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Item 1.01.
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Entry into a Material Definitive Agreement.
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Funding for Operations
As previously disclosed
,
Health Discovery Corporation (the “Company”) issued a convertible promissory note (the “Promissory Note”)
to George H. McGovern, III, the Chairman and CEO of the Company, and James Dengler, a Company shareholder (the “Note Holders”),
for $300,000. The Promissory Note contains an 8% annual interest rate and was due on January 1, 2019 (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 involving the Company. The Promissory Note is senior to all unsecured indebtedness of the Company.
On April 22, 2019 the
Note Holders agreed to waive the current default and to extend the terms of the Promissory Note until July 31, 2019. In consideration
for the extension and waiver of the default, the Note Holders shall receive a five percent share of the potential recovery, if
any, associated with previously disclosed arbitration proceeding between the Company and NeoGenomics, subject to a maximum amount
to the Note Holders of $1,000,000 plus principal and unpaid accrued interest. All other terms of the Promissory Note shall remain
in effect.
Additionally, on April
22, 2019, the Company issued a convertible promissory note (the “Additional Promissory Note”) in the amount of $200,000
to the Note Holders for funds advanced to the Company.
The Additional Promissory Note contains
an 8% annual interest rate and is due on July 31, 2019 (the “Maturity Date”). The proceeds of the Additional Promissory
Note are for general working capital purposes.
Pursuant to the terms of the Additional Promissory Note, at any time, the
Note Holders shall have the right to convert the principal and unpaid accrued interest of the Additional Promissory Note into Series
D Preferred Stock (“Preferred Stock”) of the Company at a conversion price based upon the price of the Company’s
common stock on the date of advancement of the loan amount (the “Conversion Price”). The right of conversion (“Optional
Conversion”) is solely at the Note Holders’ discretion.
In the event that there
is a change of control transaction (a “Change of Control”) prior to the Maturity Date, the Additional Promissory Note
shall be immediately converted to Preferred Stock of the Company. The total number of shares of Preferred 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 Additional Promissory Note by (b) the Conversion Price.
If not earlier converted
in connection with an Optional Conversion or as a result of a Change of Control, the Additional Promissory Note will mature on
July 31, 2019 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 Preferred Stock of the Company at the Conversion Price.
Additionally, the Note
Holders shall be entitled to two warrants to purchase common stock of the Company for each share of Preferred Stock held and the
price of each warrant is equal to the Conversion Price. Each warrant shall expire on July 31, 2029.
The above actions were
approved on April 22, 2019 by the Company’s non-interested and independent board members. Furthermore, all the above actions
were made between the Note Holders and the Company without the knowledge or assurance of any recovery from the arbitration proceeding.
Litigation Funding
As previously disclosed,
the Company entered into a non-recourse purchase agreement (the “Purchase Agreement”) with a litigation-funding firm
(the “Purchaser”) to provide funding for the Company’s ongoing legal action against NeoGenomics. The Company
is committed to pursuing all legal actions available to rectify the damages caused by NeoGenomics. The Purchase Agreement allows
the Company to pursue these actions against NeoGenomics. The Purchase Agreement remains in effect with the Purchaser.
Additionally, on April
22, 2019, the Company agreed to an advancement of $62,000 from the Note Holders to provide additional funding for the Company’s
ongoing arbitration between the Company and NeoGenomics. In consideration for the Note Holder’s additional funding, the Company
will repay the $62,000 plus up to $310,000 of the potential recovery from the legal action against NeoGenomics on or before July
31, 2019. This advancement was made between the Note Holders and the Company without the knowledge or assurance of any recovery
from the arbitration proceeding.