Document:

exhibit10-3.htm

Exhibit 10.3

 

ASSET PURCHASE AGREEMENT

 

THIS ASSET PURCHASE AGREEMENT (this “Agreement”) dated as of May 31, 2012, is by and among APOLLO DIAMOND GEMSTONE CORPORATION, a Delaware corporation (“ADGC”), and SCIO DIAMOND TECHNOLOGY CORPORATION, a Nevada corporation (“SCIO”).   ADGC may be referred to in this Agreement as the “Seller” and SCIO may be referred to in this Agreement the “Purchaser.” Seller and Purchaser may be referred to in this Agreement collectively as the “Parties” and individually as a “Party.”

 

RECITALS

 

     WHEREAS, Seller has previously been engaged in the business of manufacturing and marketing laboratory-created gemstone diamonds (the “Business”) using the proprietary technology of its parent company, Apollo Diamond, Inc. (“ADI”) and technology, trade secrets, patents  and inventory developed by the Seller;

 

     WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to acquire from Seller, certain of the property, inventory,  and assets, rights, and privileges of Seller related to, used in, or otherwise associated with the previous operation of the Business on the terms and subject to the conditions set forth in this Agreement;

 

     NOW THEREFORE, in consideration of the promises and mutual agreements, benefits, representations, warranties, and covenants of the Parties contained herein, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound subject to the terms and conditions hereof, the Parties each agree as follows:

 

ARTICLE I

 

DEFINITIONS AND INTERPRETATION

 

     1.1 Definitions and Interpretation. Unless otherwise expressly provided to the contrary in this Agreement (a) capitalized terms used herein shall have the meanings set forth in Section 1.2, unless the context otherwise requires and (b) this Agreement shall be interpreted in accordance with the provisions set forth in Section 1.3.

 

     1.2  Definitions.  Subject to Section 1.3 below, the following terms shall have the following definitions when used in the Agreement:

 

“Accredited Investor” has the meaning set forth in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended.

 

“ADGC” has the meaning set forth in the Preamble.

 

 “ADI” has the meaning set forth in the Preamble.

 

 “Affiliate” means a Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with another Person.  As used in this definition, “control” means the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Purchaser, on the one hand, and Seller, on the other hand, will not be deemed to be Affiliates of each other.

 

 

  

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“Agreement” has the meaning set forth in the Preamble.

 

“Business” has the meaning set forth in the Recitals above.

 

“Business Day” means any day other than a Saturday, Sunday, or other day on which commercial banks in Greenville, South Carolina are authorized or required by Law to close.

 

“Cash Payment” has the meaning set forth in Section 2.3.  

 

“Claim” means any demand, claim, cause of action, suit, demand, judgment, complaint, notice of noncompliance or violation, or other assertion of Liability.

 

“Closing” has the meaning set forth in Section 3.1.

 

“Closing Date” has the meaning set forth in Section 3.1.

 

 “Consent” means any necessary ratification by, notification requirement to, filing or registration with, or consent, waiver, approval, permit, or other authorization from, a Governmental Authority or other third party.

 

“Contemplated Transactions” means all of the transactions contemplated by this Agreement, including: (a) the sale of the Purchased Assets to Purchaser; (b) the execution and delivery of the Transaction Documents; and (c) the performance by the Parties of their respective covenants and obligations under this Agreement.

 

“Contract” means any contract, agreement, lease, license, instrument, commitment, or other obligation or arrangement (whether written or oral), and any liability, cost, or expense of whatever kind or nature relating to the foregoing, that is binding on a Person or any part of its property under applicable Law.

 

 “Damages” means any and all damages, losses, liabilities, payments, obligations, penalties, fines, assessments, charges, costs, Taxes, disbursements or expenses (including interest, awards, judgments, settlements, costs of redemption, fees, reasonable disbursements and expenses of attorneys, accountants and other professional advisors and of expert witnesses and costs of investigation and preparation of any kind or nature whatsoever) and court costs.

 

 “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“Excluded Assets” has the meaning set forth in Section 2.2.

 

 “Governmental Authority” means the United States and any foreign, state, county, city, or other political subdivision and any department, commission, ministry, board, bureau, agency, commission, officer, official, court, tribunal, arbitrator, board or bureau or other instrumentality thereof or any quasi-governmental or private body exercising any regulatory, administrative, taxing, importing, exporting, or other governmental or quasi-governmental function and any self-regulatory organization, such as a securities exchange.

 

“Governmental Order” means any Order, directive, writ, judgment, injunction, decree, stipulation, determination, or award by or with any Governmental Authority.

 

 “Interim Period” means the period of time from the date of this Agreement until the earlier of the Closing or the Termination Date.

 

“Knowledge” “Know” “Knowing” means in the case of Seller, the actual knowledge of the Seller directors, officers, employees, representatives or agents after reasonable inquiry, but without independent investigation and, in the case of Purchaser, the actual knowledge of the Purchaser’s directors or officers after reasonable inquiry, but without independent investigation.

 

 

  

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“Law” means all applicable local, state, federal, tribal, and foreign laws (whether statutory or common) and rules, regulations, rules, tariffs and regulatory authorizations, codes (including the Code), and ordinances promulgated thereunder, as well as case law, judgments, orders, consent orders, or decrees.

 

“Lease” means any lease or sublease, including any amendments thereto, of any Purchased Asset.

 

 “Liabilities” means any and all expenses, debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, or determined or determinable, including those arising under any Law or Governmental Order and those arising under any contract, agreement, arrangement, commitment or undertaking.

 

“Lien” means any charge against or interest in property to secure payment of a debt or performance of an obligation such as a Claim, debt, mortgage, indenture, hypothecation, encumbrance, Liability, lien, right of redemption, security interest, mechanic’s or materialman’s lien, judgment lien, assessment, special assessment, title defect, restriction, reservation, reversion, Contract, or right or interest of any third party, whether absolute or contingent, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction.

 

“Material Adverse Effect” with respect to any Person means any change, event, development, circumstance or effect (each, an “Effect”) that, individually or taken together with all other related Effects, is, or would be reasonably expected to be, materially adverse (i) to the condition (financial or otherwise), assets, liabilities (taken together), business or results of operations of such Person and its subsidiaries, taken as a whole, but excluding the Effect (A) resulting from general economic conditions that does not disproportionately affect such Person in any material respect, (B) affecting companies in the industry in which it conducts its business generally, provided that such Effect does not disproportionately affect such Person in any material respect, or (C) resulting from the announcement or performance of this Agreement or the transactions contemplated hereby or (ii) on the ability of such Person to perform its obligations under this Agreement and the Transaction Documents or to consummate the Contemplated Transactions.

 

 “Order” means any order, ruling, decision, verdict, decree, charge, award (including arbitration awards), judgment, injunction, directive or other similar determination or finding by, before, or under the supervision of any Governmental Authority, or any arbitrator, board of arbitration, or similar entity including any regulatory or administrative Proceeding.

 

“Ordinary Course of Business” means, with respect to any Person, the ordinary course of business of such Person consistent with past custom and practice (including with respect to quantity and frequency).

 

“Party” or “Parties” has the meaning as set forth in the Preamble.

 

“Person” means any individual, firm, association, incorporated or unincorporated organization, partnership, business, trust, estate, joint stock company, joint venture, club, syndicate, company, corporation, Governmental Authority, or other legal entity.

 

“Purchase Consideration Allocation” has the meaning set forth in Section 7.1.

 

“Purchased Assets” has the meaning set forth in Section 2.1.

 

 

  

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“Purchaser” has the meaning set forth in the Preamble.

 

 “Purchaser’s Reimbursable Expenses” means, with respect to Purchaser, the reasonable and documented out-of-pocket fees and expenses incurred by Purchaser, prior to the termination of this Agreement, in connection with the Contemplated Transactions and the preparation, negotiation, prosecution, and performance of this Agreement, including all reasonable fees and expenses of counsel, investment banking firms, financial advisors, accountants, and consultants to Purchaser in connection therewith.

 

“SCIO” has the meaning set forth in the Preamble.

 

 “Seller” has the meanings set forth in the Preamble.

 

 “Straddle Period” has the meaning set forth in Section 7.2.

 

 “Tangible Personal Property” means hardware, tools, machinery, instruments, supplies, materials, spare parts, and any other items of tangible personal property.

 

“Tax” means any federal, state, local or foreign income tax, ad valorem tax, excise tax, sales tax, use tax, value added tax, alternative or add-on minimum tax, franchise tax, real or personal property tax, transfer tax, gross receipts tax, escheat or unclaimed property tax, or other tax, assessment, duty, fee, levy or other governmental charge of any kind whatsoever, together with and including any and all interest, fines, penalties, assessments and additions to tax resulting from, relating to, or incurred in connection with any such tax or any contest or dispute thereof.

 

“Termination Date” has the meaning set forth in Section 9.1(b).

 

 “Transaction Documents” means the agreements listed in Sections 3.3 and 3.4 and any other agreements or documents executed in connection with or as required under this Agreement.

 

 “Underlying Technology” means any and all technical information, software, specifications, drawings, records, shared drive and other computer files, work product, works of authorship, or other creative works or ideas knowledge, know-how, trade-secrets, invention disclosures, or other data including works subject to copyright protection and mask works associated with Seller’ website or operation thereof, including related e-mail.

 

     1.3                      Interpretations. Unless expressly provided for elsewhere in this Agreement, this Agreement shall be interpreted in accordance with the following provisions:

 

All references herein to Articles, Sections, Exhibits and Schedules are to Articles and Sections of and Exhibits and Schedules attached to and forming part of this Agreement, unless the contrary is specifically stated;

 

(a)                 The headings of the Articles, Sections and subsections of this Agreement and the headings contained in the Exhibits and Schedules hereto are inserted for convenience of reference only and shall not in any way define or affect the meaning, construction, or scope of any of the provisions hereof or thereof;

 

(b)                 A defined term has its defined meaning throughout this Agreement and each Exhibit and Schedule to this Agreement, regardless of whether it appears before or after the place where it is defined;

 

(c)                 In the event of any conflict between the main body of this Agreement and the Exhibits and Schedules hereto, the provisions of the main body of this Agreement shall prevail;

 

 

  

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(d)                  Except where specifically stated otherwise, any reference to any statute, regulation, rule, or agreement shall be a reference to the same as amended, supplemented or re-enacted from time to time;

 

(e)                 Whenever the words “include,” “including,” or “includes” appear in this Agreement, they shall be read as if followed by the words “without limitation” or words having similar import;

 

(f)                 Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine, or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa;

 

(g)                 A reference to any agreement or document (including a reference to this Agreement) is to the agreement or document as amended, varied, supplemented, novated or replaced, from time to time, except to the extent prohibited by this Agreement or that other agreement or document;

 

(h)                 A reference to any party to this Agreement or another agreement or document includes the party’s permitted successors and assigns;

 

(i)                 A reference to a writing includes a facsimile or other electronic transmission of it and any means of reproducing of its words in a tangible and permanently visible form;

 

(j)                 A reference to a statute, regulation or law shall include any amendment thereof or any successor thereto and any rules and regulations promulgated there under;

 

(k)                The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement;

 

(l)                 Unless otherwise specified, all references to a specific time of day in this Agreement shall be based upon Central Standard Time or Central Daylight Savings Time, as applicable on the date in question;

 

(m)               References to “$” or to “dollars” shall mean the lawful currency of the United States of America;

 

(n)                No action shall be required of the Parties except on a Business Day and in the event an action is required on a day which is not a Business Day, such action shall be required to be performed on the next succeeding day which is a Business Day;

 

(o)                All references to “day” or “days” shall mean calendar days unless specified as a “Business Day;”

 

(p)                Time periods within or following which any payment is to be made or act is to be done shall be calculated by excluding the day on which the time period commences and including the day on which the time period ends and by extending the period to the next Business Day following if the last day of the time period is not a Business Day.

 

ARTICLE II

 

PURCHASE AND SALE

 

     2.1 Purchase and Sale of Purchased Assets. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell, convey, assign, transfer, and deliver to Purchaser, and Purchaser shall purchase, acquire, and accept from Seller, free and clear of any interest in such property as provided by 11 U.S.C. §363(f), all of Seller’s right, title, and interest in and to all of the property, inventory, assets, rights, privileges and other assets, other than the Excluded Assets, of Seller related to, used in, held for use in, or otherwise associated with the operation of the Business (collectively, the “Purchased Assets”), including the following:

 

 

  

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(a) Intellectual Property. Any and all patents and trade secrets and other Underlying Technology owned and/or developed by ADGC which were used or held for use in the Business (including assignment to Purchaser of any rights of Seller with respect to patents and trade secrets and other Underlying Technology under any license or other contract (the "Licensed IP Rights");

 

(b) Equipment. All furniture, equipment, computers, computer equipment, machinery, tools, hand tools, spare parts, test equipment, supplies, inventory, office supplies, telephones, and all other tangible personal property of every kind and description insofar as any of the foregoing relates to the operation of the Business; and

 

(c)  Inventory.  All goods, items, parts, pieces or materials of every kind necessary in the operation of the Business or produced by or in coordination with the Business, whether diamond, metal or any other substance, wherever located and whether currently in the possession of the Seller or any third party.

 

     2.2 Excluded Assets. Notwithstanding anything to the contrary in Section 2.1 or elsewhere in this Agreement or other Transaction Documents, the Purchased Assets shall not include, and Purchaser will not acquire any interest in or purchase the following assets which shall remain the property of the applicable Seller (collectively, the “Excluded Assets”):  

 

(a) Transaction Rights. All rights of Seller under this Agreement and the other Transaction Documents, and all cash and non-cash consideration payable or deliverable to, or on behalf of, Seller by Purchaser pursuant hereto and thereto;

 

(b) Contracts. Any and all of the interests, rights, Claims, and benefits arising or accruing to or against Seller under any Contract (other than interests, rights, Claims, and benefits arising or accruing to Seller with respect to the Licensed IP Rights);

 

(c) Books and Records. The original copies of all of the Books and Records, other than the original copies of the Assigned Intangible Assets (which shall be provided to Purchaser pursuant to Section 2.1(l) and of which Seller may retain photocopies), and any Books and Records of Seller (i) that are not permitted to be transferred to Purchaser under applicable Law, (ii) that constitute charters, bylaws, limited liability company agreements, minute books, stock transfer records, and other records related to the corporate governance of Seller, and (iii) all other books and records of Seller that do not relate primarily to the Purchased Assets or Business (collectively, the “Retained Books and Records”);

 

(d) Third Party Property. Any improvements, equipment, inventory and any other tangible personal property that are not owned by or leased to Seller; and

 

(e) Claims and Warranties. Any and all Claims, warranties, reimbursements, and indemnities of Seller, whether choate or inchoate, known or unknown, contingent or non-contingent; and

 

     2.3 Consideration. Subject to the other terms of this Agreement, the consideration for the Purchased Assets shall consist of cash in an amount of $100,000 as stipulated between the Parties (the “Cash Payment”).  In addition, Purchaser shall permit each current and former ADGC shareholder set forth on Schedule 2.3 who is an Accredited Investor to purchase the number of shares of Purchaser common stock indicated on Schedule 2.3 with respect to such current or former ADGC shareholder (which number shall not exceed number of shares of common stock that such Person owned of ADGC prior to the repurchase of shares by ADGC that began in 2011), subject to such terms and conditions, including representations, warranties, releases, and time limitations, as Purchaser shall determine.

 

 

  

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    Purchaser and Seller understand that substantially concurrently with the offer to certain current and former ADGC shareholders as set forth above, Purchaser intends to also permit each current and former ADI shareholder set forth on Schedule 2.3 who is an Accredited Investor to purchase the number of shares of Purchaser common stock indicated on Schedule 2.3 with respect to such current or former ADI shareholder (which number shall not exceed number of shares of common stock that such Person owned of ADI prior to the repurchase of shares by ADI that began in 2011), subject to such terms and conditions, including representations, warranties, releases, and time limitations, as Purchaser shall determine.

 

     2.4 Retained Liabilities.

 

(a)  Purchaser shall not assume any Liabilities whatsoever of Seller.  Seller shall retain and be solely liable for and hereby expressly agrees to retain any and all of its Liabilities (collectively, the “Retained Liabilities”), regardless of whether any such Retained Liability is disclosed herein or in any Schedule hereto, whether known or unknown, absolute or contingent, liquidated or unliquidated, whether due or to become due, and whether Claims with respect thereto are asserted before or after the Closing Date. Without limiting the generality of the preceding sentence, Retained Liabilities shall include the following:

 

               (i)                                Transaction Liabilities. Any and all Liabilities of Seller under the Transaction Documents;

 

               (ii)                               Excluded Assets. Any and all Liabilities of Seller with respect to the Excluded Assets;

 

               (iii)                              Purchased Assets and Pre-Closing Business.  All Taxes, Claims and Liabilities arising out of Seller’ ownership, operation, use, or maintenance of the Purchased Assets or conduct of the Business, as well as any other matters arising from events occurring, conditions existing, or costs accruing prior to the Closing;

 

               (iv)                               Taxes. Any and all Liabilities of Seller for Taxes, including Taxes that relate to (A) the ownership, operation, use, or maintenance of the Purchased Assets or Business prior to the Closing Date, or (B) any sales, use, transfer, or other similar Taxes imposed as a result of the consummation of the Contemplated Transactions or performance of the Transaction Documents;

 

       (v)                              Legal Proceedings. Any and all Liabilities of Seller that relate to any Proceeding involving the Purchased Assets or Business, including warranty, personal injury, breach of contract, failure to perform, infringement, noncompliance with Law, and tort Claims, that is (a) pending or threatened as of the Closing, or (b) commenced after the Closing but that arises out of or relate to any event, omission, or occurrence happening as of or prior to the Closing;

 

               (vi)                                Environmental Liabilities.  Any and all Liabilities of Seller with respect to any violation of Law including those arising from (a) the release, threatened release, presence, treatment, storage, disposal (including disposal at off site locations), handling, transportation or arrangement for transportation of hazardous substances prior to the Closing, (b) any failure of Seller to comply in any respect with Environmental, Health, and Safety Laws prior to the Closing, and (c) any facts, events, or circumstances in existence prior to the Closing that give rise to Liabilities pursuant to Environmental, Health, and Safety Laws;

 

 

  

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               (vii)                                Employees.  Any and all Liabilities of any nature of Seller to Seller Employees, including Liabilities with respect to (a) any Contract, plan or policy, (b) wages, withholdings, overtime pay, minimum wage, employment Tax, vacation, sick pay, bonuses, severance pay, retirement, or other compensation, (c) benefits under Employee Benefit Plans, (d) the Worker Adjustment and Retraining Notification Act (WARN) of August 4, 1988 or equivalent state or local statutory or regulatory requirements, (e) any collective bargaining agreement or obligation or requirement under the National Labor Relations Act, (f) reporting, filing, hiring or other employment obligations with the Office of Federal Contract Compliance Programs, (g) all immigration related obligations, including all requirements of the Immigration Reform and Control Act of 1986, (h) any governmental or administrative proceeding for the enforcement of labor and employment laws and regulations, and (i) all other employment and employment related federal, state and local statutes, regulations, administrative requirements, common laws, and public policies;

 

               (viii)                               Intercompany Liabilities. Any and all Liabilities of Seller for intercompany advances, charges, or accounts payable of any kind or nature; and

 

               (ix)                                Broker Fees.  Any and all fees, commissions, and other compensation due and owing to any broker, finder, or agent retained by Seller.           

 

     2.5 Casualty Losses.

 

(a)  Purchaser shall accept the Purchased Assets “as is” without warranty as to their condition and operation as of the date of this Agreement.  However, if between the date of this Agreement and the Closing, there is an actual casualty loss to any Purchased Assets in which the cost to recover, salvage, and repair such Purchased Asset(s) to the state of condition and repair existing for such Purchased Asset(s) as of the date of this Agreement (collectively, the “Purchased Assets Repair Costs”) exceeds the casualty loss value ascribed to such Purchased Asset(s) (the “Casualty Loss Amount”), or any loss to any Purchased Assets by seizure, forced sale or other involuntary transfer then, if so directed by Purchaser in its sole discretion, the subject Purchased Asset(s) shall be deemed an Excluded Asset and shall not be sold to Purchaser hereunder, and the Cash Payment shall be reduced by an amount equal to the loss value ascribed to such Purchased Asset(s) as mutually determined by Seller and Purchaser; provided, however, that such determination shall be made by the Parties prior to Closing.

 

(b) The provisions of this Section 2.5 shall be applied with respect to all casualty losses or damage suffered by any Purchased Assets and, notwithstanding any other provision of this Agreement, the Parties shall be required to proceed with the Closing, subject to the other terms and conditions for the Closing, provided, further that in no event shall any casualty loss or damage to which this Section 2.5 applies constitute a breach of any other provision of this Agreement by Seller or be aggregated with any other actions, omissions, or failures of Seller in the determination of any breach of this Agreement by Seller, and for the avoidance of doubt no such casualty loss or damage shall in any way be considered in the determination of a termination of this Agreement under Section 9.1.      

 

 

  

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ARTICLE III

 

CLOSING

 

     3.1 Closing. Provided that this Agreement shall not have been earlier terminated pursuant to Section 9.1, and further provided that all of the conditions set forth in Sections 8.1 and 8.2 to the obligations of the Parties to consummate the Contemplated Transactions (other than conditions with respect to actions each Party will take at the Closing itself) shall have been satisfied or waived, the closing of the Contemplated Transactions (the “Closing”) shall take place at such place and time as the Parties shall mutually agree, but shall occur on May 31, 2012 or any extension thereof as mutually agreed by the Parties, but in no case later than June 6, 2012 (the “Closing Date”).

 

     3.2 Risk of Loss. The risk of damage, destruction, or other casualty loss to or of the Purchased Assets shall remain with Seller from and after the execution of this Agreement until 11:59 p.m. on Closing Date, at which time Seller shall place Purchaser in possession of the Purchased Assets.  From and after the Closing, all risk of damage, destruction, or other casualty loss to or of the Purchased Assets shall be borne solely by Purchaser and to the fullest extent permitted by Law, Purchaser agrees to indemnify, defend and hold Seller and their respective officers, directors, equity owners, and agents harmless from against any and all Claims and pay any and all Damages (including for personal injury, property damage or loss, and third party suits) to the extent attributable to the Purchased Assets and arising from events first occurring or conditions first existing from and after the Closing.

 

     3.3 Deliveries of Seller. At the Closing, Seller will deliver (or cause to be delivered) to Purchaser each of the following items:

 

	
(a)  

	
Master Bills of Sale. One or more Master Bills of Sale, each substantially in the form of Exhibit 3.3(a), duly executed by the Seller and dated as of the Closing Date;

 

	
(b)  

	
Assignments and Assumptions of Intangible Assets. One or more Assignments and Assumptions of Intangible Assets, each substantially in the form of Exhibit 3.3(b), duly executed by the Seller and dated as of the Closing Date;

 

	
(c)  

	
Officer’s Certificates. A certificate from Seller duly executed by an authorized officer thereof certifying as to the fulfillment of each condition specified in Sections 8.1(a) and 10.1(b) and dated as of the Closing Date;

 

	
(d)  

	
Corporate Authorizations. Copies of the resolutions of Seller, certified by the Secretary or Assistant Secretary thereof as being correct and complete and then in full force and effect, authorizing the execution, delivery and performance of this Agreement and the Transaction Documents and the consummation of the Contemplated Transactions;

 

	
(e)  

	
Mutual Release.  In consideration for payment of the Cash Payment, Seller shall deliver a mutual release by Seller in favor of Purchaser and by Purchaser in favor of Seller on terms mutually acceptable to the Parties; and

 

	
(f)  

	
Miscellaneous. Any and all other documents, instruments, or agreements contemplated by this Agreement or as are necessary or appropriate or reasonably requested by Purchaser to fully consummate the Contemplated Transactions, in each case in form and substance reasonably satisfactory to Purchaser, duly executed, and dated as of the Closing Date.

 

 

  

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     3.4 Deliveries of Purchaser. At the Closing, Purchaser will deliver (or cause to be delivered) to Seller each of the following items:

 

 (a) Cash Payment. The Cash Payment, against delivery of the items specified in Section 3.3 and in accordance with Section 2.3;

 

(b) Officer’s Certificates. A certificate of Purchaser duly executed by an authorized officer thereof certifying as to the fulfillment of each condition specified in Sections 8.2(a) and 8.2(b) and dated as of the Closing Date;

 

(c) Corporate Authorizations. Copies of the resolutions of Purchaser, certified by the Secretary or Assistant Secretary thereof as being correct and complete and then in full force and effect, authorizing the execution of this Agreement and the Transaction Documents; and

 

(d) Miscellaneous. Any and all other documents, instruments, or agreements contemplated by this Agreement or as are necessary or appropriate or reasonably requested by Seller to fully consummate the Contemplated Transactions, in each case in form and substance reasonably satisfactory to Seller, duly executed, and dated as of the Closing Date.

 

     3.5 Delivery of Warrants by Purchaser. Following the Closing and prior to June 30, 2012, Purchaser will, in accordance with Section 2.3, distribute materials to allow certain current and former stockholders of ADGC and ADI to subscribe for shares of common stock of purchaser.

 

     3.6 Survival of Representations, Warranties and Covenants. All representations, warranties and covenants of the Parties set forth in this Agreement and the Transaction Documents shall survive the Closing.  Following the Closing, Seller shall indemnify and defend the Purchaser against, and shall hold the Purchaser harmless from, any loss, Claim, demand, Order, penalty, fine, settlement payment, Liability, Tax, encumbrance, diminution in value, charge, action, suit, proceeding, damage or expense (including any reasonable attorneys’ fees and expenses), whether or not involving a third-party claim (collectively, “Losses”) incurred by the Purchaser resulting from or arising out of: (a) any breach or inaccuracy of any representation and warranty made by Seller contained in this Agreement; (b) any breach of, or failure of any Seller to perform, any covenant or agreement made by Seller contained herein; (c) any Excluded Assets or Retained Liabilities; (d) any Claim or proceeding by any current or former ADGC shareholder arising out of, resulting from or in any way relating to the Contemplated Transactions; and (e) any Claim of a third party to any Purchased Assets.

 

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF SELLER

 

     As a material inducement to Purchaser to enter into this Agreement and consummate the Contemplated Transactions, Seller represents and warrants to the Purchaser that the statements contained in this Article IV are correct and complete as of the date of this Agreement, and will be correct and complete as of the Closing (unless any such representation or warranty speaks to an earlier date, in which case the statements contained in such representation or warranty will be correct and complete as of such date) as though made then and as though the Closing were substituted for the date of this Agreement throughout this Article IV:

 

 

  

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     4.1 Organization.

 

                                (a) Apollo Diamond Gemstone Corporation is a corporation, duly organized, validly existing, and in good standing under the Laws of the State of Delaware.

 

                                (b) Seller is duly qualified or licensed to conduct its business as a foreign entity and is in good standing under the Laws of each jurisdiction where such qualification or license is required, except where the failure to be so qualified as would not, individually or in the aggregate, have a Material Adverse Effect.

 

     4.2 Power and Authority.

 

(a) Seller has the requisite corporate power and authority necessary to own, lease, or operate its properties and assets and carry on its business as presently conducted.

 

(b) Seller has the requisite corporate power and authority to execute and deliver this Agreement, the Transaction Documents and the other documents contemplated hereby, to perform its obligations hereunder and thereunder, and to consummate the Contemplated Transactions.

 

     4.3 Authorization. Seller has taken all corporate actions, including Board of Director and shareholder approvals, necessary to authorize the execution and delivery of this Agreement, the Transaction Documents and the other documents contemplated hereby to which such Seller is a party, the performance of such Seller’s obligations hereunder and thereunder, and the consummation of the Contemplated Transactions. This Agreement, the Transaction Documents, and the other documents contemplated hereby has been duly authorized, approved, executed, and delivered by Seller.  This Agreement constitutes and, as of the Closing, the Transaction Documents and the other documents required to be executed and delivered by Seller at the Closing will each constitute, a valid and legally binding obligation of Seller and, assuming the due authorization, execution, and delivery thereof by the other parties hereto and thereto, enforceable against Seller in accordance with its terms and conditions.

 

     4.4 Noncontravention.                                                      Neither the execution and delivery by Seller of this Agreement, the Transaction Documents or any other documents contemplated hereby, nor the performance by Seller of its obligations hereunder or thereunder, nor the consummation by Seller of the Contemplated Transactions, will (a) violate any provision of the Organizational Documents of Seller, (b) violate any Permit, Law, Order, or other restriction of any Governmental Authority to which Seller or any of the Purchased Assets is subject or bound, (c) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel or require any notice under, or result in the creation of any Lien upon any of the Purchased Assets under any Contract to which Seller is a party or by which Seller or any of the Purchased Assets is subject or bound, or (d) require Seller to give any notice to, make any filing with, or obtain any Consent of any Governmental Authority or other third party, in each case in clauses (c) and (d) except as would not, individually or in the aggregate, have a Material Adverse Effect.

 

     4.5 Assets. Seller owns good and marketable title, free and clear of all Liens other than Permitted Encumbrances, to all of the Purchased Assets. Immediately after the Closing, Purchaser shall have good and marketable title to all of the Purchased Assets, free and clear of all Liens.  The Purchased Assets have been maintained in accordance with past practice, are in sufficient operating condition and repair (subject to normal wear and tear) suitable for the purposes for which they are presently or were most recently used in the Business.  The Purchased Assets include all tangible and intangible property and assets necessary for the conduct of the Business after the Closing in the same manner as the Business was conducted by Seller.

 

 

  

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     4.6 Absence of Undisclosed Liabilities. Seller does not have, and as of the Closing, will not have, any obligation or Liability (in any case, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated or due or to become due).

 

     4.7 Legal Compliance.  The Business is in material compliance with all Laws applicable to the Business or any of the Purchased Assets.  No Proceeding or Claim has been received by Seller or filed, commenced or, to the Knowledge of Seller, threatened against Seller, in each case with respect to the Business and the Purchased Assets, alleging a violation of or liability or potential responsibility under any law.

 

     4.8 Litigation; Proceedings. There are no material Proceedings or Claims pending or, to Seller’s Knowledge threatened, against or affecting Seller and relating to the Business or the Purchased Assets, or to which the Purchased Assets may be bound or affected, at Law or in equity, or before or by any Governmental Authority; Seller is not subject to any Order with respect to the Business or the Purchased Assets.

 

     4.9 Tax Matters. (a) Seller has timely filed (or joined in the filing of) all Tax Returns required by applicable Law to be filed by Seller (taking into account any extensions of time within which to file); (b) all such Tax Returns were true, correct and complete in all respects; all Taxes owing by Seller (whether or not shown on any Tax Return) have been paid; (c) there is no Proceeding or Claim concerning any Seller Taxes either claimed or raised by any Tax authority in writing; (d) no written Claim has been made by any Tax authority in a jurisdiction where Seller does not currently file a Tax Return that it is or may be subject to any Tax by such jurisdiction, nor has any such assertion been threatened or proposed in writing; (e) Seller does not have any outstanding request for any extension of time within which to pay Taxes or file any Tax Returns; (f) there are no outstanding waivers or extensions of any applicable statute of limitations for the assessment or collection of any Taxes; (g) Seller is not a “foreign person” within the meaning of Section 1445 of the Code; (h) Seller is not a party to, or bound by, any Tax allocation, Tax indemnity, Tax sharing, or similar agreement or arrangement that imposes or could impose liability on Seller for the Taxes of another Person (other than any other Seller); (i) Seller does not have any material liability for the Taxes of another Person, consolidated group or combined group under Treasury Regulation Section 1.1502-6 or any similar provision of applicable Law, including as a transferee or successor, (j) Seller has withheld and paid all material Taxes required to be withheld by Seller in connection with any amounts paid or owing to any employee, creditor, independent contractor or other third party; and (k) no material liens for Taxes exist with respect to Seller’ assets.  Seller has not relied on Purchaser for any Tax, or accounting or legal, advice or analysis.

 

     4.10 Absence of Certain Developments.  Prior to the date hereof:

 

(a) Seller has not sold, leased, transferred or assigned any of their assets, tangible or intangible, other than in the Ordinary Course of Business;

 

 

  

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(b) Seller has not entered into any Contract outside the Ordinary Course of Business, except for Contracts entered into in connection with Seller’ strategic sale or restructuring process (excluding contingent sales agreements);

 

(c) Seller has not accelerated, terminated, modified or canceled any material Contract to which any Seller is a party or by which any Seller is bound and, to Seller’ the Knowledge, no party intends to take any such action;

 

(d) Seller has not suffered or imposed any Lien (other than any Permitted Encumbrances) upon any of its assets, tangible or intangible;

 

(e) Seller has not canceled, compromised, waived, or released any right or Claim outside the Ordinary Course of Business;

 

(f) Seller has not experienced any material damage, destruction, or loss (whether or not covered by insurance) to their properties or the Purchased Assets;

 

(g) To Seller’s Knowledge, there has not been any other occurrence, event, incident, action, failure to act or transaction outside the Ordinary Course of Business involving the Business or the Purchased Assets; and

 

(h) Seller has not committed to do any of the foregoing.

 

     4.11  Contracts. Seller is not a party to any Contract or other agreement affecting the Purchased Assets or their use in the Business or that would be useful to the Purchaser in the conduct of the Business.

 

     4.12  Customers and Suppliers.  No material supplier of Seller has indicated that it shall stop, or materially decrease the rate of, supplying, products to Seller for the Business.

 

     4.13  Accounts Receivable.  Seller has no accounts receivable as of the date hereof.

 

     4.14 Broker Fees. Seller is solely liable for any and all fees, commissions, or other compensations to any broker, finder, or agent retained by any Seller, if any, with respect to the Contemplated Transactions.

 

     4.15 No Preferential Purchase Rights There are no preferential purchase rights, options or other similar rights in any Person, not a party to this Agreement, to purchase or acquire any interest in the Purchased Assets, in whole or in part.

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

     As a material inducement to Seller to enter into this Agreement and to consummate the Contemplated Transactions, Purchaser represents and warrants to Seller that the statements contained in this Article V are correct and complete as of the date of this Agreement, and will be correct and complete as of the Closing Date (unless any such representation or warranty speaks to an earlier date in which case, the statements contained in such representation or warranty will be correct and complete as of such date) as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article V:

 

     5.1 Organization.

 

(a) Scio Diamond Technology Corporation is a corporation duly incorporated, validly existing, and in good standing under the Laws of the State of Nevada.

 

 

  

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(b) Purchaser is duly qualified or licensed to conduct its business as a foreign entity and is in good standing under the Laws of each jurisdiction where such qualification or license is required, except where the failure to be so qualified would not individually or in the aggregate have a material adverse effect on the ability of Purchaser to perform their obligations under this Agreement or the Transaction Documents or to consummate the Contemplated Transactions.

 

     5.2 Power and Authority.

 

(a) Purchaser has the requisite corporate power and authority necessary to own, lease, or operate its properties and assets and carry on its business as presently conducted.

 

(b) Purchaser has the requisite corporate power and authority to execute and deliver this Agreement, the Transaction Documents and the other documents contemplated hereby, to perform its obligations hereunder and thereunder, and to consummate the Contemplated Transactions.

 

     5.3 Authorization. Purchaser has taken all corporate actions necessary to authorize the execution and delivery of this Agreement, the Transaction Documents and the other documents contemplated hereby, the performance of Purchaser’s obligations hereunder and thereunder, and the consummation of the Contemplated Transactions. This Agreement, the Transaction Documents and the other documents contemplated hereby have been duly authorized, approved, executed, and delivered by such Purchaser.  This Agreement constitutes and, as of the Closing, the Transaction Documents and other documents required to be executed and delivered by Purchaser at the Closing will each constitute, a valid and legally binding obligation of Purchaser and, assuming the due authorization, execution, and delivery thereof by the other parties hereto and thereto, enforceable against such Purchaser in accordance with its terms and conditions.  

 

     5.4 Noncontravention. Neither the execution and delivery by Purchaser of this Agreement, the Transaction Documents or any other documents contemplated hereby, nor the performance by Purchaser of its obligations hereunder or thereunder, nor the consummation by Purchaser of the Contemplated Transactions, will (a) violate any provision of the Organizational Documents of Purchaser or, to the Knowledge and belief of Purchaser, any Law, Order, or other restriction of any Governmental Authority to which Purchaser or its assets are subject or bound, (b) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any material Contract or material Lien to which any Purchaser is a party or by which Purchaser or its assets is subject or bound, in each case in all of the clauses above except as would not, individually or in the aggregate, materially adversely affect the ability of Purchaser to consummate the Contemplated Transactions or perform its obligations under this Agreement.

 

     5.5 Consents.  To the Knowledge and belief of Purchaser, no Consent of any Governmental Authority is required by Purchaser in connection with the execution, delivery, and performance of this Agreement by Purchaser and the consummation of the Contemplated Transactions by Purchaser.

 

     5.6 Financing.  Subject to the conditions set forth in Article VIII, Purchaser will have at the Closing sufficient funds to timely and fully pay the Cash Payment (in accordance with Section 2.3) and consummate the Contemplated Transactions in accordance with the terms hereof.

 

 

  

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     5.7 Litigation. As of the date of this Agreement, there is no Claim, Proceeding or Order pending or, to the Knowledge of Purchaser, threatened against Purchaser, or to which Purchaser is otherwise a party relating to this Agreement or the Contemplated Transactions that would have a material adverse effect on the ability of Purchaser to perform its obligations under this Agreement or the Transaction Documents or to consummate the Contemplated Transactions.

 

     5.8  No Material Adverse Change.  There has not been any amendment to the Organizational Documents of Purchaser.

 

     5.9 Broker Fees. Purchaser is solely liable for any and all Liability to pay any fees, commissions, or other compensations to any broker, finder, or agent retained by any Purchaser with respect to the Contemplated Transactions.  

 

     5.10 “AS IS, WHERE IS.” Except as specifically set forth in this Agreement or the Transaction Documents, Purchaser explicitly acknowledges that Seller makes no representations or warranties, express or implied, with respect to the Purchased Assets or the Business and that Purchaser takes the Purchased Assets “as is, where is.”  Purchaser acknowledges that it has conducted its own due diligence and has made such investigations as it has deemed appropriate and such other inquiries as it has deemed necessary or desirable to satisfy itself as to the condition, operations, and prospects of the Purchased Assets and the Business.

 

ARTICLE VI

 

PRE-CLOSING COVENANTS

 

     The Parties agree as follows with respect to the Interim Period:

 

     6.1 General. Each Party agrees to use all commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper, or advisable under applicable Law or otherwise to consummate, make effective, and comply with all of the terms of this Agreement and the Contemplated Transactions, including (a) providing all information and making all filings necessary in connection herewith and therewith, and (b) satisfying, but not waiving, the conditions precedent set forth in Article VIII.

 

     6.2 Notices and Consents. As promptly as practicable following the date hereof, each Party will give any notices to, make any filings with, and use all commercially reasonable efforts to obtain the Consents of third parties and Governmental Authorities required to consummate, make effective, and comply with all of the terms of this Agreement and the Contemplated Transactions, and will use all commercially reasonable efforts to agree jointly on a method to overcome any objections by any third party or Governmental Authority to this Agreement or the Contemplated Transactions.  Subject to applicable Law, the Parties shall cooperate with each other in exchanging information and assistance in connection with obtaining any Consents of third parties and Governmental Authorities and shall promptly provide to the other Parties or their representatives copies of all filings made with any third party or Governmental Authority with respect to this Agreement or the Contemplated Transactions.  

 

     6.3 Preservation of Purchased Assets and Business. Seller shall use commercially reasonable efforts to (a) preserve the Purchased Assets substantially intact, and (b) maintain the Purchased Assets in good working order and condition, normal wear excepted.  Without limiting the generality of the foregoing, from the date hereof through the Closing Date, Seller shall not, without the prior written consent of Purchaser, take any of the following actions:

 

 

  

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(i) Take any action or omit to take any action, the taking or omission of which, could reasonably be expected to have a Material Adverse Effect or to Seller’s Knowledge violate in any material respect this Agreement;

 

(ii) Enter into any Contract that would restrict or impair in any material way the Purchased Assets;

 

(iii) Sell, transfer or otherwise dispose of or cause a Lien to exist on the Purchased Assets; or

 

(iv) Authorize or enter into an agreement to do any of the foregoing.

 

     6.4 Public Announcement. Seller and Purchaser shall consult with and provide each other the opportunity to review and comment upon any press release or other public statement, if any, prior to the issuance of such press release or other public statement relating to this Agreement or the Contemplated Transactions, and shall coordinate the timing of any such press release or other public statement; provided that the Purchaser may make any filings that it deems to be required by or advisable under applicable securities law and may make any disclosures that it deems to be necessary or advisable in connection therewith.

 

     6.5 Notices of Certain Events. Seller shall promptly notify Purchaser of:

 

(a) Any written communication or written notice from any Person alleging that the consent of such Person is or may be required in connection with the consummation of the Transactions;

 

(b) Any material written communication from any Governmental Authority in connection with or relating to the Transactions; and

 

(c) Any Material Adverse Effect on the Purchased Assets.      

 

ARTICLE VII

 

TAX MATTERS

 

     7.1 Purchase Consideration Allocation. Seller and Purchaser shall negotiate in good faith prior to the Closing to agree upon an allocation of the Cash Payment among the Purchased Assets (the “Purchase Consideration Allocation”). In the event the Parties are unable to finalize the Purchase Consideration Allocation prior to the Closing then the Parties shall attempt to finalize the Purchase Consideration Allocation within sixty (60) days after the Closing Date, provided, however, the Parties shall not be obligated to reach an agreement. If an agreement is reached, the Parties shall treat and report (and, if necessary, to cause each of their respective Affiliates to so treat and report) the sale and purchase of the Purchased Assets for all federal, state and local Tax purposes in a manner consistent with the agreed Purchase Consideration Allocation and shall not take any position on their respective Tax Returns that is inconsistent with such Purchase Consideration Allocation. Without limiting the generality of the preceding sentence, the Purchase Consideration Allocation will be reflected in Form 8594 that will be filed by Seller and Purchaser in accordance with Section 1060 of the Code and in any other filings under the Code. The Parties recognize that the Purchase Consideration Allocation shall not include Purchaser’s acquisition expenses and that Purchaser will allocate such expenses appropriately.

 

     7.2 Tax Allocation. For any ad valorem or similar property Taxes where the applicable Tax period begins before the Closing Date and ends after the Closing Date (the “Straddle Period”), such Taxes shall be allocated between the pre-Closing and post-Closing portion of the Straddle Period as described herein. The amount of such Taxes for the Straddle Period allocated to the portion of the period ending on the Closing Date shall be the total of such Taxes for the entire Straddle Period multiplied by a fraction, the numerator of which is the number of days from the beginning of such Straddle Period to and including the Closing Date and the denominator of which is the total number of days in the entire Straddle Period. The balance of such taxes shall be allocated to the portion of the Straddle Period beginning after the Closing Date.

 

 

  

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ARTICLE VIII

 

CONDITIONS TO CLOSING

 

     8.1 Conditions Precedent to Obligation of Purchaser. The obligations of Purchaser to consummate the Contemplated Transactions and take any other action required to be taken by Purchaser at the Closing or thereafter are subject to the satisfaction, at or prior to the Closing, of each of the following conditions, any of which may be waived in writing by Purchaser in whole or in part:

 

(a) Accuracy of Representations and Warranties. The representations and warranties of Seller set forth in this Agreement shall have been and be true and correct in all respects (it being understood that, for purposes of determining the accuracy of such representations and warranties, all materiality qualifications contained in such representations and warranties shall be disregarded) as of the date hereof and as of the Closing Date, as though made on and as of the Closing Date (except to the extent representations and warranties speak as of a specified date, which representation and warranties shall have been true and correct as of such date), except for failures that would not, individually or in the aggregate, have a material adverse effect on the Purchased Assets, Business, or the ability of Seller, in each case taken as a whole, to perform their obligations under this Agreement or consummate the Contemplated Transactions.

 

(b) Compliance with Obligations. Seller must have performed and complied with all of its covenants and obligations required by this Agreement to be performed or complied with at or prior to the Closing in all material respects.

 

(c) No Legal Proceedings. There shall be no Claim, Proceeding, or Order pending against Seller (excluding such by or at the direction of Purchaser or any Affiliates thereof) or against Purchaser (excluding such by or at the direction of Seller or any Affiliates thereof) by or before any Governmental Authority, or threatened, that would reasonably be expected to have the effect of or seek to challenge, restrain, prohibit, invalidate, interfere with, or collect Damages arising out of, the Contemplated Transactions.

 

(d) Consents.  Seller’s stockholders shall approve this Agreement and the Contemplated Transactions pursuant to Seller’s corporate governance and organizational documents requirements.

 

(e) Financing of Purchaser.  Prior to Closing, Purchaser shall have procured funding to make the Cash Payment set forth in Section 2.3 that is necessary in connection with the consummation of the Contemplated Transactions.

 

(f)  Closing Deliveries. Purchaser shall have delivered, or caused to be delivered, at the Closing each item described in Section 3.3.

 

     8.2 Conditions Precedent to Obligations of Seller. The obligation of Seller to consummate the Contemplated Transactions and take any other action required to be taken by Seller at the Closing or thereafter is subject to the satisfaction, at or prior to the Closing, of each of the following conditions, any of which may be waived by Seller in whole or in part:

 

 

  

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(a) Accuracy of Representations and Warranties. The representations and warranties of Purchaser set forth in this Agreement shall have been and be true and correct in all respects (it being understood that, for purposes of determining the accuracy of such representations and warranties, all materiality qualifications contained in such representations and warranties shall be disregarded) as of the date hereof and as of the Closing Date, as though made on and as of the Closing Date (except to the extent representations and warranties that speak as of a specified date, such representation and warranties shall have been true and correct as of such date), except for failures that would not, individually or in the aggregate, have a material adverse effect on the ability of Purchaser to perform their respective obligations under this Agreement or consummate the Contemplated Transactions.

 

(b) Compliance with Obligations. Purchaser must have performed and complied with all of their respective covenants and obligations required by this Agreement to be performed or complied with at or prior to the Closing in all material respects.

 

(c) No Legal Proceedings. There shall be no Claim, Proceeding, or Order pending against any Purchaser (excluding such by or at the direction of Seller) by or before any Governmental Authority that may have the effect of or seek to challenge, restrain, prohibit, invalidate, interfere with, or collect Damages arising out of, the Contemplated Transactions.

 

(d) Closing Deliveries. Purchaser shall have delivered, or caused to be delivered, at the Closing each item described in Section 3.4.

 

ARTICLE IX

TERMINATION

 

     9.1 Termination of Agreement. The Parties may terminate this Agreement as provided below:

 

(a) Mutual Consent. Purchaser and Seller may terminate this Agreement as to all Parties by mutual written consent at any time prior to the Closing by written instrument authorized by the respective Boards of Directors of Seller and Purchaser.

 

(b) By Purchaser. Purchaser may terminate this Agreement by giving written notice to Seller at any time prior to the Closing in the event that Seller has breached any representation, warranty, or covenant contained in this Agreement to such an extent that the conditions set forth in Section 8.2 shall not have been satisfied, or cannot be satisfied by May 31, 2012 (the “Termination Date”); provided, that Purchaser shall have provided written notification to Seller of such breach and the breach shall have continued without cure for a period of ten (10) days after delivery of the notice of such breach. At its sole and absolute discretion, Purchaser has the right to waive termination or agree to extend any deadlines under this Section 9.1(b).

 

(c) By Seller. Seller may terminate this Agreement by giving written notice to Purchaser at any time prior to the Closing in the event that Purchaser has breached any representation, warranty, or covenant contained in this Agreement to such an extent that the conditions set forth in Sections 8.1 shall not have been satisfied, or cannot be satisfied by the Termination Date; provided, that Seller shall have provided written notification to Purchaser of such breach and the breach shall have continued without cure for a period of ten (10) days after delivery of the notice of breach.

 

(d) By Either Party. Seller or Purchaser may terminate this Agreement by giving written notice to the other Party if (i) any court of competent jurisdiction or any other Governmental Authority in a suit instituted by a third party or a Governmental Authority shall have issued an Order or shall have taken any other action prior to the Termination Date permanently enjoining, restraining, or otherwise prohibiting the Contemplated Transactions or a material portion thereof, or (ii) the Closing has not occurred by the Termination Date, provided, that the Party electing to terminate shall not have caused such failure to close by breaching this Agreement.

 

 

  

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     9.2 Effect of Termination.

 

(a) If either Party terminates this Agreement pursuant to Section 9.1, all rights and obligations of the Parties under this Agreement shall terminate; provided, that the rights and obligations of the Parties under this Section 9.2 (Effect of Termination), any provisions regarding the interpretation or enforcement of this Agreement, and Article X (Miscellaneous) will survive any such termination.

 

(b) Notwithstanding any other provision of this Agreement, in no event shall Seller be entitled to recover any out-of-pocket fee or expenses or any Damages caused by any breach by Purchaser of this Agreement.

 

ARTICLE X

 

MISCELLANEOUS

 

     10.1 Waiver. Any term or provision of this Agreement may be waived in writing at any time by the Party which is entitled to the benefits thereof. The failure of either Party at any time or times to require performance of any provision hereof shall in no manner affect such Party’s right at a later time to enforce the same. No waiver by any Party of a condition or of the breach of any term, covenant, representation or warranty contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of the breach of any other term, covenant, representation, or warranty of this Agreement.

 

     10.2 Notices. All notices, requests, demands, Claims, Consents, or other communications required or authorized hereunder shall be in writing and shall be deemed to have been duly given by the applicable Party if personally delivered, sent by facsimile with receipt acknowledged, sent by a recognized commercial overnight delivery service which guarantees next Business Day delivery, sent by U.S. registered or certified mail return receipt requested and postage prepaid, or otherwise actually received by the other Party at the address of the intended recipient set forth below:

	  	  	  	  	  
	  	  	  	  	  
	
     If to Seller:

	  	
Apollo Diamond Gemstone

	  	  
	  	  	
Corporation 

	  	
P.O. Box 670

	  	  	  	  	
Framingham, MA 01704

	  	  	  	  	
Attention: Robert C. Linares

Chairman

	  	  	  	  	
Fax: 508-429-2925

	  	  	  	  	  
	  	  	  	  	  
	
     If to Purchaser:

	  	
Scio Diamond Technology Corporation

	  	  
	  	  	  	  	
411 University Ridge, Suite D

Greenville, SC 29601

Attention: Joseph D. Lancia

Chief Executive Officer

	  	  	  	  	
Fax: 864-458-7940

 

 

  

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All such notices and communications shall be deemed to have been received if personally delivered, at the time delivered by hand; if mailed, three (3) Business Days after being deposited in the mail; if faxed, upon confirmation of receipt if the confirmation is between 9:00 a.m. and 5:00 p.m. local time of the recipient on a Business Day, otherwise on the first Business Day following confirmation of receipt; and, if sent by overnight air courier, on the next Business Day after timely delivery to the courier.

 

Either Party may change the address to which notices, requests, Claims, Consents, and other communications hereunder are to be delivered by giving the other Party prior written notice thereof in the manner herein set forth in this Section 10.2.

 

10.3 Further Assurances. Each of the Parties hereby agrees that after Closing it will execute and deliver such additional documents and will use commercially reasonable efforts to take or cause to be taken such further action as may be necessary or desirable, or as the other Party may reasonably request, to close and make effective the Contemplated Transactions. After the Closing, each Party, at the request of the other Party, and without additional consideration, shall execute and deliver, from time to time, such additional documents of conveyance and transfer as may be necessary to accomplish the orderly transfer of the Purchased Assets and Business to Purchaser in the manner contemplated in this Agreement.

 

     10.4 Expenses. Except as otherwise expressly provided in this Agreement, each of the Parties shall pay all costs and expenses incurred or to be incurred by it and its advisors and representatives in connection with any negotiations respecting this Agreement and Contemplated Transactions, including preparation of documents, obtaining any necessary regulatory approvals, and the consummation of the other transactions contemplated hereby.

 

     10.5 Successors and Assigns. This Agreement, and all rights and powers granted hereby, will bind and inure to the benefit of the Parties and their respective successors and permitted assigns.

 

     10.6 Third Party Beneficiaries. This Agreement and any agreement contained, expressed, or implied herein, shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.

 

     10.7 Time of the Essence. Time is of the essence in the performance of all covenants and obligations under this Agreement.

 

     10.8 Assignment. Neither this Agreement nor any Party’s rights, interests, or liabilities hereunder may be assigned, transferred, conveyed, or pledged by operation of law or otherwise; provided, that Purchaser may transfer and assign prior to the Closing all or any portion of its rights and liabilities pursuant to this Agreement to an Affiliate thereof but Purchaser shall not be relieved of their obligations hereunder as a result of such assignment.

 

     10.9 Governing Law; Venue. THIS AGREEMENT, THE TRANSACTION DOCUMENTS, AND THE LEGAL RELATIONS BETWEEN THE PARTIES WITH RESPECT TO THIS AGREEMENT, SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF SOUTH CAROLINA WITHOUT REGARD TO RULES CONCERNING CONFLICTS OF LAWS. Purchaser and Seller agree that the Courts of the State of South Carolina shall have exclusive jurisdiction over all disputes and other matters relating to (a) the interpretation and enforcement of this Agreement or any ancillary document executed pursuant hereto, and (b) the Purchased Assets, and Seller expressly consents to and agrees not to contest such exclusive jurisdiction. The Parties waive, to the fullest extent permitted by applicable Law, any objection which they may now or hereafter have to the bringing of any such Claim or Proceeding in such jurisdiction.

 

 

  

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     10.10 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.  

 

     10.11 Entire Agreement; Amendment. This Agreement (including any documents referred to in this Agreement) constitutes the entire agreement between the Parties with respect to the Contemplated Transactions and supersedes any prior understandings, negotiations, statements, discussions, correspondence, offers, agreements, or representations by the Parties, written or oral, relating in any way to the subject matter of this Agreement and the Contemplated Transactions. No modification, amendment, or supplement of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Parties. Without limiting the generality of the preceding sentence, no conditions, usage of trade, course of dealing or performance, understanding or agreement purporting to modify, vary, explain or supplement the terms or conditions of this Agreement will be binding unless hereafter made in writing and signed by the Party to be bound, and no modification will be effected by the acknowledgment or acceptance of documents containing terms or conditions at variance with or in addition to those set forth in this Agreement, except as otherwise specifically agreed to by the Parties in writing.

 

     10.12 Counterparts. This Agreement may be executed by Purchaser and Seller in one or more counterparts, each of which shall be deemed an original instrument, but all of which together shall constitute one and the same instrument. A facsimile or other electronic transmission of a signed copy of this Agreement shall be effective as a valid and binding agreement between the Parties for all purposes.

 

     10.13 Certain Limitations. NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT (OR ANY OTHER AGREEMENT RELATED HERETO) TO THE CONTRARY, IN NO EVENT SHALL ANY PARTY BE LIABLE (OR ENTITLED TO RECOVER) UNDER, OR IN RESPECT OF, THIS AGREEMENT FOR EXEMPLARY, SPECIAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES.

 

 

  10.14 Noncompetition and Nonsolicitation.  Until the date that is three (3) years after the Closing Date, the Company will not, directly or indirectly, for any reason, for its own benefit, or for the benefit of or together with any other Person, directly or indirectly: (a)solicit any employee, manager, director, consultant, representative or advisor of the Purchaser to terminate that Person’s engagement or relationship with the Purchaser; (b)solicit any of the customers or suppliers (each as defined below) to terminate their business relationship with the Purchaser;  (c) divert any or all of any customers’ or suppliers’ business from the Purchaser; or (d) engage in directly, or own, operate, control, finance, manage, advise, be employed or engaged by, perform any services for, or invest in (other than holding less than two percent (2%) of the outstanding equity securities of a Person having securities that are listed for trading on a national securities exchange) any business engaged in the Restricted Business anywhere in the United States, with the parties acknowledging that the Purchaser is actively seeking to engage in the Restricted Business throughout and beyond all parts of the United States.   “Restricted Business” means the business of manufacturing and marketing laboratory-created gemstone diamonds or industrial use diamonds.  The covenants in Section 10.14 are severable and separate, and the unenforceability of any specific covenant in this Section 10.14 is not intended by either party to, and shall not, affect the provisions of any other covenant in this Section 10.14.  If any court of competent jurisdiction shall determine that the scope, time, or territorial restrictions set forth in Section 10.14 are unreasonable as applied to any party, the parties acknowledge their mutual intention and agreement that those restrictions shall be enforced to the fullest extent the court deems reasonable, and thereby shall be reformed to that extent.

 

 

[Signature Page Follows]

 

 

 

  

Page - 21

  

 

      IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date and year first above written.

 

APOLLO DIAMOND GEMSTONE CORPORATION

 

 

  /s/ Robert C. Linares                                                                           

By:           Robert C. Linares

Its:           Chairman

SCIO DIAMOND TECHNOLOGY CORPORATION

  /s/ Joseph D. Lancia

     By:           Joseph D. Lancia

                    Its:           Chief Executive Officer

 

 

 

  

Page - 22

  

Exhibit 3.3(b)

 

MASTER BILL OF SALE

 

THIS MASTER BILL OF SALE AREEMENT (the “Bill of Sale”) is made this 31st day of May, 2012, by and between APOLLO DIAMOND GEMSTONE CORPORATION, a corporation duly organized under the laws of the State of Delaware (“Seller”), and SCIO DIAMOND TECHNOLOGY CORPORATION, a corporation duly organized under the laws of the State of Nevada (“Purchaser”).  Seller and Purchaser may be referred to in this Bill of Sale collectively as the “Parties” and individually and a “Party.”  Capitalized terms used herein without definition shall have the meaning ascribed thereto in that certain Asset Purchase Agreement (defined below).

 

WITNESSETH

 

WHEREAS, Seller and Purchaser are parties to that certain Asset Purchase Agreement dated as of May 31, 2012 (the “Asset Purchase Agreement”), pursuant to which, among other things, Seller agreed to sell and transfer, and Purchaser agreed to purchase and accept, certain of the assets of Seller; and

 

WHEREAS, it is a condition to the Closing of the Asset Purchase Agreement that Seller enters into this Bill of Sale to sell to Purchaser the Transferred Assets (defined below).

 

NOW THEREFORE, in consideration of the payment by Purchaser of the Cash Payment and in further consideration of the mutual covenants and agreements contained in the Asset Purchase Agreement, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby covenant and agree as follows:

 

1. Transferred Assets. For value received, the receipt and sufficiency of which is hereby acknowledged, effective as of May 31, 2012, Seller hereby sells, conveys, assigns, transfers and delivers to Purchaser, which hereby accepts,

all its right, title and interest and benefit in and to:

 

(a) Intellectual Property. Any and all patents and trade secrets owned and/or developed by ADGC which were used or held for use in the Business;

 

(b) Equipment. All furniture, equipment, computers, computer equipment, machinery, tools, hand tools, spare parts, test equipment, supplies, inventory, office supplies, telephones, and all other tangible personal property of every kind and description insofar as any of the foregoing relates to the operation of the Business; and

 

(c)  Inventory.  All goods, items, parts, pieces or materials of every kind necessary in the operation of the Business or produced by or in coordination with the Business, whether diamond, metal or any other substance, wherever located and whether currently in the possession of the Seller or any third party.

 

(collectively, the “Transferred Assets”):

 

 

  

Exhibit 3.3(b) - Page - 1

  

 

 

TO HAVE AND TO HOLD, all and singular, for its own use forever, the Transferred Assets hereby sold, assigned, transferred, conveyed and delivered, or intended so to be, unto Purchaser, its successors and assigns forever.

 

2. Excluded Assets. For the avoidance of doubt, Seller shall not be deemed to have sold pursuant to this Bill of Sale any asset other than the Transferred Assets.

 

3. Relationship with the Asset Purchase Agreement. This Bill of Sale is intended to evidence the consummation of the transactions contemplated by the Asset Purchase Agreement.  This Bill of Sale is made without representation or warranty except as provided in and by the Asset Purchase Agreement.  This Bill of Sale is in all respects subject to the provisions of the Asset Purchase Agreement and is not intended to supersede, limit or qualify any provision of the Asset Purchase Agreement, except that the Schedules attached hereto (if any), shall take precedence over the schedules attached to the Asset Purchase Agreement for purposes of this Bill of Sale.

 

4. Further Assurances. Each Party hereby agrees on demand to make, execute, acknowledge and deliver any and all further documents and instruments, and to do and cause to be done all such further acts, reasonably requested by the other Party to evidence and/or in any manner to perfect the transfer and assignment to Purchaser of the Transferred Assets contemplated hereby.  Subject to any contrary provisions of the Asset Purchase Agreement, Purchaser is hereby granted the irrevocable right and authority to collect for its own account all accounts and notes receivable and other items included in the Transferred Assets and to endorse with the name of Seller any checks received solely on account of any such accounts and notes receivable or such other items.

 

5. Successors. This Bill of Sale shall inure to the benefit of and is binding upon the respective successors and assigns of Seller and Purchaser.

 

6. Risk of Loss.  The risk of loss, injury, destruction or damage to any of the Transferred Assets by fire or other casualty or occurrence shall remain with Seller until transfer to Purchaser.

 

7. Taxes and Fees.  Seller agrees to indemnify and hold harmless Purchaser with respect to any taxes, fees, commissions or other charges becoming due as a result of this Bill of Sale, except any sales or use tax on the transfer of the Transferred Assets to Purchaser or Purchaser’s subsequent use of the Transferred Assets, which sales and use taxes are the responsibility of the Purchaser.

 

8. Indemnification. Assignor shall indemnify and hold harmless Assignee and its affiliates, officers, directors, shareholders, employees, partners, agents and representatives from and against any and all loss, liability, damage or expenses which may be incurred by Assignee related to the Assigned Assets or due to any claims of a third-party in connection with the Assigned Assets.

 

 

  

Exhibit 3.3(b) - Page - 2

  

 

 

9. GOVERNING LAW.  THIS BILL OF SALE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF AMERICA AND THE STATE OF SOUTH CAROLINA, WITHOUT REGARD TO ITS CHOICE OF LAW PROVISIONS.  Any dispute or controversy arising from this Bill of Sale shall be subject to Section 10.9 of the Asset Purchase Agreement.

 

10. Modification.  This Bill of Sale shall not be modified or amended except by an instrument in writing signed by authorized representatives of the Parties.

 

11. Time.  Time is of the essence related to this Bill of Sale.

 

12. Entire Bill of Sale.  Purchaser and Seller warrant that the terms and conditions of this Bill of Sale were fully read and understood and that they constitute the entire Bill of Sale between the Parties.

 

13. Unenforceability.  If any one or more provisions of this Bill of Sale shall be found to be illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

14. Confidentiality.  The entire contents of this Bill of Sale shall remain confidential between all Parties named in this Bill of Sale, except as required by law.

 

15. Counterparts.  This Bill of Sale may be executed by facsimile or other electronic transmission by the Parties in counterparts.  Following such transmission, the parties agree that executed originals will be forwarded by mail or by courier to the respective parties.

 

IN WITNESS WHEREOF, the parties hereto have caused this Bill of Sale to be executed by their authorized representatives and effective as of the date first written above.

 

APOLLO DIAMOND GEMSTONE CORPORATION

By:     /s/ Robert Linares                                                          

Name: Robert Linares

 

Title: Chairman

SCIO DIAMOND TECHNOLOGY CORPORATION

By:    /s/ Joseph D. Lancia                                                          

Name: Joseph D. Lancia

 

Title: Chief Executive Officer

 

 

  

Exhibit 3.3(b) - Page - 3

  

 

 

ASSIGNMENT AND ASSUMPTION AGREEMENT

 

THIS ASSIGNMENT AND ASSUMPTION AREEMENT (the “Assignment”) is made this 31st day of May 2012, by and between APOLLO DIAMOND GEMSTONE CORPORATION, a corporation duly organized under the laws of the State of Delaware (“Assignor”), and SCIO DIAMOND TECHNOLOGY CORPORATION, a corporation duly organized under the laws of the State of Nevada (“Assignee”).  Assignor and Assignee may be referred to in this Assignment collectively as the “Parties” and individually and a “Party.”  Capitalized terms used herein without definition shall have the meaning ascribed thereto in that certain Asset Purchase Agreement (defined below).

 

WITNESSETH

 

WHEREAS, Assignor and Assignee are parties to that certain Asset Purchase Agreement dated as of May 31, 2012 (the “Asset Purchase Agreement”), pursuant to which, among other things, Assignor agreed to assign, and Assignee agreed to assume, certain of the intangible assets and intellectual property of Assignor; and

 

WHEREAS, it is a condition to the Closing of the Asset Purchase Agreement that the Assignor enters into this Assignment to assign to Assignee the Assigned Assets (defined below).

 

NOW THEREFORE, through mutual negotiation and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties hereby covenant and agree as follows:

 

1. Assignment. Assignor hereby assigns all of its rights, obligations, interests and liabilities in any and all patents and trade secrets owned and/or developed by ADGC which were used or held for use in the Business, including any Licensed IP Rights of Assignor, to the Assignee (the “Assigned Assets”) pursuant to the terms of the Asset Purchase Agreement and this Assignment.  As of the date of this Assignment, Assignor shall have no further rights, obligations, interests or liabilities of any kind whatsoever related to the Assigned Assets.

 

2. Assumption. For and in consideration of the assignments hereunder, Assignee hereby assumes all of Assignor’s rights, obligations, interest and liabilities related to the Assigned Assets to the same extent as though Assignee had been the original owner of the Assigned Assets.

 

3. Fees. Any registration for the change of the registered owner of the Assigned Assets shall be undertaken by Assignor and Assignor shall bear the registration fees, or other applicable fees, incurred hereby.

 

4. Ownership. Assignor represents and warrants that Assignor has the exclusive ownership of the Assigned Assets and no rights or equity of any third-party is prejudiced due to the using of the Assigned Assets.  There is no litigation or any other disputes arising from or relating to the Assigned Assets.

 

 

  

Exhibit 3.3(b) - Page - 4

  

 

 

5. Indemnification. Assignor shall indemnify and hold harmless Assignee and its affiliates, officers, directors, shareholders, employees, partners, agents and representatives from and against any and all loss, liability, damage or expenses which may be incurred by Assignee related to the Assigned Assets or due to any claims of a third-party in connection with the Assigned Assets.

 

6. Dispute Resolution. This Assignment shall be governed by the laws of the State of South Carolina.  Any dispute or controversy arising from this Assignment shall be subject to Section 10.9 of the Asset Purchase Agreement.

 

7. Entire Assignment. This Assignment contains the entire understanding among the Parties with respect to the matters covered herein and supersedes and cancels any prior understanding with respect to the matter covered herein.

 

8. No Changes. No changes, alternations or modifications hereto shall be effective unless made in writing and signed by all of the Parties.

 

9. Severability. Any provision of this Assignment which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof or rendering any other provision of this Assignment invalid or unenforceable.

 

10. Confidentiality.  The entire contents of this Assignment shall remain confidential between all Parties named in this Assignment, except as required by law.

 

11. Counterparts.  This Assignment may be executed by facsimile or other electronic transmission by the Parties in counterparts.  Following such transmission, the parties agree that executed originals will be forwarded by mail or by courier to the respective parties.

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be executed by their authorized representatives and effective as of the date first written above.

 

APOLLO DIAMOND GEMSTONE CORPORATION

By:    /s/ Robert Linares                                                          

 

Name: Robert Linares

 

Title: Chairman

SCIO DIAMOND TECHNOLOGY CORPORATION

By:    /s/ Joseph D. Lancia                                                          

 

Name: Joseph D. Lancia

 

Title: Chief Executive Officer

 

  

Exhibit 3.3(b) - Page - 58-KFBRSub-LeaseEx101

Exhibit 10.1

SUBLEASE
THIS SUBLEASE (this “Sublease”) is made and dated as of the 15th day of August, 2012 (the “Execution Date”) by the Sublandlord and the Subtenant named below.
ARTICLE 1 – BASIC SUBLEASE PROVISIONS
For the purposes of this Sublease, the following definitions and terms shall apply:
1.1    Sublandlord:  FBR & CO., a Virginia corporation formerly known as FBR Capital Markets Corporation, a Virginia corporation.
1.2    Subtenant:  MCG CAPITAL CORPORATION, a Delaware corporation
1.3    Subleased Premises:  The office space indicated on Exhibit A hereto, comprising a portion of the tenth (10th) floor containing approximately 13,134 rentable square feet of space (the “Subleased Premises”) in the building (the “Building”) located at 1001 19th Street North, Arlington, Virginia.  The Building and its parking areas and other appurtenances are herein together called the “Property.”   
1.4    Sublease Term:  A period of time (the “Sublease Term”) commencing on the “Effective Date” (as hereafter defined) and, unless sooner terminated as herein provided, ending on November 30, 2014 (the “Expiration Date”).  The Sublease Term shall automatically expire or terminate upon the expiration or termination for any reason of the Prime Lease and Sublandlord shall be under no obligation to exercise any renewal option in the Prime Lease.   
The Prime Lease requires the consent to this Sublease by Prime Landlord.  This Sublease will become effective only when such consent of Prime Landlord has been given and this Sublease may be terminated by either party if such consent has not been given on or before forty-five (45) days from the Execution Date.  Notwithstanding the foregoing, the Subtenant may elect to extend its option to terminate the Sublease to ninety (90) days after the Execution Date provided that the Rent Commencement Date shall be as set forth in Section 1.6(ii) below.  The date that Prime Landlord provides its consent to this Sublease shall be referred to herein as the “Consent Date”.  The later of (i) the date of execution of this Sublease, or (ii) the date immediately following the Consent Date shall be referred to herein as the “Effective Date”. Sublandlord shall provide Subtenant with notice of Prime Landlord’s consent to this Sublease as soon as practicable.

            1.5    Omitted.  
1.6    Rent Commencement Date: The later of (i) October 15, 2012, or (ii) forty-five (45) days following Sublandlord’s receipt of Prime Landlord’s consent to this Sublease and Sublandlord’s delivery of possession of the Subleased Premises to Subtenant in the condition required herein.  Each twelve (12) month period following the Effective Date shall be referred to herein as a “Sublease Year”; provided, however that the last Sublease Year of the Sublease Term shall terminate on the 

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date this Sublease expires or is otherwise terminated.
1.7    Base Rent:  
(a)    The term “Base Rent” shall not include (i.e., Subtenant shall have no independent obligation to pay) “Operating Charges” and “Real Estate Taxes” (as defined in the Prime Lease).
     (b)    Commencing on the Rent Commencement Date, Subtenant covenants and agrees to pay Sublandlord Base Rent for the Premises in the amount of Three Hundred Ninety-Four Thousand Twenty Dollars and 00/100 ($394,020.00), per annum, payable in consecutive, equal monthly installments of Thirty-Two Thousand Eight Hundred Thirty-Five and 00/100 Dollars ($32,835.00) (the “Base Rent”). The Base Rent shall not be increased during the Sublease Term.
1.8    Permitted Use:  Subtenant may use the Premises for general (non-medical and non-governmental) office purposes, as provided in Section 6.1 of the “Original Lease” (as hereafter defined). 
1.9    Prime Lease:  That certain Deed of Lease dated as of April 29, 2004 (the “Original Lease”) by and between Deutsche Immobilien Fonds Aktiengesellschaft, predecessor-in-interest to BFP Potomac Tower Co. LLC (the “Prime Landlord”) and Friedman Billings Ramsey Group, Inc. d/b/a Arlington Asset Investment Corp., predecessor-in-interest to Sublandlord, as amended by that certain First Amendment to Deed of Lease dated April 30, 2005 (the “First Amendment”), as further amended by that certain Second Amendment to Deed of Lease dated April 30, 2005 (the “Second Amendment”; the Original Lease, First Amendment and Second Amendment being collectively referred to herein as the “Prime Lease”).  A true and correct copy of the Prime Lease, less and except any portions not relevant to Subtenant that have been redacted by Sublandlord, has been provided to Subtenant prior to execution of this Sublease.
1.10    Security Deposit: Thirty-Two Thousand Eight Hundred Thirty-Five and 00/100 Dollars ($32,835.00).
1.11    Payment of Security Deposit/First Month’s Rent.  Upon full execution of this Sublease, Subtenant shall deliver to Sublandlord the sum of Sixty-Five Thousand Six Hundred Seventy and 00/100 Dollars ($65,670.00) as payment of the security deposit and the first month of the Subleased Premises Base Rent.
ARTICLE 2 ‐ GRANTING CLAUSE AND RENT PROVISIONS
2.1    Grant of Subleased Premises.
(a)    Grant.  Sublandlord hereby leases the Subleased Premises to Subtenant during the Sublease Term, subject to the provisions of this Sublease.    
(b)    Delivery.  On the Effective Date, Sublandlord shall tender possession of the Subleased Premises to Subtenant broom-clean, but otherwise  in its “as-is” “where-is” condition as of the Execution Date without the obligation of Sublandlord to make any improvements or repairs 

2

thereto, or provide any allowance in connection therewith except as required to deliver possession of the Subleased Premises in the condition as of the Execution Date, it being the intention of the parties that any damage occurring, or repairs necessary, during the period between the Execution Date and the Effective Date shall be the responsibility of the Sublandlord.  
(c)    Furniture.  Commencing on the Effective Date and continuing during the balance of the Sublease Term, Sublandlord shall provide to Subtenant the right to use the system furniture, office furniture, fixtures and equipment in the Subleased Premises described on Exhibit B attached hereto and incorporated herein (the “Furniture”).  For the avoidance of doubt, Subtenant shall be required to provide its own phone switch.  Subject to the following, Subtenant shall have no ownership interest in the Furniture at any time and shall surrender all of the Furniture at the expiration or sooner termination of the Sublease Term in the same condition that the Furniture was in on the Effective Date, ordinary wear and tear excepted.  Subtenant shall maintain the Furniture in the condition received by Subtenant on the Effective Date, ordinary wear and tear excepted.  Subtenant shall be liable for any loss or damage to the Furniture (ordinary wear and tear excepted) to the extent occurring during the Sublease Term (or any holdover period thereafter).  Sublandlord shall have no liability to Subtenant or any third party in connection with Subtenant’s use of the Furniture.  Subtenant shall accept the Furniture in its “as is” and “where is” condition, Sublandlord expressly disclaims any warranties or representations with respect to the condition of the Furniture or its sufficiency for use by Subtenant or others, provided, Sublandlord does hereby represent and warrant that Sublandlord holds title to such Furniture free and clear of all liens and encumbrances.  Subtenant shall not remove any of the Furniture from the Subleased Premises and shall not assign its rights under this Section 2.1(c) to any other party without the prior written consent of Sublandlord, which consent shall not be unreasonably withheld, delayed or conditioned.  Within fifteen (15) business days following the Execution Date, Subtenant shall be entitled to notify Sublandlord of any Furniture not desired by Subtenant, and Sublandlord shall arrange at its sole cost and expense to remove (as opposed to re-configure any systems furniture) such unwanted Furniture promptly following receipt of such notice (the “Subtenant’s Removal Notice”).  In no event shall Sublandlord be required by Subtenant to remove any Furniture other than those items designated in Subtenant’s Removal Notice.
     (d)    Security System.  Commencing on the Effective Date and continuing during the balance of the Sublease Term, Sublandlord shall provide to Subtenant the right to use the existing security system card readers for the Subleased Premises, and Sublandlord shall be responsible for delivering the existing security system card readers to Subtenant in good condition and repair on the Effective Date.  Prior to the Effective Date, Sublandlord shall, at its sole cost and expense, contract directly with the security system provider (Kastle Systems) to separate the Subleased Premises from the remainder of the security system leaving the infrastructure and hardware intact and rendering the security system servicing the Subleased Premises wholly independent and fully operational. Sublandlord shall be responsible for any  activation fees charged or imposed in order to render such security system for the Subleased Premises operational, but Subtenant shall be responsible for the cost of any access cards together with any monitoring charges imposed by Kastle Systems for services to the Subleased Premises from and after the Effective Date. 

     (e)    Logistics Support.  Sublandlord shall, at no additional cost or expense to 

3

Subtenant, make its information technology and other logistical staff available, on a reasonable basis, to meet with Subtenant to coordinate its relocation to the Subleased Premises.  For the avoidance of doubt, the foregoing coordination shall not include actual network installation, maintenance or support; cabling; or any other information technology services. 

2.2    Base Rent; Late Payment.  Subtenant covenants and agrees to pay the Base Rent to Sublandlord in equal monthly installments in advance during the term of this Sublease, without demand, offset or reduction (except as otherwise provided herein) on or before the first day of each calendar month during the Sublease Term, provided, if Rent Commencement Date shall occur on a date other than the first day of a calendar month, the monthly rental set forth above  shall be prorated to the end of that calendar month, and all succeeding installments of rent shall be payable on or before the first day of each succeeding calendar month during the Sublease Term.  Subtenant shall pay, as additional rent, all other sums due under this Sublease.  Base Rent and additional rent are sometimes collectively called “rent”.  If any payment due Sublandlord is not received by Sublandlord by the fifth (5th) day after it became due, Subtenant shall at Sublandlord’s request pay to Sublandlord a late payment charge of five percent (5%) of the past-due amount.  If any payment due Sublandlord is not received by Sublandlord by the tenth (10th) day after it became due, such outstanding amount due shall accrue interest at the rate of one and one percent (1.0%) per month until fully paid.
2.3    Additional Rent.  
(a)    Sublandlord and Subtenant agree that, except for Electricity Charges and “Non-Standard Operating Expenses” (as hereafter defined), the Base Rent shall include all charges for services provided to the Subleased Premises by the Prime Landlord under the terms of the Prime Lease (i.e., Subtenant shall not be responsible for paying increases in Operating Charges or Real Estate Taxes).
(b)    Notwithstanding anything to the contrary contained in Section 2.3 above, Subtenant shall be responsible for (i) excess use charges invoiced or billed by the Prime Landlord, to the extent applicable to the Subleased Premises and attributable to the Sublease Term or otherwise incurred by Sublandlord in connection with Sections 14.3 and 14.5 of the Original Lease; (ii) additional insurance costs charged by Prime Landlord under Section 13.2 of the Original Lease, to the extent imposed as a result of Subtenant’s operations within the Subleased Premises and attributable to the Sublease Term; (iii) charges for condenser water for supplemental air conditioning and all use, consumption and other charges for after-hours air conditioning pursuant to Section 14.1 of the Original Lease, to the extent applicable to the Subleased Premises and attributable to the Sublease Term; and (iv) any other special services for the Subleased Premises during the Sublease Term for which Sublandlord is or would be responsible under the Prime Lease or otherwise (collectively, “Non-Standard Operating Expenses”).  Subtenant shall pay the amounts referred to in this Section within ten (10) business days after receipt of an invoice for the amount due.
2.4    Holding Over.  Upon the expiration or earlier termination of this Sublease, Subtenant agrees to vacate and deliver the Subleased Premises, and all keys or access cards thereto, to Sublandlord.  If Subtenant does not vacate the Subleased Premises upon the expiration or earlier 

4

termination of this Sublease, Subtenant shall be a tenant at sufferance for the holdover period and all of the terms and provisions of this Sublease shall be applicable during that period, except that Subtenant shall at the option of Sublandlord pay to Sublandlord (in addition to any other sums payable under this Sublease) as base rental for the period of such holdover an amount equal to: (i) for the first month of such holdover, one hundred fifty percent (150%) of the Base Rent which would have been payable by Subtenant had the holdover period been a part of the original term of this Sublease; and (ii) thereafter, two hundred percent (200%) of the Base Rent which would have been payable by Subtenant had the holdover period been a part of the original term of this Sublease (in either case without waiver of Sublandlord’s right to recover damages as permitted by law) but in no event (whether during the first month of any such holdover or beyond) shall the amount payable by Subtenant hereunder be less than the amount, if any, Sublandlord is required to pay (and for which payment is actually remitted) under the Prime Lease in such event for the entire space leased by Sublandlord from the Prime Landlord including, without limitation, the Subleased Premises.  The rental payable during the holdover period shall be payable to Sublandlord on demand.  No holding over by Subtenant, whether with or without the consent of Sublandlord, shall operate to extend the Sublease Term.  In addition to the rental payable during such holdover period, Subtenant shall and does hereby indemnify, defend and hold Sublandlord harmless from and against all claims made by Prime Landlord or any tenant or prospective tenant against Sublandlord resulting from delay by Sublandlord in delivering sole and exclusive possession of the Subleased Premises to the Prime Landlord or such other tenant or prospective tenant, to the extent caused by holding over by Subtenant.  For the avoidance of doubt, Subtenant shall be required to cause all of its third party users to fully vacate the Subleased Premises in order to deliver sole and exclusive possession thereof to Sublandlord or Prime Landlord.
2.5    Security Deposit.  The security deposit set forth in Section 1.10 hereof shall be held by Sublandlord for the performance of Subtenant’s covenants and obligations under this Sublease, it being expressly understood that the security deposit shall not be considered an advance payment of rental or a measure of Sublandlord’s damage in case of default hereunder by Subtenant, and shall be held by Sublandlord without payment of any interest thereon.  Upon the occurrence of any Event of Default (hereinafter defined) by Subtenant under this Sublease, Sublandlord may, from time to time, without prejudice to any other remedy, use the security deposit to the extent necessary to make good any arrears of rent, or to repair any damage or injury, or pay any expense or liability incurred by Sublandlord as a result of the event of default or breach of covenant, and any remaining balance of the security deposit shall be returned by Sublandlord to Subtenant upon the termination of this Sublease.  If any portion of the security deposit is so used or applied, Subtenant shall upon ten (10) days written notice from Sublandlord, deposit with Sublandlord by cash or cashier’s check an amount sufficient to restore the security deposit to its original amount.  The Security Deposit may be assigned and transferred by Sublandlord to the successor in interest of Sublandlord and, upon acknowledgment by such successor of receipt of such security and its assumption of the obligation to account to Subtenant for such security in accordance with the terms of this Sublease, Sublandlord shall thereby be discharged of any further obligation relating thereto.  If Subtenant shall fully and faithfully comply with all the terms, provisions, covenants and conditions of this Sublease, Sublandlord shall return the Security Deposit, or any balance thereof, to Subtenant after the later of thirty (30) days after: (a) the Expiration Date or earlier termination of the Sublease Term; or (b) the date by which Subtenant has vacated the Subleased Premises in accordance with the terms 

5

hereof.  Except as otherwise required by law, Subtenant shall not be entitled to any interest on the aforesaid security deposit. 
ARTICLE 3 ‐ OCCUPANCY AND USE
3.1    Use; Compliance.  The Subleased Premises shall be used and occupied only for the Permitted Use as set forth in Section 1.8 hereof.  Subtenant, at its expense, shall comply with all applicable laws and other legal requirements and with the rules and regulations of the Property in effect from time to time (collectively, “Applicable Laws”).  If Subtenant is not complying with such legal requirements, rules and regulations, which noncompliance continues beyond the expiration of all applicable notice and cure periods, if any, Sublandlord, may, at its election, and without waiving any right or default, enter the Subleased Premises without liability therefor and fulfill Subtenant’s obligations at Subtenant’s expense.  Notwithstanding the foregoing, Subtenant shall not be obligated to comply with  applicable laws or legal requirements requiring any structural alterations to the Subleased Premises or alterations to the Building’s mechanical, electrical, plumbing, life-safety or other systems unless the application of such applicable laws or legal requirements arises from (i) the specific manner and nature of Subtenant’s use or occupancy of the Subleased Premises, as distinct from general office use; (ii) alterations made by Subtenant; or (ii) a breach by Subtenant of any provisions of this Sublease.  Further notwithstanding the foregoing, Subtenant shall not be obligated to remedy or cure any condition within the Subleased Premises which is not in compliance with Applicable Laws as of the Effective Date.
3.2    Entry.  Notwithstanding anything herein to the contrary, Sublandlord or its authorized agents shall at any and all reasonable times have the right to enter the Subleased Premises pursuant to the terms of Section 25.9 of the Original Lease, without liability therefor, upon reasonable prior notice to Subtenant (which may be oral) except in an emergency, when no notice shall be required.  Subtenant shall be entitled to have a representative accompany Sublandlord during such access, except in a situation reasonably believed by Sublandlord to constitute an emergency (an “Emergency Condition”), where Sublandlord may enter the Subleased Premises unaccompanied.  In the event of an Emergency Condition, Sublandlord shall use reasonable efforts to contact Subtenant as soon as practicable regarding Sublandlord’s entry to the Subleased Premises. 
ARTICLE 4 ‐ UTILITIES AND SERVICES
Except as set forth below with respect to any excess electrical usage, all electricity used by Subtenant in the Subleased Premises shall be paid for by Subtenant.  Subtenant shall be required to pay for all electricity consumed in the Subleased Premises during the Sublease Term.  Subtenant shall pay for such electricity on a monthly or other periodic basis as determined by Sublandlord (which shall be no more frequently than monthly), and bills for electric shall be due within thirty (30) days following written demand.  Subtenant’s use of electrical service in the Subleased Premises shall not exceed, either in voltage, rated capacity, use or overall load that Sublandlord deems to be standard for the Building.  Subtenant and Sublandlord agree that Subtenant’s share of the electricity shall be 74% of the charges for the tenth floor (i.e., 13,134/17,842 = 74%) subject to the following provisions of this Article 4.

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 In the event Subtenant shall consume (or request that it be allowed to consume) electrical service in excess of that deemed by Prime Landlord to be standard for the Building, Sublandlord may refuse to provide such excess usage or refuse to consent to such usage or may consent upon such conditions as Sublandlord reasonably elects (including the installation of utility service upgrades, submeters, air handlers or cooling units), and all such additional usage (to the extent permitted by law), installation and maintenance thereof shall be paid for by Subtenant as additional rent.  Sublandlord shall have the right to separately meter electrical usage for the Subleased Premises at any time during the Sublease Term or to use any other method of measuring electrical usage that Sublandlord, in its reasonable judgment, deems to be appropriate, provided the cost of any such separate metering shall be borne solely by Sublandlord.
Except as expressly provided above, Sublandlord is not responsible for providing any services or utilities to Subtenant.  Sublandlord shall, however, cooperate with Subtenant, at no cost to Sublandlord, to attempt to cause Prime Landlord to comply with its obligations under the Prime Lease with respect to the Subleased Premises and to provide all such services and utilities for the benefit of the Subleased Premises.  Failure or cessation in the furnishing of any services or utilities shall not render Sublandlord liable to Subtenant in any respect for damages to either persons or property, nor be construed as an eviction by Sublandlord, nor work an abatement of rent, nor relieve Subtenant from fulfillment of any covenant or agreement in this Sublease, provided that Subtenant shall have the right to rent abatement pursuant to Section 14.1(b) of the Original Lease to the extent Sublandlord is entitled to such abatement pursuant to such Section.
ARTICLE 5 ‐ REPAIRS AND MAINTENANCE
5.1    Sublandlord Repairs.  Sublandlord shall have no obligation to repair, maintain, refurbish or make replacements for the Subleased Premises (collectively, “repairs”), whether or not arising out of fire, other casualty, or in connection with the need for normal maintenance and repair.  Sublandlord shall, however, cooperate with Subtenant, at no cost to Sublandlord, to attempt to cause Prime Landlord to comply with its obligations under the Prime Lease with respect to the Subleased Premises and to provide such repairs for the benefit of the Subleased Premises.
5.2    Subtenant Repairs.  Subtenant shall, at its sole cost and expense, repair and maintain the Subleased Premises in accordance with Section 8.1 of the Original Lease.  In addition, Subtenant shall be responsible for the cost to repair or replace any damage or injury in or about the Subleased Premises or the Property caused by any act or omission of Subtenant or Subtenant’s agents, employees, contractors or invitees.  Notwithstanding any provision herein to the contrary, Subtenant shall not be obligated to remedy or cure any condition within the Subleased Premises which is not in compliance with Section 8.1 of the Original Lease as of the Effective Date.  At the termination of this Sublease, by lapse of time or otherwise, Subtenant shall deliver the Subleased Premises to Sublandlord in the same repair and condition as existed on the Effective Date, normal wear and tear and damage by fire or other casualty excepted.
5.3    Sublandlord Access.   Notwithstanding any provision herein to the contrary, Sublandlord shall retain the right to access through the Subleased Premises the air conditioning unit 

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servicing Sublandlord’s gym located on the tenth floor of the Building, provided, Sublandlord shall provide Subtenant with reasonable prior notice of its intent to exercise such access rights and, in any event, Sublandlord shall use commercially reasonable efforts to minimize interference with Subtenant’s operations within the Subleased Premises in conjunction therewith.

ARTICLE 6 ‐ ALTERATIONS AND IMPROVEMENTS
6.1    Subtenant shall not make or allow to be made any alterations, physical additions or improvements (collectively, “Alterations”) in or to the Subleased Premises without first obtaining the written consent of Sublandlord (which consent shall not be unreasonably withheld, delayed or conditioned) and Prime Landlord.  It shall not be unreasonable for Sublandlord to withhold its consent to any Alterations if Prime Landlord requires their removal (at the expiration of the term of the Prime Lease) in connection with the provision of Prime Landlord’s consent thereto.  Subtenant shall have no authority or power, express or implied, to create or cause the imposition of any mechanic’s lien, materialman’s lien, or other charge or encumbrance of any kind against the Subleased Premises or any other part of the Property.  Notwithstanding anything contained herein to the contrary, Subtenant shall not be required to remove any Alterations in or to the Subleased Premises at the expiration or earlier termination of this Sublease that were made in accordance with the terms of this Article 6.  Further notwithstanding anything herein to the contrary, Subtenant shall have no obligation or responsibility for removing any Alterations (or otherwise restoring the Subleased Premises to the condition prior to such Alterations), to the extent such Alterations were made or installed prior to the Effective Date.
ARTICLE 7 ‐ PRIME LEASE
7.1    Compliance with Prime Lease.  Except as expressly set forth in Section 7.2 below, Subtenant shall comply with all of the provisions of the Prime Lease that are to be observed or performed by Sublandlord as tenant thereunder with respect to the Subleased Premises.  Subtenant shall not, by any act or omission, cause Sublandlord to be in violation of or in default under the Prime Lease.
7.2    Incorporation of Prime Lease.  The Prime Lease is as described above in Section 1.9 is incorporated herein by reference so that, except to the extent that they are inapplicable or modified by the provisions of this Section 7.2 or otherwise by this Sublease, for the purpose of incorporation by reference, each and every term, covenant and condition of the Prime Lease binding or inuring to the benefit of the Prime Landlord shall, in respect of this Sublease, bind or inure to the benefit of Sublandlord, and each and every term, covenant and condition of the Prime Lease binding upon or inuring to the benefit of the Sublandlord (as Tenant thereunder) shall, in respect of this Sublease, bind or inure to the benefit of Subtenant, with the same force and effect as if such terms, covenants and conditions were completely set forth in this Sublease, and, except as expressly provided herein, as if the words “Landlord” and “Tenant”, or words of similar import, wherever the same appear in the Prime Lease, were construed to mean, respectively, “Sublandlord” and “Subtenant” in this Sublease (except with respect to the term “Landlord”, wherever the same appears 

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in the Original Lease in the last sentence of Section 8.1; and in Section 13.8; Article XIV; Article XVII; Article XVIII; Section 22.2; and Section 25.16) and as if the word “Premises,” or words of similar import, wherever the same appear in the Lease, were construed to mean “Subleased Premises” in this Sublease, and as if the word “Lease,” or words of similar import, wherever the same appear in the Prime Lease, were construed to mean this “Sublease”.  Notwithstanding anything herein to the contrary, Subtenant agrees to be bound by all obligations and responsibilities of Sublandlord as Tenant under the Prime Lease and Sublandlord agrees to be bound by all obligations and responsibilities as Landlord under the Prime Lease, except as to the following covenants, agreements, terms and conditions and such following covenants, agreements, terms and conditions of the Prime Lease are not incorporated herein:  In the Original Lease: the Preliminary Statement; Article 1; in Section 2.2, the reference to any Terrace other than the Terrace appurtenant to the 19th Floor; Article III; Article IV; Article V; Section 9.1; in Section 9.2, the phrase “including the initial Alterations in each portion of the Premises (including the Compliance Work)”; Section 9.4; the first, fourth and fifth sentences of Section 10.1; Article XI; Article XII Section 15.3; Section 15.5 (insofar as Sublandlord and Subtenant are concerned vis. a vis. one another); Section 21.4; Section 23.6; Article XXIV; Section 25.1, Section 25.3; Exhibit B; Exhibit C; Exhibit D; Exhibit E; Exhibit H; the entire First Amendment other than Section 5.a) of the First Amendment; and the entire Second Amendment.  Notwithstanding anything to the contrary, it is expressly recognized and agreed that Sublandlord shall not be obligated to perform any repairs or restoration to the Subleased Premises or to perform or provide any particular service of any nature whatsoever to the Subleased Premises, including, without limitation, the provision of utilities, HVAC service, elevators, char or cleaning or trash removal, it being the intent of the parties that Prime Landlord, as opposed to Sublandlord, perform the repairs or restoration required by the Prime Landlord under the Prime Lease and furnish and provide to the Subleased Premises the services required under the Prime Lease.  Except as otherwise provided for herein (including the foregoing exceptions), Subtenant’s assumption of the obligations of Sublandlord under the Prime Lease as herein provided are for the benefit of both Prime Landlord and Sublandlord, and may be enforced by either Prime Landlord or Sublandlord.
7.3    Subject to Prime Lease.  This Sublease is expressly subject to and inferior to the Prime Lease.
7.4    Familiarity With Prime Lease.  Subtenant represents that it has read and is familiar with all of the provisions of the Prime Lease.
7.5    Sublandlord’s Obligations Re Prime Lease.  Provided Subtenant is not in default hereunder (after consideration of any applicable notice and cure period), Sublandlord shall pay the rent due to Prime Landlord and shall otherwise comply with the terms of the Prime Lease, so as not to cause a default under the Prime Lease.  If under the Prime Lease any right or remedy of Sublandlord is subject to or conditioned upon Sublandlord’s making any demand on Prime Landlord or giving any notice or request to Prime Landlord then, if Subtenant shall so request, Sublandlord shall promptly make such demand or give such notice or request.  At Subtenant’s expense and request, Sublandlord will take all reasonable actions necessary to enable Subtenant to enforce the Sublandlord’s rights as tenant under the Prime Lease with respect to the Sublease Premises.  If Prime Landlord shall give any notice of failure or default under the Prime Lease, then Sublandlord shall promptly furnish Subtenant with a copy thereof.  

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7.6    Representations of Sublandlord/Prime Lease Termination.  Sublandlord represents that (a) the Prime Lease is in full force and effect, and (b) neither Sublandlord nor, to Sublandlord’s actual knowledge (without duty of investigation),  Prime Landlord, is in default under the Prime Lease.  Sublandlord shall not voluntarily terminate the Prime Lease except pursuant to a right of termination arising out of casualty or condemnation expressly set forth in the Prime Lease, and Sublandlord shall not amend the Prime Lease in a manner adverse to Subtenant in any material respect.  If the Prime Lease terminates for any reason, then this Sublease shall also terminate. Sublandlord shall not be liable for any such termination unless such termination shall have arisen out of a default by Sublandlord under the Prime Lease, but which default did not arise out of a default by Subtenant hereunder.  

ARTICLE 8 ‐ CASUALTY AND INSURANCE
8.1    Damage.  If the Subleased Premises shall be damaged by any cause, Subtenant shall give prompt written notice thereof to Sublandlord.
8.2    Damage from Certain Causes.  Notwithstanding any other provision of this Sublease or the Prime Lease to the contrary, Sublandlord shall not be liable to Subtenant, or to Subtenant’s employees, agents, subtenants, licensees, invitees, or visitors, or to any other person whomever, for any loss, or any damage to or loss of any property or death or injury to any person occasioned by or arising out of (a) except to the extent caused by or attributable to the negligence or intentional misconduct of the Sublandlord, its employees, agents, contractors or representatives (collectively, the “Sublandlord Parties”), the condition or design of or any defect in or failure to repair the Subleased Premises or the Property or any part or component thereof (including without limitation any mechanical, electrical, plumbing, heating, air conditioning or other systems or equipment), other than the portion of the Premises (as defined in the Prime Lease) not included in the Subleased Premises; or (b) acts or omissions of Prime Landlord, other tenants or occupants in the Property or of any other persons whomever; or (c) burglary, theft, vandalism, malicious mischief, fire, act of God, public enemy, criminal conduct, court order or injunction, riot, strike, insurrection, war, requisition or order of governmental authority, or any other matter beyond the reasonable control of Sublandlord; (d) except to the extent caused by or attributable to the negligence or intentional misconduct of the Sublandlord Parties, repair or alteration of any part of the Subleased Premises or Property other than the portion of the Premises not included in the Subleased Premises; or (e) violation or default by Prime Landlord under the Prime Lease (including without limitation slow‐down, interruption, failure or cessation of any service to be provided by Prime Landlord).
8.3    Indemnification.  Subject to the provisions of Section 8.4 below, Subtenant hereby agrees to indemnify and hold Sublandlord harmless from and against all fines, suits, claims, demands, loss, cost, liability, judgments and expenses (including attorneys’ fees and any liability Sublandlord may have to Prime Landlord) of every kind in connection with any loss, or any death or injury to person or damage to or loss of property to the extent caused by the negligence or willful misconduct of Subtenant, its employees, agents, subtenants, licensees, invitees, or visitors or any other person entering the Property or the Subleased Premises under express or implied invitation 

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or permission of Subtenant, or arising out of the occupancy or use of the Subleased Premises by Subtenant. Notwithstanding the foregoing, Subtenant’s indemnification and hold harmless obligations herein shall not extend or apply to any fines, suits, claims, demands, loss, cost, liability, judgments and expenses (including attorneys’ fees and any liability to Prime Landlord) in connection with any loss, or any death or injury to person or damage to or loss of property caused by the negligence or willful misconduct of the Sublandlord Parties.  Subject to the provisions of Section 8.4 below, Sublandlord hereby agrees to indemnify and hold Subtenant harmless from and against all fines, suits, claims, demands, loss, cost, liability, judgments and expenses (including attorneys’ fees and any liability to Prime Landlord) of every kind in connection with any loss, or any death or injury to person or damage to or loss of property to the extent caused by the negligence or willful misconduct of the Sublandlord Parties. The indemnification obligations under this Sublease shall survive the expiration or termination of this Sublease.
8.4    Waiver of Recovery and Subrogation.  Anything in this Sublease to the contrary notwithstanding, Sublandlord and Subtenant severally waive any claim in its favor against the other (REGARDLESS OF CAUSE, INCLUDING NEGLIGENCE OF THE OTHER OR ITS AGENTS OR EMPLOYEES, AND STRICT LIABILITY OF ANY KIND) for loss of or damage to any of its property located on or constituting a part of the Subleased Premises or the Property, by reason of fire or the elements, or any other cause that is insured, or is insurable (whether or not actually insured) by the terms of standard fire and extended coverage insurance in the state where the Building is located, regardless of the amount of the proceeds, if any, payable under such insurance.
8.5    Insurance.  Subtenant hereby agrees that it shall obtain and maintain the same insurance with respect to the Subleased Premises as Sublandlord is required to maintain under the Prime Lease (including, without limitation, Article XIII of the Original Lease), all such policies naming Prime Landlord and Sublandlord as additional insureds, as their interests may appear.  Without limiting the generality of the foregoing, the insurance carried by Subtenant with respect to the Subleased Premises and property therein or occurrences thereon shall include a waiver of the insurer’s rights of subrogation against Sublandlord
ARTICLE 9 ‐ ASSIGNMENT OR SUBLEASE
9.1    Subtenant shall not assign, sublet, transfer or hypothecate, in whole or in part, this Sublease, by operation of law or otherwise, without the prior written consent of Sublandlord and Prime Landlord as provided for herein, and in no event shall any such assignment or sublease ever release Subtenant or any guarantor from any obligation or liability hereunder.  
     (a)    Notwithstanding the foregoing, Sublandlord agrees that, so long as no Event of Default by Subtenant then exists (i) Sublandlord shall not unreasonably condition, delay or withhold its consent with respect to any assignment or subletting of the Sublease; and (ii) the consent of Sublandlord shall not be required (but at least ten (10) days prior written notice must be provided to Sublandlord) in the event of any sublease or assignment to: (a) any entity which controls Subtenant, is controlled by Subtenant or is under common control with Subtenant (for the purpose hereof, “control” shall mean the direct or indirect ability or power to direct or cause the direction of management policies of such entity, or otherwise direct affairs of such entity, whether through 

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ownership of equity participation, voting securities, beneficial interest, by contract or other legally enforceable means); and (b) any entity which purchases all or substantially all of Subtenant’s assets or ownership interest; provided that any such successor entity shall have a tangible net worth not less than the greater of Subtenant’s tangible net worth as of the Execution Date or as of the date of Subtenant’s notice.  Subtenant agrees to provide reasonable substantiation of Subtenant’s and the successor entity’s tangible net worth with Subtenant’s notice.   
     (b)    In the event that both Sublandlord and Prime Landlord consent to an assignment or sublease of this Sublease, Subtenant shall pay to Sublandlord as Additional Rent, 50% of any amount in excess of the Base Rent and Additional Rent due hereunder which Subtenant receives on account of the sublease or assignment of this Sublease after first deducting the reasonable actual costs of brokerage commission, legal fees and tenant improvements incurred by Subtenant in connection with the sublease or assignment.
(c)    The foregoing provisions shall expressly not apply to third party users described in the Permitted Use provisions of this Sublease, i.e., such third party users shall not require the consent of either Sublandlord or Prime Landlord recognizing, however that in all events such third party users shall be required to enter into a commercially reasonable license or occupancy agreement expressly requiring that such user comply in all aspects of its occupancy and use of the Subleased Premises and the operation of its business in the Subleased Premises (including, without limitation, any improvements or alterations) in accordance with the provisions of this Sublease and all applicable laws.  For the avoidance of doubt, in no event shall a third party user be granted rights to its own separately subdivided or demised area within the Subleased Premises nor shall any such party’s use of any space in the Premises permissible under this subsection (c) be other than as a user of the shared office facilities and services to be provided in the Subleased Premises by Subtenant. Any occupancy by a third party user of a separately subdivided or demised area shall be subject to the provisions contained in sections (a) and (b) above.
ARTICLE 10 - DEFAULT AND REMEDIES
10.1    Default by Subtenant.  It shall be an “Event of Default” hereunder if an “Event of Default” (as defined in Section 19.1 of the Original Lease, except an Event of Default hereunder shall not include an Event of Default under the Original Lease Documents as such terms are defined in the Original Lease) shall occur.
10.2    Remedies for Subtenant’s Default.  If there shall be an Event of Default as set forth in Section 10.1 above, Sublandlord may treat the occurrence of any one or more of such events as a breach of this Sublease, and shall have the same rights and remedies available to the Prime Landlord with respect to such Event of Default under Section 19.2 of the Original Lease.  
Sublandlord’s exercise, following a default by Subtenant under this Sublease, of any right granted hereunder or under any applicable law to lock out or change the locks securing the Subleased Premises shall not impose upon Sublandlord any duty to notify Subtenant of the name and address or telephone number of the individual or company from whom a new key may be obtained, nor shall Sublandlord have any duty to provide Subtenant with a new key or any other means of access to the Subleased Premises.  Sublandlord and Subtenant agree that the parties hereto intend that all 

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rights and remedies of Sublandlord under this Sublease or otherwise available to Sublandlord under applicable law shall supersede any conflicting provisions of the Virginia Code, and any amendments, modifications, recodification or other changes thereto.
 10.3    Remedies Cumulative.  Except as may be otherwise specified herein, all rights and remedies of Sublandlord or Subtenant herein or existing at law or in equity are cumulative and the exercise of one or more rights or remedies shall not be taken to exclude or waive the right to the exercise of any other.
10.4    Notice to Prime Landlord.  Subtenant shall serve written notice of any claimed default or breach by Sublandlord under this Sublease upon Prime Landlord.  Notwithstanding anything to the contrary contained herein, Subtenant shall allow Prime Landlord the same period following its receipt of such notice to cure such default or breach as is afforded Sublandlord plus an additional ten (10) days.
ARTICLE 11 ‐ MISCELLANEOUS
11.1    Authority.  Prior to or upon execution of this Sublease, Subtenant shall deliver to Sublandlord incumbency certificates, organizational status certificates and/or other documents evidencing to Sublandlord’s reasonable satisfaction the signatory authority of the individual executing this Sublease on Subtenant’s behalf.
11.2    Attorney’s Fees.  In the event of any action or proceeding brought by either party under this Sublease against the other party hereto, the prevailing party shall be entitled to recover from the other party all costs and expenses, including reasonable attorneys’ fees, in such action or proceeding.
11.3    Notices.  All notices, consents, approvals, demands, and requests (collectively “Notices”) which are required or desired to be given by either party to the other hereunder shall be given in accordance with Section 25.5 of the Original Lease, except as to the identities and addresses of the parties, which shall be as follows:
If to Sublandlord:
        
FBR & CO.
1001 19th Street North, Suite 1100
Arlington, Virginia 22209
Attn: Mark Brewer

with a mandatory copy of any notices of default to: 
    
Grossberg, Yochelson, Fox & Beyda, LLP
2000 L Street, N.W., Suite 675
Washington, DC 20036
Attn.: Richard F. Levin, Esquire

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If to Subtenant:
        
MCG Capital Corporation
[At the Subleased Premises]
Attn: Tod Reichert, Esq.

with a mandatory copy of any notices of default to:

Dow Lohnes PLLC
Six Concourse Parkway, Suite 1800
Atlanta, Georgia 30328
Attn: David L. Lester, Esq.

        
Any notices or demands to be given shall be in writing and sent to Sublandlord or Subtenant, respectively, at the addresses set forth above or at such other address as either such party shall designate by written notice to the other party and may be given by personal delivery, certified mail, return receipt requested, postage prepaid, or recognized overnight delivery service.  Any notice sent in compliance with this Section 11.3 shall be deemed given on the date of delivery in the case of personal delivery, on the date of receipt or refusal to receive after mailing in the case of mailing, or on the next business day in the case of overnight delivery service.
11.4    Submission of Sublease.  Submission of this Sublease to Subtenant for signature does not constitute a reservation of space or an option to Sublease.  This Sublease is not effective until execution by and delivery to both Sublandlord and Subtenant.
11.5    Brokers.  Except for Sublandlord’s obligation to pay a commission to Cassidy Turley Commercial Real Estate (which has acted as Subtenant’s broker) under a separate commission agreement entered into by and between Sublandlord’s broker, UGL Services-Equis Operations and Cassidy Turley Commercial Real Estate, Sublandlord and Subtenant hereby indemnify and hold each other harmless against any loss, claim, expense or liability with respect to any commissions or brokerage fees claimed on account of the execution and/or renewal of this Sublease due to any action of the indemnifying party.  
11.6    Severability.  If any provision of this Sublease or the application thereof to any person or circumstances shall be invalid or unenforceable to any extent, the remainder of this Sublease and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
11.7    Successors.  This Sublease shall be binding upon and inure to the benefit of Sublandlord and Subtenant and their respective heirs, personal representatives, successors and assigns.
11.8    Interpretation.  The captions appearing in this Sublease are for convenience only and in no way define, limit, construe or describe the scope or intent of any Section.  The laws of 

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the Commonwealth of Virginia and applicable United States federal law shall govern the validity, performance and enforcement of this Sublease.  This Sublease shall not be construed more or less favorably with respect to either party as a consequence of the Sublease or various provisions hereof having been drafted by one of the parties hereto.
11.9    Entire Agreement.  IT IS EXPRESSLY AGREED BY THE PARTIES HERETO, AS A MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS SUBLEASE, THAT THIS SUBLEASE, WITH THE SPECIFIC REFERENCES TO EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF THE PARTIES; THAT THERE ARE, AND WERE, NO VERBAL REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENT OR PROMISES PERTAINING TO THE SUBJECT MATTER OF THIS SUBLEASE OR OF ANY EXPRESSLY MENTIONED EXTRINSIC DOCUMENTS THAT ARE NOT INCORPORATED IN WRITING IN THIS SUBLEASE.
11.10    Amendment.  THIS SUBLEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY SUBLANDLORD AND SUBTENANT.
11.11    Limitation of Warranties.  SUBLANDLORD AND SUBTENANT EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, SUITABILITY, HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS SUBLEASE, AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS SUBLEASE.
11.12    Waiver and Releases.  SUBTENANT SHALL NOT HAVE THE RIGHT TO WITHHOLD OR TO OFFSET RENT OR TO TERMINATE THIS SUBLEASE EXCEPT AS EXPRESSLY PROVIDED HEREIN.  SUBTENANT WAIVES AND RELEASES ANY AND ALL STATUTORY LIENS AND OFFSET RIGHTS.
11.13    Waiver of Trial by Jury.  SUBTENANT HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY REGARDING ANY DISPUTE ARISING UNDER OR RELATING TO THIS SUBLEASE AND AGREES THAT ANY SUCH DISPUTE SHALL, AT THE OPTION OF SUBLANDLORD, BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.

ARTICLE 12 – SPECIAL PROVISIONS
12.1    Signage.  Sublandlord, at Sublandlord’s expense, shall use commercially reasonable efforts to cause the Prime Landlord to provide standard signage for Subtenant on the Building directory in the Building’s main lobby and on the suite entry door of the Subleased Premises.  With the exception of any cost to obtain Prime Landlord’s consent to the initial signage, Subtenant shall bear all costs and expenses of the directional, directory and suite signage.  Except as provided above, 

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Subtenant shall not install any signage in the Subleased Premises that is visible from the exterior of the Subleased Premises without the prior written consent of the Sublandlord and Prime Landlord provided in accordance with the provisions of the Prime Lease.
12.2    Parking.  Sublandlord shall cause the Prime Landlord (or the garage operator), to provide up to one (1) unreserved parking permit per each 450 square feet of the Subleased Premises, of which two (2) such permits may be for reserved parking permits.  Subtenant shall pay to the Prime Landlord (or the garage operator directly) the stated rate in effect from time to time for any such parking which Subtenant elects to lease.  Subtenant’s parking rights under this Section 12.2 are personal to Subtenant and non-transferable.  Subtenant shall abide by all applicable rules and regulations of Sublandlord, Prime Landlord and/or the Building garage operator related to the parking spaces provided under this Section, and shall hold Sublandlord, Sublandlord’s agents, contractors and employees harmless from and against all losses and liabilities, if any, arising from the use of such spaces by Subtenant or its employees, agents, contractors or representatives.  Notwithstanding the foregoing, the parties acknowledge and agree that Subtenant shall deal directly with the garage operator for the lease of the unreserved parking permits (as opposed to the 2 reserved permits which shall be allocated to Subtenant from Sublandlord’s reserved permits allocation), provided, such direct dealing with the garage operator by Subtenant shall not relieve Sublandlord of its obligation to cause Prime Landlord (or the garage operator) to provide Subtenant with the number of parking spaces required hereunder.  

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

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Executed under seal and made effective upon the Execution Date.
SUBLANDLORD
FBR & CO., a Virginia corporation formerly known as FBR Capital Markets Corporation

By: /s/ Bradley J. Wright (SEAL)        
Officer Name: Bradley J. Wright        
Officer Title: Executive Vice President, 
Chief Financial Officer and Chief Accounting Officer        

SUBTENANT
MCG CAPITAL CORPORATION,    
a Delaware corporation
By: /s/ B. Hagen Saville (SEAL)        
Officer Name: B. Hagen Saville        
Officer Title: President        

EXHIBIT A

DEPICTION OF SUBLEASED PREMISES

EXHIBIT B
FURNITURE

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00207-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00207-of-00352.parquet"}]]