FIRST TRANCHE CLOSING---HEAVY INSIDER SUPPORT2016-05-10 09:17 ET - News Release Dr. Alex MacGregor reports KGIC INC. ANNOUNCES FIRST STAGE CLOSING OF CONVERTIBLE DEBENTURE PRIVATE PLACEMENT FINANCING KGIC Inc. has completed the first-stage closing of its non-brokered private placement of convertible secured subordinated debentures for gross proceeds of $1,825,000 in principal amount under the terms specified in the May 2, 2016, press release. The initial completion of $1,825,000 in financing is also in accordance with a memorandum of understanding dated April 7, 2016, between the company and Bank of Montreal. The first-stage closing meets the company's financing requirements for the near-term operational forecast. The company is also pleased to announce that the previous forbearance agreement with BMO is terminated, and the company plans to complete final term loan agreements with BMO in accordance with the MOU and execute aggressively its new management plan. The offering was made pursuant to the grant of a discretionary waiver of the TSX Venture Exchange's minimum five-cent pricing requirement and is subject to acceptance by the TSX-V. With respect to the waiver, the company may conduct a share consolidation of its outstanding common shares in such ratio as would result in a postconsolidation conversion price equal to or greater than five cents per common share on or before the date that is six months following the closing date. However, the debentures may not be converted into common shares unless a consolidation is completed on or before the consolidation deadline. If a consolidation is not completed on or before the consolidation deadline, the conversion price will be deemed to be amended to five cents per common share in accordance with the TSX-V's minimum pricing requirements, and the interest rate on the debentures will be increased to 12.5 per cent per annum, retroactive from the date of issuance of the debentures. The company intends to use the proceeds of the offering to finance the company's working capital requirements, with any remaining proceeds to be used to service existing obligations owed to the company's senior secured creditors. Pursuant to applicable Canadian securities laws, the debentures (and the securities issuable upon conversion of the debentures) will be subject to a hold period until Sept. 7, 2016. Certain directors, officers and insiders subscribed for $775,000 aggregate principal amount of debentures under this first stage of the offering. The participation of these parties in the offering constitutes a related party transaction within the meaning of Multilateral Instrument 61-101, protection of minority security holders in special transactions, and the policies of the TSX-V. The company is relying upon the exemptions from the formal valuation and minority shareholder approval requirements pursuant to sections 5.5(g) and 5.7(1)(e), respectively, of MI 61-101 on the basis that the board of directors of the company, acting in good faith, and at least two-thirds of the company's independent members of the board of directors, acting in good faith, have determined that the company is in serious financial difficulty, that the offering is designed to improve the company's financial position and that the terms of the offering are reasonable in the company's circumstances. The company was not in a position to file a material change report more than 21 days in advance of the closing of this tranche of the offering as the details of participation of the interested parties were not known at such time. The offering remains subject to certain conditions including, but not limited to, the approval of the TSX-V. The offering was approved by the board of directors of the company. We seek Safe Harbor.