Document:

gst-ex101_7.htm

Exhibit 10.1

FORM OF INDEMNIFICATION AGREEMENT

This Indemnification Agreement (this “Agreement”), dated as of          , is by and between Gastar Exploration Inc., a Delaware corporation (the “Company”) and            (the “Indemnitee”).

WHEREAS, Indemnitee is willing to serve as a director and/or officer of the Company on the condition that the Indemnitee is indemnified and covered under the Company’s directors’ and officers’ liability insurance, as set forth in this Agreement;

WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and officers of public companies; 

WHEREAS, the board of directors of the Company (the “Board”) has determined that enhancing the ability of the Company to retain and attract as directors and officers the most capable persons is in the best interests of the Company and that the Company therefore should seek to assure such persons that indemnification and insurance coverage is available; and

WHEREAS, in recognition of the need to provide Indemnitee with substantial protection against personal liability, in order to procure Indemnitee’s continued service as a director and/or officer of the Company and to enhance Indemnitee’s ability to serve the Company in an effective manner, and in order to provide such protection pursuant to express contract rights (intended to be enforceable irrespective of, among other things, any amendment to the Company’s certificate of incorporation or bylaws (collectively, the “Constituent Documents”), any change in the composition of the Board or any change in control or business combination transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of, and the advancement of Expenses (as defined in 1(g) below) to, Indemnitee  and to cover Indemnitee under the Company’s directors' and officers' liability insurance policies as set forth in this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the Indemnitee’s agreement to serve as a director of the Company, the parties agree as follows:

1.Definitions. For purposes of this Agreement, the following terms shall have the following meanings:

(a)“Beneficial Owner” has the meaning given to the term “beneficial owner” in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

(b)“Business Day” means any day except a Saturday, Sunday or other day on which commercial banks in Houston, Texas are authorized or required by law to be closed.

(c)“Change in Control” means the occurrence after the date of this Agreement of any of the following events:

(i)any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50% or more of the Company’s then outstanding Voting Securities unless the change in relative Beneficial Ownership of the Company’s securities by any Person results solely from a reduction in the aggregate number of outstanding shares of securities entitled to vote generally in the election of directors; provided that the prior acquisition of the Company’s Common Stock, par value $0.01 (the “Common Stock”) and Convertible Notes due 2022 (the “Convertible Notes”) by Ares Management LLC or its affiliates shall not constitute and shall not be deemed to have constituted a Change in Control; provided further that for purposes of determining whether a Change in Control has taken place, a holder of Convertible Notes shall not be deemed to be a Beneficial Owner of such securities until such Convertible Notes are converted into Common Stock;

(ii)the consummation of a reorganization, merger or consolidation, unless immediately following such reorganization, merger or consolidation, all of the Beneficial Owners of the Voting Securities of the Company immediately prior to such transaction beneficially own, directly or indirectly, more than 50% of the combined voting power of the outstanding Voting Securities of the entity resulting from such transaction;

(iii)during any period of two consecutive years, not including any period prior to the execution of this Agreement, individuals who at the beginning of such period constituted the Board (including for this purpose any new directors whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved) cease for any reason to constitute at least a majority of the Board; or

(iv)the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

2

 

(d)“Claim” means:

(i)any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, whether civil, criminal, administrative, arbitrative, investigative or other, and whether made pursuant to federal, state or other law; or

(ii)any inquiry, hearing or investigation that the Indemnitee determines might lead to the institution of any such action, suit, proceeding or alternative dispute resolution mechanism.

(e)“Delaware Court” shall have the meaning ascribed to it in Section 8(e) below. 

(f)“Disinterested Director” means a director of the Company who is not and was not a party to the Claim in respect of which indemnification is sought by Indemnitee.

(g)“Expenses” means any and all expenses, including attorneys’ and experts’ fees, document and e-discovery costs, litigation expenses, retainers, court costs, transcript costs, travel expenses, duplicating, printing and binding costs, telephone charges, and all other costs and expenses incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness or participate in, any Claim. Expenses also shall include (i) Expenses incurred in connection with any appeal resulting from any Claim, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent, and (ii) for purposes of Section 4 only, Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement, by litigation or otherwise. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee. The parties agree that for the purposes of any advancement of Expenses for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such demand that are certified by affidavit of Indemnitee’s counsel as being reasonable shall be presumed conclusively to be reasonable. “Expense Advance” means any payment of Expenses advanced to Indemnitee by the Company pursuant to Section 3 or Section 4 hereof.

(h)“Indemnifiable Event” means any event or occurrence, whether occurring before, on or after the date of this Agreement, related to the fact that Indemnitee is or was a director, officer, employee or agent of the Company or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, member, manager, trustee or agent of any other corporation, limited liability company, partnership, joint venture, trust or other entity or enterprise (collectively with the Company and its subsidiaries, “Enterprise”) or by reason of an action or inaction by Indemnitee in any such capacity (whether or not serving in such 

3

 

capacity at the time any Loss is incurred for which indemnification can be provided under this Agreement).

(i)“Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently performs, nor in the past three years has performed, services for either: (i) the Company or Indemnitee (other than in connection with matters concerning Indemnitee under this Agreement or of other indemnitees under similar agreements) or (ii) any other party to the Claim giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.

(j)“Losses” means any and all Expenses, damages, losses, liabilities, judgments, fines, penalties (whether civil, criminal or other), ERISA excise taxes, amounts paid or payable in settlement, including any interest, assessments, any federal, state, local or foreign taxes imposed as a result of the actual or deemed receipt of any payments under this Agreement and all other charges paid or payable in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness or participate in, any Claim.

(k)“Person” means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity and includes the meaning set forth in Sections 13(d) and 14(d) of the Exchange Act. 

(l)“Standard of Conduct Determination” shall have the meaning ascribed to it in Section 8(b) below. 

(m)“Voting Securities” means any securities of the Company that vote generally in the election of directors. 

2.Indemnification. Subject to Section 8 and Section 9 of this Agreement, the Company shall indemnify Indemnitee, to the fullest extent permitted by the laws of the State of Delaware in effect on the date hereof, or as such laws may from time to time hereafter be amended to increase the scope of such permitted indemnification, against any and all Losses if Indemnitee was or is or becomes a party to or participant in, or is threatened to be made a party to or participant in, any Claim by reason of or arising in part out of an Indemnifiable Event, including, without limitation, Claims brought by or in the right of the Company, Claims brought by third parties, and Claims in which the Indemnitee is solely a witness.

4

 

3.Advancement of Expenses. Indemnitee shall have the right to advancement by the Company, prior to the final disposition of any Claim by final adjudication to which there are no further rights of appeal, of any and all Expenses actually and reasonably paid or incurred by Indemnitee in connection with any Claim arising out of an Indemnifiable Event. Indemnitee’s right to such advancement is not subject to the satisfaction of any standard of conduct. Without limiting the generality or effect of the foregoing, within 10 Business Days after any request by Indemnitee, the Company shall, in accordance with such request, (a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses. In connection with any request for Expense Advances, Indemnitee shall not be required to provide any documentation or information to the extent that the provision thereof would undermine or otherwise jeopardize attorney-client privilege. Execution and delivery to the Company of this Agreement by Indemnitee constitutes an undertaking by the Indemnitee to repay any amounts paid, advanced or reimbursed by the Company pursuant to this Section 3 in respect of Expenses relating to, arising out of or resulting from any Claim in respect of which it shall be determined, pursuant to Section 8, following the final disposition of such Claim, that Indemnitee is not entitled to indemnification hereunder.  No other form of undertaking shall be required other than the execution of this Agreement. Indemnitee’s obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall be charged thereon.

4.Indemnification for Expenses in Enforcing Rights. To the fullest extent allowable under applicable law, the Company shall also indemnify against, and, if requested by Indemnitee, shall advance to Indemnitee subject to and in accordance with Section 3, any Expenses actually and reasonably paid or incurred by Indemnitee in connection with any action or proceeding by Indemnitee for (a) indemnification or reimbursement or advance payment of Expenses by the Company under any provision of this Agreement, or under any other agreement or provision of the Constituent Documents now or hereafter in effect relating to Claims relating to Indemnifiable Events, and/or (b) recovery under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification or insurance recovery, as the case may be. Indemnitee shall be required to reimburse the Company in the event that a final judicial determination is made that such action brought by Indemnitee was frivolous or not made in good faith. 

5.Partial Indemnity. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for a portion of any Losses in respect of a Claim related to an Indemnifiable Event but not for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.

6.Notification and Defense of Claims.

5

 

(a)Notification of Claims. Indemnitee shall notify the Company in writing as soon as practicable of any Claim which could relate to an Indemnifiable Event or for which Indemnitee could seek Expense Advances, including a brief description (based upon information then available to Indemnitee) of the nature of, and the facts underlying, such Claim. The failure by Indemnitee to timely notify the Company hereunder shall not relieve the Company from any liability hereunder unless the Company’s ability to participate in the defense of such claim was materially and adversely affected by such failure. The Company shall give prompt written notice to the applicable insurers in accordance with the procedures set forth in the applicable policies. The Company shall provide to Indemnitee a copy of such notice delivered to the applicable insurers, and copies of all subsequent correspondence between the Company and such insurers regarding the Claim, in each case substantially concurrently with the delivery or receipt thereof by the Company.

(b)Defense of Claims. The Company shall be entitled to participate in the defense of any Claim relating to an Indemnifiable Event at its own expense and, except as otherwise provided below, to the extent the Company so wishes, it may assume the defense thereof with counsel reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to assume the defense of any such Claim, the Company shall not be liable to Indemnitee under this Agreement or otherwise for any Expenses subsequently directly incurred by Indemnitee in connection with Indemnitee’s defense of such Claim other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ its own legal counsel in such Claim, but all Expenses related to such counsel incurred after notice from the Company of its assumption of the defense shall be at Indemnitee’s own expense; provided, however, that if (i) Indemnitee’s employment of its own legal counsel has been authorized by the Company, (ii) Indemnitee has reasonably determined that there may be a conflict of interest between Indemnitee and the Company in the defense of such Claim, (iii) after a Change in Control, Indemnitee’s employment of its own counsel has been approved by the Independent Counsel or (iv) the Company shall not in fact have employed counsel to assume the defense of such Claim, then Indemnitee shall be entitled to retain its own separate counsel (but not more than one law firm plus, if applicable, local counsel in respect of any such Claim) and all Expenses related to such separate counsel shall be borne by the Company.

7.Procedure upon Application for Indemnification. In order to obtain indemnification pursuant to this Agreement, Indemnitee shall submit to the Company a written request therefor, including in such request such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of the Claim, provided that documentation and information need not be so provided to the extent that the provision thereof would undermine or otherwise jeopardize 

6

 

attorney-client privilege. Indemnification shall be made insofar as the Company determines Indemnitee is entitled to indemnification in accordance with Section 8 below. 

8.Determination of Right to Indemnification.

(a)Mandatory Indemnification; Indemnification as a Witness. 

(i)To the extent that Indemnitee shall have been successful on the merits or otherwise in defense of any Claim relating to an Indemnifiable Event or any portion thereof or in defense of any issue or matter therein, including without limitation dismissal without prejudice, Indemnitee shall be indemnified against all Losses relating to such Claim in accordance with Section 2 to the fullest extent allowable by law. 

(ii)To the extent that Indemnitee’s involvement in a Claim relating to an Indemnifiable Event is to prepare to serve and serve as a witness, and not as a party, the Indemnitee shall be indemnified against all Losses incurred in connection therewith to the fullest extent allowable by law.

(b)Standard of Conduct. To the extent that the provisions of Section 8(a) are inapplicable to a Claim related to an Indemnifiable Event that shall have been finally disposed of, any determination of whether Indemnitee has satisfied any applicable standard of conduct under Delaware law that is a legally required condition to indemnification of Indemnitee hereunder against Losses relating to such Claim and any determination that Expense Advances must be repaid to the Company (a “Standard of Conduct Determination”) shall be made as follows:  

(i)if no Change in Control has occurred, (A) by a majority vote of the Disinterested Directors, even if less than a quorum of the Board, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum or (C) if there are no such Disinterested Directors, by Independent Counsel in a written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee; and

(ii)if a Change in Control shall have occurred, (A) if the Indemnitee so requests in writing, by a majority vote of the Disinterested Directors, even if less than a quorum of the Board or (B) otherwise, by Independent Counsel in a written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee. 

The Company shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within 10 days of such request, any and all Expenses incurred by Indemnitee in cooperating with the person or persons making such Standard of Conduct Determination.

7

 

(c)Making the Standard of Conduct Determination. The Company shall use its reasonable best efforts to cause any Standard of Conduct Determination required under Section 8(b) to be made as promptly as practicable. If the person or persons designated to make the Standard of Conduct Determination under Section 8(b) shall not have made a determination within 30 days after the later of (A) receipt by the Company of a written request from Indemnitee for indemnification pursuant to Section 7 (the date of such receipt being the “Notification Date”) and (B) the selection of an Independent Counsel, if such determination is to be made by Independent Counsel, then Indemnitee shall be deemed to have satisfied the applicable standard of conduct; provided that such 30-day period may be extended for a reasonable time, not to exceed an additional 10 days, if the person or persons making such determination in good faith requires such additional time to obtain or evaluate information relating thereto. Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement of Indemnitee to indemnification under this Agreement shall be required to be made prior to the final disposition of any Claim.

(d)Payment of Indemnification. If, in regard to any Losses:

(i)Indemnitee shall be entitled to indemnification pursuant to 
Section 8(a);  

(ii)no Standard Conduct Determination is legally required as a condition to indemnification of Indemnitee hereunder; or  

(iii)Indemnitee has been determined or deemed pursuant to Section 8(b) or Section 8(c) to have satisfied the Standard of Conduct Determination,  

then the Company shall pay to Indemnitee, within 5 Business Days after the later of (A) the Notification Date or (B) the earliest date on which the applicable criterion specified in clause (i), (ii) or (iii) is satisfied, an amount equal to such Losses.

(e)Selection of Independent Counsel for Standard of Conduct Determination. If a Standard of Conduct Determination is to be made by Independent Counsel pursuant to Section 8(b)(i), the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Standard of Conduct Determination is to be made by Independent Counsel pursuant to Section 8(b)(ii), the Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either case, Indemnitee or the Company, as applicable, may, within 5 Business Days after receiving written notice of selection from the other, deliver to the other a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not satisfy the criteria set forth in the definition of “Independent Counsel” in Section 1(i), and the objection shall set forth with 

8

 

particularity the factual basis of such assertion. Absent a proper and timely objection, the person or firm so selected shall act as Independent Counsel. If such written objection is properly and timely made and substantiated, (i) the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit; and (ii) the non-objecting party may, at its option, select an alternative Independent Counsel and give written notice to the other party advising such other party of the identity of the alternative Independent Counsel so selected, in which case the provisions of the two immediately preceding sentences, the introductory clause of this sentence and numbered clause (i) of this sentence shall apply to such subsequent selection and notice. If applicable, the provisions of clause (ii) of the immediately preceding sentence shall apply to successive alternative selections. If no Independent Counsel that is permitted under the foregoing provisions of this Section 8(e) to make the Standard of Conduct Determination shall have been selected within 20 days after the Company gives its initial notice pursuant to the first sentence of this Section 8(e) or Indemnitee gives its initial notice pursuant to the second sentence of this Section 8(e), as the case may be, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware (“Delaware Court”) to resolve any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or to appoint as Independent Counsel a person to be selected by the Court or such other person as the Court shall designate, and the person or firm with respect to whom all objections are so resolved or the person or firm so appointed will act as Independent Counsel. In all events, the Company shall pay all of the reasonable fees and expenses of the Independent Counsel incurred in connection with the Independent Counsel’s determination pursuant to Section 8(b).

(f)Presumptions and Defenses. 

(i)Indemnitee’s Entitlement to Indemnification. In making any Standard of Conduct Determination, the person or persons making such determination shall presume that Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification, and the Company shall have the burden of proof to overcome that presumption and establish that Indemnitee is not so entitled. Any Standard of Conduct Determination that is adverse to Indemnitee may be challenged by the Indemnitee in the Delaware Court. No determination by the Company (including by its directors or any Independent Counsel) that Indemnitee has not satisfied any applicable standard of conduct may be used as a defense to any legal proceedings brought by Indemnitee to secure indemnification or reimbursement or advance payment of Expenses by the Company hereunder or create a presumption that Indemnitee has not met any applicable standard of conduct.

(ii)Reliance as a Safe Harbor. For purposes of this Agreement, and without creating any presumption as to a lack of good faith if the following circumstances do not exist, Indemnitee shall be deemed to have acted in good faith and in a manner he 

9

 

or she reasonably believed to be in or not opposed to the best interests of the Company if Indemnitee’s actions or omissions to act are taken in good faith reliance upon the records of the Company, including its financial statements, or upon information, opinions, reports or statements furnished to Indemnitee by the officers or employees of the Company or any of its subsidiaries in the course of their duties, or by committees of the Board or by any other Person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other Person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company. In addition, the knowledge and/or actions, or failures to act, of any director, officer, agent or employee of the Company shall not be imputed to Indemnitee for purposes of determining the right to indemnity hereunder.

(iii)No Other Presumptions. For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, will not create a presumption that Indemnitee did not meet any applicable standard of conduct or have any particular belief, or that indemnification hereunder is otherwise not permitted.

(iv)Defense to Indemnification and Burden of Proof. It shall be a defense to any action brought by Indemnitee against the Company to enforce this Agreement (other than an action brought to enforce a claim for Losses incurred in defending against a Claim related to an Indemnifiable Event in advance of its final disposition) that it is not permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed. In connection with any such action or any related Standard of Conduct Determination, the burden of proving such a defense or that the Indemnitee did not satisfy the applicable standard of conduct shall be on the Company.

(v)Resolution of Claims. The Company acknowledges that a settlement or other disposition short of final judgment may be successful on the merits or otherwise for purposes of Section 8(a)(i) if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any Claim relating to an Indemnifiable Event to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with our without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise for purposes of Section 8(a)(i). The Company shall have the burden of proof to overcome this presumption. 

9.Exclusions from Indemnification. Notwithstanding anything in this Agreement to the contrary, the Company shall not be obligated to:

(a)indemnify or advance funds to Indemnitee for Expenses or Losses with respect to proceedings initiated by Indemnitee, including any proceedings against the 

10

 

Company or its directors, officers, employees or other indemnitees and not by way of defense, except:

(i)proceedings referenced in Section 4 above (unless a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous); or

(ii)where the Company has joined in or the Board has consented to the initiation of such proceedings.

(b)indemnify Indemnitee if a final decision by a court of competent jurisdiction determines that such indemnification is prohibited by applicable law. 

(c)indemnify Indemnitee for the disgorgement of profits arising from the purchase or sale by Indemnitee of securities of the Company in violation of Section 16(b) of the Exchange Act, or any similar successor statute.

(d)indemnify or advance funds to Indemnitee for Indemnitee’s reimbursement to the Company of any bonus or other incentive-based or equity-based compensation previously received by Indemnitee or payment of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements under Section 304 of the Sarbanes-Oxley Act of 2002 in connection with an accounting restatement of the Company or the payment to the Company of profits arising from the purchase or sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act).

10.Settlement of Claims. The Company shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement of any threatened or pending Claim related to an Indemnifiable Event effected without the Company’s prior written consent, which shall not be unreasonably withheld; provided, however, that if a Change in Control has occurred, the Company shall be liable for indemnification of the Indemnitee for amounts paid in settlement if an Independent Counsel has approved the settlement. The Company shall not settle any Claim related to an Indemnifiable Event in any manner that would impose any Losses on the Indemnitee without the Indemnitee’s prior written consent. 

11.Duration. All agreements and obligations of the Company contained herein shall continue during the period that Indemnitee is a director and/or officer of the Company (or is serving at the request of the Company as a director, officer, employee, member, trustee or agent of another Enterprise) and shall continue thereafter (i) so long as Indemnitee may be subject to any possible Claim relating to an Indemnifiable Event (including any rights of appeal thereto) and (ii) throughout the pendency of any proceeding (including any rights of appeal thereto) commenced by Indemnitee to enforce or interpret his rights under this Agreement, even if, in either case, he or she may have ceased to serve in such capacity at the time of any such Claim or proceeding.

11

 

12.Non-Exclusivity. The rights of Indemnitee hereunder will be in addition to any other rights Indemnitee may have under the Constituent Documents, the General Corporation Law of the State of Delaware, any other contract or otherwise (collectively, “Other Indemnity Provisions”); provided, however, that (a) to the extent that Indemnitee otherwise would have any greater right to indemnification under any Other Indemnity Provision, Indemnitee will be deemed to have such greater right hereunder and (b) to the extent that any change is made to any Other Indemnity Provision which permits any greater right to indemnification than that provided under this Agreement as of the date hereof, Indemnitee will be deemed to have such greater right hereunder. The Company will not adopt any amendment to any of the Constituent Documents the effect of which would be to deny, diminish or encumber Indemnitee’s right to indemnification under this Agreement or any Other Indemnity Provision.

13.Liability Insurance. For the duration of Indemnitee’s service as a director and/or officer of the Company, and thereafter for so long as Indemnitee shall be subject to any pending Claim relating to an Indemnifiable Event, the Company shall use commercially reasonable efforts (taking into account the scope and amount of coverage available relative to the cost thereof) to continue to maintain in effect policies of directors’ and officers’ liability insurance providing coverage that is at least substantially comparable in scope and amount to that provided by the Company’s current policies of directors’ and officers’ liability insurance. In all policies of directors’ and officers’ liability insurance maintained by the Company, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are provided to the most favorably insured of the Company’s directors, if Indemnitee is a director, or of the Company’s officers, if Indemnitee is an officer (and not a director) by such policy. Upon request, the Company will provide to Indemnitee copies of all directors’ and officers’ liability insurance applications, binders, policies, declarations, endorsements and other related materials.  In the event of and immediately upon a Change in Control, the Company shall use commercially reasonable efforts to ensure that a policy or policies of insurance (which may be a “tail” policy) shall be continued, procured and otherwise maintained in effect for a period of six (6) years from the date on which such Change in Control is effective (the “Change in Control Coverage”), providing Indemnitee with coverage for losses from alleged acts of the Indemnitee relating to Indemnitee’s services to the Company occurring on or before the effective date of the Change in Control.   If directors’ and officers’ liability insurance is in place immediately prior to the Change in Control, then the Company shall use commercially reasonable efforts to (i) ensure that the Change in Control Coverage shall contain limits,  retentions or deductibles, terms and exclusions that are no less favorable to Indemnitee than those set forth above, (ii) ensure that each policy evidencing the Change in Control Coverage shall be non-cancellable by the insurer except for non-payment of premium and (iii) ensure that no such policy shall contain any provision that limits or impacts adversely any right or privilege of Indemnitee given by this Agreement.

12

 

14.No Duplication of Payments. The Company shall not be liable under this Agreement to make any payment to Indemnitee in respect of any Losses to the extent Indemnitee has otherwise received payment under any insurance policy, the Constituent Documents, Other Indemnity Provisions or otherwise of the amounts otherwise indemnifiable by the Company hereunder.

15.Subrogation. In the event of payment to Indemnitee under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee. Indemnitee shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

16.Amendments. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be binding unless in the form of a writing signed by the party against whom enforcement of the waiver is sought, and no such waiver shall operate as a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. Except as specifically provided herein, no failure to exercise or any delay in exercising any right or remedy hereunder shall constitute a waiver thereof.

17.Binding Effect. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part of the business and/or assets of the Company, by written agreement in form and substances satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.

18.Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any portion thereof) are held by a court of competent jurisdiction to be invalid, illegal, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of this Agreement containing any provision held to be invalid, illegal, void or otherwise unenforceable, that is not itself invalid, illegal, void or otherwise unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal, void or otherwise unenforceable.

13

 

19.Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand, against receipt, or mailed, by postage prepaid, certified or registered mail:

(a)if to Indemnitee, to the address set forth on the signature page hereto. 

	
 
	
(b)
	
if to the Company, to: 

Gastar Exploration Inc.

Attn:  Chief Executive Officer and Chief Financial Officer

1331 Lamar Street, Suite 650

Houston, Texas 77010

Notice of change of address shall be effective only when given in accordance with this Section. All notices complying with this Section shall be deemed to have been received on the date of hand delivery or on the third Business Day after mailing.

20.Governing Law and Forum. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to its principles of conflicts of laws. The Company and Indemnitee hereby irrevocably and unconditionally: (a) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court and not in any other state or federal court in the United States, (b) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (c) agree that any legal service of process required by Delaware law on such party may be made pursuant to the notice provisions of Section 19 hereof or any other means authorized by Delaware law, and that such delivery shall constitute acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware and (d) waive, and agree not to plead or make, any claim that the Delaware Court lacks venue or that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

 

21.Entire Agreement.  This Agreement shall supersede and replace all prior agreements  between the Company or its predecessors, including Gastar Exploration Ltd., and the Indemnitee respecting the matters set forth herein, and shall constitute the entire agreement between the parties hereto in respect of the matters set forth herein.   

21.Headings. The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.

14

 

22.Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original, but all of which together shall constitute one and the same Agreement.

 

 

 

[SIGNATURE PAGE FOLLOWS]

15

 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

		
	
 
	
GASTAR EXPLORATION INC.

 

	
 
	
By: _____________________

Name: 

Title:   

 

 

		
	
 
	
 

INDEMNITEE

 

	
 
	
By:      _____________________

Name:

Title:  

 

 

Address:______________

_____________________

_____________________

	
 
	
 

 

Signature Page to Indemnification AgreementExhibit 10.1

 

THIS SECURED PROMISSORY NOTE (THE “NOTE”) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY OTHER APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AND HAS BEEN ISSUED AND SOLD IN RELIANCE UPON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS, INCLUDING, WITHOUT LIMITATION, THE EXEMPTION CONTAINED IN SECTION 4(2) OF THE SECURITIES ACT.  THIS NOTE MAY NOT BE SOLD OR TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT HAS BECOME AND IS THEN EFFECTIVE WITH RESPECT TO SUCH SECURITIES, (2) THIS NOTE IS TRANSFERRED PURSUANT TO RULE 144 PROMULGATED UNDER THE SECURITIES ACT (OR ANY SUCCESSOR RULE) OR (3) THE COMPANY (AS HEREINAFTER DEFINED) HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT, TO THE EFFECT THAT THE PROPOSED SALE OR TRANSFER OF SUCH SECURITIES IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT AND ALL OTHER APPLICABLE FEDERAL OR STATE SECURITIES LAWS.

6 % Secured Promissory Note

of

CLS Holdings USA, Inc.

June 27, 2018          Las Vegas, NV

CLS Holdings USA, Inc., a Nevada corporation  (the “Company”), for value received and, except as modified hereby, pursuant to the terms of a certain Membership Interest Purchase Agreement to which this Note shall be attached as Exhibit A, hereby promises unconditionally to pay to the order of Serenity Wellness Enterprises, LLC, a Nevada limited liability company (the “Holder”), as nominee solely for the benefit of the sellers of the membership interests in Alternative Solutions, LLC, a Nevada limited liability company (“AS”) or one of its subsidiaries, who are named on Schedule 1 hereto together with the amount due hereunder to each of them (collectively, the “Selling Members”), by paying to the Selling Members directly at the address set forth for each of them on Schedule 1 hereof, in lawful money of the United States of America (“Dollars” or “$”) and in immediately available funds, the aggregate principal amount of FOUR MILLION DOLLARS ($4,000,000), (the “Principal”), or such lesser amount as shall be outstanding at such time, it being acknowledged that the initial portion of the Principal due to each Selling Member is as set forth on Schedule 1, plus all accrued and unpaid interest thereon (the “Interest”) on the Maturity Date (as defined below).

All capitalized terms used, but not otherwise defined, herein shall have the respective definitions assigned thereto in the Membership Interest Purchase Agreement, dated as of the month of December 4, 2017, as amended (the “MPA”), between the Company and AS. The Company, Sellers, AS and Selling Members acknowledge that the parties have revised the structure of the MPA, as reflected in this Note, to cause the Company to purchase, the membership interests of AS from the Selling Members, and the membership interests of the AS subsidiaries that are owned by a member other than AS, from such member, instead of having the Company purchase the membership interests of 

-1-

the AS subsidiaries from AS.  As a result, the “Sellers,” as defined in the MPA, now refers to the Selling Members.  The Holder shall have the sole right to act on behalf of the Selling Members under this Note but the Company shall direct payment of amounts due to the Sellers directly to the Selling Members, in accordance with their interests set forth on Schedule 1, unless directed to do otherwise by the Holder.

The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder hereof, by the acceptance of this Note, agrees:

1.          Definitions.  For the purposes of this Note:

“Affiliate(s)” means, with respect to any given Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person.

“Business Day” means any day that is not a Saturday, Sunday or a legal holiday in the State of Nevada.

“Collateral” means (a) The following property held by the Company pursuant to the terms of the MPA and owned by each of the Oasis LLCs:

(1)          Accounts Receivable.  All accounts, chattel paper, contracts, contract rights, accounts receivable, tax refunds, notes receivable, documents, other choses in action and general intangibles, including, but not limited to, proceeds of inventory and returned goods and proceeds from the sale of goods and services, and all rights, liens, securities, guaranties, remedies and privileges related thereto, including the right of stoppage in transit and rights and property of any kind forming the subject matter of any of the foregoing; and

(2)          Deposit Accounts.  All time, savings, demand, certificate of deposit or other accounts in the name of any Oasis LLC or in which any Oasis LLC has any right, title or interest, including but not limited to all sums now or at any time hereafter on deposit, and any renewals, extensions or replacements of and all other property which may from time to time be acquired directly or indirectly using the proceeds of any of the foregoing; and

(3)          Inventory and Equipment.  All inventory and equipment of every type or description wherever located, including, but not limited to all raw materials, parts, containers, work in process, finished goods, goods in transit, wares, merchandise furniture, fixtures, hardware, machinery, tools, parts, supplies, automobiles, trucks, other intangible personal property of whatever kind and wherever located owned by and associated with the business of any Oasis LLC, tools and goods returned for credit, repossessed, reclaimed or otherwise reacquired by any Oasis LLC; and

(4)          Document of Title.  All documents of title and other property from time to time received, receivable or otherwise distributed in respect of, exchange or substitution for or addition to any of the foregoing; and

-2-

(5)          Other Property.

          (a)          All other intangible property;

(b)          All securities;

          (c)          All proceeds (including but not limited to insurance proceeds) and products of and accessions and annexations to any of the foregoing;

          (d)          All assets of any type or description that may at any time be assigned or delivered to or come into possession of any Oasis LLC for any purpose for the account of any Oasis LLC or as to which any Oasis LLC may have any right, title, interest or power, and property in the possession or custody of or in transit to anyone for the account of any Oasis LLC, as well as all proceeds and products thereof and accessions and annexations thereto;

          (e)          All know-how, information, permits, patents, copyrights, goodwill, trademarks, trade names, licenses and approvals held by any Oasis LLC;

          (f)          All of the books, records and documents pertaining to any of the foregoing; and

(g)          The Pledged Collateral (as defined on Section 8(a)(ii) hereof.

“Event of Default” shall have the meaning assigned to such term in Section 5.

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

“Family Member” means, with respect to any Person, any parent, spouse, child, brother, sister or any other relative with a relationship (by blood, marriage or adoption) not more remote than first cousin to such Person.

“Issue Date” means the date of this Note.

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3(a).

“Maturity Date” means December 4, 2019.

“Note” means this Secured Promissory Note.

 “Person” means any individual, corporation, limited liability company, partnership, firm, joint venture, association, joint stock company, trust or other entity or 

-3-

organization, including a government or political subdivision or an agency or instrumentality thereof.

“Proceeds” means all proceeds of, and all other profits, products, rents or receipts, in whatever form, arising from the sale, exchange, assignment or other disposition of Collateral.

“Secured Obligations” means the obligations of the Company under this Note, including (i) all Principal and any Interest owing on the Note

“Security Interest” means the security interest of the lenders (including the initial Holder of this Note) in the Collateral securing the Secured Obligations.

“Subsidiaries” means, with respect to any specified Person, any other Person (1) whose board of directors or similar governing body, or a majority thereof, may, directly or indirectly, be elected or appointed by such specified Person, (2) whose management decisions and corporate actions are directly or indirectly subject to the present control of such specified Person, or (3) whose voting securities are more than 50% owned, directly or indirectly, by such specified Person.

“Sellers” has the same meaning as provided for in the Membership Interest Purchase Agreement.

“UCC” means the Uniform Commercial Code as in effect on the date hereof in the State of Nevada; provided, that if by reason of mandatory provisions of law, the perfection or the effect of perfection or non-perfection of the Security Interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than Nevada, “UCC” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection.

2.          Principal; Interest

(a)          Principal.  The entire unpaid Principal shall be paid in a final payment being due on the Maturity Date.  Promptly following the payment in full of this Note, the Holder shall surrender this Note to the Company for cancellation.

(b)          Interest. Interest on the Note shall accrue on the outstanding Principal of the Note at a rate equal to 6% per annum and shall become due on the Maturity Date.  Interest shall be computed on the basis of a 360-day year applied to actual days elapsed.  The rate of interest payable under the Note from time to time shall in no event exceed the maximum rate, if any, permissible under applicable law.  If the rate of interest payable under the Note is ever reduced as a result of the preceding sentence and at any time thereafter the maximum rate permitted by applicable law shall exceed the rate of interest provided hereunder, then the rate provided for hereunder shall be increased to the maximum rate permitted by applicable law for such period as required so that the total 

-4-

amount of interest received by the Holder is that which would have been received by the Holder but for the operation of the preceding sentence.

(c)          Prepayment. The Principal and Interest due hereunder may be prepaid by the Company at any time, in whole or in part, upon five (5) Business Days’ prior notice to Holder, without premium or penalty.

3.          Representations, Warranties and Covenants of the Company.  The Company represents, warrants and covenants to the Holder that:

(a)               The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Nevada with full power and authority (corporate and other) to own, lease and operate its respective properties and conduct its respective business, the Company is duly qualified to do business as a foreign corporation or entity and is in good standing in each jurisdiction in which the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified or be in good standing would not have a material adverse effect on its business, prospects, condition (financial or otherwise), and results of operations of the Company and the Subsidiaries taken as a whole; no proceeding has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification; the Company is in possession of, and operating in compliance with, all authorizations, licenses, certificates, consents, orders and permits from state, federal, foreign and other regulatory authorities that are material to the conduct of its business, all of which are valid and in full force and effect; the Company is not in violation of its charter or bylaws or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any material bond, debenture, note or other evidence of indebtedness, or in any material lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which it is a party or by which it or its properties or assets may be bound, which violation or default would have a material adverse effect on the business, prospects, financial condition or results of operations of the Company; and the Company is not in violation of any law, order, rule, regulation, writ, injunction, judgment or decree of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or over its properties or assets, which violation would have a material adverse effect on the business, prospects, financial condition or results of operations of the Company taken as a whole.

(b)          The Company has all requisite power and authority to execute, deliver, and perform this Note.  All necessary proceedings of the Company have been duly taken to authorize the execution, delivery, and performance of this Note. This Note has been duly authorized, executed, and delivered by the Company, constitutes the legal, valid, and binding obligation of the Company, and is enforceable as to the Company in accordance with its terms.  Except as otherwise set forth in this Note, no consent, authorization, approval, order, license, certificate, or permit of or from, or declaration or filing with, any federal, state, local, or other governmental authority or any court or other tribunal or any other third party is required by the Company for the execution, delivery, or performance of this Note. No consent, approval, authorization or order of or qualification with any court, government or governmental body, domestic or foreign, having jurisdiction over the Company or over its properties or assets and no consent of any third party is required for the execution and delivery of this Note and consummation by the Company 

-5-

of the transactions herein contemplated, except as such may be required under the Securities Act or under state or other securities or blue sky laws, all of which requirements have been, or in accordance therewith will be, satisfied in all material respects.. No consent of any party to any material contract, agreement, instrument, lease, license, arrangement, or understanding to which the Company is a party, or to which its or any of businesses, properties, or assets are subject, is required for the execution, delivery, or performance of this Note; and the execution, delivery, and performance of this Note will not violate, result in a breach of, conflict with, or (with or without the giving of notice or the passage of time or both) entitle any party to terminate or call a default under, entitle any party to receive rights or privileges that such party was not entitled to receive immediately before this Note was executed under, or create any obligation on the part of the Company to which it was not subject immediately before this Note was executed under, any term of any such material contract, agreement, instrument, lease, license, arrangement, or understanding, or violate or result in a breach of any term of the articles of incorporation or by-laws or analogous governing document of the Company (if applicable) or the Company or (if the provisions of this Note are satisfied) violate, result in a breach of, or conflict with any law, rule, regulation, order, judgment, decree, injunction, or writ of any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company of over its properties or assets.

(c)          There is not pending any action, suit, claim, or proceeding against the Company, or any of the Company’s officers or any of the respective properties, assets or rights of the Company, before any court, government or governmental agency or body, domestic or foreign, having jurisdiction over the Company or over the Company’s officers or the properties of the Company, or otherwise that (i) is reasonably likely to result in any material adverse change in the respective business, prospects, financial condition or results of operations of the Company or might materially and adversely affect its properties, assets or rights taken as a whole, (ii) might prevent consummation of the transactions contemplated by this Note, or (iii) alleging violation of any Federal or state securities laws.

 

At the Issue Date, the Collateral shall be free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest and no indebtedness or other obligation of the Company shall rank senior to the Secured Obligations.

 

(d)          (i)          The Company has not, and no person or entity acting on behalf or at the request of the Company has, at any time during the last five years (i) made any unlawful contribution to any candidate for foreign office or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any other applicable jurisdiction.

(ii)          Neither Company, nor, to the best knowledge of the Company, any director, officer, agent, employee, or other person associated with, or acting on behalf of, the Company, has, directly or indirectly: used any corporate funds for unlawful contributions, gifts, entertainment, or other unlawful expenses relating to political activity; 

-6-

made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback, or other unlawful payment.  The Company’s internal accounting controls and procedures are sufficient to cause the Company to comply in all respects with the Foreign Corrupt Practices Act of 1977, as amended

(e)          There are no outstanding loans, advances or guarantees of indebtedness by the Company to, or for the benefit of, any of the officers, directors, or director-nominees of the Company or any of the members of the families of any of them, except as in the Membership Purchase Agreement.

(f)          The Company is not party to any contract, agreement or arrangement other than this Note and as otherwise disclosed to the Holder.

(g)          The execution and delivery by the Company of this Note, the consummation of the transactions contemplated under this Note, and compliance by the Company with any of the provisions under this Note does not and will not conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under or entitle any person or entity to receipt of notice or to a right of consent under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a benefit under, or to any increased, additional, accelerated or guaranteed rights or entitlement of any person or entity under, or result in the creation of any claim on the properties or assets of the Company or any Subsidiary, under any provision of (i) its respective articles of Incorporation or by-laws, (ii) any note, bond, mortgage, indenture, deed of trust, license, lease, contract, commitment, agreement, instrument or arrangement to which the Company or any Subsidiary is a party or by which any of its respective properties or assets are bound, (iii) any license, franchise, permit or other similar authorization held by the Company or any Subsidiary or (iv) any judgment, order or decree or statute, law, ordinance, rule or regulation applicable to the Company or any Subsidiary or its respective properties or assets.

4.          Representations, Warranties and Covenants of Holder.  Holder hereby represents and warrants to the Company as follows:

(a)          Holder is duly organized, validly existing and in good standing under the laws of its state of organization, with all necessary power and authority to execute and deliver this Note, to perform its obligations hereunder, and to consummate the transactions contemplated hereby.

(b)          The execution, delivery and performance of this Note has been duly and validly authorized by the Board of Directors and stockholders of Holder, as required; and Holder has the full legal right, power and authority to execute and deliver this Note and to consummate the transactions contemplated hereby.  No further corporate authorization is necessary on the part of Holder to consummate the transactions contemplated hereby.

-7-

(c)          Holder (i) has had reasonable access to the Company’s SEC Documents, the books and records available at the Company’s offices or as provided or made available by the Company in response to specific requests of Holder and (ii) the Company permitted Holder to make such reasonable inspections thereof as requested.

(d)          Holder understands that the issuance of this Note will not be registered under the Securities Act or the securities laws of any State in reliance upon exemptions from registration contained in the Securities Act and such laws, and the Company’s reliance upon such exemptions is based in part upon the representations, warranties and agreements of Holder contained herein.

(e)          Holder is acquiring this Note for its own account and not for distribution or resale to others, and agrees that it will not sell or otherwise transfer this Note in violation of the Securities Act.

(f)          Holder is an “accredited investor” as defined in the rules and regulations promulgated under the Securities Act.

5.          Events of Default.  If one or more of the following events shall have occurred and be continuing, at the election of Holder and upon Holder’s notice to the Company, an event of default (“Event of Default”) shall be deemed to have occurred:

(a)          the Company shall fail to pay any Principal or Interest on this Note or any fees or any other amount payable hereunder on the Maturity Date;

(b)          the Company shall fail to observe or perform any covenant or agreement in this Note, after notice by Holder to the Company and the failure of the Company to cure such failure within thirty days after receipt of such notice;

(c)          any representation or warranty made by the Company in this Note shall prove to have been incorrect in any material respect when made (or deemed made) and the Company shall have fail to correct such representation or warranty, as of the date it receives notice of such from the Holder, within thirty days after receipt of such notice;

(d)          the Company or any Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or 

-8-

hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing;

(e)          an involuntary case or other proceeding shall be commenced against the Company or any material Subsidiary seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed for a period of 60 days; or an order for relief shall be entered against the Company or any Subsidiary, as applicable, under the federal bankruptcy laws as now or hereafter in effect; and

(f)          the Security Interest shall, for any reason (other than the Holder’s failure to renew the filing of any Uniform Commercial Code financing statement), cease to be a first priority, perfected security interest in and to any Collateral and such event is not remedied within five (5) days after the Company’s notice of such failure; then, and in every such event, the Holder may, by written notice to the Company, declare the Principal (together with accrued Interest thereon and all other amounts owing hereunder) to be immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company; provided, that in the case of any of the Events of Default specified in clause (d) or (e) above, without any notice to the Company or any other act by the Holder, the Principal (together with accrued Interest thereon and all other amounts owing hereunder)  shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Company.

6.          Payments; Extension of Maturity. All payments of Principal and Interest (and all other amounts owing hereunder) to be made by the Company in respect of this Note shall be made in Dollars by wire transfer to an account designated by the Holder by written notice to the Company.  The Company shall be permitted to offset from the amounts due hereunder any amounts due by Holder to the Company.  If the Principal and accrued and unpaid Interest becomes due and payable on any day other than a Business Day, the Maturity Date shall be extended to the next succeeding Business Day and to such payable amounts shall be added the Interest which shall have accrued during such extension period at the rate per annum herein specified.

7.          Replacement of Note.  Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Note, and (in case of loss, theft or destruction) of indemnity reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and (if mutilated) upon surrender and cancellation of this Note, the Company shall make and deliver to the Holder a new note of like tenor in lieu of this Note.  Any replacement note made and delivered in accordance with this Section 7 shall be dated as of the date hereof.

8.          Security Interest and Pledge.

(a)          (i)          The Company hereby pledges and grants to Holder a first priority security interest in and to all Collateral including the Pledged Collateral (as defined below).

(ii)          (A)          The Company hereby pledges and grants to Holder a first priority security interest in and to the following (the “Pledged Collateral”):

-9-

(1)          all outstanding membership interests in AS and in each Oasis LLC;

(2)          all additional membership interests of each Oasis LLC owned of record or beneficially by the Company or any successor in interest thereto or any other securities, options, or rights received by the Company pursuant to any reclassification, reorganization, increase or reduction of capital, or membership interest dividend, attributable to the Pledged Collateral, or in substitution of, or in exchange for, any of the Pledged Collateral; and

(3)          all certificates representing the membership interests referred to in clauses (1) and (2) above.

(B)          All certificates or instruments representing or evidencing the Pledged Collateral shall be delivered to, and held by, the Holder and shall be in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment undated and in blank, all in form and substance satisfactory to the Company, in its reasonable discretion.

(b)          (i)          The Company hereby represents and warrants that upon delivery of the Pledged Collateral to the Holder and upon the filing of UCC financing statements in appropriate form with the UCC filing office located in the State of Nevada, the Security Interest will constitute a perfected first priority security interest in the Collateral under the UCC securing the Secured Obligations and prior to all other liens and rights of others therein.

(ii)          Commencing upon the date hereof, the Company shall not do any of the following:

(A)          change its name, identity or corporate structure in any manner unless the Company shall have given the Holder at least 20 days’ prior written notice thereof and delivered an opinion of counsel with respect to the continued perfected Security Interest; or

(B)          change the location of (1) its respective jurisdiction of organization, (2) its chief executive office or principal place of business, or (3) the locations where it keeps or holds any Collateral, or any records relating thereto unless it shall have given the Holder at least 20 days’ prior notice thereof and delivered an opinion of counsel with respect to the continued perfected Security Interest.

 (iii)          Commencing on the Issue Date, the Company will, from time to time, execute, deliver, file and record any statement, assignment, instrument, document, agreement or other paper and take any other action (including, without limitation, any filings of financings or continuation statements under the UCC) that from time to time may be necessary or desirable, or that the Holder may reasonably request, in order to create, 

-10-

preserve, perfect, confirm or validate the Security Interest, or to enable the Holder to exercise or enforce any of its rights, powers and remedies hereunder with respect to any of the Collateral.  To the extent permitted by applicable law, the Company hereby authorizes, empowers, and directs the Holder, commencing on the Issue Date, to execute and file financing statements or continuation statements without the Company’s signature appearing thereon.

(iv)          Unless and until an Event of Default occurs and is continuing, the Company shall be entitled to exercise any and all voting and other consensual rights pertaining to the Pledged Collateral for any purpose not inconsistent with the terms hereof or the Note.  If an Event of Default occurs and is continuing, all rights of the Company to exercise its voting and other consensual rights to which it would otherwise be entitled to exercise pursuant to this paragraph (iv) hereof shall cease, and all such rights shall thereupon become vested in Holder, who shall thereupon have the sole right to exercise such voting and other consensual rights.  In order to permit the Holder to exercise the voting and other rights which it may be entitled to exercise pursuant to this paragraph (iv), the Company shall, if necessary, upon written notice of Holder, from time to time, execute and deliver to Holder appropriate proxies and other instruments as Holder may reasonably request.

9.          Remedies.          The Holder’s sole remedy in the event of a breach of this Note shall be to enforce the Confession of Judgement attached as an Exhibit to the MPA which shall require the third party neutral appointed on the date hereof by the parties to deliver all of the Assignment of Membership Interests and the Notice of Transfer of Interest Forms deposited with him on the date hereof to the respective Selling Members.

10.          Costs and Expenses.  The Company shall be not responsible for expenses incurred by any Holder in connection with the collection of the Principal and accrued and unpaid Interest under this Note, unless the Company were determined to be in default of the Note.

11.          No Waivers by Delay or Partial Exercise.  No delay by the Holder in exercising any powers or rights hereunder shall operate as a waiver of such power or right, nor shall any single or partial exercise of any power or right preclude other or further exercise thereof, or the exercise of any other power or right hereunder or otherwise.

12.          Further Assurances.  Each party agrees to execute such other documents, instruments, agreements and consents, and take such other actions as may be reasonably requested by the other parties hereto to effectuate the purposes of this Note.

13.          Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed email or facsimile if sent during normal business hours of the recipient, if not, then on the next Business Day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day 

-11-

after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.  All communications shall be sent as follows:

If to the Company:          

CLS Holdings USA, Inc.

11767 S. Dixie Highway, Suite 115

Miami, Florida 33156

Attention: Jeffrey I. Binder

jeff@clslabs.com

If to the Holder:          

Serenity Wellness Enterprises, L.L.C.

10120 W. Flamingo Rd., #4333

Las Vegas, Nevada 89135

Attention:  Dr. Todd Swanson

Telecopy:   (702) 946-0866

If to the Selling

Members:

To the address for each Selling Member set forth on

Schedule 1 hereto

or to such other address or telecopy number as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith.

14.          Amendments and Waivers.  No modification, amendment or waiver of any provision of, or consent required by, this Note, nor any consent to any departure herefrom, shall be effective unless it is in writing and signed by each of the Company and the Holder.  Such modification, amendment, waiver or consent shall be effective only in the specific instance and for the purpose for which given.

15.          Exclusivity and Waiver of Rights.  No failure to exercise and no delay in exercising on the part of any party, any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other right, power or privilege.  The rights and remedies herein provided are cumulative and are not exclusive of any other rights or remedies provided by law.

16.          Invalidity.  Any term or provision of this Note shall be ineffective to the extent it is declared invalid or unenforceable, without rendering invalid or unenforceable the remaining terms and provisions of this Note.

-12-

17.          Headings.  Headings used in this Note are inserted for convenience only and shall not affect the meaning of any term or provision of this Note.

18.          Counterparts.  This Note may be executed in one or more counterparts, each of which shall be deemed an original instrument, but all of which collectively shall constitute one and the same agreement.

19.          Assignment.  This Note and the rights and obligations hereunder shall not be assignable or transferable by the Company without the prior written consent of the Holder. This note may not be sold or transferred unless (1) a registration statement has become and is then effective with respect to such securities, (2) this note is transferred pursuant to rule 144 promulgated under the securities act (or any successor rule) or (3) the company has received an opinion of counsel reasonably satisfactory to it, to the effect that the proposed sale or transfer of such securities is exempt from registration under the securities act and all other applicable state and federal securities laws. Any instrument purporting to make an assignment in violation of this Section 19 shall be void. Any instrument purporting to make an assignment in violation of this Section 19 shall be void.

20.          Survival.  Unless otherwise expressly provided herein, all representations warranties, agreements and covenants contained in this Note shall survive the execution hereof and shall remain in full force and effect until the payment in full of all Principal and accrued and unpaid Interest owing under this Note.

21.          Miscellaneous.  This Note shall inure to the benefit of the Company and the Holder, and all their respective successors and permitted assigns.  Nothing in this Note is intended or shall be construed to give to any other person, firm or corporation any legal or equitable right, remedy or claim under or in respect of this Note or any provision herein contained.

22.          GOVERNING LAW.  THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEVADA (WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAWS PROVISIONS).

23.          CONSENT TO JURISDICTION.

(a)          THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEVADA AND OF COURTS SITTING IN THE STATE OF NEVADA.  THE COMPANY AGREES THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY MUST BE LITIGATED EXCLUSIVELY IN ANY SUCH STATE COURT THAT SITS IN THE COUNTY OF CLARK, AND ACCORDINGLY, THE COMPANY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH LITIGATION IN ANY SUCH COURT.

24.          WAIVER OF JURY TRIAL.   THE COMPANY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A 

-13-

TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE.  THE COMPANY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE HOLDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE HOLDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE HOLDER HAVE BEEN INDUCED TO ENTER INTO THIS NOTE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 24.

25.          Attorneys’ Fees.  In the event that any suit or action is instituted to enforce any provision in this Note, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Note, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

26.          Waiver of Illegality Defense.Each Party hereby acknowledges and agrees that they are fully aware that the possession, distribution, production or transfer of marijuana, or cannabis, and products derived therefrom, is currently prohibited pursuant to federal law and the laws of several other jurisdictions. Each Party hereby agrees to waive any illegality defense with regard to the terms of this Agreement.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK WITH SIGNATURE PAGES TO FOLLOW]

-14-

In Witness Whereof, the undersigned has executed this Note as of the date first above written.

HOLDER:

SERENITY WELLNESS ENTERPRISES, LLC

By:  /s/ Todd V. Swanson          

        Todd V. Swanson, Manager

COMPANY:

CLS Holdings USA, Inc.

By:  /s/ Jeffrey Binder          

Name: Jeffrey Binder

Title:  Chairman and CEO

-15-

SCHEDULE 1

Selling Members

	
Name

	
Address          

	 	
Principal Amount

	 
	
ILJ, LLC

	
10120 W Flamingo Rd, #4333

Las Vegas, NV 89135

 

	 	
$

	
2,474,165.12

	 
	
Benjamin Sillitoe

	
287 Canyon Spirit Drive

Henderson, NV 89012

 

	 	
$

	
291,030.46

	 
	
Debra Freeman

	
9730 Yellow Shadow Avenue

Las Vegas, NV 89149

 

	 	
$

	
555,417.41

	 
	
Gary E. Schnitzer

	
8985 S Eastern Ave., Ste 200

Las Vegas, NV 89123

 

	 	
$

	
76,301.19

	 
	
Sandra L. Smith Johnson

	
7060 Schirlls Street

Las Vegas, NV 89118

 

	 	
$

	
65,176.73

	 
	
Archie C. Perry, Jr.

	
9712 Highridge Dr

Las Vegas, NV 89134

 

	 	
$

	
160,000.00

	 
	
MYJ LLC

	
1111 Dufort Hills Court

Henderson, NV 89002

 

	 	
$

	
26,666.67

	 
	
Nevins Family Trust

	
308 Tudor Rose Court

Las Vegas, NV 89145

 

	 	
$

	
40,000.00

	 
	
Jeffrey B. Hellman

	
15574 Bridgewater Club Blvd.

Carmel, IN  46033

 

	 	
$

	
69,242.42

	 
	
New Direction Ira, Inc FBO Michael Stewart IRA

	
1070 W Century Drive, Ste 101

Louisville, CO 80027

 

	 	
$

	
32,727.27

	 
	
Skyler Green

	
2972 Imperial Purple Ct

Las Vegas, NV 89117

 

	 	
$

	
40,000.00

	 
	
Jennifer Ray Morrison & Jefferson Craig Morrison, Co-Investors

	
411 Una Court

Franklin, TN 37064

 

	 	
$

	
40,000.00

	 
	
Jeffrey T. Hodrick & Sarah E. Hodrick, Co-Investors

	
418 Wild Elm St

Franklin, TN 37064

 

	 	
$

	
40,000.00

	 
	
BIH LLC

	
813 Peachy Canyon Circle

Las Vegas, NV 89144

 

	 	
$

	
40,000.00

	 
	
Thomas Kim

	
76 Sunglow Lane

Las Vegas, NV 89135

 

	 	
$

	
39,272.73

	 
	
Don Decatur

	
5026 W. Mesa Verde Lane

Las Vegas, NV 89139

	 	
$

	
10,000.00

	 

 

-16-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00285-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00285-of-00352.parquet"}]]