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Item 1.01.
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Entry into a Material
Definitive Agreement.
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On
April 10, 2018, Kush Bottles, Inc. (the “Company”) and KCH Energy, LLC, a Colorado limited liability company and newly
formed wholly-owned subsidiary of the Company (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Summit Innovations, LLC, a Colorado limited liability company (“Summit”), and Mark Driver, in
his capacity as Member Representative, pursuant to which Summit will merge with and into Merger Sub, with Merger Sub as the surviving
corporation. The transaction is expected to close by May 1, 2018, subject to the satisfaction of all closing conditions.
The
consideration payable to the members of Summit (the “Members”) at the closing of the merger will be comprised of an
aggregate of $3.2 million in cash (the “Cash Consideration”) and an aggregate of 1,280,000 shares (the “Share
Consideration”) of the Company’s common stock (the “Common Stock”). The purchase price will be subject
to customary post-closing adjustments with respect to confirmation of Summit’s working capital and indebtedness as of the
closing date. $500,000 of the Cash Consideration and 640,000 shares of Common Stock from the Share Consideration will be
held
back by the Company for a period of 15 months for potential post-closing working capital and/or indemnification claims relating
to, among other things, breaches of representations, warranties and covenants contained in the Merger Agreement.
During
the-one year period following the closing, the Members may become entitled to receive up to an additional 1,280,000 shares of Common
Stock, in the aggregate, based on the performance of the Summit business during that period.
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 the Members, and obligations on the part of the Members 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.
The Merger Agreement may be terminated in certain circumstances, including if the closing has not occurred by May 31, 2018.
The obligation of the parties to close
the merger is subject to closing conditions, including, among others, (i) the absence of legal restraints or prohibitions, (ii)
that the requisite majority of Members have approved the Merger Agreement and the transactions contemplated thereby, (iii) the other
party’s representations and warranties being true and correct (subject to certain materiality exceptions) in all material
respects and the other party having performed in all material respects its obligations under the Merger Agreement, and (iv) the
Company will have completed its due diligence investigation of Summit and, in its sole but reasonable discretion, be satisfied
with the results.
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 Summit. 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 Company’s 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 Summit.