Kaival Brands enters merger, share exchange agreement with Delta Corp

Kaival Brands Innovations Group and Delta Corp Holdings announced that the companies have entered into a definitive merger and share exchange agreement whereby Kavial Brands and Delta will each become wholly owned subsidiaries of a specially created holding company incorporated under the laws of the Cayman Islands, Delta Corp Holdings. The closing of the transactions contemplated by the definitive agreement is subject to certain conditions, including, without limitation, the approval of the shareholders of Kaival Brands and the approval of the listing of the shares of Pubco on the Nasdaq Stock Market. Delta shareholders will become the majority shareholders of Pubco as further detailed below. Following closing of the transactions, which the parties expect will occur in the fourth quarter of 2024, the combined company would be traded on Nasdaq. The combined company will continue to operate under the Delta management team led by Mudit Paliwal, Chief Executive Officer and Founder; Peter Shaerf, Non-Executive Chairman; and Joseph Nelson, Chief Financial Officer, with Kaival Brands as a wholly owned subsidiary of the Pubco. The business combination will be effectuated through a holding company structure, whereby Kaival Brands and Delta will each become wholly-owned subsidiaries of Pubco. Under the agreement, shareholders of Kaival Brands will receive 1 ordinary share of Pubco for each share of Kaival Brands common stock they own as of the closing of the business combination, and Delta shareholders will exchange their shares of Delta for $270 million in ordinary shares of Pubco, subject to certain adjustments, at an implied value per share of $2.66, as set forth in the definitive agreement. Immediately prior to the closing of the business combination, the stockholders of Kaival Brands are anticipated to collectively own approximately 10.30% of the outstanding ordinary shares of Pubco, and Delta shareholders immediately following this closing are anticipated to collectively own approximately 89.70% of the outstanding ordinary shares of Pubco. The definitive agreement also includes an earnout to existing shareholders of Delta, which, if earned, consists of $30 million of additional ordinary shares of Pubco, which would be issued to Delta shareholders if the Surviving Public Company achieves or exceeds revenues of $700 million and either Earnings Before Interest, Taxes, and Depreciation and Amortization of $20 million or net income of $10 million, in each case for the fiscal year ending December 31, 2025. The definitive agreement contains customary representations, warranties and covenants made by Kaival Brands and Delta, including covenants relating to both parties using their commercially reasonably efforts to cause the transactions contemplated by the agreement to be satisfied, covenants regarding obtaining the requisite approval of Kaival Brands’ shareholders, covenants regarding indemnification of directors and officers, and covenants regarding Kaival Brands’ and Delta’s conduct of their respective businesses between the date of signing of the agreement and the closing. The definitive agreement also contains certain termination rights for both Kaival Brands and Delta, and, in connection with the termination of the agreement under certain circumstances, Kaival Brands and Delta may be required to pay the other party a termination fee. The definitive agreement has been unanimously approved by the Board of Directors of Kaival Brands and by the Board of Directors of Delta. The Kaival Brands Board of Directors has also recommended to Kaival Brands’ shareholders that they vote to approve the definitive agreement and the business combination. Kaival Brands also received a fairness opinion in connection with the business combination. The business combination is expected to close in the fourth quarter of 2024, subject to certain conditions set forth in the definitive agreement, including the approvals by the requisite shareholders of Kaival Brands described above, the listing of Pubco ordinary shares on Nasdaq, as applicable, and other customary closing conditions.