Exhibit 10.2

EXECUTION VERSION

 

SUBSCRIPTION AGREEMENT

 

This Subscription Agreement is entered into and dated as of August 21, 2019
(this "Agreement"), by and among KushCo Holdings, Inc., a Nevada corporation
with offices located at 11958 Monarch Street, Garden Grove, CA 92841 (the
"Company") and the Subscribers identified on the Schedule of Subscribers
attached hereto (each, a "Subscriber" and, together, the "Subscribers").
Capitalized terms not defined below shall have the meaning as set forth in
Section 1.1.

 

RECITALS

 

A.          The Company and each Subscriber is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(a)(2) of the Securities Act of 1933, as amended (together with the
rules and regulations promulgated thereunder, the "1933 Act"), and Rule 506 of
Regulation D ("Regulation D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the 1933 Act.

 

B.          The Company is a borrower under that certain Financing Agreement,
dated as of the date hereof, by and among the Company and certain of its
subsidiaries, as borrowers, certain subsidiaries of the Company, as guarantors,
the lenders from time to time party thereto, and Monroe Capital Management
Advisors, LLC ("Monroe"), as administrative agent for the lenders thereunder,
and as collateral agent for the lenders thereunder (as amended, amended and
restated, supplemented or otherwise modified from time to time, the "Financing
Agreement").

 

C.           To induce the Subscribers (or Affiliates thereof) to enter into the
Financing Agreement, the Company wishes to issue, upon the terms and conditions
stated in this Agreement, a warrant to acquire up to that aggregate number of
shares of Common Stock set forth opposite such Subscriber's name in column (3)
on the Schedule of Subscribers, in the form attached hereto as Exhibit A (the
"Warrants") (as exercised, collectively, the "Warrant Shares").

 

D.           Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as Exhibit B (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights with respect to the Registrable Securities (as defined in
the Registration Rights Agreement) under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.

 

E.           The Warrants and the Warrant Shares are collectively referred to
herein as the "Securities."

 

 

 

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Subscriber,
severally and not jointly, agree as follows:

 

ARTICLE I.
DEFINITIONS

 

1.1          Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms shall have the meanings set forth in this
Section 1.1:

 

"1934 Act" means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.

 

"Affiliate" shall have the meaning ascribed to such term in Rule 405 of the 1933
Act.

 

"Business Day" means any day except Saturday, Sunday and any day which is a
federal legal holiday or a day on which banking institutions in the State of New
York are authorized or required by law or other governmental action to close.

 

"Common Stock" means (i) the Company's shares of Common Stock, par value $0.001
per share, and (ii) any share capital into which such Common Stock shall have
been changed or any share capital resulting from a reclassification,
reorganization or recapitalization of such Common Stock.

 

"Designee" means Monroe.

 

"Eligible Market" means the Principal Market, The Nasdaq Capital Market, the
NYSE American, The Nasdaq Global Select Market, The Nasdaq Global Market or The
New York Stock Exchange, Inc.

 

"Governmental Authority" shall mean any: (a) nation, state, commonwealth,
province, territory, county, municipality, district or other jurisdiction of any
nature; (b) federal, state, provincial, local, municipal, foreign or other
government; (c) governmental or quasi-governmental authority of any nature
(including any governmental division, department, agency, commission,
commissioner, bureau, tribunal, instrumentality, official, ministry, fund,
foundation, center, organization, board, unit, body or Person and any court or
other tribunal); or (d) regulatory or self-regulatory organization (including
the Principal Market or other applicable Eligible Market).

 

"Lien" means any mortgage, deed of trust, lien, charge, claim, encumbrance,
security interest, right of first refusal, preemptive right or other
restrictions of any kind.

 

"Person" means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

 

"Principal Market" means OTCQX.

 

"Proceeding" means an action, claim, suit, inquiry, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or, to the Company's knowledge, threatened in
writing.

 

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"Required Holders" means the holders of Warrants representing at least a
majority of the number of shares of Common Stock issuable upon exercise of the
Warrants then outstanding (without taking into account any limitations on the
exercise of the Warrants set forth therein) and shall include the Designee so
long as the Designee or any of its Affiliates holds any Warrants.

 

"SEC Reports" shall mean all reports, schedules, forms, applications and other
documents, together with any amendments required to be made with respect
thereto, required to be filed by the Company under the 1933 Act and the 1934
Act, including pursuant to Section 13(a) or 15(d) thereof, for the two (2) years
preceding the date hereof (or such shorter period as the Company was required by
law or regulation to file such materials).

 

"Subsidiary" has the meaning as set forth in the Financing Agreement.

 

"Trading Day" means any day on which the Common Stock is traded on the Principal
Market, or, if the Principal Market is not the principal trading market for the
Common Stock, then on the principal securities exchange or securities market on
which the Common Stock is then traded; provided that "Trading Day" shall not
include any day on which the Common Stock is scheduled to trade on such exchange
or market for less than 4.5 hours or any day that the Common Stock is suspended
from trading during the final hour of trading on such exchange or market (or if
such exchange or market does not designate in advance the closing time of
trading on such exchange or market, then during the hour ending at 4:00:00 p.m.,
New York time).

 

"Transaction Documents" means this Agreement, the Warrants, the Registration
Rights Agreement and any other documents, certificates or agreements executed or
delivered in connection with the transactions contemplated hereby.

 

ARTICLE II.
PURCHASE AND SALE

 

2.1          Purchase and Sale of the Securities. Subject to the terms and
conditions of this Agreement, each Subscriber agrees, severally and not jointly,
to purchase from the Company, and the Company agrees to sell and issue to each
Subscriber, at the Closing, such Warrants to acquire up to that aggregate number
of Warrant Shares as is set forth opposite such Subscriber's name in column (3)
on the Schedule of Subscribers.

 

2.2          Closing. The issuance of the Warrants pursuant to the terms of this
Agreement (the "Closing") shall take place at the offices of Schulte Roth &
Zabel LLP, 919 Third Avenue, New York, NY 10022, at 10:00 a.m. (New York City
time) on the date hereof, or at such other time and place as the Company and the
Subscribers mutually agree upon in writing (the "Closing Date"). The Closing may
also be undertaken remotely by electronic transfer of Closing documentation. On
the Closing Date, the Company shall deliver to each Subscriber a Warrant
pursuant to which such Subscriber shall have the right to acquire up to such
aggregate number of Warrant Shares as is set forth opposite such Subscriber's
name in column (3) of the Schedule of Subscribers, duly executed on behalf of
the Company and registered in the name of such Subscriber or its designee.

 

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2.3          Tax Matters. To the extent that the parties ascribe a value to the
Warrants, for U.S. federal income tax purposes, the parties agree to treat the
Warrants as being issued in exchange for the Subscriber's commitment to extend
the loans pursuant to the Financing Agreement and the parties agree to amortize
the value ascribed to the Warrants over the term of the Financing Agreement in a
manner comparable to the amortization of original issue discount.

 

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

 

3.1          Representations and Warranties of the Company. The Company hereby
represents and warrants as of the date hereof and as of the Closing Date (except
for representations and warranties that speak as of a specific date, which shall
be made as of such date) to each of the Subscribers, except as set forth in the
Schedules delivered herewith:

 

(a)       Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
respective obligations hereunder and thereunder. Other than the Required
Approvals (as defined in Section 3.1(c)), the execution and delivery by the
Company of each of the Transaction Documents and the consummation by it of the
transactions contemplated hereunder and thereunder have been duly authorized by
all necessary action on the part of the Company and no further consent or action
is required by the Company, or its board of directors or shareholders. Each
Transaction Document has been (or upon delivery will have been) duly executed by
the Company, and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company, enforceable against
the Company, in accordance with its terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies and except as rights to indemnification and to contribution may be
limited by federal or state securities law.

 

(b)       No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Warrants and the Warrant Shares and the reservation for issuance
of the Warrant Shares) do not and will not (x) conflict with or violate any
provision of the Company's or any Subsidiary's certificate or articles of
incorporation, bylaws or other organizational or charter documents, (y) conflict
with, or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, result in the creation of any Lien upon any
of the properties or assets of the Company or any Subsidiary, or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (z) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any Governmental Authority
to which the Company or a Subsidiary is subject (including, without limitation,
foreign, federal and state securities laws and regulations and the rules and
regulations of the Principal Market), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of clause (y)
or (z) above, as would not, reasonably be expected to, (i) result in a material
adverse effect, in or affect the transactions contemplated hereby or the other
Transaction Documents, (ii) adversely affect the legality, validity, binding
effect or enforceability of any Transaction Document, (iii) have or result in a
material adverse effect on the operations, properties, results of operations,
assets, business, liabilities or condition (financial or otherwise) of the
Company and the Subsidiaries, taken as a whole, or (iv) adversely impair the
Company's authority or ability to perform fully on a timely basis its
obligations under any Transaction Document (any of (i), (ii), (iii) or (iv), a
"Material Adverse Effect").

 

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(c)       Filings, Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization, permit or
order of, give any notice to, or make any filing or registration with, any
Governmental Authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
the filing by the Company of a Notice of Sale of Securities on Form D with the
SEC under Regulation D and state and applicable Blue Sky filings (collectively,
the "Required Approvals"). All Required Approvals have been obtained or effected
on or prior to the Closing Date or will be made timely after the Closing Date,
and neither the Company nor any Subsidiary are aware of any facts or
circumstances which might prevent the Company or any Subsidiary from obtaining
or effecting any of the registration, application or filings contemplated by the
Transaction Documents. The Company is not in violation of the requirements of
the Principal Market and has no knowledge of any facts or circumstances which
would reasonably be expected to result in the delisting or suspension of the
Common Stock in the foreseeable future.

 

(d)       Issuance of the Securities. The issuance of the Warrants is duly
authorized and, upon issuance in accordance with the terms of the Transaction
Documents, will be validly issued and, except as set forth in Schedule 3.1(d),
free from all preemptive or similar rights, taxes, Liens and charges with
respect to the issue thereto and will constitute valid and legally binding
obligations of the Company. As of the Closing, the Company shall have reserved
from its duly authorized capital stock not less than the maximum number of
Warrant Shares issuable upon exercise of the Warrants (without taking into
account any limitations on the exercise of the Warrants set forth therein). Upon
exercise in accordance with the Warrants, the Warrant Shares when issued, will
be validly issued, fully paid and nonassessable and free from all preemptive or
similar rights, taxes, Liens and charges with respect to the issue thereof, with
the holders being entitled to all rights accorded to a holder of Common Stock
(as set forth in the applicable charter documents). Subject to the accuracy of
the representations and warranties of the Subscribers in this Agreement, the
offer and issuance by the Company of the Securities is exempt from registration
under the 1933 Act.

 

(e)       Capitalization. The number of shares and type of all authorized,
issued and outstanding capital stock of the Company has been set forth in the
SEC Reports and has changed since the date set forth in the most recent
applicable SEC Report only to reflect exercises of stock options and other
convertible securities that have not been required to be reported by the Company
under the 1934 Act. Without limiting the foregoing, as of the date hereof,
immediately prior to the issuance of the Warrants, the authorized capital stock
of the Company consists of (i) 265,000,000 shares of Common Stock, of which
90,040,693 shares are issued and outstanding, 13,658,000 shares are reserved for
issuance pursuant to issued and outstanding options and 6,988,000 shares are
reserved for issuance pursuant to securities (other than the aforementioned
options) exercisable or exchangeable for, or convertible into, shares of Common
Stock; and (ii) 10,000,000 shares of preferred stock, par value $0.001 per share
("Preferred Stock"), none of which is outstanding. Other than as stated in the
immediately preceding sentence, the Company does not have any outstanding
securities that are exercisable or exchangeable for, or convertible into, shares
of Common Stock. All of such outstanding shares are duly authorized and have
been, or upon issuance will be, validly issued and are fully paid and
nonassessable. Except as set forth in Schedule 3.1(e), no securities of the
Company are entitled to preemptive or similar rights, and no Person has any
right of first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents. There are no securities or instruments containing anti-dilution or
similar provisions that will be triggered by the issuance of the Securities. The
Company does not have any stock appreciation rights, "phantom stock" plans or
agreements or any similar plan or agreement.

 

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(f)       Certain Fees. No brokerage or finder's fees or commissions are or will
be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by this Agreement. The Subscribers shall have no
obligation with respect to any fees or with respect to any claims (other than
such fees or commissions owed by a Subscriber pursuant to written agreements
executed by such Subscriber which fees or commissions shall be the sole
responsibility of such Subscriber, if any) made by or on behalf of other Persons
for fees of a type contemplated in this Section that may be due in connection
with the transactions contemplated by this Agreement. The Company shall
indemnify and hold harmless the Subscribers, their employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as such fees and expenses are incurred.

 

(g)       Private Placement; No Integrated Offering; No General Solicitation; No
Disqualification Events. Assuming in part the accuracy of each Subscriber's
representations and warranties set forth in Sections 3.2(c)-(g), (i) no
registration under the 1933 Act is required for the offer and sale of the
Securities by the Company to the Subscribers under the Transaction Documents,
and (ii) the issuance and sale of the Securities hereunder does not contravene
the rules and regulations of the Principal Market. Assuming in part the accuracy
of the Subscribers' representations and warranties set forth in Section 3.2,
neither the Company, the Subsidiaries, any of their respective Affiliates, nor
any Person acting on their behalf has, directly or indirectly, made any offers
or sales of any Company security or solicited any offers to buy any security,
under circumstances that would require registration of the issuance of any of
the Securities under the 1933 Act, whether through integration with prior
offerings or otherwise or cause this offering of the Securities to require
approval of shareholders of the Company for purposes of the 1933 Act or any
applicable shareholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated. Neither the
Company, the Subsidiaries nor their Affiliates, nor any Person acting on its or
their behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or
sale of the Securities. With respect to Securities to be offered and sold
hereunder in reliance on Rule 506(b) under the 1933 Act ("Regulation D
Securities"), none of the Company, any of its predecessors, any affiliated
issuer, any director, executive officer, other officer of the Company
participating in the offering hereunder, any beneficial owner of 20% or more of
the Company's outstanding voting equity securities, calculated on the basis of
voting power, nor any promoter (as that term is defined in Rule 405 under the
1933 Act) connected with the Company in any capacity at the time of sale, nor
any other Person covered by Rule 506(d) (each, an "Issuer Covered Person" and,
together, "Issuer Covered Persons") is or has been subject to any of the "Bad
Actor" disqualifications described in Rule 506(d)(1)(i) to (viii) under the 1933
Act (a "Disqualification Event"), except for a Disqualification Event covered by
Rule 506(d)(2) or (d)(3). The Company has determined that no Issuer Covered
Person is subject to a Disqualification Event. The Company has complied, to the
extent applicable, with its disclosure obligations under Rule 506(e), and has
furnished to the Subscribers a copy of any disclosures provided thereunder. No
Person has been or will be paid (directly or indirectly) remuneration for
solicitation of Subscribers or potential purchasers in connection with the sale
of any Regulation D Securities. The Company is not aware of any Person that has
been or will be paid (directly or indirectly) remuneration for solicitation of
Buyers or potential purchasers in connection with the sale of any Regulation D
Securities.

 

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(h)       Application of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, interested shareholder, business
combination, poison pill (including any distribution under a rights agreement,
or similar arrangement or plan ) or other similar anti-takeover provision under
the Company's certificate or articles of incorporation, bylaws or other
organizational or charter documents or the laws of its jurisdiction of
incorporation that is or could become applicable to the Subscribers as a result
of the Subscribers and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation as a
result of the Company's issuance of the Securities and the Subscribers'
ownership of the Securities. The Company and its Board of Directors have taken
all necessary action, if any, in order to render inapplicable any shareholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of shares of Common Stock or a change in control of the Company or any
Subsidiary.

 

(i)       Registration Eligibility. The Company is eligible to register the
Registrable Securities for resale by the Subscribers using Form S-1 promulgated
under the 1933 Act.

 

(j)       Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Securities to be sold to each Subscriber
hereunder will be, or will have been, fully paid or provided for by the Company,
and all laws imposing such taxes will be or will have been complied with.

 

(k)       Shell Company Status. The Company is not, and has never been, an
issuer identified in, or subject to, Rule 144(i).

 

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(l)       Investment Company Status. Neither the Company nor any Subsidiary is,
and upon consummation of the sale of the Securities, and for so long any
Subscriber holds any Securities, will be, an "investment company," a company
controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.

 

(m)       U.S. Real Property Holding Corporation. The Company is not, has never
been, and so long as any Securities remain outstanding, shall not become, a U.S.
real property holding corporation within the meaning of Section 897 of the Code
and the Company shall so certify upon any Subscriber's request.

 

(n)       Bank Holding Company Act. Neither the Company nor any of its
Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the
"BHCA") and to regulation by the Board of Governors of the Federal Reserve
System (the "Federal Reserve"). Neither the Company nor any of its Subsidiaries
or affiliates owns or controls, directly or indirectly, five percent (5%) or
more of the outstanding shares of any class of voting securities or twenty-five
percent (25%) or more of the total equity of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve. Neither the
Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.

 

3.2          Representations and Warranties of the Subscribers. Each Subscriber
hereby, as to itself only and for no other Subscriber, represents and warrants
as of the date hereof and as of the Closing Date (except for representations and
warranties that speak as of a specific date, which shall be made as of such
date) to the Company as follows:

 

(a)       Organization; Authority. Such Subscriber is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The execution,
delivery and performance by such Subscriber of the Transaction Documents to
which it is a party have been duly authorized by all necessary action on the
part of such Subscriber. Each of the Transaction Documents to which such
Subscriber is a party has been duly executed by such Subscriber and, when
delivered by such Subscriber in accordance with terms hereof, will constitute
the valid and legally binding obligation of such Subscriber, enforceable against
it in accordance with its terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies.

 

(b)       No Conflicts. The execution, delivery and performance of the
Transaction Documents by such Subscriber and the consummation by such Subscriber
of the transactions contemplated hereby and thereby do not and will not
(i) conflict with or violate any provision of such Subscriber's certificate or
articles of incorporation, bylaws or other organizational or charter documents,
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which such Subscriber is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any Governmental Authority to which
such Subscriber is subject (including, without limitation, foreign, federal and
state securities laws and regulations); except in the case of clause (ii) or
(iii) above, as would not, reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the ability of the Subscriber to
perform its obligations thereunder.

 

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(c)       Investment Intent. Such Subscriber is acquiring the Securities as
principal for its own account for investment purposes and not with a view to
distributing or reselling such Securities or any part thereof in violation of
applicable securities laws, without prejudice, however, to such Subscriber's
right at all times to sell or otherwise dispose of all or any part of such
Securities in compliance with applicable federal and state securities laws.
Nothing contained herein shall be deemed a representation or warranty by such
Subscriber to hold the Securities for any period of time. Such Subscriber
understands that the Securities have not been registered under the 1933 Act, and
therefore the Securities may not be sold, assigned or transferred unless
pursuant to (i) an effective registration statement under the 1933 Act with
respect thereto or (ii) an available exemption from the registration
requirements of the 1933 Act.

 

(d)       Subscriber Status. At the time such Subscriber was offered the
Securities, it was, and at the date hereof it is, and on each date on which it
exercises the Warrants (other than pursuant to a cashless exercise), it will be,
an "accredited investor" as defined in Rule 501(a) under the 1933 Act.

 

(e)       Experience of such Subscriber. Such Subscriber, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Such Subscriber is able to
bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.

 

(f)       General Solicitation. Such Subscriber is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar or any other
general advertisement or, to such Subscriber's knowledge, any other general
solicitation.

 

(g)       Access to Data. Such Subscriber has received and reviewed information
about the Company and has had an opportunity to discuss the Company's business,
management and financial affairs with its management and to review the Company's
facilities. Such Subscriber acknowledges that it has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and its respective
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information that the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment. The foregoing,
however, does not limit or modify the representations and warranties made by the
Company in this Agreement or the SEC Reports or any other provision in this
Agreement or the SEC Reports or the right of the Subscribers to rely thereon.
Such Subscriber has sought such accounting, legal and tax advice as it has
considered necessary to make an informed decision with respect to its
acquisition of the Securities.

 

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(h)       Transfer or Resale. Such Subscriber understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Subscriber shall have delivered to
the Company (if requested by the Company) an opinion of counsel selected by such
Subscriber, reasonably satisfactory to the Company as to such counsel and to the
form of opinion and at the sole expense of such holder, to the effect that such
Securities may be sold, assigned or transferred without registration under the
applicable requirements of the 1933 Act; provided, however, that Schulte Roth &
Zabel LLP shall be deemed reasonably satisfactory to the Company; provided,
further, that no such opinion shall be required to sell, assign or otherwise
transfer all or any portion of such Securities to an Affiliate of the holder of
the Securities, or (C) such Subscriber provides the Company with assurance
reasonably satisfactory to the Company in the form of a customary representation
letter that such Securities are, or can be, sold, assigned or transferred
pursuant to Rule 144 promulgated under the 1933 Act (or a successor rule
thereto) (collectively, "Rule 144"); (ii) any sale of the Securities made in
reliance on Rule 144 may be made only in accordance with the terms of Rule 144;
and (iii) neither the Company nor any other Person is under any obligation to
register the Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.

 

(i)       Reliance on Exemptions. Such Subscriber understands that the
Securities being offered and sold to it in reliance on specific exemptions from
the registration requirements of United States federal and state securities laws
and that the Company is relying in part upon the truth and accuracy of, and such
Subscriber's compliance with, the representations, warranties, agreements,
acknowledgements and understandings of such Subscriber set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Subscriber to acquire the Securities.

 

(j)       No Governmental Review. Such Subscriber understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

 

 - 10 - 

 

 

(k)       Legends. Such Subscriber understands that the certificates or other
instruments representing the Warrants and, until such time as the resale of the
Warrant Shares have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the Warrant
Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):

 

[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN][THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE
1933 ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
1933 ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL SELECTED BY THE
HOLDER, REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD OR SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

 - 11 - 

 

 

Certificates representing the Warrants and Warrant Shares shall not contain such
legend if (i) such Securities are registered for resale on an effective
registration statement under the 1933 Act, (ii) in connection with a sale,
assignment or other transfer, such holder provides the Company with an opinion
of counsel, reasonably satisfactory to the Company as to such counsel and to the
form of opinion and at the sole expense of such holder, to the effect that such
sale, assignment or transfer of the Securities may be made without registration
under the applicable requirements of the 1933 Act; provided, however, that
Schulte Roth & Zabel LLP shall be deemed reasonably satisfactory to the Company;
provided, further, that no such opinion shall be required to sell, assign or
otherwise transfer all or any portion of such Securities to an Affiliate of the
holder of the Securities, or (iii) the Securities are, or can be, sold, assigned
or transferred pursuant to Rule 144 without the requirement for the Company to
be in compliance with the current public information requirement under Rule 144
and without volume or manner of sale restrictions. The Company shall, at its
sole expense, cause its counsel to issue a legal opinion to its transfer agent,
if required by its transfer agent or by a holder of the Securities, to effect
the removal of the legend hereunder. Upon request by the Company or its counsel,
the holder of the Securities shall deliver a customary representation letter to
counsel of the Company in connection with a legend removal pursuant to the
foregoing clause (iii). For the avoidance of doubt no legal opinion shall be
required to sell, assign or transfer the Securities pursuant to Rule 144 or to
remove legends from the Securities when such Securities are eligible to be sold,
assigned, transferred pursuant to Rule 144. The Company shall be responsible for
the fees of its transfer agent and all The Depository Trust Company ("DTC") fees
associated with such issuance. If the Company shall fail for any reason or for
no reason to issue to the holder of the Securities, within two (2) Trading Days
following the delivery by the holder to the Company or its transfer agent of a
certificate representing the Securities issued with a restricted legend (such
date, the "Legend Removal Date" and such failure, a "Legend Removal Failure"), a
certificate without such legend to such holder or to issue such Securities to
such holder by electronic delivery at the applicable balance account at DTC, and
on or after the Legend Removal Date the holder purchases (in an open market
transaction or otherwise) Common Stock relating to the applicable Legend Removal
Failure (a "Legend Buy-In"), then, in addition to all other available remedies
available to such holder, the Company shall, within two (2) Trading Days after
the holder's request and in the holder's discretion, either (i) pay cash to the
holder in an amount equal to the holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased (the "Legend
Buy-In Price"), at which point the obligation of the Company to deliver such
unlegended Securities or to credit the balance account of the Holder or the
Holder's designee at DTC shall terminate, or (ii) promptly honor its obligation
to deliver to the holder such unlegended Securities as provided above and pay
cash to the holder in an amount equal to the excess (if any) of the Legend
Buy-In Price over the product of (A) such number of shares of Common Stock,
times (B) any trading price of the Common Stock selected by the Holder in
writing as in effect at any time during the period beginning on the applicable
Legend Removal Date and ending on the date the Company makes the applicable cash
payment. Nothing shall limit the holder's right to pursue any other remedies
available to it hereunder, at law or in equity, including, without limitation, a
decree of specific performance and/or injunctive relief with respect to the
Company's failure to timely deliver certificates representing shares of Common
Stock (or to electronically deliver such shares of Common Stock) as required
pursuant to the terms hereof. Additionally, if the Company fails for any reason
to deliver to the holder the Warrant Shares subject to an Exercise Notice (as
defined in the Warrant) by the applicable Legend Removal Date, the Company shall
pay to such holder, in cash, as liquidated damages and not as a penalty, for
each $1,000 of Warrant Shares subject to such exercise (based on the Weighted
Average Price (as defined in the Warrant) of the Common Stock on the date of the
applicable Exercise Notice), $10 per Trading Day (increasing to $20 per Trading
Day on the fifth (5th) Trading Day after such liquidated damages begin to
accrue) for each Trading Day after such Legend Removal Date until such Warrant
Shares are delivered or such holder rescinds such exercise.

 

The Company acknowledges and agrees that no Subscriber makes or has made any
representations or warranties with respect to the transactions contemplated
hereby or by any other Transaction Document other than those specifically set
forth in Section 3.2.

 

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

 

4.1          Register; Pledge.

 

(a)       The Company shall maintain at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to each
holder of Securities), a register for each series of the Warrants in which the
Company shall record the name and address of the Person in whose name the
Warrants have been issued (including the name and address of each transferee)
the number of Warrant Shares issuable upon exercise of the Warrants held by such
Person. The Company shall keep the register open and available at all times
during business hours for inspection of any Subscriber or its legal
representatives.

 

 - 12 - 

 

 

(b)       The Company acknowledges and agrees that a Subscriber may from time to
time pledge or grant a security interest in some or all of the Securities in
connection with a bona fide margin agreement secured by the Securities and, if
required under the terms of such agreement, such Subscriber may transfer pledged
or secured Securities to the pledgees or secured parties. Such a pledge or
transfer would not be subject to approval of the Company and no legal opinion of
the pledgee, secured party or pledgor shall be required in connection therewith.
Further, no notice shall be required of such pledge, but Subscriber shall notify
the Company as promptly as practicable prior to any subsequent transfer or
foreclosure. At the appropriate Subscriber's expense, the Company will execute
and deliver such reasonable documentation as a pledgee or secured party of
Securities may reasonably request in connection with a pledge or transfer of the
Securities.

 

4.2          Integration. The Company shall not, and shall use its reasonable
best efforts to ensure that no Affiliate of the Company shall, sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any security
(as defined in Section 2 of the 1933 Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the 1933 Act of the sale of the Securities to the Subscribers or that
would be integrated with the offer or sale of the Securities for purposes of the
rules and regulations of the Principal Market.

 

4.3          Reservation and Listing of Securities. So long as any Subscriber
owns any Warrants, the Company shall take all action necessary to at all times
after the date hereof have authorized, and reserved for the purpose of issuance,
no less than the maximum number of shares of Common Stock issuable upon exercise
of the Warrants then outstanding (without taking into account any limitations on
the exercise of the Warrants set forth in the Warrants) (the "Required Reserve
Amount"). If at any time the number of shares of Common Stock authorized and
reserved for issuance is not sufficient to meet the Required Reserve Amount, the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, including, without limitation, calling a
special meeting of shareholders to authorize additional shares to meet the
Company's obligations under Section 3.1(d) and this Section 4.3, in the case of
an insufficient number of authorized shares, obtain shareholder approval of an
increase in such authorized number of shares, and voting the management shares
of the Company in favor of an increase in the authorized shares of the Company
to ensure that the number of authorized shares is sufficient to meet the
Required Reserve Amount. The Company shall, as applicable (i) prepare and timely
file with the Principal Market an additional shares listing application covering
all of the shares of Common Stock issued or issuable under the Transaction
Documents, (ii) use reasonable best efforts to cause such shares of Common Stock
to be approved for listing on the Principal Market as soon as practicable
thereafter, (iii) provide to the Subscribers evidence of such listing, and
(iv) use reasonable best efforts to maintain the listing of such Common Stock on
the Principal Market or another Eligible Market.

 

 - 13 - 

 

 

4.4          Form D and Blue Sky. The Company shall file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof
to the Subscribers. The Company shall, on or before the Closing Date, take such
action as the Company shall reasonably determine is necessary in order to obtain
an exemption for, or to, qualify the Securities for sale to the Subscribers at
the Closing pursuant to this Agreement under applicable securities or "Blue Sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to the
Subscribers on or prior to the Closing Date. Without limiting any other
obligation of the Company under this Agreement, the Company shall timely make
all filings and reports relating to the offer and sale of the Securities
required under all applicable securities laws (including, without limitation,
all applicable federal securities laws and all applicable "Blue Sky" laws), and
the Company shall comply with all applicable federal, state and local laws,
statutes, rules, regulations and the like relating to the offering and sale of
the Securities to the Subscribers.

 

4.5          Indemnification. In consideration of each Subscriber's execution
and delivery of the Transaction Documents and acquiring the Securities
thereunder and in addition to all of the Company's other obligations under the
Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless each Subscriber and each other holder of the Securities and all of
their shareholders, partners, members, officers, directors, employees and direct
or indirect investors and any of the foregoing Persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to
(a) any misrepresentation or breach of any representation or warranty made by
the Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or (ii) the
status of such Subscriber or holder of the Securities as an investor in the
Company pursuant to the transactions contemplated by the Transaction Documents.
For the avoidance of doubt, clauses (a) and (b) of the preceding sentence are
intended to apply, and shall apply, to direct claims asserted by any Subscriber
against the Company as well as any third party claims asserted by an Indemnitee
(other than a Subscriber) against the Company. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities that is permissible under
applicable law. Except as otherwise set forth herein, the mechanics and
procedures with respect to the rights and obligations under this Section 4.5
shall be the same as those set forth in Section 6 of the Registration Rights
Agreement.

 

 - 14 - 

 

 

4.6          Reporting Status; Financial Information. Until the date on which
the Subscriber shall have sold all of the Securities (the "Reporting Period"),
the Company shall timely file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would no longer require or otherwise permit
such termination. The Company agrees to send the following to each Subscriber
during the Reporting Period: (i) unless the following are filed with the SEC
through EDGAR and are available to the public through the EDGAR system, within
one (1) Business Day after the filing thereof with the SEC, a copy of its Annual
Reports on Form 10-K and Quarterly Reports on Form 10-Q, any interim reports or
any consolidated balance sheets, income statements, shareholders' equity
statements and/or cash flow statements for any period other than annual, any
Current Reports on Form 8-K and any registration statements (other than on Form
S-8) or amendments filed pursuant to the 1933 Act, (ii) unless the following are
either filed with the SEC through EDGAR or are otherwise widely disseminated via
a recognized news release service (such as PR Newswire), on the same day as the
release thereof, facsimile copies of all press releases issued by the Company or
any of its Subsidiaries and (iii) unless the following are filed with the SEC
through EDGAR, copies of any notices and other information made available or
given to the shareholders of the Company generally, contemporaneously with the
making available or giving thereof to the shareholders.

 

ARTICLE V.
CLOSING DELIVERABLES

 

5.1         Closing Deliverables of the Company. At the Closing, the Company
shall deliver to the Subscribers the following:

 

(a)       Officer's Certificate. The representations and warranties of the
Company shall be true and correct in all respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date which shall be true and correct
as of such specified date) and the Company shall have performed, satisfied and
complied in all respects with the covenants, agreements and conditions required
by the Transaction Documents to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. Such Subscriber shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
the Closing Date, to the foregoing effect in the form attached hereto as
Exhibit C.

 

(b)       Secretary's Certificate. Such Subscriber shall have received a
certificate, executed by the Secretary of the Company, dated as of the Closing
Date, to (w) the resolutions consistent with Section 3.1(a) as adopted by the
Company's Board of Directors in a form reasonably acceptable to such Subscriber,
(x) the Company's Articles of Incorporation, (y) the Company's Bylaws and (z)
the incumbency and specimen signature of each officer of the Company who may
sign this Agreement and the other Transaction Documents, and as to such other
matters as may be reasonably requested by such Subscriber in the form attached
hereto as Exhibit D.

 

(c)       Transaction Documents. The Company shall have duly executed and
delivered to such Subscriber (A) each of the Transaction Documents and (B) such
Warrants (for such aggregate number of shares of Common Stock as is set forth
across from such Subscriber's name in column (3) of the Schedule of
Subscribers).

 

(d)       Legal Opinions. Such Subscriber shall have received the opinions of
(i) Reed Smith LLP and (ii) Holley, Driggs, Walch, Fine, Puzey, Stein &
Thompson, Ltd., the Company's outside counsels, each dated as of the Closing
Date, in the forms attached hereto as Exhibit E1 and Exhibit E2, respectively.

 

 - 15 - 

 

 

ARTICLE VI.
MISCELLANEOUS

 

6.1          Fees and Expenses. The Company shall reimburse Monroe or its
designee(s) (in addition to any other expense amounts paid to any Subscriber
prior to the date of this Agreement) for all reasonable actual costs and
expenses incurred in connection with the transactions contemplated by the
Transaction Documents (including all reasonable legal fees and disbursements in
connection therewith and documentation and implementation of the transactions
contemplated by the Transaction Documents) on or prior to the Closing, which
amount shall be paid by the Company at the Closing. The Company shall pay, and
hold each Subscriber harmless against, any liability, loss or expense
(including, without limitation, reasonable attorney's fees and out-of-pocket
expenses) arising in connection with any claim relating to any payment,
including, without limitation, any placement agent's fees, financial advisory
fees, or broker's commissions (other than for any Persons engaged by any
Subscriber) relating to or arising out of the transactions contemplated hereby.
Except as otherwise set forth in the Transaction Documents, each party to this
Agreement shall bear its own expenses in connection with the sale of the
Securities to the Subscribers.

 

6.2          Entire Agreement; Amendments. This Agreement and the other
Transaction Documents supersede all other prior oral or written agreements
between the Subscribers, the Company, their Affiliates and Persons acting on
their behalf with respect to the matters discussed herein, and this Agreement
and the other Transaction Documents contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor any Subscriber
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the Required Holders, and any
amendment to this Agreement made in conformity with the provisions of this
Section 6.2 shall be binding on all Subscribers and holders of Securities. No
provision hereof may be waived other than by an instrument in writing signed by
the party against whom enforcement is sought. No such amendment shall be
effective to the extent that it applies to less than all of the holders of the
applicable Securities then outstanding. The Company has not, directly or
indirectly, made any agreements with any Subscribers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents. Without limiting the foregoing, the
Company confirms that, except as set forth in this Agreement and the Financing
Agreement, no Subscriber has made any commitment or promise or has any other
obligation to provide any financing to the Company or otherwise. No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration (other than the reimbursement of legal fees) also
is offered to all of the parties to the Transaction Documents or holders of the
Warrants, as the case may be.

 

 - 16 - 

 

 

6.3          Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon delivery, when
delivered personally; (ii) upon delivery, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); (iii) upon delivery, when sent by electronic
mail (provided that the sending party does not receive an automated rejection
notice) or (iv) one (1) Business Day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses, facsimile numbers and email addresses for such
communications shall be:

 

If to the Company:

KushCo Holdings, Inc.

11958 Monarch Street

Garden Grove, California 92841

Telephone:        (714) 462-4603

Attention:          Arun Kurichety

Email:                 arun.kurichety@kushco.com

    With a copy (for information purposes only) to:

Burns & Levinson LLP

125 Summer Street

Boston, MA 02110

Telephone:        (617) 345-3000

Facsimile:          (617) 345-3299

Attention:           Frank A. Segall, Esq.

Email:                 fsegall@burnslev.com

    If to the Transfer Agent

Action Stock Transfer Corporation

2469 E. Fort Union Blvd, Suite 214

Salt Lake City, UT 84121

Telephone:       (801) 274-1088

Attention:          Justeene Blankenship

Email:                 jb@actionstocktransfer.com

    If to a Subscriber: To its address and facsimile number set forth on the
Schedule of Subscribers, with copies to such Subscriber's representatives as set
forth on the Schedule of Subscribers.

 

 - 17 - 

 

 

With a copy (for information purposes only) to:

Schulte Roth & Zabel LLP

919 Third Avenue

New York, NY 10022

Telephone:       (212) 756-2000

Facsimile:          (212) 593-5955

Attention:          Ji Hye You, Esq.

Email:                 jihye.you@srz.com

 

or such other address as may be designated in writing hereafter, in the same
manner, by such Person by two (2) Business Days' prior notice to the other party
in accordance with this Section 6.3. Written confirmation of receipt (A) given
by the recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine or
email transmission containing the time, date, recipient facsimile number or
e-mail address and an image of the first page of such transmission or (C)
provided by a courier or overnight courier service shall be rebuttable evidence
of personal service, receipt by facsimile or receipt from a nationally
recognized overnight delivery service in accordance with clause (i), (ii) or
(iii) above, respectively.

 

6.4          Construction. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. No specific representation or warranty shall limit
the generality or applicability of a more general representation or warranty.
The parties agree that each of them and/or their respective counsel has reviewed
and had an opportunity to revise the Transaction Documents and, therefore, the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of the Transaction Documents or any amendments hereto.

 

6.5          Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Subscribers. Any Subscriber may assign
its rights under this Agreement to any Person to whom such Subscriber assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof and
of the applicable Transaction Documents that apply to the "Subscribers."
Notwithstanding anything to the contrary herein, Securities may be pledged to
any Person in connection with a bona fide margin account or other loan or
financing arrangement secured by such Securities.

 

6.6          No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Indemnitee is an intended third party
beneficiary of Section 4.5 and may enforce the provisions of such
Sections directly against the parties with obligations thereunder.

 

 - 18 - 

 

 

6.7          Governing Law; Venue; Process Agent; Waiver of Jury Trial. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York (except for matters governed by
corporate law in the State of Delaware), without regard to the principles of
conflicts of law thereof. Each party agrees that all legal Proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this agreement (whether brought against a party hereto or its
respective Affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York, Borough of Manhattan. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, Borough of Manhattan for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of this
Agreement). Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such Proceeding by mailing a
copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.

 

6.8          Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and/or exercise of
the Securities, as applicable.

 

6.9          Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission or by an e-mail which contains a portable
document format (.pdf) filed of an executed signature page, such signature page
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as if
such signature page were an original thereof.

 

6.10        Severability. If any provision of this Agreement is prohibited by
law or otherwise determined to be invalid or unenforceable by a court of
competent jurisdiction, the provision that would otherwise be prohibited,
invalid or unenforceable shall be deemed amended to apply to the broadest extent
that it would be valid and enforceable, and the invalidity or unenforceability
of such provision shall not affect the validity of the remaining provisions of
this Agreement so long as this Agreement as so modified continues to express,
without material change, the original intentions of the parties as to the
subject matter hereof and the prohibited nature, invalidity or unenforceability
of the provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).

 

 - 19 - 

 

 

6.11        Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Subscriber exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Subscriber may rescind or withdraw, in its sole discretion from time to time
upon written notice to the Company, any relevant notice, demand or election in
whole or in part without prejudice to its future actions and rights.

 

6.12        Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Subscribers and the Company will be entitled to specific performance under the
Transaction Documents. Any Person having any rights under any provision of this
Agreement shall be entitled to enforce such rights specifically (without posting
a bond or other security), to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights granted by law.
Furthermore, the Company recognizes that in the event that it fails to perform,
observe, or discharge any or all of its obligations under the Transaction
Documents, any remedy at law may prove to be inadequate relief to the
Subscribers. The Company therefore agrees that the Subscribers shall be entitled
to seek specific performance and/or temporary, preliminary and permanent
injunctive or other equitable relief from any court of competent jurisdiction in
any such case without the necessity of proving actual damages and without
posting a bond or other security.

 

6.13        Payment Set Aside. To the extent that the Company makes a payment or
payments to any Subscriber hereunder or pursuant to any of the other Transaction
Documents or any Subscriber enforces or exercises its rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company or any
Subsidiary by a trustee, receiver or any other person under any law (including,
without limitation, any bankruptcy law, state or federal law, common law or
equitable cause of action), then to the extent of any such restoration the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or setoff had not occurred.

 

6.14        Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

6.15       Replacement of Securities. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.

 

 - 20 - 

 

 

6.16       Payments. Whenever any payment of cash is to be made by the Company
to any Person pursuant to the Transaction Documents, such payment shall be made
in lawful money of the United States via wire transfer of immediately available
funds by providing the Company with prior written notice setting out such
request and such Subscriber's wire transfer instructions; provided that such
Subscriber may elect to receive a payment of cash by a check drawn on the
account of the Company and sent via overnight courier service to such Person at
such address as previously provided to the Company in writing (which address, in
the case of each of the Subscribers, shall initially be as set forth on the
Schedule of Subscribers attached to the Subscription Agreement). Whenever any
amount expressed to be due by the terms of this Warrant is due on any day which
is not a Business Day, the same shall instead be due on the next succeeding day
which is a Business Day.

 

6.17       Most Favored Nations. The Company hereby represents and warrants as
of the date hereof and covenants and agrees that, from the date hereof through
the date that the Parent Note (as defined in the Finance Agreement) is no longer
outstanding (the "MFN Termination Date"), none of the terms offered to any
Person with respect to any warrant to purchase Common Stock issued on the
Closing Date, including, without limitation, the warrants to purchase shares of
Common Stock issued to HB Sub Fund II LLC (including any security subsequently
exchanged therefor), including, without limitation with respect to any consent,
release, amendment, settlement, or waiver relating to any exchange of any such
security (each a "Settlement Document"), is or will be more favorable to such
Person (other than any reimbursement of legal fees) than those of the
Subscribers and the Transaction Documents. If, and whenever during the period
beginning on the date hereof and ending on the MFN Termination Date, the Company
enters into a Settlement Document, then (i) the Company shall provide written
notice thereof to the Subscribers immediately following the occurrence thereof
and (ii) the terms and conditions of this Agreement shall be, without any
further action by any Subscriber or the Company, automatically amended and
modified in an economically and legally equivalent manner such that the
Subscribers shall receive the benefit of the more favorable terms and/or
conditions (as the case may be) set forth in such Settlement Document, provided
that upon written notice to the Company at any time any Subscriber may elect not
to accept the benefit of any such amended or modified term or condition, in
which event the term or condition contained in this Agreement and in the other
Transaction Documents shall apply to such Subscriber as it was in effect
immediately prior to such amendment or modification as if such amendment or
modification never occurred with respect to such Subscriber. The provisions of
this Section 6.17 shall apply similarly and equally to each Settlement Document
entered into on or prior to the MFN Termination Date.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]

 

 - 21 - 

 

 

IN WITNESS WHEREOF, each Subscriber and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.

 

  COMPANY:       KUSHCO HOLDINGS, INC.       By: /s/ Christopher Tedford    
Name: Christopher Tedford     Title: Chief Financial Officer

 

[Signature Page to Subscription Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Subscriber and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.

 

  Monroe Capital private credit fund III LP             By: Monroe Capital
private credit fund IIi LLC,     its general partner               By: /s/  Mike
Meyer       Name: Mike Meyer       Title: Director

 

[Signature Page to Subscription Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Subscriber and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.

 

  Monroe Capital Private Credit fund iiI (Unleveraged) LP             By: Monroe
Capital private credit Fund iIi LLC,     its general partner               By:
/s/  Mike Meyer       Name: Mike Meyer       Title: Director

 

[Signature Page to Subscription Agreement]

 

 

 

 

 

IN WITNESS WHEREOF, each Subscriber and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.

 

  Monroe PRIvate credit Fund A LP             By: Monroe private Credit Fund A
LLC,     its general partner               By: /s/  Mike Meyer       Name: Mike
Meyer       Title: Director

 

[Signature Page to Subscription Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Subscriber and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.

 

  Monroe capital PRIvate credit Fund I LP             By: Monroe CAPital private
Credit Fund I LLC,     its general partner               By: /s/  Mike Meyer    
  Name: Mike Meyer       Title: Director

 

[Signature Page to Subscription Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Subscriber and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.

 

  Monroe CAPITAL PRIvate credit Fund VT LP             By: Monroe CAPITAL
private Credit Fund VT LLC,     its general partner               By: /s/  Mike
Meyer       Name: Mike Meyer       Title: Director

 

[Signature Page to Subscription Agreement]

 

 

 

 

IN WITNESS WHEREOF, each Subscriber and the Company have caused their respective
signature page to this Agreement to be duly executed as of the date first
written above.

 

  MONROE CAPITAL FUND O, LLC         By: /s/  Mike Meyer     Name: Mike Meyer  
  Title: Director

 

[Signature Page to Subscription Agreement]

 

 

 

 

SCHEDULE OF SUBSCRIBERS

 

(1) (2) (3) (4)         Subscriber Address and Telephone Number

Number of

Warrant Shares

Legal Representative's

Address and Facsimile Number

        Monroe Capital Private Credit Fund III LP

Monroe Capital LLC

311 S. Wacker Drive, 64th floor

Chicago, IL 60606

Attention: Mike Meyer

Telephone: 312-523-2393

253,952

Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention:      Ji Hye You, Esq.

Facsimile:       (212) 593-5955
Telephone:    (212) 756-2000

Email: jihye.you@srz.com

Monroe Capital Private Credit Fund III (Unleveraged) LP

Monroe Capital LLC

311 S. Wacker Drive, 64th floor

Chicago, IL 60606

Attention: Mike Meyer

Telephone: 312-523-2393

60,333

Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention:      Ji Hye You, Esq.

Facsimile:       (212) 593-5955
Telephone:    (212) 756-2000

Email: jihye.you@srz.com

Monroe Private Credit Fund A LP

Monroe Capital LLC

311 S. Wacker Drive, 64th floor

Chicago, IL 60606

Attention: Mike Meyer

Telephone: 312-523-2393

71,429

Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention:      Ji Hye You, Esq.

Facsimile:       (212) 593-5955
Telephone:    (212) 756-2000

Email: jihye.you@srz.com

 

 

 

  

Monroe Capital Private Credit Fund I LP

Monroe Capital LLC

311 S. Wacker Drive, 64th floor

Chicago, IL 60606

Attention: Mike Meyer

Telephone: 312-523-2393

42,857

Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention:      Ji Hye You, Esq.

Facsimile:       (212) 593-5955
Telephone:    (212) 756-2000

Email: jihye.you@srz.com

Monroe Capital Private Credit Fund VT LP

Monroe Capital LLC

311 S. Wacker Drive, 64th floor

Chicago, IL 60606

Attention: Mike Meyer

Telephone: 312-523-2393

32,143

Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention:      Ji Hye You, Esq.

Facsimile:       (212) 593-5955
Telephone:     (212) 756-2000

Email: jihye.you@srz.com

Monroe Capital Fund O, LLC

Monroe Capital LLC

311 S. Wacker Drive, 64th floor

Chicago, IL 60606

Attention: Mike Meyer

Telephone: 312-523-2393

39,286

Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Attention:      Ji Hye You, Esq.

Facsimile:       (212) 593-5955
Telephone:    (212) 756-2000

Email: jihye.you@srz.com

Total:   500,000  

 

 

 

 

EXHIBIT A

 

Warrants

 

 

 

 

EXHIBIT B

 

Registration Rights Agreement

  

 

 

 

EXHIBIT C

 

Officer's Certificate

 

 

 

 

EXHIBIT D

 

Secretary's Certificate

  

 

 

 

EXHIBIT E

 

Opinions

 

 

 

 

Schedule 3.1(d)

 

1.Pursuant to the Senior Note issued to HB on April 30, 2019 pursuant to the HB
Agreement (the "HB Note"), HB has the right to receive warrants resulting from
the issuance of warrants by the Company in connection with certain debt
financings, as further described therein.

 

 

 

 

 

Schedule 3.1(e)

 

Preemptive Rights

 

1.Pursuant to the HB Note, HB has the right to receive warrants resulting from
the issuance of warrants by the Company in connection with certain debt
financings, as further described therein.

 

2.Pursuant to Section 4(j) of the Securities Purchase Agreement, dated as of
April 29, 2019, by and between the Company and the Buyers listed therein (the
"Buyers"), the Company granted certain participation rights to the Buyers in
connection with Subsequent Placements (as defined therein).

 

3.Pursuant to the "Purchase Rights" set forth in Section 4(a) of that certain
Warrant issued to HB as of the date hereof, HB is entitled to receive, on an
as-converted basis, options, convertible securities, and rights to purchase
stock, warrants, securities or other property that are otherwise issued to the
record holders of any class of Common Stock of the Company on a pro rata basis.

 

4.Pursuant to the "Purchase Rights" set forth in Section 4(a) of the Warrants
dated as of the date hereof and issued by the Company to the Subscribers, such
Subscribers are entitled to receive, on an as-converted basis, options,
convertible securities, and rights to purchase stock, warrants, securities or
other property that are otherwise issued to the record holders of any class of
Common Stock of the Company on a pro rata basis.