Document:

Exhibit 4.1

 

NEITHER THIS CONVERTIBLE PROMISSORY NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OF THE SECURITIES LAWS OF ANY STATE.  NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER THE ACT OR AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN APPLICABLE EXEMPTION THEREFROM.

 

CONVERTIBLE PROMISSORY NOTE

 

	
Purchaser:
    	
 
    	
Issuance Date:
    	
February 21, 2012
    
	
 
    	
 
    	
 
    
	
Initial   Advance:
    	
on   February 21, 2012
    	
 
    
	
 
    	
 
    	
 
    
	
Second   Advance:
    	
on   March 21, 2012
    	
 
    
	
 
    	
 
    	
 
    
	
Final   Advance:
    	
on   April 21, 2012
    	
 
    
	
 
    	
 
    	
 
    
	
Total   Principal:
    	
 
    	
 
    

 

For value received, Vertical Health Solutions, Inc. d/b/a OnPoint Medical Diagnostics, a Florida corporation (“Company”) hereby promises to pay the Purchaser, the principal sum of the then outstanding aggregate amount of all Advances (as such term is defined below) made to the Company from time to time under this Note (the “Principal Amount”) plus any accrued but unpaid Interest (as defined below).  This Note is one of a series of Notes issued to certain investors (this Note, together with such other Notes shall be collectively referenced to as the “Notes”) by the Company in an aggregate principal amount not exceeding Three Hundred Twenty Four Thousand Dollars ($324,000).

 

Purchaser agrees to remit the Initial Advance on the Issuance Date.  Purchaser agrees to advance subsequent funds to the Company on each of the thirtieth day anniversary and the sixtieth day anniversary of the Issuance Date as noted above (each, a “Subsequent Advance”; and together with the Initial Advance, the “Advances”).

 

1.                                      Interest; Maturity

 

1.1                               Simple interest on the unpaid Principal Amount shall accrue at the rate of 8% per annum (“Interest”) and will begin to accrue upon the Issuance Date. Interest shall be payable in quarterly installments each January 1, April 1, July 1 and October 1 from and after the Issuance Date of this Note and continuing until the repayment in full of the unpaid Principal Amount and accrued Interest in accordance with the terms and conditions of this Note.  Interest shall be calculated based on a 365-day year and charged for the actual number of days elapsed.

 

1.2                               At any time on or after August 21, 2013 (the “Maturity Date”), if this Note has not been paid in full or converted in accordance with the terms of Section 2.1 below, Purchaser may demand payment of the entire outstanding Principal Amount of this Note and all unpaid accrued Interest thereon; provided, however, the Company may elect to extend the Maturity Date to a date no later than February 21, 2014.  Notwithstanding the foregoing, the Maturity Date cannot be extended to a date that is later than the maturity date on the Subordinated Debt (as defined below).

 

1.3                               All payments of the Principal Amount and Interest shall be in lawful money of the United States of America.  All payments shall be applied first to accrued Interest, and thereafter to the Principal Amount.  If any payments on this Note become due on a Saturday, Sunday or a public holiday under the

 

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laws of the State of Minnesota, such payment shall be made on the next succeeding business day and such extension of time shall be included in computing Interest in connection with such payment.

 

2.                                      Conversion

 

2.1                               Optional Conversion.  At any time on or prior to the Maturity Date, all or any portion of the outstanding Principal Amount of and all accrued Interest under this Note may be converted, at the option of the Purchaser, into that number of shares (the “Shares”) of common stock, par value $0.001 per share, of the Company (“Common Stock”) as is determined by dividing such Principal Amount and accrued Interest by $1.00 per share (adjusted to reflect subsequent stock dividends, stock splits, combinations or recapitalizations) (the “Conversion Price”).

 

2.2                               Adjustments to the Conversion Price.  If on or after February 21, 2012 and prior to February 21, 2014, the Company issues or sells any shares of Common Stock in a private placement transaction for a consideration per share (the “New Issuance Price”) less than $1.00 per share for the Common Stock (the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the product of (a) the Conversion Price then in effect, and (b) the New Issuance Price divided by the Applicable Price.  Notwithstanding the foregoing, the provisions of this Section 2.2 shall only apply to the first private placement transaction occurring after February 21, 2012.  The Conversion Price shall not continue to adjust for any subsequent private placement transactions.

 

2.3                               Fraction Shares.  No fractional shares of Company’s capital stock will be issued upon conversion of this Note.  In lieu of any fractional share to which Purchaser would otherwise be entitled, Company will pay to Purchaser in cash the amount of the unconverted Principal Amount and Interest balance of this Note that would otherwise be converted into such fractional share.

 

2.4                               Effect of Conversion.  Upon conversion of this Note pursuant to this Section 2, Purchaser shall surrender this Note, duly endorsed, at the principal offices of Company.  Upon conversion of this Note pursuant to Section 2, this Note will be deemed converted on the date that is immediately prior to the close of business on the date of the surrender of this Note.  At its expense, Company will, as soon as practicable thereafter, issue and deliver to Purchaser, at Purchaser’s address set forth on the first page hereto or such other address requested by Purchaser, a certificate or certificates for the number of shares to which Purchaser is entitled upon such conversion (bearing such legends as are required by the Purchase Agreement, any other agreement entered into in connection with the any such conversion or applicable state and federal securities laws), together with a replacement Note (if any Principal Amount is not converted) and any other securities and property to which Purchaser is entitled upon such conversion under the terms of this Note, including a check payable to Purchaser for any cash amounts payable as a result of any fractional shares as described herein.

 

3.                                      Warrant

 

3.1                               In connection with each Advance, the Company shall issue the Purchaser a warrant, substantially in the form attached hereto as Exhibit A (each, a “Warrant”), to purchase a number of shares of Common Stock (the “Warrant Shares”) equal to one and one-half times (1.5x) the Advance amount.  The Warrant shall be exercisable for a period of ten years from the Issuance Date and shall have an exercise price of $1.25 per share.

 

3.2                               In addition, in the event the Company elects to extend the Maturity Date in accordance with Section 1.2, the Company shall issue the Purchaser a Warrant (on the same terms as set forth in Exhibit A other than it shall not contain Section 3(a)(iv) thereof) to purchase a number of shares of

 

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Common Stock equal to seventy five percent (75%) of the aggregate number of Warrant Shares issuable upon exercise of the Warrants issued in accordance with Section 3.1 (the “Extension Warrants”).  The Extension Warrants shall be exercisable for a period of ten years from the related issuance date and shall have an exercise price of $1.25 per share.

 

3.3                               Upon an Event of Default (as defined below), the Company shall issue the Purchaser a Warrant (on the same terms as set forth in Exhibit A other than it shall not contain Section 3(a)(iv) thereof) to purchase 60,000 shares of Common Stock at the end of each 30 day period during which such Event of Default has occurred and is continuing (the “Default Warrants”); provided, however, in no event shall the aggregate number of shares issuable upon exercise of the Default Warrants exceed 720,000 shares of Common Stock (adjusted to reflect subsequent stock dividends, stock splits, combinations or recapitalizations).  The Default Warrants shall be exercisable for a period of ten years from the related issuance date and shall have an exercise price of $1.25 per share.

 

4.                                      Representations And Warranties Of The Purchaser.

 

4.1                               Purchase for Own Account.  The Purchaser understands that the Note, the Shares, the Warrants and the Warrant Shares (collectively, the “Securities”), have not been registered under the Act on the basis that no distribution or public offering of the stock of the Company is to be effected.  The Purchaser realizes that the basis for the exemption may not be present if, notwithstanding its representations, the Purchaser has a present intention of acquiring the Securities for a fixed or determinable period in the future, selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the Securities.  The Purchaser represents that it is acquiring the Securities solely for its own account and beneficial interest for investment and not for sale or with a view to distribution of the Securities or any part thereof, has no present intention of selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the same, and does not presently have reason to anticipate a change in such intention.

 

4.2                               Information and Sophistication.  The Purchaser hereby: (i) acknowledges that it has received all the information it has requested from the Company and it considers necessary or appropriate for deciding whether to acquire the Securities, (ii) represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities and to obtain any additional information necessary to verify the accuracy of the information given the Purchaser and (iii) further represents that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risk of this investment.

 

4.3                               Ability to Bear Economic Risk.  The Purchaser acknowledges that investment in the Securities involves a high degree of risk, and represents that it is able, without materially impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.

 

4.4                               Rule 144.  The Purchaser is aware that none of the Securities may be sold pursuant to Rule 144 adopted under the Act unless certain conditions are met, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale following the required holding period under Rule 144 and the number of shares being sold during any three month period not exceeding specified limitations.  Purchaser is aware that the conditions for resale set forth in Rule 144 have not been satisfied and that the Company presently has no plans to satisfy these conditions in the foreseeable future.

 

4.5                               Accredited Investor Status.  The Purchaser is an “Accredited Investor” as such term is defined in Rule 501 under the Act.

 

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4.6                               Further Limitations on Disposition.  Without in any way limiting the representations set forth above, the Purchaser further agrees not to make any disposition of all or any portion of the Securities unless and until:

 

(a)                                 There is then in effect a Registration Statement under the Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or

 

(b)                                 The Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, such Purchaser shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration under the Act or any applicable state securities laws.

 

(c)                                  Notwithstanding the provisions of paragraphs (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by the Purchaser to (i) any shareholder, partner, retired partner, member or former member of the Purchaser for no additional consideration, (ii) any affiliate, including affiliated funds, for no additional consideration or (iii) transfers by gift, will or intestate succession to any spouse or lineal descendants or ancestors, if all transferees agree in writing to be subject to the terms hereof to the same extent as if they were Purchasers hereunder.

 

5.                                      Default; Remedies

 

5.1                               Each of the following shall constitute an event of default (each, an “Event of Default”) under this Note:

 

(a)                                 The Company shall fail to pay (i) when due any Principal Amount or Interest payment on the due date hereunder or (ii) any other payment required under the terms of this Note on the date due and such payment shall not have been made within five days of the Company’s receipt of the Purchaser’s written notice to the Company of such failure to pay;

 

(b)                                 The Company shall fail to observe or perform any other covenant, obligation, condition or agreement contained this Note and (i) such failure shall continue for 15 days, or (ii) if such failure is not curable within such 15-day period, but is reasonably capable of cure within 30 days, either (A) such failure shall continue for 30 days or (B) the Company shall not have commenced a cure in a manner reasonably satisfactory to Purchaser within the initial 15-day period; or

 

(c)                                  The Company files any petition or action for relief under any bankruptcy, reorganization, insolvency or moratorium law or any other law for the relief of, or relating to, debtors, now or hereafter in effect, or makes any general assignment for the benefit of creditors or takes any corporate action in furtherance of any of the foregoing;

 

(d)                                 An involuntary petition is filed against the Company (unless such petition is dismissed or discharged within thirty (30) days) under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of the Company; or

 

(e)                                  The Company’s stockholders or board of directors affirmatively vote to liquidate, dissolve, or wind up the Company or the Company otherwise ceases to carry on its ongoing business operations.

 

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5.2                               Upon the occurrence and during the continuance of any Event of Default, all unpaid Principal Amount on this Note, accrued and unpaid Interest thereon and all other amounts owing hereunder shall, at the option of the Purchaser, and, upon the occurrence of any Event of Default pursuant to Sections 5.1 (c), (d) or (e) of this Note, automatically, be immediately due, payable and collectible by Purchaser pursuant to applicable law.  Purchaser shall have all rights and may exercise all remedies available to it under law, successively or concurrently.

 

6.                                      Ranking.

 

6.1                               Pari Passu to Other Notes.  All Notes shall rank equally and ratably without priority over one another.  No payment, including any prepayment, shall be made hereunder unless payment, including any prepayment, is made with respect to the other Notes in an amount which bears the same ratio to the then unpaid balance on such other Notes as the payment made hereon bears to the then unpaid balance under this Note.

 

6.2                               Seniority.  The Notes shall rank senior to all indebtedness of the Company existing as of the Issuance Date (the “Subordinated Debt”).

 

7.                                      Restrictions on Future Indebtedness.  The Company hereby covenants and agrees with the Purchaser that it shall not incur or guarantee any other indebtedness for borrowed money to banks, financial institutions or any other lender (individual or entity) that is senior to or on parity with the Notes, without the prior written consent of the holders of a majority of the outstanding principal amount of the Notes. Notwithstanding the foregoing, nothing contained herein shall prohibit the Company from incurring additional indebtedness that is subordinate to the Notes.

 

8.                                      Prepayment.  Prepayment of the outstanding Principal Amount plus accrued but unpaid Interest may be made anytime without consent.

 

9.                                      Waiver; Payment Of Fees And Expenses.  Company waives presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note, and shall pay all costs of collection when incurred, including, without limitation, reasonable attorneys’ fees, costs and other expenses.  The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived to the full extent permitted by law.  No delay by Purchaser shall constitute a waiver, election or acquiescence by it.

 

10.                               Transaction Fees and Expenses.  The Company shall pay on demand all reasonable and documented fees and expenses, including reasonable and documented attorneys fees and expenses in connection with the preparation, execution and delivery of this Note and the other transaction documents up to a maximum amount of $6,000.

 

11.                               Cumulative Remedies.  Purchaser’s rights and remedies under this Note shall be cumulative.  Purchaser shall have all other rights and remedies not inconsistent herewith as provided under the UCC, by law or in equity.  No exercise by Purchaser of one right or remedy shall be deemed an election, and no waiver by Purchaser of any Event of Default shall be deemed a continuing waiver of such Event of Default or the waiver of any other Event of Default.

 

12.                               Miscellaneous

 

12.1                        Governing Law.  The terms of this Note shall be construed in accordance with the laws of the State of Minnesota, as applied to contracts entered into by Minnesota residents within the State of Minnesota, and to be performed entirely within the State of Minnesota.

 

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12.2                        Successors and Assigns; Assignment.  The terms and conditions of this Note shall inure to the benefit of and be binding upon the respective successors and assigns of the parties.  Neither party may assign this Note or delegate any of its rights or obligations hereunder without the written consent of the other party.

 

12.3                        Titles and Subtitles.  The titles and subtitles used in this Note are used for convenience only and are not to be considered in construing or interpreting the Note.

 

12.4                        Notices.  All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (c) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.  All communications shall be sent to the Purchaser at the address, facsimile number, or e-mail address set forth on the signature page hereto, or if to the Company, to it at 7760 France Avenue South, 11th Floor, Minneapolis, MN 55435, Attn: William Cavanaugh, Facsimile:  (888) 370-2819 (or to such other address, facsimile number, or e-mail address as the Purchaser or the Company as a party may designate by notice the other party) with a copy to Morgan, Lewis & Bockius LLP, 502 Carnegie Center, Princeton, NJ 08540, Attn: Emilio Ragosa, Esq., Facsimile: (609) 919-6701.

 

12.5                        Amendment; Modification; Waiver.  This Note (and the other Notes) may be amended, modified or waived with the written consent of the Company and the holders of a majority of the outstanding principal amount of the Notes.  Notwithstanding the foregoing, no amendment or waiver of any provision of any Notes (i) shall be affected unless all Notes are treated similarly and not disproportionately, and (ii) shall be binding on the Company (unless consented to in writing by the Company) if such amendment or waiver would increase the financial obligations of the Company under this Note (regardless of whether such amendment or waiver applies identically to all other Notes).

 

12.6                        Usury.  In the event any Interest is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that portion of the Interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of the Principal Amount and applied against the Principal Amount of this Note.

 

12.7                        Counterparts.  This Note 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.

 

[SIGNATURE PAGE TO FOLLOW]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Convertible Promissory Note as of the day and year first written above.

 

	
PURCHASER
    	
 
    	
VERTICAL   HEALTH SOLUTIONS, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Signature
    	
 
    	
Signature
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
William   T. Cavanaugh
    
	
Printed   Name
    	
 
    	
Printed   Name
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
President   and CEO
    
	
Address   Line 1
    	
 
    	
Title
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Address   line 2
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Address   line 3
    	
 
    	
 
    

 

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EXHIBIT A

 

FORM OF WARRANT

 

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SCHEDULE OF LENDERS

 

	
Purchaser
    	
 
    	
Total Amount
    
	
Super   Angel Capital, LLC
    	
 
    	
30,000
    
	
Elmer   Salovich Revocable Trust U/A 12/16/96
    	
 
    	
45,000
    
	
Gilya   Alchits
    	
 
    	
40,000
    
	
Sheldon   Fleck
    	
 
    	
50,000
    
	
Brian   Spille
    	
 
    	
21,000
    
	
Larry   Hopfenspirger
    	
 
    	
114,000
    
	
Jordan   Family LLC
    	
 
    	
24,000
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
Total 
    	
324,000Exhibit 4.2

 

WARRANT

 

	
Holder:
    	
 
    	
Warrant Number:
    

 

NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.

 

	
Issuance Date:
    	
 
    	
Number of Shares:
    	
 
    
	
Term:
    	
10 years
    	
Exercise Price:
    	
$1.25
    

 

VERTICAL HEALTH SOLUTIONS, INC.

d/b/a ONPOINT MEDICAL DIAGNOSTICS

 

WARRANT TO PURCHASE COMMON STOCK

 

Vertical Health Solutions, Inc. d/b/a OnPoint Medical Diagnostics, a Florida corporation (the “Company”), for value received, hereby issues to the Holder this Warrant (the “Warrant”) to purchase shares (each such share as from time to time adjusted as hereinafter provided being a “Warrant Share” and all such shares being the “Warrant Shares”) of the Company’s Common Stock (as defined below), at the Exercise Price (as defined below), as adjusted from time to time as provided herein, on or before the ten year anniversary of the issuance date (the “Expiration Date”), all subject to the following terms and conditions.

 

As used in this Warrant, (i) “Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in the City of Minneapolis, Minnesota, are authorized or required by law or executive order to close; (ii) “Common Stock” means the common stock of the Company, par value $0.001 per share, including any securities issued or issuable with respect thereto or into which or for which such shares may be exchanged for, or converted into, pursuant to any stock dividend, stock split, stock combination, recapitalization, reclassification, reorganization or other similar event; (iii) “Exercise Price” means $1.25 per share of Common Stock, subject to adjustment as provided herein; and (iv) “Affiliate” means any Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, a Person, as such terms are used and construed in Rule 144 promulgated under the Securities Act of 1933, as amended (the “Act”).

 

 

1.                                      DURATION AND EXERCISE OF WARRANTS

 

(a)                    Exercise Period.  The Holder may exercise this Warrant in whole or in part on any Business Day on or before 5:00 P.M., central time, on the Expiration Date, at which time this Warrant shall become void and of no value.

 

(b)                    Exercise Procedures.

 

(i)               While this Warrant remains outstanding and exercisable in accordance with Section 1(a), the Holder may exercise this Warrant in whole or in part at any time and from time to time by:

 

(A)             surrender of this Warrant, with a duly executed copy of the notice of exercise attached as Exhibit A (the “Notice of Exercise”), to the secretary of the Company at the Company’s principal offices or at such other office or agency as the Company may specify in writing to the Holder; and

 

(B)            payment of the then applicable Exercise Price per share multiplied by the number of Warrant Shares being purchased upon exercise of the Warrant (such amount, the “Aggregate Exercise Price”) made in the form of cash, or by certified check, bank draft or money order payable in lawful money of the United States of America or in the form of a Cashless Exercise to the extent permitted in Section 1(b)(ii) below.

 

(ii)              Notwithstanding anything contained herein to the contrary, the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless Exercise”):

 

X       =              Y * (A - B)

A

 

For purposes of the foregoing formula:

 

X = the number of Warrant Shares to be issued to the Holder

Y = the number of Warrant Shares with respect to which the Warrant is being exercised

A = the fair value per share of Common Stock on the date of exercise of this Warrant

B = the then-current Exercise Price of the Warrant

 

Solely for the purposes of this paragraph, “fair value” shall be determined either (A) reasonably and in good faith by the Board of Directors of the Company as of the date which the Notice of Exercise is deemed to have been sent to the Company, or (B) as the average of the closing sales prices, as quoted on the primary national or regional stock exchange on which the Common Stock is listed, or, if not listed, the OTC Bulletin Board or similar quotation system if quoted thereon, on the twenty (20) trading days immediately preceding the date on which the Notice of Exercise is deemed to have been sent to the Company, whichever of (A) or (B) is greater; provided, however, the “fair value” shall not be less than $2.25 per share.

 

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(iii)             Exercise of this Warrant is subject to satisfaction of either of the two following conditions at the time of exercise:

 

(A)               the Company shall have in effect a Registration Statement with the Securities and Exchange Commission with respect to its issuance of shares upon the exercise of this Warrant; or

 

(B)               the exercise of this Warrant shall qualify for an exemption from the registration requirements under applicable federal and state laws and regulations with respect to the issuance of securities and the Holder shall execute and deliver such documentation as shall be necessary to qualify the issuance of the Warrant Shares from such registration requirements.

 

(iv)             Upon the exercise of this Warrant in compliance with the provisions of this Section 1(b), the Company shall promptly issue and cause to be delivered to the Holder a certificate for the Warrant Shares purchased by the Holder.  Each exercise of this Warrant shall be effected immediately prior to the close of business on the date (the “Date of Exercise”) which the conditions set forth in Section 1(b) have been satisfied.  On or before the first Business Day following the date on which the Company has received each of the Notice of Exercise and the Aggregate Exercise Price (or notice of a Cashless Exercise in accordance with Section 1(b)(ii)) (the “Exercise Delivery Documents”), the Company shall transmit to the Company’s transfer agent (the “Transfer Agent”) a direction to issue the Warrant Shares due the Holder. Upon delivery of the Exercise Notice and Aggregate Exercise Price referred to in Section 1(b)(i)(A) above (or notice of a Cashless Exercise in accordance with Section 1(b)(ii)), the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares. If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the actual number of Warrant Shares being acquired upon such an exercise, then the Company shall as soon as practicable and in no event later than three (3) Business Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 1(c)) of like tenor representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional shares of Common Stock are to be issued upon the exercise of this Warrant, but rather the number of shares of Common Stock to be issued shall be rounded up to the nearest whole number. The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant.

 

(c)                    Partial Exercise.  This Warrant shall be exercisable, either as an entirety or, from time to time, for part only of the number of Warrant Shares referenced by this Warrant. If this Warrant is exercised in part, the Company shall issue, at its expense, a new Warrant, in substantially the form of this Warrant, referencing such reduced number of Warrant Shares which remain subject to this Warrant.

 

(d)                    Disputes.  In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 14.

 

2.                                      ISSUANCE OF WARRANT SHARES

 

(a)                    The Company covenants that all Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be (i) duly authorized, fully paid and non-assessable, and (ii) free from all liens, charges and security interests, with the exception of claims arising through the acts or omissions of the Holder and except as arising from applicable Federal and state securities laws.

 

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(b)                    The Company shall register this Warrant upon records to be maintained by the Company for that purpose in the name of the record holder of such Warrant from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner thereof for the purpose of any exercise thereof, any distribution to the Holder thereof and for all other purposes.

 

(c)                    The Company will not, by amendment of its certificate of incorporation, by-laws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all the action as may be necessary or appropriate in order to protect the rights of the Holder to exercise this Warrant, or against impairment of such rights.

 

3.                                      ADJUSTMENTS OF EXERCISE PRICE, NUMBER AND TYPE OF WARRANT SHARES

 

(a)                    The Exercise Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3(a).

 

(i)               Subdivision or Combination of Stock. In case the Company shall at any time subdivide (whether by way of stock dividend, stock split or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and the Warrant Shares shall be proportionately increased, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined (whether by way of stock combination, reverse stock split or otherwise) into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares shall be proportionately decreased.  The Exercise Price and the Warrant Shares, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described in this Section 3(a)(i).

 

(ii)              Dividends in Stock, Property, Reclassification. If at any time, or from time to time, the Holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefore:

 

(A)             any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, or

 

(B)             additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Common Stock issued as a stock split or adjustments in respect of which shall be covered by the terms of Section 3(a)(i) above), then and in each such case, the Exercise Price and the number of Warrant Shares to be obtained upon exercise of this Warrant shall be adjusted proportionately, and the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clause (ii) above) which such Holder would hold on the date of such exercise had he been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property.  The Exercise Price and the Warrant Shares, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described in this Section 3(a)(ii).

 

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(iii)             Reorganization, Reclassification, Consolidation, Merger or Sale. If any recapitalization, reclassification or reorganization of the capital stock of the Company, or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets or other transaction shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property (an “Organic Change”), then, as a condition of such Organic Change, lawful and adequate provisions shall be made by the Company whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented by this Warrant) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable assuming the full exercise of the rights represented by this Warrant. In the event of any Organic Change, appropriate provision shall be made by the Company with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Exercise Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof. The Company will not effect any such consolidation, merger or sale unless, prior to the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall assume by written instrument reasonably satisfactory in form and substance to the Holders executed and mailed or delivered to the registered Holder hereof at the last address of such Holder appearing on the books of the Company, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to purchase.  In any event, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall be deemed to assume such obligation to deliver to such Holder such shares of stock, securities or assets even in the absence of a written instrument assuming such obligation to the extent such assumption occurs by operation of law.

 

(iv)             Adjustment Upon Issuance of Shares of Common Stock. If on or after February 21, 2012 and prior to February 21, 2014, the Company issues or sells any shares of Common Stock in a private placement transaction for a consideration per share (the “New Issuance Price”) less than $1.00 per share for the Common Stock (the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an amount equal to the product of (a) the Exercise Price then in effect, and (b) the New Issuance Price divided by the Applicable Price.  Notwithstanding the foregoing, the provisions of this Section 3(a)(iv) shall only apply to the first private placement transaction occurring after February 21, 2012.  The Exercise Price shall not continue to adjust for any subsequent private placement transactions.

 

(b)                    Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 3, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each Holder of this Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall promptly furnish or cause to be furnished to such Holder a like certificate setting forth: (i) such adjustments and readjustments; and (ii) the number of shares and the amount, if any, of other property which at the time would be received upon the exercise of the Warrant.

 

4.                                      TRANSFERS AND EXCHANGES OF WARRANT AND WARRANT SHARES

 

(a)                    Registration of Transfers and Exchanges. Subject to Section 4(c), upon the Holder’s surrender of this Warrant, with a duly executed copy of the Assignment Notice attached as Exhibit B, to

 

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the secretary of the Company at its principal offices or at such other office or agency as the Company may specify in writing to the Holder, the Company shall register the transfer of all or any portion of this Warrant. Upon such registration of transfer the Company shall issue a new Warrant, in substantially the form of this Warrant, evidencing the acquisition rights transferred to the transferee and a new Warrant, in similar form, evidencing the remaining acquisition rights not transferred, to the Holder requesting the transfer.

 

(b)                                                           Warrant Exchangeable for Different Denominations. The Holder may exchange this Warrant for a new Warrant or Warrants, in substantially the form of this Warrant, evidencing in the aggregate the right to purchase the number of Warrant Shares which may then be purchased hereunder, each of such new Warrants to be dated the date of such exchange and to represent the right to purchase such number of Warrant Shares as shall be designated by the Holder. The Holder shall surrender this Warrant with duly executed instructions regarding such re-certification of this Warrant to the Secretary of the Company at its principal offices or at such other office or agency as the Company may specify in writing to the Holder.

 

(c)                                               Restrictions on Transfers. This Warrant may not be transferred at any time without (i) registration under the Act or (ii) an exemption from such registration and a written opinion of legal counsel addressed to the Company that the proposed transfer of the Warrant may be effected without registration under the Act, which opinion will be in form and from counsel reasonably satisfactory to the Company.

 

(d)                                              Permitted Transfers and Assignments.  Notwithstanding any provision to the contrary in this Section 4, the Holder may transfer, with or without consideration, this Warrant or any of the Warrant Shares (or a portion thereof) to any Affiliate of the Holder without obtaining the opinion from counsel that may be required by Section 4(c)(ii), provided that the Holder delivers to the Company and its counsel (i) a written opinion of counsel (which opinion will be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws; (ii) that the holder or transferee execute and deliver to the Company and investment letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or as a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act in a transaction pursuant to Rule 144A.

 

5.                                      MUTILATED OR MISSING WARRANT

 

If this Warrant is mutilated, lost, stolen or destroyed, upon request by the Holder, the Company will, at its expense, issue, in exchange for and upon cancellation of the mutilated Warrant, or in substitution for the lost, stolen or destroyed Warrant, a new Warrant, in substantially the form of this Warrant, representing the right to acquire the equivalent number of Warrant Shares, provided however, as a prerequisite to the issuance of a substitute Warrant, the Company may require satisfactory evidence of loss, theft or destruction as well as an indemnity from the Holder of a lost, stolen or destroyed Warrant.

 

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6.                                      PAYMENT OF TAXES

 

The Company will pay all transfer and stock issuance taxes attributable to the preparation, issuance and delivery of this Warrant and the Warrant Shares (and replacement Warrants) including, without limitation, all documentary and stamp taxes; provided, however, that the Company shall not be required to pay any tax in respect of the transfer of this Warrant, or the issuance or delivery of certificates for Warrant Shares or other securities in respect of the Warrant Shares to any person or entity other than to the Holder or its transferee.

 

7.                                      FRACTIONAL WARRANT SHARES

 

No fractional Warrant Shares shall be issued upon exercise of this Warrant. The Company, in lieu of issuing any fractional Warrant Share, shall round up the number of Warrant Shares issuable to nearest whole share.

 

8.                                      NO STOCK RIGHTS AND LEGEND

 

No holder of this Warrant, as such, shall be entitled to vote or be deemed the holder of any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, the rights of a stockholder of the Company or the right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or give or withhold consent to any corporate action or to receive notice of meetings or other actions affecting stockholders (except as provided herein), or to receive dividends or subscription rights or otherwise (except as provide herein).

 

Each certificate for Warrant Shares initially issued upon the exercise of this Warrant, and each certificate for Warrant Shares issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.”

 

9.                                      NOTICES

 

All notices, consents, waivers, and other communications under this Warrant must be in writing and will be deemed given to a party when (a) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) sent by facsimile or e-mail with confirmation of transmission by the transmitting equipment; (c) received or rejected by the addressee, if sent by certified mail, return receipt requested, if to the registered Holder hereof; or (d) seven days after the placement of the notice into the mails (first class postage prepaid), to the Holder at the address, facsimile number, or e-mail address furnished by the registered Holder to the Company in accordance

 

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with the Agency Agreement, or if to the Company, to it at 7760 France Avenue South, 11th Floor, Minneapolis, MN 55435, Attn: William Cavanaugh, Facsimile:  (888) 370-2819 (or to such other address, facsimile number, or e-mail address as the Holder or the Company as a party may designate by notice the other party) with a copy to Morgan, Lewis & Bockius LLP, 502 Carnegie Center, Princeton, NJ 08540, Attn: Emilio Ragosa, Esq., Facsimile: (609) 919-6701.

 

10.                               SEVERABILITY

 

If a court of competent jurisdiction holds any provision of this Warrant invalid or unenforceable, the other provisions of this Warrant will remain in full force and effect. Any provision of this Warrant held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

 

11.                               BINDING EFFECT

 

This Warrant shall be binding upon and inure to the sole and exclusive benefit of the Company, its successors and assigns, the registered Holder or Holders from time to time of this Warrant and the Warrant Shares.

 

12.                               SURVIVAL OF RIGHTS AND DUTIES

 

This Warrant shall terminate and be of no further force and effect on the earlier of 5:00 P.M., Eastern Daylight Time, on the Expiration Date or the date on which this Warrant has been exercised.

 

13.                               GOVERNING LAW

 

This Warrant will be governed by and construed under the laws of the State of Minnesota without regard to conflicts of laws principles that would require the application of any other law.

 

14.                               DISPUTE RESOLUTION

 

In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall submit the disputed determinations or arithmetic calculations via facsimile within two Business Days of receipt of the Notice of Exercise giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within three Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within two Business Days submit via facsimile (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Company and approved by the Holder or (b) the disputed arithmetic calculation of the Warrant Shares to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than ten (10) Business Days from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.

 

15.                               NOTICES OF RECORD DATE

 

Upon (a) any establishment by the Company of a record date of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or

 

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other distribution, or right or option to acquire securities of the Company, or any other right, or (b) any capital reorganization, reclassification, recapitalization, merger or consolidation of the Company with or into any other corporation, any transfer of all or substantially all the assets of the Company, or any voluntary or involuntary dissolution, liquidation or winding up of the Company, or the sale, in a single transaction, of a majority of the Company’s voting stock (whether newly issued, or from treasury, or previously issued and then outstanding, or any combination thereof), the Company shall mail to the Holder at least ten (10) Business Days, or such longer period as may be required by law, prior to the record date specified therein, a notice specifying (i) the date established as the record date for the purpose of such dividend, distribution, option or right and a description of such dividend, option or right, (ii) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up, or sale is expected to become effective and (iii) the date, if any, fixed as to when the holders or record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, transfer, consolation, merger, dissolution, liquidation or winding up.

 

16.                               RESERVATION OF SHARES

 

The Company shall reserve and keep available out of its authorized but unissued shares of Common Stock for issuance upon the exercise of this Warrant, free from preemptive rights, such number of shares of Common Stock for which this Warrant shall from time to time be exercisable.

 

17.                               NO THIRD PARTY RIGHTS

 

This Warrant is not intended, and will not be construed, to create any rights in any parties other than the Company and the Holder, and no person or entity may assert any rights as third-party beneficiary hereunder.

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date hereof.

 

	
VERTICAL HEALTH SOLUTIONS, INC.
    
	
 
    
	
 
    	
 
    
	
Signature
    	
 
    
	
 
    	
 
    
	
William   T. Cavanaugh
    	
 
    
	
Printed   Name
    	
 
    
	
 
    	
 
    
	
President   and CEO
    	
 
    
	
Title
    	
 
    

 

9

 

EXHIBIT A

 

EXERCISE FORM

 

(To be executed by the Holder of Warrant if such Holder

desires to exercise Warrant)

 

To Vertical Health Solutions, Inc. d/b/a OnPoint Medical Diagnostics (“VHS”):

 

The undersigned hereby irrevocably elects to exercise this Warrant and to purchase thereunder,                                        full shares of VHS common stock issuable upon exercise of the Warrant and delivery of:

 

(1)                                 $                   (in cash as provided for in the foregoing Warrant) and any applicable taxes payable by the undersigned pursuant to such Warrant; and

 

(2)                                                      shares of Common Stock (pursuant to a Cashless Exercise in accordance with Section 1(b)(ii) of the Warrant) (check here if the undersigned desires to deliver an unspecified number of shares to be equal the number sufficient to effect a Cashless Exercise).

 

The undersigned requests that certificates for such shares be issued in the name of the registered Holder, printed below:

 

	
 
    	
 
    	
 
    
	
 
    	
(name)
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
(address)
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
(social security or federal employer identification number)
    	
 
    

 

The undersigned hereby agrees to execute and deliver to the Company such additional documents as the Company may reasonably request to qualify the issuance of the shares subject to this notice under an effective registration of such issuance under applicable federal and state laws regulating the issuance of securities or for an exemption from such requirements.

 

	
 
    	
(Signature):
    	
 
    
	
 
    	
(Dated:)
    	
 
    

 

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EXHIBIT B

 

FORM OF ASSIGNMENT

 

FOR VALUE RECEIVED,                                                                        hereby sells, assigns and transfers to each assignee set forth below all of the rights of the undersigned under the Warrant (as defined in and evidenced by the attached Warrant) to acquire the number of Warrant Shares set opposite the name of such assignee below and in and to the foregoing Warrant with respect to said acquisition rights and the shares of VHS issuable upon exercise of the Warrant:

 

	
Name of Assignee
    	
 
    	
Address
    	
 
    	
Number of Shares
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    

 

If the total of the Warrant Shares are not all of the Warrant Shares evidenced by the foregoing Warrant, the undersigned requests that a new Warrant evidencing the right to acquire the Warrant Shares not so assigned be issued in the name of and delivered to the undersigned.

 

	
 
    	
Name of   Holder (print):
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
(Signature):
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
(By:)
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
(Title:)
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
(Dated):
    	
 
    

 

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