Document:

singletouchexh10_281.htm

Exhibit 10.28.1

 

 

SINGLE TOUCH SYSTEMS INC.

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of _______ __, 2012, by and between Single Touch Systems Inc., a Delaware corporation (the “Company”), and the investors set forth on the signature pages affixed hereto (each, an “Investor” and, collectively, the “Investors”).

 

WHEREAS, the Investors wish to purchase from the Company, and the Company wishes to sell and issue to the Investors, upon the terms and conditions stated in this Agreement, an aggregate of up to 3,000 units (the “Units”) at a purchase price of $1,000 per Unit, each Unit consisting of (i) $1,000 initial principal amount of Convertible Notes in the form attached as Exhibit B hereto (“Notes”) and (ii) Warrants in the form attached as Exhibit C hereto (“Warrants”) to purchase 2,000 shares  of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”) at an exercise price of $0.25 per share, upon the terms and conditions set forth in this Agreement; and

 

WHEREAS, in connection with the Investors’ purchase of the Units, the Investors will receive certain registration rights, and will be subject to certain restrictions on the transfer of the Notes and Warrants comprising the Units, as well as the shares of Common Stock underlying such Notes and Warrants, all as more fully set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual terms, conditions and other agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree to the sale and purchase of the Units as set forth herein.

 

	
1.

	
Definitions.

 

For purposes of this Agreement, the terms set forth below shall have the corresponding meanings provided below.

 

“Affiliate” shall mean, with respect to any specified Person (as defined below), (i) if such Person is an individual, the spouse, heirs, executors, or legal representatives of such individual, or any trusts for the benefit of such individual or such individual’s spouse and/or lineal descendants, or (ii) otherwise, another Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Person specified.  As used in this definition, “control” shall mean the possession, directly or indirectly, of the sole and unilateral power to cause the direction of the management and policies of a Person, whether through the ownership of voting securities or by contract or other written instrument.

 

“Agent Warrant Shares” shall mean any shares of the Company’s Common Stock issued upon exercise of the Agent Warrants.

 

“Agent Warrants” shall have the meaning set forth in Section 9.1(c).

 

“Blue Sky Application” as defined in Section 5.3(a) hereof.

 

“Business Day” shall mean any day on which banks located in New York City are not required or authorized by law to remain closed.

 

“Closing” and “Closing Date” as defined in Section 2.2 (c) hereof.

 

 

  

  

  

 

 

“Common Stock” as defined in the recitals above.

 

“Company Financial Statements” as defined in Section 4.5(a) hereof.

 

“Company’s Knowledge” means the actual knowledge of any executive officer (as defined in Rule 405 under the Securities Act) or director of the Company, or the knowledge of any fact or matter which any person would reasonably be expected to become aware of in the course of performing the duties and responsibilities as an executive officer or director of the Company.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“First Closing” and “First Closing Date” as defined in Section 2.2(a) hereof.

 

“Liens” means any mortgage, lien, title claim, assignment, encumbrance, security interest, adverse claim, contract of sale, restriction on use or transfer or other defect of title of any kind.

 

“Material Adverse Effect” means a material adverse effect on (i) the assets, liabilities, results of operations, condition (financial or otherwise), business, or prospects of the Company and its Subsidiaries taken as a whole, (ii) the transactions contemplated hereby or in any of the Transaction Documents or (iii) the ability of the Company to perform its obligations under the Transaction Documents (as defined below).

 

“Note Shares” means the shares of the Company’s Common Stock issuable upon conversion of Notes.

 

“Person” shall mean an individual, entity, corporation, partnership, association, limited liability company, limited liability partnership, joint-stock company, trust or unincorporated organization.

 

“Piggyback Registration” as defined in Section 5.1 hereof.

 

“Placement Agency Agreement” means that certain agreement, dated September 7, 2012, by and between the Placement Agent and the Company.

 

“Placement Agent” means Taglich Brothers, Inc.

 

“Private Placement Memorandum” means the Company’s Private Placement Memorandum dated September 7, 2012, and any amendments or supplements thereto.

 

“Purchase Price” shall mean $1,000 per Unit.

 

“Registrable Securities” shall mean the Notes Shares, Warrant Shares and Agent Warrant Shares; provided, that a security shall cease to be a Registrable Security upon (A) sale pursuant to a Registration Statement or Rule 144 under the Securities Act, or (B) such security becoming eligible for sale by the Investors without any restriction pursuant to Rule 144 (including, without limitation, volume restrictions) and without the need for current public information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable).

 

“Registration Statement” shall mean any registration statement of the Company filed under the Securities Act that covers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement.

 

 

  

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“Regulation D” as defined in Section 3.7 hereof.

 

“Regulation S” as defined in Section 6.1(i)(E) hereof.

 

“Rule 144” as defined in Section 6.1(i)(C) hereof.

 

“SEC” means the U.S. Securities and Exchange Commission.

 

“SEC Documents” as defined in Section 4.5 hereof.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Subsequent Closing” and “Subsequent Closing Date” as defined in Section 2.2(b) hereof.

 

“Subsidiaries” shall mean any corporation or other entity or organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest or otherwise controls through contract or otherwise.

 

“Transaction Documents” shall mean this Agreement and the Escrow Agreement.

 

“Transaction Securities” shall mean the Notes, Warrants, Note Shares, Warrant Shares, Agent Warrants and Agent Warrant Shares.

 

“Transfer” shall mean any sale, transfer, assignment, conveyance, charge, pledge, mortgage, encumbrance, hypothecation, security interest or other disposition, or to make or effect any of the above.

 

“Underwriter” shall mean any entity engaged by the Company to serve as an underwriter in connection with a registration or offering of securities referred to in Section 5.

 

“Warrant Shares” shall mean the shares of the Company’s Common Stock issuable upon exercise of Warrants.

 

	
2.

	
Sale and Purchase of Units.

 

2.1.           Subscription for Units by Investors.  Subject to the terms and conditions of this Agreement, on the Closing Date (as hereinafter defined) each of the Investors shall severally, and not jointly, purchase, and the Company shall sell and issue to the Investors, the Units, in the respective amounts set forth on the signature pages attached hereto in exchange for the Purchase Price.

 

2.2           Closings.

 

(a)           First Closing.  Subject to the terms and conditions set forth in this Agreement, including the condition that a minimum of 250 Units be purchased in aggregate by Investors, the Company shall issue and sell to each Investor, and each Investor shall, severally and not jointly, purchase from the Company on the First Closing Date, such number of Units set forth on the signature pages attached hereto, which will be reflected (along with the amount of Notes and Warrants comprising such Units) opposite such Investor’s name on Exhibit A-1 (the “First Closing”).  The date of the First Closing is hereinafter referred to as the “First Closing Date.”

 

 

  

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(b)           Subsequent Closing(s).  The Company agrees to issue and sell to each Investor listed on the Subsequent Closing Schedule of Investors, and each Investor agrees, severally and not jointly, to purchase from the Company on such Subsequent Closing Date such number of Units set forth on the signature pages attached hereto, which will be reflected (along with the amount of Notes and Warrants comprising such Units) opposite such Investor’s name on Exhibit A-2 (a “Subsequent Closing”).   There may be more than one Subsequent Closing; provided, however, that the final Subsequent Closing shall take place within the time periods set forth in the Private Placement Memorandum. The date of any Subsequent Closing is hereinafter referred to as a “Subsequent Closing Date.”  Notwithstanding the foregoing, the maximum number of Units to be sold at the First Closing and all Subsequent Closings shall not exceed 3,000 in the aggregate.

 

(c)           Closing.  The First Closing and any applicable Subsequent Closings are each referred to in this Agreement as a “Closing.”  The First Closing Date and any Subsequent Closing Dates are sometimes referred to herein as a “Closing Date.”  All Closings shall occur within the time periods set forth in the Private Placement Memorandum at the offices of Mintz Levin Cohn Ferris Glovsky & Popeo, PC, counsel to the Placement Agent, at Chrysler Center, 666 Third Avenue, New York, New York 10017, or remotely via the exchange of documents and signatures.

 

2.3.           Closing Deliveries.  At each Closing, the Company shall deliver to the Investors, against delivery by the Investor of the Purchase Price (as provided below), duly issued Notes (in the form of Exhibit B hereto) and Warrants (in the form of Exhibit C hereto).  At each Closing, each Investor shall deliver or cause to be delivered to the Company the Purchase Price set forth in its counterpart signature page annexed hereto by paying United States dollars via bank, certified or personal check which has cleared prior to the applicable Closing Date or in immediately available funds, by wire transfer to the following escrow account:

 

PNC Bank

300 Delaware Avenue

Wilmington, DE 19801

Acct Name:  CSC Trust Company of Delaware

ABA#: ---------------

A/C#:  ---------------

OBI: FFC: Single Touch Escrow; ---------

Ref:  Investor Name

	
3.

	
Representations, Warranties and Acknowledgments of the Investors.

 

Each Investor, severally and not jointly, represents and warrants to the Company solely as to such Investor that:

 

3.1           Authorization.  The execution, delivery and performance by such Investor of the Transaction Documents to which such Investor is a party have been duly authorized and will each constitute the valid and legally binding obligation of such Investor, enforceable against such Investor in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

 

3.2           Purchase Entirely for Own Account.  The Transaction Securities to be received by such Investor hereunder will be acquired for such Investor’s own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the Securities Act, and such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the Securities Act, without prejudice, however, 

 

 

  

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to such Investor’s right at all times to sell or otherwise dispose of all or any part of such Transaction Securities in compliance with applicable federal and state securities laws.  Nothing contained herein shall be deemed a representation or warranty by such Investor to hold the Transaction Securities for any period of time.  Such Investor is not a broker-dealer registered with the SEC under the Exchange Act or an entity engaged in a business that would require it to be so registered.

 

3.3.           Investment Experience.  Such Investor acknowledges that the purchase of the Units is a highly speculative investment and that it can bear the economic risk and complete loss of its investment in the Units and has such knowledge and experience in financial or business matters such that it is capable of evaluating the merits and risks of the investment contemplated hereby.

 

3.4           Disclosure of Information.  Such Investor has had an opportunity to receive all information related to the Company and the Units requested by it and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and conditions of the offering of the Units.  Neither such inquiries nor any other due diligence investigation conducted by such Investor shall modify, amend or affect such Investor’s right to rely on the Company’s representations and warranties contained in this Agreement and the Private Placement Memorandum.  Such Investor acknowledges that it has received and reviewed the Private Placement Memorandum describing the offering of the Units, as well as copies of the Company’s periodic reports filed with the SEC since December 29, 2011.

 

3.5           Restricted Securities.  Such Investor understands that the Transaction Securities are characterized as “restricted securities” under the U.S. federal securities laws since they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances.

 

3.6           Legends.  It is understood that, except as provided below, certificates evidencing the Transaction Securities will bear the following or any similar legend:

 

(a)           “The securities represented hereby may not be transferred unless (i) such securities have been registered for sale pursuant to the Securities Act of 1933, as amended, (ii) such securities may be sold pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, or (iii) the Company has received an opinion of counsel reasonably satisfactory to it that such transfer may lawfully be made without registration under the Securities Act of 1933 or qualification under applicable state securities laws.”

 

(b)           If required by the authorities of any state in connection with the issuance of sale of the Transaction Securities, the legend required by such state authority.

 

3.7           Accredited Investor.  Such Investor is an accredited investor as defined in Rule 501(a) of Regulation D, as amended, under the Securities Act (“Regulation D”).

 

3.8           No General Solicitation.  Such Investor did not learn of the investment in the Units as a result of any public advertising or general solicitation.

 

3.9           Brokers and Finders.  Except as set forth in Section 9.1, no Investor will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Company, any Subsidiary or any other Investor, for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of such Investor.

 

 

  

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4.

	
Representations and Warranties of the Company.

 

The Company represents, warrants and covenants to the Investors that:

 

4.1.           Organization; Execution, Delivery and Performance.

 

(a)           The Company and each of its Subsidiaries, if any, is a corporation or other entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated or organized, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted.  The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect.

 

(b)           (i) The Company has all requisite corporate power and authority to enter into and perform the Transaction Documents and to consummate the transactions contemplated hereby and thereby and to issue the Transaction Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Transaction Securities) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its stockholders, is required, (iii) each of the Transaction Documents, Notes, Warrants and Agent Warrants has been duly executed and delivered by the Company by its authorized representative, and such authorized representative is a true and official representative with authority to sign each such document and the other documents or certificates executed in connection herewith and bind the Company accordingly, and (iv) each of the Transaction Documents, Notes, Warrants and Agent Warrants constitutes, and upon execution and delivery thereof by the Company will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except to the extent limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights and general principles of equity that restrict the availability of equitable or legal remedies.

 

4.2.           Securities Duly Authorized.  The Transaction Securities to be issued to each such Investor pursuant to this Agreement (or a related Placement Agent Agreement), when issued and delivered in accordance with the terms of this Agreement (or a related Placement Agent Agreement), will be duly and validly issued and will be fully paid and nonassessable and free from all taxes or Liens with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of stockholders of the Company.  Subject to the accuracy of the representations and warranties of the Investors to this Agreement, the offer and issuance by the Company of the Transaction Securities is exempt from registration under the Securities Act.

 

4.3           No Conflicts.  The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Transaction Securities) will not: (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to 

 

 

  

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which the Company or any of its Subsidiaries is a party, except for possible violations, conflicts or defaults as would not, individually or in the aggregate, have a Material Adverse Effect, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected. Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents. Neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, or for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries are not being conducted in violation of any law, rule ordinance or regulation of any governmental entity, except for possible violations which would not, individually or in the aggregate, have a Material Adverse Effect. Except as required under the Securities Act, the Exchange Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement or to issue and sell the Units or Transaction Securities in accordance with the terms hereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof.

 

4.4.           Capitalization.  As of September 7, 2012, the authorized capital stock of the Company consists of (i) 200,000,000 shares of Common Stock, of which 132,474,392 shares are issued and outstanding, 32,210,000 shares are reserved for issuance pursuant to stock options granted and 18,226,675 shares are reserved for issuance pursuant to warrants to purchase Common Stock, and (ii) 5,000,000 shares of preferred stock, par value $0.001 per share, of which no shares are issued and outstanding.  Except as described above and in Schedule 4.4 hereto, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the Securities Act and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders).  All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and nonassessable.  No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the stockholders of the Company or any Lien imposed through the actions or failure to act of the Company.

 

4.5.           SEC Information.

 

(a)           The Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act (all of the foregoing and all other documents filed with the SEC prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”). The SEC Documents have been made available to the Investors via the SEC’s EDGAR system. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact 

 

 

  

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required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents (“Company Financial Statements”) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. The Company Financial Statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the Company Financial Statements, the Company has no liabilities, contingent or otherwise, other than: (i) liabilities incurred in the ordinary course of business subsequent to June 30, 2012 (the fiscal period end of the Company’s most recently-filed periodic report), and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company.

 

(b)           The shares of Common Stock are currentlyquoted on the OTC Bulletin Board and the OTC QB tier of the OTC Markets Group.  Except as set forth in the SEC Documents, the Company has not  received notice (written or oral) from any regulatory body or the OTC Markets Group to the effect that the Company is not in compliance with the continued quotation and maintenance requirements of such exchange.  The Company is compliance with all such listing and maintenance requirements.

 

4.6           Permits; Compliance. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Since March 31, 2012, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.

 

4.7           Litigation. Except as set forth in the SEC Documents, there is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their respective businesses, properties or assets or their officers or directors in their capacity as such, that would have a Material Adverse Effect. The Company is unaware of any facts or circumstances which might give rise to any of the foregoing.  There has not been, and the the Company’s Knowledge, there is not pending or contemplated, any investigation by the SEC involving the Company, any of its Subsidiaries or any current or former director or executive officer of the Company or any of its Subsidiaries.

 

 

  

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4.8           No Material Changes.

 

(a)           Since June 30, 2012, except as set forth in the SEC Documents, there has not been:

 

(i)           Any material adverse change in the financial condition, operations or business of the Company from that shown on the Company Financial Statements, or any material transaction or commitment effected or entered into by the Company outside of the ordinary course of business;

 

(ii)           Any effect, change or circumstance which has had, or could reasonably be expected to have, a Material Adverse Effect; or

 

(iii)           Any incurrence of any material liability outside of the ordinary course of business.

 

4.9           No General Solicitation. Neither the Company nor any person participating on the Company’s behalf in the transactions contemplated hereby has conducted any “general solicitation,” as such term is defined in Regulation D promulgated under the Securities Act, with respect to any of the Units being offered hereby.

 

4.10           No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the Securities Act of the issuance of the Transaction Securities to the Investors. The issuance of the Transaction Securities to the Investors will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any stockholder approval provisions applicable to the Company or its securities or the Securities Act.

 

4.11           No Brokers. Except as set forth in Section 9.1, the Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby.

 

4.12           Internal Controls.  The Company is in material compliance with the provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the Company.  The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including the Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s most recently filed period report under the Exchange Act, as the case may be, is being prepared.  The Company's certifying officers have evaluated the effectiveness of the Company's controls and procedures as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”).  The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP and the applicable requirements of the Exchange Act.

 

4.13           Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to the Transaction Securities as required under Regulation D and to provide a copy thereof to the Placement Agent promptly after such filing. The Company shall, on or before the Closing Date, take such action as 

 

 

  

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the Company shall reasonably determine is necessary to qualify the Transaction Securities for sale to the Investors at the applicable Closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Placement Agent on or prior to the Closing Date.

 

4.14           Disclosure. The Company confirms that neither it nor any other Person acting on its behalf has provided any of the Investors or their agents or counsel with any information that constitutes or could reasonably be expected to constitute material, non-public information concerning the Company or any of its Subsidiaries, other than the existence of the transactions contemplated by this Agreement and the other Transaction Documents. The Company understands and confirms that each of the Investors will rely on the foregoing representations in effecting transactions in securities of the Company. All disclosure provided to the Investors regarding the Company and its Subsidiaries, their businesses and the transactions contemplated hereby, including the schedules to this Agreement, furnished by or on behalf of the Company or any of its Subsidiaries is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each press release issued by the Company or any of its Subsidiaries during the twelve (12) months preceding the date of this Agreement did not at the time of release contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading.  No event or circumstance has occurred or information exists with respect to the Company or any of its Subsidiaries or its or their business, properties, liabilities, results of operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure at or before the date hereof or announcement by the Company but which has not been so publicly disclosed. The Company acknowledges and agrees that no Investor makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.

 

4.15           Intellectual Property Rights.  The Company and its Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, original works, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor (“Intellectual Property Rights”) necessary to conduct their respective businesses as now conducted and as presently proposed to be conducted. None of the Company’s or its Subsidiaries’ Intellectual Property Rights have expired, terminated or been abandoned, or are expected to expire, terminate or be abandoned, within two (2) years from the date of this Agreement. The Company has no knowledge of any infringement by the Company or any of its Subsidiaries of Intellectual Property Rights of others. Except as set forth in the SEC Documents, there is no claim, action or proceeding being made or brought, or to the Company’s Knowledge, being threatened, against the Company or any of its Subsidiaries regarding their Intellectual Property Rights. The Company is not aware of any facts which give rise to any of the foregoing infringements or claims, actions or proceedings. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights, except where failure to take such measures would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.

 

4.16           Tax Status.  Except for occurrences that would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, the Company and each of its Subsidiaries (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the 

 

 

  

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periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company and its Subsidiaries know of no basis for any such claim. The Company is not operated in such a manner as to qualify as a passive foreign investment company, as defined in Section 1297 of the U.S. Internal Revenue Code of 1986, as amended.

 

4.17           Acknowledgement Regarding Investors’ Trading Activity.  It is understood and acknowledged by the Company that (i) following the public disclosure of the transactions contemplated by the Transaction Documents in accordance with the terms thereof, none of the Investors have been asked by the Company or any of its Subsidiaries to agree, nor has any Investor agreed with the Company or any of its Subsidiaries, to desist from effecting any transactions in or with respect to (including, without limitation, purchasing or selling, long and/or short) any securities of the Company, or “derivative” securities based on securities issued by the Company or to hold any of the Transaction Securities for any specified term; (ii) any Investor, and counterparties in “derivative” transactions to which any such Investor is a party, directly or indirectly, presently may have a “short” position in the Common Stock which was established prior to such Investor’s knowledge of the transactions contemplated by the Transaction Documents; and (iii) each Investor shall not be deemed to have any affiliation with or control over any arm’s length counterparty in any “derivative” transaction. The Company further understands and acknowledges that following the public disclosure of the transactions contemplated by the Transaction Documents, one or more Investors may engage in hedging and/or trading activities at various times during the period that the Transaction Securities are outstanding, and such hedging and/or trading activities, if any, can reduce the value of the existing stockholders’ equity interest in the Company both at and after the time the hedging and/or trading activities are being conducted. The Company acknowledges that such aforementioned hedging and/or trading activities do not constitute a breach of this Agreement or any other Transaction Document or any of the documents executed in connection herewith or therewith.

 

4.18           Manipulation of Price.  Neither the Company nor any of its Subsidiaries has, and, to the Company’s Knowledge, no Person acting on their behalf has, directly or indirectly, (i) taken any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company or any of its Subsidiaries to facilitate the sale or resale of any of the Transaction Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Transaction Securities (other than the Placement Agent), or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company or any of its Subsidiaries (other than the Placement Agent).

 

4.19           Subsidiaries.  The Company has a wholly owned subsidiary Single Touch Interactive Inc, a Nevada Corporation.

 

4.20           Shell Company Status.  The Company is subject to Rule 144(i)(1)(ii) but has ceased to be an issuer subject to Rule 144(i)(1)(i).  The Company is in compliance with all filing requirements contained in Rule 144(i)(2).

 

5.           Registration Rights. 

 

5.1.           Mandatory Registration.  The Company shall, at its sole cost and expense, file a registration statement (as amended or supplemented from time to time, the “Registration Statement”) on the appropriate form under the 1933 Act with the SEC covering the re-sale from time to time of all of the Registrable Securities, time being of the essence. The Company shall file the Registration Statement no later than four months after the last Closing Date, regardless of whether the Maximum Amount of Units shall have been sold, The Company will use its best efforts to have the Registration Statement become effective as soon as possible after filing (and in any event within 90 days of the filing of such registration statement), and to keep such Registration Statement effective for a minimum of three years.

 

 

  

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5.2.           Indemnification.

 

(a)           Indemnification by the Company.  The Company will indemnify and hold harmless each Investor and its officers, directors, members, shareholders, partners, representatives, employees and agents, successors and assigns, and each other person, if any, who controls such Investor within the meaning of the Securities Act, against any losses, obligations, claims, damages, liabilities, contingencies, judgments, fines, penalties, charges, costs (including, without limitation, court costs, reasonable attorneys’ fees and costs of defense and investigation), amounts paid in settlement or expenses, joint or several, (collectively, “Claims”) reasonably incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto, to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof; (ii) any blue sky application or other document executed by the Company specifically for that purpose or based upon written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all of the Registrable Securities under the securities laws thereof (any such application, document or information herein called a “Blue Sky Application”); (iii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (iv) any violation by the Company or its agents of any rule or regulation promulgated under the Securities Act applicable to the Company or its agents and relating to action or inaction required of the Company in connection with such registration; or (v) any failure to register or qualify the Registrable Securities included in any such Registration Statement in any state where the Company or its agents has affirmatively undertaken or agreed in writing that the Company will undertake such registration or qualification on an Investor’s behalf and will reimburse such Investor, and each such officer, director or member and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Investor or any such controlling person in writing specifically for use in such Registration Statement or Prospectus.

 

(b)           Indemnification by the Investors.  Each Investor agrees, severally but not jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors, officers, employees, stockholders, partner, representatives and each person who controls the Company (within the meaning of the Securities Act) against any Claims resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary prospectus or amendment or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent that such untrue statement or omission is contained in any information furnished in writing by such Investor to the Company specifically for inclusion in such Registration Statement or Prospectus or amendment or supplement thereto.  In no event shall the liability of an Investor be greater in amount than the dollar amount of the proceeds (net of all expense paid by such Investor in connection with any claim relating to this Section 5.2 and the amount of any damages such Investor has otherwise been required to pay by reason of such untrue statement or omission) received by such Investor upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation.

 

 

  

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(c)           Conduct of Indemnification Proceedings.  Any person entitled to indemnification hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the indemnifying party shall have failed to assume the defense of such claim or employ counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflict of interest exists between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such person); and provided, further, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the defense of any such claim or litigation.  It is understood that the indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any time for all such indemnified parties.  No indemnifying party will, except with the consent of the indemnified party, which consent shall not be unreasonably withheld or delayed, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation.

 

(d)           Contribution.  If for any reason the indemnification provided for in the preceding paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless, other than as expressly specified therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such Claim in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations.  No person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation.  In no event shall the contribution obligation of a holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such holder in connection with any claim relating to this Section 5.2 and the amount of any damages such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.

 

(e)           Other Rights to Indemnification.  The provisions of Section 5.2 of this Agreement shall be in addition to any other rights to indemnification or contribution which any indemnified party may have pursuant to law or contract and shall remain operative and in full force and effect regardless of any investigation made or omitted by or on behalf of any indemnified party and shall survive the transfer of the Registrable Securities by any such party.

 

5.3.           Company Efforts.  If and whenever the Company is required by the provisions of this Section 5 to use its best efforts to register any Registrable Securities under the 1933 Act, the Company shall, as expeditiously as possible under the circumstances:

 

(a)           Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective as soon as possible after filing (and in any event within 90 days of the filing of such registration statement) and remain effective three years.

 

 

  

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(b)           Subject to Section 5.1 of this Agreement, prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement current and effective for three years and to comply with the provisions of the 1933 Act, and any regulations promulgated thereunder, with respect to the sale or disposition of all Registrable Securities covered by the registration statement required to effect the distribution of the securities.

 

(c)           Furnish to the Sellers participating in the offering pursuant to such registration statement, applicable copies (in reasonable quantities) of summary, preliminary, final, amended or supplemented prospectuses, in conformity with the requirements of the 1933 Act and any regulations promulgated thereunder, and other documents as reasonably may be required in order to facilitate the disposition of the securities, but only while the Company is required under the provisions hereof to keep the registration statement current.

 

(d)           Use its best efforts to register or qualify the Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions of the United States as the Sellers participating in the offering shall reasonably request, and do any and all other acts and things which may be reasonably necessary to enable each participating Seller to consummate the disposition of the Registrable Securities in such jurisdictions.

 

(e)           Notify each Seller selling Registrable Securities, at any time when a prospectus relating to any such Registrable Securities covered by such registration statement is required to be delivered under the 1933 Act, of the Company’s becoming aware that the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and promptly prepare and furnish to each such Seller selling Registrable Securities a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.

 

(f)           As soon as practicable after the effective date of the registration statement, and in any event within eighteen (18) months thereafter, make generally available to the Sellers participating in the offering an earnings statement (which need not be audited) covering a period of at least twelve (12) consecutive months beginning after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act, including, at the Company’s option, Rule 158 thereunder. To the extent that the Company files such information with the SEC in satisfaction of the foregoing, the Company need not deliver the above referenced earnings statement to the Seller.

 

(g)           Upon request, deliver promptly to counsel of each Seller participating in the offering copies of all correspondence between the SEC and the Company, its counsel or auditors and all memoranda relating to discussions with the SEC or its staff with respect to the registration statement and permit each such Seller to do such investigation at such Seller’s sole cost and expense, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary and for a proper purpose related to the Seller offering securities pursuant to the registration statement. Each Seller agrees that it will use its best efforts not to interfere unreasonably with the Company’s business when conducting any such investigation and each Seller shall keep any such information received pursuant to this Section 3 confidential.

 

 

  

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(h)           Provide a transfer agent and registrar located in the United States for all such shares of Common Stock covered by such registration statement not later than the effective date of such registration statement.

 

(i)           Pay all Registration Expenses (as defined below) incurred in connection with a registration of Registrable Securities, whether or not such registration statement shall become effective; provided that each Seller shall pay all underwriting discounts, commissions and transfer taxes, and their own counsel and accounting fees, if any, relating to the sale or disposition of such Seller’s Registrable Securities pursuant to such registration statement. As used herein, “Registration Expenses” means any and all reasonable and customary expenses incident to performance of or compliance with the registration rights set forth herein, including, without limitation, (i) all SEC and stock exchange or Financial Industry Regulatory Authority (“FINRA”) registration and filing fees, (ii) all fees and expenses of complying with state securities or blue sky laws (including reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities but no other expenses of or disbursements by the underwriters or their counsel), (iii) all printing, messenger and delivery expenses, and (iv) the reasonable fees and disbursements of counsel for the Company and the Company’s independent public accountants.

 

(j)           Timely make all filings with FINRA and pay all FINRA filing expenses (including FINRA filing fees and reasonable legal fees of counsel to the Placement Agent in connection with such filings) incurred in connection with filings that are required by Rule 5110 of FINRA so that FINRA members (including without limitation the Placement Agent) may resell Registrable Securities pursuant to an effective registration statement without further filings under such rule by them.

 

5.4.           Cooperation by Investor.  Each Investor shall furnish to the Company or the Underwriter, as applicable, such information regarding the Investor and the distribution proposed by it as the Company may reasonably request in connection with any registration or offering referred to in this Section 5.  Each Investor shall cooperate as reasonably requested by the Company in connection with the preparation of the registration statement with respect to such registration, and for so long as the Company is obligated to file and keep effective such registration statement, shall provide to the Company, in writing, for use in the registration statement, all such information regarding the Investor and its plan of distribution of the Note Shares, Warrant Shares or Agent Warrant Shares included in such registration as may be reasonably necessary to enable the Company to prepare such registration statement, to maintain the currency and effectiveness thereof and otherwise to comply with all applicable requirements of law in connection therewith.

 

5.5.           Specific Performance.  The Company acknowledges that there is no adequate remedy at law for failure by it to comply with the provisions of this Section 5 and that such failure would not be adequately compensable in damages, and therefore agrees that its obligations and agreements contained in this Section 5 may be specifically enforced. In the event that the Company shall fail to file such registration statement when required pursuant to Section 5.1 of this Agreement or to keep any registration statement effective as provided in this Section 5 or otherwise fails to comply with its obligations and agreements in this Section 5, then, in addition to any other rights or remedies an Investor  may have at law or in equity, including, without limitation, the right of rescission, the Company shall indemnify and hold harmless the Investor from and against any and all manner or loss which they may incur as a result of such failure. In addition, the Company shall also reimburse the Investor for any and all reasonable legal fees, expenses and disbursements incurred by them in enforcing their rights pursuant to this Section 5, regardless of whether any litigation was commenced; provided, however, that the Company shall not be liable for the fees and expenses of more than one law firm, which firm shall be designated by the Placement Agent.

 

 

  

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6.

	
Transfer Restrictions.

 

6.1.           Transfer or Resale. Each Investor understands that:

 

(i)           Except as provided in the registration rights provisions set forth above,  the sale or resale of all or any portion of the Transaction Securities has not been and is not being registered under the Securities Act or any applicable state securities laws, and all or any portion of the Transaction Securities may not be transferred unless:

 

(A)           the Transaction Securities are sold pursuant to an effective registration statement under the Securities Act;

 

(B)           the Investor shall have delivered to the Company,  at the cost of the Company, a customary opinion of counsel that shall be in form, substance and scope reasonably acceptable to the Company, to the effect that the Transaction Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration;

 

(C)           the Transaction Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the Securities Act (or a successor rule) (“Rule 144”)) of the Investor who agrees to sell or otherwise transfer the Transaction Securities only in accordance with this Section 6.1 and who is an Accredited Investor;

 

(D)           the Transaction Securities are sold pursuant to Rule 144; or

 

(E)           the Transaction Securities are sold pursuant to Regulation S under the Securities Act (or a successor rule) (“Regulation S”);

 

and, in each case, the Investor shall have delivered to the Company a customary opinion of counsel, in form, substance and scope reasonably acceptable to the Company.  Notwithstanding the foregoing or anything else contained herein to the contrary, the Transaction Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

6.2           Transfer Agent Instructions.  If an Investor provides the Company with a customary opinion of counsel, that shall be in form, substance and scope reasonably acceptable to such counsel, to the effect that a public sale or transfer of such Transaction Securities may be made without registration under the Securities Act and such sale or transfer is effected, the Company shall permit the transfer and promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend (if permitted by law), in such name and in such denominations as specified by such Investor. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Investors, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 6.2 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Investors shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.

 

	
7.

	
Conditions to Closing of the Investors.

 

The obligation of each Investor hereunder to purchase the Units at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Investor’s sole benefit and may be waived by such Investor at any time in its sole discretion by providing the Company with prior written notice thereof:

 

 

  

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7.1           Representations, Warranties and Covenants.  The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing Date as though originally made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct in all material respects as of such date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required to be performed, satisfied or complied with by the Company at or prior to the Closing Date. Such Investor shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Investor in the form reasonably acceptable to such Investor.

7.2           Consents. The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Units and Transaction Securities.

7.3           Delivery by Company. The Company shall have duly executed and delivered to such Investor (A) each of the other Transaction Documents and (B) an instruction letter to the Company’s transfer agent regarding the issuance of the Transaction Securities in the number as is set forth on the signature page hereby being purchased by such Investor at the Closing pursuant to this Agreement.

7.4           Legal Opinion. Such Investor shall have received the opinion of the Company’s counsel (reasaonably acceptable to the Placment Agent), dated as of the Closing Date, in the form reasonably acceptable to such Investor, which shall include, without limitation, opinions that the offering of the Units is exempt from registration under the Securities Act and is in compliance with applicable state (“blue sky”) securities laws.

7.5           No Material Adverse Effect. Since the date of first execution of this Agreement, no event or series of events shall have occurred that reasonably would have or result in a Material Adverse Effect.

7.6           No Prohibition. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

7.7           Existing Notes.  The Company shall have obtained written executed documents extending to September 7, 2014 the maturity date of at least $1,000,000 in principal amount of the outstanding existing convertible notes issued on November 14, 2011/

7.8           Other Documents. The Company shall have delivered to such Investor such other documents, instruments or certificates relating to the transactions contemplated by this Agreement as such Investor or its counsel may reasonably request.

 

	
8.

	
Conditions to Closing of the Company.

 

The obligations of the Company to effect the transactions contemplated by this Agreement with each Investor are subject to the fulfillment at or prior to each Closing Date of the conditions listed below.

 

8.1.           Representations and Warranties.  The representations and warranties made by such Investor in Section 3 shall be true and correct in all material respects at the time of Closing as if made on and as of such date.

 

 

  

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8.2.           Corporate Proceedings.  All corporate and other proceedings required to be undertaken by such Investor in connection with the transactions contemplated hereby shall have occurred and all documents and instruments incident to such proceedings shall be reasonably satisfactory in substance and form to the Company.

 

9.           Miscellaneous.

 

9.1.           Compensation of Placement Agent.  The Investor acknowledges that it is aware that the Placement Agent will receive from the Company, in consideration for its services as financial advisor and placement agent in respect of the transactions contemplated hereby:

 

(a) a placement agent success fee, in each case payable in cash, equal to:

 

(i) 7.0% of the Purchase Price of the Units sold at each Closing to potential or actual Investors sourced by the Placement Agent (“Taglich Investors”) and

 

(ii) either (x) 3.5% of the Purchase Price of the Units sold at each Closing to Investors already known to the Company and disclosed in writing to the Placement Agent prior to the commencement of the offering contemplated by this Agreement (“Company Investors”), if the Placement Agent informs the Company that Taglich Investors are prepared to subscribe for (whether or not the Company accepts such subscription) Units with an aggregate Purchase Price of $2.0 million or (y) 7.0 % of the Purchase Price of the Units sold at each Closing to Company Investors, if the Placement Agent informs the Company that Taglich Investors are prepared to subscribe for (whether or not the Company accepts such subscription) Units with an aggregate Purchase Price of $3.0 million;

 

(b) an expense allowance, which shall include reimbursement of legal expenses incurred in connection with the transactions contemplated hereby, not to exceed $25,000 without the Company’s approval, payable in cash; and

 

(c) three-year warrants (the “Agent Warrants”) to purchase such number of shares of the Company’s Common Stock equal to:

 

(i) 8.0% of the number of Note Shares initially underlying the Notes sold to Taglich Investors plus

 

(ii) either (x) 4.0% of the number of Note Shares initially underlying the Notes sold to Company Investors, if the Placement Agent informs the Company that Taglich Investors are prepared to subscribe for (whether or not the Company accepts such subscription) Units with an aggregate Purchase Price of $2.0 million or (y) 8.0 % of the number of Note Shares initially underlying the Notes sold to Company Investors, if the Placement Agent informs the Company that Taglich Investors are prepared to subscribe for (whether or not the Company accepts such subscription) Units with an aggregate Purchase Price of $3.0 million

 

The Agent Warrants shall have an exercise price per share equal to the ten day average of the closing price of the Company’s Common Stock as reported by OTC Markets (found at www.otcmarkets.com) on immediately prior to the date of the initial closing.

 

 

  

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In the case of clauses 9.1(a)(ii) and 9.1(c)(ii), if subscriptions from Taglich Investors cross the applicable thresholds for additional  success fees and/or Agent Warrants relating to Company Investors after Closings for such Company Investors at which Taglich was not awarded the success fee or Agent Warrants merited by reaching such thresholds, then the additional success fees and Agent Warrants owed as a result of crossing such thresholds shall be made up when such thresholds are surpassed.

 

9.2.           Notices.  All notices, requests, demands and other communications provided in connection with this Agreement shall be in writing and shall be deemed to have been duly given at the time when hand delivered, delivered by express courier, or sent by facsimile (with receipt confirmed by the sender’s transmitting device) in accordance with the contact information provided below or such other contact information as the parties may have duly provided by notice.

 

The Company:

 

	
Single Touch Systems Inc.

100 Town Square Place, Suite 204

 Jersey City, NJ 07310Telephone: 201-275-0555

Facsimile: 201-942-3091                                           

Attention: James Orsini, CEO

 

	
With a copy to:

	
[Jeffrey H. Mackay, Esq., C/O Single Touch Interactive Inc.

2235 Encinitas Blvd., Suite 210

 Encinitas, CA 92024

Telephone:     619-758-1873

Facsimile:        619-222-4764

Attention:       Jeffrey H. Mackay, Esq.

 

The Investors:

 

As per the contact information provided on the signature pages hereof.

 

Taglich Brothers, Inc.:

 

	
Taglich Brothers, Inc.

275 Madison Avenue, Suite 1618

New York, NY 10016

Telephone:    (212) 661-6886

Facsimile:       (212) 661-6824

Attention:     Robert C. Schroeder

                       Vice President, Investment Banking

	
With a copy to:

	
Mintz Levin Cohn Ferris Glovsky and Popeo, PC

Chrysler Center

666 Third Avenue

New York, New York 10017

Telephone:    (212) 692-6830

Facsimile:       (212) 983-3115

Attention:      William C. Hicks, Esq.

 

9.3           Survival of Representations and Warranties.  Each party hereto covenants and agrees that the representations and warranties of such party contained in this Agreement shall survive the Closing.  Each Investor shall be responsible only for its own representations, warranties, agreements and covenants hereunder.

 

9.4           Indemnification.

 

(a)           The Company agrees to indemnify and hold harmless each Investor and its Affiliates and their respective directors, officers, employees and agents from and against any and all losses, claims, damages, liabilities and expenses (including without limitation reasonable attorney fees and disbursements and other expenses incurred in connection with investigating, preparing or defending any action, claim or proceeding, pending or threatened and the costs of enforcement thereof) (collectively, “Losses”) to which such Person may become subject as a result of any breach of representation, warranty, covenant or agreement made by or to be performed on the part of the Company under the Transaction Documents, and will reimburse any such Person for all such amounts as they are incurred by such Person.

 

 

  

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(b)           Promptly after receipt by any Investor (the “Indemnified Person”) of notice of any demand, claim or circumstances which would or might give rise to a claim or the commencement of any action, proceeding or investigation in respect of which indemnity may be sought pursuant to Section 9.4, such Indemnified Person shall promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person, and shall assume the payment of all fees and expenses; provided, however, that the failure of any Indemnified Person so to notify the Company shall not relieve the Company of its obligations hereunder except to the extent that the Company is materially prejudiced by such failure to notify.  In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless: (i) the Company and the Indemnified Person shall have mutually agreed to the retention of such counsel; or (ii) in the reasonable judgment of counsel to such Indemnified Person representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them.  The Company shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, but if settled with such consent, or if there be a final judgment for the plaintiff, the Company shall indemnify and hold harmless such Indemnified Person from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment.  Without the prior written consent of the Indemnified Person, which consent shall not be unreasonably withheld, the Company shall not effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Person from all liability arising out of such proceeding.

 

9.5.           Entire Agreement. This Agreement contains the entire agreement between the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements and understandings of the parties, oral and written, with respect to the subject matter contained herein.

 

9.6           Underlying Shares.  The Company agrees at all times as long as the Notes, Warrants or Agent Warrants may be converted or exercised, to keep reserved from the authorized and unissued Common Stock, such number of shares of Common Stock as may be issuable upon exercise of the Notes, Warrants or Agent Warrants.

 

9.7.           Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and, except for the Placement Agent and other registered broker-dealers, if any, who are specifically agreed to be and acknowledged by each party as third party beneficiaries hereof, is not for the benefit of, nor may any provision hereof be enforced by, any other person.

 

9.8.           Current Public Information. With a view to making available to the holders of Registrable Securities the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, for a minimum of three years  from the date of the Final Closing, if  the Investors, Placement Agent or transferees of either still own Registrable Securities, the Company shall use its reasonable best efforts to: (i) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times; (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the Exchange Act; and (iii) for a minimum of 36 months from the date of the Final Closing if an Investor, the Placement Agents or a transferee of either still owns any Registrable Securities, and in relation to a proposed sale of the Registerable Securities, furnish to such holder of Registrable Securities, upon any reasonable request, a written statement by the Company as to its compliance with Rule 144 under the Securities Act (including without limitation compliance with Rule 144(c) relating to current public information), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company as such holder may reasonably request in availing itself of any rule or regulation of the SEC allowing a holder to sell any such securities without registration.

 

 

  

20

  

 

 

9.9.           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor any Investor shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, but subject to the provisions of Section 6.1 hereof, any Investor may, without the consent of the Company, assign its rights hereunder to any person that purchases Transaction Securities in a private transaction from an Investor or to any of its “affiliates,” as that term is defined under the 1934 Act.

 

9.10.           Public Disclosures. The Company shall  on or before 8:30 a.m., New York time, within four (4) Business Days after the date of the First Closing, file a Current Report on Form 8-K describing all the material terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and attaching all the material Transaction Documents that are required to be filedpursuant to those requirements, ( which may include, without limitation, this Agreement and any schedules or attachments to this Agreement) (including any exhibits, the “8-K Filing”). From and after the filing of the 8-K, the Company shall have disclosed all material, non-public information (if any) delivered to any of the Investors by the Company in connection with the transactions contemplated by the Transaction Documents. The Company shall be entitled, without the prior approval of any Investor, to make the Press Release and any other press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided that in the case of clause (i) the Placement Agent shall be consulted by the Company in connection with any such press release or other public disclosure prior to its release). Without the prior written consent of the applicable Investor (which may be granted or withheld in such Investor’s sole discretion), the Company shall not disclose the name of such Investor in any filing (other than the 8-K Filing, any Registration Statement registering the Transaction Securities and any other filing as is required by applicable law and regulations), announcement, release or otherwise.

 

9.11.           Binding Effect; Benefits.  This Agreement and all the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; nothing in this Agreement, expressed or implied, is intended to confer on any persons other than the parties hereto or their respective successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.

 

9.12.           Amendment; Waivers.  All modifications, amendments or waivers to this Agreement shall require the written consent of both the Company and a majority-in-interest of the Investors (based on the number of Units purchased hereunder).

 

9.13.           Applicable Law; Disputes.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the conflict of law provisions thereof, and the parties hereto irrevocably submit to the exclusive jurisdiction of the United States District Court for the Southern District of New York, or, if jurisdiction in such court is lacking, the Supreme Court of the State of New York, New York County, in respect of any dispute or matter arising out of or connected with this Agreement

 

9.14.           Further Assurances.  Each party hereto shall do and perform or cause to be done and performed all such further acts and shall execute and deliver all such other agreements, certificates, instruments and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

 

  

21

  

 

 

9.15.           Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall constitute one and the same instrument.  This Agreement may also be executed via facsimile, which shall be deemed an original.

 

9.16.           Independent Nature of Investors.  The obligations of each Investor under this Agreement or other transaction document are several and not joint with the obligations of any other Investor, and no Investor shall be responsible in any way for the performance of the obligations of any other Investor under this Agreement or any other transaction document.  Each Investor shall be responsible only for its own representations, warranties, agreements and covenants hereunder.  The decision of each Investor to purchase Units pursuant to this Agreement has been made by such Investor independently of any other Investor and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company which may have been made or given by any other Investor or by any agent or employee of any other Investor, and no Investor or any of its agents or employees shall have any liability to any other Investor (or any other person) relating to or arising from any such information, materials, statements or opinions.  Nothing contained herein or in any other transaction document, and no action taken by any Investor pursuant hereto or thereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement.  Except as otherwise provided in this Agreement or any other transaction document, each Investor shall be entitled to independently protect and enforce its rights arising out of this Agreement or out of the other transaction documents, and it shall not be necessary for any other Investor to be joined as an additional party in any proceeding for such purpose.  Each Investor has been represented by its own separate legal counsel in connection with the transactions contemplated hereby and acknowledge and understand that Mintz Levin Cohn Ferris Glovsky & Popeo, PC has served as counsel to the Placement Agent only.

 

[SIGNATURE PAGES IMMEDIATELY FOLLOW]

 

 

 

 

 

 

 

 

 

 

  

22

  

 

IN WITNESS WHEREOF, the undersigned Investors and the Company have caused this Securities Purchase Agreement to be duly executed as of the date first above written.

 

	
 

	SINGLE TOUCH SYSTEMS INC.	 
	 	 	 	 
	 	 	 	 
	 	By:	 	 
	 	 	President and Chief Executive Officer	 
	 	 	 	 
	 	 	 	 
	 	INVESTORS:	 
	 	 	 	 
	 	The Investors executing the Signature Page in the form attached hereto as Annex A and delivering the same to the Company or its agents shall be deemed to have executed this Agreement and agreed to the terms hereof.	 

 

 

 

 

 

 

 

 

 

 

  

23

  

 

Schedule 4.4

 

Capitalization

Existing Notes with Warrants – From November 14, 2011 through February 28, 2012, we issued convertible promissory notes with an aggregate principal amount of $2,000,000, and warrants to purchase an aggregate of 4,000,000 shares of common stock, to private investors (including our Director, Stephen Baksa) for an aggregate of $2,000,000 cash.  The notes bear interest at 10% per annum and mature one year after issuance, and are convertible into our common stock at $0.50 per share at the option of the holder.  We have the right to prepay the notes on 10 days' written notice. The warrants expire three years after issuance; the exercise price of the warrants is $0.25 per share. The warrants do not allow for cashless exercise. In  June of 2012, a total of 1,000,000 of the issued warrants were exercised for $250,000 in cash.

As of September 7, 2012, in connection with the current offering of Units consisting of  notes with warrants,  the notes and outstanding warrants issued for a total of $1,300,000 of the Existing Notes with Warrants was amended to extend the Maturity date to September 7, 2014 and extend the unexercised warrants to September 7, 2017. The amended notes were also amended to rank in equal priority to the notes of the current offering.  We may amend the remaining $700,000 in Existing notes and related warrants during and subsequent to the present offering.

 

 

 

 

 

 

 

 

 

 

  

24

  

 

Annex A

Securities Purchase Agreement

Investor Counterpart Signature Page

The undersigned, desiring to: (i) enter into this Securities Purchase Agreement dated as of ___________, 2012 (the “Agreement”), with the undersigned, Single Touch Systems Inc., a Delaware corporation (the “Company”), in or substantially in the form furnished to the undersigned and (ii) purchase the Units (each Unit consisting of $1,000 initial principal amount of convertible Notes and Warrants to purchase 2,000 shares of the Company’s Common Stock) of the Company as set forth below, hereby agrees to purchase such Units from the Company as of the Closing and further agrees to join the Agreement as a party thereto, with all the rights and privileges appertaining thereto, and to be bound in all respects by the terms and conditions thereof.  The undersigned specifically acknowledges having read the representations in the Agreement section entitled “Representations, Warranties and Acknowledgments of the Investors,” and hereby represents that the statements contained therein are complete and accurate with respect to the undersigned as an Investor.

 

	
 

	Name of Investor:	 
	 	 	 	 
	 	If an entity:	 
	 	 	 	 
	 	Print Name of Entity:	 
	 	 	 	 
	 	 	 
	 	 	 	 
	 	By:	 	 
	 	 	Name:	 
	 	 	Title:	 
	 	 	 	 
	 	If an individual:	 
	 	 	 	 
	 	Print Name:	 	 
	 	 	 	 
	 	Signature:	 	 
	 	 	 	 
	 	If joint individuals:	 
	 	 	 	 
	 	Print Name:	 	 
	 	 	 	 
	 	Signature:	 	 
	 	 	 	 
	 	All Investors:	 
	 	 	 	 
	 	Address:	 	 
	 	 	 	 
	 	 	 	 
	 	Telephone No.:	 	 
	 	 	 	 
	 	Facsimile No.:	 	 
	 	 	 	 
	 	Email Address:	 	 
	 	 	 	 
	 	The Investor hereby elects to purchase:	 
	 	 	 	 
	 	____________ Units (to be completed by Investor) at a purchase price of $1,000 per Unit under the Securities Purchase Agreement at a total Purchase Price of	 
	 	$__________ (to be completed by Investor).	 
	 	 	 	 

 

 

 

  

25

  

 

Exhibit A-1

First Closing held on ___September 7, 2012

Schedule of Investors

	 	 	 
	
Investor

	
Units (Note: Add columns for

Notes and Warrants

Underlying Units)

	
Purchase Price

	  	  	  
	
[Taglich]

	
275 for $275,000 notes and  

550,000 warrants

	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	
FIRST CLOSING TOTAL

	  	  

 

 

  

26

  

 

 

Exhibit A-2

Subsequent Closing held on      , 2012

 

Schedule of Investors

	 	 	 
	
Investor

	
Units (Note: Add columns for

Notes and Warrants

Underlying Units)

	
Purchase Price

	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  
	
SUBSEQUENT CLOSING

TOTAL

	  	  

 

 

 

 

 

27singletouchexh10_282.htm

Exhibit 10.28.2

 

 

THE SECURITIES EVIDENCED BY THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.  NEITHER THIS NOTE NOR THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.

Convertible Promissory Note

 

	Principal Amount: US $ ______	Issuance Date: _______, 2012

FOR VALUE RECEIVED, the undersigned, Single Touch Systems Inc.; a Delaware Corporation (the "Obligor"), hereby promises to pay to the order of __________, an individual (the "Holder"), the principal amount of  __________ ($ ______) payable as set forth below (“Principal”). The Obligor also promises to pay to the order of the Holder interest on the principal amount hereof at a rate of ten percent (10%) per annum, which interest (“Interest”) shall be payable semi-annually (except as set forth herein) in arrears.  The payments of principal and interest hereunder shall be made in the currency of the United States of America.

This Convertible Promissory Note (“Note”) is being issued pursuant to that certain Securities Purchase Agreement, dated as of the date hereof, by and between the Obligor and the Holder (the “Purchase Agreement”), and is entitled to the benefits of, and evidences obligations incurred under the Purchase Agreement. This Note shall be subject to the following additional terms and conditions as part of the agreement between the Holder and Obligor:

	
  

	
1.

	
Maturity.  Subject to Section 3 hereof, all Principal shall be due on demand of the Holder in one (1) installment on or after _______ __, 2014 (the "Maturity Date") or prior to such Maturity Date in an Event of Default as provided in Section 9 hereof.   On the Maturity Date, the Holder shall surrender this Note to the Obligor and the Obligor shall pay to the Holder an amount in cash representing all outstanding Principal, any unpaid Interest and any other outstanding amounts due to the Holder.

	
  

	
2.

	
Payments; Interest. Interest shall be payable semi-annually (except as set forth herein) in arrears to the Holder. Interest shall be calculated on the basis of the year of 360 days.  Payment shall be made by check mailed within five (5) days of the date due, to the address of the Holder as indicated in the Purchase Agreement or as may be changed by the Holder upon ten (10) days written notice to the Obligor 

 

 

  

  

  

 

 

	 	
 

	
at the principal address identified in the Purchase Agreement. In the event that any payment to be made hereunder shall be or become due on Saturday, Sunday or any other day which is a legal bank holiday, such payment shall be or become due on the next succeeding business day.

 

	
  

	
3.

	
Prepayment The Obligor and the Holder understand and agree that the principal amount and any accrued interest accumulated on this Note (including without limitation, interest accrued after the most recent semi-annual interest payment date) may be prepaid, without penalty to the Obligor, in part or in whole by the Obligor and anytime prior to the Maturity Date upon fifteen (15)  days written notice to the Holder.

 

	 	
4.

	
Conversion.

 

(a)           This Note, excluding any accrued interest, shall be convertible into shares of Single Touch Systems Inc. (symbol “SITO”) issuable by the Obligor ("Common Stock"), at a conversion price of Fifty Cents ($0.50) per share (the "Conversion Price") at the option of the Holder in whole or in part at any time.  The Holder shall effect conversions by surrendering to the Obligor the Note and by delivering to the Obligor a written conversion notice (the "Holder Conversion Notice").  Each Holder Conversion Notice shall specify the amount of principal to be converted and the date on which such conversion is to be effected, which date may not be prior to the date the Holder delivers such Holder Conversion Notice to the Obligor (the "Conversion Date").  If the Holder is converting less than the entire principal amount of this Note, then the Obligor shall deliver to the Holder a new Note for such principal amount that has not been converted within five (5) business days of the Conversion Date. Each Holder Conversion Notice, once given, shall be irrevocable.  Any accrued and unpaid interest attributable on a pro rata basis to the amount of principal converted on a Conversion Date (including without limitation, interest accrued after the most recent semi-annual interest payment date) shall be paid in cash to the Holder within five (5) business days of the Conversion Date.  By way of example, if the Holder converts half of the principal amount of this Note, then the Obligor shall pay to the Holder half of the interest accrued and unpaid (including without limitation, interest accrued after the most recent semi-annual interest payment date) on this Note within five (5) business days of the Conversion Date.

 

(b)           If the Obligor at any time, or from time to time, subdivides (by any stock split, stock dividend, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Obligor at any time, or from time to time, combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment under this Section shall become effective at the close of business on the date the subdivision or combination becomes effective or, in the case of a stock dividend, the date of such event. Whenever the Conversion Price is adjusted the Obligor shall promptly mail notice of such adjustment to the Holder, which notice shall set forth the Conversion Price after adjustment, the date on which such adjustment became effective and a brief statement of the facts resulting in such adjustment.

 

 

  

  

  

 

 

(c)           If the Obligor, by reclassification of securities or otherwise, shall change any of the securities as to which conversion rights under this Note exist into the same or a different number of securities of any other class or classes, this Note shall thereafter be convertible into such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the conversion rights under this Note immediately prior to such reclassification or other change, and the Conversion Price therefore shall be appropriately adjusted, all subject to further adjustment as provided in this Section 4.  No adjustment shall be made pursuant to this Section 4(c) upon any conversion or redemption of the Common Stock which is the subject of Section 4(d).

 

(d)           In case of any capital reorganization of the capital stock of the Obligor (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or any merger or consolidation of the Obligor with or into another corporation, or the sale of all or substantially all the assets of the Obligor then, and in each such case, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the Holder of this Note shall thereafter be entitled to receive upon conversion of this Note, the number of shares of stock or other securities or property (including cash) to which the holder of the shares deliverable upon conversion of this Note would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Note had been converted immediately before such reorganization, merger, consolidation, sale or transfer, all subject to further adjustment as provided in this Section 4.  The foregoing provisions of this Section 4(d) shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers 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 (as determined in good faith by the Obligor’s Board of Directors) shall be made in the application of the provisions of this Note with respect to the rights and interests of the Holder 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 after that event upon conversion of this Note.

 

(e)           In case all or any portion of the authorized and outstanding shares of Common Stock of the Obligor are redeemed or converted or reclassified into other securities or property pursuant to the Obligor’s Certificate of Incorporation or otherwise, or the Common Stock otherwise ceases to exist, then, in such case, the Holder of this Note, upon conversion hereof at any time after the date on which the Common Stock is so redeemed or converted, reclassified or ceases to exist (the “Termination Date”), shall receive, in lieu of the number of shares of Common Stock that would have been issuable upon such conversion immediately prior to the Termination Date, the securities or property that would have been received if this Note had been converted in full and the Common Stock received thereupon had been simultaneously converted immediately prior to the Termination Date, all subject to further adjustment as provided in this Note.

 

(f)           Not later than five (5) business days after the Conversion Date, the Obligor will deliver, or will cause to be delivered, to the Holder a certificate or certificates representing the number of shares of Common Stock being acquired upon the conversion of all or a portion of the principal amount of this Note (the “Conversion Shares”).  If the Obligor fails to deliver to the Holder a certificate or certificates representing the Conversion Shares pursuant to Section 4(a) of 

 

 

 

  

  

  

 

 

this Note by the close of business on the fifth business day after the date of exercise, then the Holder will have the right to rescind such exercise. In addition, if the Obligor fails to deliver to the Holder a certificate or certificates representing the Conversion Shares pursuant to an exercise by the close of business on the fifth business day after the Conversion Date, and if after such fifth trading day the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Obligor shall (i) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Conversion Shares that the Obligor was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (ii) at the option of the Holder, either reinstate the portion of the Note and equivalent number of Conversion Shares for which such conversion was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Obligor timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of Conversion Shares with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (i) of the immediately preceding sentence the Obligor shall be required to pay the Holder $1,000. The Holder shall provide the Obligor written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Obligor. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Obligor’s failure to timely deliver certificates representing Conversion Shares upon conversion of this Note as required pursuant to the terms hereof.

 

(g)           Certificates representing shares of Common Stock to be delivered upon a conversion hereunder may bear restrictive Legends and may be Restricted Securities as defined in the Purchase Agreement; such securities may be resold without registration under the Securities Act only in certain limited circumstances. Such shares may have affixed thereto a legend substantially in the following form:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.  NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.

 

 

 

  

  

  

 

 

The Obligor shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon conversion of this Note until the Note is delivered for conversion to the Obligor, or until the Holder notifies the Obligor that this Note has been lost, stolen or destroyed and provides a bond or other supporting documentation reasonably satisfactory to the Obligor (or other adequate security reasonably acceptable to the Obligor).

 

(h)           The Obligor shall at all times reserve out of its authorized and unissued shares of Common Stock a number of shares of Common Stock satisfy a full Conversion of the Principal amount of this Note (the “Required Reserve Amount”). If at any time while this Note remains outstanding the Obligor does not have a sufficient number of authorized shares of Common Stock to satisfy its obligation to reserve the Required Reserve Amount (an “Authorized Share Failure”), then the Obligor shall take all action necessary to increase the Obligor’s authorized shares of Common Stock to an amount sufficient to satisfy the Required Reserve Amount. As soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than seventy-five (75) days after the occurrence, the Obligor shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock.  For the avoidance of doubt, an Authorized Share Failure shall constitute an Event of Default pursuant to Section 9 of this Note, notwithstanding the Obligor’s obligation or efforts to comply with the requirements set forth in the immediately preceding sentence.

 

(i)            Upon a conversion hereunder the Obligor shall not be required to deliver stock certificates representing fractions of shares of Common Stock. The Obligor may at its sole and absolute discretion round fractional shares to the nearest whole share as full, final and complete satisfaction of its obligations for any conversion hereunder.

 

(j)            The transfer of certificates for shares of Common Stock upon conversion of this Note shall be made without cost or charge to the Holder in respect of the issue or delivery of such certificate, provided that the Obligor shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion.

 

(k)           Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Conversion Notice, shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service or sent by certified or registered mail, postage prepaid, addressed to the attention of the Obligor at the facsimile telephone number or address designated in writing by the Obligor or alternatively at the principal place of business of the Obligor. Any and all notices or other communications or deliveries to be provided by the Obligor hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service or sent by certified or registered mail, postage prepaid, addressed to the Holder at the facsimile telephone number or address of the Holder designated in writing by the Holder or alternatively at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if delivered via facsimile prior to 4:30 p.m. (Pacific Time) on a business day, (ii) the business day after the date of transmission, if delivered via facsimile later than 4:30 p.m. (Pacific Time) on any date and earlier than 11:59 p.m. (Pacific Time) on such date, (iii) one (1) business day following the date of sending, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

 

  

  

  

 

 

5.           No Waiver.  No failure or delay by the Holder in exercising any right, power or privilege under the Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. No course of dealing between the Obligor and the Holder shall operate as a waiver of any rights by the Holder.

6.           Waiver of Presentment and Notice of Dishonor.  The Obligor and all endorsers, guarantors and other parties that may be liable under this Note hereby waive presentment, notice of dishonor, protest and all other demands and notices in connection with the delivery, acceptance, performance or enforcement of this Note.

7.           Transfer.  This Note and the shares of Common Stock issuable upon conversion of this Note may not be offered for sale, sold, transferred or assigned in the absence of (a) an effective registration statement for this Note or the shares of Common Stock issuable upon conversion of this Note, as applicable, or (b) an opinion of counsel (selected by the Holder and reasonably acceptable to the Obligor), in a form reasonable acceptable to the Obligor, that this Note and the shares of Common Stock issuable upon conversion of this Note may be offered for sale, sold, assigned or transferred pursuant to an exemption from registration.

8.           Registration.  The Obligor shall register all of the Conversion Shares pursuant to the terms of the Purchase Agreement.

9.           Events of Default.  The entire unpaid principal amount of this Note and all accrued and unpaid interest (including without limitation, interest accrued after the most recent semi-annual interest payment date) shall, at the option of the Holder exercised by written notice to the Obligor forthwith become and be due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, if any one or more of the following events (herein called "Events of Default") shall have occurred (for any reason whatsoever and whether such happening shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgement, decree or order of any court or any order, rule or regulation of any administrative or governmental body) and be continuing at the time of such notice; provided that, notwithstanding the foregoing, if an Event of Default specified in clause (b) or (c) of this Section 9 occurs, all such amounts due under this Note shall become and be immediately due and payable without any declaration or other act on the part of the Holder of this Note:

(a)            if default shall be made in the due and punctual payment of the principal of this Note and the interest due thereon when and as the same shall become due and payable, whether at maturity, or by acceleration or otherwise, and such default have continued for a period of seven (7) days.

(b)           if the Obligor shall:

 

 

  

  

  

 

 

	
  

	
(i)

	
file a petition in bankruptcy or petition to take advantage of any insolvency act;

	
  

	
(ii)

	
on a petition in bankruptcy filed against him, be adjudicated a bankrupt;

	
  

	
(iii)

	
file a petition or answer seeking reorganization or arrangement under the Federal bankruptcy laws or any other applicable law or statute of the United States of America or any State, district or territory thereof; or

 

(c)           if the court of competent jurisdiction shall enter an order, judgment, or decree appointing, without the consent of the Obligor, a receiver of the whole or any substantial part of the Obligor's property, and such other judgment or decree shall not be vacated or set aside or stayed with thirty (30) days from the date of entry thereof;

 

(d)           if, under the provisions of any other law for the relief or aid of debtors, any court or competent jurisdiction shall assume custody or control of the whole or any substantial part of Obligor's property and such custody or control shall not be terminated or stayed within (30) days from the date of assumption of such custody or control.

 

(e)            if, the Obligor breaches any covenant, agreement, representation or warranty in this Note or the Purchase Agreement, and such breach continues for a period of at least thirty (30) days.

10.           Remedies.  In case any one or more of the Events of Default specified in Section 9 hereof shall have occurred, the Holder may proceed to protect and enforce its rights whether by suit and/or equity and/or by action law, whether for the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note, or the Holder may proceed to enforce the payment of all sums due upon the Note or enforce any other legal or equitable right of the Holder.

11.           Severability.  In the event that one or more of the provisions of this Note shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Note, but this Note shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

12.           Non-Circumvention.  The Obligor hereby covenants and agrees that the Obligor will not, by amendment of its Certificate of Incorporation, Bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, 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 of this Note, and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note.

 

 

  

  

  

 

 

13.           Governing Law.  This Note and the right and obligations of the Obligor and the Holder shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the conflict of law provisions thereof, and the parties hereto irrevocably submit to the exclusive jurisdiction of the United States District Court for the Southern District of New York, or, if jurisdiction in such court is lacking, the Supreme Court of the State of New York, New York County, in respect of any dispute or matter arising out of or connected with this Note.

IN WITNESS WHEREOF, Single Touch Systems, Inc., has signed this Note effective as of the 5th day of October 2012.

OBLIGOR:

Single Touch Systems Inc.

By:                                                                         

James Orsini

President, Single Touch Systems Inc.

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