Item 1.01
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Entry into a Material Definitive Agreement.
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On
April 29, 2019,
KushCo Holdings, Inc. (the “Company”) entered into a Securities Purchase Agreement (the
“Purchase Agreement”) with an institutional investor (the “Investor”), pursuant to which the Company agreed
to issue and sell, and the Investor agreed to purchase, a Senior Note (the “Note”) in a private placement offering
(the “Private Placement”) in the aggregate principal amount of $21,300,000 with an original issue discount, and received
gross proceeds of $20,000,000 (the “Gross Proceeds”).
The Note will be a senior
unsecured obligation of the Company, and unless earlier redeemed will mature on the 18 month anniversary of the closing of
the Private Placement (the “Maturity Date”). The Note does not bear interest except upon the occurrence of any
event of default, in which case the Note will bear interest at 18% per annum (the “Default Rate”). The offering
is expected to close on or about April 30, 2019, subject to customary closing conditions.
Canaccord Genuity LLC is acting as the
sole placement agent in connection with the Private Placement and will be entitled to a cash fee equal to 4% of the gross proceeds
raised in the Private Placement.
On the Maturity Date, the Company must
repay an amount equal to 120% of the Gross Proceeds. The Notes are redeemable by the Company (i) between the issuance date
and three months following issuance at an amount equal to 106.5% of the Gross Proceeds with respect to outstanding principal and
any accrued interest or late charges, (ii) between three and six months following issuance at an amount equal to 112% of the Gross
Proceeds with respect to outstanding principal and any accrued interest or late charges, (iii) between six and ten months at an
amount equal to 115% of the Gross Proceeds with respect to outstanding principal and any accrued interest or late charges, and
(iv) thereafter through the Maturity Date at an amount equal to 120% of the Gross Proceeds with respect to outstanding principal
and any accrued interest or late charges.
The Note includes customary affirmative
and negative covenants, including a limitation on the Company’s ability to incur additional indebtedness, subject to certain
permitted exceptions. The Note includes customary events of default
including,
among others, payment defaults, breach of covenant defaults, bankruptcy and insolvency defaults, cross defaults with certain indebtedness,
a change of control default, judgment defaults, and inaccuracies of representations and warranties defaults.
The Investor
may require the Company to redeem, upon the occurrence of an event of default, all or a portion of the Note at a redemption
premium of 135% of Gross Proceeds with respect to outstanding principal and any accrued interest or late charges. Any late
payments under the Note will accrue late charges at a rate of 18% per annum, unless such payments are also subject to the Default
Rate.
Pursuant to the Purchase Agreement, the
Company granted to the Investor participation rights for the longer of (i) the second anniversary of the closing of the Private
Placement or (ii) the date when the Note is no longer outstanding, pursuant to which the Investor will receive pro rata rights
to participate in future financing transactions up to an aggregate of 15% of such transactions (or, except for certain permitted
indebtedness, up to an aggregate of 100% of debt issuances).
The foregoing descriptions of the
Purchase Agreement and the Note are summaries only and are qualified in their entirety by the full text of the Purchase
Agreement related to the Private Placement and the form of Note, each of which is filed as an exhibit hereto and
incorporated herein by reference.