Item 1.01 Entry into a Material Definitive Agreement.
On May 1, 2017, Kush Bottles, Inc. (the Company) and KBCMP, Inc., a Delaware corporation and newly formed wholly-owned subsidiary of the Company (Merger Sub), entered into an Agreement of Merger (the Merger Agreement) with Lancer West Enterprises, Inc, a California corporation, Walnut Ventures, a California corporation, Jason Manasse, an individual, and Theodore Nicols, an individual, pursuant to which each of Lancer West Enterprises, Inc and Walnut Ventures were merged with and into Merger Sub, with Merger Sub as the surviving corporation, resulting in the Companys indirect acquisition of CMP Wellness, LLC, a California limited liability company, which prior to the merger, was owned 100% by Lancer West Enterprises, Inc and Walnut Ventures. CMP Wellness, LLC is a distributor of vaporizers, cartridges and accessories.
The purchase price payable to Jason Manasse and Theodore Nicols at the closing of the merger in exchange for consummating the merger was comprised of an aggregate of $1.5 million in cash, unsecured promissory notes in the aggregate principal amount of approximately $0.77 million, having a one-year maturity, and an aggregate of 7.8 million shares of the Companys common stock. The purchase price is subject to customary post-closing adjustments with respect to confirmation of the levels of working capital and cash held by CMP Wellness, LLC as of the closing. During the-one year period following the closing, Jason Manasse and Theodore Nicols may become entitled to receive up to an additional approximately $1.9 million in cash, in the aggregate, and approximately 4.7 million shares of common stock of the Company, in the aggregate, based on the future performance of CMP Wellness, LLC.
The parties to the Merger Agreement made customary representations and warranties and agreed to customary covenants, including, obligations on the part of the Company to indemnify Jason Manasse and Theodore Nicols, and obligations on the part of Jason Manasse and Theodore Nicols to indemnify the Company, for losses that a party may incur, as a result of, among other things, inaccuracies in or breaches of representations, warranties and covenants of another party.
The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Merger Agreement, a copy of which is filed as Exhibit 2.1 hereto. The Merger Agreement has been included to provide investors with information regarding its terms and is not intended to provide any financial or other factual information about the Company, Merger Sub or CMP Wellness, LLC. In particular, the representations, warranties and covenants contained in the Merger Agreement (i) were made only for purposes of that agreement and as of specific dates, (ii) were made solely for the benefit of the parties to the Merger Agreement, (iii) may be subject to limitations agreed upon by the parties, including being qualified by confidential disclosures made for the purpose of allocating contractual risk between the parties to the Merger Agreement rather than establishing those matters as facts and (iv) may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Companys public disclosures. Accordingly, investors should not rely on the representations, warranties and covenants contained in the Merger Agreement as characterizations of the actual state of facts or condition of the Company, Merger Sub or CMP Wellness, LLC.