Kaival Brands Innovations Group, Inc 10-Q for FY2020 Q2
Kaival Brands Innovations Group, Inc. (KAVL)
About this 10-Q
Kaival Brands Innovations Group, Inc filed this 10-Q on May 27, 2020, covering the quarter ended April 30, 2020 (FY2020 Q2).
Headline figures
Quarter ended April 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $22.51M
- compared with $0 a year earlier
- Net income
- $2.8M
- compared with a net loss of $4225 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 000-56016
KAIVAL BRANDS INNOVATIONS GROUP, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE | 83-3492907 | |
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
4460 Old Dixie Highway
Grant, Florida 32949
(Address of principal executive offices, including zip code)
(833) 452-4825
(Registrant’s telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| 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 ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
572,364,574 shares of common stock, $0.001 par value, outstanding as of May 27, 2020
KAIVAL BRANDS INNOVATIONS GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements and information in this Quarterly Report on Form 10-Q for the quarter ended April 30, 2020 (the “Quarterly Report”) may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, which address activities, events, or developments that we expect or anticipate will or may occur in the future, including such things as future capital expenditures, commencement of business operations, business strategy, statements related to the expected effects on our business from the novel coronavirus (“COVID-19”) pandemic, and other similar matters are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or other comparable terminology. These forward-looking statements are based largely on our current expectations and assumptions and are subject to a number of risks and uncertainties, many of which are beyond our control. These statements are subject to many risks, uncertainties, and other important factors that could cause actual future results to differ materially from those expressed in the forward-looking statements including, but not limited to, the duration and scope of the COVID-19 pandemic and impact on the demand for the products we distribute; our ability to obtain the products from the manufacturer; 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 COVID-19 pandemic and action 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; our inability to sustain profitable sales growth; and circumstances or developments that may make us unable to implement or realize the anticipated benefits, or that may increase the costs, of our current and planned business initiatives. In light of these risks and uncertainties, all of the forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by us will be realized. We undertake no obligation to update or revise any of the forward-looking statements contained herein.
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Kaival Brands Innovations Group, Inc.
Balance Sheets
(Unaudited)
| April 30, 2020 | October 31, 2019 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash in bank | $ | 1,970,682 | $ | - | ||||
| Accounts receivable | 3,213,920 | - | ||||||
| Accounts receivable – related parties | 5,070 | - | ||||||
| Inventories | 16,419 | - | ||||||
| Total Current Assets | 5,206,091 | - | ||||||
| TOTAL ASSETS | $ | 5,206,091 | $ | - | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accrued expenses | $ | 1,162,282 | $ | 44,886 | ||||
| Accounts payable | 19,493 | - | ||||||
| Accounts payable – related party | 1,259,145 | - | ||||||
| Total Current Liabilities | 2,440,920 | 44,886 | ||||||
| TOTAL LIABILITIES | $ | 2,440,920 | $ | 44,886 | ||||
| STOCKHOLDERS’ EQUITY(DEFICIT): | ||||||||
| Preferred stock ($.001 par value, 5,000,000 shares authorized, none issued and outstanding as of April 30, 2020 and October 31, 2019) | - | - | ||||||
| Common stock ($.001 par value, 1,000,000,000 shares authorized, 572,364,574 issued and outstanding as of April 30, 2020 and October 31, 2019) | 572,365 | 572,365 | ||||||
| Additional paid-in capital | (516,869 | ) | (544,026 | ) | ||||
| Retained earnings (accumulated deficit) | 2,709,675 | (73,225 | ) | |||||
| Total Stockholders’ Equity (Deficit) | 2,765,171 | (44,886 | ) | |||||
| TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 5,206,091 | $ | - | ||||
The accompanying notes are an integral part of these unaudited financial statements.
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Kaival Brands Innovations Group, Inc.
Statements of Operations
(Unaudited)
| For the Three Months Ended April 30, | For the Six Months Ended April 30, |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenues | ||||||||||||||||
| Revenues | $ | 22,473,674 | $ | - | $ | 22,473,674 | $ | - | ||||||||
| Revenues - related parties | 32,480 | - | 32,480 | - | ||||||||||||
| Total revenues | 22,506,154 | - | 22,506,154 | - | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Cost of revenue - related party | 18,301,800 | - | 18,301,800 | - | ||||||||||||
| Total cost of revenue | 18,301,800 | - | 18,301,800 | - | ||||||||||||
| Gross profit | 4,204,354 | - | 4,204,354 | - | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling expenses | 259,998 | - | 259,998 | - | ||||||||||||
| General & Administrative expenses | 198,092 | 4,225 | 211,025 | 18,185 | ||||||||||||
| Total operating expenses | 458,090 | 4,225 | 471,023 | 18,185 | ||||||||||||
| Income (loss) before income taxes provision | 3,746,264 | (4,225 | ) | 3,733,331 | (18,185 | ) | ||||||||||
| Provision for income taxes | (950,431 | ) | - | (950,431 | ) | - | ||||||||||
| Net income (loss) | $ | 2,795,833 | $ | (4,225 | ) | $ | 2,782,900 | $ | (18,185 | ) | ||||||
| Net income (loss) per common share - basic and diluted | $ | 0.00 | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | ||||||
| Weighted average number of common shares outstanding - basic and diluted | 572,364,574 | 572,364,574 | 572,364,574 | 572,364,574 | ||||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
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Kaival Brands Innovations Group, Inc.
Statements of Cash Flows
(Unaudited)
For the Six Months Ended April 30, 2020 | For the Six Months Ended April 30, 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | 2,782,900 | $ | (18,185 | ) | |||
| Adjustment to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Expenses contributed to capital | 27,157 | 12,160 | ||||||
| Changes in current assets and liabilities: | ||||||||
| Accounts receivable | (3,213,920 | ) | - | |||||
| Accounts receivable – related parties | (5,070 | ) | - | |||||
| Inventories | (16,419 | ) | - | |||||
| Accounts payable | 19,493 | - | ||||||
| Accounts payable – related party | 1,259,145 | - | ||||||
| Accrued expenses | 1,117,396 | 6,025 | ||||||
| Net cash provided by operating activities | 1,970,682 | - | ||||||
| Net change in cash | $ | 1,970,682 | $ | - | ||||
| Beginning cash balance | - | - | ||||||
| Ending cash balance | $ | 1,970,682 | $ | - | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Interest paid | $ | - | $ | - | ||||
| Income taxes paid | $ | - | $ | - | ||||
The accompanying notes are an integral part of these unaudited financial statements.
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Kaival Brands Innovations Group, Inc.
Statement of Changes in Stockholders’ Equity (Deficit)
For the Three and Six Months Ended April 30, 2020
(Unaudited)
Preferred Shares (Series A) | Preferred Shares (Series B) | Par Value Preferred Shares (Series A) | Par Value Preferred Shares (Series B) | Common Shares | Par Value Common Shares | Additional Paid-in Capital | Retained Earnings (Accumulated Deficit) | Total | ||||||||||||||||||||||||||||
| Balances, October 31, 2019 | - | - | $ | - | $ | - | 572,364,574 | $ | 572,365 | $ | (544,026 | ) | $ | (73,225 | ) | $ | (44,886 | ) | ||||||||||||||||||
| Expenses paid on behalf of the Company and contributed to capital | - | - | - | - | - | - | 26,457 | - | 26,457 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (12,933 | ) | (12,933 | ) | |||||||||||||||||||||||||
| Balances, January 31, 2020 | - | - | $ | - | $ | - | 572,364,574 | $ | 572,365 | $ | (517,569 | ) | $ | (86,158 | ) | $ | (31,362 | ) | ||||||||||||||||||
| Expenses paid on behalf of the Company and contributed to capital | - | - | - | - | - | - | 700 | - | 700 | |||||||||||||||||||||||||||
| Net income | - | - | - | - | - | - | - | 2,795,833 | 2,795,833 | |||||||||||||||||||||||||||
| Balances, April 30, 2020 | - | - | $ | - | $ | - | 572,364,574 | $ | 572,365 | $ | (516,869 | ) | $ | 2,709,675 | $ | 2,765,171 | ||||||||||||||||||||
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Kaival Brands Innovations Group, Inc.
Statement of Changes in Stockholders’ Deficit
For the Three and Six Months Ended April 30, 2019
(Unaudited)
Preferred Shares (Series A) | Preferred Shares (Series B) | Par Value Preferred Shares (Series A) | Par Value Preferred Shares (Series B) | Common Shares | Par Value Common Shares | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||||||||
| Balances, October 31, 2018 | - | - | $ | - | $ | - | 572,364,574 | $ | 572,365 | $ | (570,989 | ) | $ | (4,376 | ) | $ | (3,000 | ) | ||||||||||||||||||
| Expenses paid on behalf of the Company and contributed to capital | - | - | - | - | - | - | 7,210 | - | 7,210 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (13,960 | ) | (13,960 | ) | |||||||||||||||||||||||||
| Balances, January 31, 2019 | - | - | $ | - | $ | - | 572,364,874 | $ | 572,365 | (563,779 | ) | $ | (18,336 | ) | $ | (9,750 | ) | |||||||||||||||||||
| Expenses paid on behalf of the Company and contributed to capital | - | - | - | - | - | - | 4,950 | - | 4,950 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (4,225 | ) | (4,225 | ) | |||||||||||||||||||||||||
| Balances, April 30, 2019 | - | - | $ | - | $ | - | 572,364,574 | $ | 572,365 | $ | (558,829 | ) | $ | (22,561 | ) | $ | (9,025 | ) | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited financial statements.
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KAIVAL BRANDS INNOVATIONS GROUP, INC.
Notes to Unaudited Financial Statements
Note 1 – Organization and Description of Business
Kaival Brands Innovations Group, Inc. (the “Company,” the “Registrant,” “we,” “us,” or “our”), formerly known as Quick Start Holdings, Inc., was incorporated on September 4, 2018 in the State of Delaware.
USSE Corp. and USSE Delaware Merger
USSE Corp., a Nevada Corporation (“USSE Nevada”), formerly known as Quick Start Holdings, Inc., was incorporated with the Nevada Secretary of State on July 8, 1998 under the original name C&A Restaurants, Inc. (“C&A Restaurants”). On June 15, 2009, C&A Restaurants changed its name to USSE Corp.
Effective September 19, 2018, USSE Nevada re-domiciled from Nevada to Delaware pursuant to a merger of USSE Nevada with and into USSE Delaware, Inc., a Delaware corporation (“USSE Delaware”), with USSE Delaware as the surviving entity (the “Re-domestication Merger”). Each share of USSE Nevada’s common stock issued and outstanding immediately prior to the effective date of the Re-domestication Merger was automatically converted into one fully paid and nonassessable share of USSE Delaware.
Immediately following the Re-domestication Merger, USSE Delaware was authorized to issue up to 1,005,000,000 shares, which consisted of: (i) 1,000,000,000 shares of common stock, par value $0.001 per share, of which 66,397,574 shares were issued and outstanding at such date; (ii) 5,000,000 shares of preferred stock, par value $0.001 per share, of which (a) 1,000,000 shares were designated as Convertible Series A, all of which were issued and outstanding at that date; and (b) 500,000 shares were designated as Convertible Series B, of which 71,700 Convertible Series B preferred shares were issued and outstanding at that date.
Holding Company Reorganization
On September 4, 2018, USSE Delaware acquired 1,000 shares of common stock of the Company, which represented 100% of the Company’s then-outstanding shares of common stock, for no consideration, resulting in the Company becoming a wholly-owned subsidiary of USSE Delaware. Also, immediately prior to the Holding Company Reorganization (as defined below), USSE Merger Sub, Inc., a Delaware corporation (“USSE Merger Sub”), was the Company’s wholly-owned subsidiary.
On September 19, 2018 (the “Effective Time”), and in accordance with the provisions set forth in Section 251(g) of the Delaware General Corporation Law (“DGCL”), USSE Merger Sub, an indirect wholly-owned subsidiary of USSE Delaware and the Company’s direct wholly-owned subsidiary merged with and into USSE Delaware, the Company’s then parent (the “Holding Company Reorganization”). USSE Delaware was the surviving corporation and the Company’s wholly-owned subsidiary. USSE Delaware also changed its name to USSE Corp. following the Holding Company Reorganization.
Upon completion of the Holding Company Reorganization, by virtue of the merger, and without any action on the part of the holder thereof, each share of USSE Delaware’s common stock issued and outstanding immediately prior to the Effective Time of the Holding Company Reorganization was automatically converted into one validly issued, fully paid, and non-assessable share of the Company’s common stock. Additionally, each share of USSE Delaware’s preferred stock issued and outstanding immediately prior to the Effective Time was converted into one validly issued, fully paid, and non-assessable share of the Company’s preferred stock, having the same designations, rights, powers, and preferences, and the qualifications, limitations, and restrictions thereof, as the corresponding share of USSE Delaware’s preferred stock. Each share of the Company’s common stock issued and outstanding and held by USSE Delaware immediately prior to the Effective Time was cancelled.
This resulted in the Company being authorized to issue up to 1,005,000,000 shares, which consisted of: (i) 1,000,000,000 shares of common stock, par value $0.001 per share, of which 66,397,574 shares were issued and outstanding; (ii) 5,000,000 shares of preferred stock, par value $0.001 per share, of which (a) 1,000,000 shares were designated as Convertible Series A, all of which were issued and outstanding; and (b) 500,000 shares were designated as Convertible Series B, of which 71,700 shares of Convertible Series B preferred stock were issued and outstanding.
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Post-Holding Company Reorganization
On October 19, 2018, the Company issued 500,000,000 shares of restricted common stock and 400,000 shares of Convertible Series B Preferred Stock to GMRZ Holdings LLC, a Nevada limited liability company (“GRMZ”), for services rendered to the Company.
Commensurate with the filing of the Company’s Amended and Restated Certificate of Incorporation with the Delaware Secretary of State on October 22, 2018, every issued and outstanding share of Convertible Series A preferred stock was converted into 1.25 shares of common stock with shareholders’ economic rights preserved. Additionally, at the same time, every share of Convertible Series B preferred stock, issued and outstanding was converted into ten shares of common stock with stockholders’ economic rights adversely affected in the conversion. Immediately following the conversion of the aforementioned shares, and upon filing of the Amended and Restated Certificate of Incorporation, the authorized and unissued shares of Convertible Series A and Convertible Series B preferred stock were cancelled. As of October 22, 2018, Convertible Series A and Series B preferred stock were removed from the status of authorized but unissued preferred stock.
On February 6, 2019, the Company entered into a non-binding Share Purchase Agreement (the “Agreement”), by and among the Company, GMRZ, and Kaival Holdings, LLC (formerly known as Kaival Brands Innovations Group, LLC), a Delaware limited liability company (formerly known as Kaival Brands Innovations Group, LLC) (“KH”), pursuant to which, on February 20, 2019, GMRZ sold 504,000,000 shares of the Company’s restricted common stock, representing approximately 88.06 percent of the Company’s issued and outstanding shares of common stock, to KH, and KH paid GMRZ consideration in the amount set forth in the Agreement (the “Purchase Price”). The consummation of the transactions contemplated by the Agreement resulted in a change in control of the Company, with KH becoming the Company’s largest controlling stockholder. The sole members of KH are Nirajkumar Patel and Eric Mosser. The Purchase Price was paid with personal funds of the members of KH.
Effective July 12, 2019, we changed our corporate name from Quick Start Holdings, Inc. to Kaival Brands Innovations Group, Inc. The name change was effected through a parent/subsidiary short-form merger of Kaival Brands Innovations Group, Inc., our wholly-owned Delaware subsidiary formed solely for the purpose of the name change, with and into us. We were the surviving entity.
On the effective date of the merger, our name was changed to “Kaival Brands Innovations Group, Inc.” and our Amended and Restated Certificate of Incorporation, as amended (the “Charter”), was further amended to reflect our new legal name. There were no other changes to our Charter.
Currently, we have 572,364,574 shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding. KH, which is owned and controlled by Nirajkumar Patel and Eric Mosser, is our controlling stockholder, owning 504,000,000 shares of our restricted common stock.
During the quarter ended April 30, 2020, the Company commenced business operations.
Description of Business
The Company is focused on growing and incubating innovative and profitable products into mature, dominant brands. During the quarter ended April 30, 2020, the Company commenced business operations as a result of becoming an exclusive distributor of certain electronic nicotine delivery systems and related components (the “Products”) manufactured by Bidi Vapor, LLC (“Bidi”), a Florida limited liability company, a related party company that is also owned by Nirajkumar Patel, the Chief Executive Officer and Chief Financial Officer of the Company.
On March 9, 2020, the Company entered into an exclusive distribution agreement (the “Distribution Agreement”) with Bidi, a related party company, which Distribution Agreement was amended and restated on May 21, 2020 (the “A&R Distribution Agreement”) in order to clarify some of the provisions. Pursuant to the A&R Distribution Agreement, Bidi granted the Company an exclusive worldwide right to distribute the Products for sale and resale to both retail level customers and non-retail level customers. Currently, the Products consist primarily of the “Bidi Stick.”
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In connection with the A&R Distribution Agreement, the Company entered into non-exclusive sub-distribution agreements, which were subsequently amended and restated by the parties in order to clarify certain provisions (all such agreements, as amended and restated, are collectively referred to as the “A&R Sub-Distribution Agreements”), whereby the Company appointed the counterparties as non-exclusive sub-distributors. Pursuant to the A&R Sub-Distribution Agreements, the sub-distributors agreed to purchase for resale the Products in such quantities as they should need to properly service non-retail customers within the continental United States (the “Territory”).
On March 31, 2020, the Company entered into a service agreement (the “Service Agreement”) with QuikfillRx LLC, a Florida limited liability company (“QuikfillRx”), whereby QuikfillRx has agreed to provide the Company with certain services and support relating to sales management, website development and design, graphics, content, public communication, social media, management and analytics, and market and other research (collectively, the “Services”). The Services will be provided by QuikfillRx as requested from time to time by the Company.
Recent Developments
In January 2020, the World Health Organization (the “WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”) originating in Wuhan, China and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in global exposure.
As of the date of issuance of these unaudited financial statements, our operations have not been significantly impacted. No impairments were recorded as of April 30, 2020 and no triggering events or changes in circumstances had occurred. However, the full impact of the COVID-19 pandemic continues to evolve subsequent to the three and six months ended April 30, 2020 and as of the date these unaudited financial statements are issued. As such, the full magnitude of the COVID-19 pandemic, and the resulting impact, if any, on our financial condition, liquidity, and future results of operations is uncertain. Management is actively monitoring the global situation on our financial condition, liquidity, operations, suppliers, industry, and customers. Reduced demand for products or impaired ability to meet customer demand (including as a result of disruptions at our suppliers) could have a material adverse effect on our business operations and financial performance. Given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, we are not presently able to estimate the effects of the COVID-19 pandemic on our results of operations, financial condition, or liquidity for the remainder of fiscal year 2020 and beyond. As of the date of this filing, our recently commenced business operations have not been impacted.
Note 2 – Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (the “SEC”) and should be read in conjunction with the audited financial statements and notes thereto for the year ended October 31, 2019 on Form 10-K filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements, which would substantially duplicate the disclosures contained in the audited financial statements for the year ended October 31, 2019, as reported in the Annual Report on Form 10-K filed with the SEC on January 27, 2020, have been omitted.
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Significant Accounting Policies
Accounts Receivable and Allowance for Doubtful Accounts
Receivables are stated at cost, net of an allowance for doubtful accounts. The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of accounts receivables. A considerable amount of judgment is required in assessing the amount of the allowance and the Company considers the historical level of credit losses and collection history and applies percentages to aged receivable categories. The Company makes judgments about the creditworthiness of debtors based on ongoing credit evaluations, and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the debtors were to deteriorate, resulting in their inability to make payments, a larger allowance may be required. As of April 30, 2020, the Company did not have any allowance for doubtful accounts based on management’s assessment.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost includes all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. As of April 30, 2020, the inventories only consisted of finished goods.
Revenue Recognition
The Company adopted ASC 606, Revenue from Contracts with Customers (Topic 606), in the second quarter of fiscal year 2020, as this was the first quarter that the Company generated revenues. Under ASC 606, the Company recognizes revenue when a customer obtains control of promised goods, in an amount that reflects the consideration that the Company expects to receive in exchange for the goods. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps: (1) identify the contracts with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods it transfers to the customer.
Products Revenue
The Company generates products revenue from the sale of the Products (as defined above) to retail and non-retail customers. The Company recognizes revenue at a point in time based on management’s evaluation of when performance obligations under the terms of a contract with the customer are satisfied and control of the Products has been transferred to the customer. In most situations, transfer of control is considered complete when the products have been shipped to the customer. The Company’s sales arrangements for retail sales usually require full prepayment before delivery of the Products. The advance payment is not considered a significant financing component because the period between the Company transfers a promised good to a customer and when the customer pays for that good is short. The Company offers credit sales arrangements to non-retail (or wholesale) customers and monitors the collectability of each credit sales periodically.
Income Tax
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the recorded book basis and the tax basis of assets and liabilities for financial and income tax reporting. Deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes are also recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future federal income taxes. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results of operations, or cash flow. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to ASC 740.
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Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, or FASB, issued ASU 2014-09, “Revenue from Contracts with Customers (ASC 606),” and issued subsequent amendments to the initial guidance or implementation guidance between August 2015 and November 2017 within ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2016-20, ASU 2017-13, and ASU 2017-14 (collectively, including ASU 2014-09, “ASC 606”). Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted the standard from the second quarter of fiscal year 2020. The adoption of ASC 606 did not have any impact on our previously reported consolidated financial statements in any prior period nor did it result in a cumulative effect adjustment to retained earnings.
Note 3 – Going Concern
The Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern that contemplates the realization of assets and liquidation of liabilities in the normal course of business.
Prior to March 2020, the Company demonstrated adverse conditions that raised substantial doubt about the Company’s ability to continue as a going concern. These adverse conditions were negative financial trends, specifically operating loss, working capital deficiency, and other adverse key financial ratios. Also, the Company had not established any source of revenue to cover its operating costs. The Company’s management funded operating expenses with related party contributions to capital.
However, on March 9, 2020, the Company commenced business operations upon entering into the A&R Distribution Agreement with Bidi, a related party company, whereby Bidi granted the Company an exclusive worldwide right to distribute the Products for sale and resale to both retail level customers and non-retail level customers.
In April, in connection with the A&R Distribution Agreement, the Company entered into the A&R Sub-Distribution Agreements with certain third-party counterparties, whereby we appointed such counterparties as non-exclusive sub-distributors. Pursuant to the A&R Sub-Distribution Agreements, the sub-distributors agreed to purchase for resale the Products in such quantities as they should need to properly service non-retail customers within the Territory.
With these agreements in effect, the Company has established sources of revenue to cover its operating costs and achieved net income of $2,782,900 during the six months ended April 30, 2020. As of April 30, 2020, the Company has a positive working capital of $2,765,171.
Management plans to continue similar operations with increased marketing, which the Company believes will result in increased revenue and net income. However, there is no assurance that management’s plan will be successful due to the current economic climate in the United States and globally. At the time of filing this Quarterly Report, the previously reported going concern has been alleviated based on the reasons above, and management does not have substantial doubt of the Company’s ability to continue as a going concern.
These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that the Company cannot continue as a going concern.
Note 4 – Stockholder Equity
Additional Paid-In Capital
The Company’s Chief Executive Officer and Chief Financial Officer, Mr. Nirajkumar Patel, paid expenses on behalf of the Company totaling $16,257 during the six months ended April 30, 2020, which is considered a contribution to the Company with no expectation of repayment and is recorded as additional paid-in capital.
The Company’s Chief Operating Officer, Mr. Eric Mosser, paid expenses on behalf of the Company totaling $10,900 during the six months ended April 30, 2020, which is considered a contribution to the Company with no expectation of repayment and is recorded as additional paid-in capital.
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Note 5 – Related-Party Transactions
Revenue and Accounts Receivable
During the six months ended April 30, 2020, the Company generated $22,460, $9,030, $880, and $110 of revenue from Cloud Nine 2012, Inc., JC Products of USA, LLC, Shree Maharaj, Inc., and Bhawani Krupa, Inc., respectively. All of these companies are owned by Nirajkumar Patel, the Chief Executive Officer and Chief Financial Officer of the Company, and/or his wife. As of April 30, 2020, the Company has accounts receivable from Cloud Nine 2012, Inc., Shree Maharaj, Inc., and Bhawani Krupa, Inc. in the amount of $4,080, $880, and $110, respectively.
Purchases and Accounts Payable
During the six months ended April 30, 2020, the Company purchased $18,318,219 of products from Bidi and sold $18,301,800 of goods to retail and non-retail customers. As of April 30, 2020, the Company had accounts payable to Bidi of $1,278,638.
Contributed Capital
During the six months ended April 30, 2020, the Company’s Chief Executive Officer / Chief Financial Officer and Chief Operating Officer provided contributed capital of $16,257 and $10,900, respectively, to the Company. For additional information, see Note 4, Additional Paid-in Capital.
Office Space
We utilize the home office space and warehouse of our management at no cost.
Note 6 - Concentration
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of purchases of inventories, accounts payable, accounts receivable, and revenue.
Concentration of Purchases and Accounts Payable
For the six months ended April 30, 2020, 100% of the inventories of products , primarily consisting of the “Bidi Stick,” were purchased from Bidi, a related party, in the amount of $18,318,219. It also accounted for 100% of the total accounts payable as of April 30, 2020.
Concentration of Revenues and Accounts Receivable
For the six months ended April 30, 2020, approximately 36% of the revenue from the sale of products, primarily consisting of the “Bidi Stick,” was generated from Favs Business, LLC in the amount of $8,003,396.
Favs Business, LLC, Midwest Distribution, and GW Trading Inc. accounted for approximately 32%, 13%, and 11%, respectively, of the total accounts receivable as of April 30, 2020.
Note 7 – Income Tax
The Company is subject to federal income taxes and state income tax in the U.S. Significant judgment is required in determining the provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017, and reduced the U.S. federal corporate tax rate from 35% to 21%, eliminated corporate Alternative Minimum Tax, modified rules for expensing capital investment, and limited the deduction of interest expense for certain companies. The Company fulfilled and shipped all of the Products from Florida and, thus, it is subject to the state corporate income tax of Florida with a tax rate of 4.458%.
During the six months ended April 30, 2020, the Company generated taxable income of $2,782,900 and, thus, accrued $784,000 of federal income tax and $166,432 of state income tax.
Significant components of the Company’s deferred tax assets and liabilities as of April 30, 2020 and October 31, 2019 after applying enacted corporate income tax rate, is net operating loss carryforward of $0 and $15,377, and a valuation allowance of $0 and $15,377, respectively, which is a total deferred tax asset of $0. The Company’s tax returns for 2018 and 2019 remain open to examination.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations, and liquidity. This discussion and analysis should be read in conjunction with the unaudited Financial Statements and notes thereto for the three and six months ended April 30, 2020 included under Item 1 – Financial Statements in this Quarterly Report and our audited Financial Statements and notes thereto for the year ended October 31, 2019 contained in our Annual Report on Form 10-K. The following discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, and intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Please also see the cautionary language at the beginning of this Quarterly Report regarding forward-looking statements.
The discussions of our results as presented in this Quarterly Report include use of the non-GAAP term “gross profit. Gross profit is determined by deducting the cost of goods sold from operating revenue. Cost of goods sold includes direct and indirect labor, materials, services, fixed costs, and variable overhead. Gross profit should not be considered an alternative to operating income or net income, which are determined in accordance with GAAP. We believe that gross profit, although a non-GAAP financial measure, is useful and meaningful to investors as a basis for making investment decisions. It provides investors with information that demonstrates our cost structure and provides funds for our total costs and expenses. We use gross profit in measuring the performance of our business. Other companies may calculate gross profit in a different manner.
Potential Impact of COVID-19
In March 2020, the WHO declared the outbreak of COVID-19 as a pandemic based on the rapid increase in global exposure. COVID-19 continues to spread throughout the world, including the United States. Our business operations, which commenced during this pandemic, continue to be operational and, to date, we have not seen any significant direct negative impact of COVID-19 to our newly commenced business. However, the COVID-19 pandemic continues to impact economic conditions, which could impact the short-term and long-term demand from our customers and, therefore, has the potential to negatively impact our results of operations, cash flows, and financial position in the future. Management is actively monitoring this situation and any impact on our financial condition, liquidity, and results of operations. However, given the daily evolution of the COVID-19 pandemic and the global responses to curb its spread, we are not presently able to estimate the effects of the COVID-19 pandemic on our future results of operations, financial condition, or liquidity for the remainder of fiscal year 2020 and, possibly, beyond.
Corporate History
We were incorporated on September 4, 2018 in the State of Delaware. We are focused on growing and incubating innovative and profitable products into mature, dominant brands.
USSE Corp. and USSE Delaware Merger
USSE Nevada was incorporated with the Nevada Secretary of State on July 8, 1998 under the original name C&A Restaurants. On June 15, 2009, C&A Restaurants changed its name to USSE Corp.
Effective September 19, 2018, USSE Nevada re-domiciled from Nevada to Delaware pursuant to a merger of USSE Nevada with and into USSE Delaware, with USSE Delaware as the surviving entity.
Holding Company Reorganization
On September 4, 2018, USSE Delaware acquired 1,000 shares of common stock of the Company, which represented 100% of the Company’s then-outstanding shares of common stock, for no consideration, resulting in the Company becoming a wholly-owned subsidiary of USSE Delaware. Also, immediately prior to the Holding Company Reorganization, USSE Merger Sub was the Company’s wholly-owned subsidiary.
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At the Effective Time, and in accordance with the provisions set forth in Section 251(g) of the DGCL, USSE Merger Sub, an indirect wholly-owned subsidiary of USSE Delaware and the Company’s direct wholly-owned subsidiary, merged with and into USSE Delaware, the Company’s then parent. USSE Delaware was the surviving corporation and the Company’s wholly-owned subsidiary. USSE Delaware also changed its name to USSE Corp. following the Holding Company Reorganization.
Upon completion of the Holding Company Reorganization, by virtue of the merger, and without any action on the part of the holder thereof, each share of USSE Delaware’s common stock issued and outstanding immediately prior to the Effective Time of the Holding Company Reorganization was automatically converted into one validly issued, fully paid, and non-assessable share of the Company’s common stock. Additionally, each share of USSE Delaware’s preferred stock issued and outstanding immediately prior to the Effective Time was converted into one validly issued, fully paid, and non-assessable share of the Company’s preferred stock, having the same designations, rights, powers, and preferences, and the qualifications, limitations, and restrictions thereof, as the corresponding share of USSE Delaware’s preferred stock. Each share of the Company’s common stock issued and outstanding and held by USSE Delaware immediately prior to the Effective Time was cancelled.
This resulted in the Company being authorized to issue up to 1,005,000,000 shares, which consisted of: (i) 1,000,000,000 shares of common stock, par value $0.001 per share of which 66,397,574 shares were issued and outstanding; (ii) 5,000,000 shares of preferred stock, par value $0.001 per share, of which (a) 1,000,000 shares were designated as Convertible Series A, all of which were issued and outstanding; and (b) 500,000 shares were designated as Convertible Series B, of which 71,700 shares of Convertible Series B preferred stock were issued and outstanding.
Post-Holding Company Reorganization
On October 19, 2018, the Company issued 500,000,000 shares of restricted common stock and 400,000 shares of Convertible Series B Preferred Stock to GMRZ for services rendered to the Company.
Commensurate with the filing of the Company’s Amended and Restated Certificate of Incorporation with the Delaware Secretary of State on October 22, 2018, every issued and outstanding share of Convertible Series A preferred stock was converted into 1.25 shares of common stock with shareholders’ economic rights preserved. Additionally, at the same time, every share of Convertible Series B preferred stock, issued and outstanding was converted into ten shares of common stock with stockholders’ economic rights adversely affected in the conversion. Immediately following the conversion of the aforementioned shares, and upon filing of the Amended and Restated Certificate of Incorporation, the authorized and unissued shares of Convertible Series A and Convertible Series B preferred stock were cancelled. As of October 22, 2018, Convertible Series A and Series B preferred stock were removed from the status of authorized but unissued preferred stock.
On February 6, 2019, the Company entered into the Agreement, by and among the Company, GMRZ, and KH, pursuant to which, on February 20, 2019, GMRZ sold 504,000,000 shares of the Company’s restricted common stock, representing approximately 88.06 percent of the Company’s issued and outstanding shares of common stock, to KH, and KH paid GMRZ the Purchase Price. The consummation of the transactions contemplated by the Agreement resulted in a change in control of the Company, with KH becoming the Company’s largest controlling stockholder. Nirajkumar Patel and Eric Mosser are members of KH. The Purchase Price was paid with personal funds of the members of KH.
Effective July 12, 2019, the Company changed its corporate name from Quick Start Holdings, Inc. to Kaival Brands Innovations Group, Inc. The name change was effected through a parent/subsidiary short-form merger of Kaival Brands Innovations Group, Inc., the Company’s wholly-owned Delaware subsidiary formed solely for the purpose of the name change, with and into the Company. The Company were the surviving entity.
On the effective date of the merger, the Company’s name was changed to “Kaival Brands Innovations Group, Inc.” and the Charter, was further amended to reflect the Company’s new legal name. There were no other changes to its Charter.
During the quarter ended April 30, 2020, the Company commenced business operations.
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Our Business
Currently, we market and place the Products into national distribution channels through long-standing industry relationships in accordance with the A&R Distribution Agreement entered into with Bidi, a related party, in March 2020 (and subsequently amended and restated in May 2020. Pursuant to the A&R Distribution Agreement, we sell and resell the Products to both retail level customers and non-retail level customers. Bidi’s primary product is the “Bidi Stick.” Bidi is considered a related party to us because our Chief Executive Officer, Chief Financial Officer, and director, Mr. Nirajkumar Patel, owns and controls Bidi. Mr. Patel is also a beneficial owner of KH, the entity that is our largest controlling stockholder. Thus, Bidi and we are under common control.
Pursuant to the terms of the A&R Distribution Agreement, Bidi provides us with all branding, logos, and marketing materials to be utilized by us in connection with our marketing and promotion of the Products. We engaged QuikfillRx in March 2020 and, pursuant to the Service Agreement, QuikfillRx agreed to provide us with the Services, as we may request from time to time.
We process all sales made to retail customers and non-retail customers, with all sales to retail customers to be made through the website, www.bidivapor.com. We provide all customer service and support at our own expense. Bidi sets the minimum prices for all sales made by us. With respect to sales to non-retail customers, we submit purchase orders to Bidi, Bidi delivers the Products to us, and we ship the Products directly to these non-retail customers. In the case of retail customers, we maintain adequate inventory levels of the Products in order to meet these customers’ demand, and deliver the Products sold to these retail customers.
In connection with the A&R Distribution Agreement, we entered into the A&R Sub-Distribution Agreements with certain counterparties, pursuant to which we appointed such counterparties as non-exclusive sub-distributors of the Products to non-retail customers within the Territory. Each of the A&R Sub-Distribution Agreements set forth certain minimum purchase obligations.
We believe that over the course of the next twelve months, our business operations will generate the capital needed to achieve our business objectives; however, because we recently commenced business operations, there can be no assurance that our business operations will continue to generate the cash flows required for us to achieve our business objectives. If we require additional capital, there can be no assurance that we will be able to raise any required capital or that capital will be available to us at acceptable terms, or at all. We believe that our cash provided by operations will be sufficient for the next twelve months.
As a result of the commencement of business operations, we have begun hiring employees and intend to hire additional independent contractors and/or employees in the future. We cannot provide any assurance as to the timing of the hiring of any additional independent contractors or employees, the number of independent contractors or employees that we may hire, and whether acceptable independent contractors or employees will be available to us at that time.
Going Concern
Historically, we have had a negative working capital, no revenues, and negative cash flows from operating activities. In the past, these conditions raise substantial doubt about our ability to continue as a going concern. For the foreseeable future, we will be devoting our efforts to our recently commenced business operations. However, we cannot provide any assurances that management’s plan with respect to our newly commenced business operations will be successful. At the time of filing this Quarterly Report, the previously reported going concern has been alleviated, and management does not have substantial doubt of the Company’s ability to continue as a going concern . The unaudited financial statements filed as part of this Quarterly Report do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that we cannot continue as a going concern.
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Liquidity and Capital Resources
We have no known demands or commitments and are not aware of any events or uncertainties as of April 30, 2020 that will result in or that are reasonably likely to materially increase or decrease our current liquidity.
At April 30, 2020, we had working capital of approximately $2.8 million and total cash of approximately $2.0 million.
Now that we have commenced business operations, we intend to generally rely on cash from operations and equity and debt offerings, to the extent necessary and available, to satisfy our liquidity needs. There are a number of factors that could result in the need to raise additional funds, including a decline in revenue or a lack of anticipated sales growth and increased costs. Our efforts are directed toward generating positive cash flow and profitability. If these efforts are not successful, we may need to raise additional capital. Should capital not be available to us at reasonable terms, other actions may become necessary in addition to cost control measures and continued efforts to increase sales. These actions may include exploring strategic options for the sale of the Company, the creation of joint ventures or strategic alliances under which we will pursue business opportunities, or other alternatives. We believe we have the financial resources to weather any short-term impacts of COVID-19; however, we are unable to presently estimate any potential future impacts from COVID-19 and an extended impact could have a material and adverse effect on our sales, earnings, and liquidity.
Cash Flows:
Cash flow provided by operations was approximately $2.0 million for the first six months of fiscal year 2020, compared to $0 for the first six months of fiscal year 2019. The increase in cash flow from operations for the first six months of fiscal year 2020 was mainly due to the increase in net income. We anticipate continued improvement in our cash flows provided by operations in future years based on the minimum purchase obligations set forth in the A&R Sub-Distribution Agreements, partially offset by increases in costs as we ramp up our sales and marketing efforts.
Three months ended April 30, 2020, compared to three months ended April 30, 2019
Revenues:
Revenues for the second quarter of fiscal year 2020 were approximately $22.5 million, compared to $0 in the same period of the prior fiscal year. During the second quarter of fiscal year 2020, we entered into the A&R Distribution Agreement, pursuant to which we were granted the exclusive, worldwide right to distribute the Products. In connection therewith, we entered into the A&R Sub-Distribution Agreements and other agreements with counterparties and granted such sub-distributors the right to distribute the Products to non-retail customers within the Territory.
Cost of Revenue and Gross Profit:
Gross profit in the second quarter of fiscal year 2020 was approximately $4.2 million, compared to $0 for the second quarter of fiscal year 2019. Total cost of revenue – related party was approximately $18.3 million for the second quarter of fiscal year 2020, compared to $0 for the second quarter of fiscal year 2019. The increase in gross profit is entirely driven by the commencement of sales of the Products during the second quarter of fiscal year 2020.
Operating Expenses:
Total operating expenses were approximately $458,000 for the second quarter of fiscal year 2020, compared to approximately $4,000 for the second quarter of fiscal year 2019. For the second quarter of fiscal year 2020, operating expenses consisted of advertising and promotion expenses of approximately $186,000, shipping expenses of approximately $74,000, and general and administrative expenses of approximately $198,000. Advertising and promotion expenses in the second quarter of fiscal year 2020 consisted primarily of the expenses incurred for marketing the Products and fees paid to QuikfillRx for the Services. General and administrative expenses in the second quarter of fiscal year 2020 consisted primarily of legal fees, salaries, merchant fees, and other service fees. Total operating expenses for the second quarter of fiscal 2019 consisted solely of general and administrative expenses, which were primarily from legal fees incurred. We expect future operating expenses to continue to increase while we generate increased sales growth.
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Income Taxes:
During the second quarter of fiscal year 2020, we accrued approximately $950,000 for income taxes, compared to $0 for the second quarter of fiscal year 2019.
Net Income (Loss):
Net income for the second quarter of fiscal year 2020 was approximately $2.8 million, or $0.00 basic and diluted earnings per share, compared to net loss of approximately $4,000, or $0.00 basic and diluted loss per share, for the second quarter of fiscal year 2019. The increase in net income for the second quarter of fiscal year 2020, as compared to the second quarter of fiscal year 2019, is attributable to the commencement of sales of the Products.
Weighted-average common stock shares outstanding were 572,364,574 in the second quarters of fiscal year 2020 and fiscal year 2019.
Six months ended April 30, 2020, compared to six months ended April 30, 2019
Revenues:
Revenues for the first half of fiscal year 2020 was approximately $22.5 million, compared to $0 in the same period of the prior fiscal year. During the first half of fiscal year 2020, we entered into the A&R Distribution Agreement, pursuant to which we were granted the exclusive, worldwide right to distribute the Products. In connection therewith, we entered into the A&R Sub-Distribution Agreements and other agreements with counterparties and granted such sub-distributors the right to distribute the Products to non-retail customers within the Territory.
Cost of Revenue and Gross Profit:
Gross profit in the first half of fiscal year 2020 was approximately $4.2 million, compared to $0 for the first half of fiscal year 2019. Total cost of revenue – related party was approximately $18.3 million for the first half of fiscal year 2020, compared to $0 for the first half of fiscal year 2019. The increase in gross profit is entirely driven by the commencement of sales of the Products during the first half of fiscal year 2020.
Operating Expenses:
Total operating expenses were approximately $471,000 for the first half of fiscal year 2020, compared to approximately $18,000 for the first half of fiscal year 2019. For the first half of fiscal year 2020, operating expenses consisted of advertising and promotion expenses of approximately $186,000, shipping expenses of approximately $74,000, and general and administrative expenses of approximately $211,000. Advertising and promotion expenses in the first half of fiscal year 2020 consisted primarily of the expenses incurred for marketing the Products and fees paid to QuikfillRx for the Services. General and administrative expenses in the first half of fiscal year 2020 consisted primarily of legal fees, salaries, paid of bonuses, merchant fees, and other service fees. Total operating expenses for the first half of fiscal year 2019 consisted solely of general and administrative expenses, which were primarily from legal fees incurred. We expect future operating expenses to continue to increase while we generate increased sales growth.
Income Taxes:
During the first half of fiscal year 2020, we accrued approximately $950,000 for income taxes, compared to $0 for the first half of fiscal year 2019.
Net Income (Loss):
Net income for the first half of fiscal year 2020 was approximately $2.8 million, or $0.00 basic and diluted earnings per share, compared to net loss of approximately $18,000, $0.00 basic and diluted loss per share, for the first half of fiscal year 2019. The increase in net income for the first half of fiscal year 2020, as compared to the first half of fiscal year 2019, is attributable to the commencement of sales of the Products.
Weighted-average common stock shares outstanding were 572,364,574 in the first half of fiscal year 2020 and fiscal year 2019.
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Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.
Critical Accounting Policies and Estimates
Other than the policy changes disclosed in Note 2, Basis of Presentation and Significant Accounting Policies, to the unaudited Financial Statements in Item 1 of Part I of this Quarterly Report, there have been no material changes to our critical accounting policies and estimates during the six months ended April 30, 2020 from those disclosed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended October 31, 2019.
Recently Adopted Accounting Pronouncements
See Note 2, Basis of Presentation and Significant Accounting Policies, to the unaudited Financial Statements in Item 1 of Part I of this Quarterly Report for a description of recent accounting pronouncements and accounting changes.
We are an “emerging growth company,” that is exempt from certain financial disclosure and governance requirements for up to five years as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act eases restrictions on the sale of securities and increases the number of stockholders a company must have before becoming subject to the Securities and Exchange Commission’s reporting and disclosure rules. We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of April 30, 2020, the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that because of material weakness in our internal control over financial reporting, our disclosure controls and procedures were not effective as of April 30, 2020.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitations, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, to allow timely decisions regarding required disclosure.
Chances in Internal Control over Financial Reporting
During the quarter ended April 30, 2020, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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There are no material pending legal proceedings as defined by Item 103 of Regulation S-K, to which we are a party or of which any of our property is the subject, other than ordinary routine litigation incidental to the Company’s business.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Amended and Restated Exclusive Distribution Agreement
On May 21, 2020, we entered into the A&R Distribution Agreement with Bidi, which amended and restated that certain Exclusive Distribution Agreement, dated March 9, 2020, previously entered into by Bidi and us. The A&R Distribution Agreement clarified certain provisions as to when risk of loss and title transfer to us, the shipping procedures for the Products purchased from Bidi, as well as other matters.
Amended and Restated Non-Exclusive Sub-Distribution Agreements
On May 21, 2020, we entered into an A&R Sub-Distribution Agreement with Favs Business, LLC (“Favs”), which amended and restated that certain Non-Exclusive Sub-Distribution Agreement, dated April 3, 2020, previously entered into by Favs and us. The A&R Sub-Distribution Agreement clarified certain provisions as to when risk of loss and title transfer with respect to the Products purchased by Favs, the shipping procedures for the Products purchased pursuant to the A&R Sub-Distribution Agreement, as well as other matters.
On May 26 , 2020, we entered into an A&R Sub-Distribution Agreement with Colonial Wholesale Distributing, Inc. (“Colonial”), which amended and restated that certain Non-Exclusive Sub-Distribution Agreement, dated April 11, 2020, previously entered into by Colonial and us. The A&R Sub-Distribution Agreement clarified certain provisions as to when risk of loss and title transfer with respect to Products purchased by Colonial, the shipping procedures for the Products purchased pursuant to the A&R Sub-Distribution Agreement, as well as other matters.
The foregoing descriptions do not purport to be complete and are qualified in their entirety by the full text of such A&R Distribution Agreement and the A&R Sub-Distribution Agreements, which are filed as Exhibits 10.5, 10.6, and 10.7, respectively, to this Quarterly Report and is incorporated herein by reference.
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The following exhibits are filed herewith as a part of this Quarterly Report.
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| 10.7 | Amended and Restated Non-Exclusive Non-Exclusive Sub-Distribution Agreement by and between Kaival Brands Innovations Group, Inc. and Colonial Wholesale Distributing Inc., dated May 25, 2020, which is filed herewith. (1) | |
| 31.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934* | |
| 32.1 | Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 of Chapter 63 of Title 18 of the United States Code* | |
| 101.INS | XBRL Instance Document* | |
| 101.SCH | XBRL Taxonomy Extension Schema Document* | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document* | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document* | |
| 101.PRE | XBRL Taxonomy Presentation Linkbase Document* |
| (1) | Schedules and Exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request; provided, however, that the Company may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any Schedule or Exhibit so furnished. |
*filed herewith
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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. | ||
| Date: May [__], 2020 | By: | /s/ Nirajkumar Patel |
| Nirajkumar Patel | ||
President, Chief Executive Officer, and Chief Financial Officer | ||
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Exhibit 10.5
AMENDED AND RESTATED EXCLUSIVE DISTRIBUTION AGREEMENT
THIS AMENDED AND RESTATED EXCLUSIVE DISTRIBUTION AGREEMENT (this “Agreement”) is entered into as of the 21ST of May, 2020, and is effective as of the 9TH day of March, 2020 (the “Effective Date”) by and between BIDI VAPOR, LLC, a Florida limited liability company (“Manufacturer”), and KAIVAL BRANDS INNOVATONS GROUP, INC., a Delaware corporation (“Distributor”). Manufacturer and Distributor are each referred to herein as a “Party” and collectively, the “Parties.”
RECITALS
WHEREAS, Manufacturer is in the business of developing electronic nicotine delivery systems and related components (all such products whether now or hereafter made available for sale by Manufacturer being hereinafter referred to as the “Products”).
WHEREAS, Distributor wishes to obtain, and Manufacturer is willing to grant Distributor, an exclusive worldwide right to distribute the Products for sale and resale to both retail level customers (“Retail Customers”) and non-retail level customers, including without limitation, to wholesale customers and sub-distributors (“Non-Retail Customers”).
WHEREAS, Manufacturer and Distributor previously entered into that certain Exclusive Distribution Agreement, effective as of March 9, 2020 (the “Prior Agreement”).
WHEREAS, the Parties wish to amend and restate the Prior Agreement for purposes of clarifying certain terms therein to more accurately reflect the Parties’ intentions and desire for this Agreement to be effective as of the date the Prior Agreement was entered into.
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, Manufacturer and Distributor, intending to be legally bound, hereby agree as follows:
1. APPOINTMENT; EXCLUSIVITY; MARKETING AND SUPPORT.
A. Appointment and Exclusivity. Subject to the terms and conditions set forth in this Agreement, Manufacturer hereby appoints Distributor as its exclusive worldwide distributor of the Products. Distributor accepts the appointment as Manufacturer’s exclusive worldwide distributor of the Products and agrees to buy for resale, upon the terms and conditions set forth herein, the Products in such quantities as Distributor shall need to properly service the market. Manufacturer represents and warrants that the appointment of and sale of the Products to Distributor under this Agreement does not violate any obligations or contracts of Manufacturer. As a condition of exclusivity, Distributor agrees not to represent or sell other products, which Manufacturer may reasonably determine to be competitive with the Products, without written approval from Manufacturer. For purposes of clarification, during the term of this Agreement, Manufacturer will not directly sell any Products to any person (Retail Customer or Non-Retail Customer) other than to Distributor.
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B. Marketing and Support. Manufacturer will be solely responsible to provide Distributor with all branding, logos, and marketing materials to be utilized by Distributor in connection with Distributor’s marketing and promotion of the Products; provided, however, Distributor shall bear all expenses related to reproduction and distribution of the same. Distributor agrees to use its best efforts to promote, develop a market, sell, and distribute the Products worldwide. Among such other actions as may be necessary to generate sales of the Products, Distributor will perform at its expense and to the reasonable satisfaction of Manufacturer the following duties:
| i. | Distributor will engage in sales promotion activities in which the Products shall be designated by their correct names and identified as the Products of Manufacturer being marketed by Distributor as an independent distributor. |
| ii. | Distributor will provide all customer service and support (both to its Retail Customers and Non-Retail Customers and to all end consumers of the Products). |
| iii. | Distributor will process all sales by Distributor to Retail Customers and Non-Retail Customers. All sales by Distributor to Retail Customers will be made through the domain www.bidivapor.com. |
| iv. | Distributor shall maintain adequate inventory levels of the Product on-hand to meet Retail Customer demand. |
| v. | Distributor shall at all times conduct its business in a manner that will reflect favorably on Manufacturer and the Products and will not engage in any deceptive, misleading, illegal, or unethical business practice. In performing its obligations hereunder, Distributor agrees not to make any representations or give any warranties or guarantees to any person with respect to the Products, other than in compliance with Section 7.A. hereof or otherwise expressly authorized in writing by Manufacturer. |
| vi. | Distributor shall provide to Manufacturer prior to the time of first use five (5) copies of all of Distributor's advertising and sales promotion materials in which any Products are mentioned and five (5) copies of any translations of any manuals or other materials provided or sold to Distributor by Manufacturer. |
| vii. | Distributor, not more often than every three (3) months, shall make reports to Manufacturer, as reasonably requested by Manufacturer, with respect to sales and potential sales of the Products. Distributor also shall report to Manufacturer such information as is necessary to enable Manufacturer to manufacture or supply the Products in compliance with applicable laws and regulations throughout the world. |
| viii. | Distributor will prepare and deliver to Manufacturer quarterly forecasts of Distributor's anticipated sales by Product during each month of the six-month period following the date of the forecast. It is understood that said forecasts will be used for planning purposes only and will not constitute a commitment by either Party. |
| ix. | Distributor will comply with all applicable laws and regulations and will not assist or participate in any violation of laws or regulations applicable to Manufacturer or Distributor. |
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Distributor
shall be responsible for all expenses incurred by it in connection with the implementation and performance of its duties and obligations
under this Agreement, including, without limitation: (i) salaries or compensation for its personnel; (ii) costs and expenses associated
with establishing and maintain its sales organization and offices; and (iii) marketing, advertising, and promotion expenses.
2. PURCHASE ORDERS; PRICING.
A. Purchase Orders. Distributor shall order the Products in accordance with the terms and conditions of this Agreement. Each order for the purchase of the Products (a “Purchase Order”) must be submitted to Manufacturer by Distributor by email or Manufacturer’s electronic data interchange (EDI) system. Each Purchase Order shall specify (i) whether the order is being made in connection with the sale by Distributor to Retail Customers or to Non-Retail Customers, (ii) the quantity of the Products being ordered, (iii) the applicable Retail Minimum Price and/or Wholesale Minimum Price for the Products ordered, (iv) the price to be paid by Distributor to Manufacturer for the Products ordered, (v) payment terms granted by Manufacturer, and (vi) the requested receipt date and delivery instructions for the applicable Products ordered. Receipt dates must be during the term of this Agreement, except Distributor may request, subject to Manufacturer’s acceptance in Manufacturer’s sole and absolute discretion, a Purchase Order with a requested receipt date after the expiration or termination of this Agreement, in which case, if accepted by Manufacturer, the terms and conditions of this Agreement shall apply to such purchase, but under no circumstances should such purchase be deemed to be or construed as being a renewal or extension of this Agreement or the exclusivity rights granted to Distributor herein. The Parties agree that to the extent that any of the terms and conditions of this Agreement conflict or are inconsistent with the terms or conditions of any Purchase Order submitted by Distributor, the terms and conditions of this Agreement shall prevail and control to the extent of any such conflict or inconsistency, unless the Purchase Order containing such conflicting or inconsistent terms and conditions is countersigned by Manufacturer, in which case the terms and conditions set forth in such Purchase Order shall prevail and control to the extent of any such conflict or inconsistency.
B. Acceptance of Purchase Order. A Purchase Order submitted by Distributor shall be deemed to have been accepted by, and shall be binding upon, Manufacturer when it is countersigned by Manufacturer or if it is not rejected by Manufacturer, in whole or in part, by written notice to Distributor sent within five (5) business days of its receipt by Manufacturer. Notwithstanding anything contained herein to the contrary, Manufacturer may only reject, cancel, or delay any Purchase Order placed by Distributor, whether or not such Purchase Order has been previously accepted by Manufacturer, pursuant to Section 3.B. below. In the event Manufacturer is unable to fill all of a Purchase Order for any reason, it shall promptly notify Distributor and Distributor shall have the right, in its discretion, to cancel the subject Purchase Order. Distributor may change or cancel any of its Purchase Orders without penalty so long as Distributor provides written notice to Manufacturer and the Products have not yet been shipped, or otherwise delivered to Distributor; provided, that Distributor shall pay to Manufacturer a fee of twenty-five percent (25%) of the aggregate purchase price of the Products of which manufacturing has commenced that are subject to any Purchase Order, which has been materially changed or canceled by Distributor.
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C. Invoices and Payment Terms. Manufacturer shall send Distributor invoices via mail or email for each Purchase Order, once the Products are shipped or otherwise delivered. Distributor shall notify Manufacturer in writing if Distributor disputes any charges set forth on an invoice within five (5) calendar days after receipt of such invoice, specifying in reasonable detail the items disputed and basis for the dispute. Thereafter, the Parties will work in good faith to resolve such dispute as quickly as is reasonably possible. If any such dispute is not resolved within thirty (30) calendar days after Distributor’s receipt of the applicable invoice, then Manufacturer may suspend any further shipments of the Products under this Agreement until such time as the dispute is resolved and all amounts agreed upon by the Parties to be due are paid in full. All undisputed amounts on each invoice are due and payable within thirty (30) calendar days from the date of Distributor’s receipt of the invoice. Payments due hereunder must be made, at Distributor’s option, by ACH, wire transfer, certified check, or such other method as may be agreed to by the Parties. Manufacturer reserves the right to change or modify payment terms upon sixty (60) calendar days’ written notice to Distributor at any time following a default by Distributor of its payment obligations under this Agreement with such changes or modifications to be effective for Purchase Orders submitted after such sixty (60) calendar day period. Invoices will be issued upon the earlier of: (i) shipment of the Products from Manufacturer’s warehouse or production facility to Distributor or to Distributor’s customer via direct shipment or (ii) the delivery of the Products to Distributor.
D. Prices; Price Reductions. Manufacturer has a legitimate interest in ensuring that a minimum price be maintained for all sales by Distributor of its Products to Retail Customers and to Non-Retail Customers. Accordingly, Manufacturer will establish minimum pricing for all sales by Distributor of its Products to Non-Retail Customers (“Wholesale Minimum Price”) and minimum pricing for all sales by Distributor of its Products to Retail Customers (“Retail Minimum Price”) and Distributor will not sell any Products to Non-Retail Customers below the applicable Wholesale Minimum Price or sell any Products to Retail Customers below the applicable Retail Minimum Price. The initial Wholesale Minimum Price and Retail Minimum Price for the Products are included as Exhibit A attached hereto. Distributor agrees to pay Manufacturer the price per Product identified in Exhibit A attached hereto. Manufacturer retains the right to make changes to Wholesale Minimum Pricing, Retail Minimum Pricing, and Distributor pricing upon providing not less than three (3) days’ prior written notice to Distributor. Any price reduction to the Wholesale Minimum Pricing, Retail Minimum Pricing, or Distributor pricing with respect to affected Products shall apply to Purchase Orders that have not yet been accepted or deemed accepted by Manufacturer and Purchase Orders thereafter submitted by Distributor. Any price increase to the Wholesale Minimum Pricing, Retail Minimum Pricing, or Distributor pricing with respect to affected Products shall apply to Purchase Orders thereafter submitted by Distributor; provided, that Distributor shall have the right, at its option, to cancel, in whole or in part, any outstanding Purchase Orders for affected Products not yet accepted by Manufacturer. Prices do not include, and Manufacturer shall not be responsible for, any required federal, state, or local sales or other taxes, duties, export or custom charges, VAT charges, brokerage, or other fees.
E. Past Due Amounts. If any undisputed amount due Manufacturer by Distributor, for any reason, becomes past due, Manufacturer shall provide written notice to Distributor and, if such amounts remain outstanding for fifteen (15) calendar days following receipt of such notice, Manufacturer may at its option and without further notice withhold further shipments or deliveries of the Products under this Agreement until such past due invoices are paid in full.
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F. Taxes. Distributor shall be responsible for any national, state, or local sales, use, value added, or other tax, tariff, duty, or assessment levied or imposed by the United States or any foreign governmental authority arising out of or related to any of the transactions contemplated by this Agreement, including sales of the Products to Distributor, other than taxes based upon Manufacturer’s income. Distributor must pay directly, or reimburse Manufacturer for, the amount of such sales, use, value added or other tax, tariff, duty, or assessment that Manufacturer is at any time obligated to pay or collect with respect to or arising out of the sale of the Products under this Agreement.
| 3. | SHIPMENTS; PRODUCTS. |
A. Shipment Terms; Title and Risk of Loss. All of the Products purchased by Distributor under this Agreement will be packaged for shipment in Manufacturer’s standard containers, marked for shipment or delivery to Distributor at the address specified by Distributor in the Purchase Order (the applicable destination being hereinafter referred to as the “Destination”). All costs of shipment shall be paid by Manufacturer for any purchase by Distributor of the Products from Manufacturer for sale to Retail and Non-Retail Customers. Title and risk of loss will pass to Distributor upon the earlier of: (i) the delivery of the Products at the Destination or (ii) the tender of the Products by Manufacturer to the first shipping carrier. Distributor shall be solely responsible for all costs of shipment for the subsequent sale by Distributor to Retail Customers and Non-Retail Customers. Manufacturer shall ship or otherwise deliver the Products on or before the requested receipt date designated in a Purchase Order (provided, that such receipt date is not less than twenty (20) business days after the Purchase Order is received by Manufacturer) and shall promptly notify Distributor when Manufacturer knows or has reason to believe that a shipment will not be delivered by the requested receipt date. Any expense for any special packaging or any special delivery requested by Distributor shall be borne by Distributor.
B. Manufacturer’s Right to Delay or Cancel. Notwithstanding Manufacturer’s obligations in this Agreement, Manufacturer may refuse, cancel, or delay any shipment of the Products when Distributor is delinquent in any payment for more than (30) calendar days, or when Distributor is in material breach of its obligations under this Agreement, which has not been cured pursuant to Section 11.A.
C. Acceptance of Shipments or Deliveries. Distributor shall have ten (10) business days from the date of arrival of the shipment or delivery of the Products at the applicable Destination or other shipping or delivery location agreed upon by the Parties to inspect the Products and notify Manufacturer in writing of any discrepancies with respect to such Products, including but not limited to any discrepancies in the quantity or quality of the Products. The Products with respect to which Distributor does not notify Manufacturer of any discrepancies in writing shall be deemed accepted by Distributor.
D. Adding or Deleting the Products; Manufacturing Changes to the Products. Manufacturer shall have the right at any time upon ninety (90) calendar days’ prior written notice to Distributor to add or delete the Products. Should Manufacturer want to make any changes to the Products, it shall first notify the Distributor at least ninety (90) calendar days before the change is implemented, and such changes shall be agreed to by the Parties in writing before shipment or delivery of any Products that include any such changes. Notwithstanding the foregoing, for changes required by regulatory or certification authorities or otherwise deemed necessary by Manufacturer for any reason, including health, safety, welfare, technology, intellectual property, trade secret, competitive, materials sourcing, or other matters, Manufacturer will notify Distributor at least thirty (30) calendar days before the change is implemented, but Distributor’s approval of such changes shall not be required.
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| 4. | INTELLECTUAL PROPERTY RIGHTS. |
A. Manufacturer’s Marks. Subject to the terms and conditions of this Agreement, during the term of this Agreement, Manufacturer hereby grants to Distributor a revocable, sublicensable, non-transferable, non-exclusive, limited license to use Manufacturer’s logos, trademarks, and trade names, together with all branding and marketing materials created by or on behalf of Manufacturer in connection with the Products, and the domain www.bidivapor.com (collectively the “Manufacturer IP”), solely in connection with the marketing, advertisement, and sale of the Products. Such license shall immediately terminate upon the expiration or termination of this Agreement. Distributor shall strictly comply with all standards of use for the Manufacturer IP and must at all times display appropriate trademark and copyright notices as instructed by Manufacturer. Distributor acknowledges and agrees that the Manufacturer IP and other intellectual property provided to Distributor by Manufacturer, if any, are the sole and exclusive property of Manufacturer. Distributor shall not acquire any right, title, or interest under this Agreement in any patent, copyright, Manufacturer IP, or other intellectual property right of any kind of Manufacturer. No implied license, patent, copyright, or other intellectual property right of Manufacturer is granted under this Agreement or otherwise. During the term of this Agreement and thereafter, Distributor shall not do anything that will in any manner infringe, impeach, dilute, or lessen the value of the Manufacturer IP, patents, copyrights, or other intellectual property of Manufacturer or the goodwill associated therewith or that will tend to prejudice the reputation of the Manufacturer or the sale of any Products.
B. Distributor Marks. Subject to the terms and conditions of this Agreement, during the term of this Agreement, Distributor hereby grants Manufacturer a non-exclusive, royalty free license to use Distributor’s logos, trademarks, and trade names (the “Distributor Marks”) on Manufacturer’s web sites and marketing materials. Such license shall immediately terminate upon the expiration or termination of this Agreement. Manufacturer shall strictly comply with all standards of use for the Distributor Marks and must at all times display appropriate trademark and copyright notices as instructed by Distributor. Manufacturer acknowledges and agrees that the Distributor Marks and other intellectual property provided to Manufacturer by Distributor, if any, are the sole and exclusive property of Distributor. Manufacturer shall not acquire any right, title, or interest under this Agreement in any patent, copyright, Distributor Marks, or other intellectual property right of any kind of Distributor. No implied license, patent, copyright, or other intellectual property right of Distributor is granted under this Agreement or otherwise. During the term of this Agreement and thereafter, Manufacturer shall not do anything that will in any manner infringe, impeach, dilute, or lessen the value of the Distributor Marks, patents, copyrights, or other intellectual property of Distributor or the goodwill associated therewith or that will tend to prejudice the reputation of the Distributor.
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| 5. | CONFIDENTIAL INFORMATION. |
A. Confidential Information. The Parties acknowledge and agree that during the term of this Agreement, each may receive confidential information from the other Party. “Confidential Information” shall mean (i) information relating to a Party’s and its affiliates’ products or business including, but not limited to, the business plans, financial records, customers, suppliers, products, product samples, strategies, inventions, procedures, sales aids or literature, technical data, advice or knowledge, contractual agreements, pricing, price lists, product white papers, plans, designs, specifications, and know-how or other intellectual property, that may be at any time furnished, communicated, or delivered by either Party to the other Party whether in oral, tangible, electronic, or other form and (ii) all other non-public information provided by one Party to the other including, but not limited, to financial, technical, and business information, and all non-promotional materials furnished by one Party to another.
B. Exceptions. The “Receiving Party” shall not have any obligations to preserve the confidential nature of any Confidential Information that (i) Receiving Party can demonstrate by competent evidence was rightfully in the Receiving Party’s possession before receipt from the “Disclosing Party”; (ii) is or becomes a matter of public knowledge through no fault of the Receiving Party; (iii) is rightfully received by Receiving Party from a third party without, to the best of Receiving Party’s knowledge, a duty of confidentiality; (iv) is independently developed by Receiving Party without use of the Confidential Information; or (v) is disclosed by Receiving Party with Disclosing Party’s prior written approval.
C. Use of Confidential Information; Standard of Care. The Receiving Party shall maintain the Confidential Information in confidence and disclose the Confidential Information only to its employees, subcontractors, and consultants who have a need to know such Confidential Information in order to fulfill the business affairs and transactions between the Parties contemplated by this Agreement and who are under confidentiality obligations no less restrictive as, or who have been advised of the confidentiality obligations set forth in, this Agreement. The Receiving Party shall remain responsible for breaches of this Agreement arising from the acts of its employees, subcontractors, and consultants to whom it provides the Disclosing Party’s Confidential information. The Receiving Party shall protect Confidential Information by using the same degree of care as Receiving Party uses to protect its own information of a like nature, but no less than a reasonable degree of care, to prevent the unauthorized use, disclosure, dissemination, or publication of the Confidential Information. The Receiving Party agrees not to use the Disclosing Party’s Confidential Information for its own purpose other than in connection with the transactions contemplated by this Agreement or for the benefit of any third party, without the prior written approval of the Disclosing Party. The Receiving Party shall promptly return or certify destruction of all copies of Confidential Information upon request by the Disclosing Party or upon the expiration or earlier termination of this Agreement.
D. Equitable Relief. The Receiving Party hereby agrees and acknowledges that any breach or threatened breach of this Agreement regarding the treatment of the Confidential Information may result in irreparable harm to the Disclosing Party for which there may be no adequate remedy at law. In addition to other remedies provided by law or at equity, in such event the Disclosing Party shall be entitled to seek an injunction, without bond, preventing any further breach of this Agreement by the Receiving Party.
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6. INSURANCE. Manufacturer shall maintain, during the term of this Agreement, Commercial General Liability Insurance with minimum limits, including under any General Liability Umbrella Policies, of not less than $2,000,000 combined single limit for bodily injury and property damage on the Products purchased by Distributor for resale. Manufacturer shall use commercially reasonable efforts to provide Distributor with thirty (30) calendar days’ prior written notice of any change or cancellation in any applicable insurance policies.
Distributor shall maintain, during the term of this Agreement, Commercial General Liability Insurance with minimum limits, including under any General Liability Umbrella Policies, of not less than $2,000,000 combined single limit for bodily injury and property damage. Distributor shall use commercially reasonable efforts to provide Manufacturer with thirty (30) calendar days’ prior written notice of any change or cancellation in any applicable insurance policies.
7. WARRANTY; RECALL.
A. Warranty. Manufacturer warrants to Distributor, for a period of one year from the date of delivery by Manufacturer to the intended recipient thereof, that any Products delivered by Manufacturer pursuant to this Agreement shall conform in all material respects to Manufacturer’s written specifications for such Products, a copy of which is attached hereto as Exhibit B, and shall be free of defects in materials and workmanship. Manufacturer further warrants to Distributor that it has title to the Products to be conveyed hereunder and has the right to sell the same and that at the time of delivery, such Products shall be free of any security interest or other lien or any other encumbrances whatsoever (the warranties provided in the preceding two sentences being hereinafter referred to as the “Limited Warranty”). Except for the Limited Warranty, Manufacturer makes no warranties or representations to Distributor or any other person with respect to the Products or any services provided to Distributor or any other person. Manufacturer may not change any of the terms of the Limited Warranty at any time, without written consent from Distributor unless Manufacturer notifies Distributor in writing at least one hundred and twenty (120) calendar days prior to any such change. Any such change shall not apply to any Products sold to or ordered by Distributor prior to the change. Distributor will not alter the Limited Warranty, warranty disclaimers, and limitation of liability without the prior written authorization of Manufacturer, nor extend or make any additional warranty or representation regarding the Products unless expressly authorized by Manufacturer.
THE LIMITED WARRANTY REFERRED TO IN THIS SECTION IS THE ONLY WARRANTY, EXPRESS OR IMPLIED, THAT MANUFACTURER MAKES WITH RESPECT TO THE PRODUCTS. MANUFACTURER SPECIFICALLY DISCLAIMS ALL OTHER IMPLIED WARRANTIES INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT.
B. Warranty Claims. The Limited Warranty is effective only if Distributor gives prompt written notice to Manufacturer of any alleged breach of the Limited Warranty, which notice shall specifically describe the problem and shall state the date of sale and name and location of the recipient of the Product originally shipped by Manufacturer. Notwithstanding anything to the contrary contained herein, Manufacturer shall have no obligation under the Limited Warranty unless it receives such notice within thirty (30) days following the expiration of the warranty period. In the event of any breach of the Limited Warranty Manufacturer’s sole obligation is to replace each non-conforming Product within a reasonable period of time and to pay for the costs of shipment to the original recipient of the Product or as otherwise specified by Distributor.
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C. Recall. In the event that: (i) any applicable federal, state or foreign regulatory authority should issue a request, directive or order that a Product be recalled; (ii) a court of competent jurisdiction orders such a recall; or (iii) Manufacturer determines that the Product represents a risk of injury or customer deception or is otherwise defective and that the recall of a Product is appropriate (“Recall”), Manufacturer shall have sole right and responsibility for implementing the Recall. Distributor will provide cooperation and assistance to Manufacturer in connection therewith, as may be reasonably requested by Manufacturer. Manufacturer shall be solely responsible for all expenses affecting such Recall (including any reasonable out-of-pocket expenses incurred by Distributor in connection with such cooperation, as directed in writing by Manufacturer).
| 8. | INDEMNIFICATION. |
A. Indemnity Obligations for Intellectual Property Infringement. Manufacturer agrees to defend, indemnify, and hold harmless Distributor from and against any and all claims, losses, damages, suits, expenses (including reasonable attorneys’ fees), and costs (collectively “Claims”) brought or alleged by a third party that the Manufacturer IP or any Products sold to Distributor infringe any U.S. patent, trademark, or copyright. Distributor shall reasonably cooperate with Manufacturer, its insurance company, and its legal counsel in its defense of such Claims. If the use or sale of any Products furnished under this Agreement is enjoined as a result of a Claim, Manufacturer shall either obtain on behalf of the Distributor the right to continue to use or sell such Products, substitute an equivalent product reasonably acceptable to Distributor in its place, or reimburse Distributor the purchase price of the Products, costs incurred by Distributor as a result of such cancellation, and any and all losses or costs incurred as a result of Distributor’s breach of any purchaser order or other agreement with its customers. Notwithstanding the foregoing, this indemnity shall not apply or cover any Claims based upon any infringement or alleged infringement of any patent, trademark, or copyright resulting from the alteration or unauthorized (by Manufacturer) use of any Manufacturer IP or the Products by Distributor or a Distributor representative or the combination of any Products with any other products or the combination of any Manufacturer IP with any other mark, if such infringement claim would have been avoided but for such alteration, combination, or unauthorized use by Distributor or any Distributor representative. Distributor shall also have the right to participate in the defense of any such action and have the right to hire its own legal counsel at Distributor’s expense. This indemnity shall not cover any Claims in which Distributor fails to provide Manufacturer with prompt written notice of the Claim that lack of notice materially prejudices the defense of the Claim.
B. Distributor agrees to defend, indemnify, and hold harmless Manufacturer from and against any and all Claims brought or alleged by a third party based upon any infringement or alleged infringement of any patent, trademark, or copyright resulting from the alteration or unauthorized (by Manufacturer) use of any Manufacturer IP or the Products by Distributor or a Distributor representative or the combination of any Products with any other products or the combination of any Manufacturer IP with any other mark, if such infringement claim would have been avoided but for such alteration, combination, or unauthorized use by Distributor or any Distributor representative. Manufacturer shall reasonably cooperate with Distributor, its insurance company and its legal counsel in its defense of such Claims. Manufacturer shall also have the right to participate in the defense of any such action and have the right to hire its own legal counsel at Distributor’s expense. This indemnity shall not cover any Claims in which Manufacturer fails to provide Distributor with prompt written notice of the Claim which lack of notice materially prejudices the defense of the Claim.
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C. Manufacturer’s Additional Indemnity Obligations. Notwithstanding anything herein to the contrary, in addition to all other rights and remedies available at law or in equity, Manufacturer hereby agrees to defend, indemnify, and hold harmless Distributor from and against any and all third party Claims (i) arising out of any defects in any Products existing at the time such Products are sold by Manufacturer to Distributor, or (ii) arising out of the negligent acts or omissions or willful misconduct of Manufacturer, its employees, agents, or representatives with respect to the Products or its performance of this Agreement. Distributor shall reasonably cooperate with Manufacturer, its insurance company, and its legal counsel in its defense of such Claims. Distributor shall also have the right to participate in the defense of any such action and have the right to hire its own legal counsel at Distributor’s expense. This indemnity shall not cover any Claims in which Distributor fails to provide Manufacturer with prompt written notice of the Claim which lack of notice materially prejudices the defense of the Claim.
D. Distributor’s Indemnity Obligations to Manufacturer. Distributor hereby agrees to defend, indemnify, and hold harmless Manufacturer, its affiliates, and their respective officers directors, employees, and agents from and against any and all Claims (i) arising out of the negligent acts or omissions or willful misconduct of Distributor, its employees, agents, or representatives with respect to its performance of this Agreement, sale of the Products, or otherwise, (ii) arising out of the alteration or modification of the Products or Manufacturer IP by Distributor or its employees, agents, or representatives, or (iii) alleging that the Distributor Marks infringe or otherwise violate the intellectual property rights of a third party. This indemnity shall not cover any Claims in which Manufacturer fails to provide Distributor with prompt written notice which lack of notice prejudices the defense of the Claim. Manufacturer shall also have the right to participate in the defense of any such action and have the right to hire its own legal counsel at Manufacturer’s expense.
E. Settlement of Claims. In no event shall a party seeking or entitled to indemnification from a Party hereunder settle, compromise, agree to a judgment, or take any similar action with respect to any Claim without the written consent of the Party from whom indemnification is sought.
9. LIMITATION OF LIABILITY.
EXCEPT FOR THE PARTIES’ INDEMNIFICATION OBLIGATIONS UNDER SECTION 8 OF THIS AGREEMENT AND CONFIDENTIALITY OBLIGATIONS UNDER SECTION 5 OF THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BY LIABLE UNDER THIS AGREEMENT TO THE OTHER PARTY FOR ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT, STATUTORY, SPECIAL, OR PUNITIVE DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF USE, LOSS OF TIME, INCONVENIENCE, LOSS BUSINESS OPPORTUNITIES, DAMAGE TO GOODWILL OR REPUTATION, OR LOSS OF DATA, REGARDLESS OF WHETHER SUCH LIABILITY IS BASED ON BREACH OF CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE, AND EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR SUCH DAMAGES COULD HAVE BEEN REASONABLY FORESEEN.
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10. TERM. This Agreement shall commence on the Effective Date and shall end on the first anniversary of the Effective Date (the “Initial Term”) unless earlier terminated pursuant to Section 11 hereof. The Initial Term shall automatically renew for successive renewal terms of one (1) year each (each, a “Renewal Term”), unless either Party provides the other Party with written notice of its intention not to renew the Initial Term or any Renewal Term, as applicable, at least sixty (60) days prior to the expiration of the then current Initial Term or Renewal Term.
11. TERMINATION.
A. Termination for Breach. Either Party may terminate this Agreement at any time in the event of a material breach by the other Party that remains uncured after thirty (30) calendar days following written notice thereof. Such termination shall be effective immediately and automatically upon the expiration of the applicable notice period, without further notice or action by either Party. Termination shall be in addition to any other remedies that may be available to the non-breaching Party.
B. Termination for Financial Insecurity. Either Party may terminate this Agreement and any outstanding Purchase Orders (to the extent the Products have not already been delivered to the carrier for shipment) immediately at its option upon written notice if the other Party: (i) becomes or is declared insolvent or bankrupt; (ii) is the subject of a voluntary or involuntary bankruptcy or other proceeding related to its liquidation or solvency, which proceeding is not dismissed within sixty (60) calendar days after its filing; (iii) ceases to do business in the normal course; or (iv) makes an assignment for the benefit of creditors. This Agreement shall terminate immediately and automatically upon any determination by a court of competent jurisdiction that either Party is excused or prohibited from performing in full all obligations hereunder, including, without limitation, rejection of this Agreement pursuant to 11 U.S.C. §365.
C. Termination for Failure to Meet Minimum Purchase Commitments. Manufacturer may terminate this Agreement at any time upon written notice to Distributor if Distributor fails to satisfy the Minimum Purchase Threshold (as defined in Exhibit C) for any applicable period as set forth on Exhibit C attached hereto and incorporated herein by reference. At Manufacturer’s option, Manufacturer may elect to suspend a decision to terminate this Agreement as permitted under this Section 11.C. for an indefinite period, but may, in the meantime upon written notice to Distributor, terminate Distributor’s exclusive rights under Section 1.A. above.
D. Obligations upon Termination. Upon termination of this Agreement, Distributor shall cease to be an authorized reseller of the Products and (i) all unaccepted Purchase Orders may be cancelled by Distributor or Manufacturer without liability, and (ii) Distributor may, at its option, resell, and deliver to Manufacturer, free and clear of all liens and encumbrances, any or all of the Products that (A) are subject to Purchase Orders accepted by Manufacturer whether or not the applicable the Products have been shipped as of the date of termination and (B) were manufactured, shipped, or received as of the date of termination, in each case that are in new condition and in the original factory packaging at the original purchase price of any such Products that Distributor elects to resell to Manufacturer less a restocking charge of 50% of such amount payable by Manufacturer upon receipt of such Products. Restocking is waived in the event the Manufacturer terminates Distributor, other than if termination is a Termination for Breach as outlined in 11.A. Within ninety (90) calendar days of termination of this Agreement, Distributor shall remove and not thereafter use any sign, display, or other advertising or marketing means containing Manufacturer Marks, except as provided in this section. Distributor may continue to use in-store materials containing the Manufacturer IP as reasonably required for the resale of the Products that may be remaining in Distributor’s possession after termination, which materials Distributor may continue to utilize until all remaining Products have been sold or one hundred eighty (180) calendar days after termination, whichever comes first, after which Distributor shall cease the use of any such Manufacturer IP.
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12. COMPLIANCE WITH LAWS. Distributor acknowledges and understands that the Products may be subject to restrictions upon export from the United States and upon resale after export. Distributor therefore represents and warrants that it shall comply fully with all relevant regulations of the U.S. Department of Commerce, with the U.S. Export Administration Act, and with any other import and/or export control laws or regulations of the United States or any other jurisdiction.
13. GENERAL TERMS.
A. Independent Contractors. Nothing in this Agreement, and no course of dealing between the Parties, shall be construed to create or imply an employment or agency relationship or a partnership or joint venture relationship between the Parties or between one Party and the other Party’s employees or agents. Neither Manufacturer nor Distributor has the authority to bind the other, to incur any liability, or otherwise act on behalf of the other. Each Party shall be solely responsible for payment of its employees’ salaries (including withholding of income taxes and social security), workers’ compensation, and all other employment benefits.
B. Assignment. Neither this Agreement, nor any right or interest herein, may be assigned, in whole or in part, without the express written consent of the other Party. Any assignment without such consent shall be null and void. Notwithstanding the foregoing, the Distributor may subcontract its rights or obligations under this Agreement with the prior written consent of Manufacturer. Either party may assign this Agreement if the assignment is carried out as part of a merger, restructuring, or reorganization, or sale or transfer of all or substantially all of a Party’s assets. This Agreement shall be binding upon and inure to the benefit of the Parties hereto, their successors and legal representatives. Except as set forth in Section 8, there are no third-party beneficiaries to this Agreement.
C. Notices. Unless otherwise agreed to by the Parties, all notices shall be deemed effective when received and made in writing by either (i) certified mail, return receipt requested, (ii) nationally recognized overnight courier, or (iii) fax with confirmation, addressed to the party to be notified at the following address or to such other address as such Party shall specify by like notice hereunder:
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If to Manufacturer:
BIDI VAPOR, LLC
4460 OLD DIXIE HWY
GRANT-VALKARIE, FL 32949
| Attn: | BIDI VAPOR - CORPORATE |
| Email: | ADMIN@BIDIVAPOR.COM |
| Fax: | 833-367-2434 |
If to Distributor:
Kaival Brands Innovations Group, Inc.
401 N. WICKHAM RD.
MELBOURNE, FL 32935
| Attn: | KAVL - CORPORATE |
| Email: | ADMIN@KAIVALBRANDS.COM |
| Fax: | 833-452-4825 |
(with a copy to, which does not serve as notice):
Baker & Hostetler LLP
200 S. ORANGE AVE., STE 2300
ORLANDO, FL 32801
Attn: ALISSA LUGO & KEITH DURKIN
Email: alugo@bakerlaw.com
kdurkin@bakerlaw.com
Fax: 407-841-0168
Either Party, by written notice to the other pursuant to this section, may change its address or designees for receiving such notices.
D. Force Majeure. Neither Party shall liable hereunder for any failure or delay in the performance of its obligations under this Agreement if such failure or delay is on account of causes beyond its control, including labor disputes, civil commotion, war, fires, floods, inclement weather, governmental regulations or controls, casualty, government authority, strikes, or acts of God, in which event the non-performing Party shall be excused from its obligations for the period of the delay and for a reasonable time thereafter. Each Party shall use reasonable efforts to notify the other Party of the occurrence of such an event within three (3) business days of its occurrence. Notwithstanding anything to the contrary contained herein, in no event shall the COVID-19 pandemic or government actions taken in connection with the same (or any future pandemic or government actions taken in connection with the same) constitute an event of force majeure under this Section 13.D. or otherwise prohibit or restrict Manufacturer’s rights to terminate this Agreement for failure of Distribute to meet the Minimum Purchase Threshold set forth under Section 11.C. hereof.
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E. Governing Law; Venue; Jury Waiver. This Agreement shall be governed by the laws of the State of Florida, without giving effect to the principles of conflicts of law of such state and shall be binding upon the Parties hereto in the United States and worldwide. Any claims or legal actions by one Party against the other arising under this Agreement or concerning any rights under this Agreement shall be commenced and maintained in any state or federal court located in Orange County, Florida. Both Parties hereby submit to the jurisdiction and venue of any such court. THE PARTIES FURTHER AGREE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM, COUNTERCLAIM, OR ACTION ARISING FROM THE TERMS OF THIS AGREEMENT.
F. Attorney’s Fees. If either Party incurs any legal fees associated with the enforcement of this Agreement or any rights under this Agreement, the prevailing Party shall be entitled to recover its reasonable attorney’s fees and any court, arbitration, mediation, or other litigation expenses from the other Party.
G. Survival. The provisions of this Agreement, which by their sense and context should survive any termination of expiration of this Agreement, including without limitation sections 5 (confidentiality), 7 (warranty), 8 (indemnification), 9 (limitation of liability), 12 (compliance with laws), and 13 (general terms) shall so survive.
H. Authorized Signatories. It is agreed and warranted by the Parties that the individuals signing this Agreement on behalf of the respective Parties are authorized to execute such an agreement. No further proof of authorization shall be required.
I. Severability. If any provision or portion of this Agreement shall be held by a court of competent jurisdiction to be illegal, invalid, or unenforceable, the remaining provisions or portions shall remain in full force and effect.
J. No Strict Construction. This Agreement shall not be construed more strongly against either Party regardless of which Party is more responsible for its preparation.
K. Counterparts. This Agreement may be executed by facsimile and in one or more counterparts, each of which will be deemed to be an original, but all of which together will constitute one and the same instrument, without necessity of production of the others.
L. Entire Agreement; Modification; Waiver. This Agreement is the entire agreement between the Parties with respect to the subject matter and supersedes any prior agreement or communications between the Parties hereto, whether written or oral. This Agreement may be modified 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 provision thereafter.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed by their duly authorized representatives as of the 21ST day of May, 2020, to be effective as of the the Effective Date.
MANUFACTURER
BIDI VAPOR, LLC
By: /s/ Nirajkumar Patel
Name: Nirajkumar Patel
Title: Manager
DISTRIBUTOR
KAIVAL BRANDS INNOVATIONS GROUP, INC.
By: /s/ Eric Mosser
Name: Eric Mosser
Title: Chief Operating Officer
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Exhibit 10.6
AMENDED AND RESTATED
NON-EXCLUSIVE SUB-DISTRIBUTION AGREEMENT
THIS AMENDED AND RESTATED NON-EXCLUSIVE SUB-DISTRIBUTION AGREEMENT (this “Agreement”) is entered into as of the 21ST of May, 2020, and is effective as of the 3RD day of April, 2020 (the “Effective Date”) by and between KAIVAL BRANDS INNOVATIONS GROUP, INC., a Delaware corporation (“Distributor”), and FAVS BUSINESS, LLC, a Georgia limited liability company (“Sub-Distributor”). Distributor and Sub-Distributor are each referred to herein as a “Party” and collectively, the “Parties.”
RECITALS
WHEREAS, Bidi Vapor, LLC, a Florida limited liability company (“Manufacturer”), is in the business of developing electronic nicotine delivery systems and related components (all such products whether now or hereafter made available for sale by Manufacturer being hereinafter referred to as the “Products”).
WHEREAS, Distributor has entered into that certain Amended and Restated Exclusive Distribution Agreement dated as of May 21, 2020, and effective as of March 9, 2020 (as the same may be amended or otherwise modified from time to time, the “Distribution Agreement”) with Manufacturer pursuant to which Manufacturer has granted Distributor an exclusive worldwide right to distribute the Products for sale and resale to both retail level customers (“Retail Customers”) and non-retail level customers, including without limitation, to wholesale customers and sub-distributors (“Non-Retail Customers”).
WHEREAS, subject to the terms and conditions of this Agreement, Sub-Distributor wishes to be appointed, and Distributor is willing to appoint Sub-Distributor, as a non-exclusive sub-distributor of the Products solely to Non-Retail Customers (“Non-Retail Customers”) located within the Continental United States (the “Territory”; all Non-Retail Customers located within the Territory being hereinafter referred to as “Authorized Customers”).
WHEREAS, Distributor and Sub-Distributor previously entered into that certain Non-Exclusive Sub-Distribution Agreement, effective as of April 3, 2020 (the “Prior Agreement”).
WHEREAS, the Parties wish to amend and restate the Prior Agreement for purposes of clarifying certain terms therein to more accurately reflect the Parties’ intentions and desire for this Agreement to be effective as of the date the Prior Agreement was entered into.
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, Distributor and Sub-Distributor, intending to be legally bound, hereby agree as follows:
1. APPOINTMENT; NO EXCLUSIVITY; MARKETING AND SUPPORT.
A. Appointment; No Exclusivity. Subject to the terms and conditions set forth in this Agreement, Distributor hereby appoints Sub-Distributor as a non-exclusive sub-distributor of the Products solely to Authorized Customers. Sub-Distributor accepts the appointment as one of Distributor’s non-exclusive sub-distributors of the Products solely to Authorized Customers and agrees to buy for resale, upon the terms and conditions set forth herein, the Products in such quantities as Sub-Distributor shall need to properly service the market comprised solely of Authorized Customers. Distributor represents and warrants that the appointment of and sale of the Products to Sub-Distributor under this Agreement does not violate any obligations or contracts of Distributor. As a condition of exclusivity, Distributor agrees not to represent or sell other products, which Manufacturer may reasonably determine to be competitive with the Products, without written approval from Manufacturer. For purposes of clarification, during the term of this Agreement, (i) Distributor shall be free to sell any Products to any Non-Retail Customer located within the Territory (i.e., Sub-Distributor’s rights hereunder are non-exclusvie) and (ii) Sub-Distributor will not directly sell any Products to any Retail Customer anywhere in the world or to any Non-Retail Customer located outside of the Territory.
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B. Marketing and Support. Distributor will be solely responsible to provide Sub-Distributor with all branding, logos, and marketing materials to be utilized by Sub-Distributor in connection with Sub-Distributor’s marketing and promotion of the Products; provided, however, Sub-Distributor shall bear all expenses related to reproduction and distribution of the same. Sub-Distributor agrees to use its best efforts to promote, develop a market, sell, and distribute the Products to Authorized Customers. Among such other actions as may be necessary to generate sales of the Products, Sub-Distributor will perform at its expense and to the reasonable satisfaction of Distributor the following duties:
| i. | Sub-Distributor will engage in sales promotion activities in which the Products shall be designated by their correct names and identified as the Products of Manufacturer being marketed by Sub-Distributor as an independent distributor. |
| ii. | Sub-Distributor will process all sales by Sub-Distributor to Authorized Customers. |
| iii. | Sub-Distributor shall at all times conduct its business in a manner that will reflect favorably on Manufacturer, Distributor and the Products and will not engage in any deceptive, misleading, illegal, or unethical business practice. In performing its obligations hereunder, Sub-Distributor agrees not to make any representations or give any warranties or guarantees to any person with respect to the Products, other than in compliance with Section 7.A. hereof or otherwise expressly authorized in writing by Distributor. |
| iv. | Sub-Distributor will comply with all applicable laws and regulations and will not assist or participate in any violation of laws or regulations applicable to Manufacturer, Distributor, or Sub-Distributor. |
Sub-Distributor shall be responsible for all expenses incurred by it in connection with the implementation and performance of its duties and obligations under this Agreement, including, without limitation: (i) salaries or compensation for its personnel; (ii) costs and expenses associated with establishing and maintain its sales organization and offices; and (iii) marketing, advertising, and promotion expenses.
2. PURCHASE ORDERS; PRICING.
A. Purchase Orders. Sub-Distributor shall order the Products in accordance with the terms and conditions of this Agreement. Each order for the purchase of the Products (a “Purchase Order”) must be submitted to Distributor by Sub-Distributor by email or Distributor’s electronic data interchange (EDI) system. Each Purchase Order shall specify (i) the quantity of the Products being ordered, (ii) the applicable Wholesale Minimum Price (as defined below) for the Products ordered, (iii) the price to be paid by Sub-Distributor to Distributor for the Products ordered, (iv) payment terms granted by Distributor, and (v) the requested receipt date and delivery instructions for the applicable Products ordered. Receipt dates must be during the term of this Agreement, except Sub-Distributor may request, subject to Distributor’s acceptance in Distributor’s sole and absolute discretion, a Purchase Order with a requested receipt date after the expiration or termination of this Agreement, in which case, if accepted by Distributor, the terms and conditions of this Agreement shall apply to such purchase, but under no circumstances should such purchase be deemed to be or construed as being a renewal or extension of this Agreement or the exclusivity rights granted to Sub-Distributor herein. The Parties agree that to the extent that any of the terms and conditions of this Agreement conflict or are inconsistent with the terms or conditions of any Purchase Order submitted by Sub-Distributor, the terms and conditions of this Agreement shall prevail and control to the extent of any such conflict or inconsistency, unless the Purchase Order containing such conflicting or inconsistent terms and conditions is countersigned by Distributor, in which case the terms and conditions set forth in such Purchase Order shall prevail and control to the extent of any such conflict or inconsistentcy.
B. Acceptance of Purchase Order. A Purchase Order submitted by Sub-Distributor shall be deemed to have been accepted by, and shall be binding upon, Distributor when it is countersigned by Distributor or if it is not rejected by Distributor, in whole or in part, by written notice to Sub-Distributor sent within five (5) business days of its receipt by Distributor. Notwithstanding anything contained herein to the contrary, Distributor may only reject, cancel, or delay any Purchase Order placed by Sub-Distributor, whether or not such Purchase Order has been previously accepted by Distributor, pursuant to Section 3.B. below. In the event Distributor is unable to fill all of a Purchase Order for any reason, it shall promptly notify Sub-Distributor and Sub-Distributor shall have the right, in its discretion, to cancel the subject Purchase Order. Sub-Distributor may change or cancel any of its Purchase Orders without penalty so long as Sub-Distributor provides written notice to Distributor and the Products have not yet been shipped, or otherwise delivered to Sub-Distributor; provided, that Sub-Distributor shall pay to Distributor a fee of twenty five percent (25%) of the aggregate purchase price of the Products that are subject to any Purchase Order, which has been materially changed or canceled by Sub-Distributor.
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C. Invoices and Payment Terms. Distributor shall send Sub-Distributor invoices via mail or email for each shipment. Sub-Distributor shall notify Distributor in writing if Sub-Distributor disputes any charges set forth on an invoice within five (5) calendar days after receipt of such invoice, specifying in reasonable detail the items disputed and basis for the dispute. Thereafter, the Parties will work in good faith to resolve such dispute as quickly as is reasonably possible. If any such dispute is not resolved within thirty (30) calendar days after Sub-Distributor’s receipt of the applicable invoice, then Distributor may suspend any further shipments of the Products under this Agreement until such time as the dispute is resolved and all amounts agreed upon by the Parties to be due are paid in full. All undisputed amounts on each invoice are due and payable within seven (7) calendar days from the date of Sub-Distributor’s receipt of the invoice. Payments due hereunder must be made, at Sub-Distributor’s option, by ACH, wire transfer, certified check, or such other method as may be agreed to by the Parties. Distributor reserves the right to change or modify payment terms upon thirty (30) calendar days’ written notice to Sub-Distributor at any time following a default by Sub-Distributor of its payment obligations under this Agreement with such changes or modifications to be effective for Purchase Orders submitted after such thirty (30) calendar day period. Invoices will be issued upon shipment of the Product to Sub-Distributor or to Sub-Distributor’s customer via direct shipment.
D. Prices; Price Reductions. Distributor has a legitimate interest in ensuring that a minimum price be maintained for all sales by Sub-Distributor of its Products. Accordingly, Distributor will establish minimum pricing for all sales by Sub-Distributor of its Products to Authorized Customers (“Wholesale Minimum Price”) and Sub-Distributor will not sell any Products to Authorized Customers below the applicable Wholesale Minimum Price. The initial Wholesale Minimum Price for the Products are included as Exhibit A attached hereto. Sub-Distributor agrees to pay Distributor the price per Product identified in Exhibit A attached hereto. Distributor retains the right to make changes to Wholesale Minimum Pricing and Sub-Distributor pricing upon providing not less than three (3) days’ prior written notice to Sub-Distributor. Any price reduction to the Wholesale Minimum Pricing or Sub-Distributor pricing with respect to affected Products shall apply to Purchase Orders that have not yet been accepted or deemed accepted by Distributor and Purchase Orders thereafter submitted by Sub-Distributor. Any price increase to the Wholesale Minimum Pricing or Sub-Distributor pricing with respect to affected Products shall apply to Purchase Orders thereafter submitted by Sub-Distributor; provided that Sub-Distributor shall have the right, at its option, to cancel, in whole or in part, any outstanding Purchase Orders for affected Products not yet accepted by Distributor. Prices do not include, and Distributor shall not be responsible for any required federal, state, or local sales or other taxes, duties, export or custom charges, VAT charges, brokerage, or other fees.
E. Past Due Amounts. If any undisputed amount due Distributor by Sub-Distributor, for any reason, becomes past due, Distributor shall provide written notice to Sub-Distributor and, if such amounts remain outstanding for fifteen (15) calendar days following receipt of such notice, Distributor may at its option and without further notice withhold further shipments or deliveries of the Products under this Agreement until such past due invoices are paid in full.
F. Taxes. Sub-Distributor shall be responsible for any national, state, or local sales, use, value added, or other tax, tariff, duty or assessment levied or imposed by the United States or any foreign governmental authority arising out of or related to any of the transactions contemplated by this Agreement, including sales of the Products to Sub-Distributor, other than taxes based upon Distributor’s income. Sub-Distributor must pay directly, or reimburse Distributor for the amount of such sales, use, value added, or other tax, tariff, duty or assessment that Distributor is at any time obligated to pay or collect with respect to or arising out of the sale of the Products under this Agreement.
| 3. | SHIPMENTS; PRODUCTS. |
A. Shipment Terms; Title and Risk of Loss. All of the Products purchased by Sub-Distributor under this Agreement will be packaged for shipment in Distributor’s and/or Manufacturer’s standard containers, marked for shipment to either Sub-Distributor or the applicable Authorized Customer at the address specified by Sub-Distributor in the Purchase Order (the applicable destination being hereinafter referred to as the “Destination”). All costs of shipment shall be paid by Distributor. Title and risk of loss will pass to Sub-Distributor upon the tender of the Products by Distributor to the first shipping carrier. Distributor shall ship the Products on or before the requested receipt date designated in a Purchase Order (provided, that such receipt date is not less than twenty (20) business days after the Purchase Order is received by Distributor) and shall promptly notify Sub-Distributor when Distributor knows or has reason to believe that a shipment will not be delivered by the requested receipt date. Any expense for any special packaging or any special delivery requested by Sub-Distributor shall be borne by Sub-Distributor.
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B. Distributor’s Right to Delay or Cancel. Notwithstanding Distributor’s obligations in this Agreement, Distributor may refuse, cancel, or delay any shipment of the Products when Sub-Distributor is delinquent in any payment for more than (30) calendar days, or when Sub-Distributor is in material breach of its obligations under this Agreement, which has not been cured pursuant to Section 11.A.
C. Acceptance of Shipments. Sub-Distributor shall have ten (10) business days from the date of arrival of the shipment of the Products at the applicable Destination to inspect the Products and notify Distributor in writing of any discrepancies with respect to such Products, including but not limited to any discrepancies in the quantity or quality of the Products. The Products with respect to which Sub-Distributor does not notify Distributor of any discrepancies in writing shall be deemed accepted by Sub-Distributor.
D. Adding or Deleting the Products; Manufacturing Changes to the Products. Distributor shall have the right at any time upon seven (7) calendar days’ prior written notice to Sub-Distributor to add or delete the Products. Should Distributor want to make any changes to the Products, it shall first notify the Sub-Distributor at least seven (7) calendar days before the change is implemented, and such changes shall be agreed to by the Parties in writing before shipment of any Products that include any such changes. Notwithstanding the foregoing, for changes required by regulatory or certification authorities or otherwise deemed necessary by Distributor for any reason, including health, safety, welfare, technology, intellectual property, trade secret, competitive, materials sourcing, or other matters, Distributor will notify Sub-Distributor at least three (3) calendar days before the change is implemented, but Sub-Distributor’s approval of such changes shall not be required.
| 4. | INTELLECTUAL PROPERTY RIGHTS. |
A. Manufacturer’ Marks. Subject to the terms and conditions of this Agreement and the Distribution Agreement, during the term of this Agreement, Distributor hereby grants to Sub-Distributor a revocable, sublicensable, non-transferable, non-exclusive, limited license to use Manufacturer’s logos, trademarks, and trade names, together with all branding and marketing materials created by or on behalf of Manufacturer in connection with the Products (collectively the “Manufacturer IP”), solely in connection with the marketing, advertisement, and sale of the Products to Authorized Customers. Such license shall immediately terminate upon the expiration or termination of this Agreement. Sub-Distributor shall strictly comply with all standards of use for the Manufacturer IP and must at all times display appropriate trademark and copyright notices as instructed by Distributor. Sub-Distributor acknowledges and agrees that the Manufacturer IP and other intellectual property provided to Sub-Distributor by Distributor, if any, are the sole and exclusive property of Manufacturer and/or Distributor, as applicable. Sub-Distributor shall not acquire any right, title, or interest under this Agreement in any patent, copyright, Manufacturer IP, or other intellectual property right of any kind of either Manufacturer or Distributor. No implied license, patent, copyright, or other intellectual property right of Manufacturer or Distributor is granted under this Agreement or otherwise. During the term of this Agreement and thereafter, Sub-Distributor shall not do anything that will in any manner infringe, impeach, dilute, or lessen the value of the Manufacturer IP, patents, copyrights, or other intellectual property of either Manufacturer or Distributor or the goodwill associated therewith or that will tend to prejudice the reputation of the Manufacturer or Distributor or the sale of any Products.
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B. Sub-Distributor Marks. Subject to the terms and conditions of this Agreement, during the term of this Agreement, Sub-Distributor hereby grants Distributor a non-exclusive, royalty free license to use Sub-Distributor’s logos, trademarks, and trade names (the “Sub-Distributor Marks”) on Distributor’s web sites and marketing materials. Such license shall immediately terminate upon the expiration or termination of this Agreement. Distributor shall strictly comply with all standards of use for the Sub-Distributor Marks and must at all times display appropriate trademark and copyright notices as instructed by Sub-Distributor. Distributor acknowledges and agrees that the Sub-Distributor Marks and other intellectual property provided to Distributor by Sub-Distributor, if any, are the sole and exclusive property of Sub-Distributor. Distributor shall not acquire any right, title, or interest under this Agreement in any patent, copyright, Sub-Distributor Marks, or other intellectual property right of any kind of Sub-Distributor. No implied license, patent, copyright, or other intellectual property right of Sub-Distributor is granted under this Agreement or otherwise. During the term of this Agreement and thereafter, Distributor shall not do anything that will in any manner infringe, impeach, dilute, or lessen the value of the Sub-Distributor Marks, patents, copyrights, or other intellectual property of Sub-Distributor or the goodwill associated therewith or that will tend to prejudice the reputation of the Sub-Distributor.
| 5. | CONFIDENTIAL INFORMATION. |
A. Confidential Information. The Parties acknowledge and agree that during the term of this Agreement, each may receive confidential information from the other Party. “Confidential Information” shall mean (i) information relating to a Party’s and its affiliates’ products or business including, but not limited to, the business plans, financial records, customers, suppliers, products, product samples, strategies, inventions, procedures, sales aids or literature, technical data, advice or knowledge, contractual agreements, pricing, price lists, product white papers, plans, designs, specifications, and know-how or other intellectual property, that may be at any time furnished, communicated, or delivered by either Party to the other Party whether in oral, tangible, electronic, or other form and (ii) all other non-public information provided by one Party to the other including, but not limited, to financial, technical, and business information, and all non-promotional materials furnished by one Party to another.
B. Exceptions. The “Receiving Party” shall not have any obligations to preserve the confidential nature of any Confidential Information that (i) Receiving Party can demonstrate by competent evidence was rightfully in the Receiving Party’s possession before receipt from the “Disclosing Party”; (ii) is or becomes a matter of public knowledge through no fault of the Receiving Party; (iii) is rightfully received by Receiving Party from a third party without, to the best of Receiving Party’s knowledge, a duty of confidentiality; (iv) is independently developed by Receiving Party without use of the Confidential Information; or (v) is disclosed by Receiving Party with Disclosing Party’s prior written approval.
C. Use of Confidential Information; Standard of Care. The Receiving Party shall maintain the Confidential Information in confidence and disclose the Confidential Information only to its employees, subcontractors, and consultants who have a need to know such Confidential Information in order to fulfill the business affairs and transactions between the Parties contemplated by this Agreement and who are under confidentiality obligations no less restrictive as, or who have been advised of the confidentiality obligations set forth in, this Agreement. The Receiving Party shall remain responsible for breaches of this Agreement arising from the acts of its employees, subcontractors, and consultants to whom it provides the Disclosing Party’s Confidential information. The Receiving Party shall protect Confidential Information by using the same degree of care as Receiving Party uses to protect its own information of a like nature, but no less than a reasonable degree of care, to prevent the unauthorized use, disclosure, dissemination, or publication of the Confidential Information. The Receiving Party agrees not to use the Disclosing Party’s Confidential Information for its own purpose other than in connection with the transactions contemplated by this Agreement or for the benefit of any third party, without the prior written approval of the Disclosing Party. The Receiving Party shall promptly return or certify destruction of all copies of Confidential Information upon request by the Disclosing Party or upon the expiration or earlier termination of this Agreement.
D. Equitable Relief. The Receiving Party hereby agrees and acknowledges that any breach or threatened breach of this Agreement regarding the treatment of the Confidential Information may result in irreparable harm to the Disclosing Party for which there may be no adequate remedy at law. In addition to other remedies provided by law or at equity, in such event the Disclosing Party shall be entitled to seek an injunction, without bond, preventing any further breach of this Agreement by the Receiving Party.
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6. INSURANCE. Distributor shall maintain, during the term of this Agreement, Commercial General Liability Insurance with minimum limits, including under any General Liability Umbrella Policies, of not less than $2,000,000 combined single limit for bodily injury and property damage on the Products purchased by Sub-Distributor for resale. Distributor shall use commercially reasonable efforts to provide Sub-Distributor with thirty (30) calendar days’ prior written notice of any change or cancellation in any applicable insurance policies.
Sub-Distributor shall maintain, during the term of this Agreement, Commercial General Liability Insurance with minimum limits, including under any General Liability Umbrella Policies, of not less than $2,000,000 combined single limit for bodily injury and property damage. Sub-Distributor shall use commercially reasonable efforts to provide Distributor with thirty (30) calendar days’ prior written notice of any change or cancellation in any applicable insurance policies.
7. WARRANTY; RECALL.
A. Warranty. Distributor warrants to Sub-Distributor, for a period of one year from the date of delivery by Distributor to the intended recipient thereof, that any Products delivered by Distributor pursuant to this Agreement shall conform in all material respects to the written specifications for such Products, a copy of which is attached hereto as Exhibit B, and shall be free of defects in materials and workmanship. Distributor further warrants to Sub-Distributor that it has title to the Products to be conveyed hereunder and has the right to sell the same and that at the time of delivery, such Products shall be free of any security interest or other lien or any other encumbrances whatsoever (the warranties provided in the preceding two sentences being hereinafter referred to as the “Limited Warranty”). Except for the Limited Warranty, Distributor makes no warranties or representations to Sub-Distributor or any other person with respect to the Products or any services provided to Sub-Distributor or any other person. Distributor may not change any of the terms of the Limited Warranty at any time, without written consent from Sub-Distributor unless Distributor notifies Sub-Distributor in writing at least one hundred and twenty (120) calendar days prior to any such change. Any such change shall not apply to any Products sold to or ordered by Sub-Distributor prior to the change. Sub-Distributor will not alter the Limited Warranty, warranty disclaimers, and limitation of liability without the prior written authorization of Distributor, nor extend or make any additional warranty or representation regarding the Products unless expressly authorized by Distributor.
THE LIMITED WARRANTY REFERRED TO IN THIS SECTION IS THE ONLY WARRANTY, EXPRESS OR IMPLIED, THAT DISTRIBUTOR MAKES WITH RESPECT TO THE PRODUCTS. DISTRIBUTOR SPECIFICALLY DISCLAIMS ALL OTHER IMPLIED WARRANTIES INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT.
B. Warranty Claims. The Limited Warranty is effective only if Sub-Distributor gives prompt written notice to Distributor of any alleged breach of the Limited Warranty, which notice shall specifically describe the problem and shall state the date of sale and name and location of the recipient of the Product originally shipped by Distributor. Notwithstanding anything to the contrary contained herein, Distributor shall have no obligation under the Limited Warranty unless it receives such notice within thirty (30) days following the expiration of the warranty period. In the event of any breach of the Limited Warranty Distributor’s sole obligation is to replace each non-conforming Product within a reasonable period of time and to pay for the costs of shipment to the original recipient of the Product or as otherwise specified by Sub-Distributor.
C. Recall. In the event that: (i) any applicable federal, state or foreign regulatory authority should issue a request, directive or order that a Product be recalled; (ii) a court of competent jurisdiction orders such a recall; or (iii) Distributor determines that the Product represents a risk of injury or customer deception or is otherwise defective and that the recall of a Product is appropriate (“Recall”), Distributor shall have sole right and responsibility for implementing the Recall. Sub-Distributor will provide cooperation and assistance to Distributor in connection therewith, as may be reasonably requested by Distributor. Distributor shall be solely responsible for all expenses affecting such Recall (including any reasonable out-of-pocket expenses incurred by Sub-Distributor in connection with such cooperation, as directed in writing by Distributor).
| 8. | INDEMNIFICATION. |
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A. Indemnity Obligations for Intellectual Property Infringement. Distributor agrees to defend, indemnify, and hold harmless Sub-Distributor from and against any and all claims, losses, damages, suits, expenses (including reasonable attorneys’ fees), and costs (collectively “Claims”) brought or alleged by a third party that the Manufacturer IP or any Products sold to Sub-Distributor infringe any U.S. patent, trademark, or copyright. Sub-Distributor shall reasonably cooperate with Distributor, its insurance company, and its legal counsel in its defense of such Claims. If the use or sale of any Products furnished under this Agreement is enjoined as a result of a Claim, Distributor shall either obtain on behalf of the Sub-Distributor the right to continue to use or sell such Products, substitute an equivalent product reasonably acceptable to Sub-Distributor in its place, or reimburse Sub-Distributor the purchase price of the Products, costs incurred by Sub-Distributor as a result of such cancellation, and any and all losses or costs incurred as a result of Sub-Distributor’s breach of any purchaser order or other agreement with its customers. Notwithstanding the foregoing, this indemnity shall not apply or cover any Claims based upon any infringement or alleged infringement of any patent, trademark, or copyright resulting from the alteration or unauthorized use of any Manufacturer IP or the Products by Sub-Distributor or a Sub-Distributor representative or the combination of any Products with any other products or the combination of any Manufacturer IP with any other mark, if such infringement claim would have been avoided but for such alteration, combination, or unauthorized use by Sub-Distributor or any Sub-Distributor representative. Sub-Distributor shall also have the right to participate in the defense of any such action and have the right to hire its own legal counsel at Sub-Distributor’s expense. This indemnity shall not cover any Claims in which Sub-Distributor fails to provide Distributor with prompt written notice of the Claim that lack of notice materially prejudices the defense of the Claim.
B. Sub-Distributor agrees to defend, indemnify, and hold harmless Distributor from and against any and all Claims brought or alleged by a third party based upon any infringement or alleged infringement of any patent, trademark, or copyright resulting from the alteration or unauthorized use of any Manufacturer IP or the Products by Sub-Distributor or a Sub-Distributor representative or the combination of any Products with any other products or the combination of any Manufacturer IP with any other mark, if such infringement claim would have been avoided but for such alteration, combination, or unauthorized use by Sub-Distributor or any Sub-Distributor representative. Distributor shall reasonably cooperate with Sub-Distributor, its insurance company and its legal counsel in its defense of such Claims. Distributor shall also have the right to participate in the defense of any such action and have the right to hire its own legal counsel at Sub-Distributor’s expense. This indemnity shall not cover any Claims in which Distributor fails to provide Sub-Distributor with prompt written notice of the Claim which lack of notice materially prejudices the defense of the Claim.
C. Distributor’s Additional Indemnity Obligations. Notwithstanding anything herein to the contrary, in addition to all other rights and remedies available at law or in equity, Distributor hereby agrees to defend, indemnify, and hold harmless Sub-Distributor from and against any and all third party Claims (i) arising out of any defects in any Products existing at the time such Products are sold by Distributor to Sub-Distributor, or (ii) arising out of the negligent acts or omissions or willful misconduct of Distributor, its employees, agents, or representatives with respect to the Products or its performance of this Agreement. Sub-Distributor shall reasonably cooperate with Distributor, its insurance company, and its legal counsel in its defense of such Claims. Sub-Distributor shall also have the right to participate in the defense of any such action and have the right to hire its own legal counsel at Sub-Distributor’s expense. This indemnity shall not cover any Claims in which Sub-Distributor fails to provide Distributor with prompt written notice of the Claim which lack of notice materially prejudices the defense of the Claim.
D. Sub-Distributor’s Indemnity Obligations to Distributor. Sub-Distributor hereby agrees to defend, indemnify and hold harmless Distributor, its affiliates, and their respective officers directors, employees, and agents from and against any and all Claims (i) arising out of the negligent acts or omissions or willful misconduct of Sub-Distributor, its employees, agents, or representatives with respect to its performance of this Agreement, sale of the Products, or otherwise, (ii) arising out of the alteration or modification of the Products or Distributor IP by Sub-Distributor or its employees, agents, or representatives, or (iii) alleging that the Sub-Distributor Marks infringe or otherwise violate the intellectual property rights of a third party. This indemnity shall not cover any Claims in which Distributor fails to provide Sub-Distributor with prompt written notice which lack of notice prejudices the defense of the Claim. Distributor shall also have the right to participate in the defense of any such action and have the right to hire its own legal counsel at Distributor’s expense.
E. Settlement of Claims. In no event shall a party seeking or entitled to indemnification from a Party hereunder settle, compromise, agree to a judgment, or take any similar action with respect to any Claim without the written consent of the Party from whom indemnification is sought.
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9. LIMITATION OF LIABILITY.
EXCEPT FOR THE PARTIES’ INDEMNIFICATION OBLIGATIONS UNDER SECTION 8 OF THIS AGREEMENT AND CONFIDENTIALITY OBLIGATIONS UNDER SECTION 5 OF THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BY LIABLE UNDER THIS AGREEMENT TO THE OTHER PARTY FOR ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT, STATUTORY, SPECIAL, OR PUNITIVE DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF USE, LOSS OF TIME, INCONVENIENCE, LOSS BUSINESS OPPORTUNITIES, DAMAGE TO GOODWILL OR REPUTATION, OR LOSS OF DATA, REGARDLESS OF WHETHER SUCH LIABILITY IS BASED ON BREACH OF CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE, AND EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR SUCH DAMAGES COULD HAVE BEEN REASONABLY FORESEEN.
10. TERM. This Agreement shall commence on the Effective Date and shall end on the first anniversary of the Effective Date (the “Initial Term”) unless earlier terminated pursuant to Section 11 hereof. The Initial Term shall automatically renew for successive renewal terms of one (1) year each (each, a “Renewal Term”), unless either Party provides the other Party with written notice of its intention not to renew the Initial Term or any Renewal Term, as applicable, at least sixty (60) days prior to the expiration of the then current Initial Term or Renewal Term.
11. TERMINATION.
A. Termination for Breach. Either Party may terminate this Agreement at any time in the event of a material breach by the other Party that remains uncured after thirty (30) calendar days following written notice thereof. Such termination shall be effective immediately and automatically upon the expiration of the applicable notice period, without further notice or action by either Party. Termination shall be in addition to any other remedies that may be available to the non-breaching Party.
B. Termination for Financial Insecurity. Either Party may terminate this Agreement and any outstanding Purchase Orders (to the extent the Products have not already been delivered to the carrier for shipment) immediately at its option upon written notice if the other Party: (i) becomes or is declared insolvent or bankrupt; (ii) is the subject of a voluntary or involuntary bankruptcy or other proceeding related to its liquidation or solvency, which proceeding is not dismissed within sixty (60) calendar days after its filing; (iii) ceases to do business in the normal course; or (iv) makes an assignment for the benefit of creditors. This Agreement shall terminate immediately and automatically upon any determination by a court of competent jurisdiction that either Party is excused or prohibited from performing in full all obligations hereunder, including, without limitation, rejection of this Agreement pursuant to 11 U.S.C. §365.
C. Termination for Failure to Meet Minimum Purchase Commitments. Distributor may terminate this Agreement at any time upon written notice to Sub-Distributor if Sub-Distributor fails to satisfy any of the following minimum purchase obligations: (i) purchase by Sub-Distributor of not less than 500,000 Units from Distributor on or before July 31, 2020, and (ii) purchase by Sub-Distributor of not less than 1,000,000 Units from Distributor for each subsequent fiscal quarter throughout the balance of the term. At Distributor’s option, Distributor may elect to suspend a decision to terminate this Agreement as permitted under this Section 11.C. for an indefinite period, but may, in the meantime upon written notice to Sub-Distributor, terminate Sub-Distributor’s rights under Section 1.A. above. A used herein, a “Unit” means each Product as may ultimately be packaged and sold by Distributor to a Retail Customer.
D. Cross Termination with the Distribution Agreement. Sub-Distributor acknowledges and agrees that the appointment by Distributor of Sub-Distributor of the distribution rights set forth in this Agreement are dependent upon the continuation of the Distribution Agreement. In the event the Distribution Agreement expires or is otherwise terminated for any reason, this Agreement shall immediately and automatically terminate without any further action of the Parties.
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E. Obligations upon Termination. Upon termination of this Agreement, Sub-Distributor shall cease to be an authorized sub-distributor of the Products and (i) all unaccepted Purchase Orders may be cancelled by Sub-Distributor or Distributor without liability, and (ii) Sub-Distributor may, at its option, resell, and deliver to Distributor, free and clear of all liens and encumbrances, any or all of the Products that (A) are subject to Purchase Orders accepted by Distributor whether or not the applicable Products have been shipped as of the date of termination and (B) were manufactured, shipped, or received as of the date of termination, in each case that are in new condition and in the original factory packaging at the original purchase price of any such Products that Sub-Distributor elects to resell to Distributor less a restocking charge of 50% of such amount payable by Distributor upon receipt of such Products. Restocking is waived in the event the Distributor terminates Sub-Distributor, other than if termination is a Termination pursuant to 11.A., 11.B., or 11.C. Within ninety (90) calendar days of termination of this Agreement, Sub-Distributor shall remove and not thereafter use any sign, display, or other advertising or marketing means containing Manufacturer IP, except as provided in this section. Sub-Distributor may continue to use in-store materials containing the Manufacturer IP as reasonably required for the resale of the Products that may be remaining in Sub-Distributor’s possession after termination, which materials Sub-Distributor may continue to utilize until all remaining Products have been sold or one hundred eighty (180) calendar days after termination, whichever comes first, after which Sub-Distributor shall cease the use of any such Manufacturer IP.
12. COMPLIANCE WITH LAWS. Sub-Distributor acknowledges and understands that the Products may be subject to restrictions upon export from the United States and upon resale after export. Sub-Distributor therefore represents and warrants that it shall comply fully with all relevant regulations of the U.S. Department of Commerce, with the U.S. Export Administration Act, and with any other import and/or export control laws or regulations of the United States or any other jurisdiction.
13. GENERAL TERMS.
A. Independent Contractors. Nothing in this Agreement, and no course of dealing between the Parties, shall be construed to create or imply an employment or agency relationship or a partnership or joint venture relationship between the Parties or between one Party and the other Party’s employees or agents. Neither Distributor nor Sub-Distributor has the authority to bind the other, to incur any liability, or otherwise act on behalf of the other. Each Party shall be solely responsible for payment of its employees’ salaries (including withholding of income taxes and social security), workers’ compensation, and all other employment benefits.
B. Assignment. Neither this Agreement, nor any right or interest herein, may be assigned, in whole or in part, by Sub-Distributor without the express written consent of Distributor. Any assignment without such consent shall be null and void. For purposes hereof, any assignment that is carried out as part of a merger, restructuring, or reorganization, or sale or transfer of all or substantially all Sub-Distributor’s assets shall require the express written consent of Distributor. This Agreement shall be binding upon and inure to the benefit of the Parties hereto, their successors and legal representatives. Except as set forth in Section 8, there are no third-party beneficiaries to this Agreement.
C. Notices. Unless otherwise agreed to by the Parties, all notices shall be deemed effective when received and made in writing by either (i) certified mail, return receipt requested, (ii) nationally recognized overnight courier, or (iii) fax with confirmation, addressed to the party to be notified at the following address or to such other address as such Party shall specify by like notice hereunder:
If to Distributor:
Kaival Brands Innovations Group, Inc.
4460 Old Dixie Highway
Grant, Florida 32949
Attn: Eric Mosser
Email: eric@kaivalbrands.com
Fax: 833-452-8252
If to Sub-Distributor:
FAVS Business, LLC
2605 Mountain Industrial Boulevard, Suite 8
Tucker, Georgia 30084
Attn: Vinay Thaker
Email: favsllc@gmail.com
Fax: 770-864-9406
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Either Party, by written notice to the other pursuant to this section, may change its address or designees for receiving such notices.
D. Force Majeure. Neither Party shall liable hereunder for any failure or delay in the performance of its obligations under this Agreement if such failure or delay is on account of causes beyond its control, including labor disputes, civil commotion, war, fires, floods, inclement weather, governmental regulations or controls, casualty, government authority, strikes, or acts of God, in which event the non-performing Party shall be excused from its obligations for the period of the delay and for a reasonable time thereafter. Each Party shall use reasonable efforts to notify the other Party of the occurrence of such an event within three (3) business days of its occurrence. Notwithstanding anything to the contrary contained herein, in no event shall the COVID-19 pandemic or government actions taken in connection with the same (or any future pandemic or government actions taken in connection with the same) constitute an event of force majeure under this Section 13.D. or otherwise prohibit or restrict Distributor’s rights to terminate this Agreement for failure of Sub-Distributor to meet minimum purchase commitments under Section 11.C.
E. Governing Law; Venue; Jury Waiver. This Agreement shall be governed by the laws of the State of Florida, without giving effect to the principles of conflicts of law of such state and shall be binding upon the Parties hereto in the United States and worldwide. Any claims or legal actions by one Party against the other arising under this Agreement or concerning any rights under this Agreement shall be commenced and maintained in any state or federal court located in Orange County, Florida. Both Parties hereby submit to the jurisdiction and venue of any such court. THE PARTIES FURTHER AGREE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM, COUNTERCLAIM, OR ACTION ARISING FROM THE TERMS OF THIS AGREEMENT.
F. Attorney’s Fees. If either Party incurs any legal fees associated with the enforcement of this Agreement or any rights under this Agreement, the prevailing Party shall be entitled to recover its reasonable attorney’s fees and any court, arbitration, mediation, or other litigation expenses from the other Party.
G. Survival. The provisions of this Agreement which by their sense and context should survive any termination of expiration of this Agreement, including without limitation sections 5 (confidentiality), 7 (warranty), 8 (indemnification), 9 (limitation of liability), 12 (compliance with laws), and 13 (general terms) shall so survive.
H. Authorized Signatories. It is agreed and warranted by the Parties that the individuals signing this Agreement on behalf of the respective Parties are authorized to execute such an agreement. No further proof of authorization shall be required.
I. Severability. If any provision or portion of this Agreement shall be held by a court of competent jurisdiction to be illegal, invalid, or unenforceable, the remaining provisions or portions shall remain in full force and effect.
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J. No Strict Construction. This Agreement shall not be construed more strongly against either Party regardless of which Party is more responsible for its preparation.
K. Counterparts. This Agreement may be executed by facsimile and in one or more counterparts, each of which will be deemed to be an original, but all of which together will constitute one and the same instrument, without necessity of production of the others.
L. Entire Agreement; Modification; Waiver. This Agreement is the entire agreement between the Parties with respect to the subject matter and supersedes any prior agreement or communications between the Parties hereto, whether written or oral. This Agreement may be modified 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 provision thereafter.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed by their duly authorized representatives as of the 21ST day of May, 2020, to be effective as of the Effective Date.
DISTRIBUTOR
KAIVAL BRANDS INNOVATIONS GROUP, INC.
By: /s/ Eric Mosser
Name: Eric Mosser
Title: Chief Operating Officer
SUB-DISTRIBUTOR
FAVS BUSINESS, LLC
By: /s/ Vinay Thaker
Name: Vinay Thaker
Title: Manager
ACKNOWLEDGMENT AND CONSENT
By signing below, Manufacturer hereby acknowledges and consents to Distributor entering into this Agreement with Sub-Distributor.
BIDI VAPOR, LLC
By: /s/ Nirjkumar Patel
Name: Nirajkumar Patel
Title: Manager
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Exhibit 10.7
AMENDED AND RESTATED
NON-EXCLUSIVE SUB-DISTRIBUTION AGREEMENT
THIS AMENDED AND RESTATED NON-EXCLUSIVE SUB-DISTRIBUTION AGREEMENT (this “Agreement”) is entered into as of the 26TH of May, 2020, and is effective as of the 11TH day of April, 2020 (the “Effective Date”) by and between KAIVAL BRANDS INNOVATIONS GROUP, INC., a Delaware corporation (“Distributor”), and COLONIAL WHOLESALE DISTRIBUTING, INC., a Florida corporation (“Sub-Distributor”). Distributor and Sub-Distributor are each referred to herein as a “Party” and collectively, the “Parties.”
RECITALS
WHEREAS, Bidi Vapor, LLC, a Florida limited liability company (“Manufacturer”), is in the business of developing electronic nicotine delivery systems and related components (all such products whether now or hereafter made available for sale by Manufacturer being hereinafter referred to as the “Products”).
WHEREAS, Distributor has entered into that certain Amended and Restated Exclusive Distribution Agreement dated as of May 21, 2020, and effective as of March 9, 2020 (as the same may be amended or otherwise modified from time to time, the “Distribution Agreement”) with Manufacturer pursuant to which Manufacturer has granted Distributor an exclusive worldwide right to distribute the Products for sale and resale to both retail level customers (“Retail Customers”) and non-retail level customers, including without limitation, to wholesale customers and sub-distributors (“Non-Retail Customers”).
WHEREAS, subject to the terms and conditions of this Agreement, Sub-Distributor wishes to be appointed, and Distributor is willing to appoint Sub-Distributor, as a non-exclusive sub-distributor of the Products solely to Non-Retail Customers (“Non-Retail Customers”) located within the Continental United States (the “Territory”; all Non-Retail Customers located within the Territory being hereinafter referred to as “Authorized Customers”).
WHEREAS, Distributor and Sub-Distributor previously entered into that certain Non-Exclusive Sub-Distribution Agreement, effective as of April 11, 2020 (the “Prior Agreement”).
WHEREAS, the Parties wish to amend and restate the Prior Agreement for purposes of clarifying certain terms therein to more accurately reflect the Parties’ intentions and desire for this Agreement to be effective as of the date the Prior Agreement was entered into.
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, Distributor and Sub-Distributor, intending to be legally bound, hereby agree as follows:
1. APPOINTMENT; NO EXCLUSIVITY; MARKETING AND SUPPORT.
A. Appointment; No Exclusivity. Subject to the terms and conditions set forth in this Agreement, Distributor hereby appoints Sub-Distributor as a non-exclusive sub-distributor of the Products solely to Authorized Customers. Sub-Distributor accepts the appointment as one of Distributor’s non-exclusive sub-distributors of the Products solely to Authorized Customers and agrees to buy for resale, upon the terms and conditions set forth herein, the Products in such quantities as Sub-Distributor shall need to properly service the market comprised solely of Authorized Customers. Distributor represents and warrants that the appointment of and sale of the Products to Sub-Distributor under this Agreement does not violate any obligations or contracts of Distributor. For purposes of clarification, during the term of this Agreement, (i) Distributor shall be free to sell any Products to any Non-Retail Customer located within the Territory (i.e., Sub-Distributor’s rights hereunder are non-exclusvie) and (ii) Sub-Distributor will not directly sell any Products to any Retail Customer anywhere in the world or to any Non-Retail Customer located outside of the Territory.
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B. Marketing and Support. Distributor will be solely responsible to provide Sub-Distributor with all branding, logos, and marketing materials to be utilized by Sub-Distributor in connection with Sub-Distributor’s marketing and promotion of the Products; provided, however, Sub-Distributor shall bear all expenses related to reproduction and distribution of the same. Sub-Distributor agrees to use its best efforts to promote, develop a market, sell, and distribute the Products to Authorized Customers. Among such other actions as may be necessary to generate sales of the Products, Sub-Distributor will perform at its expense and to the reasonable satisfaction of Distributor the following duties:
| i. | Sub-Distributor will engage in sales promotion activities in which the Products shall be designated by their correct names and identified as the Products of Manufacturer being marketed by Sub-Distributor as an independent distributor. |
| ii. | Sub-Distributor will process all sales by Sub-Distributor to Authorized Customers. |
| iii. | Sub-Distributor shall at all times conduct its business in a manner that will reflect favorably on Manufacturer, Distributor and the Products and will not engage in any deceptive, misleading, illegal, or unethical business practice. In performing its obligations hereunder, Sub-Distributor agrees not to make any representations or give any warranties or guarantees to any person with respect to the Products, other than in compliance with Section 7.A. hereof or otherwise expressly authorized in writing by Distributor. |
| iv. | Sub-Distributor will comply with all applicable laws and regulations and will not assist or participate in any violation of laws or regulations applicable to Manufacturer, Distributor, or Sub-Distributor. |
Sub-Distributor shall be responsible for all expenses incurred by it in connection with the implementation and performance of its duties and obligations under this Agreement, including, without limitation: (i) salaries or compensation for its personnel; (ii) costs and expenses associated with establishing and maintain its sales organization and offices; and (iii) marketing, advertising, and promotion expenses.
2. PURCHASE ORDERS; PRICING.
A. Purchase Orders. Sub-Distributor shall order the Products in accordance with the terms and conditions of this Agreement. Each order for the purchase of the Products (a “Purchase Order”) must be submitted to Distributor by Sub-Distributor by email or Distributor’s electronic data interchange (EDI) system. Each Purchase Order shall specify (i) the quantity of the Products being ordered, (ii) the applicable Wholesale Minimum Price (as defined below) for the Products ordered, (iii) the price to be paid by Sub-Distributor to Distributor for the Products ordered, (iv) payment terms granted by Distributor, and (v) the requested receipt date and delivery instructions for the applicable Products ordered. Receipt dates must be during the term of this Agreement, except Sub-Distributor may request, subject to Distributor’s acceptance in Distributor’s sole and absolute discretion, a Purchase Order with a requested receipt date after the expiration or termination of this Agreement, in which case, if accepted by Distributor, the terms and conditions of this Agreement shall apply to such purchase, but under no circumstances should such purchase be deemed to be or construed as being a renewal or extension of this Agreement or the exclusivity rights granted to Sub-Distributor herein. The Parties agree that to the extent that any of the terms and conditions of this Agreement conflict or are inconsistent with the terms or conditions of any Purchase Order submitted by Sub-Distributor, the terms and conditions of this Agreement shall prevail and control to the extent of any such conflict or inconsistency, unless the Purchase Order containing such conflicting or inconsistent terms and conditions is countersigned by Distributor, in which case the terms and conditions set forth in such Purchase Order shall prevail and control to the extent of any such conflict or inconsistentcy.
B. Acceptance of Purchase Order. A Purchase Order submitted by Sub-Distributor shall be deemed to have been accepted by, and shall be binding upon, Distributor when it is countersigned by Distributor or if it is not rejected by Distributor, in whole or in part, by written notice to Sub-Distributor sent within five (5) business days of its receipt by Distributor. Notwithstanding anything contained herein to the contrary, Distributor may only reject, cancel, or delay any Purchase Order placed by Sub-Distributor, whether or not such Purchase Order has been previously accepted by Distributor, pursuant to Section 3.B. below. In the event Distributor is unable to fill all of a Purchase Order for any reason, it shall promptly notify Sub-Distributor and Sub-Distributor shall have the right, in its discretion, to cancel the subject Purchase Order. Sub-Distributor may change or cancel any of its Purchase Orders without penalty so long as Sub-Distributor provides written notice to Distributor and the Products have not yet been shipped, or otherwise delivered to Sub-Distributor; provided, that Sub-Distributor shall pay to Distributor a fee of twenty five percent (25%) of the aggregate purchase price of the Products that are subject to any Purchase Order, which has been materially changed or canceled by Sub-Distributor.
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C. Invoices and Payment Terms. Distributor shall send Sub-Distributor invoices via mail or email for each shipment. Sub-Distributor shall notify Distributor in writing if Sub-Distributor disputes any charges set forth on an invoice within five (5) calendar days after receipt of such invoice, specifying in reasonable detail the items disputed and basis for the dispute. Thereafter, the Parties will work in good faith to resolve such dispute as quickly as is reasonably possible. If any such dispute is not resolved within thirty (30) calendar days after Sub-Distributor’s receipt of the applicable invoice, then Distributor may suspend any further shipments of the Products under this Agreement until such time as the dispute is resolved and all amounts agreed upon by the Parties to be due are paid in full. All undisputed amounts on each invoice are due and payable within seven (7) calendar days from the date of Sub-Distributor’s receipt of the invoice. Payments due hereunder must be made, at Sub-Distributor’s option, by ACH, wire transfer, certified check, or such other method as may be agreed to by the Parties. Distributor reserves the right to change or modify payment terms upon thirty (30) calendar days’ written notice to Sub-Distributor at any time following a default by Sub-Distributor of its payment obligations under this Agreement with such changes or modifications to be effective for Purchase Orders submitted after such thirty (30) calendar day period. Invoices will be issued upon shipment of the Product to Sub-Distributor or to Sub-Distributor’s customer via direct shipment.
D. Prices; Price Reductions. Distributor has a legitimate interest in ensuring that a minimum price be maintained for all sales by Sub-Distributor of its Products. Accordingly, Distributor will establish minimum pricing for all sales by Sub-Distributor of its Products to Authorized Customers (“Wholesale Minimum Price”) and Sub-Distributor will not sell any Products to Authorized Customers below the applicable Wholesale Minimum Price. The initial Wholesale Minimum Price for the Products are included as Exhibit A attached hereto. Sub-Distributor agrees to pay Distributor the price per Product identified in Exhibit A attached hereto. Distributor retains the right to make changes to Wholesale Minimum Pricing and Sub-Distributor pricing upon providing not less than three (3) days’ prior written notice to Sub-Distributor. Any price reduction to the Wholesale Minimum Pricing or Sub-Distributor pricing with respect to affected Products shall apply to Purchase Orders that have not yet been accepted or deemed accepted by Distributor and Purchase Orders thereafter submitted by Sub-Distributor. Any price increase to the Wholesale Minimum Pricing or Sub-Distributor pricing with respect to affected Products shall apply to Purchase Orders thereafter submitted by Sub-Distributor; provided that Sub-Distributor shall have the right, at its option, to cancel, in whole or in part, any outstanding Purchase Orders for affected Products not yet accepted by Distributor. Prices do not include, and Distributor shall not be responsible for any required federal, state, or local sales or other taxes, duties, export or custom charges, VAT charges, brokerage, or other fees.
E. Past Due Amounts. If any undisputed amount due Distributor by Sub-Distributor, for any reason, becomes past due, Distributor shall provide written notice to Sub-Distributor and, if such amounts remain outstanding for fifteen (15) calendar days following receipt of such notice, Distributor may at its option and without further notice withhold further shipments or deliveries of the Products under this Agreement until such past due invoices are paid in full.
F. Taxes. Sub-Distributor shall be responsible for any national, state, or local sales, use, value added, or other tax, tariff, duty or assessment levied or imposed by the United States or any foreign governmental authority arising out of or related to any of the transactions contemplated by this Agreement, including sales of the Products to Sub-Distributor, other than taxes based upon Distributor’s income. Sub-Distributor must pay directly, or reimburse Distributor for the amount of such sales, use, value added, or other tax, tariff, duty or assessment that Distributor is at any time obligated to pay or collect with respect to or arising out of the sale of the Products under this Agreement.
| 3. | SHIPMENTS; PRODUCTS. |
A. Shipment Terms; Title and Risk of Loss. All of the Products purchased by Sub-Distributor under this Agreement will be packaged for shipment in Distributor’s and/or Manufacturer’s standard containers, marked for shipment to either Sub-Distributor or the applicable Authorized Customer at the address specified by Sub-Distributor in the Purchase Order (the applicable destination being hereinafter referred to as the “Destination”). All costs of shipment shall be paid by Distributor. Title and risk of loss will pass to Sub-Distributor upon the tender of the Products by Distributor to the first shipping carrier. Distributor shall ship the Products on or before the requested receipt date designated in a Purchase Order (provided, that such receipt date is not less than twenty (20) business days after the Purchase Order is received by Distributor) and shall promptly notify Sub-Distributor when Distributor knows or has reason to believe that a shipment will not be delivered by the requested receipt date. Any expense for any special packaging or any special delivery requested by Sub-Distributor shall be borne by Sub-Distributor.
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B. Distributor’s Right to Delay or Cancel. Notwithstanding Distributor’s obligations in this Agreement, Distributor may refuse, cancel, or delay any shipment of the Products when Sub-Distributor is delinquent in any payment for more than (30) calendar days, or when Sub-Distributor is in material breach of its obligations under this Agreement, which has not been cured pursuant to Section 11.A.
C. Acceptance of Shipments. Sub-Distributor shall have ten (10) business days from the date of arrival of the shipment of the Products at the applicable Destination to inspect the Products and notify Distributor in writing of any discrepancies with respect to such Products, including but not limited to any discrepancies in the quantity or quality of the Products. The Products with respect to which Sub-Distributor does not notify Distributor of any discrepancies in writing shall be deemed accepted by Sub-Distributor.
D. Adding or Deleting the Products; Manufacturing Changes to the Products. Distributor shall have the right at any time upon seven (7) calendar days’ prior written notice to Sub-Distributor to add or delete the Products. Should Distributor want to make any changes to the Products, it shall first notify the Sub-Distributor at least seven (7) calendar days before the change is implemented, and such changes shall be agreed to by the Parties in writing before shipment of any Products that include any such changes. Notwithstanding the foregoing, for changes required by regulatory or certification authorities or otherwise deemed necessary by Distributor for any reason, including health, safety, welfare, technology, intellectual property, trade secret, competitive, materials sourcing, or other matters, Distributor will notify Sub-Distributor at least three (3) calendar days before the change is implemented, but Sub-Distributor’s approval of such changes shall not be required.
| 4. | INTELLECTUAL PROPERTY RIGHTS. |
A. Manufacturer’ Marks. Subject to the terms and conditions of this Agreement and the Distribution Agreement, during the term of this Agreement, Distributor hereby grants to Sub-Distributor a revocable, sublicensable, non-transferable, non-exclusive, limited license to use Manufacturer’s logos, trademarks, and trade names, together with all branding and marketing materials created by or on behalf of Manufacturer in connection with the Products (collectively the “Manufacturer IP”), solely in connection with the marketing, advertisement, and sale of the Products to Authorized Customers. Such license shall immediately terminate upon the expiration or termination of this Agreement. Sub-Distributor shall strictly comply with all standards of use for the Manufacturer IP and must at all times display appropriate trademark and copyright notices as instructed by Distributor. Sub-Distributor acknowledges and agrees that the Manufacturer IP and other intellectual property provided to Sub-Distributor by Distributor, if any, are the sole and exclusive property of Manufacturer and/or Distributor, as applicable. Sub-Distributor shall not acquire any right, title, or interest under this Agreement in any patent, copyright, Manufacturer IP, or other intellectual property right of any kind of either Manufacturer or Distributor. No implied license, patent, copyright, or other intellectual property right of Manufacturer or Distributor is granted under this Agreement or otherwise. During the term of this Agreement and thereafter, Sub-Distributor shall not do anything that will in any manner infringe, impeach, dilute, or lessen the value of the Manufacturer IP, patents, copyrights, or other intellectual property of either Manufacturer or Distributor or the goodwill associated therewith or that will tend to prejudice the reputation of the Manufacturer or Distributor or the sale of any Products.
B. Sub-Distributor Marks. Subject to the terms and conditions of this Agreement, during the term of this Agreement, Sub-Distributor hereby grants Distributor a non-exclusive, royalty free license to use Sub-Distributor’s logos, trademarks, and trade names (the “Sub-Distributor Marks”) on Distributor’s web sites and marketing materials. Such license shall immediately terminate upon the expiration or termination of this Agreement. Distributor shall strictly comply with all standards of use for the Sub-Distributor Marks and must at all times display appropriate trademark and copyright notices as instructed by Sub-Distributor. Distributor acknowledges and agrees that the Sub-Distributor Marks and other intellectual property provided to Distributor by Sub-Distributor, if any, are the sole and exclusive property of Sub-Distributor. Distributor shall not acquire any right, title, or interest under this Agreement in any patent, copyright, Sub-Distributor Marks, or other intellectual property right of any kind of Sub-Distributor. No implied license, patent, copyright, or other intellectual property right of Sub-Distributor is granted under this Agreement or otherwise. During the term of this Agreement and thereafter, Distributor shall not do anything that will in any manner infringe, impeach, dilute, or lessen the value of the Sub-Distributor Marks, patents, copyrights, or other intellectual property of Sub-Distributor or the goodwill associated therewith or that will tend to prejudice the reputation of the Sub-Distributor.
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| 5. | CONFIDENTIAL INFORMATION. |
A. Confidential Information. The Parties acknowledge and agree that during the term of this Agreement, each may receive confidential information from the other Party. “Confidential Information” shall mean (i) information relating to a Party’s and its affiliates’ products or business including, but not limited to, the business plans, financial records, customers, suppliers, products, product samples, strategies, inventions, procedures, sales aids or literature, technical data, advice or knowledge, contractual agreements, pricing, price lists, product white papers, plans, designs, specifications, and know-how or other intellectual property, that may be at any time furnished, communicated, or delivered by either Party to the other Party whether in oral, tangible, electronic, or other form and (ii) all other non-public information provided by one Party to the other including, but not limited, to financial, technical, and business information, and all non-promotional materials furnished by one Party to another.
B. Exceptions. The “Receiving Party” shall not have any obligations to preserve the confidential nature of any Confidential Information that (i) Receiving Party can demonstrate by competent evidence was rightfully in the Receiving Party’s possession before receipt from the “Disclosing Party”; (ii) is or becomes a matter of public knowledge through no fault of the Receiving Party; (iii) is rightfully received by Receiving Party from a third party without, to the best of Receiving Party’s knowledge, a duty of confidentiality; (iv) is independently developed by Receiving Party without use of the Confidential Information; or (v) is disclosed by Receiving Party with Disclosing Party’s prior written approval.
C. Use of Confidential Information; Standard of Care. The Receiving Party shall maintain the Confidential Information in confidence and disclose the Confidential Information only to its employees, subcontractors, and consultants who have a need to know such Confidential Information in order to fulfill the business affairs and transactions between the Parties contemplated by this Agreement and who are under confidentiality obligations no less restrictive as, or who have been advised of the confidentiality obligations set forth in, this Agreement. The Receiving Party shall remain responsible for breaches of this Agreement arising from the acts of its employees, subcontractors, and consultants to whom it provides the Disclosing Party’s Confidential information. The Receiving Party shall protect Confidential Information by using the same degree of care as Receiving Party uses to protect its own information of a like nature, but no less than a reasonable degree of care, to prevent the unauthorized use, disclosure, dissemination, or publication of the Confidential Information. The Receiving Party agrees not to use the Disclosing Party’s Confidential Information for its own purpose other than in connection with the transactions contemplated by this Agreement or for the benefit of any third party, without the prior written approval of the Disclosing Party. The Receiving Party shall promptly return or certify destruction of all copies of Confidential Information upon request by the Disclosing Party or upon the expiration or earlier termination of this Agreement.
D. Equitable Relief. The Receiving Party hereby agrees and acknowledges that any breach or threatened breach of this Agreement regarding the treatment of the Confidential Information may result in irreparable harm to the Disclosing Party for which there may be no adequate remedy at law. In addition to other remedies provided by law or at equity, in such event the Disclosing Party shall be entitled to seek an injunction, without bond, preventing any further breach of this Agreement by the Receiving Party.
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6. INSURANCE. Distributor shall maintain, during the term of this Agreement, Commercial General Liability Insurance with minimum limits, including under any General Liability Umbrella Policies, of not less than $2,000,000 combined single limit for bodily injury and property damage on the Products purchased by Sub-Distributor for resale. Distributor shall use commercially reasonable efforts to provide Sub-Distributor with thirty (30) calendar days’ prior written notice of any change or cancellation in any applicable insurance policies.
Sub-Distributor shall maintain, during the term of this Agreement, Commercial General Liability Insurance with minimum limits, including under any General Liability Umbrella Policies, of not less than $2,000,000 combined single limit for bodily injury and property damage. Sub-Distributor shall use commercially reasonable efforts to provide Distributor with thirty (30) calendar days’ prior written notice of any change or cancellation in any applicable insurance policies.
7. WARRANTY; RECALL.
A. Warranty. Distributor warrants to Sub-Distributor, for a period of one year from the date of delivery by Distributor to the intended recipient thereof, that any Products delivered by Distributor pursuant to this Agreement shall conform in all material respects to the written specifications for such Products, a copy of which is attached hereto as Exhibit B, and shall be free of defects in materials and workmanship. Distributor further warrants to Sub-Distributor that it has title to the Products to be conveyed hereunder and has the right to sell the same and that at the time of delivery, such Products shall be free of any security interest or other lien or any other encumbrances whatsoever (the warranties provided in the preceding two sentences being hereinafter referred to as the “Limited Warranty”). Except for the Limited Warranty, Distributor makes no warranties or representations to Sub-Distributor or any other person with respect to the Products or any services provided to Sub-Distributor or any other person. Distributor may not change any of the terms of the Limited Warranty at any time, without written consent from Sub-Distributor unless Distributor notifies Sub-Distributor in writing at least one hundred and twenty (120) calendar days prior to any such change. Any such change shall not apply to any Products sold to or ordered by Sub-Distributor prior to the change. Sub-Distributor will not alter the Limited Warranty, warranty disclaimers, and limitation of liability without the prior written authorization of Distributor, nor extend or make any additional warranty or representation regarding the Products unless expressly authorized by Distributor.
THE LIMITED WARRANTY REFERRED TO IN THIS SECTION IS THE ONLY WARRANTY, EXPRESS OR IMPLIED, THAT DISTRIBUTOR MAKES WITH RESPECT TO THE PRODUCTS. DISTRIBUTOR SPECIFICALLY DISCLAIMS ALL OTHER IMPLIED WARRANTIES INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-INFRINGEMENT.
B. Warranty Claims. The Limited Warranty is effective only if Sub-Distributor gives prompt written notice to Distributor of any alleged breach of the Limited Warranty, which notice shall specifically describe the problem and shall state the date of sale and name and location of the recipient of the Product originally shipped by Distributor. Notwithstanding anything to the contrary contained herein, Distributor shall have no obligation under the Limited Warranty unless it receives such notice within thirty (30) days following the expiration of the warranty period. In the event of any breach of the Limited Warranty Distributor’s sole obligation is to replace each non-conforming Product within a reasonable period of time and to pay for the costs of shipment to the original recipient of the Product or as otherwise specified by Sub-Distributor.
C. Recall. In the event that: (i) any applicable federal, state or foreign regulatory authority should issue a request, directive or order that a Product be recalled; (ii) a court of competent jurisdiction orders such a recall; or (iii) Distributor determines that the Product represents a risk of injury or customer deception or is otherwise defective and that the recall of a Product is appropriate (“Recall”), Distributor shall have sole right and responsibility for implementing the Recall. Sub-Distributor will provide cooperation and assistance to Distributor in connection therewith, as may be reasonably requested by Distributor. Distributor shall be solely responsible for all expenses affecting such Recall (including any reasonable out-of-pocket expenses incurred by Sub-Distributor in connection with such cooperation, as directed in writing by Distributor).
| 8. | INDEMNIFICATION. |
A. Indemnity Obligations for Intellectual Property Infringement. Distributor agrees to defend, indemnify, and hold harmless Sub-Distributor from and against any and all claims, losses, damages, suits, expenses (including reasonable attorneys’ fees), and costs (collectively “Claims”) brought or alleged by a third party that the Manufacturer IP or any Products sold to Sub-Distributor infringe any U.S. patent, trademark, or copyright. Sub-Distributor shall reasonably cooperate with Distributor, its insurance company, and its legal counsel in its defense of such Claims. If the use or sale of any Products furnished under this Agreement is enjoined as a result of a Claim, Distributor shall either obtain on behalf of the Sub-Distributor the right to continue to use or sell such Products, substitute an equivalent product reasonably acceptable to Sub-Distributor in its place, or reimburse Sub-Distributor the purchase price of the Products, costs incurred by Sub-Distributor as a result of such cancellation, and any and all losses or costs incurred as a result of Sub-Distributor’s breach of any purchaser order or other agreement with its customers. Notwithstanding the foregoing, this indemnity shall not apply or cover any Claims based upon any infringement or alleged infringement of any patent, trademark, or copyright resulting from the alteration or unauthorized use of any Manufacturer IP or the Products by Sub-Distributor or a Sub-Distributor representative or the combination of any Products with any other products or the combination of any Manufacturer IP with any other mark, if such infringement claim would have been avoided but for such alteration, combination, or unauthorized use by Sub-Distributor or any Sub-Distributor representative. Sub-Distributor shall also have the right to participate in the defense of any such action and have the right to hire its own legal counsel at Sub-Distributor’s expense. This indemnity shall not cover any Claims in which Sub-Distributor fails to provide Distributor with prompt written notice of the Claim that lack of notice materially prejudices the defense of the Claim.
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B. Sub-Distributor agrees to defend, indemnify, and hold harmless Distributor from and against any and all Claims brought or alleged by a third party based upon any infringement or alleged infringement of any patent, trademark, or copyright resulting from the alteration or unauthorized use of any Manufacturer IP or the Products by Sub-Distributor or a Sub-Distributor representative or the combination of any Products with any other products or the combination of any Manufacturer IP with any other mark, if such infringement claim would have been avoided but for such alteration, combination, or unauthorized use by Sub-Distributor or any Sub-Distributor representative. Distributor shall reasonably cooperate with Sub-Distributor, its insurance company and its legal counsel in its defense of such Claims. Distributor shall also have the right to participate in the defense of any such action and have the right to hire its own legal counsel at Sub-Distributor’s expense. This indemnity shall not cover any Claims in which Distributor fails to provide Sub-Distributor with prompt written notice of the Claim which lack of notice materially prejudices the defense of the Claim.
C. Distributor’s Additional Indemnity Obligations. Notwithstanding anything herein to the contrary, in addition to all other rights and remedies available at law or in equity, Distributor hereby agrees to defend, indemnify, and hold harmless Sub-Distributor from and against any and all third party Claims (i) arising out of any defects in any Products existing at the time such Products are sold by Distributor to Sub-Distributor, or (ii) arising out of the negligent acts or omissions or willful misconduct of Distributor, its employees, agents, or representatives with respect to the Products or its performance of this Agreement. Sub-Distributor shall reasonably cooperate with Distributor, its insurance company, and its legal counsel in its defense of such Claims. Sub-Distributor shall also have the right to participate in the defense of any such action and have the right to hire its own legal counsel at Sub-Distributor’s expense. This indemnity shall not cover any Claims in which Sub-Distributor fails to provide Distributor with prompt written notice of the Claim which lack of notice materially prejudices the defense of the Claim.
D. Sub-Distributor’s Indemnity Obligations to Distributor. Sub-Distributor hereby agrees to defend, indemnify and hold harmless Distributor, its affiliates, and their respective officers directors, employees, and agents from and against any and all Claims (i) arising out of the negligent acts or omissions or willful misconduct of Sub-Distributor, its employees, agents, or representatives with respect to its performance of this Agreement, sale of the Products, or otherwise, (ii) arising out of the alteration or modification of the Products or Distributor IP by Sub-Distributor or its employees, agents, or representatives, or (iii) alleging that the Sub-Distributor Marks infringe or otherwise violate the intellectual property rights of a third party. This indemnity shall not cover any Claims in which Distributor fails to provide Sub-Distributor with prompt written notice which lack of notice prejudices the defense of the Claim. Distributor shall also have the right to participate in the defense of any such action and have the right to hire its own legal counsel at Distributor’s expense.
E. Settlement of Claims. In no event shall a party seeking or entitled to indemnification from a Party hereunder settle, compromise, agree to a judgment, or take any similar action with respect to any Claim without the written consent of the Party from whom indemnification is sought.
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9. LIMITATION OF LIABILITY.
EXCEPT FOR THE PARTIES’ INDEMNIFICATION OBLIGATIONS UNDER SECTION 8 OF THIS AGREEMENT AND CONFIDENTIALITY OBLIGATIONS UNDER SECTION 5 OF THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY BY LIABLE UNDER THIS AGREEMENT TO THE OTHER PARTY FOR ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT, STATUTORY, SPECIAL, OR PUNITIVE DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF USE, LOSS OF TIME, INCONVENIENCE, LOSS BUSINESS OPPORTUNITIES, DAMAGE TO GOODWILL OR REPUTATION, OR LOSS OF DATA, REGARDLESS OF WHETHER SUCH LIABILITY IS BASED ON BREACH OF CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE, AND EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR SUCH DAMAGES COULD HAVE BEEN REASONABLY FORESEEN.
10. TERM. This Agreement shall commence on the Effective Date and shall end on the first anniversary of the Effective Date (the “Initial Term”) unless earlier terminated pursuant to Section 11 hereof. The Initial Term shall automatically renew for successive renewal terms of one (1) year each (each, a “Renewal Term”), unless either Party provides the other Party with written notice of its intention not to renew the Initial Term or any Renewal Term, as applicable, at least sixty (60) days prior to the expiration of the then current Initial Term or Renewal Term.
11. TERMINATION.
A. Termination for Breach. Either Party may terminate this Agreement at any time in the event of a material breach by the other Party that remains uncured after thirty (30) calendar days following written notice thereof. Such termination shall be effective immediately and automatically upon the expiration of the applicable notice period, without further notice or action by either Party. Termination shall be in addition to any other remedies that may be available to the non-breaching Party.
B. Termination for Financial Insecurity. Either Party may terminate this Agreement and any outstanding Purchase Orders (to the extent the Products have not already been delivered to the carrier for shipment) immediately at its option upon written notice if the other Party: (i) becomes or is declared insolvent or bankrupt; (ii) is the subject of a voluntary or involuntary bankruptcy or other proceeding related to its liquidation or solvency, which proceeding is not dismissed within sixty (60) calendar days after its filing; (iii) ceases to do business in the normal course; or (iv) makes an assignment for the benefit of creditors. This Agreement shall terminate immediately and automatically upon any determination by a court of competent jurisdiction that either Party is excused or prohibited from performing in full all obligations hereunder, including, without limitation, rejection of this Agreement pursuant to 11 U.S.C. §365.
C. Termination for Failure to Meet Minimum Purchase Commitments. Distributor may terminate this Agreement at any time upon written notice to Sub-Distributor if Sub-Distributor fails to satisfy any of the following minimum purchase obligations: (i) purchase by Sub-Distributor of not less than 500,000 Units from Distributor on or before July 31, 2020, and (ii) purchase by Sub-Distributor of not less than 1,000,000 Units from Distributor for each subsequent fiscal quarter throughout the balance of the term. At Distributor’s option, Distributor may elect to suspend a decision to terminate this Agreement as permitted under this Section 11.C. for an indefinite period, but may, in the meantime upon written notice to Sub-Distributor, terminate Sub-Distributor’s rights under Section 1.A. above. A used herein, a “Unit” means each Product as may ultimately be packaged and sold by Distributor to a Retail Customer.
D. Cross Termination with the Distribution Agreement. Sub-Distributor acknowledges and agrees that the appointment by Distributor of Sub-Distributor of the distribution rights set forth in this Agreement are dependent upon the continuation of the Distribution Agreement. In the event the Distribution Agreement expires or is otherwise terminated for any reason, this Agreement shall immediately and automatically terminate without any further action of the Parties.
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E. Obligations upon Termination. Upon termination of this Agreement, Sub-Distributor shall cease to be an authorized sub-distributor of the Products and (i) all unaccepted Purchase Orders may be cancelled by Sub-Distributor or Distributor without liability, and (ii) Sub-Distributor may, at its option, resell, and deliver to Distributor, free and clear of all liens and encumbrances, any or all of the Products that (A) are subject to Purchase Orders accepted by Distributor whether or not the applicable Products have been shipped as of the date of termination and (B) were manufactured, shipped, or received as of the date of termination, in each case that are in new condition and in the original factory packaging at the original purchase price of any such Products that Sub-Distributor elects to resell to Distributor less a restocking charge of 50% of such amount payable by Distributor upon receipt of such Products. Restocking is waived in the event the Distributor terminates Sub-Distributor, other than if termination is a Termination pursuant to 11.A., 11.B., or 11.C. Within ninety (90) calendar days of termination of this Agreement, Sub-Distributor shall remove and not thereafter use any sign, display, or other advertising or marketing means containing Manufacturer IP, except as provided in this section. Sub-Distributor may continue to use in-store materials containing the Manufacturer IP as reasonably required for the resale of the Products that may be remaining in Sub-Distributor’s possession after termination, which materials Sub-Distributor may continue to utilize until all remaining Products have been sold or one hundred eighty (180) calendar days after termination, whichever comes first, after which Sub-Distributor shall cease the use of any such Manufacturer IP.
12. COMPLIANCE WITH LAWS. Sub-Distributor acknowledges and understands that the Products may be subject to restrictions upon export from the United States and upon resale after export. Sub-Distributor therefore represents and warrants that it shall comply fully with all relevant regulations of the U.S. Department of Commerce, with the U.S. Export Administration Act, and with any other import and/or export control laws or regulations of the United States or any other jurisdiction.
13. GENERAL TERMS.
A. Independent Contractors. Nothing in this Agreement, and no course of dealing between the Parties, shall be construed to create or imply an employment or agency relationship or a partnership or joint venture relationship between the Parties or between one Party and the other Party’s employees or agents. Neither Distributor nor Sub-Distributor has the authority to bind the other, to incur any liability, or otherwise act on behalf of the other. Each Party shall be solely responsible for payment of its employees’ salaries (including withholding of income taxes and social security), workers’ compensation, and all other employment benefits.
B. Assignment. Neither this Agreement, nor any right or interest herein, may be assigned, in whole or in part, by Sub-Distributor without the express written consent of Distributor. Any assignment without such consent shall be null and void. For purposes hereof, any assignment that is carried out as part of a merger, restructuring, or reorganization, or sale or transfer of all or substantially all Sub-Distributor’s assets shall require the express written consent of Distributor. This Agreement shall be binding upon and inure to the benefit of the Parties hereto, their successors and legal representatives. Except as set forth in Section 8, there are no third-party beneficiaries to this Agreement.
C. Notices. Unless otherwise agreed to by the Parties, all notices shall be deemed effective when received and made in writing by either (i) certified mail, return receipt requested, (ii) nationally recognized overnight courier, or (iii) fax with confirmation, addressed to the party to be notified at the following address or to such other address as such Party shall specify by like notice hereunder:
If to Distributor:
Kaival Brands Innovations Group, Inc.
4460 Old Dixie Highway
Grant, Florida 32949
Attn: Eric Mosser
Email: eric@kaivalbrands.com
Fax: 833-452-8252
If to Sub-Distributor:
COLONIAL WHOLESALE DISTRIBUTING, INC.
10889 CROSSROADS COMMERCE BLVD.
TAMPA, FL 33610
Attn: Yasin Saad
Email: yasinsaad@colonialdistributing.com
Fax: 850-341-7222
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Either Party, by written notice to the other pursuant to this section, may change its address or designees for receiving such notices.
D. Force Majeure. Neither Party shall liable hereunder for any failure or delay in the performance of its obligations under this Agreement if such failure or delay is on account of causes beyond its control, including labor disputes, civil commotion, war, fires, floods, inclement weather, governmental regulations or controls, casualty, government authority, strikes, or acts of God, in which event the non-performing Party shall be excused from its obligations for the period of the delay and for a reasonable time thereafter. Each Party shall use reasonable efforts to notify the other Party of the occurrence of such an event within three (3) business days of its occurrence. Notwithstanding anything to the contrary contained herein, in no event shall the COVID-19 pandemic or government actions taken in connection with the same (or any future pandemic or government actions taken in connection with the same) constitute an event of force majeure under this Section 13.D. or otherwise prohibit or restrict Distributor’s rights to terminate this Agreement for failure of Sub-Distributor to meet minimum purchase commitments under Section 11.C.
E. Governing Law; Venue; Jury Waiver. This Agreement shall be governed by the laws of the State of Florida, without giving effect to the principles of conflicts of law of such state and shall be binding upon the Parties hereto in the United States and worldwide. Any claims or legal actions by one Party against the other arising under this Agreement or concerning any rights under this Agreement shall be commenced and maintained in any state or federal court located in Orange County, Florida. Both Parties hereby submit to the jurisdiction and venue of any such court. THE PARTIES FURTHER AGREE, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM, COUNTERCLAIM, OR ACTION ARISING FROM THE TERMS OF THIS AGREEMENT.
F. Attorney’s Fees. If either Party incurs any legal fees associated with the enforcement of this Agreement or any rights under this Agreement, the prevailing Party shall be entitled to recover its reasonable attorney’s fees and any court, arbitration, mediation, or other litigation expenses from the other Party.
G. Survival. The provisions of this Agreement which by their sense and context should survive any termination of expiration of this Agreement, including without limitation sections 5 (confidentiality), 7 (warranty), 8 (indemnification), 9 (limitation of liability), 12 (compliance with laws), and 13 (general terms) shall so survive.
H. Authorized Signatories. It is agreed and warranted by the Parties that the individuals signing this Agreement on behalf of the respective Parties are authorized to execute such an agreement. No further proof of authorization shall be required.
I. Severability. If any provision or portion of this Agreement shall be held by a court of competent jurisdiction to be illegal, invalid, or unenforceable, the remaining provisions or portions shall remain in full force and effect.
J. No Strict Construction. This Agreement shall not be construed more strongly against either Party regardless of which Party is more responsible for its preparation.
K. Counterparts. This Agreement may be executed by facsimile and in one or more counterparts, each of which will be deemed to be an original, but all of which together will constitute one and the same instrument, without necessity of production of the others.
L. Entire Agreement; Modification; Waiver. This Agreement is the entire agreement between the Parties with respect to the subject matter and supersedes any prior agreement or communications between the Parties hereto, whether written or oral. This Agreement may be modified 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 provision thereafter.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed by their duly authorized representatives as of the 26TH day of May, 2020, to be effective as of the Effective Date.
DISTRIBUTOR
KAIVAL BRANDS INNOVATIONS GROUP, INC.
By: /s/ Eric Mosser
Name: Eric Mosser
Title: Chief Operating Officer
SUB-DISTRIBUTOR
COLONIAL WHOLESALE DISTRIBUTING, INC.
By: /s/ Yasin Saad
Name: Yasin Saad
Title: President
ACKNOWLEDGMENT AND CONSENT
By signing below, Manufacturer hereby acknowledges and consents to Distributor entering into this Agreement with Sub-Distributor.
BIDI VAPOR, LLC
By: /s/ Nirajkumar Patel
Name: Nirajkumar Patel
Title: Manager
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Exhibit 31.1
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
I, Nirajkumar Patel, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Kaival Brands Innovations Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: May 27, 2020 | By: | /s/ Nirajkumar Patel |
| Nirajkumar Patel | ||
|
President, Chief Executive Officer, and Chief Financial Officer |
Exhibit 32.1
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
Pursuant to U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned Chief Executive Officer and Chief Financial Officer of Kaival Brands Innovations Group, Inc. (the “Company”) does hereby certify, to the best of such officer's knowledge, that:
1. The Quarterly Report on Form 10-Q of the Company for the quarterly period ended April 30, 2020 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: May 27, 2020 | By: | /s/ Nirajkumar Patel |
| Nirajkumar Patel | ||
|
President, Chief Executive Officer, and Chief Financial Officer |
The certifications set forth above are being furnished as an exhibit solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Kaival Brands Innovations Group, Inc. and will be retained by Kaival Brands Innovations Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.