EQUITY PURCHASE AGREEMENT
Exhibit 10.1
This Equity Purchase Agreement is entered into as of the 18th day of April, 2016 (this “Agreement”), by and between CLS Holdings USA, Inc., a Nevada corporation (the “Company”), and Old Main Capital, LLC, a Florida limited liability company (the “Investor”).
WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Investor, from time to time as provided herein, and the Investor shall purchase up to Four Million Dollars ($4,000,000) of the Company’s Common Stock (as defined below);
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Section 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings specified or indicated (such meanings to be equally applicable to both the singular and plural forms of the terms defined):
“Agreement” shall have the meaning specified in the preamble hereof.
“Bankruptcy Law” means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors.
“Claim Notice” shall have the meaning specified in Section 9.3(a).
“Clearing Costs” shall mean all of the Investor’s broker and Transfer Agent fees, excluding commissions.
“Clearing Date” shall be the date on which the Investor receives the Put Shares as DWAC Shares in its brokerage account.
“Closing” shall mean one of the closings of a purchase and sale of shares of Common Stock pursuant to Section 2.3.
“Closing Certificate” shall mean the closing certificate of the Company in the form of Exhibit B hereto.
“Closing Date” shall mean the date of any Closing hereunder.
“Commitment Note” shall mean the 8% Convertible Promissory Note in the principal amount of $200,000, substantially in the form of Exhibit C attached hereto, issued by the Company to the Investor on March 18, 2016.
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“Commitment Period” shall mean the period commencing on the Execution Date, and ending on the earlier of (i) the date on which the Investor shall have purchased Put Shares pursuant to this Agreement equal to the Maximum Commitment Amount or (ii) March 17th, 2018.
“Common Stock” shall mean the Company's common stock, $0.0001 par value per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
“Company” shall have the meaning specified in the preamble to this Agreement.
“Custodian” means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.
“Damages” shall mean any loss, claim, damage, liability, cost and expense (including, without limitation, reasonable attorneys' fees and disbursements and costs and expenses of expert witnesses and investigation).
“Dispute Period” shall have the meaning specified in Section 9.3(a).
“DTC” shall mean The Depository Trust Company, or any successor performing substantially the same function for the Company.
“DTC/FAST Program” shall mean the DTC’s Fast Automated Securities Transfer Program.
“DWAC” shall mean Deposit Withdrawal at Custodian as defined by the DTC.
“DWAC Eligible” shall mean that (a) the Common Stock is eligible at DTC for full services pursuant to DTC’s Operational Arrangements, including, without limitation, transfer through DTC’s DWAC system, (b) the Company has been approved (without revocation) by the DTC’s underwriting department, (c) the Transfer Agent is approved as an agent in the DTC/FAST Program, (d) the Underlying Shares or Put Shares, as applicable, are otherwise eligible for delivery via DWAC, and (e) the Transfer Agent does not have a policy prohibiting or limiting delivery of the Underlying Shares or Put Shares, as applicable, via DWAC.
“DWAC Shares” means shares of Common Stock that are (i) issued in electronic form, (ii) freely tradable and transferable and without restriction on resale and (iii) timely credited by the Company to the Investor’s or its designee’s specified DWAC account with DTC under the DTC/FAST Program, or any similar program hereafter adopted by DTC performing substantially the same function.
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“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Exchange Cap” shall have the meaning set forth in Section 7.1(c).
“Execution Date” shall mean the date of this Agreement.
“FINRA” shall mean the Financial Industry Regulatory Authority, Inc.
“Indemnified Party” shall have the meaning specified in Section 9.2.
“Indemnifying Party” shall have the meaning specified in Section 9.2.
“Indemnity Notice” shall have the meaning specified in Section 9.3(b).
“Investment Amount” shall mean the Put Shares referenced in the Put Notice multiplied by the Purchase Price minus the Clearing Costs.
“Investor” shall have the meaning specified in the preamble to this Agreement.
“Lien” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Market Price” shall mean the lowest VWAP on the Principal Market for any Trading Day during the Valuation Period.
“Material Adverse Effect” shall mean any effect on the business, operations, properties, or financial condition of the Company and the Subsidiaries that is material and adverse to the Company and the Subsidiaries, taken as a whole, and/or any condition, circumstance, or situation that would prohibit or otherwise interfere with, in any material respect, the ability of the Company to enter into and perform its obligations under any Transaction Document.
“Maximum Commitment Amount” shall mean Four Million Dollars ($4,000,000).
“Person” shall mean an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
“Principal Market” shall mean any of the national exchanges (i.e. NYSE, NYSE MKT, Nasdaq), or principal quotation systems (i.e. OTCQX, OTCQB, the OTC Bulletin Board), or other principal exchange or recognized quotation system which is at the time the principal trading platform or market for the Common Stock.
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“Purchase Price” shall mean 80% of the lowest VWAP of the Common Stock during the Valuation Period.
“Put” shall mean the right of the Company to require the Investor to purchase shares of Common Stock, subject to the terms and conditions of this Agreement.
“Put Date” shall mean any Trading Day during the Commitment Period that a Put Notice is deemed delivered pursuant to Section 2.2(b).
“Put Notice” shall mean a written notice, substantially in the form of Exhibit A hereto, to Investor setting forth the Put Shares which the Company intends to require Investor to purchase pursuant to the terms of this Agreement.
“Put Shares” shall mean all shares of Common Stock issued, or that the Company shall be entitled to issue, per any applicable Put Notice in accordance with the terms and conditions of this Agreement.
“Registration Statement” shall have the meaning specified in Section 6.4.
“Regulation D” shall mean Regulation D promulgated under the Securities Act.
“Required Minimum” shall mean, as of any date, the number of shares of Common Stock potentially issuable pursuant to this Agreement calculated by dividing $4,000,000 by the applicable Purchase Price.
“Rule 144” shall mean Rule 144 under the Securities Act or any similar provision then in force under the Securities Act.
“SEC” shall mean the United States Securities and Exchange Commission.
“SEC Documents” shall have the meaning specified in Section 4.5.
“Securities” means, collectively, the Put Shares, the Commitment Note and the Underlying Shares.
“Securities Act” shall mean the Securities Act of 1933, as amended.
“Short Sales” shall mean all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act.
“Subsidiary” means any Person the Company wholly-owns or controls, or in which the Company, directly or indirectly, owns a majority of the voting stock or similar voting interest, in each case that would be disclosable pursuant to Item 601(b)(21) of Regulation S-K promulgated under the Securities Act.
“Third Party Claim” shall have the meaning specified in Section 9.3(a).
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“Trading Day” shall mean a day on which the Principal Market shall be open for business.
“Transaction Documents” shall mean this Agreement and the Commitment Note and all schedules and exhibits hereto and thereto.
“Transfer Agent” shall mean the transfer agent for the Common Stock (and to any substitute or replacement transfer agent for the Common Stock upon the Company’s appointment of any such substitute or replacement transfer agent).
“Transfer Agent Instruction Letter” means the letter from the Company to the Transfer Agent which instructs the Transfer Agent to issue the Put Shares and the Underlying Shares pursuant to the Transaction Documents, in the form of Exhibit D attached hereto.
“Underlying Shares” means the shares of Common Stock issued and issuable upon conversion or redemption of the Commitment Note and issued and issuable in lieu of the cash payment of interest on the Commitment Note in accordance with the terms of the Commitment Note.
“Valuation Period” shall mean the period of five (5) Trading Days immediately following the Clearing Date associated with the applicable Put Notice during which the Purchase Price of the Common Stock is valued. The Investor shall notify the Company in writing of the occurrence of the Clearing Date associated with a Put Notice. The Valuation Period shall begin the first Trading Day following the Clearing Date.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Principal Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Principal Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the OTC Bulletin Board is a Principal Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
ARTICLE II
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(b) DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall be deemed delivered on (i) the Trading Day it is received by email by the Investor if such notice is received on or prior to 9:00 a.m. New York time or (ii) the immediately succeeding Trading Day if it is received by email after 9:00 a.m. New York time on a Trading Day or at any time on a day which is not a Trading Day. The Valuation Period will commence one (1) Trading Day following the Clearing Date. The Company may not deliver another Put Notice to the Investor during the Valuation Period with respect to any Put.
ARTICLE III
The Investor represents and warrants to the Company that:
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ARTICLE IV
The Company represents and warrants to the Investor that, except as disclosed in the SEC Documents or except as set forth in the disclosure schedules hereto:
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ARTICLE V
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Section 5.2 SHORT SALES AND CONFIDENTIALITY. Neither the Investor, nor any affiliate of the Investor acting on its behalf or pursuant to any understanding with it, will execute any Short Sales from the date hereof until the end of the Commitment Period, either directly or indirectly. For the purposes hereof, and in accordance with Regulation SHO, the sale after delivery of a Put Notice of such number of shares of Common Stock reasonably expected to be purchased under a Put Notice shall not be deemed a Short Sale. The Investor shall, until such time as the transactions contemplated by this Agreement are publicly disclosed by the Company in accordance with the terms of this Agreement, maintain the confidentiality of the existence and terms of this transaction and the information included in the Transaction Documents.
ARTICLE VI
Section 6.1 RESERVATION OF COMMON STOCK. The Company shall maintain a reserve from its duly authorized shares of Common Stock equal to 300% of the Required Minimum to satisfy its obligation to issue the Put Shares in accordance with the terms of this Agreement. On the date hereof, the Company shall reserve an initial amount equal to 15,000,000 shares of Common Stock.
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ARTICLE VII
PUT NOTICES AND CONDITIONS TO CLOSING
Section 7.1 CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO ISSUE AND SELL PUT SHARES. The right of the Company to issue and sell the Put Shares to the Investor is subject to the satisfaction of each of the conditions set forth below:
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(m) SEC DOCUMENTS. All reports, schedules, registrations, forms, statements, information and other documents required to have been filed by the Company with the SEC pursuant to the reporting requirements of the Exchange Act shall have been timely filed with the SEC for the previous twelve month period.
ARTICLE VIII
ARTICLE IX
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The addresses for such communications shall be:
If to the Company:
00000 X. Xxxxx Xxxxxxx, Xxxxx 000
Xxxxx, XX 00000
Email: xxxx@xxxxxxx.xxx
Attention: Xxxxxxx X. Xxxxxx
With a copy to (which shall not constitute notice):
Broad and Xxxxxx
0 X. Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx Xxxxx, XX 00000
Email: xxxxxxxx@xxxxxxxxxxxxxx.xxx
Attention: Xxxxxxxx X. Deutsch, P.A.
If to the Investor:
Old Main Capital, LLC
0000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxx Xxxxxxxxxx, XX 00000
Email: xxxx@xxxxxxxxxxxxxx.xxx
Attention: Xxxx Xxxx, Managing Partner
Either party hereto may from time to time change its address or email for notices under this Section 9.1 by giving at least ten (10) days' prior written notice of such changed address to the other party hereto.
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(a) In the event any claim or demand in respect of which an Indemnified Party might seek indemnity under Section 9.2 is asserted against or sought to be collected from such Indemnified Party by a Person other than a party hereto or an affiliate thereof (a “Third Party Claim”), the Indemnified Party shall deliver a written notification, enclosing a copy of all papers served, if any, and specifying the nature of and basis for such Third Party Claim and for the Indemnified Party's claim for indemnification that is being asserted under any provision of Section 9.2 against an Indemnifying Party, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such Third Party Claim (a “Claim Notice”) with reasonable promptness to the Indemnifying Party. If the Indemnified Party fails to provide the Claim Notice with reasonable promptness after the Indemnified Party receives notice of such Third Party Claim, the Indemnifying Party shall not be obligated to indemnify the Indemnified Party with respect to such Third Party Claim to the extent that the Indemnifying Party's ability to defend has been prejudiced by such failure of the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party as soon as practicable within the period ending thirty (30) calendar days following receipt by the Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined below) (the “Dispute Period”) whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified Party under Section 9.2 and whether the Indemnifying Party desires, at its sole cost and expense, to defend the Indemnified Party against such Third Party Claim.
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(i) If the Indemnifying Party notifies the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Indemnified Party with respect to the Third Party Claim pursuant to this Section 9.3(a), then the Indemnifying Party shall have the right to defend, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the Indemnifying Party, such Third Party Claim by all appropriate proceedings, which proceedings shall be vigorously and diligently prosecuted by the Indemnifying Party to a final conclusion or will be settled at the discretion of the Indemnifying Party (but only with the consent of the Indemnified Party in the case of any settlement that provides for any relief other than the payment of monetary damages or that provides for the payment of monetary damages as to which the Indemnified Party shall not be indemnified in full pursuant to Section 9.2). The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that the Indemnified Party may, at the sole cost and expense of the Indemnified Party, at any time prior to the Indemnifying Party's delivery of the notice referred to in the first sentence of this clause (i), file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate to protect its interests; and provided, further, that if requested by the Indemnifying Party, the Indemnified Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnifying Party in contesting any Third Party Claim that the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this clause (i), and except as provided in the preceding sentence, the Indemnified Party shall bear its own costs and expenses with respect to such participation. Notwithstanding the foregoing, the Indemnified Party may takeover the control of the defense or settlement of a Third Party Claim at any time if it irrevocably waives its right to indemnity under Section 9.2 with respect to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Third Party Claim pursuant to Section 9.3(a), or if the Indemnifying Party gives such notice but fails to prosecute vigorously and diligently or settle the Third Party Claim, or if the Indemnifying Party fails to give any notice whatsoever within the Dispute Period, then the Indemnified Party shall have the right to defend, at the sole cost and expense of the Indemnifying Party, the Third Party Claim by all appropriate proceedings, which proceedings shall be prosecuted by the Indemnified Party in a reasonable manner and in good faith or will be settled at the discretion of the Indemnified Party(with the consent of the Indemnifying Party, which consent will not be unreasonably withheld). The Indemnified Party will have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that if requested by the Indemnified Party, the Indemnifying Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnified Party and its counsel in contesting any Third Party Claim which the Indemnified Party is contesting. Notwithstanding the foregoing provisions of this clause (ii), if the Indemnifying Party has notified the Indemnified Party within the Dispute Period that the Indemnifying Party disputes its liability or the amount of its liability hereunder to the Indemnified Party with respect to such Third Party Claim and if such dispute is resolved in favor of the Indemnifying Party in the manner provided in clause (iii) below, the Indemnifying Party will not be required to bear the costs and expenses of the Indemnified Party's defense pursuant to this clause (ii) or of the Indemnifying Party's participation therein at the Indemnified Party's request, and the Indemnified Party shall reimburse the Indemnifying Party in full for all reasonable costs and expenses incurred by the Indemnifying Party in connection with such litigation. The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this clause (ii), and the Indemnifying Party shall bear its own costs and expenses with respect to such participation.
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(iii) If the Indemnifying Party notifies the Indemnified Party that it does not dispute its liability or the amount of its liability to the Indemnified Party with respect to the Third Party Claim under Section 9.2 or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified Party with respect to such Third Party Claim, the amount of Damages specified in the Claim Notice shall be deemed a liability of the Indemnifying Party under Section 9.2, unless the Indemnifying Party can show that the Indemnified Party was not prejudiced by its failure to respond within the Dispute Period, and then, to the extent such Damages represent actual (and not estimated) Damages incurred by the Indemnified Party, and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party on demand. If the Indemnifying Party has disputed its liability or the amount of its liability with respect to such claim, the Indemnifying Party and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute; provided, however, that if the dispute is not resolved within thirty (30) days after the Claim Notice, the Indemnifying Party shall be entitled to institute such legal action as it deems appropriate.
(b) In the event any Indemnified Party should have a claim under Section 9.2 against the Indemnifying Party that does not involve a Third Party Claim, the Indemnified Party shall deliver a written notification of a claim for indemnity under Section 9.2 specifying the nature of and basis for such claim, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such claim (an “Indemnity Notice”) with reasonable promptness to the Indemnifying Party. The failure by any Indemnified Party to give the Indemnity Notice shall not impair such party's rights hereunder except to the extent that the Indemnifying Party demonstrates that it has been irreparably prejudiced thereby. If the Indemnifying Party notifies the Indemnified Party that it does not dispute the claim or the amount of the claim described in such Indemnity Notice or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes the claim or the amount of the claim described in such Indemnity Notice, the amount of Damages specified in the Indemnity Notice will be deemed a liability of the Indemnifying Party under Section 9.2, unless the Indemnifying Party can show that the Indemnified Party was not prejudiced by its failure to respond within the Dispute Period, and then, to the extent such Damages represent actual (and not estimated) Damages incurred by the Indemnified Party, and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party on demand. If the Indemnifying Party has disputed its liability or the amount of its liability with respect to such claim, the Indemnifying Party and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute; provided, however, that if the dispute is not resolved within thirty (30) days after the Indemnity Notice, the Indemnifying Party shall be entitled to institute such legal action as it deems appropriate.
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(c) The Indemnifying Party agrees to pay the Indemnified Party, promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim Notice as long as the Indemnified Party has acknowledged and agreed to repay such amounts promptly should it be finally determined by a court that the Indemnified Party was not entitled to indemnificiation for the claim to which such expenses related.
(d) The indemnity provisions contained herein shall be in addition to (i) any cause of action or similar rights of the Indemnified Party against the Indemnifying Party or others, and (ii) any liabilities the Indemnifying Party may be subject to.
ARTICLE X
Section 10.1 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York without regard to the principles of conflicts of law. Each of the Company and the Investor hereby submits to the exclusive jurisdiction of the United States federal and state courts located in the City of New York, Borough of Manhattan with respect to any dispute arising under the Transaction Documents or the transactions contemplated thereby.
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[Signature Page Follows]
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By: /s/ Xxxxxxx Xxxxxx
Name: Xxxxxxx Xxxxxx
Title: Chief Executive Officer
OLD MAIN CAPITAL, LLC
By: /s/ Xxxx Xxxx
Name: Xxxx Xxxx
Title: President
[Signature Page to Equity Purchase Agreement]
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DISCLOSURE SCHEDULES TO
Schedule 4.1 – Organization
Schedule 4.3 – Capitalization
Schedule 4.5 – SEC Documents
Schedule 4.7 – No Conflicts
Schedule 4.9 – Litigation
Schedule 4.10 – Registration Rights
EXHIBIT A
FORM OF PUT NOTICE
TO: OLD MAIN CAPITAL, LLC
DATE: ____________________
We refer to the Equity Purchase Agreement, dated April [___], 2016 (the “Agreement”), entered into by and between CLS Holdings USA, Inc., and you. Capitalized terms defined in the Agreement shall, unless otherwise defined herein, have the same meaning when used herein.
We hereby:
1) Give you notice that we require you to purchase Put Shares; and
2) Certify that, as of the date hereof, to the best of our knowledge, the conditions set forth in Section 7.2 of the Agreement are satisfied.
By: _______________________
Name:
Title:
EXHIBIT B
FORM OF OFFICER’S CERTIFICATE
Pursuant to Section 7.2(k) of that certain Equity Purchase Agreement, dated April [___], 2016 (the “Agreement”), by and between CLS Holdings USA, Inc. (the “Company”) and Old Main Capital, LLC (the “Investor”), the undersigned, in his capacity as Chief Executive Officer of the Company, and not in his individual capacity, hereby certifies, as of the date hereof (such date, the “Condition Satisfaction Date”), the following:
1. The representations and warranties of the Company are true and correct in all material respects as of the Condition Satisfaction Date as though made on the Condition Satisfaction Date (except for representations and warranties specifically made as of a particular date) with respect to all periods, and as to all events and circumstances occurring or existing upto and including the Condition Satisfaction Date, except for any conditions which have temporarily caused any representations or warranties of the Company set forth in the Agreement to be incorrect and which have been corrected with no continuing impairment to the Company or the Investor; and
2. To the best of the undersigned’s knowledge, all of the conditions precedent to the obligation of the Investor to purchase Put Shares set forth in Section 7.2 of the Agreement have been satisfied as of the Condition Satisfaction Date.
Capitalized terms used herein shall have the meanings set forth in the Agreement unless otherwise defined herein.
IN WITNESS WHEREOF, the undersigned has hereunto affixed his hand as of the ____day of ____________, ______.
By: _______________________
Name: Xxxxxxx Xxxxxx
Title: Chief Executive Officer
EXHIBIT C
FORM OF COMMITMENT NOTE
EXHIBIT D
FORM OF TRANSFER AGENT INSTRUCTION LETTER