the parties from and after the date that is one Business Day immediately preceding the initial filing
of the Registration Statement with the SEC. Subject to the immediately preceding sentence, no provision of this Agreement may be
(i) amended other than by a written instrument signed by both parties hereto or (ii) waived other than in a written instrument
signed by the party against whom enforcement of such waiver is sought. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.
a. A
Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable
Securities. If Adamas receives conflicting instructions, notices or elections from two or more Persons with respect to the same
Registrable Securities, Adamas shall act upon the basis of instructions, notice or election received from the registered owner
of such Registrable Securities.
b. Any
notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be
in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent
by facsimile or email (provided confirmation of transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case
properly addressed to the party to receive the same. The addresses for such communications shall be:
If to Adamas:
|
Adamas One Corp.
|
|
10645 N. Tatum Road
|
|
Phoenix, AZ 85028
|
|
Attn: John G. Grdina
|
|
Facsimile:
|
|
Telephone: (864) 751-4880
|
|
E-mail:
Jay@adamasone.com
|
|
|
If to SCIO:
|
SCIO Diamond Technology Corporation
|
|
411 University Ridge, Suite D
|
|
Greenville, SC 29601
|
|
Facsimile:
|
|
Telephone: (864) 751-4880
|
|
E-mail:
gmcguire@sciodiamond.com
|
or at such other
address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice
given to each other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (A)
given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by
the sender’s facsimile machine or email account containing the time, date, recipient facsimile number or email address, as
applicable, and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service,
shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above, respectively.
c. The
corporate laws of the State of Nevada shall govern all issues concerning this Agreement. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of Nevada, without
giving effect to any choice of law or conflict of law provision or rule (whether of the State of Nevada or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the State of Nevada. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting the State of Arizona, County of Maricopa, for the
adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein,
and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that
the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address
for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted
by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability
shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability
of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
d. This
Agreement and the Purchase Agreement constitute the entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement and the Purchase Agreement supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
e. Subject
to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the successors and permitted
assigns of each of the parties hereto.
f. The
headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
g. This
Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute
one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by email in a
“
.pdf
” format data file of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
h. Each
party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
i. The
language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules
of strict construction will be applied against any party.
j. This
Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns, and is not
for the benefit of, nor may any provision hereof be enforced by, any other Person.
IN WITNESS WHEREOF, the
parties have caused this Agreement to be duly executed as of day and year first above written.
Adamas:
|
|
Adamas One Corp.
|
|
a Nevada corporation
|
|
By:
|
/s/ John Grdina
|
|
|
John Grdina, CEO/President
|
|
SCIO:
|
|
SCIO Diamond Technology Corporation
|
|
a Nevada corporation
|
|
By:
|
/s/ Gerald McGuire
|
|
|
Gerald McGuire, President
|
|
ADDENDUM A
LOCK-UP/LEAK-OUT PROVISIONS
The following
provisions shall apply to the Six Hundred Thousand (600,000) shares of Common Stock (the “
Shares
”) not included
in the initial registration statement pursuant to the terms of the Registration Rights Agreement, of which this Addendum is a part:
1.
Definitions
.
Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Registration
Rights Agreement, dated as of the date hereof.
(a)
“
Affiliate
”
means any Person directly or indirectly controlling, controlled by or under direct or indirect common control with a specified
Person and shall also include (i) any Person who is an officer or director of such specified Person or any subsidiary or beneficial
owner of at least five percent (5%) of the then outstanding capital stock of such specified Person and Family Members of any such
Person, or (ii) any Person of which such specified Person or an Affiliate of the specified Person shall, directly or indirectly,
either beneficially own at least ten percent (10%) of such Person’s outstanding capital stock.
(b)
“
Disposition
”
or “
Dispose
” means any sale, transfer, encumbrance, gift, donation, assignment, pledge, hypothecation or other
disposition, whether voluntary or involuntary.
(c)
“
Family
Members
”
means, as applied to any individual, such individual’s spouse, children (including stepchildren
or adopted children), grandchildren or parents thereof, and any trust or other estate planning vehicle created for the primary
benefit of the Holder or any one or more of the persons described above
(d)
“
Holder
”
means SCIO or any stockholder of SCIO who receives a distribution of Shares.
(e)
“
Permitted
Transferee
” means (i)
in the case of the Holders who are entities, to Affiliates of such Holders, or (ii) in the
case of the Holders who are individuals, to Family Members of such Holders.
(f)
“
Person
”
means
an individual, partnership, corporation, association, trust, joint venture, unincorporated organization and any government,
governmental department or agency or political subdivision thereof.
(g)
“
Shares
”
means the Six Hundred Thousand (600,000) shares of Adamas Common Stock not included in the initial registration statement subject
to the terms of the Registration Rights Agreement.
2.
Lock-Up
.
(a)
No
Holder may Dispose of all or any of the Shares other than in accordance with the following clauses (and then only in accordance
with applicable securities laws) and subject to
Sections 2(b) below
:
(i)
From
the nine-month anniversary to the day before the eighteenth-month anniversary of the filing of the initial registration statement,
each Holder may Dispose of up to 20% in aggregate of its Shares.
(ii)
From
the eighteenth-month anniversary to the day before the second anniversary of the filing of the initial registration statement,
each Holder may Dispose of up to 50% in aggregate of its Shares less any such Shares Disposed of pursuant to clause (i) above.
(iii)
From and after the second anniversary of the filing of the initial registration statement, each Holder may Dispose of any and all
Shares.
(b)
Notwithstanding
Section 2(a)
, any Holder may, from time to time, transfer all or any of its Shares:
(i)
to
Adamas or any Person designated by Adamas upon its repurchase of any Shares pursuant to the terms of any plan approved by the Adamas
board of directors.
(ii)
to
a Permitted Transferee;
provided
that in each case the transferor Holder shall have first delivered to Adamas the written
agreement of the transferee to become a party to this Addendum and the Transaction Documents to the same extent as if such transferee
were the Holder;
(iii)
in
connection with or at any time after an Acquisition Transaction; where an “
Acquisition Transaction
” means (A) any
Person or Group (as such term is defined in Section 13(d) of the Exchange Act) commencing a tender or exchange offer seeking to
acquire control of Adamas, but then only a transfer to such Person or Group pursuant to such offer, (B) any Person or Group
acquiring securities of Adamas representing at least 50% of the voting power of all of the outstanding securities of Adamas (a
“
Change of Control
”), or (C) any transaction as to which Adamas has entered into a definitive agreement or publicly
announced its support of which, if effected, would constitute a Change of Control, but then only a transfer pursuant to such transaction;
or
(iv)
with
the prior written consent of Adamas.
3.
Void
Dispositions
. Any Disposition of Shares made in contravention of any of the provisions of this
Addendum
shall not
be recognized by Adamas and shall be void and of no effect.
4.
Share
Certificates
. If and whenever a Holder holds a share certificate for Shares on which a legend appears referencing the restrictions
set forth in this
Addendum
and some or all of which Shares the Holder is then entitled to sell pursuant to
Section 2(a)
or
Section 2(b)(ii)
, then Adamas’ transfer agent shall deliver to such Holder, at the sole expense of the Holder,
(i) a replacement share certificate without such legend for such shares within ten (10) Business Days of such Holder’s
request therefor and delivery to Adamas’ transfer agent of the share certificate with the legend (the “original certificate”)
and (ii) a replacement share certificate with such legend for any additional shares evidenced by the original certificate
which remain subject to the restrictions set forth in this
Addendum
.
5.
Transfer
of Rights
. This Addendum, and the rights and obligations of each Holder hereunder, may be assigned by such Holder to any
person or entity that acquires all or any portion of the Shares owned by such Holder pursuant to the terms of this Addendum or
the Registration Rights Agreement. Any transferee to whom rights under this Addendum are transferred will as a condition of such
transfer, deliver to Adamas a written agreement to become a party to this Addendum to the same extent as if such transferee were
such Holder.
+ + + +
+