Document:

Exhibit 10.1

 

 

 

LOAN AGREEMENT

       THIS LOAN AGREEMENT ("Agreement") is made as of the 15th day of December, 2014 by and between Scio Diamond Technology Corporation, a Nevada corporation ("Borrower"), and Heritage Gemstone Investors, LLC, a South Carolina limited liability company (the "Lender").

RECITALS

		A.	Borrower has requested from Lender an extension of credit in the form of non-revolving cash advances ("Line" or "Loan"), the proceeds of which are to be used to refinance existing  indebtedness with Platinum Capital Partners, L.P. and for general working capital purposes, all as more particularly provided herein.

		B.	Lender is willing to agree to provide the Loan to Borrower on the terms and conditions hereinafter contained;

NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows:

1.         Documents  Delivered  by  Borrower.   To induce Lender to commit to make the requested Loan, Borrower shall, on the date hereof, deliver to Lender the following, all of which shall be in form and substance acceptable to Lender:

1.1     Promissory Note. Borrower's Promissory Note of even date herewith, in the maximum principal amount of Two Million and No/100 Dollars ($2,000,000.00), payable to Lender (the "Promissory Note");

1.2     Security Agreement. A Security Agreement in favor of Lender (the "Security Agreement") covering and guarantying Lender a first priority security interest in the personal property described therein (the "Personal Property");

1.3     Financing Statement.  UCC-1 Financing Statement executed by Borrower for filing in such offices as Lender may deem necessary or desirable relating to the Security Agreement Line.

1.4     Borrower's  Certificate  of  Incumbency  and  Resolutions. A Certificate of Incumbency and Resolutions executed by Borrower and relating to Borrower's organizational documents and resolutions authorizing the Loan.

1.5     Insurance Certificate. Certificates of insurance evidencing a policy or policies of insurance covering Borrower's operations and the Personal Property as required by Section 4.2 of this Agreement, such policy to insure against all risks and name Lender as loss payee on all property policies and as an additional insured as to all liability policies.

1.6            Financial Statements.                                            Current financial statements of Borrower in a form and prepared in a manner acceptable to Lender.

1.7       Searches.  Complete UCC and state and federal tax  lien searches from such offices as Lender may request which confirm that there are no liens or security interests in the Personal Property which would be prior to Lender's liens and security interests in the Personal Property.

1.8            Releases. A release/amendment document pursuant to which any security interest in the Personal Property other than the interest of Lender shall be released.

1.9            Lease and Upfit Financing.  Borrower's entry into a lease agreement for the property located at 28 Global Drive, Greenville, South Carolina 29607.

2.            Commitment of Lender.

2.1       Non-Revolving Line of Credit Loan. So long as there exists no Event of Default hereunder and no event has occurred which would be an Event of Default with the giving of notice or lapse of time or both, and subject to all other terms and conditions hereof, Lender shall lend to Borrower and Borrower may borrow from Lender against the Line for the account of Borrower. The advances in aggregate shall not exceed the maximum principal amount of the Promissory Note. Borrower and Lender acknowledge and agree that the Promissory Note shall be a non-revolving line of credit loan, and that any payments by Borrower applied to the principal balance of the Promissory Note may not be re-drawn by Borrower. Advances on the Line may be requested by Borrower on three (3) business days' prior written notice to Lender at any time prior to the Maturity Date, as defined in the Promissory Note, for the purposes set forth below, not to the exceed the amounts set forth below:

(i)       on or about even date herewith, Lender shall pay on behalf of Borrower and advance against the Line an amount not to exceed One Million Six Hundred Thousand and No/100  Dollars  ($1,600,000.00)  to refinance all existing indebtedness of Borrower with Platinum Capital Partners, L.P.; and

(ii)       at any time on or before the Maturity Date, Borrower may request from Lender advances on the Line not to exceed Four Hundred Thousand and No/100 Dollars ($400,000.00) (and in increments not less than $25,000.00) for general working capital purposes as approved by Lender, in its reasonable discretion.

Prior to any advance hereunder, Borrower shall provide to Lender such information, certifications and documentation as Lender may reasonably require, including, without limitation, an executed pay-off letter and lien release from Platinum Capital Partners, L.P., materialmen's lien waivers, and invoices for goods and services received.

2.2      Interest and Payments. Interest shall accrue on outstanding principal, and principal and interest shall be due and payable, on the Promissory Note as provided in the Promissory Note. All unpaid principal of the Promissory Note, all interest accrued thereon, and all fees and costs, shall be due and payable on the Maturity Date, as defined in the Promissory Note.

3.            Representations and Warranties. Borrower represents and warrants that the following are true and correct as of the date hereof and shall remain true and correct at all times hereafter so long as there remains any outstanding indebtedness or obligation of Borrower owing to Lender under the Loan Documents:

2

	 

 

 

 

3.1     Organization, Qualification and Authorization. Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada; has the power and authority to own its property and to carry on its business as now being conducted; and is duly qualified and licensed to do business, and is in good standing, in every jurisdiction in which the nature of the business in which it is engaged makes such qualification or licensing necessary.

3.2       Validity of Obligations. Borrower has full power, right and authority to execute and deliver this Agreement, the Security Agreement, the Promissory Note and all other documents, instruments and agreements required to be delivered by Borrower hereunder, as applicable (the "Loan Documents"), to obtain the credit herein provided for, and to perform and observe each and all of the matters and things provided for in the Loan Documents. The execution and delivery of the Loan Documents and the performance or observance of the terms thereof have been duly authorized by all necessary corporate and shareholder action and do not contravene or violate any provision of law or any provision of Borrower's organizational documents or any covenant, indenture or agreement of or binding upon Borrower, nor require the consent or approval of any governmental entity or agency.

3.3       Title to Assets. Borrower has good and marketable title to all of its property and assets reflected in its  most recent balance sheet delivered to Lender, including, without limitation, the Personal Property.

3.4      Litigation. Except as set forth on Schedule 3.4, no actions, suits or proceedings are pending or, to Borrower's knowledge, threatened, against or affecting it before any court, governmental or administrative body or agency which might result in any material adverse change in the operations, business property, assets or condition (financial or otherwise) of Borrower, or which would question the validity of this Agreement or of any action taken or to be taken by Borrower pursuant to or in connection with this Agreement.

3.5       No Events of Default. No Event of Default as hereinafter defined has occurred and is continuing as of the date hereof and no event has occurred and is continuing which would be an Event of Default hereunder were it not for any grace period specified herein or which would become an Event of Default if notice thereof were given to Borrower.

3.6       Financial Condition. The financial statements of Borrower heretofore furnished to Lender, if any, are complete and correct in all material aspects and fairly present the respective financial condition of Borrower at the date of such statements, and have been prepared in accordance with generally accepted accounting principles, consistently applied. Since the most recent set of financial statements delivered by Borrower to Lender, if any, there have been no material adverse changes in the financial condition of Borrower.

3.7     Licenses.  Borrower possesses adequate licenses, permits, franchises, patents, copyrights, trademarks and trade names, or rights thereto, to conduct its business substantially as now conducted and as presently proposed to be conducted.

3

	 

3.8          Taxes.            Borrower has filed all tax returns required to be file and either paid all taxes shown thereon to be due, including interest and penalties, which are not being contested in good faith and by appropriate proceedings, or provided adequate reserves for payment thereof, and Borrower has no information or knowledge of any objections to or claims for additional taxes in respect of federal income or excise profit tax returns for prior years.

3.9       Compliance with Laws. Except as provided on Schedule 3.9 hereof, Borrower is in compliance with all federal, state, and local laws, regulations and governmental requirements applicable to it or to any of its property, securities, business operations, employees, and transactions, including, but not limited to, all rules and regulations of the U.S. Securities and Exchange Commission.

3.10   Subsidiaries. Borrower has no subsidiaries that possess or control assets of or property owned by Borrower or that could otherwise be used to support the secured collateral of Lender.

4.         Affirmative Covenants.  Borrower covenants and agrees with Lender that so long as there remains any outstanding indebtedness or obligation of Borrower owing to Lender under the Loan Documents, Borrower will:

4.1       Maintain Assets. Maintain and keep its assets, properties and equipment in good repair, working order and condition and from time to time make or cause to be made all needed renewals, replacements and repairs so that at all times Borrower's business can be operated efficiently.

4.2       Insurance. Insure and keep insured all of its property of an insurable value under all risk policies in an amount reasonably acceptable to Lender and carry such other property insurance as is usually carried by persons engaged in the same or similar business (and as required by the Security Agreement) all such insurance to name Lender as loss payee and additional insured with a standard mortgagee clause, and from time to time furnish to Lender upon request appropriate evidence of the carrying of such insurance.

4.3            Financial Information.  Furnish to Lender:

(a)      Within twenty (20) days after the end of each month and within ninety (90) days after the end of each of Borrower's fiscal years a set of, respectively, interim and annual financial statements, including a balance sheet, statement of cash flow, profit and loss statement and related statements, prepared by  Borrower and, compiled for annual statement only, by a public accounting firm reasonably acceptable to Lender, in accordance with generally accepted accounting principles;

(b)      As soon as available and in any event within thirty (30) days after such returns are filed (and no later than December 15th of any year) a copy of the federal and state income tax return of Borrower (including all schedules and exhibits) or amendments thereto filed for the immediately preceding year;

(c)      Within twenty (20) days after the end of each month, an accounts receivable aging report inform and substance reasonably acceptable to Lender;

4

	 

 

  (d)            Within twenty (20) days after the end of each month, a listing of inventory in sufficient detail as to determine composition and value.

 

                (e)            Such other information as Lender may reasonably request from time to time.

4.4       Access to Records. Permit any person designated by Lender, at Lender's expense upon reasonable prior notice, to visit and inspect any of its properties, corporate books and financial records and to discuss its affairs, finances and accounts with the principal officers of Borrower, all at such reasonable times and as often as Lender may reasonably request, and unfettered electronic access to all deposit accounts maintained by Borrower with any bank and/or any other deposit institutions.

4.5       Taxes,  Assessments  and  Charges.    Promptly pay over to the appropriate authorities all sums for taxes deducted and withheld from wages as well as the employer's contributions and other governmental charges imposed upon or asserted against Borrower's income, profits, properties and rental charges or otherwise which are or might become a lien charged upon Borrower's properties, unless the same are being contested in good faith by appropriate proceedings and adequate reserves shall have been established on Borrower's books with respect thereto.

4.6            Notification of Changes. Promptly notify Lender of:

(a)     Any litigation actually known to Borrower which might materially and adversely affect Borrower or any of its respective properties;

(b)      any event of which Borrower has knowledge and which, with the passage of time or giving of notice or both, would constitute an Event of Default under this Agreement.

(c)      Any material adverse change in the operations, business, properties, assets or conditions, financial or otherwise, of Borrower.

4.7     Corporate Existence. Maintain its corporate existence in compliance with all applicable statutes, laws, rules and regulations.

4.8     Books and Records. Keep true and accurate books, records and accounts in accordance with sound accounting and bookkeeping practices.

4.9       Reimbursement  of  Expenses.   Promptly reimburse Lender for any and all reasonable out-of-pocket expenses, and all fees and disbursements, including attorneys' fees incurred in connection with the preparation and performance of this Agreement and the instruments and documents related thereto, and all expenses relating to the administration and collection of the Loan to be made hereunder, including reasonable attorneys' fees.

4.10            Net  Worth  Stop.   Borrower shall maintain a Book Net Worth of at least $4,000,000.00 at all times.

5

	 

  

5.          Negative Covenants.  Borrower hereby covenants and agrees with Lender that so long as there remains any outstanding indebtedness or obligation of Borrower owing to Lender under theLoan Documents, Borrower, without the prior approval of Lender, will not:

5.1       Merge, Consolidate or Sell. Merge or consolidate with or into another entity, or lease or sell all or substantially all of its property and business to any other entity or entities without the express consent of Lender, which consent may be withheld or granted in Lender's sole and absolute discretion.

5.2       Default on Other Obligations. Default upon or fail to pay, beyond any applicable periods of grace, any of its other debts or obligations as the same mature, unless the same are being contested in good faith by appropriate proceedings and adequate reserves shall have been established on Borrower's books with respect thereto.

5.3      Limitation  on  Liens  and  Encumbrances.   Except for the interests of Lender, Borrower will not at any time create, assume, incur or permit to exist, any mortgage, lien, pledge, charge, security interest or other encumbrance of any kind in respect of the Personal Property or any other assets, income or revenues of any character, whether heretofore or hereafter acquired by it.

5.4       Limitation on Distributions. Borrower may not make any distributions of cash or property of any kind whatsoever to its shareholders without the prior written consent of Lender which shall also include salaries, bonuses or other compensation payable to any manager or key employee of Borrower in amounts in excess of those set forth in periodic budgets provided to Lender.

5.5       Negative Pledge.  Borrower shall not, without Lender's prior written consent, which consent may be withheld or granted in Lender's sole and absolute discretion, sell (except inventory  in the ordinary  course of business), purchase and/or lease any  real or personal property, or other assets or equipment.

6.            Defaults.

6.1            Event of Default.  Any one or more of the following events shall constitute an Event of Default:

(a)            Payment. Borrower shall fail to pay when due, any payments due under the Promissory Note; or

(b)      Other Covenants or Agreements Herein. Borrower shall default in the due performance or observance of any term, covenant or agreement contained in this Agreement or any of the other Loan Documents (other than payments under the Promissory Note) and such default shall continue for a period of thirty (30) days after written notice thereof shall have been given by Lender to Borrower, or, if such default does not consist of the non-payment of money and cannot reasonably be cured within thirty (30) days, for such longer period of time not exceeding ninety (90) days as may be necessary to cure such default with the exercise of due diligence so long as Borrower is diligently proceeding to cure such default; or beyond the applicable cure period (if any)

6

(c)      Cross Default.   There occurs any breach, default or event of default under any other document, instrument or agreement between Borrower and Lender or any member thereof, or any affiliate thereof, including, without limitation: (i) that certain  Agreement for the Sale and Lease of Growers by and between Borrower and Lender and dated on or about even date herewith, together with any  amendments, restatements and replacements thereof; and (ii) that certain Lease Agreement between Borrower and Fairforest of Greenville, LLC dated on or about even date herewith; or

(d)      Insolvency.  Borrower shall (i) become insolvent, (ii) suspend business, (iii) make a general assignment for the benefit of its creditors, (iv) admit in writing its or his inability to pay its or his debts generally as they mature, (v) file a petition in bankruptcy or a petition or answer seeking a reorganization, arrangement with creditors or other similar relief under the Federal bankruptcy laws or under any other applicable law of the United States of America or any State thereof, (vi) consent to the appointment of a trustee or receiver for Borrower or for a substantial part of its property, (vii) be adjudicated a bankrupt or fail to cause an involuntary petition in bankruptcy to be dismissed within sixty (60) days after the filing thereof, (viii) take any action for the purpose of effecting or consenting to any  of the foregoing, or (ix) have an order, judgment or decree entered appointing a trustee, conservator or receiver for Borrower or for a substantial part of its property, or approving a petition filed against Borrower seeking a reorganization, arrangement with creditors or other similar relief under the Federal bankruptcy laws or under any other applicable law of the United States of America or any State hereof, which order, judgment or decree shall not be vacated or set aside or stayed within sixty (60) days from the date of entry; or

(e)      Representations and Warranties. If any material representation or warranty contained in this Agreement or any  of the other Loan Documents or any  letter or certificate furnished or to be furnished to Lender by Borrower pursuant to this Agreement proves to be false in any material respect as of the date executed or delivered to Lender; or

(f)       Judgments.   Judgments against Borrower for the payment of money totaling in excess of $5,000.00 shall be outstanding for a period of thirty (30) days without a stay of execution; or

(g)      Management Change. Any change in the senior management of Borrower for reasons other than death or incapacity not approved in writing by Lender, in its reasonable discretion; or

(h)      Material Adverse Change. Any material adverse change shall occur in the condition (financial or otherwise)  of Borrower which, in the  reasonable  opinion of Lender, materially increases its risk with respect to the Promissory Note; or

6.2      Lender's Right on Default. Upon the occurrence of an Event of Default, Lender may, at its option and without notice:  (a) accelerate amounts outstanding on the Promissory Note and demand immediate payment in full without presentment or other demand, protest, notice of dishonor or any other notice of any kind, all of which are expressly waived; (b) foreclose its lien on the Personal Property pursuant to the Security Agreement, as applicable, or take such other actions available under the terms of this Agreement and the other Loan Documents; and (c) take such other actions as may otherwise be available in equity or at law. All remedies of Lender shall be cumulative, non-exclusive and exercisable by Lender in its sole and absolute discretion.

7

7.         Miscellaneous.

7.1       Binding Effect.  The parties hereto agree that this Agreement shall be binding upon and inure to the benefit of their respective successors in interest and assigns including any holder of the Promissory Note, PROVIDED, HOWEVER, that Borrower may not assign or transfer its interest hereunder without the prior written consent of Lender.

7.2     Governing Law. This Agreement and the rights and obligations of the parties hereunder and under the Promissory Note and any other Loan Documents, shall be construed in accordance with and governed by the laws of the State of South Carolina. Borrower hereby consents to the jurisdiction of the state and federal courts of Greenville County, South Carolina for any actions brought hereon, on the Promissory Note or any other Loan Document.

7.3       Notices. Any notices required or contemplated hereunder shall be effective upon the placing thereof in the United States mails, certified mail and with return receipt requested, postage prepaid, and addressed as follows:

If to Borrower:                                  Scio Diamond Technology Corporation

411 University Ridge, Suite D Greenville, SC 29601

Attn: Gerald McGuire

If to Lender:                                        Heritage Gemstone Investors, LLC

136 Rubiwood Circle

Greer, SC 29651

Attn: Billy J. Coleman

7.4       No Waivers. No failure or delay on the part of Lender in exercising any right, power or privilege hereunder and no course of dealing between Borrower and Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege.

7.5       Headings. The headings of various sections of this Agreement have been inserted for reference only and shall not be deemed to be a part of this Agreement.

7.6       Amendment and Waiver. Neither this Agreement nor any provision hereof may be modified, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought.

8

	 

  

7.7       General Indemnity. Unless resulting from acts or conduct of Lender constituting willful misconduct or gross negligence and in addition to any other indemnity obligations of Borrower under this Agreement or any other Loan Document, Borrower releases and shall indemnify, defend and hold harmless Lender and its respective officers, employees and agents, of and from any claims, demands, liabilities, obligations, judgments, injuries, losses, damages and costs and expenses (including, without limitation, reasonable legal fees) resulting from: (a) acts or conduct of Borrower under, pursuant or related to this Agreement and the other Loan Documents; (b) Borrower's breach or violation of any representation, warranty, covenant or undertaking contained in this Agreement or the other Loan Documents; (c) Borrower's failure to comply with any applicable laws; and (d) any claim by Borrower, or any principal, officer, agent, employee, or creditor thereof, against Lender arising out of any transaction whether hereunder or in any way related to the Loan Documents and all costs, expenses, fines, penalties or other damages resulting therefrom.

7.8       Waiver. No failure or delay on the part of Lender in exercising any power or right hereunder, and no failure of Lender to give Borrower any notice of an Event of Default, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any other or further exercise thereof or the exercise of any other right or power hereunder. No modification or waiver of any provision of any Loan Document or consent to any departure by Borrower from any Loan Document shall in any event be effective unless the same shall be in writing and signed by Lender, and such waiver or consent shall be effective only in the specific instance and for the particular purpose for which it was given.

7.9     No Participation. Nothing in the Loan Documents, and no action or inaction whatsoever on the part of Lender undertaken in connection with the Loan, shall be deemed to make Lender a partner or joint venturer with Borrower.

7.10     Notice of Conduct. Borrower agrees to use commercially reasonable efforts to give Lender written notice of any action or inaction, to the extent that Borrower has actual knowledge thereof, by Lender or any agent or attorney of Lender in connection with the Loan Documents or the obligations of any party under the Loan Documents that Borrower reasonably believes may be actionable against Lender or any agent or attorney of Lender or a defense to payment of any indebtedness or other obligations owing to Lender, including commission of a tort or violation of any contractual duty implied by law, and a reasonable opportunity to cure or correct such action or inaction. Upon request of Lender from time to time, Borrower shall also confirm in writing the status of the Loan and provide other information reasonably requested by Lender.

7.11     Costs,   Expenses   and   Attorneys'   Fees.  In  addition  to  any  payment  or reimbursement obligations of Borrower hereunder and under the other Loan Documents, Borrower shall pay to Lender immediately on demand, the full amount of all reasonable out-of- pocket costs and expenses, including reasonable attorneys' fees, costs of experts and all other expenses incurred by Lender: (a) the perfection, preservation, protection and continuation of the liens and security interest granted Lender in the Personal Property and the custody, preservation, protection, repair and operation of any of the Personal Property; (b) the pursuit by Lender of its rights and remedies under the Loan Documents and applicable law; and (c) defending any counterclaim, cross-claim or other action, or participating in any bankruptcy proceeding, mediation, arbitration, litigation or dispute resolution of any other nature involving Lender, Borrower or any Personal Property, except to the extent Lender has been adjudicated to have engaged in culpable conduct.

9

	 

7.12     Further Assurances. At any time after the date hereof, Borrower, at the request of Lender, shall execute and deliver such further documents and agreements and take such further actions as Lender reasonably deems necessary or appropriate to permit each transaction contemplated by the Loan Documents to be consummated in accordance with the provisions thereof and to perfect, preserve, protect, continue and enforce Lender's rights and remedies regarding all liens, security interests and rights of Lender under the Loan Documents, security agreements,  financing  statements,  continuation statements,  new or replacement  promissory notes, and/or agreements supplementing, extending or otherwise modifying the Promissory Note, this Agreement, and/or any security agreement, and certificates as to the amount of the indebtedness evidenced by the Promissory Note.

[SIGNATURE PAGE ATTACHED]

10

	
 

EXECUTED by the undersigned this Loan Agreement to be effective as of the date above first written:

 

	 	 	
BORROWER:

	 	 	
SCIO DIAMOND TECHNOLOGY CORPORATION

	 	 	
A Nevada corporation

	 	 	 
	 	 	 
	 	
By:

	 /s/ Gerald McGuire
	 	 	
Gerald McGuire

	 	
Its:

	
Chief Executive Officer

	 	 	 
	 	 	
LENDER:

	 	 	
HERITAGE GEMSTONE INVESTORS, LLC

	 	 	 
	 	 	 
	 	
By:

	 /s/ Billy J. Coleman
	 	 	
Billy J. Coleman

	 	
Its:

	
President and Chief Executive Officer

 

11

	 

	
SCHEDULE 3.4

LITIGATION

Mark P. Sennott, et al. v. Edward S. Adams, et al., and Nominal Defendant Apollo Diamond, Inc., Cause No. 6:13-cv-012813-BHH (U.S. District Court for the District of South Carolina)

12

	 

	
SCHEDULE 3.4

COMPLIANCE WITH LAWS

The U.S. Securities and Exchange Commission ("SEC") has initiated an investigation In the Matter of Scio Diamond Technology Corporation (C-08091), and as part of that investigation has issued a subpoena to the Borrower, former officers or directors of the Borrower and other parties.  At this time, it is unknown whether the SEC may pursue a claim or action against the Borrower in connection with the investigation, and if so, the purported basis for any such claim or action.  The Borrower is cooperating in the investigation.

	 

13Exhibit 10.2

 

SECURITY AGREEMENT

Dated effective as of December 15, 2014

DEBTOR:                                                                                            SECURED PARTY:

Scio Diamond Technology Corporation

411 University Ridge, Suite D Greenville, South Carolina 29601

State of Formation:  Nevada

Federal ID No. 45-3849662

  Heritage Gemstone Investors, LLC

136 Rubiwood Circle

Greer, SC 29651

1.         Security Interest and Collateral. To secure the payment and performance of each and every debt, liability and obligation of every type and description that Debtor may now or at any time hereafter owe to Secured Party (including, but not limited to, whether such debt, liability or obligation now exists or is hereafter created or incurred, and whether it is or may be direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or joint, several or joint and several; all such debts, liabilities and obligations collectively referred to as the "Obligations"), including, without limitation, the debt liability and obligation of Debtor to Secured Party evidenced by that certain Promissory Note of even date herewith in the original principal amount not to exceed $2,000,000.00 (the ''Note" or "Secured Note") and payment and other obligations of Debtor arising under that certain Agreement for the Sale and Lease of Growers by and between Debtor and Secured Party and dated on or about even date herewith, Debtor hereby grants Secured Party a security interest (the "Security Interest") in the following property (the "Collateral"):

(a)      INVENTORY: All inventory of Debtor, whether now owned or hereafter acquired and wherever located;

(b)      EQUIPMENT: All equipment of Debtor, whether now owned or hereafter acquired, including, but not limited to, all present and future growers, including, without limitation those growers identified on Schedule A.1 attached hereto, machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office and recordkeeping equipment, parts and tools, and the goods described in any equipment schedule or list herewith or hereafter furnished to Secured Party by Debtor (but no such schedule or list need be furnished in order for the security interest granted herein to be valid as to all of Debtor's equipment);

(c)      ACCOUNTS AND OTHER RIGHTS TO PAYMENT: Each and every right of Debtor to the payment of money, whether such right to payment now exists or hereafter arises, whether such right to payment arises out of a sale, lease or other disposition of goods or other property by Debtor, out of a rendering of services by Debtor, out of a loan by Debtor, out of the overpayment of taxes or other liabilities of Debtor, or otherwise arises under any contract or agreement, whether such right to payment is or is not already earned by performance, and howsoever such right to payment may be evidenced, together with all other rights and interests (including all liens and security interests) that Debtor may at any time have by law or agreement against any account debtor or other obligor obligated to make any such payment or against any of the property of such account debtor or other obligor; all including, but not limited to, all

payment intangibles, debt instruments, chattel paper, accounts, deposit accounts, loans and obligations receivable and tax refunds;

(d)      INTANGIBLES: All intangibles of Debtor, whether now owned or hereafter acquired, including, but not limited to, general intangibles, investment property (including, but not limited to, limited liability  company  membership interests, partnership interests and corporate stock interests), software, applications for patents, patents, copyrights, trademarks, trade secrets, goodwill, trade names, customers lists, permits and franchises, internet domain names, uniform resource locators (URLs), website contracts and registration rights and the right to use Debtor's name; together with all substitutions and replacements for and products of any of the foregoing property and together with proceeds of any and all of the foregoing property and, in the case of all tangible Collateral, together with all accessions and together with: (i) all accessories, attachments, parts, equipment and repairs now or hereafter attached or affixed to or used in connection with any such goods, and (ii) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such goods.

All of the foregoing whether now owned or hereafter acquired and wherever located together with any products and proceeds thereof, and any appurtenances, accessions and other rights, claims or benefits arising from or pertaining thereto, including, but not limited to, any claims to any of the foregoing property, and any claims of Debtor against any third parties, for the damage to or destruction of any or all portions of such property and or for proceeds payable under, or unearned premiums with respect to, policies of insurance.

2.         Representations, Warranties and Agreements.  Debtor represents, warrants and agrees that:

(a)            Debtor is a Nevada Corporation.

(b)      The Collateral will be used primarily for business purposes and shall only be located at: (i) the address of Debtor set forth in the caption of this Agreement or (ii) 28 Global Drive, Greenville, South Carolina 29607.

(c)      Debtor's chief executive office is located at the address of Debtor shown at the beginning of this Agreement.

3.            Additional  Representations,  Warranties  and  Agreements.  Debtor represents, warrants and agrees that:

(a)      Debtor has (or will have at the time Debtor acquires rights in Collateral hereafter arising) absolute title to each item of Collateral free and clear of all security interests, liens and  encumbrances, except the Security Interest or other security interests in favor of Secured Party, and will defend the Collateral against all claims or demands of all persons other than Secured Party. Any such security interests, liens or encumbrances not permitted under this Agreement shall be void. Debtor will not sell or otherwise dispose of the Collateral or any interest therein without the prior written consent of Secured Party. This Agreement has been duly and validly authorized by all necessary corporate action.

2

	 

 

(b)       Each right to payment and each instrument, document, chattel paper and other agreement constituting or evidencing Collateral is (or will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no defense, setoff or counterclaim (other than those arising in the ordinary course of business) of the account debtor or other obligor named therein or in Debtor's records pertaining thereto as being obligated to pay such obligation. Debtor will neither agree to any  material modification or amendment nor agree to any cancellation of any such obligation without Secured Party's prior written consent, and will not subordinate any such right to claims of other creditors of such account debtor or other obligor.

(c)            Debtor will:

(i)       keep all tangible Collateral in good repair, working order and condition, normal depreciation excepted, and will, from time to time, replace any worn, broken or defective parts thereof;

(ii)       promptly pay all taxes and other governmental charges levied or assessed upon or against any Collateral or upon or against the creation, perfection or continuance of the Security Interest except as Debtor shall contest in good faith and by appropriate proceedings providing such reserves as are required by generally accepted accounting principles;

(iii)      keep all Collateral free and clear of all security interests, liens and encumbrances except for the Security Interest;

(iv)      at all reasonable times, permit Secured Party or its representatives to examine or inspect  any Collateral, wherever located, and to examine, inspect and copy Debtor's books and records pertaining to the Collateral and its business and financial condition and to send and discuss with account debtors and other obligors requests for verifications of amounts owed to Debtor;

(v)       keep accurate and complete records pertaining to the Collateral and pertaining to Debtor's business and financial condition and submit to Secured Party such periodic reports concerning the Collateral and Debtor's business and financial condition as Secured Party may from time to time reasonably request;

(vi)      promptly notify Secured Party of any loss of or material damage to any Collateral or of any adverse change, known to Debtor, in the prospect of payment of any sums due on or under any instrument, chattel paper, or account constituting Collateral;

(vii)     if Secured Party at any time so requests (whether the request is made before or after the occurrence of an Event of Default), promptly deliver to Secured Party any instrument, document or chattel paper constituting Collateral, duly endorsed or assigned by Debtor;

(viii)    at all times keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft, collision (in case of Collateral consisting of motor vehicles) and such other risks and in such amounts as Secured Party may reasonably request with any loss payable to Secured Party to the extent of its interest;

3

  

(ix)      from time to time authorize such financing statements as Secured Party may reasonably require in order to perfect the Security Interest and, if any Collateral consists of an asset subject to a certificate of title, execute such documents as may be required to have the Security Interest properly noted on a certificate of title;

(x)       pay when due or reimburse Secured Party on demand for all costs of collection of any of the Obligations and all other out-of-pocket expenses (including in each case all reasonable attorneys' fees) incurred by Secured Party in connection with the creation, perfection, satisfaction, protection, defense or enforcement of the Security  Interest or the creation, continuance, protection, defense or enforcement of this Agreement or any or all of the Obligations, including expenses incurred in any litigation or bankruptcy or insolvency proceedings;

(xi)      execute, deliver or endorse any and all instruments, documents, assignments, security agreements and other agreements and writings that Secured Party may at any time reasonably request in order to secure, protect, perfect or enforce the Security Interest and Secured Party's rights under this Agreement;

(xii)     not use or keep any Collateral, or permit it to be used or kept, for any unlawful purpose or in violation of any federal, state or local law, statute or ordinance;

(xiii)    not permit any tangible Collateral to become part of or to be affixed to any real property without first assuring to the reasonable satisfaction of Secured Party that the Security Interest will be prior and senior to any interest, or lien then held or thereafter acquired by any mortgagee of such real property or the owner or purchaser of any interest therein; and

(xiv)    inform Secured Party of any change to Debtor's name, address or state of formation prior to the effective date of such change and authorize and deliver to Secured Party any financing  statement that is necessary  as a result of that change to maintain the perfected status of the Security Interest.

If Debtor at any time fails to perform or observe any agreement contained in this Section 3(c), and if such failure shall continue for a period of ten (10) calendar days after Secured Party gives Debtor written notice thereof (or, in the case of the agreements contained in clauses (viii) and (ix) of this Section 3(c), immediately upon the occurrence of such failure, without notice or lapse of time), Secured Party may (but need not) perform or observe such agreement on behalf and in the name, place and stead of Debtor (or, at Secured Parry's option, in Secured Party's own name) and may (but need not) take any and all other actions that Secured Party may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of security interests, liens, or encumbrances, the performance of obligations under contracts or agreements with account debtors or other obligors, the procurement and maintenance of insurance, the filing of financing statements, the endorsement of instruments, and the procurement of repairs, transportation or insurance); and except to the extent that the effect of such payment would be to render any loan or forbearance of money usurious or otherwise illegal under any applicable law, Debtor shall thereupon pay Secured Party on demand the amount of all moneys expended and all costs and expenses (including reasonable attorneys' fees) incurred by Secured Party in connection with or as a result of Secured Party's performing or observing such

4

 

agreements or taking such actions, together with interest thereon from the date expended or incurred by Secured Party at the highest rate then applicable to any of the Obligations. To facilitate the performance or observance by Secured Party of such agreements of Debtor, Debtor hereby irrevocably appoints (which appointment is coupled with an interest) Secured Party, or its delegate, as the attorney-in-fact of Debtor with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of Debtor, any and all instruments, documents, financing statements, termination statements for filings not permitted under this Agreement held by other secured parties, applications for insurance and other agreements  and  writings  required  to  be obtained,  executed,  delivered  or endorsed  by Debtor under this Section 3.

4.         Account Verification and Collection Rights of Secured Party. Secured Party shall have the right to verify any accounts in the name of Debtor or in its own name; and Debtor, whenever requested, shall furnish Secured Party with duplicate statements of the accounts, which statements may be mailed or delivered by Secured Party for that purpose. Secured Party may at any time (both before and after the occurrence of an Event of Default) notify any account debtor, or any other person obligated to pay any amount due, that such chattel paper, account, or other right to payment has been assigned or transferred to Secured Party for security and shall be paid directly to Secured Party. If Secured Party so requests at any time, Debtor will so notify such account debtors and other obligors in writing and will indicate on all invoices to such account debtors or other obligors that the amount due is payable directly to Secured Party. At any time after Secured Party or Debtor gives such notice to an account debtor or other obligor, Secured Party may (but need not), in its own name or in Debtor's name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, any such chattel paper, account, or other right to payment, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any such account debtor or other obligor.

5.         Assignment of Insurance. Debtor hereby assigns to Secured Party, as additional security for the payment of the Obligations, any and all moneys (including, but not limited to, proceeds of insurance and refunds of unearned premiums) due or to become due under and all other rights of Debtor under or with respect to, any and all policies of insurance covering the Collateral, and Debtor hereby directs the issuer of any such policy to pay any such moneys directly to Secured Party. Both before and after the occurrence of an Event of Default, Secured Party may (but need not), in its own name or in Debtor's name, execute and deliver proofs of claim, receive all such moneys, endorse checks and other instruments representing payment of such moneys, and adjust, litigate, compromise or release any claim against the issuer of such policy.

6.            Events of Default.                                      "Events of Default" in this Agreement means any of the following events:

(a)            There occurs any Event of Default under that certain Loan Agreement by and between Debtor and Secured Party dated of even date herewith (the "Loan Agreement");

(b)            Debtor fails to pay when due any principal, interest, fees or other payments due under the Secured Note or any other indebtedness of Debtor to Secured Party,

5

	 

 

whether any such indebtedness is now existing or hereafter arises and whether direct or indirect, due or to become due, absolute or contingent, primary or secondary or joint or joint and several;

(c)      Debtor shall fail to perform or comply with any of the covenants, conditions or agreements to be observed or performed by it under this Security Agreement, and/or the Secured Note, and/or the Loan Agreement, or any credit or similar agreement between Debtor and Secured Party for a period of twenty (20) days after written notice of such default given by Secured Party and/or Guarantor;

(d)    This Security Agreement and/or the Secured Note, and/or the Loan Agreement, cease(s) to be in full force and effect or is declared null and void or the validity or enforceability hereof and/or thereof is contested or challenged by Debtor or any of its members;

(e)      If a garnishment summons or a writ of attachment is issued against or served upon Secured Party for the attachment of any property of Debtor in Secured Party's possession or any indebtedness owing to Debtor;

(f)        If a petition is filed by or against Debtor under the United States Bankruptcy Code, or if a trustee, receiver or similar officer is appointed for Debtor or for the property of Debtor, and in the case of any such action or proceeding commenced against any such party, such action or proceeding is not dismissed within sixty (60) days; or

(g)      If the Secured Party shall at any time have reasonable grounds to believe that the prospect of due and punctual payment of any of the obligations of the Debtor now or hereafter existing under, or pursuant to, this Security Agreement, and/or the Secured Note is impaired.

7.         Remedies upon Event of Default.   Upon the occurrence of an Event of Default under Section 6 and at any time thereafter, Secured Party may exercise any one or more of the following rights and remedies: (i) declare all unmatured obligations pursuant to the Note and/or this Agreement to be immediately due and payable, and the same shall thereupon be immediately due and payable, without presentment of other notice or demand; (ii) exercise and enforce any or all rights and remedies available upon default to a secured party under the Uniform Commercial Code, including, but not limited to, the right to take possession of any Collateral, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which Debtor hereby expressly waives), and the right to sell, lease or otherwise dispose of any or all of the Collateral, and in connection therewith, Secured Party may require Debtor to make the Collateral available to Secured Party at a place to be designated by Secured Party that is reasonably convenient to both parties, and if notice to Debtor of any intended disposition of Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in Section 10) at least ten (10) calendar days prior to the date of intended disposition or other action; (iii) exercise or enforce any or all other rights or remedies available to Secured Party at law, equity, or agreement against the Collateral, against Debtor or against any other person or property. Secured Party is hereby granted a nonexclusive, worldwide and royalty-free license to use or otherwise exploit all trademarks, trade secrets, franchises, copyrights and patents of Debtor that Secured Party deems necessary or appropriate to the disposition of any Collateral.

6

8.         Other Personal Property.  Unless at the time Secured Party takes possession of any tangible Collateral, or within seven days thereafter, Debtor gives written notice to Secured Party of the existence of any goods, papers or other property of Debtor, not affixed to or constituting  a part of such Collateral, but that are located or found upon or within such Collateral, describing such property, Secured Party shall not be responsible or liable to Debtor for any action taken or omitted by or on behalf of Secured Party with respect to such property without actual knowledge of the existence of any such property or without actual knowledge that it was located or to be found upon or within such Collateral.

9.         Termination. This Agreement and Secured Party's security interests created hereunder shall continue until repayment in full of the Obligations; PROVIDED, HOWEVER, that Secured Party's security interests hereunder shall terminate on the repayment in full of the Note, together with all outstanding interest, default interest, fees, costs and reimbursement and indemnity obligations thereon and under the other Loan Documents have been satisfied in full.

10.       Miscellaneous.   This Agreement does not contemplate a sale of accounts, payment intangibles or chattel paper. This Agreement can be waived, modified, amended, terminated or discharged and the Security Interest can be released, only explicitly in a writing signed by Secured Party. A waiver signed by Secured Party shall be effective only in a specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of Secured Party's rights or remedies. All rights and remedies of Secured Party shall be cumulative and may be exercised singularly or concurrently, at Secured Party's option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to not bar the exercise or enforcement of any other. All notices to be given to Debtor shall be deemed sufficiently given if delivered or mailed by registered or certified mail, postage prepaid, to Debtor at its address set forth above or at the most recent address shown on Secured Party's records. Secured Party's duty of care with respect to Collateral in its possession (as imposed by  law) shall be deemed fulfilled if Secured Party exercises reasonable care in physically safekeeping such Collateral or, in the case of Collateral in the custody or possession of a bailee or other third person, exercises reasonable care in the selection of the bailee or other third person, and Secured Party need not otherwise preserve, protect, insure or care for any Collateral. Secured Party shall not be obligated to preserve any rights Debtor may have against prior parties, to realize on the Collateral at all or in any particular manner or order, or to apply any cash proceeds of Collateral in any particular order of application and Secured Parry may disclaim any and all implied warranties (as imposed by law) in connection with the disposition of Collateral. This Agreement shall be binding upon and inure to the benefit of Debtor and Secured Party and their respective heirs, representatives, successors and assigns and shall take effect when signed by Debtor and delivered to Secured Party, and Debtor waives notice of Secured Party's acceptance hereof. Secured Party may execute this Agreement if appropriate for the purpose of filing, but the failure of Secured Party to execute this Agreement shall not affect or impair the validity or effectiveness of this Agreement. This Agreement shall be governed by the internal laws of the State of South Carolina. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications that can be given effect and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the

7

	 

Obligations. Debtor hereby irrevocably submits to the jurisdiction of state and federal courts of Greenville County, South Carolina, over any action or proceeding arising out of or relating to this Agreement and agrees that all claims in respect of such action or proceeding may be heard an determined in any such court.

[SIGNATURE PAGE ATTACHED]

8

	 

EXECUTED, by the undersigned this Security Agreement to be effective as of the date above first written:

 

	 	 	
BORROWER:

	 	 	
SCIO DIAMOND TECHNOLOGY CORPORATION

	 	 	
A Nevada corporation

	 	 	 
	 	 	 
	 	
By:

	 /s/ Gerald McGuire
	 	 	
Gerald McGuire

	 	
Its:

	
Chief Executive Officer

	 	 	 
	 	 	
LENDER:

	 	 	
HERITAGE GEMSTONE INVESTORS, LLC

	 	 	 
	 	 	 
	 	
By:

	 /s/ Billy J. Coleman
	 	 	
Billy J. Coleman

	 	
Its:

	
President and Chief Executive Officer

	 

9

 

 

 

 

 

 

  

10

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00238-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00238-of-00352.parquet"}]]