Document:

Exhibit 10.2

 

Grace Rich Shareholders Agreement

 

 

 

Dated

 

September 16, 2013

 

SHAREHOLDERS AGREEMENT

 

Among

 

SAAMABA, LLC,

 

SCIO DIAMOND TECHNOLOGY CORPORATION

 

AND S21 RESEARCH HOLDINGS

 

 

 

	
 
    	
Proprietary and Confidential
    	
09/16/13
    

 

1

 

Contents

 

Clause

 

	
1.
    	
Interpretation
    	
 
    	
3
    
	
2.
    	
The Business of the Company
    	
 
    	
5
    
	
3.
    	
Formation of the Company
    	
 
    	
5
    
	
4.
    	
Closing
    	
 
    	
6
    
	
5.
    	
Directors and management
    	
 
    	
7
    
	
6.
    	
Finance for the Company
    	
 
    	
8
    
	
7.
    	
Restrictions on the parties
    	
 
    	
8
    
	
8.
    	
The Business Plan
    	
 
    	
9
    
	
9.
    	
Accounting
    	
 
    	
9
    
	
10.
    	
Dividend policy
    	
 
    	
10
    
	
11.
    	
Transfer of shares
    	
 
    	
10
    
	
12.
    	
Obligatory Transfer Event
    	
 
    	
11
    
	
13.
    	
Transfer following Obligatory Transfer Event
    	
 
    	
11
    
	
14.
    	
Expert
    	
 
    	
12
    
	
15.
    	
Termination and liquidation
    	
 
    	
13
    
	
16.
    	
Closing the sale and purchase of shares in the Company
    	
 
    	
13
    
	
17.
    	
Status of agreement
    	
 
    	
14
    
	
18.
    	
Confidentiality
    	
 
    	
15
    
	
19.
    	
Warranty
    	
 
    	
16
    
	
20.
    	
Whole agreement
    	
 
    	
16
    
	
21.
    	
Assignments
    	
 
    	
16
    
	
22.
    	
Variation and waiver
    	
 
    	
16
    
	
23.
    	
Costs
    	
 
    	
17
    
	
24.
    	
No partnership
    	
 
    	
17
    
	
25.
    	
Good faith
    	
 
    	
17
    
	
26.
    	
Third party rights
    	
 
    	
17
    
	
27.
    	
Notice
    	
 
    	
17
    
	
28.
    	
Interest on late payment
    	
 
    	
18
    
	
29.
    	
Language
    	
 
    	
19
    
	
30.
    	
Severance
    	
 
    	
19
    
	
31.
    	
Further assurance
    	
 
    	
19
    
	
32.
    	
Counterparts
    	
 
    	
19
    
	
33.
    	
Agreement survives Closing
    	
 
    	
19
    
	
34.
    	
Governing law and jurisdiction
    	
 
    	
19
    

 

2

 

THIS AGREEMENT is dated September 17, 2013

 

PARTIES

 

(1)                                 SAAMABA, LLC, a limited liability company formed under the laws of the State of Michigan, USA, whose principal place of business is located at 354 Indusco Court, Troy, MI 48083 (“SAAMABA”).

 

(2)                                 Scio Diamond Technology Corporation a corporation formed under the laws of the State of Nevada, USA, whose principal place of business is located at 411 University Ridge, Suite D, Greenville, SC 29601 (“Scio”).

 

(3)                                 S21 Research Holdings, a company formed under the laws of Israel, whose principal business is located at “to be provided” (“S21”).

 

BACKGROUND

 

(A)                               SAAMABA, Scio and S21 have agreed to form and jointly own Grace Rich Limited, a Hong Kong limited corporation (the “Company”).

 

(B)                               The Company will carry on business on the terms and conditions of this agreement.

 

(C)                               SAAMABA, Scio and S21 will exercise their rights in relation to the Company on the terms and conditions of this agreement.

 

AGREED TERMS

 

1.                                      INTERPRETATION

 

1.1                               The definitions and rules of interpretation in this clause apply in this agreement.

 

“Board” means the board of directors of the Company as constituted from time to time.

 

“Business” has the meaning given in clause 2.

 

“Business Day” means a day (other than a Saturday or Sunday) when banks in [CITY] are open for business.

 

“Business Plan” has the meaning given in clause 8.

 

“Change of Control” means, with respect to any party: (i) the sale of all or substantially all of the assets of such party to an independent third party; (ii) a sale resulting in more than 50% of the equity interests of such party being held by an independent third party; or (iii) a merger, consolidation, recapitalization or reorganization of such party with or into an independent third party that results in the inability of the equity holders of such party to designate or elect a majority of the board of directors (or its equivalent) of the resulting entity.

 

“Closing,” means the completion of the formation of the Company in accordance with clause 4.

 

“Closing Date” has the meaning given in clause 4.

 

“Confidential Information” has the meaning given in clause 18.

 

“Continuing Shareholder” has the meaning given in clause 11.

 

“Control”, in relation to a body corporate, means the power of a person to secure that the affairs of the body corporate are conducted in accordance with the wishes of that person:

 

(a)                       by means of the holding of shares, or the possession of voting power, in or in relation to that or any other body corporate; or

 

(b)                       by virtue of any powers conferred by the constitutional or corporate documents, or any other document, regulating that or any other body corporate.

 

“Consulting Agreement” means the Consulting Agreement, dated September 17, 2013, between Scio and the Company.

 

“Encumbrance” means any mortgage, charge, pledge, lien, hypothecation, guarantee, trust, right of set-off or other third party right or interest including any assignment by way of security, reservation of title or other security interest of any kind, howsoever created or arising, or any other agreement or arrangement (including a sale and repurchase agreement) having similar effect.

 

“Expert” means a person appointed in accordance with clause 14 to resolve a matter under this agreement.

 

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“Fair Value” means the value of shares determined in accordance with clause 13.

 

“Financial Year” in relation to the Company, means a financial accounting period of 12 months ending on the date given in clause 3.11 but, in the first year in which the Company is formed, means the period starting with the day the Company is formed and ending on the date given in clause3.11.

 

“Group” means, in relation to a company (wherever incorporated), that company, any company of which it is a Subsidiary (its holding company) and any other Subsidiaries of any such holding company; and each company in a Group is a member of the Group.

 

Unless the context otherwise requires, the application of the definition of Group to any company at any time shall apply to the company as it is at that time.

 

“S21 Shares” means shares of Series C Common Stock of the Company.

 

“Joint Venture Agreement” means the Joint Venture Agreement, dated September 17, 2013, by and among SAAMABA, Scio and S21.

 

“License Agreement” means the License Agreement, dated September 17, 2013, by and between Scio and the Company.

 

“Notice of Obligatory Transfer Event” has the meaning given in clause 13.1.

 

“Obligatory Transfer Event” means, in relation to a party, any event specified in clause 12 that happens to that party.

 

“Product” shall mean type lla Single-Crystal CVD Diamond.

 

“Reserved Matters” the matters listed in Schedule A.

 

“SAAMABA Director” means any director appointed to the Board by SAAMABA.

 

“SAAMABA Shares” means shares of Series A Preferred Stock of the Company.

 

“Scio Director” means any director appointed to the Board by Scio.

 

“Scio Share” means shares of Series B Preferred Stock of the Company.

 

“Shareholders” means the holder of shares in the Company.

 

“Sublicense Agreement” means the Sublicense Agreement, dated September 17, 2013, by and between the Company and [WFOE].

 

“Shareholders’ Agreement” means the Shareholders’ Agreement, dated September 17, 2013, by and between the SAAMABA, SCIO and S21.

 

“Subsidiary” means, in relation to a company wherever incorporated (the holding company), any other company in which the holding company (or a person acting on its behalf) directly or indirectly holds or controls either:

 

(a)                       a majority of the voting rights exercisable at general meetings of the company; or

 

(b)                       the right to appoint or remove directors having a majority of the voting rights exercisable at meetings of the board of directors of the company,

 

and any company, which is a Subsidiary of another company, is also a Subsidiary of that company’s holding company.

 

Unless the context otherwise requires, the application of the definition of Subsidiary to any company at any time shall apply to that company as it is at that time.

 

“Transfer Notice” has the meaning given in clause 11.

 

1.2                               Clause, schedule and paragraph headings do not affect the interpretation of this agreement.

 

1.3                               A reference to a clause or a schedule is a reference to a clause of, or a schedule to, this agreement. A reference to a paragraph is to a paragraph of the relevant schedule.

 

1.4                               A person includes a natural person or a corporate or unincorporated body (whether or not having a separate legal personality).

 

1.5                               Unless the context otherwise requires, words in the singular include the plural and in the plural include the singular.

 

1.6                               Unless the context otherwise requires, a reference to one gender includes a reference to the other genders.

 

4

 

1.7                               All warranties, representations, agreements and obligations expressed to be given or entered into by more than one person are given or entered into jointly and severally by the persons concerned.

 

1.8                               A reference to a law is a reference to it as it is in force from time to time, taking account of any amendment, extension, application or re-enactment and includes any subordinate legislation for the time being in force made under it, provided that, as between the parties, no such amendment, extension, application or re-enactment shall apply for the purposes of this agreement to the extent that it would impose any new or extended obligation, liability or restriction on, or otherwise adversely affect the rights of, any party.

 

1.9                               Writing or written includes faxes but no other electronic form.

 

1.10                        Documents in agreed form are documents in the form agreed by the parties and initialed by them or on their behalf for identification.

 

1.11                        A reference in this agreement to a document is a reference to the document whether in paper or electronic form.

 

1.12                        A reference in this agreement to other documents referred to in the agreement is a reference to the following documents:  the Consulting Agreement, the Joint Venture Agreement, the License Agreement, the Sublicense Agreement and the Shareholders’ Agreement.

 

1.13                        Where the words include(s), including or in particular are used in this agreement, they are deemed to have the words “without limitation” following them.

 

1.14                        Any obligation in this agreement on a person not to do something includes an obligation not to agree or allow that thing to be done.

 

1.15                        Where the context permits, other and otherwise are illustrative and shall not limit the sense of the words preceding them.

 

1.16                        References to times of the day are, unless the context requires otherwise, to Eastern Standard Time Zone, time and references to a day are to a period of 24 hours running from midnight on the previous day.

 

2.                                      THE BUSINESS OF THE COMPANY

 

2.1                               The Business of the Company is the manufacture and distribution of type IIa Single-Crystal CVD diamonds in accordance with the terms of the License Agreement.

 

2.2                               Each party shall use its reasonable endeavors to promote and develop the business of the Company to the best advantage of the Company.

 

3.                                      FORMATION OF THE COMPANY

 

3.1                               The Company was formed and organized on June 6, 2013 as a limited corporation under the Companies Ordinance (Chapter 32) of the Special Administrative Region of Hong Kong, the People’s Republic of China.

 

3.2                               At or before Closing, the parties shall procure that such shareholder and director meetings are held, and resolutions passed, to ensure that the Company shall have the characteristics set out in this clause.

 

3.3                               The share capital of the Company is 10,000 shares, divided among Series A Preferred, Series B Preferred, and Series C Common. Each Series of Stock shall have different rights and preferences, but shares in each Series shall only have one vote per share.  Series A Preferred shall have certain rights and privileges, plus certain liquidation preferences set forth in Schedule A; except for employee stock options and warrants, Series B Preferred shall have non-dilutable preferences set forth in Schedule A; and Series C Common shall have no special preferences or rights other than as set forth in this Agreement.  At Closing, SAAMABA shall be issued 6,000 SAAMABA Shares upon receipt of proper consideration; Scio shall be issued 3,000 Scio Shares upon receipt of proper consideration and S21 shall be issued 1,000 S21 Shares upon receipt of proper consideration.

 

5

 

3.4                               The name of the Company is Grace Rich Limited.

 

3.5                               The Company’s constitutional and corporate documents are attached hereto as Exhibit A.

 

3.6                               The SAAMABA Directors shall be Neena Mehta, Shrikant Mehta and Shan Mehta.

 

3.7                               The Scio Director shall be Michael McMahon.

 

3.8                               The chairman shall be Shirkant Mehta.

 

3.9                               The registered office shall be at”to be determined within 60 days, and be Hong Kong address.

 

3.10                        The Financial Year shall end on December 31 in each year.

 

3.11                        The parties shall procure that before Closing and except as required by clause 4, the Company shall not carry on any trade or business or be engaged in any activities of any sort nor have any assets or liabilities.

 

4.                                      CLOSING

 

4.1                               Closing shall take place at 1PM, September 16, 2013 on the Closing Date at:

 

(a)                       the offices of located at 354 Indusco Ct., Troy, MI 48083 or

 

4.2                               At or before Closing, the Company must have the characteristics set out in clause 3.

 

4.3                               At Closing:

 

(a)                       the parties shall procure that the Company shall issue 6,000 SAAMABA Shares to SAAMABA and take such steps as are necessary to establish SAAMABA as the legal owner of the SAAMABA Shares in accordance with Hong Kong law; and

 

(b)                       in consideration of the issue of SAAMABA Shares, SAAMABA shall pay HK$6,000 to the Company.

 

4.4                               At Closing:

 

(a)                       the parties shall procure that the Company shall issue 3,000 Scio Shares to Scio and take such steps as are necessary to establish Scio as the legal owner of the Scio Shares in accordance with Hong Kong law; and

 

(b)                       in consideration of the issue of Scio Shares, Scio shall pay HK$3,000 to the Company.

 

4.5                               At Closing:

 

(a)                       the parties shall procure that the Company shall issue 1,000 S21 Shares to S21 and take such steps as are necessary to establish S21 as the legal owner of the S21 Shares in accordance with Hong Kong law; and

 

(b)                       in consideration of the issue of S21 Shares, S21 shall pay HK$1,000 to the Company.

 

4.6                               At Closing, a Business Plan that has been prepared for the Financial Year shall be appended for review by the Shareholders.

 

4.7                               At Closing, the parties shall procure that the following agreements are executed in the agreed form:

 

(a)                       The Consulting Agreement;

 

(b)                       The Joint Venture Agreement;

 

6

 

(c)                        The License Agreement;

 

(d)                       The Shareholders’ Agreement; and

 

(e)                        Initials signifying agreement on the format of the Sublicense Agreement.

 

5.                                      DIRECTORS AND MANAGEMENT

 

5.1                               The Board has responsibility for the supervision and management of the Company and its business.

 

5.2                               There shall be four (4) directors on the Board made up of three (3) SAAMABA Directors and one (1) Scio Director.

 

5.3                               The Chairman shall be appointed by SAAMABA.  If the chairman for the time being is unable to attend any meeting of the Board the party who appointed him shall be entitled to appoint another Director appointed by it to act as chairman at the meeting.

 

5.4                               A party may nominate a director, and remove a director whom it nominated, by giving notice to the Company and the other party. The appointment or removal takes effect on the date on which the notice is received by the Company or, if a later date is given in the notice, on that date.

 

5.5                               The party removing a director shall indemnify and keep indemnified the Company against any claim connected with the director’s removal from office.

 

5.6                               The parties intend there to be a meeting of directors at as often as needed to be determined by the Chairman.  Meetings can be held in person, telephonically or via instant messaging. The Chairman shall determine location of meetings.

 

5.7                               The Chairman may call a meeting at his discretion and any 2 directors may call a meeting by notifying the Secretary of the time and place for such a meeting pursuant to the procedures for notice as set forth herein.

 

5.8                               The parties shall ensure that at least seven Business Days’ notice of a meeting of directors is given to all directors entitled to receive notice accompanied by:

 

(a)                       an agenda specifying in reasonable detail the matters to be raised at the meeting; and

 

(b)                       copies of any papers to be discussed at the meeting.

 

5.9                               A shorter period of notice of a meeting of directors may be given if at least one SAAMABA Director and the Scio Director agree in writing.

 

5.10                        The quorum at any meeting of directors (including adjourned meetings) is one SAAMABA Director (or his alternate) and the Scio Director (or his alternate).

 

5.11                        No business shall be conducted at any meeting of directors unless a quorum is present at the beginning of the meeting and at the time when there is to be voting on any business.

 

5.12                        If a quorum is not present within 90 minutes after the time specified for a directors’ meeting in the notice of the meeting then it will be adjourned for one (1) Business Day at the same time and place.

 

5.13                        A meeting of directors shall be adjourned to another time or date at the request of the majority of the directors present at the meeting.  No business may be conducted at a meeting after such a request has been made.  No more than one such adjournment may be made in respect of a meeting.

 

7

 

5.14                        Directors may make decisions binding the Company by passing resolutions.  A resolution is passed, regardless of whether it is presented at a meeting of the directors or by written proposal if more votes are cast for it than against it, or if via written resolution, if any two or more directors shall have executed and approved the resolution.

 

5.15                        At a meeting of directors, each director has one vote.

 

5.16                        A SAAMABA Director or a Scio Director who is absent from a meeting may appoint any person (except an existing director representing the other class of shares) to act as his alternate at the meeting. For the purposes of the meeting the alternate director:

 

(a)                       shall be the SAAMABA Director or Scio Director by whom he is appointed and may, in particular, vote in place of the SAAMABA Director or Scio Director; and

 

(b)                       where the person appointed as an alternate is already a director of the Company in his own right, shall also be a director (and may vote) in his own right.

 

6.                                      FINANCE FOR THE COMPANY

 

6.1                               The parties envisage that the Company shall be self-financed from the cash flow of the Company and the initial cash contributions made by the Shareholders.

 

6.2                               In the event the cash flow of the Company, together with the initial cash contributions made by the Shareholders, is insufficient for the operations of the Company, SAAMABA shall undertake to use its reasonable efforts to seek additional cash in such amounts as are necessary for the continued operations of the Company.  Such additional infusion of capital can be in the form of sale of equity in the Company, loans or other financing vehicles as the board deems appropriate.

 

7.                                      RESTRICTIONS ON THE PARTIES

 

7.1                               None of the parties hereto nor any of its Subsidiaries may, during the times specified below, carry on or be employed, engaged or interested in any business which would be in competition with any part of the Business of the Company (as described in clause 2.1) including any developments in the Business after the date of this agreement.  The times during which these restrictions apply are:

 

(a)                       any time when the party in question is a Shareholder; and

 

(b)                       for a period of 2 years after the party in question ceases to be a Shareholder.

 

7.2                               None of the parties hereto nor any of its Subsidiaries may, during the times specified below, deal with or seek the customer of any person that is, or was within the previous 12 months, a client or customer of the Company or, where the party is no longer a Shareholder, any person that was a client or customer of the Company at any time during the period of 12 months immediately preceding the party in question ceasing to be a Shareholder.  The times during which these restrictions apply are:

 

(a)                       any time when the party in question is a Shareholder; and

 

(b)                       for a period of 2 years after the party in question ceases to be a Shareholder.

 

7.3                               None of the parties hereto nor any of its Subsidiaries may, during the times specified below, offer employment to, enter into a contract for the services of, or attempt to solicit or seek to entice away from the Company any individual who is, at the time of the offer or attempt a director, officer or employee with the Company, or procure or facilitate the making of any such offer or attempt by any other person. The times during which these restrictions apply are:

 

(a)                       any time when the party in question is a Shareholder; and

 

(b)                       for a period of 2 years after the party in question ceases to be a Shareholder.

 

8

 

7.4                               The undertakings in clause 7 are given by each party to the others and to the Company and apply to actions carried out by each party (or any of its Subsidiaries) in any capacity and whether directly or indirectly, on the party’s (or Subsidiary’s) own behalf, on behalf of any other person or jointly with any other person.

 

7.5                               Nothing in clause 7 prevents a party or any of its Subsidiaries:

 

(a)                       from holding for investment purposes only any units of any authorized unit trust; or

 

(b)                       from holding for investment purposes only not more than 5% of any class of shares or securities of any company traded on any national securities exchange.

 

7.6                               Each of the covenants in clause 7 is considered fair and reasonable by the parties, but if any such restriction is found to be unenforceable but would be valid if any part of it were deleted or the period or area of application reduced, the restriction shall apply with such modifications as may be necessary to make it valid and effective.

 

7.7                               Each party shall, to the extent that it is able to do so, exercise all voting rights and other powers in relation to its Subsidiaries to procure that the Subsidiaries comply with the terms of clause 7.

 

8.                                      THE BUSINESS PLAN

 

8.1                               The Business Plan shall be an annual business plan for the Company prepared by the Company, and approved by Scio, and it shall include in relation to the Financial Year to which it relates:

 

(a)                       a cash flow statement giving:

 

(i)                           an estimate of the working capital requirements; and

 

(ii)                        an indication of the amount (if any) that it is considered prudent to retain, for the purpose of meeting those requirements, out of those profits of the previous Financial Year that are available under the law of Hong Kong for distribution to Shareholders;

 

(b)                       a monthly projected profit and loss account;

 

(c)                        a monthly operating budget (including capital expenditure requirements and any debt financing requirements) and balance sheet forecast;

 

(d)                       a management report giving business objectives for the Financial Year; and

 

(e)                        a financial report which shall include an analysis of the estimated results of the Company for the previous Financial Year compared with the Business Plan for that year, identifying variations in sales revenues, costs and other material items.

 

8.2                               The Business Plan for the Financial Year in which the Company is formed available for inspection at Closing.

 

9.                                      ACCOUNTING

 

9.1                               The Company shall at all times maintain accurate and complete accounting and other financial records in accordance with the requirements of all applicable laws and generally accepted accounting principles in Hong Kong. GAAP compliant accounting records can be made available to the requesting party provided such requesting party agrees to pay upfront for the compliance costs. Each party and its authorized representatives shall be allowed access at all reasonable times to examine the books and records of the Company provided a written request is made to the Company at least 5 days in advance of the inspection date.

 

9.2                               The Company shall supply each party with the financial information necessary to keep the party informed about how effectively the Business of the Company is performing and in particular shall supply each party with:

 

(a)                       a copy of each year’s Business Plan;

 

9

 

(b)                       a copy of the unaudited accounts of the Company prepared in accordance with the laws applicable in, and generally accepted accounting principles in, Hong Kong, or a higher standard required by a secured party, within 3 months of the end of the year to which the accounts relate;

 

10.                               DIVIDEND POLICY

 

10.1                        To the extent permitted by any applicable law, and unless the parties agree otherwise in relation to any particular Financial Year, the Company shall distribute by way of dividend at least 40% of the profit of the Company in relation to each Financial Year, after the deduction of taxation, and extraordinary items as shown in the audited accounts for that year. Notwithstanding the foregoing, the Board of Directors shall have the discretion to distribute dividends earlier than the third anniversary of the formation of the Company and in such different percentage amounts, subject to the requirements or limitations imposed by applicable law.

 

10.2                        A distribution under clause 10 in relation to any Financial Year shall be made within six months of the day to which the audited accounts for that Financial Year are made up.

 

11.                               TRANSFER OF SHARES

 

11.1                        No party shall transfer, grant any security interest over, or otherwise dispose of or give any person any rights in or over any share or interest in any share in the Company unless it is permitted or required to do so under this agreement and carried out in accordance with the terms of this agreement.

 

11.2                        A party may do anything prohibited by clause 11 if all the other parties have consented to it in writing.

 

11.3                        A party may transfer all of its shares in the Company to a member of its Group without following the steps in clause 11 if, at the time of the transfer and in relation to all the shares being transferred, the transferring party:

 

(a)                       procures that the transferee enters into a shareholders’ agreement with the remaining party to this agreement on the same terms as apply to the transferring party in relation to those shares immediately before the transfer; and

 

(b)                       guarantees all the obligations and any liabilities of the transferee under that agreement.

 

11.4                        A party may transfer all its shares in the Company to any person for cash and not on deferred terms if that party follows the steps in clause 11.

 

11.5                       The party wishing to transfer its shares (“Seller”) must give an irrevocable notice (“Transfer Notice”) to the remaining parties (“Continuing Shareholder”) of the details of the proposed transfer including:

 

(a)                       if it wishes to sell its shares to a third party, the name of the proposed transferee, the terms of the sale and evidence of the third party’s acceptance of the sale terms and conditions; and

 

(b)                       the price (in cash) at which it wishes to transfer its shares.

 

11.6                        If the Continuing Shareholder gives notice to the Seller within 60 days of receiving the Transfer Notice (the first day being the day after it receives the Transfer Notice) that it wishes to buy all the Seller’s shares in the Company, the Continuing Shareholder shall have the right to do so at the price specified in the Transfer Notice.

 

11.7                        The Continuing Shareholder is bound to buy all the Seller’s shares when it gives notice to the Seller that it wishes to do so under clause 11.6. The sale and purchase of shares shall take place on the terms set out in clause 16.

 

11.8                        If, at the expiry of the period specified in clause 11.6, the Continuing Shareholder has not notified the Seller that it wants to buy the shares, the Seller may transfer all its shares in the Company to the buyer identified in the Transfer Notice at a price not less than the price specified in that notice, provided that it does so within 2 months of the expiry of the period specified in clause 11.6.

 

10

 

11.9                        Each party undertakes (in respect of the shares that it holds) to give, and to use its reasonable efforts to procure that shareholders in its Group give, the approvals required for the transfer of shares under clause 11.

 

11.10                 The Seller shall procure that, in relation to the shares being sold in the Company, any buyer of the shares who is not a party to this agreement enters into a shareholders’ agreement at closing of the sale of such shares with the Continuing Shareholder on the same terms as apply to the Seller in relation to those shares before closing.

 

11.11                 References in clause 11 to shares held by a party in the Company are to all the shares in the Company held by that party and any members of its Group, and not to some only of those shares.

 

12.                               OBLIGATORY TRANSFER EVENT

 

12.1                        If anything mentioned in clause 12 happens to a party it is an Obligatory Transfer Event in respect of that party and the provisions of clause 13 apply.

 

12.2                        If the party is insolvent or unable to pay its debts within the meaning of the insolvency legislation applicable to that party and has stopped paying its debts as they fall due.

 

12.3                        If a step has been taken to initiate any process by or under which:

 

(a)                       the ability of the creditors of the party to take any action to enforce their debts is suspended, restricted or prevented; or

 

(b)                       some or all of the creditors of the party accept, by agreement or in pursuance of a court order, an amount of less than the sums owing to them in satisfaction of those sums with a view to preventing the dissolution of the party; or

 

(c)                        a person is appointed to manage the affairs, business and assets of the party on behalf of the party’s creditors; or

 

(d)                       the holder of a charge over assets of the party is appointed to control the business and assets of the party.

 

12.4                        If a process has been instituted that could lead to the party being dissolved and its assets being distributed among the party’s creditors, shareholders or other contributors.

 

12.5                        If there is a Change of Control of the party..

 

13.                               TRANSFER FOLLOWING OBLIGATORY TRANSFER EVENT

 

13.1                        Where an Obligatory Transfer Event happens to a party (in this clause the Seller), it shall give notice of it to the other party (in this clause the Buyer, which by definition can only be SAAMABA or SCIO) as soon as possible and, if it does not, it is deemed to have given notice of it on the date on which the Buyer becomes aware of such Obligatory Transfer Event (“Notice of Obligatory Transfer Event”).

 

13.2                        As soon as practicable after service, or deemed service, of the Notice of Obligatory Transfer Event, the parties shall appoint an Expert to determine the Fair Value of the Seller’s shares in the Company (“Sale Shares”).

 

13.3                        The Buyer has the right, within 30 days of receiving notification of the Fair Value determined by the Expert (the first day being the day after the Buyer receives the Fair Value notification), to serve a notice on the Seller to buy all of the Sale Shares at the Fair Value.

 

13.4                        In this clause the “Fair Value” of the Sale Shares shall be the value that the Expert certifies to be the fair market value in his opinion based on the following assumptions:

 

(a)                       the value of the shares in question is that proportion of the fair market value of the entire issued share capital of the Company that the Sale Shares bear to then total issued share capital of the Company (with no premium or discount for the size of the Seller’s shareholding or for the rights or restrictions applying to the shares under this agreement);

 

11

 

(b)                       the sale is between a willing buyer and a willing seller on the open market;

 

(c)                        the sale is taking place on the date that the Obligatory Transfer Event occurred;

 

(d)                       the Company’s businesses shall continue to be carried on as a going concern (unless the Company is insolvent or unable to pay its debts within the meaning of the insolvency legislation applicable to the Company);

 

(e)                        the shares are sold free of all Encumbrances; and

 

(f)                         to take account of any other factors that the Expert reasonably believes should be taken into account.

 

13.5                        The Expert shall be requested to determine the Fair Value of the Sale Shares within 30 Business Days of his appointment and to notify the Buyer and Seller in writing of his determination.

 

13.6                        The service of a notice to buy under clause 13.3 shall bind the parties to buy and sell the shares, as the case may be, in accordance with clause 16.

 

13.7                        If at the end of the period specified in clause 13.3 the Buyer has not served a notice to buy the Sale Shares, the Buyer may elect by written notice served on the Seller for the Company to be wound up in accordance with clause 15.

 

14.                               EXPERT

 

14.1                        An Expert is a person appointed in accordance with clause 14 to resolve a matter arising under this agreement.

 

14.2                        The parties shall endeavor to agree on the appointment of an independent Expert and to agree the terms of appointment with the Expert.

 

14.3                        If the parties are unable to agree on the appointment of an Expert within 60 Business Days of either party serving details of a suggested expert on the other, either party shall then be entitled to request the Hong Kong International Arbitration Commission to appoint an Expert of repute with international experience in valuation and agree the Expert’s terms of appointment.

 

14.4                        Subject to clause 13.5, the Expert is required to prepare a written decision and give notice (including a copy) of the decision to the parties within a maximum of three months of the matter being referred to the Expert.

 

14.5                        All matters under clause 14 shall be conducted, and the Expert’s decision shall be written, in the English language.

 

14.6                       The parties are entitled to make submissions to the Expert, including oral submissions, and shall provide (or procure that others including the Company provide) the Expert with such assistance and documents as the Expert reasonably requires for the purpose of reaching a decision subject to the Expert agreeing to give such confidentiality undertakings as the parties may reasonably require.

 

14.7                        To the extent not provided for by clause 14, the Expert may, in his reasonable discretion, determine such other procedures to assist with the conduct of the determination as he considers just or appropriate[, including (to the extent he considers necessary) instructing professional advisers to assist him in reaching his determination.

 

14.8                        Each party shall, with reasonable promptness, supply (and procure that others including the Company supply) each other with all information and give each other access to all documentation and personnel as the other party reasonably requires to make a submission under clause 14.

 

14.9                        The Expert shall act as an expert and not as an arbitrator. The Expert’s written decision on the matters referred to him shall be final and binding in the absence of manifest error or fraud.

 

14.10                 Each party shall bear its own costs in relation to the reference to the Expert. The Expert’s fees and any costs properly incurred by him in arriving at his determination (including any fees and costs of any advisers appointed by the Expert) shall be borne by the parties equally.

 

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15.                               TERMINATION

 

15.1                        Except for the provisions which clause 15 states shall continue in full force after termination, this agreement shall terminate:

 

(a)                       when only one party holds shares in the Company; or

 

(b)                       when a resolution is passed by shareholders or creditors, or an order is made by a court or other competent body or person instituting a process that will lead to the Company being dissolved and its assets being distributed among the Company’s creditors, shareholders or other contributors.

 

15.2                        The following provisions of this agreement remain in full force after termination:

 

(a)                       Clause 1 (interpretation);

 

(b)                       Clause 7 (restrictions on the parties);

 

(c)                        Clause 15 (termination and liquidation);

 

(d)                       Clause 18 (confidentiality);

 

(e)                        Clause 20 (whole agreement);

 

(f)                         Clause 22 (variation and waiver);

 

(g)                        Clause 23 (costs);

 

(h)                       Clause 27 (notice);

 

(i)                           Clause 29 (language);

 

(j)                          Clause 30 (severance); and

 

(k)                       Clause 34 (governing law and jurisdiction).

 

15.3                        Termination of this agreement shall not affect any rights or liabilities that the parties have accrued under it.

 

15.4                        Where the Company is to be dissolved and its assets distributed, the parties shall agree a suitable basis for dealing with the interests and assets of the Company and shall endeavor to ensure that:

 

(a)                       all existing contracts of the Company are performed to the extent that there are sufficient resources;

 

(b)                       the Company does not enter into any new contractual obligations;

 

(c)                        the Company is dissolved and its assets are distributed as soon as practicable; and

 

(d)                       any other proprietary information and intellectual property rights belonging to or originating from a party are returned to it by the other party or the Company and all such proprietary information and intellectual property rights shall be erased from the computer systems (to the extent possible) of the Company and the party who is returning it.

 

15.5                        Where any party is required by any law, regulation or governmental or regulatory authority to retain any proprietary information (or copies of such information) of the other party or the Company, it shall notify the other party in writing of such retention giving details of the information that it has been required to retain.

 

16.                               CLOSING THE SALE AND PURCHASE OF SHARES IN THE COMPANY

 

16.1                        The sale of shares under this agreement shall close at the offices of the Buyer on the 5th Business Day:

 

(a)                       after the Continuing Shareholder (having received a Transfer Notice) gives notice to the Seller that it wishes to buy all the Seller’s shares under clause 11.6; or

 

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(b)                       after service of a notice to buy under clause 13.3.

 

16.2                        At closing the party selling the shares shall:

 

(a)                       transfer the shares free from all Encumbrances in such form as is necessary for the buyer to establish legal ownership in accordance with Hong Kong law;

 

(b)                       deliver the resignations of any directors appointed by the selling party to take effect at closing and acknowledging that they have no claims against the Company;

 

(c)                        warrant that it has no right to require the Company to issue any share capital or other securities and that no Encumbrance affects any unissued shares or other securities of the Company;

 

(d)                       warrant that it is the beneficial owner of the shares being sold;

 

(e)                        warrant that no commitment has been given to create an Encumbrance affecting the shares being sold (or any unissued shares or other securities of the Company) and that no person has claimed any rights in respect thereof; and

 

(f)                         undertake to do all it can, at its own cost, to give the buyer the full legal and beneficial title to the shares.

 

16.3                        At closing the buying party shall pay the purchase price by wire transfer of immediately available funds to the selling party.

 

16.4                        At or before closing, the Company shall repay any loans made by the selling party to the Company (together with any interest accrued thereon) and the parties shall use their best endeavors to procure that the selling party is released from any guarantees, security arrangements and other obligations that it has given in respect of the Company and its business.

 

16.5                        The shares shall be sold with all rights that attach, or may in the future attach, to them.

 

16.6                        The party buying the shares is not obliged to complete the purchase of any of the shares being sold unless the purchase of all the shares is completed simultaneously.

 

16.7                        If the party selling the shares fails to complete the transfer of shares as required under clause 16 the Company:

 

(a)                       is irrevocably authorized to appoint any person to transfer the shares on the selling party’s behalf and to do anything else that the party buying the shares may reasonably require to complete the sale; and

 

(b)                       may receive the purchase price in trust for the party selling the shares, giving a receipt that shall discharge the party buying the shares.

 

17.                               Status of agreement

 

17.1                        Each party shall, to the extent that it is able to do so, exercise all its voting rights and other powers in relation to the Company to procure that the provisions of this agreement are properly and promptly observed and given full force and effect according to the spirit and intention of this agreement.

 

17.2                        If any provision in the constitutional documents of the Company conflicts with any provision of this agreement, this agreement shall prevail. If any provision in this Agreement conflicts with any provision of the Joint Venture Agreement, the Joint Venture Agreement shall prevail. Notwithstanding this clause, the parties will endeavor to amend and conform both the constitutional documents of the Company as well as the Joint Venture Agreement to this Agreement to eliminate or reduce any conflicting provisions.

 

17.3                        The parties shall, when necessary, exercise their powers of voting and any other rights and powers they have to amend, waive or suspend a conflicting provision in the constitutional documents to the extent necessary to permit the Company and its business to be administered as set out in this agreement.

 

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17.4                        The parties hereby expressly agree to amend the Memorandum and Articles of Association of the Company to reflect the different Classes of Stock, along with different rights and preferences, as well as to reflect other provisions, terms and conditions set forth herein to fully effectuate the intent of the parties.

 

18.                               CONFIDENTIALITY

 

18.1                        In this clause Confidential Information means any information which:

 

(a)                       either party may have or acquire (whether before or after the date of this agreement) in relation to the customers, suppliers, business, assets or affairs of the Company (including, without limitation, any information provided pursuant to clause 9); or

 

(b)                       either party or any member of its Group may have or acquire (whether before or after the date of this agreement) in relation to the customers, suppliers, business, assets or affairs of the other party or any member of the other party’s Group as a consequence of the negotiations relating to this agreement or any other agreement or document referred to in this agreement or the performance of this agreement or any other agreement or document referred to in this agreement; or

 

(c)                        relates to the contents of this agreement (or any agreement or arrangement entered into pursuant to this agreement), but excludes the information in clause 18.2.

 

18.2                        Information is not Confidential Information if:

 

(a)                       it is or becomes public knowledge other than as a direct or indirect result of the information being disclosed in breach of this agreement; or

 

(b)                       either party can establish to the reasonable satisfaction of the other party that it found out the information from a source not connected with the other party or its Group and that the source is not under any obligation of confidence in respect of the information; or

 

(c)                        either party can establish to the reasonable satisfaction of the other party that the information was known to the first party before the date of this agreement and that it was not under any obligation of confidence in respect of the information; or

 

(d)                       the parties agree in writing that it is not confidential.

 

18.3                        Each party shall at all times use all reasonable endeavors to keep confidential (and to ensure that its employees, agents, Subsidiaries and the employees and agents of such Subsidiaries, and the Company (in respect of information specified in clause 18.1(b) and clause 18.1(c)) shall keep confidential) any Confidential Information and shall not use or disclose any Confidential Information except:

 

(a)                       to another member of the SAAMABA Group, Scio Group or S21 Group, as the case may be, or to a party’s professional advisers where such disclosure is for a purpose related to the operation of this agreement; or

 

(b)                       with the written consent of such of the Company or the party or any member of its Group that the information relates to; or

 

(c)                        as may be required by law or by the rules of any recognized stock exchange, or governmental or other regulatory body, when the party concerned shall, if practicable, supply a copy of the required disclosure to the other before it is disclosed and incorporate any amendments or additions reasonably required by the other and which would not thereby prevent the disclosing party from complying with its legal obligations; or

 

(d)                       to any tax authority to the extent reasonably required for the purposes of the tax affairs of the party concerned or any member of its Group; or

 

(e)                        if the information comes within the public domain (otherwise than as a result of the breach of clause 18.3).

 

18.4                        Each party shall inform (and shall use all reasonable endeavors to procure that any Subsidiary and the Company shall inform) any officer, employee or agent or any professional adviser advising it in relation to the matters referred to in this agreement, or to whom it provides Confidential Information, that such information is confidential and shall require them:

 

(a)                       to keep it confidential; and

 

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(b)                       not to disclose it to any third party (other than those persons to whom it has already been disclosed in accordance with the terms of this agreement).

 

18.5                        On termination of this agreement, either party may demand from the other and the Company the return of any documents containing Confidential Information in relation to the first party by notice in writing, whereupon the other party shall (and shall use all reasonable endeavors to ensure that its Subsidiaries, and its officers and employees and those of its Subsidiaries and the Company shall):

 

(a)                       return such documents; and

 

(b)                       destroy any copies of such documents and any other document or other record reproducing, containing or made from or with reference to the Confidential Information, save, in each case, for any submission to or filings with governmental, tax or regulatory authorities. Such return or destruction shall take place as soon as practicable after the receipt of any such notice.

 

18.6                        The obligations of each of the parties in clause 18 shall continue without limit in time and notwithstanding termination of this agreement for any reason.

 

18.7                        On the signing of this agreement, the parties shall issue a joint announcement about the formation of the Company, subject to approval of the Board of Directors.

 

19.                               WARRANTY

 

Each party warrants and represents to the other that, at the date of this agreement, the Company has not carried on any business, has no assets or liabilities, has no employees and is not a party to any contracts, except as necessary to comply with clause 4.

 

20.                               WHOLE AGREEMENT

 

20.1                        This agreement, and any documents referred to in it, constitute the whole agreement between the parties and supersede any previous arrangement, understanding or agreement between them relating to the subject matter they cover.

 

20.2                        Each party acknowledges that, in entering into this agreement and any documents referred to in it, it does not rely on, and shall have no remedy in respect of, any statement, representation, assurance or warranty of any person other than as expressly set out in this agreement or those documents.

 

20.3                        Nothing in clause 20 operates to limit or exclude any liability for fraud.

 

21.                               ASSIGNMENTS

 

21.1                        Neither of the parties may assign, or grant any Encumbrance over or subcontract, or deal in any way with, any of its rights and obligations under this agreement or any document referred to in it without the prior written consent of the other party (such consent not to be unreasonably conditioned, withheld or delayed).

 

21.2                        Each party that has rights under this agreement is acting on its own behalf.

 

22.                               VARIATION AND WAIVER

 

22.1                        A variation of this agreement shall be in writing and signed by or on behalf of all parties.

 

22.2                        A waiver of any right under this agreement is only effective if it is in writing and it applies only to the person to which the waiver is addressed and the circumstances for which it is given.

 

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22.3                        A person that waives a right in relation to one person, or takes or fails to take any action against that person does not affect its rights against any other person.

 

22.4                        No failure to exercise or delay in exercising any right or remedy provided under this agreement or by law constitutes a waiver of such right or remedy or shall prevent any future exercise in whole or in part thereof.

 

22.5                        No single or partial exercise of any right or remedy under this agreement shall preclude or restrict the further exercise of any such right or remedy.

 

22.6                        Unless specifically provided otherwise, rights arising under this agreement are cumulative and do not exclude rights provided by law.

 

23.                               COSTS

 

Unless otherwise provided, all costs in connection with the negotiation, preparation, execution and performance of this agreement shall be borne by the party that incurred the costs.

 

24.                               No partnership

 

24.1                        The parties to this agreement are not in partnership with each other and there is no relationship of principal and agent between them.

 

24.2                        The parties have not made and agree not to make, or cause the Company to make, an election or other filing to treat the Company as other than a corporation for United States federal or state income tax purposes without the written consent of all other parties.

 

25.                               GOOD FAITH

 

25.1                        All transactions entered into between either party or any company Controlled by it and the Company shall be conducted in good faith and on the basis set out or referred to in this agreement or, if not provided for in this agreement, as may be agreed by the parties and, in the absence of such agreement, on an arm’s length basis.

 

25.2                        Each party shall at all times act in good faith towards the other and shall use all reasonable endeavors to ensure that this agreement is observed.

 

25.3                        Each party shall do all things necessary and desirable to give effect to the spirit and intention of this agreement.

 

26.                               THIRD PARTY RIGHTS

 

26.1                        This agreement is made for the benefit of the parties and their successors and permitted assigns and is not intended to benefit, or be enforceable by, anyone else.

 

26.2                        The right of the parties to terminate, rescind or agree any amendment, variation, waiver or settlement under this agreement is not subject to the consent of any person that is not a party to this agreement.

 

27.                               NOTICE

 

27.1                        A notice given under this agreement:

 

(a)                       shall be in writing in the English language (or be accompanied by a properly prepared translation into English);

 

17

 

(b)                       shall be sent for the attention of the person, and to the address, or fax number, given in clause 27 (or such other address, fax number or person as the relevant party may notify to the other party, such notice to take effect five days from the notice being received); and

 

(c)                        shall be:

 

(i)                           delivered personally; or

 

(ii)                        delivered by commercial courier; or

 

(iii)                     sent by fax; or

 

(iv)                    ; or (if the notice is to be served outside the country from which it is sent) sent by reputable international overnight courier.

 

27.2                        The addresses for service of notice are:

 

(a)                       SAAMABA

 

354 Indusco Ct.

Troy, Michigan 48083

Attention: Roger Parsons

 

(b)                       SCIO:

 

411 University Ridge, Suite D

Greenville, SC 29601

For the attention of:  Michael McMahon

 

(c)                        S21 :

 

To Be Provided

 

27.3                        If a notice has been properly sent or delivered in accordance with clause 27, it will be deemed to have been received as follows:

 

(a)                       if delivered personally, at the time of delivery; or

 

(b)                       if delivered by commercial courier, at the time of signature of the courier’s delivery receipt; or

 

(c)                        in the case of fax, at the time of transmission; or

 

(d)                       or in the case of reputable international overnight courier, 2 Business Days from the date of posting; or

 

(e)                        if deemed receipt under the previous paragraphs of this clause is not within business hours (meaning 9.00 am to 5.30 pm Monday to Friday on a day that is not a public holiday in the place of receipt), when business next starts in the place of deemed receipt.

 

27.4                        To prove delivery, it is sufficient to prove that the notice was transmitted by fax to the fax number of the party or, in the case of post, that the envelope containing the notice was properly addressed and posted.

 

28.                               INTEREST ON LATE PAYMENT

 

28.1                        Where a sum is required to be paid under this agreement, but is not paid on the date the parties agreed, the party due to pay the sum shall also pay an amount equal to interest on that sum at the rate set out in clause 28.2 for the period beginning with that date and ending with the date the sum is paid (and the period shall run after as well as before judgment).

 

28.2                        The rate of interest shall be .25% per annum above LIBOR as in effect from time to time.  Interest shall accrue on a daily basis and be compounded quarterly.

 

28.3                        Clause 28 is without prejudice to any claim for interest under the law.

 

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29.                               LANGUAGE

 

If this agreement is translated into any language other than English, the English language text shall prevail.

 

30.                               SEVERANCE

 

30.1                        If any provision of this agreement (or part of a provision) is found by any court or administrative body of competent jurisdiction to be invalid, unenforceable or illegal, the other provisions shall remain in force.

 

30.2                        If any invalid, unenforceable or illegal provision would be valid, enforceable or legal if some part of it were deleted or modified, the provision shall apply with whatever modification is necessary to give effect to the commercial intention of the parties.

 

31.                               FURTHER ASSURANCE

 

Without prejudice to clause 4, each party shall promptly execute and deliver all such documents, and do all such things, as the other party may from time to time reasonably require for the purpose of giving full effect to the provisions of this agreement.

 

32.                               COUNTERPARTS

 

This agreement may be executed in any number of counterparts, each of which is an original and which together have the same effect as if each party had signed the same document.

 

33.                               AGREEMENT SURVIVES CLOSING

 

This agreement (other than obligations that have been fully performed) remains in full force after Closing.

 

34.                               GOVERNING LAW AND JURISDICTION

 

34.1                        This agreement and any disputes or claims arising out of or in connection with its subject matter are governed by and construed in accordance with the law of Hong Kong.

 

34.2                        The parties irrevocably agree that the courts of Hong Kong have exclusive jurisdiction to settle any dispute or claim that arises out of or in connection with this agreement.

 

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This agreement has been entered into on the date stated at the beginning of it.

 

	
SAAMABA,   LLC
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
 
    	
 
    
	
Name:   Shrikant Mehta
    	
 
    
	
 
    	
 
    
	
Title:  Managing Director
    	
 
    
	
 
    	
 
    
	
Date:  September 16, 2013
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
Scio   Diamond Technology Corporation
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
 
    	
 
    
	
Name:   Michael W. McMahon
    	
 
    
	
 
    	
 
    
	
Title:   President/CEO
    	
 
    
	
 
    	
 
    
	
Date:  September 16, 2013
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
S21   Research Holdings
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
 
    	
 
    
	
Name:   Danny Ratsaby
    	
 
    
	
 
    	
 
    
	
Title:
    	
 
    	
 
    
	
 
    	
 
    
	
Date:  September 16, 2013
    	
 
    

 

20

 

Schedule A

Rights and Privileges for Series A Preferred

 

The holders of the Series A Preferred Stock shall be entitled to receive, upon the occurrence of a Liquidation Event (as defined below), prior and in preference to any distribution of any of the assets or surplus funds of the Company to the holders of any other Series of Stock by reason of their ownership thereof, the amount of US$ $10,000.00 per share (as adjusted for any stock dividends, combinations or splits with respect to such shares, “Preference Amount”), plus all declared or accumulated but unpaid dividends on such share for each share of Series A Preferred Stock then held by them.

 

After said Preference Amount has been paid to holders of Series A Preferred Shares, any remaining assets of the Company or proceeds received by the Company or its Shareholders shall be distributed to the holders of other Series of Shares pro rata.

 

A “Liquidation Event” shall include a liquidation, winding-up or dissolution of the Company, or at the election of the Board of Directors of the Company, a merger, acquisition or sale of voting control of the Company in which its shareholders do not retain a majority of the voting power in the surviving entity, a sale of all or substantially all of the Company’s assets or the sale of any of the Company’s subsidiaries, or the termination of any license agreement in which the Company’s right to use intellectual property thereunder is materially affected.

 

Schedule B

Rights and Privileges for Series B Preferred

 

Except as otherwise set forth in this Agreement, the holders of the Series B Preferred Stock shall be entitled to such adjustments or splits to their shareholding so as to enable the holder of each share of Series B Preferred as issued on Closing date to maintain a one-one hundredth percentage (0.01%) ownership of the Company at all times.

 

Schedule C

Rights and Privileges for Series C Common

 

The holders of the Series C Common Stock shall have no special rights or privileges other than those vested in holders of any common share in the Company.

 

21Exhibit 10.3

 

Scio Diamond Technology Corporation

 

License Agreement

 

This License Agreement (the “Agreement”) is made as of September 17, 2013, (the “Effective Date”) by and between SCIO Diamond Technology Corporation a Nevada corporation, having a principal place of business at 411 University Ridge, Suite D, Greenville, SC 29601 (the “LICENSOR”) and Grace Rich Limited, a Hong Kong corporation, having a corporate offices at 354 Indusco Ct., Troy, Michigan 48083, (the “LICENSEE”).

 

Agreement

 

1.             BACKGROUND

 

1.1            LICENSEE is a joint venture corporation jointly owned by SAAMABA, LLC, a Michigan limited liability corporation (“Company A”), Scio Diamond Technology Corporation, a Nevada corporation (“Company B”) and S21 Research Holdings, an Israel corporation (“Company C”).  LICENSEE is formed as set forth in that joint venture agreement entered into among Company A, Company B, and Company C, as of the Effective Date.

 

1.2            LICENSEE is formed to establish a manufacturing facility in the PRC for the manufacture, sale and distribution worldwide of type lla single-crystal CVD diamond, as defined below.

 

1.3            LICENSOR creates, develops, and manufactures technology for the manufacture of single-crystal CVD diamond, and owns valuable confidential information, know-how, trade secrets, issued patents, and pending patent applications relating to that technology.

 

1.4            LICENSEE wishes to obtain an exclusive license and a non-exclusive license under the foregoing confidential information, know-how, trade secrets, issued patents, and pending patent applications.

 

1.5            LICENSOR is willing to grant LICENSEE the foregoing exclusive license and non-exclusive license under the terms and conditions set forth herein.

 

2.             DEFINITIONS

 

2.1            “Affiliate” means one or more WFOE’s established by LICENSEE pursuant to the laws of the PRC for the manufacture of type lla single-crystal CVD diamond, which entity is 100% owned by LICENSEE.  For the purposes of this Agreement, WFOE(s) shall be the Affiliate only so long as such the 100% ownership exists.

 

2.2            “Confidential Information” means that information:  (1) disclosed by LICENSOR to the LICENSEE, or which LICENSEE visually obtains in connection with this Agreement; and (2) which relates to LICENSOR’s past, present and future research, development and business activities; and (3) which has been identified to LICENSEE at the time of disclosure as, or which the LICENSEE knows or should reasonably know is, confidential to LICENSOR.  Confidential Information shall also mean the results of any activity performed during the term of and in performance of services under this Agreement including manufacturing CVD diamond, or preparing reports, papers, drafts, notes and meeting minutes and associated prototype(s), parts, and materials.

 

2.3            “Licensed Technology” means all technology, know-how, and processes for the manufacture of single-crystal type IIa CVD diamond, which is necessary for LICENSEE and/or the Affiliate to manufacture Type I Licensed Products and Type II Licensed Products.  The Licensed Technology is expressly LICENSOR Confidential Information and is considered trade secrets.

 

2.4            “Licensed Patents” means all patents throughout the world:

 

(a)           issued or issuing on patent applications entitled to an effective filing date prior to the expiration or termination of this Agreement; and

 

(b)           under which patents or the applications therefor LICENSOR has as of the Effective Date, or thereafter obtains, the right to grant licenses to LICENSEE of or within the scope granted herein without such grant or the exercise of rights thereunder resulting in the payment of royalties or other consideration by LICENSOR or its Affiliate to third parties.

 

(c)             Licensed Patents includes the United States patents set forth in Exhibit A (Licensed United States Patents), and all United States patents owned by LICENSOR that cover improvements of the inventions covered by the patents sets forth in Exhibit A.   Licensed Patents also includes and all patents in countries outside the United States that correspond to the U.S. patents recited in the previous sentence, and all patents issuing on patent applications that are continuations, continuations-in-part, divisionals, reexamination applications, or reissue applications of any of the patent applications from which the previously recited patents in this Section 2.4(c) issued.

 

2.5            “Licensed Products,” means Type 1 Licensed Products and/or Type 2 Licensed Products, as the usage may be in this Agreement.

 

2.6            “Operational Readiness” means one hundred (100) Growers are performing at 85% efficiently using a 4” susceptor technology.

 

2.7            “Eighty-five percent (85%) efficiency” means the 100 Growers are producing 31,160 carats of diamond per month.

 

Proprietary and Confidential

 

1

 

2.8            “Monthly Payment” means the non-refundable sum of two hundred fifty dollars per Grower, with a minimum monthly payment of $25,000.00, payable and creditable as set forth in Section 6 (Monthly Payments).

 

2.9            “Type 1 Licensed Products” means type lla single crystal CVD manufactured diamond being 4 millimeters in depth and finished at a weight of .5 carat or less after cutting and polishing.

 

2.10          Type 2 Licensed Products” means any type IIa single crystal CVD manufactured diamond outside the scope of Type 1 Licensed Products.

 

2.11          “PRC” means People’s Republic of China, including its SAR of Hong Kong and Macao.

 

2.12          “Profit” means earnings before deductions for interest, depreciation, and amortization, sometimes referred to as “EBIDA.”

 

2.13          “SCIO Grower” means a system to grow a Type IIa single crystal diamond.  The system includes only the equipment on the diamond manufacturing facility side of utilities feeding the SCIO Grower, examples of such utilities being chilled water, gases, electricity and exhaust.  To meet the definition of SCIO Grower, the system must include at least:

 

reactor/chamber — hoist — cart;

 

control wiring;

 

mass flow control valves and associated control wiring;

 

power pack  and associated control wiring;

 

connections to electrical and mechanical utilities;

 

hydrogen generator;

 

associated filters and pumps;

 

computer and computer controls including appropriate formulas; and

 

exhaust connections.

 

Operations manuals and checklists for the SCIO Grower will normally be supplied by SCIO.

 

2.14          “WFOE” means the WHOLLY FOREIGN-OWNED ENTERPRISE established pursuant to the laws of the People’s Republic of China 100% and owned by LICENSEE.

 

2.15          “WHOLLY FOREIGN-OWNED ENTERPRISE” means a limited liability corporation for the purpose of China-based business.

 

3.             LICENSES

 

3.1            Subject to the terms and conditions of this Agreement, LICENSOR hereby grants to LICENSEE, and LICENSEE hereby accepts, an exclusive, revocable, non-transferable, with the right to sublicense pursuant to Section 4.1, license under the Licensed Patents and the Licensed Technology to manufacture and use, in the PRC and (in conformance with the Shareholder’s Agreement) all its Special Administrative Regions, Type I Licensed Products, and to import, export, offer to sell, and sell, worldwide, Type 1 Licensed Products that were manufactured using the manufacturing license recited in this Section 3.1, and to practice, in the PRC, any process involved in the manufacture and use of Type 1 Licensed Products. Notwithstanding the foregoing, Licensee may sell Type 1 Licensed Products that were not manufactured using the manufacturing license recited in this Section 3.1, but only to the extent required to satisfy a customer order that cannot be satisfied through the Licensee’s manufacturing facilities in the PRC.  LICENSOR is not obligated to indemnify for Type 1 Licensed Products that were not manufactured using the manufacturing license recited in this Section 3.1. Notwithstanding the exclusive rights granted to LICENSEE here in Section 3.1, LICENSOR shall be allowed to manufacture, use, import, export, offer to sell and sell Type I Licensed Products until the earlier of the following dates to occur: (a) Operational Readiness Date or (b) June 1, 2014.

 

3.2            Subject to the terms and conditions of this Agreement, LICENSOR hereby grants to LICENSEE, and LICENSEE hereby accepts, a non-exclusive, revocable, non-transferable, with the right to sublicense pursuant to Section 4.1, license under the Licensed Patents and the Licensed Technology to manufacture and use, in the PRC and all its Special Administrative Regions, Type 2 Licensed Products.

 

3.3            3.3          LICENSOR agrees not to grant licenses under the Licensed Patents and Licensed Technology for Type 1 Licensed Products to any other entity, and any attempted grant of license in derogation of the foregoing shall be null and void and LICENSOR shall be liable for any loss or damages that the LICENSEE might suffer as a result of any action in violation of this provision.

 

2

 

3.4            LICENSOR shall cooperate with LICENSEE after the Effective Date in all reasonable respects to assist in the orderly transfer and disclosure of the Licensed Technology and, as requested by LICENSEE, to assist in LICENSEE’S understanding of the Licensed Technology.

 

4.             SUBLICENSES

 

4.1            SUBLICENSE All licenses granted by LICENSOR herein include the right of LICENSEE to grant sublicenses, of or within the scope of such licenses, solely to LICENSEE’S Affiliate.  The Affiliate so sublicensed shall be bound by the terms and conditions of this Agreement as if it were named herein in the place of LICENSEE, provided, however, that LICENSEE shall be responsible for all obligations of the Affiliate to LICENSOR, including, without limitation, paying and accounting to LICENSOR for thirty percent (30%) share of Profits of the LICENSEE.  Such sublicense agreement shall expressly include a provision making LICENSOR a third party beneficiary of such sublicense agreement with the full right to enforce such agreement for LICENSOR’S benefit. Any sublicense granted to the Affiliate shall terminate on the date such Affiliate ceases to be the Affiliate.  Such third party beneficiary language is set forth in Exhibit B (Third Party Beneficiary Language).

 

4.2            The sublicense set forth in Section 4.1 (Sublicenses) shall be the sublicense set forth in Exhibit D (Sublicense Agreement) except that the name of the sublicensee shall be that of the Affiliate.

 

5.                                      LICENSE FEE

 

5.1                                       LICENSEE shall pay LICENSOR a nonrefundable, non-creditable, license fee of Two Hundred and Fifty Thousand United States dollars ($250,000.00).  The Licensee Fee is payable as follows:

 

One hundred twenty-five thousand dollars ($125,000.00) on October 31, 2013; and

 

One hundred twenty-five thousand dollars ($125,000 on November 30, 2013

 

6.             MONTHLY PAYMENTS

 

6.1                                       LICENSEE shall pay LICENSOR a Monthly Payment on first day of the month in which the Operational Readiness occurs.  Thereafter, a Monthly Payment shall be paid on the first day of the month of each month that Operational Readiness is achieved.  The Monthly Payments received by Licensor shall be fully creditable against LICENSOR’S share of the Profits of LICENSEE. Such credit shall be implemented by netting out the received and as yet uncredited Monthly Payments against LICENSOR’s share of profit at the end of every profit-reporting period.

 

7.             MARKING

 

7.1          LICENSEE agrees to mark Licensed Products (or their containers or labels) made, sold, or otherwise disposed of by LICENSEE under the license granted in this Agreement with the numbers of the all United States Licensed Patents.  In addition, all Licensed Products shipped to, manufactured in, or sold in countries other than the United States shall be marked in such manner as to conform with the patent laws and practice of such countries, provided LICENSOR gives LICENSEE timely notice pursuant to Article 16 (Notice) of the issuance and patent numbers of the patents which are to be the subject of such marking.

 

8.             CONFIDENTIALITY

 

8.1          LICENSOR is the owner of all Confidential Information.

 

8.2          LICENSEE shall treat the Confidential Information of LICENSOR as set forth below.  However, the term “Confidential Information” shall not mean any information disclosed by LICENSOR to LICENSEE, which LICENSEE can satisfactorily demonstrate is:

 

(a)           already in the possession of the LICENSEE and not furnished by the LICENSOR;

 

(b)           rightfully received by the LICENSEE from a third party without obligation of confidence;

 

(c)           independently developed by the LICENSEE without referring to Confidential Information of the LICENSOR;

 

(d)           now, or hereafter becomes, publicly available without breach of this Agreement; or

 

(e)           approved for release by written agreement of the LICENSOR.

 

8.3          All intellectual property conceived, reduced to practice, made, prepared, or developed that relates to the Confidential Information, whether by LICENSEE or the Affiliate, shall be the exclusive property of LICENSEE (the “New Intellectual Property “).  Subject to the exclusive license granted in Section 3.1, LICENSEE grants LICENSOR a fully paid, non-exclusive irrevocable, non-transferable, royalty free license under the New Intellectual Property to make, have made, use, have used, offer to sell, sell, export and import any product, and to practice and have practiced any process

 

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in the manufacture and use thereof.  Subject to the exclusive license granted in Section 3.1, the foregoing license shall include the unrestricted right to grant sublicenses, including royalty-bearing sublicenses, of or within the scope of the recited license. All New Intellectual Property shall be disclosed to LICENSOR as it is conceived so that LICENSOR may exercise the license granted in this Section 8.3.

 

8.4          The LICENSEE agrees to clearly label as “CONFIDENTIAL” all Confidential Information reduced to writing by the LICENSEE as a result of oral and/or visual disclosures of Confidential Information.  The LICENSEE also agrees to clearly label as “CONFIDENTIAL” all New Intellectual Property that is reduced to writing by LICENSEE or the Affiliate.

 

8.5          LICENSEE and the Affiliate agree to hold all Confidential Information in trust and confidence for LICENSOR, and not to use such Confidential Information other than for the manufacture of License Products by exercising the license granted to LICENSEE in this Agreement.  LICENSEE and the Affiliate agree not to disclose any such Confidential Information, including the New Intellectual Property, by publication or otherwise, to any person other than those employees whose services are required, who have a need to know for manufacture of License Products using the licenses granted by Agreement, and who agree in writing to be bound by and comply with the provisions of this Article 6.  An employee confidential information and invention agreement (the “Employee Agreement”) substantially in the form attached hereto and subject to local law, signed by an employee as a condition of employment with LICENSEE or the Affiliate, satisfies the requirement for the writing recited in the previous sentence.  A copy of the Employee Agreement substantially in the form to be implemented is attached hereto as Exhibit C (Employee Confidential Information and Invention Agreement).

 

8.6          Disclosure of Confidential Information shall not be precluded if such disclosure is in response to a valid order of a court or other government body having jurisdiction over this Agreement; provided however, that LICENSEE or the Affiliate, as the case may be, shall first have given prompt written notice of such order to LICENSOR to enable LICENSOR to oppose such order or seek a protective order requiring that the information and/or documents so disclosed be used only for the purpose for which the order was issued.

 

8.7          LICENSEE shall maintain all writings, documents, articles, items of work-in-process, and work that embodies, or includes any, Confidential Information in restricted access areas to prevent access by unauthorized persons or parties.

 

9.             USE OF NAMES AND TRADEMARKS

 

9.1          Nothing contained in this Agreement shall be construed as conferring any right to use in advertising, publicity or other promotional activities any name, trademark, trade name, or other designation of either party hereto (including any contraction, abbreviation, or simulation of any of the foregoing), unless expressly approved by both parties in writing prior to use thereof.

 

10.          AUDIT RIGHTS

 

10.1        No more frequently than once per calendar year, the LICENSOR and its duly authorized representatives shall have the right, at normal business hours of the day at the LICENSOR’s sole expense, and subject to reasonable confidentiality commitments, to audit the LICENSEE and its Affiliates’ books of account and records and all other reasonably-related documents and material reasonably-related to Licensed Products and in possession of or under the control of the LICENSEE and/or the Affiliates, with respect to the handling of information and other intellectual property, the carrying out of other obligations, in accordance with this Agreement, and the carrying out of the obligation of Licensee to pay Licensor a thirty percent (30%) share of Profits as set forth in the Joint Venture Agreement by and between the parties hereto.  Such representatives will have the right to make copies and extracts of the foregoing documents.

 

10.2        In addition, LICENSEE agrees to supply LICENSOR two random units of Type 1 Licensed Products and Type 2 Licensed Products every month so that LICENSEE may inspect the supplied Licensed Products in an effort to maintain quality.

 

11.          EXPRESS WARRANTY; DISCLAIMER OF WARRANTIES; LIMITATION OF LIABILITY

 

11.1        LICENSOR warrants to LICENSEE that it has the lawful right to grant the licenses granted in this Agreement.

 

11.2        Other than the express warranty set forth in Section 9.1, THE LICENSES HEREIN ARE GRANTED WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.  LICENSOR MAKES NO REPRESENTATIONS OR WARRANTIES THAT THE LICENSED PRODUCTS WILL NOT INFRINGE ANY PATENT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTY.  ALL INTELLECTUAL PROPERTY, AND ANY OTHER INFORMATION, IF ANY, PROVIDED BY THE LICENSOR, IS PROVIDED “AS IS”, WITHOUT WARRANTY OF ANY KIND, WHETHER EXPRESS OR IMPLIED  LICENSOR DOES NOT REPRESENT OR WARRANT THE ACCURACY OR COMPLETENESS OF THE FOREGOING INTELLECTUAL PROPERTY OR INFORMATION.  THE ENTIRE RISK ARISING OUT OF THE EXERCISE OF THE LICENSES GRANTED HEREUNDER REMAINS WITH THE LICENSEE.

 

11.3        IN NO EVENT WILL LICENSOR BE LIABLE FOR ANY INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS, LOST PROFITS, OR LOSS OF GOOD WILL) RESULTING FROM EXERCISE OF THE LICENSES GRANTED HEREUNDER,  OR THE USE OF THE LICENSED TECHNOLOGY, OR THE MANUFACTURE, USE, OR SALE OF LICENSED PRODUCTS,  WHETHER ARISING IN AN

 

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ACTION OR CLAIM BASED ON CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE, EVEN IF LICENSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  IN NO EVENT SHALL LICENSOR’S LIABILITY EXCEED THE AGGREGATE AMOUNT PAID BY TO LICENSOR BY LICENSEE DURING THE TERM OF ONE (1) YEAR PRIOR TO THE DATE THE CAUSE OF ACTION AROSE.

 

11.4        Nothing in this Agreement is or shall be construed as an obligation to bring or prosecute actions or suits against third parties for patent infringement, except as provided in Article 11.

 

12.          PATENT INFRINGEMENT

 

12.1        In the event that LICENSEE shall learn of the substantial infringement of any of the Licensed Patents, LICENSEE shall promptly provide LICENSOR with reasonable evidence of such infringement.  Both parties to this Agreement agree that neither will notify a third party of the infringement without first obtaining consent of the other party, which consent shall not be unreasonably denied.  Both parties shall cooperate with each other in an attempt to terminate such infringement without litigation.

 

12.2        LICENSEE may request that LICENSOR take legal action against the infringement.  Such request shall be made in writing and shall include reasonable evidence of such infringement and damages to LICENSEE.  If the infringing activity has not been abated within one hundred twenty (120) days following the effective date of such request, LICENSOR shall have the right to:

 

(a)           commence suit on its own account or

 

(b)           refuse to participate in such suit.

 

12.3        LICENSOR shall give notice of its election in writing to LICENSEE within sixty (60) days after receiving such request from LICENSEE and absent refusal to participate in such suit, shall commence suit promptly thereafter, but with control of such suit remaining in LICENSOR.  LICENSEE shall have the right to join or intervene at its own expense in any such suit commenced by LICENSOR.  LICENSEE may at its election bring suit for patent infringement if, and only if, LICENSOR elects not to commence suit and if the infringement occurred during the period and in a jurisdiction where LICENSEE had exclusive rights under the Agreement.  However, in the event LICENSEE elects to bring suit in accordance with this paragraph, LICENSOR may thereafter join such suit at its own expense and control of such suit shall remain with LICENSEE. Such legal action as is decided upon shall be at the expense of the party on whose account suit is brought and all recoveries recovered thereby shall belong to such party, provided, however, that for legal action brought jointly by LICENSOR and/or LICENSEE (or by any one or more of such parties with later joinder or intervention by the other and fully participated in by the parties), such recoveries shall be shared jointly by them in proportion to the share of expense paid by each party, after deduction of loss suffered by LICENSEE .

 

13.                               INDEMNIFICATION

 

13.1        Licensee Indemnity.  LICENSEE agrees, and agrees to require its sublicensee, to indemnify, hold harmless, and defend LICENSOR and its officers, employees, and contractors against any and all liability, claims, suits, losses, damages, costs, fees, and expenses for, death, illness, personal injury, property damage, and improper business practices arising out of the manufacture, use, sale, lease or other disposition of the Licensed Products by LICENSEE, by its sublicensee, or any of its or  their customers.

 

13.2        Licensor Indemnity.  Subject to the Sections 3.1 and 3.2, LICENSOR shall defend LICENSEE and its officers, directors and agents (collectively, the “INDEMNITEES”) from and against any claim, suit or other proceeding (each a “Claim”) brought or threatened against the INDEMNITEES by a third party to the extent the Claim arises out of or results from any claim that a Licensed Product, to the extent that the Licensed Product’s manufacture is within the scope of the licenses under this Agreement, infringes any patent, and shall settle such Claim and pay the amount of such settlement or, as in the case of suit, pay all damages, expenses and costs (excluding attorneys’ fees) awarded from an unappealable decision of a court of competent jurisdiction.  As an express condition precedent to LICENSOR’s obligations under this Section 11.2, the INDEMNITEE must: (a) give LICENSOR prompt written notice of any such Claim, (b) grant LICENSOR sole control over the defense and settlement of the Claim, (c) provide LICENSOR with full cooperation for the defense of the Claim, and (d) not enter into any settlement or compromise of such Claim without LICENSOR’s prior written approval.  If such Licensed Product is held to infringe or, in LICENSOR’s opinion, likely to be held to infringe, LICENSOR may, at LICENSOR’s option and expense, (i) procure for the INDEMNITEES the right to continue exercising their rights under this Agreement with respect to the Licensed Product, (ii) replace or modify the Licensed Product so it is not infringing, or (iii) if neither (i) nor (ii) are commercially practicable, terminate this Agreement immediately upon written notice.  Licensee may participate in the defense or settlement of the Claim with counsel of its choice and at its own expense provided that control of such defense and settlement remains in LICENSOR.  THE FOREGOING STATES LICENSOR’S ENTIRE LIABILITY AND THE INDEMNITEES’ EXCLUSIVE REMEDY FOR INFRINGEMENT CLAIMS WITH RESPECT TO THE LICENSED PRODUCTS.

 

13.3        Exception to Licensee Indemnity.  LICENSOR shall not have any obligation to indemnify the INDEMNITEES from and against any Claim that arises out of or is based upon the modification of the any of the Growers or the modification of any Licensed Technology by or for the

 

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INDEMNITEES without the written approval of LICENSOR.

 

14.                               TERM AND TERMINATION

 

14.1        TERM.  The term of this Agreement shall commence on the Effective Date and shall continue for the life of the last to expire of the Licensed Patents, unless sooner terminated as provided in this Article 14.

 

14.2        TERMINATION BY LICENSOR.  Should LICENSEE fail to perform any obligation or meet any warranty of this Agreement on its part to be respectively performed or met, which failure can be cured, then upon written notice of such failure from LICENSOR, LICENSEE shall have  two (2) years from the date of such notice to correct such failure, and upon the failure of LICENSEE to do so, LICENSOR may cancel and terminate this Agreement upon ten (10) days further written notice.  Should such failure by its nature not be curable, LICENSOR may terminate this Agreement effective upon ten (10) days written notice.

 

14.3        OWNERSHIP TERMINATION.  This Agreement shall terminate on the date that LICENSOR ceases to maintain an undiluted thirty percent (30%) ownership share of LICENSEE, provided such dilution was the direct result of some act or event caused by LICENSEE, Company A, or Company C as defined in the Joint Venture Agreement of even date. Furthermore, notwithstanding any provision contrary hereto, in the event that any obligations are owing by LICENSOR to Company A pursuant to a loan made or to be made by Company A to LICENSOR (the “Loan”), at Company A’s option, This Agreement shall not terminate and shall remain in full force and effect for so long as the Loan remains outstanding.

 

14.4        LICENSEE agrees not to challenge the validity of any of the Licensed Patents or Licensed Technology, either solely, or jointly with one or more other party.  Any such challenge shall be null and void.

 

14.5        SUBLICENSE TERMINATION.  Every sublicense agreement granted to an Affiliate shall terminate on the effective date of termination of this Agreement.

 

14.6        RIGHTS AFTER TERMINATION.  No termination of this Agreement shall relieve LICENSEE or the Affiliates of any obligation or liability accrued hereunder prior to such terminations, or rescind or give rise to any right to rescind anything done by LICENSEE or the Affiliate, or to rescind any payments made or other consideration given to LICENSOR under this Agreement or the sublicense agreement prior to the time such terminations become effective, and such terminations shall not affect in any manner any rights of LICENSOR arising under this Agreement or the sublicense agreement prior to such terminations.

 

15.          EXPORT CONTROLS

 

15.1        LICENSEE understands that LICENSOR is subject to United States laws and regulations (including the Arms Export Control Act, as amended, and the Export Administration Act of 1979), controlling the export of technical data, LICENSOR’S computer software, laboratory prototypes and other commodities, and LICENSOR’S obligations under this Agreement are contingent on compliance with such laws and regulations.  The transfer of certain technical data and commodities may require a license from the cognizant agency of the United States Government and/or written assurances by LICENSEE that LICENSEE shall not export such technical data and/or commodities to certain foreign countries without prior approval of such agency.  LICENSOR neither represents that a license shall not be required nor that, if required, it shall be issued.

 

16.          Notices

 

16.1        All notices required or permitted to be given pursuant or in reference to this Agreement shall be in writing and shall be valid and sufficient if dispatched by certified mail, postage prepaid, and addressed as follows:

 

if to LICENSOR, to:

 

SCIO Diamond Technology Corporation

411 University Ridge, Suite D,

Greenville, SC 29601

Attention:  Michael W. McMahon, CEO

 

Email: mmcmahon@sciodiamond.com

 

If to Licensee

 

Grace Rich

354 Indusco Ct.

Troy, Michigan 48083

 

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Attention:  Chris Loomis

Email:  cloomis@combine.com

 

With a copy to:

 

1)            WFOE in the PRC

2)            SAAMABA LLC in Michigan

3)            Dickinson Wright in Washington DC

 

14.2        Notices of change of address may be made at any time in the manner set forth above.  Notices of change of address given as herein provided shall be considered to have been given when sent electronically (email) with proof of delivery or five (5) days after the dispatch thereof using a reputable courier service.

 

15           GENERAL

 

15.1        AGREEMENT CONFIDENTIALITY.  This Agreement and its terms and conditions are confidential.  Neither party shall make any public announcement about or otherwise disclose to any third party the terms, conditions or content of this Agreement or the parties’ discussions regarding the subject matter of this Agreement without the prior written consent of the other party, except to perfect its rights under this Agreement.

 

15.2        ASSIGNMENT.  This Agreement may not be assigned in whole or in party by LICENSEE without the prior written consent of the LICENSOR. Any attempted assignment in derogation of the foregoing shall be null and void.

 

15.3        BANKRUPTCY.  All rights and licenses granted under or pursuant to this Agreement are, and shall be deemed to be, for purposes of § 365(n) of Title 11 of the United States Code (the “Bankruptcy Code”), licenses of rights to “intellectual property” as defined under § 101 of the Bankruptcy Code.  The Parties agree that in the event that any proceeding shall be instituted by or against the LICENSOR seeking to adjudicate it bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking an entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property, or the LICENSOR shall take any action to authorize any of the foregoing, the LICENSEE hereunder shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code including, without limitation, the exercise of its licenses hereunder

 

15.4        NO SUCCESSION.  The parties agree that (a) this Agreement is not intended to confer upon LICENSEE the status of a successor corporation or entity of LICENSOR, and (b) LICENSEE is not assuming or undertaking any liabilities or obligations of LICENSOR, of any kind or nature, as part of the transactions contemplated by this Agreement.

 

15.5        COUNTERPARTS.  This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original; such counterparts shall together constitute but one agreement.

 

15.6        HEADINGS.  The headings in this Agreement are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

 

15.7        INTEGRATION.  This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior written and oral agreements and understandings with respect to such subject matter.

 

15.8        EQUITABLE RELIEF.  Because LICENSEE will have access to and become acquainted with the Confidential Information, the unauthorized use or disclosure of which would cause irreparable harm and significant injury which would be difficult to ascertain and which would not be compensable by damages alone, the parties agree that the LICENSOR will have the right to obtain an injunction, specific performance, or other equitable relief without prejudice to any other rights and remedies that it may have for such breach of this Agreement.

 

15.9        GOVERNING LAW; ARBITRATION

 

15.10      This Agreement shall be governed in all respects by the laws of the United States of America and by the laws of the State of Michigan, excluding its conflict of law provisions.

 

15.10.1  Each party agrees that any arbitration arising under or related to this Agreement shall be commenced only after good faith attempts to resolve the subject dispute have been made in a meeting between respective executives of the parties.

 

15.10.2  All disputes, controversies or claims arising out of or relating to this Agreement, or the breach, termination, or invalidity thereof, shall be settled by arbitration in Detroit, Michigan in accordance with the American Arbitration Association Arbitration

 

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Rules.  Discovery shall be according to the Federal Rules of Civil Procedure, including the taking of depositions.  The award rendered by the arbitrator shall include costs of the arbitration, reasonable attorneys’ fees and reasonable costs for experts and other witnesses. Judgment on the award may be entered in any court having jurisdiction.  The parties agree that the arbitrator shall have the authority to issue interim orders for provisional relief, including, but not limited to, orders for injunctive relief, attachment or other provisional remedy, as necessary to protect either party’s name, proprietary information, trade secrets, know-how or any other proprietary right.  The parties agree that any interim order of the arbitrator for any injunctive or other preliminary relief shall be enforceable in any court of competent jurisdiction.

 

15.10.3  In addition, either party shall be free at any time to seek equitable relief in accordance with Section 15.8 (Equitable Relief) from any court of competent jurisdiction, in order to protect that party’s name, Confidential Information, or trade secrets.

 

15.11      SEVERABILITY.  If any provision or provisions of this Agreement shall be held to be invalid, illegal, or otherwise unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby if the material benefits to be enjoyed by the parties under this Agreement will otherwise be realized.

 

15.12      AMENDMENT AND WAIVER.  No amendment to this Agreement shall be effective unless it shall be in writing and signed by the parties to the amendment.  Any failure of a party to comply with any obligation, covenant, agreement or condition contained in this Agreement may be waived by the party entitled to the benefits thereof only by a written instrument signed by the party granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure of compliance.  Except as may otherwise be specifically provided herein, any consent or approval required hereunder to be obtained from either party shall be deemed not to have been given by such a party unless such consent or approval is evidenced by a writing executed on behalf of such party by an authorized signatory.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective officers as of the day and year first above written.

 

	
 
    	
SCIO   DIAMOND TECHNOLOGY CORPORATION
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Michael   W. McMahon
    
	
 
    	
Chief   Executive Officer
    
	
 
    	
 
    
	
 
    	
GRACE RICH LIMITED By:
    	
 
    
	
 
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    
					

 

8

 

EXHIBIT A

 

Licensed United States Patents

 

	
Title
    	
 
    	
Patent #
    	
 
    	
Date Filed
    	
 
    	
Date Issued
    	
 
    	
Expiration Date
    	
 
    
	
System And Method For Producing Synthetic Diamond
    	
 
    	
6,582,513
    	
 
    	
5/14/1999
    	
 
    	
6/24/2003
    	
 
    	
5/13/2019
    	
 
    
	
System And Method For Producing Synthetic Diamond
    	
 
    	
2001281404
    	
 
    	
8/8/2001
    	
 
    	
2/24/2003
    	
 
    	
8/7/2021
    	
 
    
	
System And Method For Producing Synthetic Diamond
    	
 
    	
2,456,847
    	
 
    	
8/8/2001
    	
 
    	
4/23/2013
    	
 
    	
8/7/2021
    	
 
    
	
Method Of Growing Single Crystal Diamond In A   Plasma Reactor
    	
 
    	
8,187,380
    	
 
    	
10/29/2004
    	
 
    	
5/29/2012
    	
 
    	
10/28/2024
    	
 
    
	
Grown Diamond Mosaic Separation
    	
 
    	
8,048,223
    	
 
    	
7/21/2005
    	
 
    	
11/1/2011
    	
 
    	
7/20/2025
    	
 
    
	
Enhanced Diamond Polishing
    	
 
    	
7,238,088
    	
 
    	
1/5/2006
    	
 
    	
7/3/2007
    	
 
    	
1/4/2025
    	
 
    
	
System And Method For Producing Synthetic Diamond
    	
 
    	
7,879,148
    	
 
    	
3/13/2008
    	
 
    	
1/1/2011
    	
 
    	
3/12/2028
    	
 
    
	
Method Of Growing A Single Crystal Diamond
    	
 
    	
10/978,104
    	
 
    	
10/29/2004
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
System And Method For Producing Synthetic Diamond
    	
 
    	
2003-519552*
    	
 
    	
8/8/2001
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
System And Method For Producing Synthetic Diamond
    	
 
    	
2012-108309*
    	
 
    	
8/8/2001
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
System And Method For Producing Synthetic Diamond
    	
 
    	
11/776,682
    	
 
    	
7/12/2007
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Synthetic Diamond Having Alternating Layers With   Different Concentrations Of Impurities
    	
 
    	
10/997,377
    	
 
    	
10/29/2004
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Diamond Structure Separation
    	
 
    	
11/056,338
    	
 
    	
2/11/2005
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
System And Method For Producing Synthetic Diamond
    	
 
    	
12/047,690
    	
 
    	
3/13/2008
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Gemstone Production From Cvd Diamond Plate
    	
 
    	
8,342,164
    	
 
    	
5/8/2009
    	
 
    	
1/1/2013
    	
 
    	
5/7/2029
    	
 
    
	
Angle Cut On CVD Diamond
    	
 
    	
12/463,132
    	
 
    	
5/8/2009
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Diamond Identifier
    	
 
    	
12/463,121
    	
 
    	
5/8/2009
    	
 
    	
 
    	
 
    	
 
    	
 
    

 

*Japan

 

U.S. Patent Application Serial Numbers included in the above table means that the application is still pending.

 

9

 

EXHIBIT B

 

Third Party Beneficiary Language

 

Third Party Beneficiary. This Agreement is for the benefit of SCIO Diamond Technology Corporation as a third party beneficiary. This Agreement may be enforced by SCIO Diamond Technology Corporation or its subsidiaries, which shall have all of the benefits of this Agreement, as if named herein for Grace Rich Limited.

 

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EXHIBIT C

 

Employee Confidential Information and Invention Agreement

 

This Proprietary Information And Inventions Agreement (the “Agreement”) is made between me, the undersigned employee, and (NAME OF JOINT VENTURE) (the “Company”), and is a material part of the consideration for my continued employment by the Company, is further entered into for a cash payment of $100, for the premises, mutual covenants and representations contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties. The parties agree as follows.

 

1.             No Conflict. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict with this Agreement or my employment with the Company. I will not violate any agreement with or rights of any third party or, except as expressly authorized by the Company in writing, hereafter use or disclose my own or any third party’s confidential information or intellectual property when acting within the scope of my employment or otherwise on behalf of the Company. Further, I have not retained anything containing any confidential information of a prior employer or other third party, whether or not created by me.

 

2.             Intellectual Property Assignment. The Company shall own all right, title and interest (including, but not limited to, patent rights, copyrights, trade secret rights, mask work rights, database rights and all other intellectual and industrial property rights of any sort throughout the world) relating to any and all inventions (whether or not patentable), works of authorship, mask works, designs, know-how, research, development, trade secrets, techniques, processes, procedures, plans, policies, discoveries, hardware, software, screens, specifications, designs, drawings, ideas and information made or conceived or reduced to practice, in whole or in part, by me or any other employee, independent contractor or agent of the Company during the term of my employment with Company (collectively, “Inventions”), and I will promptly disclose all Inventions to the Company. “Inventions” is to be broadly defined. By way of example and without limitation, Inventions include all items mentioned in the first sentence of this paragraph and any and all information concerning teaching techniques, processes, formulas, innovations, discoveries, improvements, research or development and test results, data, formats, marketing plans, business plans, strategies, forecasts, unpublished financial information, budgets, projections, and customer and supplier identities, characteristics and agreements.

 

I hereby make all assignments necessary to accomplish the foregoing. I shall further assist the Company, at the Company’s expense, to further evidence, record and perfect such assignments, and to perfect, obtain, maintain, enforce, and defend any rights specified to be so owned or assigned. I hereby irrevocably designate and appoint the Company and its agents as attorneys-in-fact to act for and in my behalf to execute and file any document and to do all other lawfully permitted acts to further the purposes of the foregoing with the same legal force and effect as if executed by me. If I wish to clarify that anything created by me prior to my employment that relates to the Company’s actual or proposed business is not within the scope of this Agreement, I have listed it on Appendix A (Prior Matter). If I use or (except pursuant to this paragraph 2) disclose my own or any third party’s confidential information or intellectual property when acting within the scope of my employment or otherwise on behalf of the Company, the Company will have and  I hereby grant the Company a perpetual, irrevocable, worldwide, royalty-free, non-exclusive, sub licensable right and license to exploit and exercise and exercise all such confidential information and intellectual property rights.

 

3.             Moral Rights. To the extent allowed by law, paragraph 2 includes all rights of paternity, integrity, disclosure and withdrawal and any other rights that may be known as or referred to as “moral rights,” “artist’s rights,” “droit moral,” or the like (collectively “Moral Rights”). To the extent I retain any such Moral Rights under applicable law, I hereby ratify and consent to any action that may be taken with respect to such Moral Rights by or authorized by the Company and agree not to assert any Moral Rights with respect thereto. I will confirm any such ratifications, consents and agreements from time to time as requested by the Company.

 

4.             Confidential Information.  I agree that all Inventions and all other business, technical and financial information (including, without limitation, the identity of and information relating to customers, potential customers, suppliers, strategic partners, service providers, employees, agents or shareholders of the Company) I develop, learn or obtain during the term of my employment that relate to the Company or the business or demonstrably anticipated business of the Company or that are received by or for the Company in confidence, constitute “Proprietary Information.” Proprietary Information includes not only information disclosed by the Company or its clients to me in the course of my employment, but also information developed or learned by me during the course of my employment with the Company, such as Inventions (as defined above). Proprietary Information is to be broadly defined. Proprietary Information includes all information that has or could have commercial value or other utility in the business in which the Company or clients are engaged or contemplate engaging. Proprietary Information also includes all information of which the unauthorized disclosure

 

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could be detrimental to the interests of the Company or clients, whether or not the Company or clients identify such information as Proprietary. By example and without limitation, Proprietary Information includes any and all information concerning teaching techniques, processes, formulas, trade secrets, innovations, inventions, discoveries, improvements, research or development and test results, specifications, data, know-how, formats, marketing plans, business plans, strategies, forecasts, unpublished financial information, budgets, projections, and customer and supplier identities, characteristics, and agreements. During the term of my employment with Company, and thereafter, I will hold in confidence and not divulge, disclose or otherwise use any Proprietary Information except within the scope of my employment by the Company. However, I shall not be obligated under this paragraph with respect to information I can document is or becomes readily publicly available without restriction through no fault of mine. I acknowledge that all Proprietary Information, in any form or medium (including all copies),except that I may keep a single personal copy of (i) my compensation records, (ii) materials distributed to shareholders generally and (iii) this Agreement. I also recognize and agree that I have no expectation of privacy with respect to the Company’s telecommunications, networking or information processing systems (including, without limitation, stored computer files, email messages and voice messages) and that my activity and any files or messages on or using any of those systems may be monitored at any time without notice.

 

At the time of termination, regardless of reason and without reservation, employee will sign the attached Appendix B (Affidavit).

 

5.             Non-Solicitation.  I agree that during the term of my employment and until the fifth anniversary of the conclusion of my employment with the Company, I will not encourage or solicit any employee or consultant of the Company to leave the Company for any reason (except for the bona fide firing of Company personnel within the scope of my employment). I also agree that during the term of my employment (whether or not during business hours) and until the fifth anniversary of the conclusion of my employment with the Company, I will not solicit business from, divert business from, or attempt to convert to other methods of using or offering the same or similar products or services as provided by the Company or its affiliates to any client or prospective client of the Company or its affiliates.

 

6.             Non-Compete.   I agree that upon termination of my employment for any reason and until the fifth anniversary of the conclusion of my employment with the Company, I will not engage in any activity that is in any way competitive with the business or demonstrably anticipated business of the Company or its affiliates, and I will not in any way assist any other person or organization in competing or in preparing to compete with any business or demonstrably anticipated business of the Company or its affiliates.

 

7.             Survival.  I agree that my obligations under paragraphs 2, 3, 4, 5 and 6 of this Agreement shall continue in effect after termination of my employment, regardless of the reason or reasons for termination, and whether such termination is voluntary or involuntary on my part, and that the Company is entitled to communicate my obligations under this Agreement to any future employer or potential employer of mine. My obligations under paragraphs 2, 4 and 4 also shall be binding upon my heirs, executors, assigns, and administrators and shall inure to the benefit of the Company, its subsidiaries, successors and assigns.

 

8.             Governing Law; Choice of Forum. Any dispute in the meaning, effect or validity of this Agreement shall be resolved in accordance with the laws of the State of South Carolina without regard to the conflict of laws provisions thereof. I further agree that if one or more provisions of this Agreement are held to be illegal or unenforceable under applicable South Carolina law, such illegal or unenforceable portion(s) shall be limited or excluded from this Agreement to the minimum extent required so that this Agreement shall otherwise remain in full force and effect and enforceable in accordance with its terms. I also agree that if any restriction in this Agreement shall be determined to be invalid and unenforceable, it shall automatically be modified, or may be modified by a court of competent jurisdiction, to the extent necessary to make it valid and enforceable. I also understand that any breach of this Agreement will cause irreparable harm to the Company for which damages would not be an adequate remedy, and, therefore, the Company will be entitled to injunctive relief with respect thereto in addition to any other remedies. I hereby waive any requirement that the Company post a bond or similar security or instrument in connection with any action the Company may commence in an effort to enforce this Agreement.

 

9.             Miscellaneous.  Except for my employment agreement with the Company, this Agreement supersedes all prior agreements and understandings between the parties— whether communicated in writing, orally or otherwise—and the representations, covenants and agreements herein shall be binding and in full force against the parties effective from the commencement of my employment with the Company. I may not assign this Agreement or any rights or obligations hereunder. This Agreement shall bind and inure to the benefit of each party and its respective successors, heirs and assigns. Any references to the “Company” in this Agreement shall include any subsidiary, affiliate, strategic partner, assign and/or successor of the Company or any similarly situated party.

 

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I HAVE READ THIS AGREEMENT CAREFULLY AND I UNDERSTAND AND ACCEPT THE OBLIGATIONS WHICH IT IMPOSES UPON ME WITHOUT RESERVATION. I SIGN THIS AGREEMENT VOLUNTARILY AND FREELY, IN DUPLICATE, WITH THE UNDERSTANDING THAT ONE COUNTERPART WILL BE RETAINED BY COMPANY AND THE OTHER COUNTERPART WILL BE RETAINED BY ME.

 

	
EMPLOYEE
    	
 
    
	
 
    	
 
    
	
By:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Address:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Date of Commencement of Employment
    	
 
    
	
 
    	
 
    	
 
    
	
Date:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Signed:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Accepted and Agreed to:
    	
 
    
	
 
    	
 
    	
 
    
	
WFOE
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Signed:
    	
 
    	
 
    
	
(TYPED NAME)
    	
 
    
	
 
    	
 
    	
 
    
	
Chief Executive Officer
    	
 
    

 

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EXHIBIT D

 

Sublicense Agreement

 

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