CLS HOLDINGS USA, INC. (OTCMKTS:CLSH) Files An 8-K Completion of Acquisition or Disposition of AssetsItem 2.01. Completion of Acquisition of Disposition of Assets.
On June 27, 2018, CLS Holdings USA, Inc. (the “Company,” “CLS” or “we”) closed on the purchase of all of the membership interests in Alternative Solutions, LLC (“Alternative Solutions”) and its three operating subsidiaries (collectively, the “Oasis LLCs”) from the members of such entities (other than Alternative Solutions). The Oasis LLCs operate a fully integrated cannabis business in Las Vegas, Nevada, including a grow; extraction, conversion and processing facility; and a retail dispensary. The closing occurred to a Membership Interest Purchase Agreement (the “Acquisition Agreement”) entered into between CLS and Alternative Solutions on December 4, 2017, as amended. to the Acquisition Agreement, CLS initially contemplated acquiring all of the membership interests in the Oasis LLCs from Alternative Solutions. Just prior to closing, the parties agreed that CLS would instead acquire all of the membership interests in Alternative Solutions, the parent of the Oasis LLCs, from its members, and the membership interests in the Oasis LLCs owned by members other than Alternative Solutions. The revised structure of the transaction is referenced in the Oasis Note (as defined below), which modified the Acquisition Agreement.
to the Acquisition Agreement, CLS paid a non-refundable deposit of $250,000 upon signing, which was followed by an additional payment of $1,800,000 paid in February 2018, for an initial 10% of each of the Oasis LLCs. At that time, CLS applied for regulatory approval to own an interest in the Oasis LLCs, which approval was received. On June 27, 2018, CLS made the payments to indirectly acquire the remaining 90% of the Oasis LLCs, which were equal to cash in the amount of $6,200,000, a $4.0 million promissory note due in December 2019 (the “Oasis Note”), and 22,058,823 shares of its common stock (the “Purchase Price Shares”) (collectively, the “Closing Consideration”). CLS used the proceeds of its recent Canadian private securities offering to fund the cash portion of the Closing Consideration. CLS will now apply for regulatory approval to own the additional 90% in membership interests in the Oasis LLCs, which we expect to receive in due course. The change of ownership in the Oasis LLCs to CLS will be recorded upon receipt of such regulatory approvals.
The number of Purchase Price Shares was equal to 80% of the offering price of CLS’ common stock in its last equity offering, which price was $0.34 per share. The Oasis Note is secured by a first priority security interest over the membership interests in Alternative Solutions and the Oasis LLCs, as well as by the assets of the Oasis LLCs. We also delivered a confession of judgment to a representative of the sellers that will become effective, in general, if we default under the Oasis Note.
Oasis currently owes certain amounts to a consultant known as 4Front Advisors, LLC. If we make any payments to this company post-closing, generally speaking, we will be entitled to deduct the present value of such payments from the principal amount due under the Oasis Note.
The sellers are also entitled to a $1,000,000 payment from us on May 30, 2020 if the Oasis LLCs have maintained an average revenue of $20,000 per day during the 2019 calendar year.
None of the sellers of the membership interests in Alternative Solutions or the Oasis LLCs was affiliated with CLS prior to the closing. In connection with the closing, however, we plan to employ Mr. Ben Sillitoe, the CEO and a member of Alternative Solutions, as our COO. We plan to issue him 500,000 shares of restricted common stock to his proposed employment agreement. We have also agreed to issue 500,000 shares of our restricted common stock to David Lamadrid, our President and Chief Financial Officer, for introducing us to Alternative Solutions.
The foregoing is a summary of the material terms of the Acquisition Agreement, as modified by the First and Second Amendments, the Third Amendment, the Fourth Amendment, and the Fifth Amendment and is subject to the terms of the full Acquisition Agreement, which was attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on December 7, 2017, the First and Second Amendments, which were attached as Exhibit 2.1 to the Company’s Current Reports on Form 8-K filed on January 19, 2018 and January 26, 2018, the Third Amendment and the Fourth Amendment, which were attached as Exhibits 2.1 and 2.2, respectively, to the Company’s Current Report on Form 8-K filed on April 4, 2018, and to the Fifth Amendment, which was attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 21, 2018. The exhibits to the Acquisition Agreement will be filed upon request of the Securities and Exchange Commission.
| Item 2.03 |
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
On June 27, 2018, CLS executed the Oasis Note. The Oasis Note is for the principal amount of $4,000,000 and bears interest at the rate of 6% per annum. Both principal and accrued interest are due and payable in full on December 4, 2019 but may be prepaid at any time without penalty. The Oasis Note is payable to Serenity Wellness Enterprises, LLC, as nominee for the sellers of the membership interests in Alternative Solutions and the Oasis LLCs. The Oasis Note is secured by all of the membership interests in Alternative Solutions and the Oasis LLCs and by the assets of the Oasis LLCs. CLS also delivered a confession of judgment in connection with the Oasis Note. As a result, generally speaking, if the holder of the Oasis Note believes that CLS has defaulted, CLS will have little ability to challenge the validity of any such allegations.
The foregoing is a summary of the material terms of the Oasis Note and is subject to the terms of the full Oasis Note, which is attached as Exhibit 10.1 hereto.
Item 9.01Financial Statements and Exhibits.
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(a) |
Financial Statements of Businesses Acquired. |
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The financial statements required by Item 9.01(a) of Form 8-K will be filed by amendment within 71 calendar days after the date this report on Form 8-K must be filed. |
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(b) |
Pro Forma Financial Information. |
| The pro forma financial information required by Item 9.01(b) of Form 8-K will be filed by amendment within 71 calendar days after the date this report on Form 8-K must be filed. | |
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(d) |
Exhibits. |
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2.1 |
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2.2 |
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2.3 |
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2.4 |
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2.5 |
Fourth Amendment to the Membership Interest Purchase Agreement by and between CLS Holdings USA, Inc. and Alternative Solutions, LLC effective as of March 27, 2018 (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on April 4, 2018) |
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2.6 |
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10.1 |
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*Filed herewith. |
CLS Holdings USA, Inc. ExhibitEX-10.1 2 ex10-1.htm EX-10.1 Exhibit 10.1 THIS SECURED PROMISSORY NOTE (THE “NOTE”) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,…To view the full exhibit click here
About CLS HOLDINGS USA, INC. (OTCMKTS:CLSH)
CLS Holdings USA, Inc., is engaged in developing a method of extracting cannabinoids from cannabis plants and converting the resulting cannabinoid extracts into concentrates. The Company’s concentrates include oils, waxes, edibles and shatter. These concentrates may be ingested in various ways, including through vaporization through electronic cigarettes (e-cigarettes), and used for a range of pharmaceutical and other purposes. The Company intends to monetize extraction method through the licensing of its methods and processes to others, as in the Colorado Arrangement; the processing of cannabis for others, and the purchase of cannabis and the processing and sale of cannabis-related products. The Company’s products and services include Licensing Operations, Processing Revenue, Processing Facilities and Sale of Products and Brand Creation. As of May 31, 2016, the Company had not generated any revenues.
