Exhibit 10.22

 

EXECUTION COPY

  

SECOND EXCHANGE AGREEMENT

 

This Second Exchange Agreement (the “Agreement”) is entered into as of the 8th
day of November, 2019, by and among KushCo Holdings, Inc., a Nevada corporation
with offices located at 6261 Katella Avenue, Suite 250, Cypress, CA 90630 (the
“Company”) and the investor signatory hereto (the “Holder”), with reference to
the following facts:

 

A.                   Prior to the date hereof, pursuant to that Securities
Purchase Agreement, dated as of April 29, 2019, by and between the Company and
the investors party thereto (as the same has been amended, restated, amended and
restated, supplemented or otherwise modified prior to the date hereof, the
“Securities Purchase Agreement”), the Company issued a senior note (as the same
has been amended, restated, amended and restated, supplemented or otherwise
modified prior to the date hereof, the “Original Note” and together with the
Securities Purchase Agreement, the “Existing Note Documents”) to the Holder, as
the initial holder. Capitalized terms used but not otherwise defined herein
shall have the meanings as set forth in the Securities Purchase Agreement (as
amended hereby) or, as the context may require, the Original Note.

 

B.                    Prior to the date hereof, pursuant to that certain
Exchange Agreement, dated August 21, 2019 (the “First Exchange Agreement”), the
Company exchanged the Original Note for a new senior note (the “Existing Note”)
and a warrant to purchase Common Stock of the Company (the “Existing Warrant”).

 

C.                    As of the date of this Agreement, the Holder is the holder
of the Existing Note issued under the First Exchange Agreement and has not
assigned, transferred or exchanged the Existing Note.

 

D.                   The Company and the Holder desire to amend and waive
certain provisions of the Existing Note Documents and exchange (the “Exchange”
or the “Transaction”) the Existing Note, on the basis and subject to the terms
and conditions set forth in this Agreement, for a new senior note in such
aggregate principal amount as set forth on the signature page of the Holder
attached hereto, in the form attached hereto as Exhibit A (the “New Note”).

 

E.                    The New Note and this Agreement and such other documents
and certificates related thereto are collectively referred to herein as the
“Exchange Documents”.

 

F.                     The Exchange is being made in reliance upon the exemption
from registration provided by Section 3(a)(9) of the Securities Act of 1933, as
amended (the “Securities Act”).

 

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:

 

1.                  Exchange. On the Closing Date (as defined below), subject to
the terms and conditions of this Agreement, pursuant to Section 3(a)(9) of the
Securities Act, the Holder shall convey, assign and transfer the Existing Note
to the Company in exchange for which the Company shall issue the New Note to the
Holder. On the Closing Date, in exchange for the Existing Note, the Company
shall deliver or cause to be delivered to the Holder (or its designee) the New
Note at the address for delivery set forth on the signature page of the Holder
attached hereto. Immediately following the delivery of the New Note to the
Holder (or its designee), the Holder shall relinquish all rights, title and
interest in the Existing Note (including any claims the Holder may have against
the Company related thereto) and assign the same to the Company, and the
Existing Note shall be deemed canceled.

 

 

 

2.                  Ratifications; Incorporation of Terms under Transaction
Documents.

 

(a)               Ratifications. Except as otherwise expressly provided herein,
the Securities Purchase Agreement and each other Transaction Document, is, and
shall continue to be, in full force and effect and is hereby ratified and
confirmed in all respects, except that on and after the date hereof: (i) all
references in the Securities Purchase Agreement to “this Agreement”, “hereto”,
“hereof”, “hereunder” or words of like import referring to the Securities
Purchase Agreement shall mean the Securities Purchase Agreement as amended by
this Agreement, and (ii) all references in the other Transaction Documents to
the “Securities Purchase Agreement”, “thereto”, “thereof”, “thereunder” or words
of like import referring to the Securities Purchase Agreement shall mean the
Securities Purchase Agreement as amended by this Agreement.

 

(b)               Amendments and Incorporation of Terms under Transaction
Documents. Effective as of the date hereof, the Securities Purchase Agreement
and each of the other Transaction Documents are hereby amended as follows (and
any such agreements, covenants and related provisions therein shall be deemed
incorporated by reference herein, mutatis mutandis, as amended as such):

 

(i) The defined term “Notes” is hereby amended to mean the New Note (as defined
herein).

 

(ii) The defined term “Transaction Documents” is hereby amended to include this
Agreement and the other Exchange Documents.

 

(c)               Amendment of First Exchange Agreement; Acknowledgement.
Effective as of the Closing Date, Section 17 of the First Exchange Agreement is
hereby amended to replace “New Note” with New Note (as defined herein). The
Company hereby acknowledges and agrees that, after giving effect to the
foregoing amendment, the MFN Termination Date (as defined in the First Exchange
Agreement) shall not occur until such dates as no New Note (as defined herein)
remains outstanding.

 

3.                  [Intentionally Omitted]

 

4.                  Company Representations and Warranties. As of the date
hereof and as of the Closing Date (as defined below):

 

4.1.            Each of the Company and each of its Subsidiaries are entities
duly organized and validly existing and in good standing under the laws of the
jurisdiction in which they are formed, and have the requisite power and
authority to own their properties and to carry on their business as now being
conducted and as presently proposed to be conducted. Each of the Company and
each of its Subsidiaries is duly qualified as a foreign entity to do business
and is in good standing in every jurisdiction in which the character of the
properties owned or leased by it or the nature of the business conducted by it
makes such qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not reasonably be expected to have a
Material Adverse Effect (as defined below). As used in this Agreement, “Material
Adverse Effect” means any material adverse effect on (i) the business,
properties, assets, liabilities, operations (including results thereof),
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries, taken as a whole, (ii) the transactions contemplated hereby or in
any of the other Exchange Documents or any other agreements or instruments to be
entered into in connection herewith or therewith or (iii) the authority or
ability of the Company or any of its Subsidiaries to perform any of their
respective obligations under any of the Exchange Documents (as defined below).
Other than the Persons (as defined below) set forth on Schedule 4.1, the Company
has no Subsidiaries.

 

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4.2.            Authorization and Binding Obligation. The Company has the
requisite power and authority to enter into and perform its obligations under
this Agreement, the New Note and each of the other agreements entered into by
the parties hereto in connection with the transactions contemplated by the
Exchange Documents and to consummate the Transaction (including, without
limitation, the issuance of the New Note in accordance with the terms hereof and
thereof). As of the Closing Date, the execution and delivery of the Exchange
Documents by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby, including, without limitation, the issuance of
the New Note will have been duly authorized by the Company’s Board of Directors
(or a duly authorized committee thereof) and no further filing, consent, or
authorization will be required by the Company, its Board of Directors or its
shareholders (other than such filings as may be required by any federal or state
securities laws, rules or regulations). This Agreement has been and, as of the
Closing Date, the other Exchange Documents to which the Company is a party will
have been, duly executed and delivered by the Company, and constitute or will
constitute, as applicable, the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
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 laws.

 

4.3.            No Conflict. The execution, delivery and performance of the
Exchange Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the New Note) will not (i) result in a violation of the Articles of
Incorporation (as defined below) or any other organizational documents of the
Company or any of its Subsidiaries, any capital stock of the Company or any of
its Subsidiaries or Bylaws (as defined below) of the Company or any of its
Subsidiaries, (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 the Company or any of its
Subsidiaries is a party and the receipt by the Company of the Required Consents
(as defined below), or (iii) result in a violation of any law, rule, regulation,
order, judgment or decree (including foreign, federal and state securities laws
and regulations and the rules and regulations of the OTCQX (the “Principal
Market”) and including all applicable federal laws, rules and regulations)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries is bound or affected except, in
the case of clause (ii) or (iii) above, to the extent such violations that would
not reasonably be expected to have a Material Adverse Effect.

 

4.4.            No Consents. Except as set forth on Schedule 4.4 (the “Required
Consents”), neither the Company nor any Subsidiary is required to obtain any
consent from, authorization or order of, or make any filing or registration with
(other than such filings as may be required by any federal or state securities
laws, rules or regulations), any Governmental Entity or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its respective obligations under or contemplated by the
Exchange Documents, in each case, in accordance with the terms hereof or
thereof. All consents, authorizations, orders, filings and registrations which
the Company or any Subsidiary is required to obtain pursuant to the preceding
sentence have been or will be obtained or effected on or prior to the Closing
Date, and neither the Company nor any of its Subsidiaries are aware of any facts
or circumstances which might prevent the Company or any of its Subsidiaries from
obtaining or effecting any of the registration, application or filings
contemplated by the Exchange Documents.

 

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4.5.            Securities Law Exemptions. Assuming the accuracy of the
representations and warranties of the Holder contained herein, the offer and
issuance by the Company of the New Note is exempt from registration under the
Securities Act pursuant to the exemption provided by Section 3(a)(9) thereof.

 

4.6.            Status of Existing Note; Issuance of New Note.

 

(a)               The Company has no knowledge that the Existing Note is subject
to dispute and to the knowledge of the Company there is no action based on the
Existing Note that is currently pending in any court or other legal venue and to
the knowledge of the Company no judgments based upon the Existing Note have been
previously entered in any legal proceeding. The Company has not received any
written notice from the Holder or any other person challenging or disputing the
Existing Note, or any portion thereof, and prior to the Exchange, the Company is
unconditionally obligated to pay the entire aggregate principal amount
outstanding under the Existing Note (and any accrued and unpaid interest
thereunder) without defense, counterclaim or offset. Upon the Exchange, the
Company is unconditionally obligated to pay the entire aggregate principal
amount outstanding under the New Note (and any accrued and unpaid interest
thereunder) without defense, counterclaim or offset.

 

(b)               As of the Closing Date, the issuance of the New Note will be
duly authorized and upon issuance in accordance with the terms of the Exchange
Documents shall be validly issued, fully paid and non-assessable and free from
all Liens (as defined in the New Note). By virtue of Section 3(a)(9) under the
Securities Act, the New Note will have a Rule 144 holding period that will be
deemed to have commenced as of the Closing Date (as defined in the Securities
Purchase Agreement), the date of the original issuance of the Original Note to
the Holder. At any time on and after the date hereof, assuming (i) the Holder is
not an affiliate of the Company and (ii) at such time of determination the
Company has not failed to satisfy the requirements of Rule 144(c)(1), including,
without limitation, the failure to satisfy the current public information
requirement under Rule 144(c) (a “Current Public Information Failure”), the New
Note shall not be required to bear any restrictive legend and shall be freely
transferable by the Holder pursuant to and in accordance with Rule 144 of the
Securities Act (“Rule 144”).

 

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4.7.            Transfer Taxes. On the Closing Date, all share transfer or other
taxes (other than income or similar taxes) that are required to be paid in
connection with the issuance of the New Note to be issued to the Holder
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.

 

4.8.            Conduct of Business; Regulatory Permits. Neither the Company nor
any of its Subsidiaries is in material violation of any term of or in default
under its Articles of Incorporation, any certificate of designation, preferences
or rights of any other outstanding series of preferred stock of the Company or
any of its Subsidiaries or Bylaws or their organizational charter, certificate
of formation, memorandum of association, articles of association, Articles of
Incorporation or certificate of incorporation or bylaws, respectively. Neither
the Company nor any of its Subsidiaries is in material violation of any
judgment, decree or order or any statute, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries, and neither the Company
nor any of its Subsidiaries will conduct its business in violation of any of the
foregoing, except in all cases for possible violations which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Without limiting the generality of the foregoing, except as set
forth in the SEC Documents, the Company is not in material violation of any of
the rules, regulations or requirements of the Principal Market and has no
knowledge of any facts or circumstances that could reasonably lead to delisting
or suspension of the Common Stock by the Principal Market in the foreseeable
future. Except as set forth in SEC Documents, during the two years prior to the
date hereof, (i) the Common Stock has been listed or designated for quotation on
the Principal Market, (ii) trading in the Common Stock has not been suspended by
the Securities and Exchange Commission (“SEC”) or the Principal Market and (iii)
the Company has received no communication, written or oral, from the SEC or the
Principal Market regarding the suspension or delisting of the Common Stock from
the Principal Market. The Company and each of its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect, and neither the Company nor any such Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit. There is no agreement, commitment,
judgment, injunction, order or decree binding upon the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries is a party which
has or would reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company or any of its
Subsidiaries, any acquisition of property by the Company or any of its
Subsidiaries or the conduct of business by the Company or any of its
Subsidiaries as currently conducted other than such effects, individually or in
the aggregate, which have not had and would not reasonably be expected to have a
Material Adverse Effect on the Company or any of its Subsidiaries.

 

4.9.            Transactions With Affiliates. Except as set forth in the SEC
Documents or as set forth on Schedule 4.9, none of the officers or directors of
the Company or its Subsidiaries and, to the knowledge of the Company, none of
the employees of the Company or its Subsidiaries is presently a party to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors) required to be disclosed under Item 404 of
Regulation S-K under the Exchange Act.

 

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4.10.        Equity Capitalization.

 

(a)         Definitions:

 

(i)      “Common Stock” means (x) the Company’s shares of common stock, $0.0001
par value per share, and (y) any capital stock into which such common stock
shall have been changed or any share capital resulting from a reclassification
of such common stock.

 

(ii)      “Preferred Stock” means (x) the Company’s blank check preferred stock,
$0.0001 par value per share, the terms of which may be designated by the board
of directors of the Company in a certificate of designations and (y) any capital
stock into which such preferred stock shall have been changed or any share
capital resulting from a reclassification of such preferred stock (other than a
conversion of such preferred stock into Common Stock in accordance with the
terms of such certificate of designations).

 

(b)         Authorized and Outstanding Capital Stock. As of the date hereof, the
authorized capital stock of the Company consists of (A) 265,000,000 shares of
Common Stock, of which 107,360,577 are issued and outstanding and 31,752,472
shares are reserved for issuance pursuant to Convertible Securities (as defined
below) exercisable or exchangeable for, or convertible into, shares of Common
Stock and (B) 10,000,000 shares of Preferred Stock, none of which are issued and
outstanding. No shares of Common Stock are held in the treasury of the Company.

 

(c)         Valid Issuance; Available Shares; Affiliates. All of such
outstanding shares are duly authorized and have been, or upon issuance will be,
validly issued, fully paid and nonassessable. The SEC Documents accurately set
forth, as of the dates referred to therein, the number of shares of Common Stock
that are (A) reserved for issuance pursuant to Convertible Securities (as
defined below) and (B) that are, as of the date referred to therein, owned by
Persons who are “affiliates” (as defined in Rule 405 of the Securities Act and
calculated based on the assumption that only officers, directors and holders of
at least 10% of the Company’s issued and outstanding Common Stock are
“affiliates” without conceding that any such Persons are “affiliates” for
purposes of federal securities laws) of the Company or any of its Subsidiaries.
“Convertible Securities” means any capital stock or other security of the
Company or any of its Subsidiaries that is at any time and under any
circumstances directly or indirectly convertible into, exercisable or
exchangeable for, or which otherwise entitles the holder thereof to acquire, any
capital stock or other security of the Company (including, without limitation,
Common Stock) or any of its Subsidiaries.

 

(d)         Existing Securities; Obligations. Except as disclosed in the SEC
Documents or on Schedule 4.10: (A) none of the Company’s or any Subsidiary’s
shares, interests or capital stock is subject to preemptive rights or any other
similar rights or Liens suffered or permitted by the Company or any Subsidiary;
(B) there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into, or exercisable or exchangeable for, any shares,
interests or capital stock of the Company or any of its Subsidiaries, or
contracts, commitments, understandings or arrangements by which the Company or
any of its Subsidiaries is or may become bound to issue additional shares,
interests or capital stock of the Company or any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, or exercisable
or exchangeable for, any shares, interests or capital stock of the Company or
any of its Subsidiaries; (C) there are no agreements or arrangements under which
the Company or any of its Subsidiaries is obligated to register the sale of any
of their securities under the Securities Act; (D) there are no outstanding
securities or instruments of the Company or any of its Subsidiaries which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (E) neither the Company nor any Subsidiary has any stock
appreciation rights or “phantom stock” plans or agreements or any similar plan
or agreement; and (F) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the New Note.

 

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(e)         Organizational Documents. True, correct and complete copies of the
Company’s Articles of Incorporation, as amended and as in effect on the date
hereof (the “Articles of Incorporation”), and the Company’s Bylaws, as in effect
on the date hereof (the “Bylaws”), and the terms of all Convertible Securities
and the material rights of the holders thereof in respect thereto, are set forth
in, or filed as exhibits to, the SEC Documents, or otherwise set forth on
Schedule 4.10.

 

4.11.        Indebtedness and Other Contracts. Except as disclosed in the SEC
Documents or on Schedule 4.11, neither the Company nor any of its Subsidiaries,
(i) has any outstanding debt securities, notes, credit agreements, credit
facilities or other agreements, documents or instruments evidencing Indebtedness
of the Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound (other than the Senior Secured Documents to
be entered into immediately after consummating the Exchange), (ii) is a party to
any contract, agreement or instrument, the violation of which, or default under
which, by the other party(ies) to such contract, agreement or instrument would
reasonably be expected to result in a Material Adverse Effect, (iii) is in
violation of any term of, or in default under, any contract, agreement or
instrument relating to any Indebtedness, except where such violations and
defaults would not reasonably be expected to result, individually or in the
aggregate, in a Material Adverse Effect (other than the Notes and the Securities
Purchase Agreement), or (iv) is a party to any contract, agreement or instrument
relating to any Indebtedness, the performance of which, in the judgment of the
Company’s officers, has or is expected to have a Material Adverse Effect. Prior
to the date hereof, the Company has repaid, in full, all of the outstanding
obligations under the Current Facility (as defined in the Original Note) and no
outstanding disputes exist between the lenders under the Current Facility and
the Company or any of its Subsidiaries.

 

4.12.        Litigation. Except as set forth in the SEC Documents, there is no
action, claim, suit, investigation or proceeding before any Governmental Entity
pending or, to the knowledge of the Company, threatened against the Company or
its Subsidiaries wherein an unfavorable decision, ruling or finding would
reasonably be expected to, individually or in the aggregate, (i) materially
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, the Exchange Documents or
(ii) have a Material Adverse Effect. The Company is not a party to or subject to
the provisions of any injunction, judgment, decree or order of any court,
regulatory body, administrative agency or other governmental agency or body that
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.

 

4.13.        No Consideration Paid. No consideration, commission or other
remuneration has been paid by the Holder to the Company, its Subsidiaries or any
of their agents or affiliates in connection with the Exchange.

 

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4.14.        Disclosure. Except as disclosed in the Cleansing Filing, the
Company confirms that neither it nor any other Person acting on its behalf has
provided the Holder or its agents or counsel with any information that
constitutes or could reasonably be expected to constitute material, non-public
information concerning the Company or any of its Subsidiaries, other than the
existence of the transactions contemplated by this Agreement and the other
Exchange Documents and any matters disclosed in the Cleansing Filing (as defined
below). The Company understands and confirms that the Holder will rely on the
foregoing representations in effecting transactions in securities of the
Company.

 

5.                  Holder’s Representations and Warranties. As a material
inducement to the Company to enter into this Agreement and consummate the
Exchange, the Holder hereby represents and warrants with and to the Company, as
of the date hereof and as of the Closing Date, as follows:

 

5.1       Reliance on Exemptions. The Holder understands that the New Note is
being offered and exchanged 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 the
Holder’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Holder set forth herein and in the
other Exchange Documents in order to determine the availability of such
exemptions and the eligibility of the Holder to acquire the New Note.

 

5.2       No Governmental Review. The Holder 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 New Note or the
fairness or suitability of the investment in the New Note nor have such
authorities passed upon or endorsed the merits of the offering of the New Note.

 

5.3       Validity; Enforcement. This Agreement and the other Exchange Documents
to which the Holder is a party have been duly and validly authorized, executed
and delivered on behalf of the Holder and shall constitute the legal, valid and
binding obligations of the Holder enforceable against the Holder in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws relating to, or
affecting generally, the enforcement of applicable creditors’ rights and
remedies.

 

5.4       No Conflicts. The execution, delivery and performance by the Holder of
this Agreement and the other Exchange Documents to which the Holder is a party,
and the consummation by the Holder of the transactions contemplated hereby and
thereby will not (i) result in a violation of the organizational documents of
the Holder or (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 the Holder is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws) applicable to the Holder, except
in the case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the ability of the
Holder to perform its obligations hereunder.

 

5.5       Investment Risk; Sophistication. The Holder is acquiring the New Note
hereunder in the ordinary course of its business. The Holder has such knowledge,
sophistication, and experience in business and financial matters so as to be
capable of evaluation of the merits and risks of the prospective investment in
the New Note, and has so evaluated the merits and risk of such investment. The
Holder is an “accredited investor” as defined in Regulation D under the
Securities Act.

 

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5.6       Ownership of Existing Note. The Holder owns the Existing Note free and
clear of any Liens (other than the obligations pursuant to this Agreement, the
Transaction Documents and applicable securities laws) and has the requisite
power and authority to enter into and perform its obligations under this
Agreement and each of the other Exchange Documents to which it is a party and to
consummate the Transaction.

 

5.7       Transfer or Resale. The Holder understands that: (i) the New Note has
not been and is not being registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (A) subsequently registered thereunder, (B) the Holder shall have
delivered to the Company (if requested by the Company) an opinion of counsel, in
a form reasonably acceptable to the Company, to the effect that such New Note to
be sold, assigned or transferred may be sold, assigned or transferred pursuant
to an exemption from such registration, or (C) the Holder provides the Company
with reasonable assurance that such New Note can be sold, assigned or
transferred pursuant to Rule 144; (ii) any sale of the New Note made in reliance
on Rule 144 may be made only in accordance with the terms of Rule 144, and
further, if Rule 144 is not applicable, any resale of the New Note under
circumstances in which the seller (or the Person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with some other exemption under the Securities Act
or the rules and regulations of the SEC promulgated thereunder; and (iii)
neither the Company nor any other Person is under any obligation to register the
New Note under the Securities Act or any state securities laws or to comply with
the terms and conditions of any exemption thereunder. Notwithstanding the
foregoing, the New Note may be pledged in connection with a bona fide margin
account or other loan or financing arrangement secured by the New Note and such
pledge of New Note shall not be deemed to be a transfer, sale or assignment of
the New Note hereunder, and the Holder effecting a pledge of New Note shall not
be required to provide the Company with any notice thereof or otherwise make any
delivery to the Company pursuant to this Agreement or any other Exchange
Document, including, without limitation, this Section 5.7.

 

6.                  Closing; Conditions. Subject to the conditions set forth
below, the Exchange shall take place at the offices of Kelley Drye & Warren LLP,
101 Park Avenue, New York, NY 10178, on the Business Day immediately following
such date as the Company shall have satisfied all conditions to closing below,
or at such other time and place as the Company and the Holder mutually agree
(the “Closing” and the “Closing Date”).

 

6.1.       Condition’s to Holder’s Obligations. The obligation of the Holder to
consummate the Exchange is subject to the fulfillment, to the Holder’s
reasonable satisfaction, prior to or at the Closing, of each of the following
conditions (unless waived by the Holder in writing, prior to the Closing):

 

(a)       Representations and Warranties; Covenants. The representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects (except for those representations and warranties that
are qualified by materiality or Material Adverse Effect, which are accurate in
all respects) on the date hereof and on and as of the Closing Date as if made on
and as of such date (except for representations and warranties that speak as of
a specific date, which are accurate in all material respects (except for those
representations and warranties that are qualified by materiality or Material
Adverse Effect, which are accurate in all respects) as of such specified date).
The Company shall have performed, satisfied and complied in all respects with
the covenants, agreements and conditions required to be performed, satisfied or
complied with by the Company at or prior to the Closing Date.

 

9

 

 

(b)       Issuance of New Note. At the Closing, the Company shall issue the New
Note to the Holder.

 

(c)       No Actions. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or authority or legislative body to enjoin, restrain,
prohibit or obtain substantial damages in respect of, this Agreement or the
consummation of the transactions contemplated by this Agreement.

 

(d)       Proceedings and Documents. All proceedings in connection with the
transactions contemplated hereby and all documents and instruments incident to
such transactions shall be satisfactory in substance and form to the Holder, and
the Holder shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.

 

(e)       No Event of Default. After giving effect to the Exchange, no Event of
Default (as defined in the New Note) or event that with the passage of time or
giving of notice would constitute an Event of Default shall have occurred and be
continuing.

 

(f)       Consents. The Company shall have obtained all governmental, regulatory
or third party consents and approvals (or waiver of such consents or approvals),
if any, necessary for the Exchange, including without limitation, those required
by the Principal Market, if any, and the Required Consents.

 

(g)       Listing. The Common Stock (A) shall be designated for quotation or
listed (as applicable) on the Principal Market and (B) shall not have been
suspended, as of the Closing Date, by the SEC or the Principal Market from
trading on the Principal Market.

 

(h)       Fees. The Company shall have paid, in full, to Kelley Drye & Warren
LLP the Company Expense Amount and all outstanding invoices delivered by Kelley
Drye & Warren LLP to the Company prior to the date hereof.

 

6.2.       Condition’s to the Company’s Obligations. The obligation of the
Company to consummate the Exchange is subject to the fulfillment, to the
Company’s reasonable satisfaction, prior to or at the Closing, of each of the
following conditions (unless waived by the Company in writing, prior to the
Closing):

 

(a)       Representations and Warranties. The representations and warranties of
the Holder contained in this Agreement shall be true and correct in all material
respects (except for those representations and warranties that are qualified by
materiality or material adverse effect, which are accurate in all respects) on
the date hereof and on and as of the Closing Date as if made on and as of such
date (except for representations and warranties that speak as of a specific
date, which are accurate in all material respects (except for those
representations and warranties that are qualified by materiality or material
adverse effect, which are accurate in all respects) as of such specified date).

 

10

 

 

(b)       No Actions. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or authority or legislative body to enjoin, restrain,
prohibit, or obtain substantial damages in respect of, this Agreement or the
consummation of the transactions contemplated by this Agreement.

 

(c)       Proceedings and Documents. All proceedings in connection with the
transactions contemplated hereby and all documents and instruments incident to
such transactions shall be satisfactory in substance and form to the Company and
the Company shall have received all such counterpart originals or certified or
other copies of such documents as the Company may reasonably request.

 

7.                  No Integration. None of the Company, its Subsidiaries, any
of their affiliates, or any Person acting on their behalf shall, directly or
indirectly, make any offers or sales of any security (as defined in the
Securities Act) or solicit any offers to buy any security or take any other
actions, under circumstances that would require registration of the New Note
under the Securities Act or cause this offering of the New Note to be integrated
with such offering or any prior offerings by the Company for purposes of
Regulation D under the Securities Act.

 

8.                  Fees. At the closing, the Company shall pay Kelley Drye &
Warren, LLP (counsel to the Holder) a non-accountable amount of $15,000 for the
costs and expenses incurred by it in connection with preparing and negotiating
this Agreement and the New Note (the “Counsel Expense Amount”).

 

9.                  Holding Period. For the purposes of Rule 144, the Company
acknowledges that the holding period of the New Note may be tacked onto both the
holding period of the Existing Note and the holding period of the Original Note,
and the Company agrees not to take a position contrary to this Section 10. The
Company acknowledges and agrees that assuming (a) the Holder is not an affiliate
of the Company and (b) at such time of determination no Current Public
Information Failure exists, the New Note shall not be required to bear any
restrictive legend and shall be freely transferable by the Holder pursuant to
and in accordance with Rule 144.

 

10.              Blue Sky. The Company shall make all filings and reports
relating to the Exchange required under applicable securities or “Blue Sky” laws
of the states of the United States following the date hereof, if any.

 

11

 

 

11.              Disclosure of Transaction.

 

(a)       On or before the earlier to occur of (i) 5:00 p.m., New York time, on
November 10, 2019 and (ii) the time of filing of the Company’s Annual Report on
Form 10-K for the fiscal year ended August 31, 2019 (the “10-K Filing”), the
Company shall file a Current Report on Form 8-K (including all attachments, the
“8-K Filing”) describing, or include in the 10-K Filing, as applicable, all the
material terms of the transactions contemplated by the Exchange Documents in the
form required by the Exchange Act and attaching this Agreement and the forms of
the New Note (such applicable 10-K Filing and/or 8-K Filing, the “Cleansing
Filing”). From and after the filing of the Cleansing Filing, the Company shall
have disclosed all material, non-public information (if any) provided to the
Holder by the Company or any of its Subsidiaries or any of their respective
officers, directors, employees or agents in connection with the transactions
contemplated by the Exchange Documents. In addition, effective upon the filing
of the Cleansing Filing, the Company acknowledges and agrees that any and all
confidentiality or similar obligations under any agreement, whether written or
oral, between the Company, any of its Subsidiaries or any of their respective
officers, directors, affiliates, employees or agents, on the one hand, and the
Holder or any of its affiliates, on the other hand, relating to the transactions
contemplated by the Exchange Documents, shall terminate.

 

(b)       Except as may be required by the Securities Purchase Agreement or the
New Note, the Company shall not, and the Company shall cause each of its
Subsidiaries and each of its and their respective officers, directors, employees
and agents not to, provide the Holder with any material, non-public information
regarding the Company or any of its Subsidiaries from and after the date hereof
without the express prior written consent of the Holder (which may be granted or
withheld in the Holder’s sole discretion). To the extent that the Company
delivers any material, non-public information to the Holder without the Holder’s
consent, other than as required by the Securities Purchase Agreement or the New
Note, the Company hereby covenants and agrees that the Holder shall not have any
duty of confidentiality with respect to such material, non-public information.
Subject to the foregoing, neither the Company, its Subsidiaries nor the Holder
shall issue any press releases or any other public statements with respect to
the transactions contemplated hereby; provided, however, the Company shall be
entitled, without the prior approval of the Holder, to make any press release or
other public disclosure with respect to such transactions (i) in substantial
conformity with the Cleansing Filing and (ii) as is required by applicable law
and regulations. Notwithstanding anything contained in this Agreement to the
contrary and without implication that the contrary would otherwise be true, the
Company expressly acknowledges and agrees that the Holder shall not have (unless
expressly agreed to by the Holder after the date hereof in a written definitive
and binding agreement executed by the Company and the Holder), any duty of
confidentiality with respect to any material, non-public information regarding
the Company or any of its Subsidiaries.

 

12.              Notices to Holder. All notices to Holder pursuant to the
Securities Purchase Agreement or the New Note shall be delivered in accordance
with the notice instructions set forth on the signature page of the Holder
attached hereto (or such other instructions delivered in writing to the Company
by the Holder from time to time).

 

13.              Termination. If the Transaction is not consummated on or prior
to November 15, 2019, the Holder may terminate this Agreement by written notice
to the Company and this Agreement shall thereafter be null and void, ab initio.

 

12

 

 

14.              Independent Nature of Holder’s Obligations and Rights. The
obligations of the Holder under this Agreement are several and not joint with
the obligations of any other holder of securities of the Company (each, an
“Other Holder”), and the Holder shall not be responsible in any way for the
performance of the obligations of any Other Holder under any other agreement by
and between the Company and any Other Holder (each, an “Other Agreement”).
Nothing contained herein or in any Other Agreement, and no action taken by the
Holder pursuant hereto, shall be deemed to constitute the Holder and Other
Holders as a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Holder and Other Holders are in any way
acting in concert or as a group with respect to such obligations or the
transactions contemplated by this Agreement or any Other Agreement and the
Company acknowledges that, to the best of its knowledge, the Holder and the
Other Holders are not acting in concert or as a group with respect to such
obligations or the transactions contemplated by this Agreement or any Other
Agreement. The Company and the Holder confirm that the Holder has independently
participated in the negotiation of the transactions contemplated hereby with the
advice of its own counsel and advisors. The Holder shall be entitled to
independently protect and enforce its rights, including, without limitation, the
rights arising out of this Agreement, and it shall not be necessary for any
Other Holder to be joined as an additional party in any proceeding for such
purpose.

 

15.              Miscellaneous Provisions. Section 9 of the Securities Purchase
Agreement (as amended hereby) is hereby incorporated by reference herein,
mutatis mutandis.

 

[The remainder of the page is intentionally left blank]

 

13

 

 

IN WITNESS WHEREOF, the Holder and the Company have executed this Agreement as
of the date first set forth on the first page of this Agreement.

 

  COMPANY:       KUSHCO HOLDINGS, INC.       By: /s/ Nicholas Kovacevich    
Name: Nicholas Kovacevich     Title: Chairman and Chief Executive Officer 

 

 

 

 

IN WITNESS WHEREOF, the Holder and the Company have executed this Agreement as
of the date first set forth on the first page of this Agreement.

 

  HOLDER:     Principal Amount of Existing Note:

HB SUB FUND II LLC

   

$21,300,000                           

   

By:

/s/ George Antonopoulos                                            

Principal Amount of New Note:   Name: George Antonopoulos     Title: Authorized
Signatory $23,962,500                                Address for Notices:      
Please deliver any notices other than Pre-Notices to:       777 Third Avenue,
30th Floor
New York, NY 10017
Attention:  Yoav Roth
Facsimile:  (212) 571-1279
E-mail:  investments@hudsonbaycapital.com
Residence:  Cayman Islands       Please deliver any Pre-Notice to:       777
Third Ave., 30th Floor   New York, NY 10017   Facsimile: (646) 214-7946  
Attention: Scott Black   General Counsel and Chief Compliance Officer       with
a copy (for information purposes only) to:       Kelley Drye & Warren LLP
101 Park Avenue
New York, NY 10178
Telephone: 212-808-7540
Facsimile: (212) 808-7897
Attention:  Michael Adelstein, Esq.
Email:  madelstein@kelleydrye.com

 

 

 

  

SCHEDULES TO EXCHANGE AGREEMENT

 

SCHEDULE 4.1

 

Subsidiaries

 

Entity Name Jurisdiction of
Organization Authorized Interests Outstanding Interests Kush Energy, LLC
Colorado Membership interests 100% of membership interests held by KushCo
Holdings, Inc. Kush Supply Co. LLC Nevada Membership interests 100% of
membership interests held by KushCo Holdings, Inc. Celeritas Industries, LLC
Nevada Membership interests 100% of membership interests held by KushCo
Holdings, Inc. Zack Darling Creative Associates, LLC California Membership
interests 100% of membership interests held by KushCo Holdings, Inc. The Hybrid
Creative LLC California Membership interests 100% of membership interests held
by Zack Darling Creative Associates, LLC Koleto Innovations LLC Nevada
Membership interests 100% of membership interests held by KushCo Holdings, Inc.
KIM International Corporation California 10,000,000 shares of a single class of
stock, no par value specified 10,000 shares of stock (all held by KushCo
Holdings, Inc.) KCH Distribution Inc. British Columbia 1 common share 1 share of
common stock (all held by KushCo Holdings, Inc.).

 

SCHEDULE 4.4

 

Required Consents

 

None

 

SCHEDULE 4.9

 

Transactions with Affiliates

 

The Company and its subsidiaries provide customary compensation for the benefit
of present and/or former directors, officers, and employees (including bonuses
and stock option programs), as well as customary benefits and indemnification
arrangements.

 

 

 

 

SCHEDULE 4.10

 

Equity Capitalization

 

Preemptive Rights

 

·Pursuant to the “Purchase Rights” set forth in Section 4(a) of the Existing
Warrant, Holder 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 ·Pursuant to the “Purchase
Rights” set forth in Section 4(a) of those certain Warrants to Purchase Common
Stock dated as of the date hereof and issued by the Company to certain
affiliates and related funds of Monroe Capital Management Advisors, LLC (the
“Specified Warrants”), the holder thereof 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

·Pursuant to the Securities Purchase Agreement, Holder is entitled to
participation rights for any “Subsequent Placement” (as defined therein) under
specified circumstances

·Pursuant to the New Note, the Holder has the right to receive warrants under
specified circumstances under the definition of “Permitted Senior Indebtedness”
(as defined therein)

 

Convertible or Exchangeable Securities

 

·Outstanding options to purchase 12,662,000 shares of common stock of KushCo
Holdings, Inc.

·Outstanding warrants (excluding the Existing Warrant and the Specified Warrants
(defined above) copies of which have been provided to Holder) to purchase
6,988,000 shares of common stock of KushCo Holdings, Inc.

 

SCHEDULE 4.11

 

Other Indebtedness

 

·Indebtedness incurred pursuant to the “Senior Secured Financing Agreement” (as
defined in the New Note)

·The New Note