Kaival Brands Innovations Group Inc (KAVL)

[rstar]

this from most recent $PM 10q - shows $2.35B last qtr for reduced risk product- does that include chew and vape products? back of napkin calcs - say 4b annually is vape rev and 1b of that is $KAVL product x 2.75%= $27.5m annually to kavl pic.twitter.com/Jw6cMNaULZ

— rstar (@sixonehalfdoz) June 15, 2022

https://www.otcmarkets.com/filing/html?id=15764422&guid=pEpwkW-VfXmSJth

https://www.otcmarkets.com/filing/html?id=15888076&guid=-EpwkHI_yPfgcVh


Deed of Licensing Agreement

On June 13, 2022, KBI entered into the PMI Licensing Agreement with PMPSA, effective as of May 13, 2022 (the “PMI Commencement Date”). Pursuant to the PMI Licensing Agreement, KBI granted PMPSA an exclusive irrevocable sublicense to use the Intellectual Property to make, distribute, and sell disposable nicotine e-cigarettes Products based on the Intellectual Property in certain international markets set forth in the PMI Licensing Agreement (the “PMI Markets”). The Company has the exclusive international distribution rights to the Products and, in order to allow KBI to fulfill its obligations set forth in the PMI Licensing Agreement, has contributed the international distribution rights for the PMI Markets to KBI as set forth in a Capital Contribution Agreement dated June 10, 2022. The sublicense granted to PMPSA is exclusive in the PMI Markets and neither KBI nor any of its affiliates can sell, promote, use, or distribute any competing products in the PMI Markets for the duration of the term of the PMI Licensing Agreement and any Sell-Out Period (as defined in the PMI Licensing Agreement). PMSPA shall be responsible for any regulatory filings necessary to sell the Products in the PMI Markets. Both KBI and PMPSA agree to work together in the registration and maintenance of the Intellectual Property, but KBI will bear all cost and expense to implement the registration strategy. Finally, PMPSA has agreed to potential future development services with KBI in the PMI Markets and has been granted certain rights with respect to potential future products.

The initial term of the PMI Licensing Agreement is five (5) years and automatically renews for an additional five-year period unless PMPSA has failed to meet the agreed upon minimum key performance indicators set forth in the PMI Licensing Agreement, in which case the PMI Licensing Agreement will automatically terminate at the end of the initial term.

In consideration for the grant of the licensed rights, PMPSA agrees to pay to KBI a royalty equal to 2.00% to 3.50% of the base price of the first sale of each unit of product manufactured. In addition, before the launch of the first product in a market and each anniversary of such launch, PMPSA agrees to pre-pay to KBI a guaranteed minimum royalty equal to twenty percent (20%) of the estimated royalties payable by PMPSA to KBI in relation to all markets in the twelve (12)-month period following the first launch or each successive anniversary of the first launch, subject to an aggregate maximum guaranteed royalty payment of One Million Dollars ($1,000,000) for all markets for each applicable twelve (12)-month period. PMPSA may require modification of certain products to be sold under the PMI Licensing Agreement to be modified for a PMI Market. Pursuant to the PMI Licensing Agreement, PMPSA has absolute discretion over sales, marketing, product branding and packaging pertaining to sales in the PMI Markets, as well as the right to select the specific PMI Markets in which to launch commercialization and determine what product types are to be promoted in each market, subject to sales and marketing plans and annual business plans set by PMPSA and certain expansion criteria agreed between PMPSA and KBI.

The PMI Licensing Agreement contains customary representations, warranties, covenants, termination, and indemnification provisions; however, KBI’s liability under the PMI Licensing Agreement is capped at the greater of: (i) Ten Million Dollars ($10,000,000); or (ii) an amount equal to the total of the royalties due to KBI (but not yet paid) plus the royalties (including the guaranteed royalty payment) paid to KBI pursuant to the PMI Licensing Agreement during the immediately preceding twelve (12) consecutive months, provided that such amount shall not exceed Thirty Million Dollars ($30,000,000).

In connection with the PMI Licensing Agreement, the Company, Bidi, and PMPSA also entered into a deed of letter (“Deed of Letter”) to require specific performance of the duties and obligations set forth in the PMI Licensing Agreement if KBI is unable or fails to sublicense the intellectual property to PMPSA pursuant to the PMI Licensing Agreement and/or is unable or fails to perform certain of its obligations or grant the rights pursuant to the PMI Licensing Agreement. In addition, the Company, Bidi, and PMPSA entered into a guarantee (“Guarantee”), whereby each of the Company and Bidi guarantees to PMPSA up to 50% of all of KBI’s monetary obligations set forth in the PMI Licensing Agreement if KBI fails to perform or discharge certain of its obligations in the PMI Licensing Agreement.

The above descriptions of the PMI Licensing Agreement, Deed of Letter, and Guarantee do not purport to be complete and are qualified in their entirety by the full text of such documents, which the Company intends to file as exhibits to its Quarterly Report on Form 10-Q for the quarter ended April 30, 2022. The delay in filing the exhibits will provide the parties time to redact certain information set forth in the PMI Licensing Agreement, Deed of Letter, and Guarantee, which the parties were unable to do given the execution of the agreements on the date of filing this Current Report.