UNITED STATES
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 earliest event reported: September 4, 2019
KonaTel, Inc.
(Exact name of registrant as specified in its charter)
N/A
(Former name or address, if changed since last report)
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Delaware |
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001-10171 |
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80-0000245 |
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(State or Other Jurisdiction Of Incorporation) |
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(Commission File Number) |
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(I.R.S. Employer Identification Number) |
13601 Preston Road, # E816
Dallas, Texas 75240
(Address of Principal Executive Offices, Including Zip Code)
(214) 323-8410
(Registrant’s Telephone Number, Including Area Code)
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 (17 CFR 230.425)
£ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
£ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
£ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act: None.
Indicate by check mark whether the Registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter or Rule 12b-2 of the Securities and Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company x
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x
Item 8.01 Other Events.
On May 17, 2019, our wholly-owned subsidiary, IM Telecom, dba, “Infiniti Mobile,” was notified by Universal Service Administrative Company (“USAC”) of an over-payment of Universal Service Fund reimbursements in the amount of $168,677. On July 25, 2019, the Company entered into a Letter of Acknowledgement with the Federal Communications Commission (the “FCC”) requesting a 24-month payment plan regarding the repayment of the over-payment amount. The FCC decision regarding the payment plan is expected between October 2019 and December 2019. As of June 30, 2019, the Company’s legal counsel advised us that the liability for this over-payment could potentially lie with the previous ownership of Infiniti Mobile, and therefore, no contingency for this potential liability was recorded in our 10-Q Quarterly Report for the quarter ended June 30, 2019, which was filed with the Securities and Exchange Commission on August 19, 2019. The Company entered into a Settlement Agreement with the former owner of Infiniti Mobile regarding this matter, effective September 4, 2019, which was the date of delivery of the fully executed Settlement Agreement that was dated August 22, 2019. Under the Settlement Agreement, and as part of the previous owner’s obligations to indemnify and hold the Company harmless from any liability arising from the breach of any representations and warranties in the initial Purchase and Sale Agreement dated February 5, 2019 (the “PSMI”), and filed with the Securities and Exchange Commission on February 6, 2019 (see Item 9.01 for a Hyperlink to the PSMI and related closing documents previously filed with the Securities and Exchange Commission), which included this liability, the vested $0.20 per share 500,000 share incentive stock option grant that was awarded to the previous owner at the closing of the PSMI was cancelled and deemed null and void, and the previous owner was released from any liability for the $168,677 over-payment. All of the other terms and conditions of the PSMI remain in full force and effect, including the continuing indemnification provisions. A copy of the Settlement Agreement is filed as an Exhibit to this Current Report and is incorporated herein by reference. See Item 9.01.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits:
Exhibit No.
Description of Exhibit
Settlement Agreement
Exhibits incorporated by reference:
8-K/A-2 dated February 7, 2018 and filed with the Securities and Exchange Commission on February 6, 2019.
IM Telecom PSMI
IM Telecom PSMI (First amendment).
IM Telecom PSMI (Second amendment).
Morrow Independent Contractor Agreement and Incentive Stock Option Agreement.
Morrow Independent Contractor Agreement (First amendment).
Morrow Incentive Stock Option Agreement, as amended.
Morrow Lock-Up/Leak-Out Agreement.
Closing Memorandum (without Exhibits).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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KonaTel, Inc. |
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Date: September 5, 2019 |
By: |
/s/ D. Sean McEwen |
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D. Sean McEwen |
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President, Chairman, Chief Executive Officer and Director |
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SETTLEMENT AGREEMENT AND RELEASE
This Settlement Agreement and Release (hereinafter the “Agreement”) is made by and between KonaTel, Inc., a Delaware corporation (“KT”), IM Telecom, LLC, an Oklahoma limited liability company, dba Infiniti Mobile (“IM”), and Trevan Morrow (“Morrow”).
WHEREAS, on or about February 5, 2018, KT and Morrow entered into an Agreement for the Purchase and Sale of Membership Interest (“PSMI”) wherein KT purchased 100% of all membership interests in IM Telcom (“IM”) from Morrow;
WHEREAS, the purchase transaction closed on or about January 31, 2019;
WHEREAS, IM and KT have recently received notification from the Universal Administrative Service Company (“UASC”) (as the administrator for the Federal Communications Commission universal service Lifetime program) that IM violated the rules of the program by receiving $168,667 in overpayments from the Lifeline program from August 2016, through July 2017, and is now demanding that IM reimburse said amount to UASC (the “Claim”);
WHEREAS, pursuant to Section 4.13 of the PSMI, Morrow represented and warranted to KT that there were no claims or disputes with the FCC or any regulator and that IM had no liabilities;
WHEREAS, pursuant to Section 8 of the PSMI, Morrow agreed to defend, indemnify and hold KT harmless from any liability arising from the breach of any representation or warranty made by Morrow;
WHEREAS, except as stated herein, the PSMI is still in full force and effect; and
WHEREAS, the parties hereto now desire to settle the claim by KT against Morrow arising out the Claim as an overpayment refund demanded by the UASC, such Claim coming within the indemnification provisions of Section 8 of the PSMI.
NOW THEREFORE, for valuable consideration, the parties hereto agree as follows:
1.
Release of Morrow. KT hereby releases Morrow from any and all claims, causes of action or other liability arising from the Claim or otherwise concerning the disputed overpayment to IM of $168,677, only. Further, KT and IM shall indemnify, defend and hold Morrow harmless from all such claims and demands from the UASC for repayment of the $168,677.
2.
Cancellation of Option. In consideration of the release of Morrow contained in the preceding paragraph, the parties agree to mutually terminate (1) that certain Independent Contractor Agreement dated February 5, 2018, between the parties hereto, and (2) that certain Incentive Stock Option Agreement dated January 31, 2019, whereby KT granted Morrow an option to purchase 500,000 shares of KT common stock at an exercise price of $0.20 per share (the “KT Stock Option”). Morrow represents and warrants that the KT Stock Option he presently owns has not been sold, assigned, pledged or hypothecated in any manner whatsoever and that he is solvent and able to pay his debts as they become due. The termination of both agreements shall be immediately effective and both agreements are hereby declared null and void, without qualification.
3.
Cooperation. Each party to this Agreement shall execute and deliver any document which is reasonably necessary to achieve the goals and purposes of this Agreement.
4.
Entire Agreement. This Agreement constitutes the entire Agreement between the parties hereto pertaining to the subject matters hereof; and fully supersedes any and all other prior understandings, representations,
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warranties and agreements between the parties hereto, or any of them, pertaining to the specific subject matter hereof; and may be amended only by a writing signed by all parties hereto.
5.
Independent Advice of Counsel. The parties hereto, and each of them, represent and declare that in executing this Agreement, they rely solely upon their own judgment, belief and knowledge, and the advice and recommendations of their own independently selected counsel, concerning the nature, extent and duration of their rights and claims, and that they have not been influenced to any extent whatsoever in executing the same by any of the parties hereto or by any person representing them, or any of them.
6.
Counterparts. This Agreement may be in one or more counterparts, each of which may include multiple signature pages, each shall be an original and shall constitute one and the same Agreement, all of which shall be deemed to constitute one and the same instrument, but is not binding until signed by all signatories listed below.
Photocopies of original signature pages may be deemed as originals. Each party hereto authorizes their attorney to remove from the counterpart copy of this Agreement executed and acknowledged by such party the page containing such party’s signature, and to attach such signature page to a copy of this Agreement containing the signature pages executed by all other parties.
7.
Successors and Assigns. This Agreement shall inure to the benefit of, and be binding on, the parties to this Agreement and upon their respective successors, assigns, parent companies, divisions, subsidiaries, affiliates, related corporations, members, stockholders, directors, officers, employees, insurers, lenders, mortgage holders, tenants, lessees, residents, creditors, partners, joint venturers, legal representatives, agents, heirs, administrators, trusts, trustees, beneficiaries, creditors, assigns, and legal and equitable owners.
8.
Severability. If any provision or any part of any provision of this Agreement shall for any reason be held to be invalid, unenforceable or contrary to public policy or any law, then the remainder of this Agreement shall not be affected thereby and shall remain in full force and effect.
9.
No Spousal Interest. By her signature below, Jennifer Morrow, the spouse of Trevan Morrow, acknowledges and confirms that she releases any and all interest she may have in the KT Stock Option.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of August 22, 2019.
KonaTel, Inc.
IM Telecom, LLC
By:
/s/ D. Sean McEwen
By:
/s/ Charles L. Schneider, Jr.
Name:
D. Sean McEwen
Name:
Charles L. Schneider, Jr.
Title:
Chairman / CEO
Title:
President / CEO
Trevan Morrow
Jennifer Morrow
/s/ Trevan Morrow
/s/ Jennifer Morrow
Trevan Morrow, Individually
Jennifer Morrow, Individually
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