Document:

ex10-2.htm

Exhibit 10.2

COMPANY NOTE

	
$280,500.00

	
August 17, 2011

ENSURGE, INC.

 

Secured Convertible Promissory Note

 

FOR VALUE RECEIVED, EnSurge, Inc., a Nevada corporation (the “Borrower”), hereby promises to pay to the order of St. George Investments, LLC, an Illinois limited liability company, or its successors or assigns (the “Lender,” and together with the Borrower, the “Parties”), the principal sum of $280,500.00 together with all accrued and unpaid interest thereon, fees incurred or other amounts owing hereunder, all as set forth below in this Secured Convertible Promissory Note (this “Note”). This Note is issued pursuant to that certain Securities Purchase Agreement of even date herewith, entered into by and among the Borrower, EnSurge NM, LLC, a Utah limited liability company (“EnSurge NM”), the Lender, Bristol Investment Fund, Ltd., a Cayman Islands exempted company (“Bristol”), and John M. Fife (“Agent”) as agent thereunder (the “Purchase Agreement”). Defined terms used herein but not otherwise defined shall have the meanings ascribed thereto in the Purchase Agreement.

 

1.           Principal and Interest Payments. Interest on the unpaid principal balance of this Note shall not accrue unless and until the occurrence of an Event of Default (as defined below), provided that upon the occurrence of an Event of Default, the Outstanding Balance (as defined below) of this Note shall accrue interest at the rate of 18.00% per annum, compounded daily, from and after the date of the occurrence of the Event of Default, whether before or after judgment. Interest shall accrue on the basis of a 360 day year for the actual number of days elapsed. The Borrower shall pay to the Lender all outstanding amounts due hereunder in a payment due on or before the date that is ninety (90) days from the date hereof (the “Maturity Date”). All payments owing hereunder shall be in lawful money of the United States of America delivered to the Lender at the address furnished to the Borrower for that purpose. All payments shall be applied first to (a) costs of collection, if any, then to (b) fees and penalties, if any, then to (c) accrued and unpaid interest, and thereafter (d) to principal. For purposes hereof, the term “Outstanding Balance” means the sum of the outstanding principal balance of this Note and any accrued but unpaid interest, collection and enforcement costs, and any other fees and penalties incurred under this Note.

 

2.           Original Issue Discount.  The Borrower acknowledges that the principal amount of this Note exceeds the Purchase Price and that such excess consists of (a) the Lender’s share of the OID, and (b) the Lender’s share of the Transaction Expenses, both of which shall be fully earned and charged to the Borrower upon the execution of this Note and paid to the Lender as part of the outstanding principal balance as set forth in this Note.   

 

3.           Conversion.

 

(a)           Optional Conversion. At any time or from time to time prior to payment in full of the entire Outstanding Balance, the Lender shall have the right, at the Lender’s option, to convert the Outstanding Balance, in whole or in part (the “Conversion Amount”), into shares of common stock, par value $0.001 per share (the “Common Stock”), of the Borrower. The number of shares of Common Stock to be issued upon a conversion hereunder shall be determined by dividing (1) the Conversion Amount by (2) $1.00 (as may be adjusted pursuant to the terms hereof, the “Conversion Price”); provided, however, that if the Outstanding Balance is not paid as of the Maturity Date, the Conversion Price shall be the lower of $1.00 (as adjusted pursuant to the terms hereof) or the Market Price (as defined below). For purposes hereof, the “Market Price” is defined as 80% of the lowest closing bid price (the “Closing Bid Price”) during the ten (10) Trading Days immediately preceding the Conversion Date (as defined below), if applicable. The trading data used to compute the Closing Bid Price shall be as reported by Bloomberg, LP (“Bloomberg”), or if such information is not then being reported by Bloomberg, then as reported by such other data information source as may be selected by the Lender.  For the avoidance of doubt, conversions shall not be considered prepayments of this Note made by Borrower pursuant to Section 4 below.

 

  

  

  

 

(b)           Conversion Mechanics. In order to convert this Note into Common Stock, the Lender shall give written notice to the Borrower at its principal corporate office or the notice address provided in the Purchase Agreement (which notice, notwithstanding anything herein to the contrary, may be given via facsimile, email, or other means in the discretion of the Lender) pursuant to the forms attached hereto as Exhibit A (the “Conversion Notice”) and Exhibit A-1 (the “Conversion Worksheet”) of the election to convert the same pursuant to this Section 3 (the date on which a Conversion Notice is given, a “Conversion Date”).  Such Conversion Notice shall state the Conversion Amount, the number of shares of Common Stock to which the Lender is entitled pursuant to the Conversion Notice (the “Conversion Shares”), and the account into which the shares of Common Stock are to be deposited (the “Lender Account”).  The Borrower shall immediately, but in no event later than three (3) Trading Days after receipt of a Conversion Notice (the “Delivery Date”), deliver the Conversion Shares to the Lender Account. Notwithstanding anything to the contrary herein, all such deliveries of Conversion Shares shall be electronic, via DWAC.  In the event the Borrower fails to deliver the Conversion Shares on or before the Delivery Date, in addition to all other remedies available to the Lender hereunder or under any other Transaction Documents and at law or in equity, a penalty equal to 1.5% of the Conversion Amount shall be added to the balance of this Note per day until such Conversion Shares are delivered.  The conversion shall be deemed to have been made immediately prior to the close of business on the date of the Conversion Notice, and the person or entity entitled to receive the shares of Common Stock upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date.

 

(c)           No Fractional Shares. Conversion calculations pursuant to Section 3(a) shall be rounded up to the nearest whole share, and no fractional shares shall be issuable by the Borrower upon conversion of this Note or any portion thereof. All shares issuable upon conversion of this Note or any portion thereof shall be aggregated for purposes of determining whether such conversion would result in the issuance of a fractional share.

 

(d)           No Impairment.  The Borrower will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, 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 Borrower, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the Lender against impairment.

 

  

2

  

 

4.           Prepayment by the Borrower. So long as no Event of Default shall have occurred and the Borrower shall have a sufficient number of shares of Common Stock authorized to accommodate conversion of the Outstanding Balance, the Borrower may, in its sole and absolute discretion and upon giving the Lender not less than five (5) Trading Days written notice (a “Prepayment Notice”), pay in cash all or any portion of the Outstanding Balance at any time prior to the Maturity Date, provided that in the event the Borrower elects to prepay all or any portion of the Outstanding Balance, it shall pay to the Lender 110% of the portion of the Outstanding Balance the Borrower elects to prepay. Notwithstanding the foregoing, in conjunction with any prepayment hereunder, the Borrower must also make a simultaneous prepayment pursuant to the Bristol Note (as defined below). All such prepayments shall be allocated between this Note and the Bristol Note pro rata, based on the Outstanding Balance of each this Note and the Bristol Note. For example, if the Outstanding Balance under this Note is equal to $150,000 and the Outstanding Balance of the Bristol Note is equal to $100,000 at the time of prepayment, and the Borrower desires to prepay $100,000 of the Outstanding Balances of such notes, the Borrower shall pay $66,000 to the Borrower and $44,000 to Bristol. If the Borrower delivers a Prepayment Notice and fails to pay the specified prepayment amount due to the Lender within two (2) Trading Days following the date of prepayment set forth in the Prepayment Notice, the Borrower shall forever forfeit its right to repay this Note pursuant to this Section.

 

5.            Certain Adjustments. The number and class of securities into which this Note may be converted under Section 3 shall be subject to adjustment in accordance with the following provisions:

 

(a)           Computation of Adjusted Conversion Price.  Except as hereinafter provided, in case the Borrower shall at any time after the date hereof issue or sell any (i) shares of Common Stock or preferred shares convertible into Common Stock, or (ii) debt, warrants, options or other instruments or securities convertible into or exercisable for shares of Common Stock (together herein referred to as “Equity Securities”), in each case for consideration (or with a conversion price or exercise price) per share of Common Stock less than the Conversion Price in effect immediately prior to the issuance or sale of such securities or instruments, or without consideration, other than for Excepted Issuances (as defined below), then forthwith upon such issuance or sale, the Conversion Price shall (until another such issuance or sale) be reduced to the price equal to the price (or conversion price or exercise price) of any such securities or instruments; provided, however, that in no event shall the Conversion Price be adjusted pursuant to this computation to an amount in excess of the Conversion Price in effect immediately prior to such computation.  For the purposes of this Section 5, the term Conversion Price shall mean the Conversion Price per share set forth in Section 3(a) hereof, as adjusted from time to time pursuant to the provisions of this Section.

 

“Excepted Issuances” shall mean, collectively, (i) the Borrower’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not for the purpose of raising capital and in which holders of such securities or debt are not at any time granted registration rights, and (ii) the Borrower’s issuance of Common Stock or the issuance or grant of options to purchase Common Stock to employees, directors, and consultants, pursuant to plans or agreements which are constituted or in effect on the date of this Note, provided that such issuances are at or above the closing bid price on the date of issuance.

 

  

3

  

 

For purposes of any computation to be made in accordance with this Section 5, the following provisions shall be applicable:

 

(i)           In case of the issuance or sale of any Equity Securities for consideration part or all of which shall be cash, the amount of the cash consideration shall be deemed to be the amount of cash received by the Borrower for such Equity Securities (or, if Equity Securities are offered by the Borrower for subscription, the subscription price, or, if such securities shall be sold to underwriters or dealers for public offering without a subscription price, the public offering price, before deducting therefrom any compensation paid or discount allowed in the sale, underwriting or purchase thereof by underwriters or dealers or other persons or entities performing similar services), or any expenses incurred in connection therewith and less any amounts payable to security holders or any affiliate thereof, including, without limitation, any employment agreement, royalty, consulting agreement, covenant not to compete, earnout or contingent payment right or similar arrangement, agreement or understanding, whether oral or written; all such amounts shall be valued at the aggregate amount payable thereunder whether such payments are absolute or contingent and irrespective of the period or uncertainty of payment, the rate of interest, if any, or the contingent nature thereof.

 

(ii)           In case of the issuance or sale (otherwise than as a dividend or other distribution on any capital stock of the Borrower) of Equity Securities for consideration part or all of which shall be other than cash, the amount of the consideration other than cash shall be deemed to be the value of such consideration as determined in good faith by the Board of Directors of the Borrower.

 

(iii)           Equity Securities issuable by way of dividend or other distribution on any capital stock of the Borrower shall be deemed to have been issued immediately after the opening of business on the day following the record date for the determination of stockholders entitled to receive such dividend or other distribution and shall be deemed to have been issued without consideration.

 

(iv)           The reclassification of securities of the Borrower other than Equity Securities into securities including Equity Securities shall be deemed to involve the issuance of such Equity Securities for consideration other than cash immediately prior to the close of business on the date fixed for the determination of security holders entitled to receive such securities, and the value of the consideration allocable to such securities shall be determined as provided in this Section 5.

 

(v)           The number of Equity Securities at any one time outstanding shall include the aggregate number of shares of Common Stock issued or issuable (subject to readjustment upon the actual issuance thereof) upon the exercise of then outstanding options, rights, warrants, and convertible and exchangeable securities.

 

  

4

  

(b)           Adjustment for Reorganization or Recapitalization. If, while this Note remains outstanding and unconverted, there shall be a reorganization or recapitalization of the Borrower (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), all necessary or appropriate lawful provisions shall be made so that the Lender shall thereafter be entitled to receive upon conversion of this Note, the greatest number of shares of stock or other securities or property that a holder of the class of securities deliverable upon conversion of this Note would have been entitled to receive in such reorganization or recapitalization if this Note had been converted immediately prior to such reorganization or recapitalization, all subject to further adjustment as provided in this Section 5. If the per share consideration payable to the Lender for such class of securities in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the  Board of Directors of the Borrower. The foregoing provisions of this subsection shall similarly apply to successive reorganizations or recapitalizations and to the stock or securities of any other corporation that are at the time receivable upon the conversion of this Note. In all events, appropriate adjustment shall be made in the application of the provisions of this Note (including adjustment of the Conversion Price and number of shares of Common Stock into which this Note is then convertible pursuant to the terms and conditions of this Note) with respect to the rights and interests of the Lender after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable or issuable after such reorganization or recapitalization upon conversion of this Note.

 

(c)            Adjustments for Split, Subdivision or Combination of Shares.  If the Borrower at any time while this Note remains outstanding and unconverted, shall split or subdivide any class of securities into which this Note may be converted into a different number of securities of the same class, the number of shares of such class issuable upon conversion of this Note immediately prior to such split or subdivision shall be proportionately increased and the Conversion Price and any other applicable prices for such class of securities shall be proportionately decreased. If the Borrower at any time while this Note, or any portion hereof, remains outstanding and unconverted shall combine any class of securities into which this Note may be converted, into a different number of securities of the same class, the number of shares of such class issuable upon conversion of this Note immediately prior to such combination shall be proportionately decreased and the Conversion Price and any other applicable prices for such class of securities shall be proportionately increased.

 

(d)            Adjustments for Dividends in Stock or Other Securities or Property. If, while this Note remains outstanding and unconverted, the holders of any class of securities as to which conversion rights under this Note exist at the time shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Borrower by way of dividend, then and in each case, this Note shall represent the right to acquire, in addition to the number of shares of such class of security receivable upon conversion of this Note, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property (other than cash) of the Borrower that such holder would hold on the date of such conversion had such holder been the holder of record of the class of security receivable upon conversion of this Note on the date hereof and had thereafter, during the period from the date hereof to and including the date of such conversion, retained such shares and/or all other additional stock available to such holder as aforesaid during said period, giving effect to all adjustments called for during such period by the provisions of this Section 5.

 

  

5

  

 

(e)           Adjustments for Spin Offs. If, at any time while any portion of this Note remains outstanding and unconverted, the Borrower spins off or otherwise divests itself of a part of its business or operations or disposes of all or of a part of its assets in a transaction (the “Spin Off”) in which the Borrower, in addition to or in lieu of any other compensation received and retained by the Borrower for such business, operations or assets, causes securities of another entity (the “Spin Off Securities”) to be issued to security holders of the Borrower, the Borrower shall cause (i) to be reserved Spin Off Securities equal to the number thereof which would have been issued to the Lender had the entire balance of this Note outstanding on the record date (the “Record Date”) for determining the amount and number of Spin Off Securities to be issued to security holders of the Borrower been converted as of the close of business on the Trading Day immediately before the Record Date (the “Reserved Spin Off Shares”), and (ii) to be issued to the Lender on the conversion of all or any portion of this Note, such amount of the Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares multiplied by (y) a fraction, of which (I) the numerator is the principal amount of the portion of the Outstanding Balance then being converted, and (II) the denominator is the entire Outstanding Balance of this Note. In the event of any Spin Off, (i) the Lender shall have the right to convert the Outstanding Balance by delivering a Conversion Notice to the Borrower within ten (10) days of receipt of notice of such Spin Off from the Borrower, or (ii) immediately upon the consummation of a Spin Off, all amounts owed under this Note shall accelerate and be immediately due and payable in the sole discretion of the Lender.

 

(f)            No Change Necessary. The form of this Note need not be changed because of any adjustment in the number and class of securities issuable upon its conversion.

 

6.           Further Adjustments. In case at any time or, from time to time, the Borrower shall take any action that affects the class of securities into which this Note may be converted under Section 3, other than an action described herein, then, unless such action will not have a material adverse effect upon the rights of the Lender, the number and class of securities into which this Note is convertible shall be adjusted in such a manner and at such time as shall be equitable under the circumstances.

 

7.           Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to Section 5 or Section 6, the Borrower at its sole expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the Lender a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Lender, furnish or cause to be furnished to the Lender a like certificate setting forth (i) such adjustments and readjustments, and (ii) the number and class of securities and the amount, if any, of other property which at the time would be received upon the conversion of this Note under Section 3.

 

8.           Security. This Note is secured by that certain Security Agreement of even date herewith (the “Borrower Security Agreement”) executed by the Borrower in favor of Agent (in its capacity as Agent for the Lender and Bristol as set forth in the Purchase Agreement) encumbering certain assets of the Borrower, as more specifically set forth in the Borrower Security Agreement, all the terms and conditions of which are hereby incorporated into and made a part of this Note. This Note is also secured by that certain Security Agreement of even date herewith (the “EnSurge NM Security Agreement,” and together with the Borrower Security Agreement, the “Security Agreements”) executed by EnSurge NM in favor of Agent (in its capacity as Agent for the Lender and Bristol as set forth in the Purchase Agreement) encumbering certain assets of EnSurge NM, as more specifically set forth in the EnSurge NM Security Agreement, all the terms and conditions of which are hereby incorporated into and made a part of this Note. This Note is further secured by that certain Membership Unit Pledge Agreement executed by the Borrower in favor of the Lender (the “Pledge Agreement”), all the terms of which are hereby incorporated and made a part of this Note, pursuant to which the Borrower is pledging all of the outstanding equity of EnSurge NM as security for the Borrower’s obligations under the Transaction Documents.

 

  

6

  

 

9.           Change of Control. In the event of (i) any transaction or series of related transactions (including any reorganization, merger or consolidation) that results in the transfer of 50% or more of the outstanding voting power of the Borrower or EnSurge NM, or (ii) a sale of all or substantially all of the assets of the Borrower or EnSurge NM to another person or entity, this Note shall be automatically due and payable in cash. The Borrower will give the Lender not less than ten (10) business days prior written notice of the occurrence of any events referred to in this Section 9.

 

10.           Representations and Warranties of the Borrower.  In addition to the representations and warranties set forth in the Purchase Agreement, the Security Agreements and the Pledge Agreement, which are incorporated herein, the Borrower hereby represents and warrants to the Lender that:

 

(a)           The Borrower understands and acknowledges that the number of Conversion Shares issuable upon conversion of this Note will increase in certain circumstances. The Borrower further acknowledges that its obligation to issue Conversion Shares upon conversion of this Note in accordance with its terms is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Borrower;

 

(b)           The Borrower’s Common Stock is registered under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”);

 

(c)           The Borrower is not and for at least the last 12 months prior to the date hereof has not been a “shell company,” as defined in paragraph (i)(1)(i) of Rule 144 or Rule 12(b)(­2) of the Exchange Act;

 

(d)           The Borrower is subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act and has filed all required reports under Section 13 or Section 15(d) of the Exchange Act during the 12 months prior to the date hereof (or for such shorter period that the Borrower was required to file such reports); and

 

  

7

  

(e)           The issuance of this Note has been duly authorized by the Borrower. Upon conversion in accordance with the terms of this Note, the Conversion Shares, when issued, will be validly issued, fully paid and non-assessable, free from all taxes, liens, claims, pledges, mortgages, restrictions, obligations, security interests and encumbrances of any kind, nature and description. The Borrower has reserved from its duly authorized capital stock the appropriate number of shares of Common Stock for issuance upon conversion of this Note as required by the terms of this Note.

 

11.           Affirmative and Negative Covenants. In addition to the covenants set forth in the Purchase Agreement, the Security Agreements and the Pledge Agreement, the Borrower covenants and agrees, while any portion of this Note remains outstanding and unconverted, as follows:

 

(a)           The Borrower shall do all things necessary to preserve and keep in full force and effect its corporate existence including, without limitation, maintain all licenses or similar qualifications required by it to engage in its business in all jurisdictions in which it is at the time so engaged; and continue to engage in business of the same general type as conducted as of the date hereof; and continue to conduct its business substantially as now conducted or as otherwise permitted hereunder;

 

(b)           The Borrower shall pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property before the same shall become delinquent or in default, which, if unpaid, might reasonably be expected to give rise to liens or charges upon such properties or any part thereof, unless, in each case, the validity or amount thereof is being contested in good faith by appropriate proceedings and the Borrower has maintained adequate reserves with respect thereto in accordance with GAAP;

 

(c)           The Borrower shall comply in all material respects with all federal, state and local laws and regulations, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations and requirements (collectively, “Requirements”) of all governmental bodies, departments, commissions, boards, insurers, courts, authorities, officials or officers which are applicable to the Borrower or any of its properties, except where the failure to so comply would not have a Material Adverse Effect on the Borrower or any of its properties; provided, however, that nothing provided herein shall prevent the Borrower from contesting the validity or the application of any Requirements;

 

(d)           The Borrower shall keep proper records and books of account with respect to its business activities, in which proper entries, reflecting all of their financial transactions, are made in accordance with GAAP;

 

(e)           From the date hereof until the date that is six (6) months after the date that all the Conversion Shares either have been sold by the Lender, or may permanently be sold by the Lender without any restrictions pursuant to Rule 144 (the “Registration Period”), the Borrower shall file with the Securities and Exchange Commission (the “SEC”) in a timely manner all required reports under Sections 13 or 15(d) of the Exchange Act and such reports shall conform to the requirement of the Exchange Act and the SEC for filing thereunder;

 

  

8

  

(f)           The Borrower shall furnish to the Lender, so long as the Lender owns any Common Stock, promptly upon request, (i) a written statement by the Borrower that it has complied with the reporting requirements of Rule 144, (ii) a copy of the most recent annual or quarterly report of the Borrower and such other reports and documents so filed by the Borrower, and (iii) such other information as may be reasonably requested to permit the Lender to sell such securities pursuant to Rule 144 without registration;

 

(g)           During the Registration Period, the Borrower shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would otherwise permit such termination;

 

(h)           On the date hereof and at all times prior to the repayment in full of this Note, the Borrower shall reserve the number of shares required by the Share Reserve for the purpose of, among other things, the conversion of this Note.  The Borrower represents that it has sufficient authorized and unissued shares of Common Stock available to create the Share Reserve after considering all other commitments that may require the issuance of Common Stock. The Borrower shall take all action reasonably necessary to at all times have authorized, and reserved for the purpose of issuance, such number of shares of Common Stock as shall be necessary to effect the full conversion of the Note multiplied by two (2). If at any time the Share Reserve is insufficient to effect the full conversion of the Note, the Borrower shall increase the Share Reserve accordingly. If the Borrower does not have sufficient authorized and unissued shares of Common Stock available to increase the Share Reserve, the Borrower shall call and hold a special meeting of the stockholders within thirty (30) days of such occurrence, for the sole purpose of increasing the number of authorized shares. The Borrower’s management shall recommend to the stockholders to vote in favor of increasing the number of shares of Common Stock authorized. Management shall also vote all of its shares in favor of increasing the number of authorized shares of Common Stock. The Borrower shall use its best efforts to cause such additional shares of Common Stock to be authorized so as to comply with the requirements of this Section 11(h);

 

(i)           The Common Stock shall be listed or quoted for trading on any of (i) NYSE Amex, (ii) the New York Stock Exchange, (iii) the Nasdaq Global Market, (iv) the Nasdaq Capital Market, (v) the OTC Bulletin Board, or (f) the OTCQX or OTCQB (each, a “Primary Market”). The Borrower shall promptly secure the listing of all of its securities issuable under the terms of the Transaction Documents upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is then listed (subject to official notice of issuance) and shall maintain such listing of all securities from time to time issuable under the terms of the Transaction Documents;

 

(j)           The Borrower shall notify the Lender in writing, promptly upon learning thereof, of any litigation or administrative proceeding commenced or threatened against the Borrower involving a claim in excess of $100,000.00;

 

(k)           The Borrower shall use the proceeds from this Note for working capital and general corporate purposes only; and

 

  

9

  

(l)           The Borrower shall notify the Lender in writing, promptly upon the occurrence of any Event of Default.

 

12.           Default. Upon each occurrence of any of the following events (each, an “Event of Default”), (a) the Outstanding Balance shall immediately increase to the higher of (i) 125% of the Outstanding Balance immediately prior to the occurrence of the Event of Default, and (ii) 125% of the value of the Conversion Shares if the entire Outstanding Balance were converted pursuant to Section 3 above and sold at the highest closing price for the Common Stock during the period the Event of Default was continuing, and (b) this Note shall accrue interest at the rate of 1.5% per month, compounding daily, whether before or after judgment (the “Trigger Effects”); provided, however, that (1) in no event shall the Trigger Effects be applied more than two times, and (2) notwithstanding any provision to the contrary herein, in no event shall the applicable interest rate at any time exceed the maximum interest rate allowed under applicable law. Additionally, upon the occurrence of an Event of Default, the Lender may by written notice to the Borrower declare the entire Outstanding Balance immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding; provided, however, that upon the occurrence or existence of any Event of Default described in Section 12(f) or (g), immediately and without notice, all outstanding obligations payable by the Borrower hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding:

 

(a)           Failure to Pay. The Borrower shall fail to make any payment when due and payable under the terms of this Note including, without limitation, any payment of costs, fees, interest, principal or other amount due hereunder.

 

(b)           Judgment.  A judgment is entered against the Borrower for an amount in excess of $100,000.

 

(c)           Failure to Deliver Shares.  The Borrower (or its transfer agent) shall fail to deliver the Conversion Shares as provided under Section 3(b) of this Note or the shares of Common Stock required to be delivered upon exercise of the Warrants.

 

(d)           Breaches of Covenants. The Borrower or its subsidiaries, if any, shall fail to observe or perform any other covenant, obligation, condition or agreement contained in this Note or any of the other Transaction Documents, including without limitation all reporting covenants and covenants to timely file all required quarterly and annual reports and any other filings required pursuant to Rule 144.

 

(e)           Representations and Warranties. Any representation, warranty, certificate, or other statement (financial or otherwise) made or furnished by or on behalf of the Borrower to the Lender in writing included in this Note or in connection with any of the Transaction Documents, or as an inducement to the Lender to enter into this Note or any of the other Transaction Documents, shall be false, incorrect, incomplete or misleading in any material respect when made or furnished or become false thereafter.

 

  

10

  

(f)           Failure to Pay Debts; Voluntary Bankruptcy. If any of the Borrower’s assets are assigned to its creditors, if the Borrower fails to pay its debts generally as they become due, or if the Borrower files any petition, proceeding, case or action for relief under any bankruptcy, reorganization, insolvency or moratorium law, rule, regulation, statute or ordinance (collectively, “Laws and Rules”), or any other Law and Rule for the relief of, or related to, debtors.

 

(g)           Involuntary Bankruptcy. If any involuntary petition is filed under any bankruptcy or similar Law or Rule against the Borrower, or a receiver, trustee, liquidator, assignee, custodian, sequestrator or other similar official is appointed to take possession of any of the assets or properties of the Borrower or any guarantor.

 

(h)           Governmental Action. If any governmental or regulatory authority takes or institutes any action that will materially affect the Borrower’s financial condition, operations or ability to pay or perform the Borrower’s obligations under this Note.

 

(i)           Share Reserve. The Borrower’s failure to maintain the Share Reserve pursuant to the Purchase Agreement.

 

(j)           An Event of Default Under the Bristol Note. An event of default shall have occurred under the terms of that certain Secured Convertible Promissory Note dated August 17, 2011, issued by Borrower in favor of Bristol pursuant to the Purchase Agreement, as the same may be amended from time to time (the “Bristol Note”).

 

(k)           Assignment of EnSurge NM Services Contract. Any assignment, whether by the Borrower or EnSurge NM, of the EnSurge NM Services Contract, or any rights or obligations of the Borrower or EnSurge NM thereunder, without the Lender’s prior written consent to such assignment.

 

(l)           Confession. The Lender does not receive its Confession, in original form, on or before August 22, 2011.

 

13.           Ownership Limitation. Notwithstanding the provisions of this Note, if at any time after the date hereof, the Lender shall or would receive shares of Common Stock in payment of interest or principal under this Note or upon conversion of this Note, so that the Lender would, together with other shares of Common Stock held by it or its Affiliates, own or beneficially own by virtue of such action or receipt of additional shares of Common Stock a number of shares exceeding 9.99% of the number of shares of Common Stock outstanding on such date (the “9.99% Cap”), the Borrower shall not be obligated and shall not issue to the Lender shares of Common Stock which would exceed the 9.99% Cap, but only until such time as the 9.99% Cap would no longer be exceeded by any such receipt of shares of Common Stock by the Borrower. The foregoing limitations are enforceable, unconditional and non-waivable and shall apply to all Affiliates and assigns of the Lender.

 

14.           No Rights or Liabilities as Stockholder. This Note does not by itself entitle the Lender to any voting rights or other rights as a stockholder of the Borrower. In the absence of conversion of this Note, no provisions of this Note, and no enumeration herein of the rights or privileges of the Lender, shall cause the Lender to be a stockholder of the Borrower for any purpose.

 

  

11

  

15.           Unconditional Obligation. No provision of this Note shall alter or impair the obligation of the Borrower, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the currency or where contemplated herein in shares of Common Stock, as applicable, as herein prescribed.  This Note is a direct obligation of the Borrower.

 

16.           Confession of Judgment. Upon the occurrence of an Event of Default, in addition to any other rights or remedies the Lender may have under the Transaction Documents or applicable law, the Lender shall have the right, but not the obligation, to cause the Confession of Judgment attached to the Purchase Agreement to be entered into a court of competent jurisdiction.

 

17.           Binding Effect. This Note shall be binding on the Parties and their respective heirs, successors, and assigns; provided, however, that the Borrower shall not assign its rights hereunder in whole or in part without the express written consent of the Lender.

 

18.           Governing Law; Venue. The terms of this Note shall be construed in accordance with the laws of the State of Utah as applied to contracts entered into by Utah residents within the State of Utah which contracts are to be performed entirely within the State of Utah.  With respect to any disputes arising out of or related to this Note, the Parties consent to the exclusive personal jurisdiction of, and venue in, the state courts located in Salt Lake County, State of Utah (or in the event of federal jurisdiction, any United States District Court for the District of Utah), and hereby waive, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdiction or to any claim that such venue of the suit, action or proceeding is improper.

 

19.           Severability. If any part of this Note is construed to be in violation of any law, such part shall be modified to achieve the objective of the Parties to the fullest extent permitted by law and the balance of this Note shall remain in full force and effect.

 

20.           Attorneys’ Fees. If any action at law or in equity is necessary to enforce this Note or to collect payment under this Note, the Lender shall be entitled to recover reasonable attorneys’ fees directly related to such enforcement or collection actions.

 

21.            Amendments and Waivers; Remedies. No failure or delay on the part of a Party hereto in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to a Party hereto at law, in equity or otherwise. Any amendment, supplement or modification of or to any provision of this Note, any waiver of any provision of this Note, and any consent to any departure by either Party from the terms of any provision of this Note, shall be effective (i) only if it is made or given in writing and signed by the Borrower and the Lender and (ii) only in the specific instance and for the specific purpose for which made or given.

 

  

12

  

22.           Notices. All notices, requests, demands, claims and other communications hereunder shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given if it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient, as set forth in the Purchase Agreement. Any Party may send any notice, request, demand, claim or other communication hereunder to the intended recipient at the address set forth in the Purchase Agreement using any other means (including personal delivery, expedited courier, messenger service, facsimile, ordinary mail, or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient or receipt is confirmed electronically or by return mail.  Any Party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other Party notice in any manner herein set forth.

 

23.            Entire Agreement. This Note, together with the Security Agreements, the Pledge Agreement and the other Transaction Documents, contains the complete understanding and agreement of the Borrower and the Lender and supersedes all prior representations, warranties, agreements, arrangements, understandings, and negotiations with respect to the subject matter thereof. THIS NOTE, TOGETHER WITH THE SECURITY AGREEMENTS, THE PLEDGE AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY ALLEGED PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

[Remainder of page intentionally left blank]

  

13

  

IN WITNESS WHEREOF, the Borrower has executed this Note as of the date set forth above.

Exhibits

Exhibit A – Conversion Notice

Exhibit A-1 – Conversion Worksheet

	  	
THE BORROWER:

	  	  
	  	
ENSURGE, INC.

	  	  
	  	  
	  	
By: /s/ Jordan Mark Estra           

	  	
Name: Jordan M. Estra               

	  	
Title:  President and Chief Executive Officer

 

 

ACKNOWLEDGED, ACCEPTED AND AGREED:

 

ST. GEORGE INVESTMENTS, LLC

By: Fife Trading, Inc., Manager

     By: /s/ John M. Fife           

            John M. Fife, President

[Signature page to Secured Convertible Secured Promissory Note]

  

 

  

EXHIBIT A

ST. GEORGE INVESTMENTS, LLC

303 EAST WACKER DRIVE, SUITE 1200

CHICAGO, ILLINOIS 60601

Date: ________________

EnSurge, Inc.                                                                           VIA FAX:  ________________

2825 East Cottonwood Parkway, Suite 500

Salt Lake City, Utah 84121

Attn:  Jordan Estra

CONVERSION NOTICE

The above-captioned Lender hereby gives notice to EnSurge, Inc., a Nevada corporation (the “Company”), pursuant to that certain Secured Convertible Promissory Note made by the Company in favor of the Lender on August 17, 2011 (the “Note”), that the Lender elects to convert the portion of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of the Company as of the date of conversion specified below.  Such conversion shall be based on the Conversion Price set forth below. In the event of a conflict between this Conversion Notice and the Note, the Note shall govern, or, in the alternative, at the election of the Lender in its sole discretion, the Lender may provide a new form of Conversion Notice to conform to the Note.

	
  

	
A.

	
Date of conversion:     ____________

	
  

	
B.

	
Conversion #:     ____________

	
  

	
C.

	
Conversion Amount:   ____________

	
  

	
D.

	
Lowest closing bid price _____ (of last 10 Trading Days per Exhibit A-1)

	
  

	
E.

	
Conversion Factor:  80%

	
  

	
F.

	
Conversion Price:  _______________ ($1.00; unless the Note is not paid prior to maturity, in which event it shall be the lower of (i) $1.00, and (ii) D multiplied by E)

	
  

	
G.

	
Conversion Shares:  _______________ (C divided by F)

	
  

	
H.

	
Remaining Note Balance:  ____________

Please transfer the Conversion Shares electronically (via DWAC) to the following account:

Broker:  ______________________________                                  Address:   ______________________

DTC#:   ______________________________                                                      ______________________

Account #:  ___________________________                                                     ______________________

Account Name:  ________________________               

Sincerely,

ST. GEORGE INVESTMENTS, LLC

By: Fife Trading, Inc., Manager

     By:  ___________________________

            John M. Fife, President

  

 

  

EXHIBIT A-1

CONVERSION WORKSHEET

	
Trading Day

	
Closing Bid Price

	
Lowest (Yes or No)ex10-3.htm

Exhibit 10.3

 

THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ENSURGE, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.

ENSURGE, INC.

WARRANT TO PURCHASE SHARES OF COMMON STOCK

1.           Issuance. In consideration of good and valuable consideration as set forth in the Purchase Agreement (defined below), including without limitation the Purchase Price, the receipt and sufficiency of which is hereby acknowledged by EnSurge, Inc., a Nevada corporation (the “Company”), Bristol Investment Fund, Ltd., a Cayman Islands exempted company, its successors or registered assigns (the “Holder”), is hereby granted the right to purchase at any time on or after the Issue Date (as defined below) until the date which is the last calendar day of the month in which the fifth anniversary of the Issue Date occurs (the “Expiration Date”), the number of fully paid and nonassessable shares (the “Warrant Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”), equal to the outstanding balance of that certain Secured Convertible Promissory Note issued to the Holder pursuant to the Purchase Agreement (the “Note”) as of its issue date divided by the Exercise Price (defined below), as such number may be adjusted pursuant to the terms and conditions of this Warrant. This Warrant to Purchase Shares of Common Stock (this “Warrant”) is being issued pursuant to the terms of that certain Securities Purchase Agreement of even date herewith (the “Purchase Agreement”), to which the Company and the Holder (or the Holder’s predecessor in interest) are parties.

Unless otherwise indicated herein, capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Purchase Agreement.

This Warrant was originally issued to the Holder or the Holder’s predecessor in interest on August 17, 2011 (the “Issue Date”).

2.           Exercise of Warrant.

2.1           General.

(a) This Warrant is exercisable in whole or in part at any time and from time to time commencing on the Issue Date and ending on the Expiration Date. Such exercise shall be effectuated by submitting to the Company (either by delivery to the Company or by email or facsimile transmission) a completed and duly executed Notice of Exercise substantially in the form attached to this Warrant as Exhibit A. The date such Notice of Exercise is either faxed, emailed or delivered to the Company shall be the “Exercise Date,” provided that, if such exercise represents the full exercise of the outstanding balance of the Warrant, the Holder shall tender this Warrant to the Company within five (5) Trading Days thereafter. The Notice of Exercise shall be executed by the Holder and shall indicate (i) the number of Delivery Shares to be issued pursuant to such exercise and (ii) if applicable (as provided below), whether the exercise is a cashless exercise.

  

1

  

For purposes of this Warrant, the term “Trading Day” means any day during which the principal market on which the Common Stock is traded (the “Principal Market”) shall be open for business.

(b) Notwithstanding any other provision contained herein or in any other Transaction Document to the contrary, at any time prior to the Expiration Date, the Holder may elect a “cashless” exercise of this Warrant for any Warrant Shares whereby the Holder shall be entitled to receive a number of shares of Common Stock equal to (x) the excess of the Current Market Value (as defined below) over the aggregate Exercise Price of the Exercise Shares, divided by (y) the Adjusted Price of the Common Stock (as defined below).

For the purposes of this Warrant, the following terms shall have the following meanings:

“Adjusted Price of the Common Stock” shall mean the Conversion Price, as defined in the Note, without regard to whether such Note remains outstanding or has been fully repaid, cancelled or otherwise retired on any relevant Exercise Date, and as such Conversion Price may be adjusted pursuant to the terms of such Note.

“Current Market Value” shall mean an amount equal to the Market Price of the Common Stock, multiplied by the number of Exercise Shares specified in the applicable Notice of Exercise.

“Closing Price” shall mean the last sale price of the Common Stock on the Principal Market on the most recent Trading Day where total trading volume exceeded $5,000.00, as reported by Bloomberg LP (or if that service is not then reporting the relevant information regarding the Common Stock, a comparable reporting service of national reputation selected by the Holder and reasonably acceptable to the Company) (“Bloomberg”) for the relevant date.

“Delivery Shares” means those shares of Common Stock issuable and deliverable upon the exercise of this Warrant.

“Exercise Price” shall mean $1.00 per share of Common Stock.

“Exercise Shares” shall mean those Warrant Shares subject to an exercise of the Warrant by the Holder.  By way of illustration only and without limiting the foregoing, if (a) the Warrant is initially exercisable for 280,500 Warrant Shares and the Holder has not previously exercised the Warrant, and (b) the Holder were to make a cashless exercise with respect to 5,000 Warrant Shares pursuant to which 6,000 Warrant Shares would be issuable to the Holder, then (1) the Warrant shall be deemed to have been exercised with respect to 5,000 Exercise Shares, (2) the Warrant would remain exercisable for 275,500 Warrant Shares, and (3) the Warrant shall be deemed to have been exercised with respect to 6,000 Delivery Shares.

  

2

  

“Market Price of the Common Stock” shall mean the higher of: (i) the Closing Price of the Common Stock on the Issue Date; or (ii) the VWAP of the Common Stock for the Trading Day that is two (2) Trading Days prior to the Exercise Date.

“VWAP” shall mean the volume-weighted average price of the Common Stock on the Principal Market for a particular Trading Day or set of Trading Days, as the case may be, as reported by Bloomberg.

(c) If the Notice of Exercise form elects a “cash” exercise (or if the cashless exercise referred to in the immediately preceding subsection (b) is not available in accordance with the terms hereof), the Exercise Price per share of Common Stock for the Delivery Shares shall be payable, at the election of the Holder, in cash or by certified or official bank check or by wire transfer in accordance with instructions provided by the Company at the request of the Holder.

(d) Upon the appropriate payment to the Company, if any, of the Exercise Price for the Delivery Shares, together with the surrender of this Warrant (if required), the Company shall immediately deliver the applicable Delivery Shares electronically via Deposit/Withdrawal at Custodian (“DWAC”) to the account designated by the Holder on the Notice of Exercise.  If for any reason the Company is not able to deliver the Delivery Shares via DWAC, notwithstanding its best efforts to do so, the Company shall deliver certificates representing the Delivery Shares to the Holder as provided in the Notice of Exercise (the certificates delivered in such manner, the “Delivery Share Certificates”) within three (3) Trading Days (such third Trading Day, a “Delivery Date”) of (i) with respect to a “cashless exercise,” the Exercise Date as the case may be, or, (ii) with respect to a “cash” exercise, the later of the Exercise Date or the date the payment of the Exercise Price for the relevant Delivery Shares is received by the Company.

(e) The Company understands that a delay in the electronic delivery of Delivery Shares or the delivery of the Delivery Share Certificates, as the case may be, beyond the Delivery Date (assuming electronic delivery is not available) could result in economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay, in addition to all other penalties and fees set forth in the Transaction Documents, late payment fees (as liquidated damages and not as a penalty) to the Holder for late delivery of Delivery Shares or Delivery Share Certificates, as applicable, equal to 1.5% of the Delivery Share Value (as defined below) per day until such Delivery Shares or Delivery Share Certificates are delivered. For purposes hereof, the term “Delivery Share Value” means the number of Delivery Shares to be delivered pursuant to an applicable Notice of Exercise multiplied by the VWAP of the Common Stock on the applicable Delivery Date set forth in the Notice of Exercise. The Company shall pay any payments incurred under this subsection in immediately available funds upon demand. Furthermore, in addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect delivery of the Delivery Shares or the Delivery Share Certificates, as applicable, by the Delivery Date, the Holder may revoke all or part of the relevant Warrant exercise by delivery of a notice to such effect to the Company, whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the exercise of the relevant portion of this Warrant, except that the liquidated damages described above shall be payable through the date notice of revocation or rescission is given to the Company.

  

3

  

(f) The Holder shall be deemed to be the holder of the Delivery Shares issuable to it in accordance with the provisions of this Section 2.1 on the Exercise Date.

2.2             Ownership Limitation. Notwithstanding the provisions of this Warrant, if at any time after the date hereof, the Holder shall or would receive shares of Common Stock upon exercise of this Warrant, so that the Holder would, together with other shares of Common Stock held by it or its Affiliates, hold by virtue of such action or receipt of additional shares of Common Stock a number of shares exceeding 9.99% of the number of shares of Common Stock outstanding on such date (the “9.99% Cap”), the Company shall not be obligated and shall not issue to the Holder shares of Common Stock which would exceed the 9.99% Cap, but only until such time as the 9.99% Cap would no longer be exceeded by any such receipt of shares of Common Stock by the Holder. The foregoing limitations are enforceable, unconditional and non-waivable and shall apply to all Affiliates and assigns of the Holder.

3.           Mutilation or Loss of Warrant. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) receipt of reasonably satisfactory indemnification, and (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will execute and deliver to the Holder a new Warrant of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant shall thereupon become void.

4.           Rights of the Holder. The Holder shall not, by virtue of this Warrant alone, be entitled to any rights of a stockholder in the Company, either at law or in equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein.

5.           Protection Against Dilution and Other Adjustments.

5.1           Capital Adjustments.  If the Company shall at any time prior to the expiration of this Warrant subdivide the Common Stock, by split-up or stock split, or otherwise, or combine its Common Stock, or issue additional shares of its Common Stock as a dividend, the number of Warrant Shares issuable on the exercise of this Warrant shall forthwith be automatically increased proportionately in the case of a subdivision, split or stock dividend, or proportionately decreased in the case of a combination.  Appropriate adjustments shall also be made to the Exercise Price, Conversion Price (in the event of a cashless exercise), and other applicable amounts, but the aggregate purchase price payable for the total number of Warrant Shares purchasable under this Warrant (as adjusted) shall remain the same. Any adjustment under this Section 5.1 shall become effective automatically at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.

  

4

  

5.2           Reclassification, Reorganization and Consolidation.  In case of any reclassification, capital reorganization, or change in the capital stock of the Company (other than as a result of a subdivision, combination, or stock dividend provided for in Section 5.1 above), then the Company shall make appropriate provision so that the Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities and property receivable in connection with such reclassification, reorganization, or change by a holder of the same number of shares of Common Stock as were purchasable by the Holder immediately prior to such reclassification, reorganization, or change.  In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities and property deliverable upon exercise hereof, and appropriate adjustments shall be made to the purchase price per Warrant Share payable hereunder, provided the aggregate purchase price shall remain the same.

5.3           Subsequent Equity Sales. If the Company or any subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition of), including any issuance of Common Stock upon conversions pursuant to the Note,  any Common Stock, preferred shares convertible into Common Stock, or debt, warrants, options or other instruments or securities which are convertible into or exercisable for shares of Common Stock (together herein referred to as “Equity Securities”), at an effective price per share less than the Exercise Price (such lower price, the “Base Share Price” and such issuance collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Equity Securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options, or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), including any issuance of Common Stock upon conversions pursuant to the Note, then, the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price payable prior to such adjustment (such adjusted number of Warrant Shares issuable hereunder, the “Adjusted Warrant Shares”). Such adjustment shall be made whenever such Common Stock or Equity Securities are issued. The Company shall notify the Holder, in writing, no later than the Trading Day following the issuance of any Common Stock or Equity Securities subject to this Section 5.3, indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price, or other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5.3, upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive the Adjusted Warrant Shares at an Exercise Price equal to the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

  

5

  

5.4           Notice of Adjustment. When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of this Warrant, or in the Exercise Price, pursuant to the terms hereof, the Company shall promptly notify the Holder of such event and of the number of Warrant Shares or other securities or property thereafter purchasable upon exercise of this Warrant.

5.5           Exceptions to Adjustment.  Notwithstanding the provisions of Sections 5.3 and 5.4, no adjustment to the Exercise Price shall be effected as a result of an Excepted Issuance.  “Excepted Issuances” shall mean, collectively, (i) the Company’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not for the purpose of raising capital and in which holders of such securities or debt are not at any time granted registration rights, and (ii) the Company’s issuance of Common Stock or the issuance or grant of options to purchase Common Stock to employees, directors, and consultants, pursuant to plans or agreements which are constituted or in effect on the Issue Date.

6.           Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock issuable on the exercise of this Warrant, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of this Warrant and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock outstanding or deemed to be outstanding, and (c) the Exercise Price and the number of shares of Common Stock to be received upon exercise of this Warrant, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Warrant. The Company will forthwith mail a copy of each such certificate to the Holder and any Warrant Agent (as defined below) appointed pursuant to Section 8 hereof.

7.           Transfer to Comply with the Securities Act. This Warrant, and the Warrant Shares, have not been registered under the 1933 Act. Neither this Warrant nor any of the Warrant Shares or any other security issued or issuable upon exercise of this Warrant may be sold, transferred, pledged or hypothecated without (a) an effective registration statement under the 1933 Act relating to such security or (b) an opinion of counsel reasonably satisfactory to the Company that registration is not required under the 1933 Act. Until such time as registration has occurred under the 1933 Act, each certificate for this Warrant, the Warrant Shares and any other security issued or issuable upon exercise of this Warrant shall contain a legend, in form and substance satisfactory to counsel for the Company, setting forth the restrictions on transfer contained in this Section 7. Any such transfer shall be accompanied by a transferor assignment substantially in the form attached to this Warrant as Exhibit B (the “Transferor Assignment”), executed by the transferor and the transferee and submitted to the Company. Upon receipt of the duly executed Transferor Assignment, the Company shall register the transferee thereon as the new Holder on the books and records of the Company and such transferee shall be deemed a “registered holder” or “registered assign” for all purposes hereunder, and shall have all the rights of the Holder.

  

6

  

8.           Warrant Agent. The Company may, by written notice to the Holder, appoint an agent (a “Warrant Agent”) for the purpose of issuing shares of Common Stock on the exercise of this Warrant pursuant hereto, exchanging this Warrant pursuant hereto, and replacing this Warrant pursuant hereto, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such Warrant Agent.

9.           Transfer on the Company’s Books. Until this Warrant is transferred on the books of the Company, the Company may treat the Holder as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary.

10.           Notices.  Any notice required or permitted hereunder shall be given in the manner provided in the subsection headed “Notices” in the Purchase Agreement, the terms of which are incorporated herein by reference.

11.           Supplements and Amendments; Whole Agreement.  This Warrant may be amended or supplemented only by an instrument in writing signed by the parties hereto. This Warrant, together with the Purchase Agreement and all the other Transaction Documents, taken together, contains the full understanding of the parties hereto with respect to the subject matter hereof and thereof and there are no representations, warranties, agreements or understandings other than expressly contained herein and therein.

12.           Governing Law.  This Warrant shall be governed by, and construed in accordance with, the laws of the State of Utah, without reference to the choice of law provisions thereof. The Company and, by accepting this Warrant, the Holder, each irrevocably submits to the exclusive personal jurisdiction of the courts of the State of Utah located in Salt Lake County and the United States District Court for the District of Utah for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Warrant and the transactions contemplated hereby. Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Warrant. The Company and, by accepting this Warrant, the Holder, each irrevocably consents to the jurisdiction of any such court in any such suit, action or proceeding and to the laying of venue in such court. The Company and, by accepting this Warrant, the Holder, each irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

  

7

  

13.           Remedies. The remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and, without limiting any other remedies available to the Holder, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

14.           Counterparts. This Warrant may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Signature delivered via facsimile or email shall be considered original signatures for purposes hereof.

15.           Descriptive Headings.  Descriptive headings of the sections of this Warrant are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

[Remainder of page intentionally left blank]

 

 

  

8

  

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by an officer thereunto duly authorized.

Dated: August 17, 2011

	  	
ENSURGE, INC.

	  	  
	  	  
	  	
By: /s/ Jordan Mark Estra                       

	  	  
	  	
_Jordan M. Estra                                     

	  	
(Print Name)

	  	  
	  	
_President & Chief Executive Officer     

	  	
(Title)

[Signature page to Warrant]

  

 

  

EXHIBIT A

NOTICE OF EXERCISE OF WARRANT

TO:           ENSURGE, INC.

ATTN: _______________

VIA FAX TO: (    )______________

The undersigned hereby irrevocably elects to exercise the right, represented by the Warrant to Purchase Shares of Common Stock dated as of August 17, 2011 (the “Warrant”), to purchase   shares of the common stock, $0.001 par value (“Common Stock”), of ENSURGE, INC., and tenders herewith payment in accordance with Section 2 of the Warrant, as follows:

	
_______

	
CASH: $__________________________ = (Exercise Price x Delivery Shares)

	  	  	  	  	  
	
_______

	
Payment is being made by:

	  	
_____

	
enclosed check

	  	  
	  	
_____

	
wire transfer

	  	  
	  	
_____

	
other

	  	  
	  	  	  	  	  
	
_______

	
CASHLESS EXERCISE:

	  	  	  	  	  
	  	
Net number of Delivery Shares to be issued to Holder: ______*

	  	  	  	  	  
	  	
* based on:

	
Current Market Value - (Exercise Price x Exercise Shares)

	  	  	
Adjusted Price of Common Stock

	  	  	  	  	  
	  	
Where:

	  	  	  
	  	
Market Price of Common Stock [“MP”]

	
=

	
$____________

	  	
 Exercise Shares

	
=

	
_____________

	  	
Current Market Value [MP x Exercise Shares]

	
=

	
$____________

	  	
Exercise Price

	
=

	
$____________

	  	
Adjusted Price of Common Stock

	
=

	
$____________

Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Warrant.

It is the intention of the Holder to comply with the provisions of Section 2.2 of the Warrant regarding certain limits on the Holder’s right to exercise thereunder. The Holder believes this exercise complies with the provisions of such Section 2.2. Nonetheless, to the extent that, pursuant to the exercise effected hereby, the Holder would have more shares of Common Stock than permitted under Section 2.2, this notice should be amended and revised, ab initio, to refer to the exercise which would result in the issuance of the maximum number

  

 

  

of such shares permitted under such provision. Any exercise above such amount is hereby deemed void and revoked.

As contemplated by the Warrant, this Notice of Exercise is being sent by facsimile to the fax number and officer indicated above.

If this Notice of Exercise represents the full exercise of the outstanding balance of the Warrant, the Holder either (1) has previously surrendered the Warrant to the Company or (2) will surrender (or cause to be surrendered) the Warrant to the Company at the address indicated above by express courier within five (5) Trading Days after delivery or email or facsimile transmission of this Notice of Exercise.

The certificates representing the Delivery Shares should be transmitted by the Company to the Holder

_______ via express courier, or

_______ by electronic transfer

after receipt of this Notice of Exercise (by facsimile transmission or otherwise) to:

_____________________________________

_____________________________________

_____________________________________

Dated:           _____________________

___________________________

[Name of Holder]

By:________________________

  

 

  

EXHIBIT B

FORM OF TRANSFEROR ENDORSEMENT

(To be signed only on transfer of the Warrant)

For value received, the undersigned hereby sells, assigns, and transfers unto the person(s) named below under the heading “Transferees” the right represented by the Warrant to Purchase Shares of Common Stock dated as of August 17, 2011 (the “Warrant”) to purchase the percentage and number of shares of common stock, $0.001 par value (“Common Stock”), of ENSURGE, INC. specified under the headings “Percentage Transferred” and “Number Transferred,” respectively, opposite the name(s) of such person(s) and appoints each such person attorney to transfer the undersigned’s respective right on the books of ENSURGE, INC. with full power of substitution in the premises.

Transferees                                           Percentage Transferred                                            Number Transferred

Dated:___________, ______

	  	
______________________________

	  	
[Transferor Name must conform to the name of

	  	
Holder as specified on the face of the Warrant]

	  	  
	  	
By: ___________________________

	  	
Name: _________________________

Signed in the presence of:

_________________________

(Name)

ACCEPTED AND AGREED:

_________________________

[TRANSFEREE]

By: _______________________

Name: _____________________

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00193-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00193-of-00352.parquet"}]]