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.