May 10, 2016 08:30 ET

KGIC Inc. Announces First Stage Closing of Convertible Debenture Private Placement Financing

TORONTO, ONTARIO--(Marketwired - May 10, 2016) -


KGIC Inc. ("KGIC" or the "Company") (TSX VENTURE:LRN) is pleased to announce that it has completed the first stage closing of its non-brokered private placement of convertible secured subordinated debentures (the "Debentures") for gross proceeds of $1,825,000 in principal amount (the "Offering") under the terms specified in the May 2, 2016 press release. The initial completion of $1,825,000 in funding is also in accordance with a Memorandum of Understanding (the "MOU") dated April 7, 2016 between the Company and Bank of Montreal ("BMO"). The first stage closing meets the Company's financing requirements for the near term operational forecast. The Company is also pleased to announce that the previous Forbearance Agreement with BMO is terminated and the Company plans to complete final term loan agreements with BMO in accordance with the MOU and execute aggressively its new management plan.

The Offering was made pursuant to the grant of a "discretionary waiver" of the TSX Venture Exchange's ("TSXV") minimum $0.05 pricing requirement (the "Waiver") and is subject to acceptance by the TSXV. With respect to the Waiver, the Company may conduct a share consolidation of its outstanding common shares in such ratio as would result in a "post-consolidation" conversion price equal to or greater than $0.05 per common share (a "Consolidation") on or before the date that is six months following the closing date (the "Consolidation Deadline"). However, the Debentures may not be converted into common shares unless a Consolidation is completed on or before the Consolidation Deadline. If a Consolidation is not completed on or before the Consolidation Deadline, the conversion price will be deemed to be amended to $0.05 per common share in accordance with the TSXV's minimum pricing requirements and the interest rate on the Debentures will be increased to 12.5% per annum, retroactive from the date of issuance of the Debentures.

The Company intends to use the proceeds of the Offering to finance the Company's working capital requirements, with any remaining proceeds to be used to service existing obligations owed to the Company's senior secured creditors.

Pursuant to applicable Canadian securities laws, the Debentures (and the securities issuable upon conversion of the Debentures) will be subject to a hold period until September 7, 2016.

Certain directors, officers and insiders subscribed for $775,000 aggregate principal amount of Debentures under this first stage of the Offering. The participation of these parties in the Offering constitutes a "related party transaction" within the meaning of Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101") and the policies of the TSXV. The Company is relying upon the exemptions from the formal valuation and minority shareholder approval requirements pursuant to sections 5.5(g) and 5.7(1)(e), respectively, of MI 61-101 on the basis that the board of directors of the Company, acting in good faith, and at least two-thirds of the Company's independent members of the board of directors, acting in good faith, have determined that the Company is in serious financial difficulty, that the Offering is designed to improve the Company's financial position and that the terms of the Offering are reasonable in the Company's circumstances.

The Company was not in a position to file a material change report more than twenty one days in advance of the closing of this tranche of the Offering as the details of participation of the interested parties were not known at such time.

The Offering remains subject to certain conditions including, but not limited to, the approval of the TSXV. The Offering was approved by the Board of Directors of the Company.

This news release does not constitute an offer to sell, or a solicitation of an offer to buy, any of the securities in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

About KGIC Inc.

KGIC owns and operates private English as a Second Language (ESL) Schools, Career Colleges and Community Colleges in Toronto, Vancouver and Victoria.

Forward-Looking Statements

This news release includes certain forward-looking statements within the meaning of Canadian securities laws. Such forward-looking information and statements are not representative of historical facts or information or current condition, but instead represent only the Company's beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of the Company's control. Generally, such forward-looking information or statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or may contain statements that certain actions, events or results "may", "could", "would", "might" or "will be taken, "will continue", "will occur" or "will be achieved". The forward-looking information contained herein includes information concerning the Offering and the proposed completion thereof. By identifying such information and statements in this manner, the Company is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such information and statements. Any number of important factors could cause actual results to differ materially from these forward-looking statements as well as future results, including but not limited to: risks relating to: any of the Company's announced or proposed acquisitions or other transactions, including the Offering, failing to close or becoming delayed before closing; the Company's ability to successfully raise sufficient additional capital in order to allow it to continue as a going concern on terms acceptable to the Company or at all; the Company's ability to service its outstanding indebtedness and the impact of that indebtedness on the Company's ability to raise additional capital, fund and maintain operations or meet business objectives; the Company's ability to comply with the terms of the amended and restated forbearance agreement and amended and restated credit agreement with Bank of Montreal and the consequences of any breach or default thereunder; the Company's ability to successfully exit forbearance; the Company's ability to satisfy the demands of, or successfully negotiate improved terms with, its existing creditors; the fact that new management and directors of the Company, including the recently appointed Chief Executive Officer and Chairman, have had limited experience with the Company and its operations and have not had sufficient time to fully analyze all facets of the Company's business; the impact of negative or unfavourable rumours in the marketplace on the Company's brands and student enrollment; any of the Company's announced or proposed acquisitions failing to close or becoming delayed before closing; carrying on business and activities in international jurisdiction where Canadian laws do not apply; any loss of certain key personnel; levels of student enrolment; delays in rolling out online education programs; delays to the completion of any planned initiatives or the inability to complete those initiatives; competition in the educational services market; and currency fluctuations. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in the forward-looking information and statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Although the Company believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements. Accordingly, readers should not place undue reliance on any forward-looking information or statements contained in this press release.

The forward-looking information contained in this press release is made as of the date hereof, and the Company does not undertake to update any forward-looking information that is contained or referenced herein, whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws. All subsequent written and oral forward looking information and statements attributable to the Company or persons acting on its behalf is expressly qualified in its entirety by this notice.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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