SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): September 21, 2016
Knowledge Machine International, Inc.
(Exact Name of Registrant as Specified in Charter)
Nevada | 333-191175 | 90-0925768 |
(State or Other Jurisdiction of Incorporation) | Commission File Number | (IRS Employer Identification No.) |
9921 Carmel Mountain Road, Suite 118, San Diego, CA | 92129 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (858) 215-6360
14 Hayward Brook Drive, Concord NH 03301
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[_] Written communications pursuant to Rule 425 under the Securities Act
[_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
Item 1.01 | Entry into a Material Definitive Agreement. |
Item 2.01 | Completion of Acquisition or Disposition of Assets. |
Item 2.03 | Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. |
Item 3.02 | Unregistered Sales of Equity Securities. |
Item 5.01 | Changes in Control of Registrant. |
Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
Item 5.03 | Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year |
Item 5.07 | Submission of Matters to a Vote of Security Holders. |
Item 7.01 | Regulation FD Disclosure. |
Item 8.01 | Other Events. |
Entry into Amended and Restated Acquisition and Share Exchange Agreement; Completion of Acquisition of Assets
On September 21, 2016, Knowledge Machine International, Inc. (“KMI”) entered into an Amended and Restated Acquisition and Share Exchange Agreement (the “A&R Agreement”) with EveryStory, Inc., a Delaware corporation (“EveryStory”), and each of its shareholder (the “Shareholders”), and closed the acquisition (the “Acquisition”) of the ownership of EveryStory (the “Closing”). KMI had previously announced its entry into the original version of the A&R Agreement, and noted that the closing of the transaction was contingent on the completion of certain closing conditions.
Pursuant to the A&R Agreement, KMI acquired all of the outstanding shares of EveryStory, and agreed to issue an aggregate of 77,377,712 shares of KMI common stock to the EveryStory holders, with the understanding that an additional 45,247,288 shares were to be reserved for issuance to holders of EveryStory derivative securities which are convertible or exercisable into shares of EveryStory common stock (collectively, the “Exchange Shares”). Additionally, prior to Closing, the parties agreed that certain shares of KMI common stock were to be returned to KMI for cancellation, resulting in the current KMI shareholders owning an aggregate of 40,875,000 shares of KMI common stock immediately prior to the Closing.
Pursuant to the A&R Agreement, the 122,625,000 Exchange Shares issued or to be issued to the EveryStory constituted 75% of the total issued and outstanding shares of KMI’s common stock, and the legacy KMI shareholders (who were the owners of KMI common stock immediately prior to the Closing) owned an aggregate of 40,875,000 shares, which constituted 25% of the total outstanding KMI common stock.
KMI’s and EveryStory’s management agreed, and the A&R Agreement provides, that following the Closing, KMI will conduct a reverse stock split (discussed in more detail below), following which the outstanding shares of KMI’s Series A Preferred Stock will convert into a total of 8,000,000 post-reverse-split common stock. Following such conversion, the EveryStory owners will own or have the right to receive shares of KMI common stock equal to 60% of the then-outstanding KMI common stock, and the KMI legacy shareholders will own shares of KMI common stock equal to 40% of the then-outstanding KMI common stock, consisting of 8,000,000 shares of KMI common stock issued on conversion of the KMI Series A Preferred Stock (20%) and 8,000,000 shares of KMI common stock owned by the other legacy KMI shareholders (20%).
As a result of the Closing of the A&R Agreement, EveryStory became a wholly owned subsidiary of KMI. Additionally (as discussed more fully below), the directors and officers of KMI immediately prior to the Closing appointed the EveryStory management to become officers and directors of KMI, and then resigned from their positions with KMI. In addition, KMI terminated its pre-Closing business operations and agreed to dissolve its other wholly owned subsidiary, Knowledge Machine, Inc.
There was no relationship between KMI and EveryStory or their principals or affiliates prior to the negotiation of the original agreement and the A&R Agreement.
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Share Ownership Following Closing
Prior to Closing, KMI had 40,875,000 shares of its common stock outstanding. Upon Closing, KMI issued an aggregate of 77,377,712 shares of its common stock to the then current shareholders of EveryStory. Additionally, at Closing, EveryStory had options to issue a total of 600,000 shares of its common stock, and convertible debt securities that would be convertible into 672,533 shares of EveryStory’s common stock. In connection with the Closing, KMI agreed to reserve an aggregate of 45,247,288 shares of its common stock for issuance in connection with the future exchange of shares of EveryStory common stock issued upon exercise of EveryStory options or conversion of EveryStory convertible debt securities.
Submission of Matters to a vote of Shareholders
Anticipated Reverse Stock Split; Shareholder Approval
The A&R Agreement provides that following the Closing, KMI will complete a reverse split (the “Reverse Split”) of the outstanding common shares of KMI at a ratio of approximately 1:5. The exact ratio of the Reverse Split will be determined by KMI’s board of directors.
Prior to the Closing, as required by the A&R Agreement, KMI’s Board of Directors reviewed and approved the proposed Reverse Split, and recommended that the then-current KMI shareholders approve the Reverse Split at a ratio between 1:5 and 1:7.5, to be determined by KMI’s Board of Directors. Following such recommendation, a majority of the then-current shareholders approved the Reverse Split at a ratio between 1:5 and 1:7.5, to be determined by KMI’s board of Directors.
Amendment to KMI’s Articles of Incorporation; Shareholder Approval
As a further condition to the Closing, KMI was required to amend its Articles of Incorporation to opt out of the provisions relating to acquisition of controlling interest (NRS Sections 78.3781 - 78.3793) and the provisions relating to combinations with interested stockholders (NRS Sections 78.411 – 78.445). KMI’s board of directors approved the proposed amendments, and recommended them to the then-current KMI shareholders. Following such recommendation, a majority of the then-current shareholders approved the proposed amendments. KMI’s post-Closing management will work to implement these amendments to KMI’s Articles of Incorporation.
As of the date of this Report, KMI’s new board of directors had not implemented the Reverse Split, and had not filed the Articles of Amendment to opt out of the provisions of the Nevada Revised Statutes listed above. KMI will provide disclosure relating to the amendments once they have been filed and become effective.
The foregoing summary of the terms and conditions of the A&R Agreement does not purport to be complete, and is qualified in its entirety by reference to the full text of the A&R Agreement attached as an exhibit hereto.
KMI Private Offerings Prior to Closing; Creation of a Direct Financial Obligation of KMI
Prior to Closing, KMI conducted a non-public offering of its Series A Convertible Preferred stock (the “Preferred Stock Offering”) to raise up to $120,000 for operating funds for KMI and to satisfy accounts payable prior to Closing. One Hundred Thousand shares of KMI Series A Preferred Stock were sold in the Preferred Stock Offering. As noted above, the KMI Series A Preferred Stock will convert into KMI common stock immediately following the effectiveness of the Reverse Split. Pursuant to the Preferred Stock Offering, each investor entered into a subscription agreement pursuant to which each investor represented and warranted that it was an accredited investor and that he or she was purchasing the Preferred Stock for his or her own account, and not with a view to distribution, as well as other standard representations made in private transactions.
Additionally, KMI conducted a private offering of convertible notes (the “Note Offering”) to raise additional capital that would remain in KMI following the Closing. In the convertible note offering, KMI raised an aggregate of $240,000, which will be a component of the post-Closing capitalization of KMI. In the Note Offering, investors entered into a securities purchase agreement (the “Note SPA”) and were issued a convertible redeemable promissory note (collectively, the “Convertible Note”). Pursuant to the terms of the Note SPA, each investor represented and warranted that it was an accredited investor and that he or she was purchasing the Convertible Note for his or her own account, and not with a view to distribution, as well as other standard representations made in private transactions. Also pursuant to the Note SPA, KMI has the right to put an additional Convertible Note (in the same principal amount as purchased by the applicable investor) beginning on January 3, 2017, subject to certain conditions. The Convertible Notes bear interest at a rate of 10%, and mature on September 13, 2017, if not converted or prepaid prior to that. The Convertible Notes are convertible into shares of KMI’s common stock at a conversion price of $0.195, subject to adjustment as described in the Convertible Note. Up to 50% of the Convertible Notes may be repaid by KMI any time prior to 180 days after the issuance of the Convertible Notes, with a 30% premium to be paid in connection with the prepayment.
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Based on the terms of the Convertible Notes, absent any adjustment of the conversion price, KMI could be required to issue up to 1,230,769 shares of KMI’s common stock if the entire principal amounts of the Convertible Notes were converted. KIMI could be required to issue additional shares of its common stock if interest accruing on the Convertible Notes is converted into shares (on the same formula as that of the Convertible Notes), although KMI cannot determine how many shares could be issued until such conversions occur.
The securities offered and sold by KMI in the non-public offerings (both the preferred stock and the convertible note offerings) and in the exchange transition with the shareholders of EveryStory have not been and will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
The non-public offerings (both the preferred stock and the convertible note offerings) and in the exchange transition with the shareholders of EveryStory were made in reliance on the private offering exemption of Section 4(2) of the Securities Act and/or the private offering safe harbor provisions of Rule 506 of Regulation D based on the following factors: (i) the number of offerees or purchasers, as applicable, (ii) the absence of general solicitation, (iii) investment representations obtained from the security holders in each of the transactions, (iv) the provision of appropriate disclosure, and (v) the placement of restrictive legends on the certificates reflecting the securities.
Change in Control of KMI
Immediately prior to the Closing, there were 40,875,000 shares of KMI’s common stock. In connection with the Closing, KMI issued an aggregate of 77,377,712 shares to the EveryStory shareholders, and 45,247,288 shares were reserved for issuance to the holders of EveryStory options and convertible debt instruments, and the parties to the A&R Agreement understand and anticipate that all such holders would exercise and convert their securities into the reserved shares of KMI.
As noted, once
- | the Reverse Split has taken place; |
- | all of the KMI convertible preferred shares are converted into shares of KMI’s common stock; |
- | all of the EveryStory convertible notes are converted into shares of EveryStory common stock and then exchanged for shares of KMI common stock; and |
- | all of the EveryStory options have been exercised into shares of EveryStory common stock and then exchanged for shares of KMI common stock, |
then the legacy KMI shareholders would own 40%, and the EveryStory shareholders and option and convertible debt holders would collectively own 60%. As of the date of this Report, KMI’s management is unaware of any agreements between the EveryStory shareholders, the EveryStory option holders, the EveryStory convertible debt holders, or anyone else to work together. Nevertheless, numerically, the EveryStory securities holders do or will own more than 50% of the outstanding common stock of KMI, and as such, a change of control could be deemed to have occurred.
Changes in Management
In connection with the Closing, Edward Cox, David Keene, and Larry Morgan were appointed as new members of the Board of Directors of KMI by the existing members of KMI’s Board of Directors, and Edward Cox was appointed as the Chief Executive Officer of KMI. Immediately following the appointment of Messrs. Cox, Keene, and Morgan to the Board and Mr. Cox as the Chief Executive Officer, Vivek R. Dave and Taylor Caswell resigned all positions as members of the Board of Directors and as officers of KMI.
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The resignations were agreed to by the former directors in connection
with the execution of the A&R Agreement and the closing of the Acquisition. There were no disagreements between KMI and any
of the former directors.
The following is a summary of the biographical information of the new directors and officers of KMI:
Edward Cox has served as President and Chief Executive Officer and Chairman and a member of the Board of Directors of EveryStory since February 6, 2015. Prior to that, he served as a Vice President and Executive Officer of Apricus Biosciences, Inc., a publicly traded company, since December 2009, in roles leading Commercial Development, Business Development, Investor Relations, and Corporate Development. Mr. Cox served as the President, Director and Secretary of Bio-Quant, Inc. from January 2007 until BioQuant’s merger with NexMed, Inc., which was renamed Apricus Biosciences. Prior to 2007, Mr. Cox previously served as an executive or board member of both public and private companies in the areas of Healthcare, Life Science, Technology and Resources. Mr. Cox holds a Master of Science in Management degree from the Warrington College of Business Administration at the University of Florida.
David Keene, Founder, Chief Technology Officer and a member of the Board of Directors of EveryStory, is a veteran of the video game industry who has specialized in commerce and content delivery. Prior to founding EveryStory, from 2010 to 2013, Mr. Keene served as Chief Architect – Commerce Platform for Trion Worlds, Inc. (fka Trion World Networks, Inc.). At Trion, Mr. Keene led a group of senior engineers through the design and architecture process to create an innovative, world class commerce platform. Mr. Keene also created a high capability MTX platform that supported complex promotions, asymmetrical subscriptions, multiple game-specific currencies and robust reporting. While at Trion, Mr. Keene also had direct management responsibility over the quality assurance engineering team that created a third party order testing platform (custom DSL) for fully automated testing on all development. Prior to Trion, from 2006 to 2010, Mr. Keene served as Senior Architect – PlayStation Network for Sony Network Entertainment (“SNE”). While at SNE, Mr. Keene managed integrations with multiple SNE global partner groups, added search to the PlayStation Network (“PSN”) through soir/lucene, implemented an innovative recommendation system that avoided IP risk exposure. Mr. Keene also defined and led development guidance for the VERSA API, a RESTful api for next-gen PSN products and the Sony Qriosity video service. Prior to SNE, from 2004 to 2006, Mr. Keene served as a Senior Engineer at Sony Online Entertainment, where he worked supported the launch of several massively multiplayer online games (“MMOs”) including EverQuest II. Prior to that, from 2001 to 2004, Mr. Keene served as an independent software consultant and as a Senior Database Engineer for Shea Homes, a California-based home builder.
Larry Morgan joined the EveryStory board of directors in 2015. Mr. Morgan is a top-flight executive with over 25 years of global experience in the telecom, IT services, enterprise restructuring, and consulting industries. Mr. Morgan is currently President and CEO of The Noble Group, a consulting firm that advises early stage companies on growth strategies and advises the managements of seasoned companies regarding exit strategies. Mr. Morgan is also an active investor with Vertical Venture Partners, Tech Coast Angels and OurCrowd. From 2010 to 2013 Mr. Morgan served as Executive Director of San Diego Data Processing Corporation and led a restructuring that resulted in annual savings in excess of $11 million to the City of San Diego. Prior to that, from 2007 to 2009, Mr. Morgan served as a Managing Director of Macquarie Telecom, where he led the turnaround of the international hosting, voice and data outsourcing division and led the sale of the resulting profitable business. In addition to domestic postings, during his tenure with Macquarie, Mr. Morgan had postings in Australia and Singapore, Prior to Macquarie, from 2005 to 2006, Mr. Morgan served as President and CEO of Virtela Communications, spearheading the turnaround that resulted in the the foundation for Virtela’s eventual sale for over $500 million. Prior to Virtela, from 1991 to 2005, Mr. Morgan had several executive positions of increasing responsibility with Infonet Services Corporation, and last served as Corporate Vice President and General Manager. During his tenure with Infonet, Mr. Morgan led Infonet’s business in Europe, the Middle East and Africa, was responsible for all IP, outsourcing and cloud computing products, expansion into India, network coverage in 61 countries, and was a member of the executive due diligence and transition team in connection with the company’s sale to British Telecom for $965 million. Also during his tenure with Infonet, Mr. Morgan had international postings in The Netherlands and Singapore. Mr. Morgan holds both a B.S. degree (Mathematics and Education) and an M.A. degree (Administration) from Villanova University.
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As of the date of this Report, the Board of Directors KMI had not yet organized any committees. Additionally, as of the date of this Report, none of the new directors or officers of KMI had employment or other compensation agreements with KMI.
Item 9.01 | Financial Statements and Exhibits. |
(a) Financial statements of businesses acquired.
Financial statements of EveryStory, Inc., as required for the periods specified in Rule 8-04(b) of Regulation S-X, and meeting the requirements of Regulation S-X, are not included in this Report. KMI will provide the required financial statements of EveryStory, Inc., by amendment of this Current Report within 71 days of the filing of this Current Report.
(b) Pro forma financial information.
Pro forma financial information, if and as required by Rule 8-05 of Regulation S-X, and meeting the requirements of Regulation S-X, are not included in this Report. If pro forma financial information is required with respect to the transaction described above, KMI will provide such required pro forma financial information by amendment of this Current Report within 71 days of the filing of this Current Report.
(d) Exhibits
Exhibit No. | Description |
2.1 | Amended and Restated Acquisition and Share Exchange Agreement between Knowledge Machine International, Inc., and EveryStory, Inc., and the Shareholders of EveryStory, Inc., dated as of September 21, 2016 |
99.1 | Form of Convertible Promissory Note |
99.2 | Form of Securities Purchase Agreement for Convertible Promissory Note |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Knowledge Machine International, Inc. | ||
Date: September 27, 2016 | ||
By: | /s/ Edward Cox | |
Name: Edward Cox | ||
Title: Chief Executive Officer |
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Exhibit 2.1
AMENDED AND RESTATED ACQUISITION AND
SHARE EXCHANGE AGREEMENT
THIS AMENDED AND RESTATED ACQUISITION AND SHARE EXCHANGE AGREEMENT (this “A&R Agreement”), entered into this 21st day of September, 2016, amends and restates certain provisions of the prior Acquisition and Share Exchange Agreement (the “Original Agreement”) dated as of July 1, 2016, is by and among Knowledge Machine International, Inc., a Nevada corporation (“KMI”) located at 14 Hayward Brook Drive, Concord, NH 03301, and EveryStory, Inc., a Delaware corporation (“EveryStory”), located at 9921 Carmel Mountain Road, Suite 118, San Diego, CA, 92129, and the Shareholders of EveryStory listed on the Signature Page and in Exhibit A hereto (the “Shareholders” or individually, a “Shareholder”). Each of the parties to this A&R Agreement is individually referred to herein as a “Party” and collectively as the “Parties.”
RECITALS
A. | KMI voluntarily files reports with the Securities and Exchange Commission under Section 13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). |
B. | KMI’s common stock is quoted on OTCPink under the symbol “KNMX.” |
C. | EveryStory has 2,163,000 shares of common stock outstanding (the “EveryStory Shares”), which are held by the Shareholders. |
D. | Additionally, EveryStory has convertible debt instruments outstanding (the “Convertible Notes”) that would convert, as of the date of this A&R Agreement, into 672,533 shares of EveryStory common stock, and outstanding options (the “Options”) to purchase 592,300 shares of EveryStory common stock (the “Option Shares”). |
E. | The holders of the EveryStory Shares desire to participate in the transaction described herein and to receive KMI shares in exchange for their EveryStory Shares. |
F. | Management of EveryStory has discussed the proposed Share Exchange transaction with the holders of the Convertible Notes and the Options (collectively, the “EveryStory Derivative Owners”), and anticipates that the majority of the EveryStory Derivative Owners will elect to receive KMI shares in lieu of or in satisfaction of the obligations of EveryStory to issue EveryStory common stock. |
G. | The EveryStory Shares, the shares issuable upon conversion of the Convertible Notes, and the Option Shares aggregate to 3,427,833 shares of EveryStory Common Stock (the “Fully Diluted Shares”). |
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H. | The Shareholders have agreed to transfer the EveryStory Shares to KMI in exchange for that number of newly issued shares of common stock of KMI, par value $0.001 (the “KMI Shares”), pursuant to a share exchange transaction (the “Share Exchange”) on the terms and conditions set forth in this A&R Agreement. |
I. | EveryStory Management anticipates that the holders of the Convertible Notes and the holders of the Options will exchange their rights to receive EveryStory Shares upon conversion or exercise of their respective instruments for the right to receive KMI Shares pursuant to the Share Exchange, on the same ratio as the Shareholders. |
J. | Upon consummation of the Share Exchange, the ownership of KMI and of EveryStory would be as set forth on Exhibit A attached hereto, in the numbers and percentages listed thereon. |
K. | The exchange of the EveryStory Shares for the KMI Shares is intended to constitute a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the “Code”), or such other tax free reorganization or restructuring provisions as may be available under the Code. |
L. | KMI is a newly formed technology company focused on targeting new technologies, acquiring licensing rights to those technologies, and marketing its licensed technologies. |
M. | EveryStory is a newly formed digital image story-sharing platform that allows users collaboratively to create, preserve and share personal stories in one place. |
N. | Pursuant to the terms of this A&R Agreement, the prior business of KMI will cease, and the new business of KMI will be the business of EveryStory. |
O. | The Boards of Directors of each of KMI and EveryStory have determined that it is desirable to enter into this A&R Agreement and to effect this Share Exchange and has approved of the Share Exchange as reflected in this A&R Agreement |
P. | Each of the Parties to this A&R Agreement desires to make certain representations, warranties and agreements in connection with the transactions contemplated herein and also to prescribe various conditions thereto. |
Q. | On July 1, 2016, the Parties executed the original version of the Agreement. Subsequently, the Parties have agreed to two amendments to the original Agreement, which amendments are reflected in this Amended and Restated Agreement |
AGREEMENT
NOW THEREFORE, in consideration of the premises, mutual covenants set out herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties hereto intending to be legally bound hereby agree as follows:
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ARTICLE I
Share Exchange; Convertible Debt; Options; Closing
SECTION 1.01 Exchange by the Shareholders, Optionholders, and Note Holders. At the Closing (as defined in Section 1.02), it is the intent of EveryStory that the Shareholders shall sell, transfer, convey, assign and deliver to KMI all of EveryStory Shares free and clear of all Liens in exchange for common shares of KMI, and that the Options and Convertible Notes would be exercisable or convertible into shares of common stock of KMI, which in the aggregate would not exceed 24,000,000 post-reverse-split shares of common stock of KMI (the “KMI Stock”), which would be equal to 60% of the total outstanding common stock of KMI following the effectiveness of the anticipated reverse stock split (defined below). The Parties understand, acknowledge, and agree that the maximum number of shares of KMI Stock to be issued to the Shareholders, the Optionholders (as defined below) and the holders of the Convertible Notes will be determined following the closing of a private offering by KMI (discussed below), and that the Parties will agree to the final number of shares prior to the closing of the Share Exchange transaction contemplated by this A&R Agreement (the “Transaction”). The Parties further agree that the table in Exhibit A will be completed prior to Closing, to the satisfaction of all the Parties, and will set forth the number of shares of KMI common stock that each of the Shareholders will receive, and the number of shares of KMI common stock that will be issued to or reserved for issuance to the Option holders and the holders of the Convertible Notes, as well as the ratio of shares of KMI per share of EveryStory common stock (the “Exchange Ratio”).
SECTION 1.02 Convertible Debt Holders. As noted in the Recitals above, EveryStory has convertible debt instruments outstanding (the “Convertible Notes”) that would convert, as of the date of this A&R Agreement, into 672,533 shares of EveryStory common stock. Management of EveryStory has communicated with the holders of the Convertible Notes (the “Noteholders”) relating to the Share Exchange transaction contemplated hereby, and EveryStory management anticipates that the Noteholders will agree to receive KMI Shares in exchange for their rights under the Convertible Notes to receive payment from EveryStory or shares of EveryStory common stock on the same Exchange Ratio as received by the Shareholders, all as set forth in the table in Exhibit A.
SECTION 1.03 Option Holders. As noted in the Recitals above, EveryStory has outstanding options to purchase 592,300 shares of EveryStory common stock. Management of EveryStory has communicated with the holders of the Options (the “Optionholders”) relating to the Share Exchange transaction contemplated hereby, and EveryStory management anticipates that the Optionholders will agree that upon their exercise of the Options, they will be entitled to receive shares of KMI common stock on the same Exchange Ratio as received by the Shareholders, all as set forth in the table in Exhibit A.
SECTION 1.04 Preferred Stock Issuable to Two EveryStory Shareholders. The Parties understand, acknowledge, and agree that between the execution of the Original Agreement and the Closing (defined below), EveryStory shall file a certificate of designation for a series of preferred stock (the “Series A Preferred Stock”) and shall issue 112,690 shares of the Series A Preferred Stock to Edward Cox and David Keene in exchange for and as full payment of certain amounts owing by EveryStory to Messrs. Cox and Keene. The Parties further understand, acknowledge, and agree that the Series A Preferred shall be redeemable by EveryStory (on agreement by both EveryStory and Messrs. Cox and Keene) at any time for cash on a dollar-per-dollar basis at a redemption price of $1.00 per share, as more fully set forth in the Certificate of Designation for the Series A Preferred Stock. The Parties also understand, acknowledge, and agree that if EveryStory and Messrs. Cox and Keene decide to not redeem the Series A Preferred for cash, the shares of Series A Preferred shall be convertible into an aggregate of 160,986 shares of EveryStory common stock (using a conversion price of $0.70 per share), which shares may be exchanged by Messrs. Cox and Keene for shares of KMI common stock, which shares would be separate and apart from the shares of KMI common stock contemplated to be issued pursuant to this A&R Agreement, and would be separate and apart from the share total and percentage calculations set forth in this A&R Agreement.
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SECTION 1.05 Bifurcated Signing and Closing. The Parties understand, acknowledge, and agree that the closing (the “Closing”) of the transactions contemplated by the Original Agreement and this A&R Agreement (the “Transactions”) shall take place at some point after the execution of the Original Agreement by the Parties, to provide to KMI and to EveryStory the opportunity to satisfy all closing conditions set forth herein. The Closing shall take place on the Effective Date (as defined below) at such location to be determined by EveryStory and KMI, commencing upon the satisfaction or waiver of all conditions and obligations of the Parties to consummate the Transactions contemplated hereby, as more fully set forth in ARTICLE V and ARTICLE VI herein or such other date and time as the Parties may mutually determine (the “Closing Date”).
SECTION 1.06 Closing Date. The effective date of the Closing (the “Effective Date”), subject to the satisfaction of all conditions herein, shall take place on or before September 21, 2016. The Parties understand, acknowledge, and agree that KMI shall seek to raise at least Two Hundred Forty Thousand Dollars ($240,000) pursuant to the Convertible Debt Offering described more fully in Section 6.01(d) below. The Parties further acknowledge and agree that if KMI has not raised at least Two Hundred Forty Thousand Dollars ($240,000) in the Convertible Debt Offering by September 21, 2016, the Effective Date may be extended up to thirty (30) days on the mutual agreement of the Parties.
ARTICLE II
Representations and Warranties of the Shareholders
Each Shareholder hereby represents and warrants as of the Closing to KMI, as follows:
SECTION 2.01. SECTION 1.01. Good Title. The Shareholder is the record and beneficial owner of, and has good and marketable title to, that number of the Shareholder’s EveryStory Shares listed next to the Shareholder’s name on Exhibit A hereto, with the right and authority to sell and deliver such EveryStory Shares to KMI as provided herein. EveryStory shares, when so issued and delivered to KMI, will constitute duly authorized, validly and legally issued, fully paid and non-assessable shares of EveryStory. Upon registering of KMI as the new owner of such EveryStory Shares in the share register of EveryStory, KMI will receive good title to such EveryStory Shares, free and clear of all liens, security interests, pledges, equities and claims of any kind, voting trusts, Shareholders agreements and other encumbrances (collectively, “Liens”).
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SECTION 2.02. Power and Authority. All acts required to be taken by the Shareholders to enter into this A&R Agreement and to carry out the Transactions have been properly taken. This A&R Agreement constitutes a legal, valid and binding obligation of the Shareholders, enforceable against such Shareholders in accordance with the terms hereof.
SECTION 2.03. No Conflicts. The execution and delivery of this A&R Agreement by the Shareholders and the performance by the Shareholders of his or her obligations hereunder in accordance with the terms hereof: (i) will not require the consent of any third party or any federal, state, local or foreign government or any court of competent jurisdiction, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign (“Governmental Entity”) under any statutes, laws, ordinances, rules, regulations, orders, writs, injunctions, judgments, or decrees (collectively, “Laws”); (ii) will not violate any Laws applicable to such Shareholders; and (iii) will not violate or breach any contractual obligation to which such Shareholders are a party.
SECTION 2.04. No Finder’s Fee. Neither the Shareholders nor EveryStory have created any obligation for any finder’s, investment banker or broker’s fee in connection with the Transactions that EveryStory or KMI will be responsible for.
SECTION 2.05. Purchase Entirely for Own Account. KMI Stock proposed to be acquired by the Shareholders hereunder will be acquired for investment for their own accounts, and not with a view to the resale or distribution of any part thereof, and the Shareholders have no present intention of selling or otherwise distributing KMI Stock except in compliance with applicable securities laws, including Section 5 of the Securities Act of 1933, as amended (the “Securities Act”)
SECTION 2.06. Available Information. Each Shareholder has such knowledge and experience in financial and business matters that he, she or it is capable of evaluating the merits and risks of an investment in KMI.
SECTION 2.07. Non-Registration. The Shareholders understand that the shares of KMI Stock have not been registered under the Securities Act and, if issued in accordance with the provisions of this A&R Agreement, will be issued by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Shareholder’s representations as expressed herein.
SECTION 2.08. Restricted Securities. The Shareholders understand that the KMI Stock is characterized as “restricted securities” under the Securities Act inasmuch as this A&R Agreement contemplates that, if acquired by the Shareholders pursuant hereto, the KMI Stock would be acquired in a transaction not involving a public offering. The Shareholders further acknowledge that if the KMI Stock is issued to the Shareholders in accordance with the provisions of this A&R Agreement, such KMI Stock may not be resold without registration under the Securities Act or the existence of an exemption therefrom. Each Shareholder represents that he, she, or it is familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.
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SECTION 2.09 Accredited Investors. Each Shareholder is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated by the SEC.
SECTION 2.10. Legends. It is understood that the shares of KMI Stock will bear the following legend or another legend that is similar to the following:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO KMI. THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.
and any legend required by the “blue sky” laws of any state to the extent such laws are applicable to the securities represented by the certificate so legended.
SECTION 2.11. Exemption from Registration. Each Shareholder acknowledges that EveryStory shares are being issued pursuant to an appropriate exemption from registration under the Securities Act and all other applicable state securities laws and there are no pending or threatened stop orders or other actions or investigations related thereto involving federal and state securities laws.
SECTION 2.12 Shareholders’ Acknowledgment. Each Shareholder signing this A&R Agreement acknowledges that he, she or it has read the representations and warranties of EveryStory set forth in Article III herein and such representations and warranties are, to the best of his, her, or its knowledge, true and correct.
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ARTICLE III
Representations and Warranties of EveryStory
EveryStory hereby represents and warrants as of the Closing to KMI, as follows:
SECTION 3.01. Organization, Standing and Power. EveryStory is duly incorporated or organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect on EveryStory, a material adverse effect on the ability of EveryStory to perform its obligations under this A&R Agreement or on the ability of EveryStory to consummate the Transactions. For purposes of this A&R Agreement, an “EveryStory Material Adverse Effect” is defined herein as any event, change, circumstance, effect of state of facts that (i) is or would reasonably be expected to be materially adverse to the assets, liabilities, condition (financial or otherwise), business or results of operations of EveryStory, or (ii) materially impairs the ability of EveryStory to consummate or prevents or materially delays, any of the transactions contemplated by this A&R Agreement. EveryStory is duly qualified to do business in each jurisdiction where the nature of its business or its ownership or leasing of its properties make such qualification necessary, except where the failure to so qualify would not reasonably be expected to have an EveryStory Material Adverse Effect. EveryStory has delivered to KMI true and complete copies of the Certificate of Incorporation and bylaws of EveryStory, each as amended to the date of this A&R Agreement (as so amended, the “EveryStory Charter Documents”).
SECTION 3.02. Capital Structure and EveryStory Shares.
(a) As of the Closing, the authorized share capital of EveryStory consists of One Hundred Million (100,000,000) shares of common stock, $0.001 par value, with Two Million One Hundred Fifty-nine Thousand, Four Hundred Twenty-nine (2,159,429) shares outstanding; and 10,000,000 shares of Preferred Stock, with One Hundred Twelve Thousand, Six Hundred Ninety (112,690) shares of Series A Preferred Stock outstanding. Additionally, EveryStory has outstanding options to purchase up to 592,300 shares of EveryStory’s common stock (the “Outstanding Options”). Moreover, EveryStory has convertible debt that would convert into 672,533 shares of EveryStory common stock. On a fully diluted basis (but not including the shares issuable upon conversion of the EveryStory Series A Preferred Stock discussed in Section 1.04 above), EveryStory would have 3,427,833 shares of its common stock outstanding.
(b) Except as disclosed in Section 3.02(a) above, no other shares or other voting securities of EveryStory are issued, reserved for issuance or outstanding. All outstanding shares of EveryStory are duly authorized, validly issued, fully paid and non-assessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the applicable corporate laws of its state of incorporation, EveryStory Charter Documents or any Contract (as defined in Section 3.04) to which EveryStory is a party or otherwise bound. Except as disclosed in Section 3.02(a) above, there are no bonds, debentures, notes or other indebtedness of EveryStory having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of EveryStory Shares may vote (“Voting EveryStory Debt”). Except as disclosed in Section 3.02(a) above, there are no other options or warrants to purchase shares of EveryStory common stock.
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(c) The EveryStory Shares being exchanged in the Share Exchange, when so issued and delivered to KMI, will constitute duly authorized, validly and legally issued, fully-paid and non-assessable shares of EveryStory.
SECTION 3.03. Authority; Execution and Delivery; Enforceability. EveryStory has all requisite corporate power and authority to execute and deliver the Original Agreement and this A&R Agreement and to consummate the Transactions. The execution and delivery by EveryStory of the Original Agreement and this A&R Agreement and the consummation by EveryStory of the Transactions have been duly authorized and approved by the Board of Directors of EveryStory and no other corporate proceedings on the part of EveryStory are necessary to authorize this A&R Agreement and the Transactions. When executed and delivered, this A&R Agreement will be enforceable against EveryStory in accordance with its terms, subject to bankruptcy, insolvency and similar laws of general applicability as to which EveryStory is subject.
SECTION 3.04. No Conflicts; Consents.
(a) The execution and delivery by EveryStory of this A&R Agreement does not, and the consummation of the Transactions and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of EveryStory under any provision of (i) EveryStory Charter Documents, (ii) any material contract, lease, license, indenture, note, bond, agreement, permit, concession, franchise or other instrument (a “Contract”) to which EveryStory is a party or by which any of their respective properties or assets is bound or (iii) subject to the filings and other matters referred to in Section 3.04(b), any material judgment, order or decree (“Judgment”) or material Law applicable to EveryStory or its properties or assets, other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and would not reasonably be expected to have an EveryStory Material Adverse Effect.
(b) Except for required filings with the Securities and Exchange Commission (the “SEC”) and applicable “Blue Sky” or state securities commissions, no material consent, approval, license, permit, order or authorization (“Consent”) of, or registration, declaration or filing with, or permit from, any Governmental Entity is required to be obtained or made by or with respect to EveryStory in connection with the execution, delivery and performance of this A&R Agreement or the consummation of the Transactions.
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SECTION 3.05. Financial Information. The list of assets and liabilities of EveryStory attached hereto as Exhibit B is true and correct in all material respects.
SECTION 3.06. Benefit Plans. Other than the EveryStory 2015 Equity Incentive Plan, EveryStory does not have or maintain any other collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, share ownership, share purchase, share option, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement or understanding (whether or not legally binding) providing benefits to any current or former employee, officer or director of EveryStory (collectively, “EveryStory Benefit Plans”). As of the date of this A&R Agreement there are no severance or termination agreements or arrangements between EveryStory and any current or former employee, officer or director of EveryStory, nor does EveryStory have any general severance plan or policy.
SECTION 3.07. Litigation. There is no action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against or effecting EveryStory, or any of its properties before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility (“Action”) which (i) adversely effects or challenges the legality, validity or enforceability of any of this A&R Agreement or KMI Stock or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in an EveryStory Material Adverse Effect. Neither EveryStory nor any director or officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim or violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. Further, EveryStory is not a party to or the subject of, any material pending litigation, claims or governmental investigations or proceedings and there are no material lawsuits, claims, assessments, investigations or similar matters, threatened in writing against EveryStory.
SECTION 3.08. Compliance with Applicable Laws. EveryStory is in compliance with all applicable Laws, including those relating to occupational health and safety and the environment, except for instances of noncompliance that, individually and in the aggregate, have not had and would not reasonably be expected to have an EveryStory Material Adverse Effect. This Section 3.08 does not relate to matters with respect to Taxes, which are the subject of Section 3.05.
SECTION 3.09. Brokers; Schedule of Fees and Expenses. No broker, investment banker, financial advisor or other person is entitled to any broker’s, finders, financial advisors or other similar fee or commission in connection with the Transactions based upon arrangements made by or on behalf of EveryStory.
SECTION 3.10. Taxes and Other Government Filings and Required Government Payments.
(a) EveryStory has filed in a timely manner, or has caused to be filed in a timely manner on its behalf, all Tax Returns required to be filed by it, and all such Tax Returns are true, complete and accurate, except to the extent any failure to file or any inaccuracies in any filed Tax Returns, individually or in the aggregate, have not had and would not reasonably be expected to have an EveryStory Material Adverse Effect. All Taxes shown to be due on such Tax Returns, or otherwise owed, have been timely paid, except to the extent that any failure to pay, individually or in the aggregate, has not had and would not reasonably be expected to have an EveryStory Material Adverse Effect. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of EveryStory know of no basis for any such claim. Further, income, excise, property and other tax, governmental and/or other returns, forms, filings, or reports, which are due or required to be filed by it prior to the date hereof have paid or adequate provision has been made for the payment of all taxes, fees, or assessments which have or may become due pursuant to such returns, filings or reports or pursuant to any assessments received. EveryStory is not delinquent or obligated for any tax, penalty, interest, delinquency or charge and there are no tax liens or encumbrances applicable to either corporation.
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(b) If applicable, EveryStory has established an adequate reserve reflected on its financial statements for all Taxes payable by EveryStory (in addition to any reserve for deferred Taxes to reflect timing differences between book and Tax items) for all Taxable periods and portions thereof through the date of such financial statements. No deficiency with respect to any Taxes has been proposed, asserted or assessed against EveryStory, and no requests for waivers of the time to assess any such Taxes are pending, except to the extent any such deficiency or request for waiver, individually or in the aggregate, has not had and would not reasonably be expected to have an EveryStory Material Adverse Effect.
(c) For purposes of this A&R Agreement:
“Taxes” includes all forms of taxation, whenever created or imposed, and whether of the United States or elsewhere, and whether imposed by a local, municipal, governmental, state, foreign, federal or other Governmental Entity, or in connection with any agreement with respect to Taxes, including all interest, penalties and additions imposed with respect to such amounts.
“Tax Return” means all federal, state, local, provincial and foreign Tax returns, declarations, statements, reports, schedules, forms and information returns and any amended Tax return relating to Taxes.
SECTION 3.11. Contracts. Except as disclosed in the EveryStory Disclosure Schedule or as provided by EveryStory to KMI prior to the Closing, there are no Contracts that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of EveryStory. EveryStory is not in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any Contract to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that would not, individually or in the aggregate, reasonably be expected to result in an EveryStory Material Adverse Effect. Further, the execution and delivery of this A&R Agreement will not constitute a material breach of any agreement, indenture, mortgage, license or other instrument or document to which EveryStory is a party or to which it is otherwise subject to and will not violate any judgment, decree, order, write law, rule statute or regulation applicable to EveryStory or its properties.
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SECTION 3.12. Subsidiaries; Equity Interests. EveryStory does not own, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any person.
SECTION 3.13. Investment Company. EveryStory is not, and is not an affiliate of, and immediately following the Closing will not have become, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
SECTION 3.14. Certificate of Incorporation and Bylaws. The execution and performance of this A&R Agreement will not violate or conflict with any provision of the EveryStory Charter Documents.
ARTICLE IV
Representations and Warranties of KMI
KMI represents and warrants as of the Closing as follows to the Shareholders and EveryStory, that, except as set forth in the Disclosure Schedule delivered by KMI to EveryStory and the Shareholders (the “KMI Disclosure Schedule”):
SECTION 4.01. Organization, Standing and Power. KMI is duly organized, validly existing and in good standing under the laws of the State of Nevada and has full corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to own, lease or otherwise hold its properties and assets and to conduct its businesses as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which, individually or in the aggregate, has not had and would not reasonably be expected to have a material adverse effect on KMI, a material adverse effect on the ability of KMI to perform its obligations under this A&R Agreement or on the ability of KMI to consummate the Transactions. For purposes of this A&R Agreement a “KMI Material Adverse Effect” is defined herein as any event, change, circumstance, effect of state of facts that (i) is or would reasonably be expected to be materially adverse to the assets, liabilities, condition (financial or otherwise), business or results of operations of KMI, or (ii) materially impairs the ability of KMI to consummate or prevents or materially delays, any of the transactions contemplated by this A&R Agreement. KMI is duly qualified to do business in each jurisdiction where the nature of its business or their ownership or leasing of its properties make such qualification necessary and where the failure to so qualify would reasonably be expected to have a KMI Material Adverse Effect. KMI has delivered to EveryStory true and complete copies of the Articles of Incorporation of KMI, as amended to the date of this A&R Agreement (as so amended, the “KMI Charter”), and the Bylaws of KMI, as amended to the date of this A&R Agreement (as so amended, the “KMI Bylaws”).
SECTION 4.02. Subsidiaries; Equity Interests. Except as set forth in KMI Disclosure Schedule, KMI does not own, as of the Closing, directly or indirectly, any capital stock, membership interest, partnership interest, joint venture interest or other equity interest in any person.
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SECTION 4.03. Capital Structure/KMI Exchange Shares
(a) The authorized capital stock of KMI consists of Two Hundred Million (200,000,000) shares of common stock, par value $0.001 per share, of which (i) 47,625,000 shares of KMI Common Stock are issued and outstanding as of the date of execution of this A&R Agreement, and the number set forth in Exhibit A hereto immediately prior to Closing, (ii) One Million (1,000,000) shares of Preferred Stock, of which 100,000 shares of Series A Convertible Preferred Stock are outstanding as of the date of execution of this A&R Agreement, and either A) no shares are outstanding as of Closing, or B) all outstanding shares of Series A Convertible Preferred Stock will be converted into KMI’s common stock within five (5) days of closing of the Transaction; and (iii) no shares of KMI Stock or preferred stock are held by KMI in its treasury. No other shares of capital stock or other voting securities of KMI were issued, reserved for issuance or outstanding. All outstanding shares of the capital stock of KMI are, and all such shares that may be issued subsequent to the date of execution of this A&R Agreement will be when issued, duly authorized, validly issued, fully paid and non-assessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the Nevada Revised Statutes, KMI Charter, KMI Bylaws or any Contract to which KMI is a party or otherwise bound. Aside from the convertible debt referred to in Section 6.01(d) hereto, there are no bonds, debentures, notes or other indebtedness of KMI having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which holders of KMI Stock may vote (“Voting KMI Debt”). There are no options, warrants, rights, convertible or exchangeable securities, “phantom” stock rights, stock appreciation rights, stock-based performance units, commitments, Contracts, arrangements or undertakings of any kind to which KMI is a party or by which it is bound (i) obligating KMI to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity interests in, or any security convertible or exercisable for or exchangeable into any capital stock of or other equity interest in, KMI or any Voting KMI Debt, (ii) obligating KMI to issue, grant, extend or enter into any such option, warrant, call, right, security, commitment, Contract, arrangement or undertaking or (iii) that give any person the right to receive any economic benefit or right similar to or derived from the economic benefits and rights occurring to holders of the capital stock of KMI. As of the date of this A&R Agreement, there are no outstanding contractual obligations of KMI to repurchase, redeem or otherwise acquire any shares of capital stock of KMI. KMI is not a party to any agreement granting any security holder of KMI the right to cause KMI to register shares of the capital stock or other securities of KMI held by such security holder under the Securities Act. The stockholder list provided to EveryStory is a current stockholder list generated by its stock transfer agent, and such list accurately reflects all of the issued and outstanding shares of KMI Stock as at the Closing.
(b) The KMI Shares being issued in the Share Exchange, when so issued and delivered to the Shareholders, will constitute duly authorized, validly and legally issued, fully-paid and non-assessable shares of KMI.
SECTION 4.04. Authority; Execution and Delivery; Enforceability. The execution and delivery by KMI of this A&R Agreement and the consummation by KMI of the Transactions have been duly authorized and approved by the Board of Directors of KMI and no other corporate proceedings on the part of KMI are necessary to authorize this A&R Agreement and the Transactions. This A&R Agreement constitutes a legal, valid and binding obligation of KMI, enforceable against KMI in accordance with the terms hereof.
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SECTION 4.05. No Conflicts; Consents.
(a) The execution and delivery by KMI of this A&R Agreement, does not, and the consummation of Transactions and compliance with the terms hereof and thereof will not, conflict with, or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or to increased, additional, accelerated or guaranteed rights or entitlements of any person under, or result in the creation of any Lien upon any of the properties or assets of KMI under, any provision of (i) KMI Charter or KMI Bylaws, (ii) any material Contract to which KMI is a party or by which any of its properties or assets is bound or (iii) subject to the filings and other matters referred to in Section 4.05(b), any material Judgment or material Law applicable to KMI or its properties or assets, other than, in the case of clauses (ii) and (iii) above, any such items that, individually or in the aggregate, have not had and would not reasonably be expected to have a KMI Material Adverse Effect.
(b) No Consent of, or registration, declaration or filing with, or permit from, any Governmental Entity is required to be obtained or made by or with respect to KMI in connection with the execution, delivery and performance of this A&R Agreement or the consummation of the Transactions, other than the (A) filing with the SEC of a report on Form D, and (B) filings under state “blue sky” laws, as each may be required in connection with this A&R Agreement and the Transactions.
SECTION 4.06. SEC Documents; Undisclosed Liabilities.
(a) KMI has filed all KMI SEC Documents required pursuant to Sections 13(a) and 15(d) of the Exchange Act, as applicable (the “KMI SEC Documents”). KMI is not subject to the reporting obligations of either Section 13(a) or Section 15(d) of the Exchange Act but has continued to voluntarily file with the SEC reports otherwise required under these sections.
(b) Except as set forth in KMI Disclosure Schedule, as of its respective filing date, each KMI SEC Document filed with the SEC since October 22, 2014, and, to the Knowledge of KMI, each KMI SEC Document filed with the SEC prior thereto, complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to such KMI SEC Document, and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. For purposes of this Article IV, “Knowledge” means, as it relates to KMI, the actual knowledge of Vivek R. Dave, in each case upon reasonable inquiry. The financial statements of KMI included in KMI SEC Documents comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with the U.S. generally accepted accounting principles (“GAAP”) (except, in the case of unaudited statements, as permitted by the rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the financial position of KMI as of the dates thereof and the results of its operations and cash flows for the periods shown (subject, in the case of unaudited statements, to normal year-end audit adjustments).
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(c) KMI has no liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a balance sheet of KMI or in the notes thereto. As of the Effective Date, except for the obligations of KMI incurred in connection with the securities issued in connection with the Convertible Debt Offering, as well as the expenses connected with that Convertible Debt Offering (as disclosed more fully in Section 6.01(d) below), all liabilities of KMI shall have been paid off and shall in no event remain liabilities of KMI, EveryStory, or the Shareholders following the Closing, and all subsidiaries shall have been dissolved or otherwise removed as subsidiaries of KMI.
SECTION 4.07. Information Supplied. None of the information supplied or to be supplied by KMI for inclusion or incorporation by reference in any SEC filing or report contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading.
SECTION 4.08. Absence of Certain Changes or Events. Except as disclosed in KMI Disclosure Schedule, from the date of the most recent audited financial statements included in the filed KMI SEC Documents to the date of this A&R Agreement, KMI has conducted its business only in the ordinary course, and during such period there has not been:
(a) any change in the assets, liabilities, financial condition or operating results of KMI from that reflected in KMI SEC Documents, except changes in the ordinary course of business that have not caused, in the aggregate, a KMI Material Adverse Effect;
(b) any damage, destruction or loss, whether or not covered by insurance, that would have a KMI Material Adverse Effect;
(c) any waiver or compromise by KMI of a valuable right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by KMI, except in the ordinary course of business and the satisfaction or discharge of which would not have a KMI Material Adverse Effect;
(e) any material change to a material Contract by which KMI or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder;
(g) any resignation or termination of employment of any officer of KMI;
(h) any mortgage, pledge, transfer of a security interest in, or lien, created by KMI, with respect to any of its material properties or assets, except liens for taxes not yet due or payable and liens that arise in the ordinary course of business and do not materially impair KMI’s ownership or use of such property or assets;
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(i) any loans or guarantees made by KMI to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business;
(j) any declaration, setting aside or payment or other distribution in respect of any of KMI’s capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by KMI;
(k) any alteration of KMI’s method of accounting or the identity of its auditors;
(l) any issuance of equity securities to any officer, director or affiliate, except pursuant to existing KMI stock option plans; or
(m) any arrangement or commitment by KMI to do any of the things described in this Section 4.08.
SECTION 4.09. Taxes.
(a) KMI has timely filed, or has caused to be timely filed on its behalf, all Tax Returns required to be filed by it, and all such Tax Returns are true, complete and accurate, except to the extent any failure to file, any delinquency in filing or any inaccuracies in any filed Tax Returns, individually or in the aggregate, have not had and would not reasonably be expected to have a KMI Material Adverse Effect. All Taxes shown to be due on such Tax Returns, or otherwise owed, has been timely paid, except to the extent that any failure to pay, individually or in the aggregate, has not had and would not reasonably be expected to have a KMI Material Adverse Effect. Further, income, excise, property and other tax, governmental and/or other returns, forms, filings, or reports, which are due or required to be filed by it prior to the date hereof have paid or adequate provision has been made for the payment of all taxes, fees, or assessments which have or may become due pursuant to such returns, filings or reports or pursuant to any assessments received. KMI is not delinquent or obligated for any tax, penalty, interest, delinquency or charge and there are no tax liens or encumbrances applicable to either corporation.
(b) The most recent financial statements contained in KMI SEC Documents reflect an adequate reserve for all Taxes payable by KMI (in addition to any reserve for deferred Taxes to reflect timing differences between book and Tax items) for all Taxable periods and portions thereof through the date of such financial statements. No deficiency with respect to any Taxes has been proposed, asserted or assessed against KMI, and no requests for waivers of the time to assess any such Taxes are pending, except to the extent any such deficiency or request for waiver, individually or in the aggregate, has not had and would not reasonably be expected to have a KMI Material Adverse Effect.
(c) There are no Liens for Taxes (other than for current Taxes not yet due and payable) on the assets of KMI. KMI is not bound by any agreement with respect to Taxes.
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SECTION 4.10. Absence of Changes in Benefit Plans. From the date of the most recent audited financial statements included in KMI SEC Documents to the date of this A&R Agreement, there has not been any adoption or amendment in any material respect by KMI of any collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, retirement, vacation, severance, disability, death benefit, hospitalization, medical or other plan, arrangement or understanding (whether or not legally binding) providing benefits to any current or former employee, officer or director of KMI (collectively, “KMI Benefit Plans”). As of the date of this A&R Agreement there are not any employment, consulting, indemnification, severance or termination agreements or arrangements between KMI and any current or former employee, officer or director of KMI, nor does KMI have any general severance plan or policy.
SECTION 4.11. ERISA Compliance; Excess Parachute Payments. KMI does not, and since its inception never has, maintained, or contributed to any “employee pension benefit plans” (as defined in Section 3(2) of ERISA), “employee welfare benefit plans” (as defined in Section 3(1) of ERISA) or any other KMI Benefit Plan for the benefit of any current or former employees, consultants, officers or directors of KMI.
SECTION 4.12. Litigation. Except as disclosed in KMI Disclosure Schedule, there is no Action which (i) adversely effects or challenges the legality, validity or enforceability of any of this A&R Agreement or KMI Stock or (ii) could, if there were an unfavorable decision, individually or in the aggregate, have or reasonably be expected to result in a KMI Material Adverse Effect. Neither KMI nor any director or officer thereof (in his or her capacity as such), is or has been the subject of any Action involving a claim or violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. Further, EveryStory is not a party to or the subject of, any material pending litigation, claims or governmental investigations or proceedings and there are no material lawsuits, claims, assessments, investigations or similar matters, threatened in writing against EveryStory.
SECTION 4.13. Compliance with Applicable Laws. Except as disclosed in KMI Disclosure Schedule, KMI is in compliance with all applicable Laws, including those relating to occupational health and safety, the environment, export controls, trade sanctions and embargoes, except for instances of noncompliance that, individually and in the aggregate, have not had and would not reasonably be expected to have a KMI Material Adverse Effect. Except as set forth in KMI Disclosure Schedule, KMI has not received any written communication during the past two years from a Governmental Entity that alleges that KMI is not in compliance in any material respect with any applicable Law. KMI is in compliance with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations thereunder, that are applicable to it, except where such noncompliance could not have or reasonably be expected to result in a KMI Material Adverse Effect.
SECTION 4.14. Contracts. Except as disclosed in KMI Disclosure Schedule, there are no Contracts that are material to the business, properties, assets, condition (financial or otherwise), results of operations or prospects of KMI taken as a whole. KMI is not in violation of or in default under (nor does there exist any condition which upon the passage of time or the giving of notice would cause such a violation of or default under) any Contract to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that would not, individually or in the aggregate, reasonably be expected to result in a KMI Material Adverse Effect.
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SECTION 4.15. Transactions With Affiliates and Employees. Except as set forth in KMI Disclosure Schedule, none of the officers or directors of KMI and, to the knowledge of KMI, none of the employees of KMI is presently a party to any transaction with KMI or any subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of KMI, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
SECTION 4.16. Application of Takeover Protections. KMI has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under KMI’s charter documents or the laws of its state of incorporation that is or could become applicable to the Shareholders as a result of the Shareholders and KMI fulfilling their obligations or exercising their rights under this A&R Agreement, including, without limitation, the issuance of KMI Stock and the Shareholders’ ownership of KMI Stock.
SECTION 4.17. No Additional Agreements. KMI does not have any agreement or understanding with the Shareholders with respect to the Transactions other than as specified in this A&R Agreement.
SECTION 4.18. Investment Company. KMI is not, and is not an affiliate of, and immediately following the Closing will not have become, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
SECTION 4.19. Disclosure. KMI confirms that neither it nor any person acting on its behalf has provided any Shareholder or its agents or counsel with any information that KMI believes constitutes material, non-public information except insofar as the existence and terms of the proposed transactions hereunder may constitute such information and except for information that will be disclosed by KMI under current reports on Form 8-K filed upon execution of this A&R Agreement and after the Closing. All disclosure provided to the Shareholders regarding KMI, its business and the transactions contemplated hereby, furnished by or on behalf of KMI (including KMI’s representations and warranties set forth in this A&R Agreement) are true and correct and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.
SECTION 4.20. Quotation and Maintenance Requirements. KMI is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with the quotation and maintenance requirements for continued quotation of KMI Stock on the trading market on which the shares of KMI Stock are currently quoted. The issuance and sale of the shares of KMI Stock under this A&R Agreement does not contravene the rules and regulations of the trading market on which KMI Stock are currently quoted, and no approval of the stockholders of KMI is required for KMI to issue and deliver to the Shareholders KMI Stock which shall be newly issued and non-assessable contemplated by this A&R Agreement.
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SECTION 4.21. Assets and Liabilities. Upon completion of the Share Exchange pursuant to the terms of this A&R Agreement, EveryStory shall become a subsidiary of KMI.
SECTION 4.22. No Shareholder Approval Required. KMI management has reviewed the KMI Charter Documents with its advisors and has determined that the Charter Documents do not require shareholder approval of the Share Exchange contemplated hereby.
ARTICLE V
Deliveries
SECTION 5.01. Deliveries of the Shareholders.
(a) Concurrently herewith, the Shareholders signing this A&R Agreement shall deliver to KMI this A&R Agreement which shall constitute a duly executed share transfer power for transfer by the Shareholders of its EveryStory Shares to KMI (which Agreement shall constitute a limited power of attorney in KMI or any officer thereof to effectuate any Share transfers as may be required under applicable law, including, without limitation, recording such transfer in the share registry maintained by EveryStory for such purpose) executed by the Shareholders.
(b) At the Closing, each Shareholder signing this A&R Agreement shall deliver to KMI certificates representing his, her, or its EveryStory Shares or, should any shares be held in book form, a stock power in form acceptable to KMI effecting the transfer of said shares to KMI.
SECTION 5.02. Deliveries of KMI.
(a) Concurrently herewith, KMI is delivering to the Shareholders and to EveryStory, a copy of this A&R Agreement executed by KMI.
(b) At or prior to the Closing, KMI shall deliver to EveryStory:
(i) | a certificate from KMI, signed by its Secretary or Assistant Secretary certifying that the attached copies of KMI Charter, KMI Bylaws and resolutions of the Board of Directors of KMI approving this A&R Agreement and the Transactions, are all true, complete and correct and remain in full force and effect; |
(ii) | evidence of the appointment of Edward Cox as President and Chief Executive Officer effective as of Closing; |
(iii) | evidence of the appointment of David Keene as Chief Technical Officer effective as of Closing; |
(iv) | evidence of the appointment of Edward Cox, David Keene, and Larry Morgan as members of the Board of Directors of KMI, and of Edward Cox as Chairman of the Board of Directors, each effective as of Closing; |
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(v) | such pay-off letters, releases, indemnifications or other agreements relating to liabilities of KMI as EveryStory shall require and such documentation shall be in form and substance satisfactory to EveryStory; |
(vi) | if requested, the results of UCC, judgment lien and tax lien searches with respect to KMI, the results of which indicate no liens on the assets of KMI; and |
(vii) | the certificate required by Section 6.01(a) below. |
(c) Promptly at the Closing, KMI shall deliver to the Shareholders, certificates representing the new shares of KMI Stock issued to the Shareholders in the names and amounts as set forth in Exhibit A hereto.
SECTION 5.03. Deliveries of EveryStory.
(a) Concurrently herewith, EveryStory is delivering to KMI this A&R Agreement executed by EveryStory.
(b) At or prior to the Closing, EveryStory shall deliver to KMI a certificate from EveryStory, signed by its Secretary or Assistant Secretary certifying that the attached copies of EveryStory’s Charter Documents and resolutions of the Board of Directors of EveryStory approving this A&R Agreement and the Transactions, are all true, complete and correct and remain in full force and effect, and shall deliver the certificate required by Section 6.02(a).
ARTICLE VI
Conditions to Closing
SECTION 6.01. Shareholders and EveryStory Conditions Precedent. The obligations of the Shareholders and EveryStory to enter into and complete the Closing is subject, at the option of the Shareholders and EveryStory, to the fulfillment on or prior to the Closing Date of the following conditions.
(a) Representations and Covenants. The representations and warranties of KMI contained in this A&R Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date, except where limited to a prior date. KMI shall have performed and complied in all material respects with all covenants and agreements required by this A&R Agreement to be performed or complied with by KMI on or prior to the Closing Date. KMI shall have delivered to the Shareholders and EveryStory, a certificate, dated the Closing Date, to the foregoing effect.
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(b) Litigation. No action, suit or proceeding shall have been instituted before any court or governmental or regulatory body or instituted or threatened by any governmental or regulatory body to restrain, modify or prevent the carrying out of the Transactions or to seek damages or a discovery order in connection with such Transactions, or which has or may have, in the reasonable opinion of EveryStory or the Shareholders, a materially adverse effect on the assets, properties, business, operations or condition (financial or otherwise) of KMI or EveryStory.
(c) No Material Adverse Change. There shall not have been any occurrence, event, incident, action, failure to act, or transaction since the date as first set forth above, which has had or is reasonably likely to cause a KMI Material Adverse Effect.
(d) Completion of Private Offering; Capital Raise of at least $240,000. KMI shall have completed a private offering of its debt securities (the “Convertible Debt Offering”), pursuant to which KMI shall have raised a minimum of $240,000, and a maximum of $500,000. The Parties understand, acknowledge, and agree (i) that KMI shall use the proceeds of the offering to pay the reasonable expenses of the Convertible Debt Offering and other expenses of KMI, in an amount agreed upon between KMI and the EveryStory Shareholders between $15,000 and $30,000 (which does not include any fees associated with the Convertible Debt Offering up to $10,000), and that the remainder of the proceeds of the Offering to be used by KMI following the Closing; and (ii) that the calculations of the shares of KMI to be issued in the Share Exchange and the Exchange Ratio will be determined immediately prior to the closing of the Transaction.
(e) Capitalization. KMI shall have at least Two Hundred Forty Thousand Dollars ($240,000) of available working capital (minus the expenses discussed in Section 6.01(d) above), either resulting from net proceeds from the Offering or otherwise, which shall be available for KMI’s use following the Closing.
(f) Completion of Reverse Stock Split. Unless expressly waived by EveryStory and the Shareholders, the KMI Board of Directors shall have approved and recommended to its shareholders, and the KMI shareholders shall have approved a reverse stock split of KMI’s common stock (the “Reverse Split”) at a ratio of between 1:5 and 1:7.5, with the specific ratio to be implemented to be determined by the incoming management of KMI following the Closing of its common stock. The Parties understand, acknowledge, and agree that the incoming management of KMI following the Closing will implement the Reverse Split as soon after the Closing as reasonably practicable and as determined to be in the best interest of KMI by the incoming Board of Directors, and that the incoming management shall, upon direction from the incoming Board of Directors, take all necessary actions with the State of Nevada to effectuate the filing; with FINRA to effectuate the corporate action; and with the CUSIP Bureau to obtain a new CUSIP number for KMI’s common stock, together with any other such actions as may be required to complete Reverse Split.
(g) Dissolution of Subsidiary. KMI shall have taken all steps necessary to dissolve and shut down its wholly owned subsidiary, Knowledge Machine, Inc., a Nevada corporation (the “Subsidiary”), including the making of all required filings, payment of all taxes owing, and payment and settlement of any outstanding obligations or liabilities of the Subsidiary.
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(h) Proceeds of Offering to be Sole Assets of KMI; No Liabilities; No Outstanding Derivative Instruments. KMI shall provide evidence to EveryStory that (i) KMI has no assets other than the proceeds of the Offering; (ii) except as set forth above in Section 6.01(d) relating to the expenses of the Convertible Debt Offering, and except for the amount owed by KMI in connection with the securities issued in the Convertible Debt Offering, KMI has no other liabilities, contingent or otherwise; and (iii) KM has no outstanding options, warrants, or other instruments convertible into or obligations granting rights to receive, shares of common stock of KMI.
(i) Articles of Incorporation; Bylaws. KMI shall have received board and shareholder approval to amend KMI’s Articles of Incorporation to provide that KMI is not subject to NRS 78.411 through 78.444 or NRS 78.378 through 78.3793, with the understanding that such amendment may occur following the Closing of the transaction described herein. Additionally, KMI’s Bylaws shall provide that KMI may take action by written consent; and that matters voted upon, except as required by Nevada Revised Statutes, may be approved by a majority of those voting on such matters, rather than by the holders of a majority of all of the outstanding shares.
(j) Satisfaction of all Outstanding Liabilities. KMI shall provide evidence satisfactory to counsel for EveryStory of the satisfaction of all outstanding liabilities set forth in prior periodic reports of KMI and those incurred between the Balance Sheet date of the last audited financial statements and the Closing.
(k) Current Shareholders of KMI. KMI shall confirm, and provide evidence to EveryStory that none of the legacy shareholders of KMI (namely, those shareholders of KMI who owned their shares prior to the commencement of the Offering) is or will be a 5% or more shareholder of KMI following the Closing.
(l) Post-Closing Capitalization. At, and immediately after, the Closing, the authorized capitalization of KMI shall be as set forth in SECTION 4.03(a) above, except that all shares of KMI Preferred Stock shall have been canceled or exchanged into shares of KMI common stock, and the number of issued and outstanding shares of capital stock of KMI, on a fully diluted basis, shall be as set forth in Exhibit A hereto.
(m) OTC PINK Market Quotation. KMI shall have maintained its status as a company whose common stock is quoted on the OTC PINK Market and KMI shall not have received any notice that any reason shall exist as to why such status shall not continue immediately following the Closing.
(n) Deliveries. The deliveries specified in Section 5.02 shall have been made by KMI.
(o) No Suspensions of Trading in KMI Stock; Quotation. Trading in KMI Stock shall not have been suspended by the SEC or any trading market (except for any suspensions of trading of not more than one trading day solely to permit dissemination of material information regarding KMI) at any time since the date of execution of this A&R Agreement, and KMI Stock shall have been at all times since such date quoted for trading on OTCPink.
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(p) Satisfactory Completion of Due Diligence. EveryStory and the Shareholders shall have completed their legal, accounting and business due diligence of KMI and the results thereof shall be satisfactory to EveryStory and the Shareholders in their sole and absolute discretion.
(q) Current SEC Filings. KMI shall be current in its filings with the SEC as of the date of the Closing.
SECTION 6.02. KMI Conditions Precedent. The obligations of KMI to enter into and complete the Closing are subject, at the option of KMI, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by KMI in writing.
(a) Representations and Covenants. The representations and warranties of the Shareholders and EveryStory contained in this A&R Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date. The Shareholders and EveryStory shall have performed and complied in all material respects with all covenants and agreements required by this A&R Agreement to be performed or complied with by the Shareholders and EveryStory on or prior to the Closing Date. EveryStory shall have delivered to KMI a certificate, dated the Closing Date, to the foregoing effect.
(b) Financial Statements. Prior to Closing, copies of audited financial statements of EveryStory for the years ended December 31, 2015 and 2014, and unaudited financial statements for an interim period ended June 30, 2016 (the “EveryStory Financial Statements”) shall be furnished to KMI. The EveryStory Financial Statements shall comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, shall be prepared in accordance with GAAP (except, in the case of unaudited statements, as permitted by the rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto), shall cover the periods required under Item 9.01(a) of Form 8-K, and shall fairly present the financial position of EveryStory as of the dates thereof and the results of its operations and cash flows for the periods shown (subject, in the case of unaudited statements, to normal year-end audit adjustments).
(c) Litigation. No action, suit or proceeding shall have been instituted before any court or governmental or regulatory body or instituted or threatened by any governmental or regulatory body to restrain, modify or prevent the carrying out of the Transactions or to seek damages or a discovery order in connection with such Transactions, or which has or may have, in the reasonable opinion of KMI, a materially adverse effect on the assets, properties, business, operations or condition (financial or otherwise) of EveryStory or any Shareholders.
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(d) No Material Adverse Change. There shall not have been any occurrence, event, incident, action, failure to act, or transaction since inception, which has had or is reasonably likely to cause an EveryStory Material Adverse Effect.
(e) Convertible Note Holders. EveryStory will have presented to the holders of the Convertible Notes the opportunity to receive shares of KMI as payment of the Convertible Notes, and shall provide to KMI information relating to those holders who elect to receive KMI shares, as disclosed on Exhibit A hereto.
(f) Preferred Stock Certificate of Designation. As of the Closing, EveryStory shall have designated its Series A Preferred Stock, and issued One Hundred Twelve Thousand, Six Hundred Ninety (112,690) shares of the Series A Preferred Stock to two stockholders.
(g) Post-Closing Capitalization. At, and immediately after, the Closing, the authorized capitalization, and the number of issued and outstanding shares of EveryStory, on a fully-diluted basis, shall be described in Exhibit A hereto.
(h) Satisfactory Completion of Due Diligence. KMI shall have completed their legal, accounting and business due diligence of EveryStory and the results thereof shall be satisfactory to KMI in its sole and absolute discretion.
ARTICLE VII
Covenants
SECTION 7.01. Public Announcements. Prior to the Closing, KMI and EveryStory will consult with each other before issuing, and provide each other the opportunity to review and comment upon, any press releases or other public statements with respect to the Agreement and the Transactions and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable Law, court process or by obligations pursuant to any listing agreement with any national securities exchanges. Following the Closing, the new officers of KMI shall be responsible for any public announcements relating to the Transaction or the new business of KMI.
SECTION 7.02. Fees and Expenses. The fees and expenses incurred in connection with the preparation of this A&R Agreement and the Closing of the Transaction shall be paid by KMI from the proceeds of the Offering.
SECTION 7.03. Continued Efforts. Each Party shall use commercially reasonable efforts to (a) take all action reasonably necessary to consummate the Transactions, and (b) take such steps and do such acts as may be necessary to keep all of its representations and warranties true and correct as of the Closing Date with the same effect as if the same had been made, and this A&R Agreement had been dated, as of the Closing Date.
SECTION 7.04. Exclusivity. Each of KMI and EveryStory shall not (and shall not cause or permit any of their affiliates to) engage in any discussions or negotiations with any person or take any action that would be inconsistent with the Transactions and that has the effect of avoiding the Closing contemplated hereby. Each of KMI and EveryStory shall notify each other immediately if any person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing.
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SECTION 7.05. Filing of 8-K and Press Release. KMI shall file, no later than four (4) business days each following the execution of this A&R Agreement and the Closing Date, a current report on Form 8-K and attach as exhibits all relevant agreements and any Press Release, if applicable, with the SEC disclosing the terms of this A&R Agreement and other requisite disclosure regarding the Transactions.
SECTION 7.06. Access. Prior to Closing, KMI and EveryStory shall permit each other’s representatives to have full access to all premises, properties, personnel, books, records (including Tax records), contracts, and documents of or pertaining to such Party. With respect to the information disclosed pursuant to this Section 7.06, the parties shall maintain the confidentiality of any material non-public information furnished by the other party.
SECTION 7.07. Preservation of Business. From the date of this A&R Agreement until the Closing Date, EveryStory and KMI shall operate only in the ordinary and usual course of business consistent with their respective past practices (provided, however, that KMI shall not issue any securities without the prior written consent of EveryStory, other than in connection with the Offering).
SECTION 7.08. Additional Financing; Anti-Dilution Rights of EveryStory Holders; Unforeseen Expenses.
(a) The Parties understand, acknowledge, and agree that in connection with the extension of the Closing Date from the Original Agreement, KMI has entered into the Convertible Debt Offering (described more fully above in Section 6.01(d)), pursuant to which KMI seeks to raise additional capital for KMI through the sale of convertible promissory notes (the “Convertible Notes”). Pursuant to the terms of the Convertible Debt Offering, KMI has the right to pre-pay a portion of the Convertible Notes, together with a pre-payment premium (all as outlined in the Convertible Notes and related documents), and that the remaining amount of the Convertible Notes may be converted by the holders into shares of KMI’s common stock. The Parties hereto understand, acknowledge, and agree that pursuant to the original understanding of the Parties, following the Closing, the EveryStory Shareholders, Optionholders, and Noteholders (collectively, the “EveryStory Holders”) would own or have the right to receive an aggregate of 60% of the total outstanding shares of KMI’s common stock, with the other Company shareholders holding an aggregate of 40%. KMI hereby acknowledges and agrees that the shares issuable upon conversion of any or all of the Convertible Notes will not reduce the percentage ownership (or the right to receive shares) of the EveryStory Holders, irrespective of how many shares of KMI’s common stock are issued upon conversion of the Convertible Notes.
(b) To preserve the 60% ownership percentage of the EveryStory Holders, by signing below, KMI hereby agrees to issue additional shares of KMI’s common stock, without payment of additional consideration therefor, to maintain the ownership interest of the EveryStory Holders of 60% of KMI’s total capital stock, in connection with any issuances of KMI’s common stock upon conversion of the Promissory Notes. For the avoidance of doubt, the EveryStory Holders shall be entitled to the anti-dilution protection set forth in this Section 7.08 in connection with, and only in connection with, the issuance of additional shares of KMI’s common stock upon the conversion of the Convertible Notes, whenever such conversions occur. Upon request by the EveryStory Holders, KMI shall promptly issue an additional stock certificate or certificates representing such additional shares.
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(c) Additionally, the Parties understand, acknowledge, and agree that the anti-dilution rights described in this Section 7.08 shall apply to the first Five Hundred Thousand ($500,000) of capital raised into KMI, whether debt, including the Convertible Notes discussed above, or equity. By way of explanation and not of limitation, if in connection with the Convertible Debt Offering discussed above KMI raises $250,000 through the sale of Convertible Notes, and KMI subsequently raises an additional $250,000 through sales of KMI’s equity securities, then KMI will issue to the EveryStory Holders shares of KMI’s common stock such that upon the conversion of the Convertible Notes, the shares issued on conversion of such Convertible Notes, aggregated with the equity securities sold by KMI, shall be used to calculate the number of shares of common stock issuable by KMI to maintain the 60% ownership percentage of the EveryStory Holders. By way of further explanation, if in connection with the Convertible Debt Offering discussed above KMI raises $250,000 through the sale of Convertible Notes, and prior to any conversions of the Convertible Notes KMI subsequently raises an additional $500,000 or more through sales of KMI’s equity securities, then KMI will issue to the EveryStory Holders shares of KMI’s common stock such that the first $500,000 worth of shares issued in the equity capital raise shall be used to calculate the number of shares of common stock issuable by KMI to maintain the 60% ownership percentage of the EveryStory Holders with respect to shares issued, because the $500,000 anti-dilution protection limit has been reached.
(d) Additionally, the Parties understand, acknowledge, and agree that in the event that following the Closing of the Transaction KMI is liable for a material amount of expenses arising from operation of the Company prior to the Closing, but specifically excluding the costs related to the Convertible Debt Offering listed above and those expenses set forth in Section 6.01(d), then if KMI elects to sell equity securities to raise capital to pay those expenses, the anti-dilution rights described above which protect the 60% ownership of the EveryStory Holders, shall apply; provided, however, that these expense-related anti-dilution rights shall be calculated separately from those set forth in Sections 7.08(a) – (c) above, including with respect to the $500,000 anti-dilution limit.
ARTICLE VIII
Termination
SECTION 8.01. Agreement Termination. Anything herein or elsewhere to the contrary notwithstanding, this A&R Agreement may be terminated and the Transactions contemplated hereby may be abandoned at any time prior to the Closing Date, only as follows:
(a) by mutual written agreement of KMI and EveryStory;
(b) by KMI (if KMI is not then in material breach of its obligations under this A&R Agreement) if: (i) a material default or breach shall be made by EveryStory or the Shareholders with respect to the due and timely performance of any of its or their covenants and agreements contained herein and such default is not cured within ten (10) days; (ii) EveryStory or the Shareholders makes an amendment or supplement to any schedule hereto and such amendment or supplement reflects a EveryStory Material Adverse Effect after the date of this A&R Agreement; (iii) a EveryStory Material Adverse Effect shall have occurred after the date of this A&R Agreement; or (iv) the Closing shall not have occurred on or before September 5, 2016;
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(c) by EveryStory (if neither EveryStory nor any Shareholder is then in material breach of their obligations under this Agreement) if: (i) a material default or breach shall be made by KMI with respect to the due and timely performance of any of its covenants and agreements contained herein and such default is not cured within ten (10) days; (ii) KMI makes an amendment or supplement to any schedule hereto and such amendment or supplement reflects a KMI Material Adverse Effect after the date of this Agreement; (iii) a KMI Material Adverse Effect shall have occurred after the date of this Agreement; or (iv) the Closing shall not have occurred on or before September 14, 2016.
SECTION 8.02 Effect of Termination. In the event of termination of this A&R Agreement authorized pursuant to Section 8.01 hereof, written notice thereof shall be given to the other parties and all obligations of the parties shall terminate and, except as otherwise provided in this Section, no party shall have any right against any other party hereto for any loss, damage, expense (including out-of-pocket expenses) or liability, including, without limitation, reasonable attorneys’ fees and disbursements arising out of the preparation and execution of this A&R Agreement, fulfilling in whole in part its obligations under this A&R Agreement or otherwise incurred by a party in any action or proceeding between such party and the other party hereto or between such party and a third party, which is determined to have been sustained, suffered or incurred by a party and to have arisen from or in connection with an event or state of facts which is subject to claim under this A&R Agreement.
ARTICLE IX
Miscellaneous
SECTION 9.01. Notices. All notices, requests, claims, demands and other communications under this A&R Agreement shall be in writing and shall be deemed given upon receipt by the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice):
If to KMI, to:
Knowledge Machine International, Inc.
14 HAYWARD BROOK DRIVE
CONCORD NH 03301
Attn: Vivek R. Dave, PhD., CEO
With a copy (which shall not constitute notice) to:
The Law Office of Ronald N. Vance & Associates
1656 Reunion Avenue, Suite 250
South Jordan, UT 84095
Attn: Ronald N. Vance
If to EveryStory, to:
9921 CARMEL MOUNTAIN ROAD
SUITE 118
SAN DIEGO CA 92129
Attn: Ed Cox, President
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With a copy (which shall not constitute notice) to:
Kirton McConkie
50 East South Temple Street, Suite 400
Salt Lake City, UT 84111
Attn: C. Parkinson Lloyd
If to the Shareholders, to the address set forth opposite such Shareholders’ name on the signature page hereto
SECTION 9.02. Amendments; Waivers; No Additional Consideration. No provision of this A&R Agreement may be waived or amended except in a written instrument signed by EveryStory, KMI, and the Shareholders. No waiver of any default with respect to any provision, condition or requirement of this A&R Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any Party to exercise any right hereunder in any manner impair the exercise of any such right.
SECTION 9.03. Replacement of Securities. If any certificate or instrument evidencing any KMI Stock is mutilated, lost, stolen or destroyed, KMI shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefore, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to KMI of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement KMI Stock. If a replacement certificate or instrument evidencing any KMI Stock is requested due to a mutilation thereof, KMI may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.
SECTION 9.04. Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Shareholders, KMI and EveryStory will be entitled to specific performance under this A&R Agreement. The Parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.
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SECTION 9.05. Limitation of Liability. Notwithstanding anything herein to the contrary, each of KMI and EveryStory acknowledge and agree that the liability of the Shareholders arising directly or indirectly, under any transaction document of any and every nature whatsoever shall be satisfied solely out of the assets of the Shareholders, and that no trustee, officer, other investment vehicle or any other affiliate of the Shareholders or any investor, Shareholders or holder of shares of beneficial interest of the Shareholders shall be personally liable for any liabilities of the Shareholders.
SECTION 9.06. Interpretation. When a reference is made in this A&R Agreement to a Section, such reference shall be to a Section of this A&R Agreement unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this A&R Agreement, they shall be deemed to be followed by the words “without limitation.”
SECTION 9.07. Severability. If any term or other provision of this A&R Agreement is invalid, illegal or incapable of being enforced by any rule or Law, or public policy, all other conditions and provisions of this A&R Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions contemplated hereby is not effected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this A&R Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that Transactions contemplated hereby are fulfilled to the extent possible.
SECTION 9.08. Counterparts; Facsimile Execution. This A&R Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties. Facsimile execution and delivery of this A&R Agreement is legal, valid and binding for all purposes.
SECTION 9.09. Entire Agreement; Third Party Beneficiaries. This A&R Agreement, taken together with EveryStory Disclosure Schedule and KMI Disclosure Schedule, (a) constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the Parties with respect to the Transactions, including the Letter of Intent dated May 13, 2016, and (b) are not intended to confer upon any person other than the Parties any rights or remedies.
SECTION 9.10. Governing Law. This A&R Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without reference to principles of conflicts of laws. Any action or proceeding brought for the purpose of enforcement of any term or provision of this A&R Agreement shall be brought only in the Federal or state courts sitting in California and the parties hereby waive any and all rights to trial by jury.
SECTION 9.11. Assignment. Neither this A&R Agreement nor any of the rights, interests or obligations under this A&R Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the Parties without the prior written consent of the other Parties. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this A&R Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns.
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SECTION 9.12. Expenses. Except as otherwise expressly provided herein, each party hereto shall bear its own expenses with respect to this A&R Agreement and the Transactions contemplated hereby.
SECTION 9.13. Waivers. The failure of a party hereto at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same. No waiver by a party of any condition or of any breach of any term, covenant, representation or warranty contained in this A&R Agreement shall be effective unless in writing, and no waiver in any one or more instances shall be deemed to be a further or continuing waiver of any such condition or breach in other instances or a waiver of any other condition or breach of any other term, covenant, representation or warranty.
SECTION 9.14. Attorneys’ Fees. If any legal action or any arbitration or other proceeding is brought for the enforcement of this A&R Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this A&R Agreement, the successful or prevailing party or parties will be entitled to recover reasonable attorneys’ fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled.
SECTION 9.15. Further Assurances. Upon the reasonable request of the parties hereto, the other parties hereto shall, on and after the Closing Date, execute and deliver such other documents, releases, assignments and other instruments as may be required to effectuate completely the transactions contemplated by this A&R Agreement.
SECTION 9.16. Exhibits and Schedules. Each of the exhibits, schedules, or similar attachment’s referenced in this A&R Agreement is annexed hereto and is incorporated herein by this reference and expressly made a part hereof.
SECTION 9.17. Full Knowledge. By their signatures, the parties acknowledge that they have carefully read and fully understand the terms and conditions of this A&R Agreement, that each party has had the benefit of counsel, or has been advised to obtain counsel, and that each party has freely agreed to be bound by the terms and conditions of this A&R Agreement. To the extent that a party elects not to consult with such counsel, the party hereby waives any defense to inadequate representation by counsel.
(Signature page follows.)
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Share Exchange Agreement as of the date first above written.
KMI: | ||
KNOWLEDGE MACHINE INTERNATIONAL, INC. | ||
By: | /s/ Vivek R. Dave | |
Name: | Vivek R. Dave, Ph.D, | |
Title: | President and CEO | |
EveryStory: | ||
EVERYSTORY, INC. | ||
By: | /s/ Edward Cox | |
Name: | Edward Cox | |
Title: | CEO | |
Shareholders: | ||
/s/ Edward Cox | ||
Edward Cox | ||
/s/ David Keene | ||
David Keene | ||
Seniors In Touch | ||
By: | /s/ Donald W. Sapaugh | |
Name: | Donald W. Sapaugh | |
Title: | ||
CorProminence | ||
By: | /s/ | |
Name: | ||
Title: |
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EXHIBIT A
NAME | SECURITY HELD | SHARES OF EVERYSTORY COMMON STOCK HELD OR ISSUABLE ON EXERCISE OR CONVERSION | SHARES OF KMI ISSUABLE IN CONNECTION WITH SHARE EXCHANGE/HELD FOLLOWING CLOSING BASED ON 16,000,000 SHARES OF KMI (POST REVERSE SPLIT) | PERCENTAGE OWNERSHIP OF KMI FOLLOWING CLOSING | SHARES ISSUED OR ISSUABLE TO EVERYSTORY PRE-SPLIT BASED ON 40.875M REPRESENTING 20% |
David Keene | Common Stock | 1,100,000 | 7,701,659 | 19.3% | 39,350,663 * |
Edward Cox | Common Stock | 900,000 | 6,301,357 | 15.8% | 32,195,997 * |
Round 1 Debt Holders | 356,233 | 2,495,596 | 6.2% | 12,750,938 ** | |
Round 2 Debt Holders | 205,973 | 1,442,983 | 3.6% | 7,372,740 ** | |
February 2016 Holders | 62,500 | 437,594 | 1.1% | 2,235,833 ** | |
August 2016 Holders | 10,000 | 70,015 | 0.2% | 357,733 ** | |
Consultant Shares of Services (BS) | Consulting Agreement | 37,500 | 262,557 | 0.7% | 1,341,500 ** |
Seniors in Touch | Common Stock | 88,000 | 616,133 | 1.5% | 3,148,053 * |
CorProminence | Common Stock | 75,000 | 525,113 | 1.3% | 2,683,000 * |
EveryStory Option Holders | 592,300 | 4,146,993 | 10.5% | 21,188,543 ** | |
EveryStory TOTAL | 3,427,833 | 24,000,000 | 60.00% | 122,625,000 | |
. | |||||
Existing KMI Shareholders (as a group) | Common Stock | N/A | 8,000,000 | 20.0% | 40,875,000 |
Offering Participants – Preferred A Stock (as a group) | 100,000 Preferred Stock that Converts Post-Split | N/A | 8,000,000 | 20.0% | N/A |
KMI TOTAL | 16,000,000 | 40.00% | |||
TOTAL | 3,427,833 | 40,000,000 | 100.00% |
* | To be issued in connection with the Closing. |
** | To be reserved for issuance following the closing. |
This table is based on the following information:
- | 40,875,000 shares of KMI common stock immediately prior to closing (following cancellation of 6,750,000 shares) |
- | An aggregate of 163,500,000 pre-reverse split shares of KMI common stock outstanding or reserved for issuance to EveryStory shareholders immediately following the Closing. |
- | A reverse stock split at a ratio of 5.109375:1 to be effected by KMI as soon after closing as possible. |
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Exhibit 99.1
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT”)
US $___________
KNOWLEDGE MACHINE INTERNATIONAL, INC.
10% CONVERTIBLE REDEEMABLE NOTE
DUE SEPTEMBER 13, 2017
FOR VALUE RECEIVED, Knowledge Machine International, Inc. (the “Company”) promises to pay to the order of , and its authorized successors and permitted assigns ("Holder"), the aggregate principal face amount of _____________________ exactly (U.S. $_____________) on September 13, 2017 ("Maturity Date") and to pay interest on the principal amount outstanding hereunder at the rate of 10% per annum commencing on September 13, 2016. The interest will be paid to the Holder in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note. The principal of, and interest on, this Note are payable at _______________________________, initially, and if changed, last appearing on the records of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein.
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This Note is subject to the following additional provisions:
1. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange, except that Holder shall pay any tax or other governmental charges payable in connection therewith.
2. The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable laws.
3. This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended ("Act") and applicable state securities laws. Any attempted transfer to a non-qualifying party shall be treated by the Company as void. Prior to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly registered on the Company's records as the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Note, also is required to give the Company written confirmation that this Note is being converted ("Notice of Conversion") in the form annexed hereto as Exhibit A. The date of receipt (including receipt by electronic transmission) of such Notice of Conversion shall be the Conversion Date.
4. (a) The Holder of this Note is entitled, at its option, at any time after cash payment, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock (the "Common Stock") at a price ("Conversion Price") for each share of Common Stock equal to 65% of the lowest closing bid price of the Common Stock as reported on the OTC Market platform on which the Company’s shares are quoted or any exchange upon which the Common Stock may be traded in the future ("Exchange"), on the date of the closing of the acquisition of Every-Story, Inc. This price shall not be adjusted to reflect any forward or reverse splits. If the stock certificates representing the shares have not been sent to the Holder by the Company’s transfer agent within 3 business days, the Notice of Conversion may be rescinded. Such conversion shall be effectuated by the Company or its transfer agent sending the stock certificates representing the shares of Common Stock to the Holder within 3 business days of receipt by the Company of the Notice of Conversion. Accrued but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share. To the extent the Conversion Price of the Company’s Common Stock closes below the par value per share, the Company will take all steps necessary to solicit the consent of the stockholders to reduce the par value to the lowest value possible under law. The Company agrees to honor all conversions submitted pending this increase. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 55% instead of 65% while that “Chill” is in effect. In no event shall the Holder be allowed to effect a conversion if such conversion, along with all other shares of Company Common Stock beneficially owned by the Holder and its affiliates would exceed 9.9% of the outstanding shares of the Common Stock of the Company.
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(b) Interest on any unpaid principal balance of this Note shall be paid at the rate of 10% per annum. Interest shall be paid by the Company in Common Stock ("Interest Shares"). Holder may, at any time, send in a Notice of Conversion to the Company for Interest Shares based on the formula provided in Section 4(a) above. The dollar amount converted into Interest Shares shall be all or a portion of the accrued interest calculated on the unpaid principal balance of this Note to the date of such notice.
(c) Up to 50% of the Note may be prepaid in whole or in part at a 130% of the face amount plus any accrued interest. This Note may not be redeemed after 180 days. The redemption must be closed and paid for within 3 business days of the Company sending the redemption demand or the redemption will be invalid and the Company may not redeem this Note.
(d) Except in connection with the proposed transaction with EveryStory, Inc. (“EveryStory”), upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series of related transactions, (ii) a reclassification, capital reorganization or other change or exchange of outstanding shares of the Common Stock, other than a forward or reverse stock split or stock dividend, or (iii) any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and (iii), except in connection with the proposed transaction with EveryStory, being referred to as a "Sale Event"), then, in each case, the Company shall, upon request of the Holder, redeem this Note in cash for 150% of the principal amount, plus accrued but unpaid interest through the date of redemption, or at the election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with the amount of accrued but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion Price.
(e) In case of any Sale Event (not to include a sale of all or substantially all of the Company’s assets) in connection with which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder of this Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such Sale Event. The foregoing provisions shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good faith.
5. No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.
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6. The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.
7. The Company agrees to pay all costs and expenses, including reasonable attorneys' fees and expenses, which may be incurred by the Holder in collecting any amount due under this Note.
8. If one or more of the following described "Events of Default" shall occur:
(a) The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company; or
(b) Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note, or the Securities Purchase Agreement under which this note was issued shall be false or misleading in any respect; or
(c) The Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or obligation of the Company under this Note or any other note issued to the Holder; or
(d) The Company shall (1) become insolvent; (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its dissolution; (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such petition or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable; or
(e) A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment; or
(f) Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company; or
(g) One or more money judgments, writs or warrants of attachment, or similar process, in excess of one hundred thousand dollars ($100,000) in the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of any proposed sale thereunder; or
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(h) The Company shall have defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period; or
(i) The Company shall have its Common Stock removed or delisted from an exchange (including quotation on the OTC Market platform) or, if the Common Stock trades on an exchange, then trading in the Common Stock shall be suspended for more than 10 consecutive days or ceases to file its 1934 act reports with the SEC;
(j) The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend within 3 business days of its receipt of a Notice of Conversion; or
(k) The Company shall not replenish the Share Reserve set forth in Section 12, within 3 business days of the request of the Holder.
(l) The Company shall not be “current” in its filings with the Securities and Exchange Commission; or
(m) The Company shall lose the “bid” price for its stock and a market (including the OTC Market or any exchange)
Then, or at any time thereafter, unless cured within 5 days, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Note immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. In the event of a breach of Section 8(j) the penalty shall be $250 per day the shares are not issued beginning on the 4th day after the conversion notice was delivered to the Company. This penalty shall increase to $500 per day beginning on the 10th day. The penalty for a breach of Section 8(m) shall be an increase of the outstanding principal amounts by 20%. In case of a breach of Section 8(i), the outstanding principal due under this Note shall increase by 50%. If this Note is not paid at maturity, the outstanding principal due under this Note shall increase by 10%. Further, if a breach of Section 8(m) occurs or is continuing after the 6 month anniversary of the Note, then the Holder shall be entitled to use the lowest closing bid price during the delinquency period as a base price for the conversion. For example, if the lowest closing bid price during the delinquency period is $0.01 per share and the conversion discount is 50% the Holder may elect to convert future conversions at $0.005 per share.
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If the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
Make-Whole for Failure to Deliver Loss. At the Holder’s election, if the Company fails for any reason to deliver to the Holder the conversion shares by the by the 3rd business day following the delivery of a Notice of Conversion to the Company and if the Holder incurs a Failure to Deliver Loss, then at any time the Holder may provide the Company written notice indicating the amounts payable to the Holder in respect of the Failure to Deliver Loss and the Company must make the Holder whole as follows:
Failure to Deliver Loss = [(High trade price at any time on or after the day of exercise) x (Number of conversion shares)]
The Company must pay the Failure to Deliver Loss by cash payment, and any such cash payment must be made by the third business day from the time of the Holder’s written notice to the Company.
9. In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.
10. Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.
11. The Company represents that it is not a “shell” issuer and has never been a “shell” issuer or that if it previously has been a “shell” issuer that at least 12 months have passed since the Company has reported form 10 type information indicating it is no longer a “shell issuer. Further. The Company will instruct its counsel to either (i) write a 144 opinion to allow for salability of the conversion shares or (ii) accept such opinion from Holder’s counsel.
12. The Company shall issue irrevocable transfer agent instructions reserving 923,000 shares of its Common Stock for conversions under this Note (the “Share Reserve”). Upon full conversion of this Note, any shares remaining in the Share Reserve shall be cancelled. The Company shall pay all transfer agent costs associated with issuing and delivering the share certificates to the Holder, as well as maintaining the Share Reserve. If such amounts are to be paid by the Holder, it may deduct such amounts from the Conversion Price. The company should at all times reserve a minimum of four times the amount of shares required if the note would be fully converted. The Holder may reasonably request increases from time to time to reserve such amounts. The Company will instruct its transfer agent to provide the outstanding share information to the Holder in connection with its conversions.
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13. The Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock splits, recapitalizations etc. This notice shall be given to the Holder as soon as possible under law.
14. This Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. The Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State of New York or in the Federal courts sitting in the county or city of New York. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.
Dated: ___________________
KNOWLEDGE MACHINE INTERNATIONAL, INC.
By: __________________________________
Title: _________________________________
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $___________ of the above Note into _________ Shares of Common Stock of Knowledge Machine International, Inc. (“Shares”) according to the conditions set forth in such Note, as of the date written below.
If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer and other taxes and charges payable with respect thereto.
Date of Conversion: | |||||||
Applicable Conversion Price: | |||||||
Signature: | |||||||
[Print Name of Holder and Title of Signer] | |||||||
Address: | |||||||
SSN or EIN: | |||||||
Shares are to be registered in the following name: | |||||||
Name: |
|||||||
Address: | |||||||
Tel: | |||||||
Fax: | |||||||
SSN or EIN: | |||||||
Shares are to be sent or delivered to the following account: | |||||||
Account Name: | |||||||
Address: |
8 |
Exhibit 99.2
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of September ____, 2016, by and between Knowledge Machine International, Inc., a Nevada corporation, with headquarters located at 14 Hayward Brook Drive, Concord, NH 03301 (the “Company”), and ____________________, with its address at ____________________, (the “Buyer”).
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”);
B. Buyer desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement, a 10% convertible secured note of the Company, in the form attached hereto as Exhibit A, in the aggregate principal amount of $__________ (together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the “Note”), convertible into shares of common stock, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note.
C. The Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of Note as is set forth immediately below its name on the signature pages hereto; and
NOW THEREFORE, the Company and the Buyer severally (and not jointly) hereby agree as follows:
1. Purchase and Sale of Note.
a. Purchase of Note. On the Closing Date (as defined below), the Company shall issue and sell to the Buyer and the Buyer agrees to purchase from the Company such principal amount of Note as is set forth immediately below the Buyer’s name on the signature pages hereto.
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b. Form of Payment.
On the Closing Date (as defined below), (i) the Buyer shall pay the purchase
price for the Note to be issued and sold to it at the Closing (as defined below) (the “Purchase Price”) by wire transfer
of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery
of the Note in the principal amount equal to the Purchase Price as is set forth immediately below the Buyer’s name on the
signature pages hereto, and (ii) the Company shall deliver such duly
executed Note on behalf of the Company, to the Buyer, against delivery of such Purchase Price.
c. Closing Date. The date and time of the first issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be on or about September 13, 2016, simultaneously with the consummation of an acquisition of EveryStory, Inc., by the Company. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties.
d. Additional Put Right. The Company possesses the option to put another $_____________ Note to the Buyer on January 3, 2017, subject to the Company maintaining a split adjusted closing bid price of its Common Stock in excess of $0.10 at all times (subject to adjustment for any forward or reverse splits). The put note shall contain the same terms as the Note in Exhibit A.
2. Buyer’s Representations and Warranties. The Buyer represents and warrants to the Company that:
a. Investment Purpose. As of the date hereof, the Buyer is purchasing the Note and the shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note, such shares of Common Stock being collectively referred to herein as the “Conversion Shares” and, collectively with the Note, the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).
c. Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.
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d. Information. The Buyer and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have been, and for so long as the Note remains outstanding will continue to be, afforded the opportunity to ask questions of the Company. Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Buyer. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below. The Buyer understands that its investment in the Securities involves a significant degree of risk. The Buyer is not aware of any facts that may constitute a breach of any of the Company's representations and warranties made herein.
e. Governmental Review. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.
f. Transfer
or Re-sale. The Buyer understands that (i) the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities
may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the 1933
Act, (b) the Buyer shall have delivered to the Company, at the cost of
the Buyer, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in comparable transactions
to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration,
which opinion shall be accepted by the Company, (c) the Securities are
sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule)
(“Rule 144”)) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section
2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant
to Rule 144, or (e) the Securities are sold pursuant to Regulation S
under the 1933 Act (or a successor rule) (“Regulation S”), and the Buyer shall have delivered to the Company, at the
cost of the Buyer, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate
transactions, which opinion shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may
be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities
under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that
term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations
of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities
under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each
case). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral
in connection with a bona fide margin account or other lending arrangement.
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g. Legends. The Buyer understands that the Note and, until such time as the Conversion Shares have been registered under the 1933 Act may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Conversion Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not reasonably accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, within 2 business days, it will be considered an Event of Default under the Note.
h. Authorization; Enforcement. This Agreement has been duly and validly authorized. This Agreement has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms.
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i. Residency. The Buyer is a resident of the jurisdiction set forth immediately below the Buyer’s name on the signature pages hereto.
3. Representations and Warranties of the Company. The Company represents and warrants to the Buyer that:
a. Organization and Qualification. The Company and each of its subsidiaries, if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted.
b. Authorization; Enforcement. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Note by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Note and the issuance and reservation for issuance of the Conversion Shares issuable upon conversion or exercise thereof) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required, (iii) this Agreement has been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement and the other documents executed in connection herewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms.
c. Issuance of Shares. The Conversion Shares are duly authorized and reserved for issuance and, upon conversion of the Note in accordance with its respective terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.
d. Acknowledgment of Dilution. The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares upon conversion of the Note. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Note in accordance with this Agreement, the Note is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
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e. No Conflicts. The execution, delivery and performance of this Agreement, the Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company or any of its subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a material adverse effect). All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is not in violation of the qualification requirements of the OTC Market Exchange (the “OTC MARKETS”) and does not reasonably anticipate that the Common Stock will be removed by the OTC MARKETS in the foreseeable future, nor are the Company’s securities “chilled” by FINRA. The Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
f. Absence of Litigation. Except as disclosed in the Company’s public filings, there is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company or any of its subsidiaries, or their officers or directors in their capacity as such, that could have a material adverse effect. Schedule 3(f) contains a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its subsidiaries, without regard to whether it would have a material adverse effect. The Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
g. Acknowledgment Regarding Buyer’ Purchase of Securities. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s length purchasers with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by the Buyer or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Buyer’ purchase of the Securities. The Company further represents to the Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.
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h. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer. The issuance of the Securities to the Buyer will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any shareholder approval provisions applicable to the Company or its securities.
i. Title to Property. The Company and its subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(i) or such as would not have a material adverse effect. Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a material adverse effect.
j. Bad Actor. No officer or director of the Company would be disqualified under Rule 506(d) of the Securities Act as amended on the basis of being a "bad actor" as that term is established in the September 19, 2013 Small Entity Compliance Guide published by the Securities and Exchange Commission.
k. Breach of Representations and Warranties by the Company. If the Company breaches any of the representations or warranties set forth in this Section 3, and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of default under the Note.
4. COVENANTS.
a. Expenses. At the Closing, the Company shall reimburse Buyer for expenses incurred by them in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the other agreements to be executed in connection herewith (“Documents”), including, without limitation, reasonable attorneys’ and consultants’ fees and expenses, transfer agent fees, fees for stock quotation services, fees relating to any amendments or modifications of the Documents or any consents or waivers of provisions in the Documents, fees for the preparation of opinions of counsel, escrow fees, and costs of restructuring the transactions contemplated by the Documents. These fees and costs in the aggregate shall not exceed the amount listed on the signature page hereto. When possible, the Company must pay these fees directly, otherwise the Company must make immediate payment for reimbursement to the Buyer for all fees and expenses immediately upon written notice by the Buyer or the submission of an invoice by the Buyer.
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b. Listing. The Company shall promptly secure the listing of the Conversion Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and, so long as the Buyer owns any of the Securities, shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion of the Note. The Company will obtain and, so long as the Buyer owns any of the Securities, maintain the quotation of its Common Stock on the OTC MARKETS or the listing and trading on any exchange, including the Nasdaq Capital Market, the Nasdaq National Global Market, the Nasdaq Global Select Market, the New York Stock Exchange (“NYSE”), or the NYSE MKT (“NYSE MKT”) and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable. The Company shall promptly provide to the Buyer copies of any notices it receives from the OTC MARKETS and any other exchanges or quotation systems on which the Common Stock is then listed regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.
c. Corporate Existence. So long as the Buyer beneficially owns any Note, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading on the OTC MARKETS or a national exchange.
d. No Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.
e. Breach of Covenants. If the Company breaches any of the covenants set forth in this Section 4, and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an event of default under the Note.
5. Governing Law; Miscellaneous.
a. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state and county of New York. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Company and Buyer waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
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b. Counterparts; Signatures by Facsimile. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
c. Headings. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.
d. Severability. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.
e. Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the majority in interest of the Buyer.
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f. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, (iv) via electronic mail or (v) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received) or delivery via electronic mail, or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Company, to:
Knowledge Machine International, Inc.
14 Hayward Brook Drive
Concord, NH 03301
Attn: Vivek Dave, President
If to the Buyer:
____________________________________
____________________________________
____________________________________
Attn: ______________________________
Each party shall provide notice to the other party of any change in address.
g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor the Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, the Buyer may assign its rights hereunder to any person that purchases Securities in a private transaction from the Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
i. Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer. The Company agrees to indemnify and hold harmless the Buyer and all their officers, directors, employees and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.
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j. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
k. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
l. Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that the Buyer shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.
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IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.
Knowledge Machine International, Inc.
By:________________________________
Vivek Dave, President
By:_________________________________
Name: ______________________________
Title: ______________________________
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Notes: $_____________________
Aggregate Purchase Price:
Note 1: $_____________less $__________in legal fees.
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EXHIBIT A
144 NOTE - $__________________
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