1
EXHIBIT 4.1
SUBSCRIPTION AND PURCHASE AGREEMENT
THIS SUBSCRIPTION AND PURCHASE AGREEMENT (the "Agreement") by and
between HEALTHWATCH, INC., a Minnesota corporation (the "Company"), and HALIS,
INC., a Georgia corporation (the "Investor").
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the Company and the
Investor mutually agree as follows:
ARTICLE 1
DESCRIPTION OF FINANCING
1.1 AUTHORIZATION OF THE SHARES. The Company has authorized the
issuance and sale of 50,000 shares of its Series H Convertible Preferred Stock
(the "Shares"), for $300,000 ($6.00 per Share). The Shares shall have the
rights, preferences and limitations as set forth in the Certificate of
Designation of Series H Preferred Stock attached hereto as Exhibit A.
1.2 PURCHASE AND SALE OF THE SHARES. Subject to the terms and
conditions of this Agreement and in reliance upon the representations and
warranties contained herein, the Company agrees to sell to Investor for $300,000
($6.00 per Share), and Investor (or one or more designees of Investor who are
reasonably acceptable to HealthWatch) agrees to purchase for up to $300,000
($6.00 per Share), up to 50,000 of the Shares. The Shares that Investor, at its
sole discretion, elects to purchase shall be paid for in up to seven
installments, one of $37,500 and six of $43,750 each. Upon the earlier of the
termination of this Agreement or the payment of the fourth installment, the
Company will cause the Shares to be registered in Investor's (or its designees,
if applicable) name, with a certificate for 50,000 Shares held by the Company in
escrow. The Company shall release the escrowed Shares in accordance with Section
1.3 hereof.
1.3 CLOSINGS. Closings of the purchase and sale of the Shares elected
to be purchased by Investor shall take place by mail or facsimile on or about
August 20, September 8 and 15, October 1 and 15 and November 1 and 15, 1997. At
each of the Closings, Investor shall deliver to the Company in payment for the
Shares a check in the amount of $37,500 (August 20, 1997) or $43,750 (balance of
installments) and the Company shall, at Investor's request, cause certificates
for the Shares for which payment has been received to be released from the
escrow and delivered to Investor in accordance with Investor's instructions.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investor that:
2
2.1 DUE ORGANIZATION; ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota and has all necessary power and authority (i) to conduct its business
in the manner in which its business is currently being conducted and in the
manner in which its business is proposed to be conducted; (ii) to own and use
its assets in the manner in which its assets are currently owned and used and in
the manner in which its assets are proposed to be owned and used; and (iii) to
perform its obligations under this Agreement. The Company is qualified,
authorized, registered or licensed to do business as a foreign corporation in
all jurisdictions where such qualification, authorization, registration or
license is required, except where the failure to be so qualified, authorized,
registered or licensed has not had and will not have a material adverse effect
on the Company's business, condition, assets, liabilities, operations, financial
performance or prospects.
2.2 CORPORATE POWER. The Company has all requisite legal and corporate
power and authority to execute and deliver this Agreement and to sell and issue
the Shares hereunder, to issue the common stock upon conversation of the Shares
(the "Conversion Shares"), and to carry out and perform its obligations under
the terms of this Agreement.
2.3 CAPITALIZATION. The authorized Stock of the Company consists of a
total of 14,285,715 authorized shares of common stock, of which approximately
4,250,000 shares are or will be prior to the proposed merger with Investor
issued and outstanding, and a total of 1,428,571 authorized shares of preferred
stock, of which no shares of Preferred Stock are issued and outstanding and of
which 50,000 shares have been designated Series H Convertible Preferred Stock.
The outstanding shares of common stock have been duly authorized and validly
issued, and are or will be when issued fully paid and nonassessable. None of the
Series H Convertible Preferred Stock is issued and outstanding.
2.4 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this Agreement, the
authorization, sale, issuance and delivery of the Shares and the Conversion
Shares, and the performance of all the Company's obligations hereunder has been
taken or will be taken prior to closing. This Agreement, when executed and
delivered by the Company, shall constitute a valid and binding obligation of the
Company. The Shares, when issued in compliance with the provisions of this
Agreement, will be validly issued (including, without limitation, issued in
compliance with applicable federal and state securities laws), fully paid and
nonassessable and will have the rights, preferences, privileges and restrictions
described in the Certificate of Designation. The Conversion Shares have been
duly and validly reserved and, when issued in compliance with the provisions of
this Agreement, will be validly issued, fully paid and nonassessable. The Shares
and the Conversion Shares will be free of any liens or encumbrances. The Shares
and the Conversion Shares are not subject to any preemptive rights.
-2-
3
2.5 SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has delivered to Investor accurate and complete
copies (excluding copies of exhibits) of its Annual Report on Form
10-KSB for the fiscal year ended June 30, 1996, and of a Prospectus
dated June 30, 1997, filed by the Company with the Securities and
Exchange Commission (the "SEC") (the "Company SEC Documents"). As of the
time it was filed with the SEC (or, if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing):
(i) each of the Company SEC Documents complied in all
material respects with the applicable requirements of the
federal Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended (as the case may be); and
(ii) none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) The financial statements contained in the Company SEC
Documents:
(i) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout
the periods covered, except as may be indicated in the notes to
such financial statements and (in the case of an unaudited
statement) as permitted by Form 10-QSB of the SEC, and except
that unaudited financial statements may not contain footnotes
and are subject to normal and recurring year-end audit
adjustments which will not, individually or in the aggregate, be
material in magnitude; and
(ii) fairly present the financial position of the Company as
of the respective dates thereof and the results of operations of
the Company for the periods covered thereby.
2.6 ABSENCE OF CHANGES. Since June 30, 1997:
(a) the Company has not sold, exchanged or otherwise disposed of
any material assets or rights or entered into any transaction which
was not in the ordinary course of business;
(b) there has been no materially adverse change in the condition
(financial or otherwise), of the business, property, assets or
liabilities of the Company other than changes in the ordinary course
of business, none of which, individually or in the aggregate, has
been materially adverse; and
-3-
4
(c) to the best knowledge of the Company, there has been no other event
or condition of any character pertaining to and materially and adversely
affecting the assets or business of the Company (as now conducted or as
presently proposed to be conducted).
2.7 LITIGATION. There is no action, suit, proceeding at law or in equity by
any person or entity, or any arbitration, or any administrative or other
proceeding by or before any governmental or other instrumentality or agency
pending, or, to the knowledge of the Company, threatened, against or affecting
the Company or any of its properties, assets or rights which could have a
material adverse effect on the Company's business, condition, assets,
liabilities, operations, financial performance or prospects.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants that:
3.1 HIGH RISK INVESTMENT. The Investor is aware that investment in the
Shares involves substantial risks. The Investor represents that Investor
understands that an investment in this offering should be considered only by a
person able to withstand a total loss of such investment.
3.2 BINDING OBLIGATION. This Agreement constitutes a valid and legally
binding obligation of the Investor.
3.3 NASD MATTERS. Neither the Investor nor any corporation or organization
of which Investor is an officer or partner, any corporation or organization of
which Investor, directly or indirectly, is the beneficial owner of 10% or more
of any class of equity securities, any trust or other estate in which Investor
has a substantial beneficial interest or as to which Investor serves as trustee
or in a similar fiduciary capacity is a member of the National Association of
Securities Dealers, Inc. ("NASD"), is affiliated with a member of the NASD or is
a person associated with a member of the NASD, it being understood that
affiliation or association includes ownership of 5% or more of the equity
securities of any such member.
ARTICLE 4
FEDERAL AND OTHER SECURITIES LAWS; REGISTRATION RIGHTS
4.1 INVESTMENT REPRESENTATIONS AND WARRANTIES. Investor further represents
and warrants that:
-4-
5
(a) Investment Experience. The Investor represents that Investor is an
"accredited investor" as defined in Regulation D promulgated by the
Securities and Exchange Commission, has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of the investment, and has the ability to bear the economic risks of
the investment and to make an informed investment decision with respect
thereto. The Investor further represents that Investor has had, during the
course of the transaction and prior to the purchase of the Shares, the
opportunity to ask questions of and receive answers from, the Company
concerning the terms and conditions of the offering and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to or to which Investor had access.
(b) Acquisition for Investment for Investor's Own Account. This
Agreement is made with the Investor in reliance upon Investor's
representation to the Company, which by its acceptance hereof the Investor
hereby confirms and which by acceptance of any of the Shares, the Holder
thereof shall also confirm, that the Shares are being and any Conversion
Shares issued upon conversion of the Shares will be acquired for investment
for Investor's own account, not as a nominee or agent and not with a view to
the sale or distribution of any part thereof. Any resales of the Shares and
any Conversion Shares issued upon conversion of the Shares will be in
conformity with applicable law. By executing this Agreement, Investor
further represents that Investor does not have any contract, undertaking,
agreement, or arrangement with any person in violation of any federal or
state law to sell, transfer, or grant participations to such person, or to
any third person, with respect to the Shares. Investor realizes that the
basis for the exemption from the registration requirements of the Securities
Act of 1933, as amended (the "1933 Act"), relied upon by the Company in
connection with the offering, may not be present if, notwithstanding such
representation, the Investor has in mind merely acquiring the Shares for a
fixed or determinable period and selling them in the future, and Investor
hereby confirms the absence of any such intention.
(c) Transfer or Disposition of Shares. The Investor understands that the
Shares and any Conversion Shares issued upon conversion of the Shares may
not be sold, transferred, or otherwise disposed of without registration
under the 1933 Act, and that in the absence of an effective registration
statement, such securities must be held indefinitely. The Investor
represents that, in the absence of an effective registration statement, it
will sell, transfer, or otherwise dispose of such securities only in a
manner consistent with the representations set forth herein and in
accordance with the provisions of this Agreement.
4.2 CERTIFICATE LEGENDS. The Investor agrees that all certificates
evidencing the Shares and any Conversion Shares issuable upon conversion of the
Shares shall bear a legend in substantially the following form, and by which the
Investor agrees to be bound:
-5-
6
THE SECURITY DESCRIBED HEREIN HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT") OR UNDER THE SECURITIES LAWS OF ANY
STATE. NO SALE OR DISTRIBUTION OF THIS SECURITY MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE 1933 ACT AND APPLICABLE STATE BLUE SKY LAWS.
4.3 STOP TRANSFER INSTRUCTION. The Company shall make a notation regarding
the restrictions on transfer of the Shares and any Conversion Shares issuable
upon conversion of the Shares in its stock books, and the Company shall not be
required to transfer on its books any of such securities that have been sold or
transferred in violation of any of the provisions of this Agreement, or to treat
as the owner of such securities any transferee to whom such securities have been
so transferred.
4.4 REGISTRATION. At anytime after June 30, 1998, the Company will promptly,
upon request of Investors holding 20,000 of the Shares offered hereby, Itake all
necessary steps to register, or qualify, under the 1993 Act and the securities
laws of such states as the Investors may reasonably request, the Conversion
Shares issuable upon conversion of the Shares, provided, however, that the
Company shall not for any purpose be required to execute a general consent to
service of process or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified. The Company shall be obligated to
prepare, file and cause to become effective only one registration statement
pursuant to this Section 4.4 and to pay all costs and expenses associated with
such registration statement as provided in Section 4.5. The Company shall keep
effective and maintain any registration, qualification, notification or approval
specified in this Section 4.4 for a period of up to one year.
4.5 EXPENSES. With respect to the inclusion of securities in a registration
statement pursuant to Section 4.4, except as provided in the next succeeding
sentence, the Company shall bear all fees, costs and expenses including, without
limitation: all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, and legal fees and
disbursements and other expenses of complying with state securities laws of any
jurisdictions in which the securities to be offered are to be registered or
qualified. Fees and disbursements of special counsel and accountants for the
Investors, underwriting discounts and commissions, and transfer taxes for
Investors and any other expenses relating to the sale of securities by the
Investors not expressly included above shall be borne by the Investors.
4.6 INDEMNIFICATION. The Company hereby indemnifies the Investors and all
officers and directors, if any, who control any Investor, within the meaning of
Section 15 of the 1933 Act, against all losses, claims, damages, and liabilities
caused by or arising from (1) any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement or Prospectus (and as
amended or supplemented if the Company shall have furnished any amendments
thereof or supplements thereto), any
-6-
7
Preliminary Prospectus or any state securities law filings; (2) any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading except insofar as
such losses, claims, damages, or liabilities are caused by any untrue statement
or omission contained in information furnished in writing to the Company by
Investors expressly for use therein; and each Investor by Investor's acceptance
hereof severally agrees that it will indemnify and hold harmless the Company,
each of its officers who signs such Registration Statement, and each person, if
any, who controls the Company, within the meaning of Section 15 of the 1933 Act,
with respect to losses, claims, damages, or liabilities which are caused by any
untrue statement or alleged untrue statement, omission or alleged omission
contained in information furnished in writing to the Company by such Holder
expressly for use therein.
ARTICLE 5
CONDITIONS TO INVESTOR'S OBLIGATIONS AT THE CLOSING
The obligations of the Investor under Section 1.2 of this Agreement are
subject to the fulfillment on or before the Closings of each of the following
conditions:
5.1 REPRESENTATIONS AND WARRANTIES TRUE ON EACH INSTALLMENT PAYMENT
DATE. The representations and warranties of the Company contained in Article 2
shall be true on and as of the date of each payment by the Investors of each
installment of the purchase price of the Shares pursuant to Section 1.3 with the
same force and effect as if they had been made on the date of each payment by
the Investors of each installment of the purchase price of the Shares pursuant
to Section 1.3.
5.2 PERFORMANCE. The Company shall have conformed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it on or before the Closing.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of any state, that are required
in connection with the lawful issuance and sale of the Shares pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of the
Closing.
5.4 DELIVERY OF CERTIFICATES. The Investor shall have received one or
more certificates representing the Shares which the Investor is purchasing on
the date of payment of each installment of the purchase price of the Shares.
-7-
8
ARTICLE 6
CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company under Section 1.2 of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions as to the Investor:
6.1 REPRESENTATIONS AND WARRANTIES TRUE ON THE CLOSING. The
representations and warranties of Investor contained in Articles 3 and 4 shall
be true on and as of the Closing with the same force and effect as if they had
been made at the Closing.
6.2 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of any state that are required
in connection with the lawful issuance and sale of the Shares pursuant to this
Agreement shall have been duly obtained and shall be effective on and as of the
Closing.
6.3 PAYMENT OF PURCHASE PRICE. Investors shall have delivered to the
Company the total consideration for the Shares which the Investor is to deliver
at the Closing.
ARTICLE 7
MISCELLANEOUS
7.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of the Company or the Investors, as the case may be.
7.2 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the purchase and sale of the Shares, and no
party shall be liable or bound to another party in any manner by any warranties,
representations or covenants except as specifically set forth herein or therein.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any third party
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
7.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Georgia without regard to principles of conflicts
of laws.
-8-
9
7.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.5 NOTICES. Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery or seven (7) days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, addressed to the Company at 0000
Xxxxx Xxx, Xxxxx, Xxxxxxxxxx 00000, and to the Investor at the address specified
below or at such other address as a party may designate by ten (10) days'
advance written notice to the other parties.
7.6 EXPENSES. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
the offering, and Investor shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement.
7.7 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provisions shall be excluded from
this Agreement, and the balance of this Agreement shall be interpreted as if
such provisions were so excluded and shall be enforceable in accordance with its
terms.
7.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.9 SOLE AND EXCLUSIVE REMEDY. The parties hereto expressly agree that
in the event of a failure or refusal by the Investor to make payment of any
installment under Section 1.2 or 1.3 hereof, the sole and exclusive remedy
available to the Company for such payment shall be to withhold delivery of those
Shares that would have been delivered to the Investor had such installment been
paid.
Entered into as of the 20th day of August, 1997.
HALIS, INC.
By /s/ Xxxx X. Xxxxxxxx
-----------------------------------------
Its CEO & Chairman
-----------------------------------
0000 Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
(Mailing Address)
-9-
10
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY AS OF THE 20th DAY OF
AUGUST 1997.
HEALTHWATCH, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
------------------------------------
Its Director
-------------------------------
-10-
11
CERTIFICATE OF THE DESIGNATION,
PREFERENCES, RIGHTS AND LIMITATIONS OF THE
SERIES H CONVERTIBLE PREFERRED STOCK OF
HEALTHWATCH, INC.
HealthWatch, Inc., hereinafter called the "Corporation", a corporation
organized and existing under the Minnesota Business Corporation Act, does hereby
certify that, pursuant to authority conferred upon the Board of Directors by the
Articles of Incorporation, as amended, of the Corporation, said Board of
Directors at a meeting duly called and held on September 3, 1997, and at which a
quorum was at all times present, duly adopted a Resolution providing for the
issuance of a series of 50,000 shares of Series H Convertible Preferred Stock,
which Resolution is as follows:
"RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of this Corporation in accordance with the
provisions of its Articles of Incorporation, as amended, a series of Preferred
Stock of the Corporation be and it hereby is given the distinctive designation
of "Series H Convertible Preferred Stock" (hereinafter referred to as the
"Series H Stock"), said Series to consist of Fifty Thousand (50,000) shares of
the stated value of Six Dollars($6.00) per share. The preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof shall be as follows:
1. Dividends
(a) The holders of shares of Series H Stock shall be entitled to receive
dividends at the rate of $0.60 per share (as adjusted for any stock
dividends, combinations or splits with respect to such shares) per
annum, payable out of funds legally available therefor. Such
dividends shall commence upon issuance and shall be payable when, as
and if declared by the Board of Directors, in preference to any
dividend to any other shares of Preferred Stock or Common Stock, and
shall be cumulative. Dividends shall be paid quarterly on June 30,
September 30, December 31 and March 31, commencing June 30, 1998, to
holders of record as of the close of business five business days
before the dividend payment date.
(b) No dividends (other than those payable solely in the Common Stock of
the
-1-
12
Corporation) shall be paid on any other shares of Preferred Stock or
Common Stock of the Corporation during any fiscal year of the
Corporation until dividends, combinations or splits with respect to
such shares) on the Series H Stock shall have been paid or declared
and set apart during that fiscal year and any prior year in which
dividends accumulated but remain unpaid. Following any such payment
or declaration, the holders of any other shares of Preferred Stock
and Common Stock shall be entitled to receive dividends, payable out
of funds legally available therefor, when, as and if declared by the
Board of Directors.
(c) No right shall accrue to holders of shares of Series H Stock by
reason of the fact that dividends on said shares are not declared in
any prior year, nor shall any undeclared or unpaid dividend bear or
accrue any interest.
In the event the Corporation shall declare a distribution payable in
securities of other persons, evidences of indebtedness issued by the Corporation
or other persons, assets (excluding cash dividends) or options or rights to
purchase any such securities or evidences of indebtedness, then, in each such
case the holders of the Series H Stock shall be entitled to a proportionate
share of any such distribution as though the holders of the Series H Stock were
the holders of the number of shares of Common Stock of the Corporation into
which their shares of Series H Stock are convertible as of the record date fixed
for the determination of the holders of Common Stock of the Corporation entitled
to receive such distribution.
2. Liquidation Preference
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the
Series H Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets or surplus funds of the
Corporation to the holders of any other shares of Preferred Stock
and Common Stock by reason of their ownership thereof, the amount of
$6.00 per share (as adjusted for any stock dividends, combinations
or splits with respect to such shares), plus all accrued or declared
but unpaid dividends on such shares for each share of Series H Stock
then held by them. If upon the occurrence of such event, the assets
and funds thus distributed among the holders of the Series H
Preferred Stock shall be insufficient to permit the payment to such
holders of the full aforesaid preferential amount, then the entire
assets and funds of
-2-
13
the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series H Stock in
proportion to the preferential amount each such holder is otherwise
entitled to receive.
(b) After payment to the holders of the Series H Stock of the amounts
set forth in Section 2(a) above, and the payment to the holders of
any other series of Preferred Stock which may hereafter be
established by the Board of Directors of any liquidation preferences
for such additional series of Preferred Stock, the entire remaining
assets and funds of the Corporation legally available for
distribution, if any, shall be distributed among the holders of the
Common Stock and the Series H Stock and any other series of
Preferred Stock which may hereafter be established by the Board of
Directors in proportion to the shares of Common Stock then held by
them and the shares of Common Stock which they then have the right
to acquire upon conversion of the shares of Series H Stock and any
other series of Preferred Stock which may hereafter be established
by the Board of Directors then held by them.
(c) Whenever the distribution provided for in this Section 2 shall be
payable in securities or property other than cash, the value of such
distribution shall be the fair market value of such securities or
other property as determined in good faith by the Board of
Directors.
3. Voting Rights
The holders of the Series H Stock shall be entitled, with the holders
of the Common Stock, voting as a class, to vote or act by written consent on all
matters on which holders of the Common Stock are entitled to vote, including the
election of directors, with the number of votes per share of Series H Stock in
such matter to be equal to the number of shares of Common Stock then issuable
upon conversion of the Series H Stock. Unless and except to the extent otherwise
required by law, the holders of the Series H Stock shall have no right to vote
as a class with respect to any matter. Should the Series H Stock be entitled to
vote as a class on any matter pursuant to a requirement of law, each holder of
such stock shall be entitled to one vote in respect to each share of such stock
held of record in respect to such matter, unless some other vote is required by
law.
-3-
14
4. Conversion of Series H Stock into Common Stock
(a) Subject to the provisions of this Section 4, the holder of record of
any share or shares of Series H Stock shall have the right, at his
option, at any time after issuance, to convert each said share or
shares of Series H Stock into twenty (20) fully-paid and
non-assessable shares of Common Stock, $.07 par value (hereinafter
referred to as "Common Stock), of the Corporation. The Corporation
shall not be required to issue fractional shares in connection with
the conversion of any of the Series H Stock and shall, in lieu
thereof, pay to the holder requesting conversion, an amount equal to
the value (determined in accordance with the foregoing) of such
fractional share.
(b) Any holder of a share or shares of Series H Stock desiring to
convert such Series H Stock into Common Stock, shall surrender the
certificate or certificates representing the share or shares of
Series H Stock so to be converted, duly endorsed (if required by the
Corporation) to the Corporation or in blank, at the office of any
Transfer Agent for the Series H Stock (or such other place as may be
designated by the Corporation), and shall give written notice to the
Corporation at said office that he elects to convert the same as
provided above, and setting forth the name or names (with the
address or addresses) in which the shares of Common Stock are to be
issued.
(c) Conversion of Series H Stock shall be subject to the following
additional terms and provisions:
(1) As promptly as practicable after the surrender for conversion of
any Series H Stock, the Corporation shall deliver or cause to be
delivered at the principal office of the Transfer Agent for the
Series H Stock (or such other place as may be designated by the
Corporation), to or upon the written order of the holder of such
Series H Stock, certificates representing the shares of Common
Stock issuable upon such conversion issued in such name or names
as such holder may direct. Shares of the Series H Stock shall be
deemed to have been converted as of the close of business on the
date of the surrender of the Series H Stock for conversion, as
provided above, and the rights of the holders of such Series H
-4-
15
Stock shall cease at such time, and the person or persons in
whose name or names the certificates for such shares are to be
issued shall be treated for all purposes as having become the
record holder or holders of such Common Stock at such time;
provided, however, that any such surrender on any date when the
stock transfer books of the Corporation shall be closed shall
constitute the person or persons in whose name or names the
certificate for such shares are to be issued as the record
holder or holders thereof for all purposes at the close of
business on the next succeeding day on which such stock transfer
books are open.
(2) The Corporation shall make no payment or adjustment on account
of any dividends accrued on the shares of Series H Stock
surrendered for conversion.
(3) The Corporation shall at all times reserve and keep available
solely for the purpose of issuance upon conversion of Series H
Stock, as herein provided, such number of shares of Common Stock
as shall be issuable upon the conversion of all outstanding
Series H Stock.
(d) The issuance of certificates for shares of Common Stock upon
conversion of the Series H Stock shall be made without charge for
any tax in respect of such issuance. However, if any certificate is
to be issued in a name other than that of the holder of record of
the Series H Stock so converted, the person or persons requesting
the issuance thereof shall pay to the Corporation the amount of any
tax which may be payable in respect of any transfer involved in such
issuance, or shall establish to the satisfaction of the Corporation
that such tax has been paid or is not due and payable.
5. Redemption.
(a) Optional Redemption. The Company may, at its option, at any time
after February 28, 1998, redeem all, or from time to time, any part
of the Series H Stock by payment of the stated amount thereof plus
accrued dividends to date of redemption.
-5-
16
(b) Mandatory Redemption. The Corporation shall redeem 1,667 shares of
Series H Stock on the first of each month commencing March 1, 1998
until all of the Series H Stock has been redeemed by payment of the
stated amount thereof plus accrued dividends to date of redemption.
(c) Notice of Redemption: Conversion Prior to Redemption. Notice of
optional redemption shall be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to the
date selected by the Company for redemption to each holder of Series
H Stock to be redeemed. Notice of the commencement of the mandatory
redemption period shall be given by first class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to
March 1, 1998. No additional notice of redemption will be required
in connection with the mandatory redemption of Series H Stock. The
Series H Stock may be converted at any time prior to redemption, and
the Corporation shall have no redemption rights with respect to the
Common Stock into which the Series H Shares may be converted.
6. General
(a) Conversion Adjustment. In the event that the Corporation shall at
any time prior to conversion either (a) subdivide the outstanding
shares of Common Stock into a greater number of shares, (b) combine
the outstanding shares of Common Stock into a smaller number of
shares, (c) change the outstanding shares of Common Stock into the
same or a given number of shares of any other class or classes of
stock, (d) declare on or in respect of the Common Stock a dividend
payable in shares or other securities of the Corporation, then the
holders of the Series H Stock shall be entitled to receive the same
number of shares or other securities of the Corporation, or shall be
entitled to subscribe for and purchase at the same price that the
shares or securities are offered to holders of Common Stock, the
number of such shares or the amount of such securities as will
represent the same proportion of the outstanding Common Stock prior
to such increase or decrease as they would have been entitled to
receive or subscribe for, as the case may be, had they been holders
of the number of shares of Common Stock into which their shares of
Series H Stock were convertible on the record date for any such
dividend or subscription. The Board of Directors
-6-
17
shall determine what adjustments shall be made in the Stated Value
and in the market prices for the Corporation's Common Stock in order
to appropriately reflect and account for any such change.
(b) Merger. In the event the Corporation at any time while any of the
shares of Series H Stock are outstanding shall be consolidated with
or merged into any other corporation or corporations, or shall sell
or lease all or substantially all of its property and business as an
entirety, lawful provision shall be made as part of the terms of
such consolidation, merger, sale, or lease so that the holder of any
shares of Series H Stock may thereafter receive in lieu of such
shares of Common Stock otherwise issuable to him upon conversion of
his shares of Series H Stock, but at the conversion rate which would
otherwise be in effect at the time of conversion as hereinbefore
provided, the same kind and amount of securities or assets as may be
issuable, distributable, or payable upon such consolidation, merger,
sale, or lease, with respect to shares of Common Stock of the
Corporation. The Board of Directors shall determine what adjustments
shall be made in the Stated Value and in the market prices for the
Corporation's Common Stock in order to appropriately reflect and
account for any such change.
(c) Fractional Shares. Nothing herein shall be deemed to require the
Corporation in the event of any such subdivision, combination,
reclassification, recapitalization, consolidation, merger or sale of
assets, or liquidation, dissolution or winding up, to issue or
distribute fractional interests in shares of capital stock or any
other security of the Corporation or another issuer, and the
Corporation may make such arrangements as the Board of Directors of
the Corporation shall approve with respect to any such event for
settlement in lieu of issuance of a fractional interest in a share
of capital stock or other security of the Corporation or another
issuer to any holder of the Series H Stock.
(d) No Sinking Fund Requirement. The shares of Series H Stock shall not
be subject to the operation of a purchase, retirement or sinking
fund.
(e) Protective Provisions. The Corporation shall not, without first
obtaining the approval (by vote or written consent) of the holders
of at least a majority of the then outstanding shares of Series H
Stock, voting separately as a class:
-7-
18
(i) authorize or create any new class or series of stock or
any other securities convertible into equity securities of the
Corporation having a preference over or on parity with the Series H
Stock;
(ii) amend the Corporation's articles of incorporation or
bylaws in a manner that adversely affects the rights, preferences,
privileges or powers of, or the restrictions provided for the
benefit of, the Series H Stock or otherwise amend or change the
rights, preferences, privileges or powers of, or the restrictions
provided for the benefit of, the Series H Stock;
(iii) undertake any merger, consolidation or other corporate
reorganization;
(iv) sell, convey or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly owned
subsidiary corporation) or effect any transaction or series of
related transactions in which more than 50 percent of the voting
power of the Corporation is disposed of;
(v) issue indebtedness convertible into equity securities of
the Corporation;
(vi) increase or decrease (other than by conversion) the total
number of authorized shares of Series H Stock; or
(vii) purchase, redeem or otherwise acquire any common stock of
the Corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my hand this 20th day
of September, 1997
HealthWatch, Inc.
-8-
19
By
/s/ Xxxxxx X. Xxxxx
----------------------
Xxxxxx X. Xxxxx
President
-9-
