UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report: August 19, 2020

 

Kaival Brands Innovations Group, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   000-56016   83-3492907
(State or other jurisdiction of incorporation)   (Commission File Number)   (I.R.S. Employer Identification No.)

 

4460 Old Dixie Highway

Grant, Florida 32949

(Address of principal executive office, including zip code)

 

Telephone: (833) 452-4825

(Registrant’s telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   None

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 

 

Kaival Brands Innovations Group, Inc.
Form 8-K
  

ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT

 

On August 19, 2020 (the “Effective Date”), Kaival Brands Innovations Group, Inc., a Delaware corporation (the “Company”), entered into a Share Cancellation and Exchange Agreement (the “Agreement”) with its controlling stockholder, Kaival Holdings, LLC, a Delaware limited liability company (the “Majority Stockholder”). Nirajkumar Patel and Eric Mosser, our current officers and directors, are the only members of the Majority Stockholder. Prior to entering into the Agreement, the Majority Stockholder owned 504,000,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), which constituted approximately 87.42% of the Company’s issued and outstanding shares of the Common Stock.

 

Pursuant to the Agreement, the Majority Stockholder voluntarily agreed to, and subsequently has, returned to the Company 300,000,000 shares of the Company’s Common Stock (the “Cancellation Shares”), which Cancellation Shares have now been cancelled and retired by the Company.

 

As a result of returning the Cancellation Shares to the Company, and the subsequent cancellation and retirement of the Cancellation Shares, the Company now has 276,495,148 shares of the Common Stock issued and outstanding, of which 204,000,000 shares are held by the Majority Stockholder, constituting approximately 73.78% of the issued and outstanding shares of the Common Stock.

 

In exchange for the Cancellation Shares the Company issued 3,000,000 shares (the “Preferred Shares”) of its newly designated Series A Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”) to the Majority Stockholder. The exchange of the Cancellation Shares and the issuance of the Preferred Shares is intended to comply with Section 3(a)(9) of the Securities Act of 1933, as amended (the “Act”), in that the issuance is exempt from the registration requirements of the Act because the exchange of the Cancellation Shares for the Preferred Shares was an exchange between the Company, as issuer, with an existing stockholder, and no commission or other remuneration was paid or given directly for the exchange.

 

In connection with the entering into of the Agreement, on the Effective Date, the Company’s Board of Directors approved the cancellation and retirement of the Cancellation Shares and directed the Company’s transfer agent, Mountain Share Transfer, Inc., to (i) cancel and retire the Cancellation Shares and return such shares to the status of authorized and unissued shares of the Company’s Common Stock and (ii) issue the Preferred Shares to the Majority Stockholder.

 

The foregoing description of the Agreement and does not purport to be a complete description of the terms of the Agreement and is qualified in its entirety by the full text of the Agreement, which is filed as Exhibit 10.1 hereto and incorporated herein by reference.

 

Item 3.02. Unregistered Sale of Equity Securities

 

The information set forth under Item 1.01 above and Item 5.03 below are incorporated by reference into this Item 3.02

  

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year

 

On August 19, 2020, upon approval by the Company’s Board of Directors, the Company filed a Certificate of Designation of Preferences, Rights, and Limitations of the Series A Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Delaware, which authorizes a total of 3,000,000 shares, par value $0.01 per share, of Series A Preferred Stock. The Certificate of Designation sets forth the following terms:

 

Liquidation Preference. If the Company liquidates, dissolves, or winds up, holders of the Series A Preferred Stock will have the right to receive an amount equal to $1.00 in the aggregate for all issued and outstanding shares of Series A Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations, and the like with respect to such shares) (the “Preference Value”). After the payment of the full applicable Preference Value of the then issued and outstanding shares of the Series A Preferred Stock, the remaining assets of the Company legally available for distribution, if any, will be distributed ratably to the holders of the Company’s Common Stock.

 

Dividends. The holders of the Series A Preferred Stock do not have any preferential dividend rights and are entitled to receive dividends, if any, only if, when, and as declared by the Board of Directors in its sole and absolute discretion.

 

Voting Rights. The holders have the Series A Preferred Stock do not have any voting rights.

 

Conversion Rights. Each share of Series A Preferred Stock is convertible into 100 shares of Common Stock. The holders have the Series A Preferred Stock may convert their Series A Preferred Stock at any time on or after November 1, 2023. Notwithstanding the foregoing, the holders of the Series A Preferred Stock may convert their shares of Series A Preferred Stock prior to November 1, 2023 if a change of control (as provided for in the Certificate of Designation) or upon the occurrence of any other event as determined and agreed to by the Company and the holders holding a majority of the issued and outstanding shares of Series A Preferred Stock. The shares of Common Stock to be issued upon conversion will bear a restricted legend.

 

Ranking. All series of preferred stock, whether now or hereafter designated, may by their respective terms have a preference over the Series A Preferred Stock in respect of distribution upon liquidation, dividends, or any other right or matter.

 

The foregoing description of the terms pertaining to the Series A Preferred Stock is not complete and is qualified in its entirety by reference to the full text of the Certificate of Designation, a copy of which is filed as Exhibit 3.1 to this Current Report on Form 8-K and incorporated by reference herein. 

 

ITEM 7.01 REGULATION FD DISCLOSURE

 

On August 21, 2020, the Company issued a press release announcing its entry into the Agreement and the issuance of 3,000,000 shares of its Series A Preferred Stock. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K (the “Current Report”).

 

The information in Exhibit 99.1 shall not be deemed as “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of such Section, nor shall it be deemed incorporated by reference in any filing by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, regardless of any general incorporation language in such filing, unless expressed incorporated by specific reference in such filing.

 

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

 

(d) Exhibits

 

Exhibit Number   Description of Exhibit
3.1   Certificate of Designation of the Preferences, Rights, and Limitations of the Series A Preferred Stock (1)
     
10.1   Share Cancellation and Exchange Agreement, dated August 19, 2020, by and between the Company and Kaival Holdings, LLC (1)
     
99.1   Press Release of Kaival Brands Innovations Group, Inc., dated August 21, 2020 (1)

 

(1) Filed herewith.

 

2

 
 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Kaival Brands Innovations Group, Inc.
     
Dated: August 21, 2020 By: /s/ Nirajkumar Patel
    Nirajkumar Patel
    Chief Executive Officer,
Chief Financial Officer, and Director

 

 

3

 

 

 

 

 

CERTIFICATE OF DESIGNATION

OF THE PREFERENCES, RIGHTS, AND LIMITATIONS

OF THE

SERIES A PREFERRED STOCK

OF

KAIVAL BRANDS INNOVATIONS GROUP, INC.

The undersigned, the Chief Executive Officer of Kaival Brands Innovations Group, Inc., a Delaware corporation (the “Company”), in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, as amended, does hereby certify that, pursuant to the authority conferred upon the Board of Directors (the “Board”) by the Amended and Restated Certificate of Incorporation of the Company, as subsequently amended (the “Certificate of Incorporation”), the following resolution designating a new series of preferred stock, was duly adopted on August 19, 2020, as follows:

RESOLVED, that, pursuant to the authority expressly granted to and vested in the Board of the Company by provisions of its Certificate of Incorporation, the Board hereby fixes the designations, powers, preferences, and relative and other special rights of that certain series of the Company’s preferred stock, par value $0.001 per share, named “Series A Preferred Stock” and all of the qualifications, limitations, and restrictions, each as set forth hereinbelow:

Section 1. Designation; Ranking. A series of preferred stock is hereby designated as the Company’s Series A Preferred Stock (the “Series A Preferred Stock”). All series of preferred stock, whether now or hereafter designated, may by their respective terms have a preference over the Series A Preferred Stock in respect of distribution upon liquidation, dividends, or any other right or matter.

Section 2. Number. The number of shares so designated shall be up to three million (3,000,000) shares, par value $0.001 per share, and such amount may not be increased except by the favorable vote or the written consent of the holders of at least a majority of the issued and outstanding shares of Series A Preferred Stock or by a resolution of the Board. Such number of shares may be decreased by the written consent of the holders of at least a majority of the issued and outstanding shares of Series A Preferred Stock or by a resolution of the Board; provided, however, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of the shares then outstanding plus the number of shares issuable upon exercise of outstanding rights, options, or warrants or upon conversion of outstanding securities issued by the Company.

Section 3. Dividends. The holders of the Series A Preferred Stock do not have any preferential dividend rights and shall be entitled to receive dividends, if any, only if, when, and as declared by the Board in its sole and absolute discretion.

Section 4. Voting Rights. The holders of the Series A Preferred Stock shall have no voting rights.

Section 5. Conversion. The Holders of the Series A Preferred Stock shall have the following conversion rights (the “Conversion Rights”):

a)      Right to Convert. At any time on or after November 1, 2023, each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof. Notwithstanding the foregoing, the holders of Series A Preferred Stock shall be entitled to convert their shares of Series A Preferred Stock prior to November 1, 2023 if any of the following events occur: (i) a Change of Control (as defined below) or (ii) any other event as determined and agreed to by the Company and by the holders holding a majority of the issued and outstanding shares of Series A Preferred Stock. Each share of the Series A Preferred Stock shall be convertible (the “Series A Preferred Stock Conversion Formula”) into one hundred shares of common stock, par value $0.001 per share (the “Common Stock”). In the event that the Company has not maintained sufficient shares of Common Stock to allow for the conversion, at the time of a conversion election, the Company agrees to forthwith take necessary steps to amend its Certificate of Incorporation to provide for sufficient authorized Common Stock to allow for conversion. Any converting holder shall effect a conversion by providing the Company with a completed and executed form of conversion notice attached hereto as Annex A (a “Notice of Conversion”). Each Notice of Conversion shall specify the number of shares of Series A Preferred Stock to be converted, the number of shares of Series A Preferred Stock owned prior to the conversion at issue, the number of shares of Series A Preferred Stock owned subsequent to the conversion at issue, and the date on which such conversion is to be effected, which date may not be prior to the date the applicable holder delivers in a manner permitted by Section 8(a), below, such Notice of Conversion to the Company (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Company is deemed delivered hereunder. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect conversions of shares of Series A Preferred Stock, a holder shall not be required to surrender the certificate(s) representing the shares of Series A Preferred Stock to the Company unless all of the shares of Series A Preferred Stock represented thereby are so converted, in which case such holder shall deliver the certificate representing such shares of Series A Preferred Stock promptly following the Conversion Date at issue. Shares of Series A Preferred Stock converted into Common Stock in accordance with the terms hereof shall be canceled and shall not be reissued. For purposes hereof, the term “Change of Control” means (i) any sale, lease, or transfer or series of sales, leases, or transfers of all or substantially all of the assets of the Company and its subsidiaries, if any; (ii) any sale, transfer, or issuance or series of sales, transfers, or issuances, of capital stock of the Company or the holders of Common Stock (or other voting stock of the Company) that results in the inability of the holders of the Common Stock (or other voting stock of the Company) immediately prior to such sale, transfer, or issuance to designate or elect a majority of the board of directors (or its equivalent) of the Company; or (iii) any merger, consolidation, recapitalization, or reorganization of the Company with or into another entity (whether or not the Company is the surviving corporation) that results in the inability of the holders of Common Stock (or other voting stock of the Company) immediately prior to such merger, consolidation, recapitalization, or reorganization to designate or elect a majority of the board of directors (or its equivalent) of the resulting entity or its parent company.

b)      Fractional Shares. No fractional shares of Common Stock shall be issued upon any conversion of the Series A Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Company shall pay the holder cash equal to the product of such fraction multiplied by the Common Stock’s Fair Market Value. The Company shall, as soon as practicable after the conversion time, deliver to the holders of the Series A Preferred Stock, or to their nominees, cash in lieu of any fraction of a share. For purposes hereof, “Fair Market Value” of a share of Common Stock as of a particular date (the “Determination Date”) shall mean:

i.        If the principal market for the Company’s Common Stock is a national securities exchange or is a market operated by The OTC Markets Group Inc. or any successor, then the average of the closing sale prices of the Common Stock for the thirty (30) trading days immediately prior to (but not including) the Determination Date;

ii.      If the principal market for the Company’s Common Stock is not a national securities exchange, then the average of the closing bid and ask prices reported for the thirty (30) trading days immediately prior to (but not including) the Determination Date;

iii.    Except as provided in clause (iv) below, if the Fair Market Value of the Company’s Common Stock cannot be determined as provided above, then as determined by the Company’s Board; or

iv.    If the Determination Date is the date of a Liquidation Event, then all amounts to be payable per share to holders of the Common Stock pursuant to the Certificate of Incorporation in the event of such Liquidation Event, plus all other amounts to be payable thereunder per share in respect of the Common Stock upon the Liquidation Event, assuming for the purposes of this clause (iv), that all of the shares of Common Stock then issuable upon conversion of all of the Series A Preferred Stock and all other classes or series of stock that are convertible into the Common Stock are not senior to the Series A Preferred Stock in respect of the rights that accrue by virtue of such Liquidation Event are outstanding at the Determination Date. In no event shall any payment be made to the holders of the Series A Preferred Stock unless and until all payment to be made or claims to be satisfied with respect to all other classes or series of stock (whether or not convertible into the Common Stock) that are senior to the Preferred Stock in respect of the rights that accrue by virtue of such Liquidation Event have been made or satisfied.

c)      No Impairment. The Company shall not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all time in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the rights, preferences, and privileges of the holders of the Series A Preferred Stock against impairment.

d)     Mechanics of Conversion. Before any holder of Series A Preferred Stock shall be entitled to convert shares of Series A Preferred Stock into share of the Common Stock in connection with a conversion pursuant to Section 5(a), the holder shall surrender the certificate for such shares of Series A Preferred Stock (or, if such holder alleges that such certificate has been lost, stolen, or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Company to indemnify the Company against any claim that may be made against the Company on account of the alleged loss, theft, or destruction of such certificate), at the office of the transfer agent for the Series A Preferred Stock (or at the principal office of the Company if the Company serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Series A Preferred Stock represented by such certificate and, if applicable, any event on which such conversion is contingent. The notice shall state the holder’s name or the name(s) of the person(s) in which holder wishes the certificate or certificates for shares of the Common Stock to be issued. If required by the Company, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form reasonably satisfactory to the Company, duly executed by the holder or his, her, or its attorney duly authorized in writing.

e)      Taxes Upon Conversion. The Company shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of the Common Stock on conversion of shares of Series A Preferred Stock pursuant to this Section 5(e). The Company shall not, however, be required to pay any tax that might be payable in respect of any transfer involved in the issuance and delivery of shares of the Common Stock in a name other than that in which the shares of Series A Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Company the amount of any such tax or has established, to the satisfaction of the Company, that the tax has been paid.

f)       New Stock Certificate. In the event less than all the shares represented by a certificate are converted, the Company shall promptly issue to the holder thereof a new certificate representing the unconverted shares.

g)      Delivery of Common Stock Certificates. As soon as practicable after the conversion of shares of the Series A Preferred Stock, the Company, at its expense (including the payment by it of any applicable issue taxes), will cause to be issued in the name of and delivered to applicable holder of the Series A Preferred Stock, or as such holder (upon payment by such holder of any applicable transfer taxes) may direct in compliance with applicable securities laws, a certificate or certificates for the number of duly and validly issued, fully paid and non-assessable shares of the Common Stock to which such holder shall be entitled on such conversion. The certificates shall bear a restrictive legend in the following form, as appropriate:

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES 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 SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS 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.”

Section 6. Adjustments.

a)      Adjustment Upon Common Stock Event. At any time or from time to time hereafter, upon the happening of a Common Stock Event (as hereinafter defined), the Series A Preferred Stock Conversion Formula shall, simultaneously with the happening of such Common Stock Event, be adjusted so that the number of shares of the Common Stock receivable upon conversion thereof equals the number of shares of the Common Stock on the date of such Common Stock Event. The Series A Preferred Stock Conversion Formula shall be readjusted in the same manner upon the happening of each subsequent Common Stock Event. As used herein, the term “Common Stock Event” shall mean (i) the issue by the Company of additional shares of the Common Stock as a dividend or other distribution on outstanding the Common Stock, (ii) a subdivision of the outstanding shares of the Common Stock into a greater number of shares of the Common Stock, or (iii) a combination of the outstanding shares of the Common Stock into a smaller number of shares of the Common Stock.

b)      Adjustments for Other Dividends and Distributions. If at any time or from time to time hereafter the Company pays a dividend or otherwise makes a distribution or distributions to the holders of the Common Stock payable in securities of the Company, other than an event constituting a Common Stock Event, then in each such event, provision shall be made so that the holders of the Series A Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of the Common Stock receivable upon conversion thereof, the amount of securities of the Company that they would have received had their Series A Preferred Stock been converted into the Common Stock on the date of such event (or such record date, as applicable) and had they thereafter, during the period from the date of such event (or such record date, as applicable) to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 6 with respect to the rights of the holders of the Series A Preferred Stock or with respect to such other securities by their terms.

c)      Adjustments for Reclassification, Exchange, and Substitution. If at any time or from time to time hereafter the Common Stock issuable upon conversion of the Series A Preferred Stock is changed into the same or different number of shares of any class or classes of stock, whether by recapitalization, reclassification, exchange, substitution, or otherwise (other than by a Common Stock Event or a stock dividend, reorganization, merger, or consolidation provided for elsewhere in this Section 6), then, and in each event, but subject to Section 5, each holder of Series A Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification, or other change by the holders of the number of shares of the Common Stock into which such shares of the Series A Preferred Stock could have been converted immediately prior to such recapitalization, reclassification, or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof.

d)     Reorganizations, Reclassifications, Mergers, and Consolidations. If at any time or from time to time hereafter there is a Change of Control (other than a recapitalization, subdivision, combination, reclassification, or exchange of shares provided for elsewhere in this Section 6, then, as a part of such Change of Control, provision shall be made so that the holders of the Series A Preferred Stock thereafter shall be entitled to receive, upon conversion of the Series A Preferred Stock, the number of shares of stock or other securities or property of the Company, or of such successor corporation resulting from such Change of Control, to which a holder of the Common Stock deliverable upon conversion would have been entitled on such Change of Control. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 6 with respect to the rights of the holders of the Series A Preferred Stock after the Change of Control to the end that the provisions of this Section 6 (including adjustment of the Series A Preferred Stock Conversion Formula then in effect and number of shares issuable upon conversion of the Series A Preferred Stock) shall be applicable after that event and be as nearly equivalent to the provisions hereof as may be practicable. This Section 6 shall similarly apply to successive Change of Controls.

e)      Certificate of Adjustment. In each case of an adjustment or readjustment of the Series A Preferred Stock Conversion Formula, the Company, at its expense, shall cause its Chief Financial Officer (or other executive officer) to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid (or by electronic mail if agreed to by the holder), to each holder of the Series A Preferred Stock at such holder’s registered address as shown on the Company’s books.

Section 7. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution, or winding up of the Company (a “Liquidation Event”), and before any distribution or payment shall be made to the holders of any stock ranking junior to the Series A Preferred Stock, the holders of the Series A Preferred Stock shall be entitled to be paid out of the assets of the Company an amount equal to $1.00 in the aggregate for all issued and outstanding shares of Series A Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations, and the like with respect to such shares) (the “Preference Value”). After the payment of the full applicable Preference Value of the then issued and outstanding shares of the Series A Preferred Stock as set forth herein, the remaining assets of the Company legally available for distribution, if any, shall be distributed ratably to the holders of the Company’s Common Stock. The Company shall mail written notice of any such Liquidation Event, not less than forty-five (45) days prior to the payment date stated therein, to each holder.

Section 8. Miscellaneous.

a)       Notices. Any and all notices or other communications or deliveries to be provided by the holders hereunder shall be in writing and shall be deemed to have been given: (i) when delivered by hand (with written confirmation of receipt); (ii) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (iii) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient; or (iv) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent (1) to the Company, at its principal executive office and (2) to any stockholder, at such holder’s address as it appears in the stock records of the Company (or such other address for a stockholder as shall be specified in a notice given in accordance with this Section 8).

b)      Lost or Mutilated Preferred Stock Certificate. If a holder’s Series A Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated certificate, or in lieu of or in substitution for a lost, stolen or destroyed certificate, a new certificate for the shares of Series A Preferred Stock so mutilated, lost, stolen, or destroyed, but only upon receipt of evidence of such loss, theft, or destruction of such certificate, and of the ownership hereof reasonably satisfactory to the Company.

c)      Amendment and Waiver. No provision of this Certificate of Designation may be amended, modified, or waived except by an instrument in writing executed by the Company and by the holders holding a majority of the issued and outstanding shares of Series A Preferred Stock, and any such written amendment, modification, or waiver will be binding upon the Company and each holder of Series A Preferred Stock.

[Remainder of the page intentionally left blank. Signature page follows.]

 
 

IN WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate of Designation and does affirm the foregoing as true this 19th day of August, 2020.

KAIVAL BRANDS INNOVATIONS GROUP, INC.

By: /s/ Nirajkumar Patel

Nirajkumar Patel, President and Chief Executive Officer

 

 
 

ANNEX A

NOTICE OF CONVERSION

(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED STOCK)

 

The undersigned hereby elects to convert the number of shares of Series A Preferred Stock indicated below into shares of common stock, par value $0.001 per share (the “Common Stock”), of Kaival Brands Innovations Group, Inc., a Delaware corporation (the “Company”), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as may be required by the Company. No fee will be charged to the holders for any conversion, except for any such transfer taxes.

Conversion calculations:

Date to Effect Conversion:________________________________________

Number of shares of Series A Preferred Stock owned prior to Conversion:__

Number of shares of Series A Preferred Stock to be Converted:___________

Stated Value of shares of Series A Preferred Stock to be Converted:_______

Number of shares of Common Stock to be Issued:_____________________

Number of shares of Series A Preferred Stock subsequent to Conversion:___

Address for Delivery:___________________

or

DWAC Instructions (if available):

Broker no:________

Account no:

[HOLDER]

By:

Name:

Title:

 

SHARE CANCELLATION AND EXCHANGE AGREEMENT

 

 

This SHARE CANCELLATION AND EXCHANGE AGREEMENT (this “Agreement”), dated August 19, 2020 (the “Effective Date”), by and between Kaival Brands Innovations Group, Inc., a Delaware corporation (the “Company”), and Kaival Holdings, LLC, a Delaware limited liability company (the “Stockholder”).  The Company and Stockholder are also hereinafter individually and jointly referred to as “Party” or “Parties.

 

RECITALS

 

WHEREAS, as of the Effective Date, the Stockholder is the record and beneficial owner of 504,000,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”).

 

WHEREAS, the Stockholder desires to return to the Company 300,000,000 shares of the Common Stock (the “Cancellation Shares”) to the Company for cancellation, and the Company desires to accept such Cancellation Shares.

 

WHEREAS, in exchange for returning the Cancellation Shares to the Company, the Company desires to issue to the Stockholder 3,000,000 shares of the Company’s Series A Preferred Stock, par value $0.001 per share (the “Preferred Shares”).

 

NOW, THEREFORE, in consideration of the foregoing premises and the mutual representations and agreements set forth herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Stockholder, intending to be legally bound, hereby agree as follows:

 

AGREEMENT

 

1.                  Cancellation of the Cancellation Shares. On the Effective Date, the Stockholder shall deliver to the Company and the Company’s transfer agent (as may be reasonably instructed by the Company) any and all necessary documentation to cause the cancellation of the Cancellation Shares. The Stockholder hereby irrevocably instructs the Company, and the Company’s transfer agent, to cancel and retire the Cancellation Shares pursuant to Section 243 of the Delaware General Corporation Law. In connection therewith, the Company shall deliver to its transfer agent irrevocable instructions to cancel the Cancellation Shares and designate such shares as retired, thereby causing the Cancellation Shares to be restored to status of authorized and unissued shares of the Company’s Common Stock. Following the cancellation of the Cancellation Shares, the Stockholder’s record and beneficial ownership of the Company’s Common Stock shall decrease from 504,000,000 shares of the Common Stock to 204,000,000 shares of the Common Stock.

 

2.                  Issuance of the Preferred Shares. On the Effective Date, and upon receipt of the Cancellation Shares, the Company shall cause the Preferred Shares to be issued to the Stockholder. The return of the Cancellation Shares and the issuance of the Preferred Shares is intended to comply with Section 3(a)(9) of the Securities Act of 1933, as amended (the “Act”), in that the issuance is exempt from the registration requirements of the Act because the exchange of the Cancellation Shares for the Preferred Shares are an exchange between the Company, as issuer, with an existing stockholder, and no commission or other remuneration is paid or given directly for the exchange.

 

3.                  Effective Date. This Agreement shall become effective on the Effective Date.  

 

4.                  Rights to the Cancellation Shares. The Stockholder hereby acknowledges and agrees that upon consummation of the transactions contemplated by this Agreement, the Stockholder shall have no further rights or interests with respect to the Cancellation Shares.

 

5.                  Representations by the Stockholder.  

 

(a)                The Stockholder is the sole holder of record of the Cancellation Shares, and is the beneficial owners of the Cancellation Shares, free and clear of all liens, claims, charges, security interests, and/or encumbrances of any kind whatsoever.  The Stockholder has sole control over the Cancellation Shares and/or sole discretionary authority over any account in which they are held.  Except for this Agreement, no person/entity has any option or right to purchase or otherwise acquire the Cancellation Shares, whether by contract of sale or otherwise, nor is there a “short position” as to the Cancellation Shares.

 

(b)               The Stockholder has full right, power, and authority to execute, deliver, and perform this Agreement and to carry out the transactions contemplated herein. This Agreement has been duly and validly executed and delivered by the Stockholder and constitutes a valid, binding obligation of the Stockholder, enforceable against it in accordance with its terms.

 

(c)                The Stockholder represents and warrants that it has the requisite authority and capacity to enter into this Agreement, as well as carry out the terms and conditions referenced herein. Additionally, Stockholder represents and warrants that its compliance with the terms and conditions of this Agreement will not violate any instrument relating to the conduct of its business, or any other agreement to which it may be a party, or any Federal and State rules or regulations applicable to either Party.

 

6.                  Further Assurances.  Each Party to this Agreement will use its best efforts to take all action, and to do all things necessary, proper, or advisable, in order to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, the execution and delivery of such other documents and agreements as may be necessary to effectuate the cancellation of the Cancellation Shares and the issuance of the Preferred Shares.

 

7.                  Entire Agreement; Amendments.  This Agreement contains the entire understanding of the Parties with respect to the matters covered herein and, except as specifically set forth herein, neither the Company nor the Stockholder makes any representation, warranty, covenant, or undertaking with respect to such matters. This Agreement may be amended, modified, or terminated only by a written amendment signed by authorized representatives of both Parties. No waiver of any term or right in this Agreement shall be effective unless in writing, signed by an authorized representative of the waiving Party. The failure of either Party to enforce any provision of this Agreement shall not be construed as a waiver or modification of such provision, or impairment of its right to enforce such provisions thereafter.

 

8.                  Survival.  All representations and warranties contained herein shall survive the execution and delivery of this Agreement. 

 

9.                  Successors and Assigns.  This Agreement shall bind and inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns.

 

10.              Governing Law.  This Agreement and the obligations, rights, and remedies of the Parties hereto are to be construed in accordance with, and governed by, the laws of the State of Delaware, without giving effect to the principles of conflicts of law of such state and shall be binding upon the Parties hereto. Each Party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in Delaware for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action, or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action, or proceeding is improper. Each Party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action, or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery). Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each Party irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either Party shall commence an action or proceeding to enforce any provisions of the documents contemplated herein, then the prevailing Party in such action or proceeding shall be reimbursed by the other Party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation, and prosecution of such action or proceeding.

 

11.              Severability.  In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law.  Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

 

12.              Counterparts.  This Agreement may be executed in any number of counterparts and by the Parties hereto on separate counterparts but all such counterparts shall together constitute but one and the same instrument.   

 

 

 

 

 

 
 

 

IN WITNESS WHEREOF, the Parties hereto have executed this Share Cancellation and Exchange Agreement to be duly executed by their duly authorized representatives of the Effective Date.  

 

Company:

Kaival Brands Innovations Group, Inc.

 

 

 

By: /s/ Nirajkumar Patel

Name: Nirajkumar Patel

Title: Chief Executive Officer

 

 

By: /s/ Eric Mosser

Name: Eric Mosser

Title: Chief Operating Officer

 

 

Stockholder:

Kaival Holdings, LLC

 

 

 

By: /s/ Nirajkumar Patel

Name: Nirajkumar Patel

Title: Member

 

 

 

By: /s/ Eric Mosser

Name: Eric Mosser

Title: Member

 

 

Kaival Brands Innovations Group, Inc.

 

FOR IMMEDIATE RELEASE

 

 

Release Date: __________

 

 

Contact name: Eric Mosser

Phone number: 833-4-KAIVAL
Email address: investors@kaivalbrands.com

 


Kaival Brands Innovations Group, Inc. (OTC: KAVL) Announces Cancellation of Shares of 300,000,000 Common Stock

 

GRANT, Florida – (August 21, 2020) (GLOBE NEWSWIRE) – Kaival Brands Innovations Group, Inc. (OTCQB: KAVL) (“Kaival Brands,” the “Company,” or “we”), a company focused on growing and incubating innovative and profitable products into mature, dominant brands, today announced that 300,000,000 shares of its common stock have been returned and cancelled by its largest stockholder, Kaival Holdings, LLC (the “Stockholder”). Our management and directors are the owners of the Stockholder.

 

The cancellation of the 300,000,00 shares of the Company’s common stock results in the decrease of issued and outstanding shares of the Company’s common stock from 576,495,148 to 276,495,148, or a 52.1% reduction in the Company’s issued and outstanding shares of its common stock.

 

In exchange for the return of the 300,000,000 shares of the Company’s common stock, the Company issued to the Stockholder 3,000,000 shares of its newly designated Series A Preferred Stock (the “Series A Preferred Stock”). Each share of the Series A Preferred Stock is convertible into one hundred shares of the Company’s common stock; however, the Series A Preferred Stock may not be converted until or after November 1, 2023 unless certain triggering events, such as a change-of-control, occurs. The Series A Preferred Stock have no voting rights.

 

"We believe that the cancellation of the 300,000,000 shares of the Company’s common stock in exchange for 3,000,000 shares of Series A Preferred Stock is a strategic move for the benefit of all stockholders. Further, the Series A Preferred Stock cannot be converted prior to November 2023, barring any triggering event, which we believe will help maintain stability in the market price of our common stock. We are always evaluating stockholder-friendly options available that we believe will assist us in achieving our goal of increasing value for our long-term investors,” said Niraj Patel, the Company’s Chief Executive Officer.

 

The development comes on the heels of the Company commencing its plan to expand its distribution of the Bidi™ Stick, a top-quality vape device designed for the modern adult vape user, internationally into the European Union, New Zealand, Australia, and Canada. The Bidi™ Stick is manufactured by Bidi Vapor, LLC and the Company acts as the exclusive worldwide distributor. Mr. Patel, the Company’s President, Chief Executive Officer, and Chief Financial Officer, owns and controls Bidi Vapor, LLC; thus, Bidi Vapor, LLC and the Company are considered under common control and Bidi Vapor, LLC is considered a related-party.

 

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Kaival Brands Innovations Group, Inc., is a company focused on growing and incubating innovative and profitable products into mature and dominant brands in their respective markets.

 

Our vision is to develop internally, acquire, own, or exclusively distribute these innovative products and grow each into dominant market-share brands with superior quality and recognizable innovation.

 

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Forward-Looking Statements

 

This press release includes statements that constitute “forward-looking statements” within the meaning of federal securities laws, which are statements other than historical facts that frequently use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “position,” “should,” “strategy,” “target,” “will,” and similar words. All forward-looking statements speak only as of the date of this press release. Although we believe that the plans, intentions, and expectations reflected in or suggested by the forward-looking statements are reasonable, there is no assurance that these plans, intentions, or expectations will be achieved. Therefore, actual outcomes and results could materially differ from what is expressed, implied, or forecasted in such statements.

 

This release contains certain forward-looking statements based on current plans and expectations and is subject to various risks and uncertainties. Our business may be influenced by many factors that are difficult to predict, involve uncertainties that may materially affect results, and are often beyond our control. Factors that could cause or contribute to such differences include, but are not limited to, the duration and scope of the coronavirus (“COVID-19”) pandemic and the impact on the demand for the products we distribute; the actions governments, businesses, and individuals take in response to the pandemic, including mandatory business closures and restrictions on onsite commercial interactions; the impact of the pandemic and actions taken in response to the pandemic on global and regional economies and economic activity; the pace of recovery when the COVID-19 pandemic subsides; general economic uncertainty in key global markets and a worsening of global economic conditions or low levels of economic growth; the effects of steps that we could take to reduce operating costs; our inability to generate and sustain profitable sales growth; circumstances or developments that may make us unable to implement or realize anticipated benefits, or that may increase the costs, of our current and planned business initiatives; and those factors detailed by us in our public filings with the Securities and Exchange Commission .

 

All forward-looking statements included in this press release are expressly qualified in their entirety by such cautionary statements. Except as required under the federal securities laws and the Securities and Exchange Commission’s rules and regulations, we do not have any intention or obligation to update any forward-looking statements publicly, whether as a result of new information, future events, or otherwise.

 

 

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For more information, please contact 833-4-KAIVAL or email us at investors@kaivalbrands.com.