Item 1.01. Entry into a Material Definitive Agreement.
Funding for Ongoing Operations
On March 24, 2022, Health Discovery Corporation (the "Company" or "HDC") issued
a convertible promissory note (the "Promissory Note") to several investors,
including, but not limited to, George H. McGovern, III, the Company's Chairman
and CEO, Colleen M. Hutchinson, a Company director and Edward Morrison, a
Company director (the "Note Holders"), for $410,000. The Promissory Note
contains an 8% annual interest rate and is due on March 22, 2027 (the "Maturity
Date"). The proceeds of the Promissory Note will be used for general working
capital purposes. Pursuant to the terms of the Promissory Note, the Company
granted to the Note Holders a priority security interest to all intellectual
property as well as all past, current and future agreements and patent
infringement activity involving the Company (the "Assets"). The Promissory Note
and the previous loan to Mr. McGovern will be senior to all other unsecured
indebtedness of the Company.
At any time, the Note Holders shall have the right to convert the principal and
unpaid accrued interest of the Promissory Note into common stock of the Company
at a conversion amount obtained by dividing (a) all principal and accrued but
unpaid interest under the Promissory Note by (b) $0.04 per share, which is based
upon the closing price of the Company's common stock on March 17, 2022 (the
"Conversion Price"). The right of conversion ("Optional Conversion") is solely
at the Note Holders' discretion.
In the event there is a change of control transaction (a "Change of Control")
prior to the Maturity Date, the Promissory Note shall be immediately (i) repaid
in the amount equal to 120% of the then outstanding principal or (ii) converted
to common stock of the Company. The total number of shares of common stock the
Note Holders shall be entitled to upon conversion shall be equal to the number
obtained by dividing (a) all principal and accrued but unpaid interest under the
Promissory Note by (b) the Conversion Price. The choice of repayment method is
solely at the Note Holders' discretion.
If not earlier converted in connection with a Change of Control Conversion or
Optional Conversion, the Promissory Note will mature on March 22, 2027, and, at
the option of the Note Holders, (i) principal and accrued interest shall be due
and payable in cash at such time, or (ii) principal and accrued interest can be
converted into common stock of the Company at the Conversion Price.
Additionally, the Note Holders shall receive two warrants to purchase shares of
the Company's common stock at the Conversion Price. The warrants expire on March
22, 2032.
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