EXHIBIT 10.1
 
SECURITIES PURCHASE AGREEMENT

 
This SECURITIES PURCHASE AGREEMENT (this “Agreement”) is made and entered into
by and between Debt Resolve, Inc., a Delaware corporation, with its principal
executive offices located at 707 Westchester Avenue, Suite L7, White Plains, New
York 10604 (the “Company”), and each of the purchasers listed on Schedule A
hereto (the “Purchasers”), and is dated with respect to each of the Purchasers
as of the date noted on each such Purchaser’s counterpart signature page.

WHEREAS, the Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the rules and regulations as promulgated by the United States Securities and
Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended
(the “1933 Act”);

WHEREAS, the Purchasers, severally and not jointly, desire to purchase and the
Company desires to issue and sell to the Purchasers, in each case upon the terms
and subject to the conditions set forth in this Agreement (i) 15% senior secured
convertible promissory notes, or 15% senior secured promissory notes in the case
of one Purchaser, of the Company, in the form attached hereto as Exhibit A, in
the aggregate principal face amount of up to Four Million Dollars ($4,000,000),
which includes a $1,000,000 over-allotment option (together with any note(s)
issued in replacement thereof or as a dividend thereon or otherwise with respect
thereto in accordance with the terms thereof, the “Notes”), a portion of which
Notes is convertible into shares of common stock, par value $.001 per share, of
the Company (the “Common Stock”), and (ii) warrants, in the form attached hereto
as Exhibit B, to purchase up to an aggregate of 13,333,334 shares of Common
Stock, which includes up to 3,333,334 shares if the over-allotment option is
exercised (the “Warrants”);

WHEREAS, each Purchaser wishes to purchase, upon the terms and conditions stated
in this Agreement, such face value amount of Notes and Warrants exercisable into
such number of shares of Common Stock as is set forth immediately next to such
Purchaser’s name on Schedule A;

WHEREAS, simultaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit C (the “Registration Rights Agreement”)
pursuant to which the Company has agreed to provide to the Purchasers certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws;

WHEREAS, simultaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Security Agreement, in the form
attached hereto as Exhibit D (the “Security Agreement”) pursuant to which the
Company has agreed to collateralize the Notes with a first lien on all the
assets of the Company and any of its Subsidiaries (as defined herein);
 
WHEREAS, simultaneously with the execution and delivery of this Agreement, the
co-chairmen of the Company and the parties hereto are executing and delivering a
Stock Pledge Agreement, in the form attached hereto as Exhibit E (the “Stock
Pledge Agreement”) pursuant to which the co-chairman have agreed to
collateralize the Notes with a pledge of the Common Stock held by them; and

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WHEREAS, simultaneously with the execution and delivery of this Agreement, the
Purchasers are executing and delivering a Lock-Up Agreement, in the form
attached hereto as Exhibit F (the “Lock-Up Agreement” and, collectively with
this Agreement, the confidential private placement term sheet booklet delivered
to the Purchasers by the Company, as supplemented or amended from time to time,
the Note, the Warrant, the Registration Rights Agreement, the Security Agreement
and the Stock Pledge Agreement, the “Transaction Documents”).

NOW THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the Company and each of
the Purchasers severally (and not jointly) hereby agree as follows:
 
1.    Purchase and Sale of Notes and Warrants.

(a) Purchase of Notes and Warrants. On the Closing Date (as defined below), the
Company shall issue and sell to each Purchaser and each Purchaser severally
agrees to purchase from the Company such principal face amount of Notes and
number of Warrants as is set forth next to such Purchaser’s name on Schedule A
hereto.

(b) Form of Payment. On the Closing Date: (i) each Purchaser shall pay the
purchase price for the Notes and Warrants to be issued and sold to it at the
Closing (as defined below) (the “Purchase Price”) by wire transfer of
immediately available funds to the Company, in accordance with the Company’s
written wiring instructions, against delivery of the Notes with principal face
amount and number of Warrants as is set forth next to such Purchaser’s name on
Schedule A hereto, and (ii) the Company shall deliver such Notes duly executed
on behalf of the Company, to such Purchaser, against delivery of such Purchase
Price. The Purchase Price will equal the principal face amount of the Notes
purchased.

(c) Closing Date. Subject to the satisfaction (or written waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Notes and Warrants pursuant to this Agreement
(the “Closing Date”) shall be 12:00 noon, New York City Time on the date noted
on the subject Purchasers’ counterpart signature pages, or such other mutually
agreed upon time. The closing of the transactions contemplated by this Agreement
(the “Closing”) shall occur on the Closing Date at such location as may be
agreed to by the parties and may be undertaken remotely by facsimile or other
electronic transmission.
 
2.     Representations and Warranties of the Purchasers. Each Purchaser
severally (and not jointly) represents and warrants to the Company solely as to
such Purchaser that:
 
(a) Knowledge of Offering. The Purchaser learned of the Company’s private
placement of the Notes and Warrants exclusively through the placement agent in
the offering, with whom the Purchaser has a pre-existing relationship. The
Purchaser did not learn of the Company’s private placement of the Notes and
Warrants through any of the Company’s public filings with the SEC.

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(b) Investment Purpose. As of the date hereof, the Purchaser is purchasing the
Notes and any shares of Common Stock issuable upon conversion of the Notes or
otherwise pursuant to this Agreement or the other Transaction Documents (such
shares of Common Stock being collectively referred to herein as the “Conversion
Shares”) and the Warrants and the shares of Common Stock issuable upon exercise
thereof (the “Warrant Shares” and, collectively with the Notes, Warrants and
Conversion Shares, the “Securities”) for its own account and not with a present
view towards the public sale or distribution thereof, except pursuant to sales
registered or exempted from registration under the 1933 Act; provided, however,
that by making the representations herein, the Purchaser does not agree to hold
any of the Securities for any minimum or other specific term and reserves the
right to dispose of the Securities at any time in accordance with or pursuant to
a registration statement or an exemption under the 1933 Act, except as otherwise
provided for in the Lock-Up Agreements.

(c) Accredited Investor Status. The Purchaser is an “accredited investor” as
that term is defined in Rule 501(a) of Regulation D promulgated under the 1933
Act (an “Accredited Investor”).

(d) Reliance on Exemptions. The Purchaser understands that the Securities are
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Purchaser’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of the Purchaser to acquire
the Securities.

(e) Information. The Purchaser and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been requested by the Purchaser or its advisors. The Purchaser and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Notwithstanding the foregoing representations, neither such inquiries
nor any other due diligence investigation conducted by Purchaser or any of its
advisors or representatives shall modify, amend or affect Purchaser’s right to
rely on the Company’s representations and warranties contained in Section 3
below. The Purchaser has, in connection with his, her or its decision to
purchase the Securities, not relied on completion of the Company’s contemplated
initial public offering as set forth in the Registration Statement on Form SB-2
that the Company has previously filed with the SEC in connection therewith on
September 30, 2005, and which was withdrawn on February 10, 2006, and this
offering is not a part of that contemplated initial public offering.

(f) No Governmental Review. The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.

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(g) Transfer or Resale. The Purchaser understands that:

(i) Except as provided in the Registration Rights Agreement, the sale or resale
of all or any portion or component of the Securities has not been and is not
being registered under the 1933 Act or any applicable state securities laws, and
the all or any portion or component of Securities may not be transferred unless:

(A) the Securities are sold pursuant to an effective registration statement
under the 1933 Act,

(B) the Purchaser 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 Securities to
be sold or transferred may be sold or transferred pursuant to an exemption from
such registration,

(C) the Securities are sold or transferred to an “affiliate” (as defined in Rule
144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the
Purchaser who agrees to sell or otherwise transfer the Securities only in
accordance with this Section 2(f) and who is an Accredited Investor,

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

(E) the Securities are sold pursuant to Regulation S under the 1933 Act (or a
successor rule) (“Regulation S”),

and, in each case, the Purchaser shall have delivered to the Company, at the
cost of the Company, a customary opinion of counsel, in form, substance and
scope reasonably acceptable to the Company;

(ii) Any sale of such Securities made in reliance on Rule 144 may be made only
in accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and

(iii) neither the Company nor any other person is under any obligation to
register such Securities under the 1933 Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder (in each case,
other than pursuant to the Registration Rights Agreement).

Notwithstanding the foregoing or anything else contained herein to the contrary,
the Securities may be pledged as collateral in connection with a bona fide
margin account or other lending arrangement.

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(h) Legends. The Purchaser understands that the Notes and Warrants and, until
such time as the Conversion Shares and Warrant Shares have been registered under
the 1933 Act as contemplated by the Registration Rights Agreement or otherwise
may be sold pursuant to Rule 144 or Regulation S without any restriction as to
the number of securities as of a particular date that can then be immediately
sold, the Conversion Shares and Warrant Shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):

“The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended. The securities may not be sold,
transferred or assigned in the absence of an effective registration statement
for the securities under said Act, or an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant to Rule 144
or Regulation S under said Act.”

The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws: (i)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold or (ii) such holder provides
the Company with a reasonable and customary opinion of counsel to the effect
that a public sale or transfer of such Security may be made without registration
under the 1933 Act. The Purchaser agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any.

(i) Authorization; Enforcement. Each Transaction Document to which the Purchaser
is a party: (i) has been duly and validly authorized, (ii) has been duly
executed and delivered on behalf of the Purchaser, and (iii) will constitute,
upon execution and delivery by the Purchaser thereof and the Company, the valid
and binding agreements of the Purchaser enforceable in accordance with their
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.

(j) Residency. The Purchaser is a resident of the jurisdiction set forth
immediately below such Purchaser’s name on the signature pages hereto.
 
3.    Representations and Warranties of the Company. The Company hereby
represents and warrants to each Purchaser as of the date hereof (unless the
context specifically indicates otherwise) that:
 
(a) Organization and Qualification. The Company and each of its Subsidiaries (as
defined below), 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. Schedule 3(a) hereto
sets forth a complete list of all of the Subsidiaries of the Company and the
jurisdiction in which each is incorporated or organized. The Company and each of
its Subsidiaries 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. As used in this Agreement, the term
“Material Adverse Effect” means any material adverse effect on the business,
operations, assets, financial condition or prospects of the Company or its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the other Transaction Documents. As used in this Agreement, the
term “Subsidiaries” means 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.

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(b) Authorization; Enforcement. (i) The Company has all requisite corporate
power and authority to enter into and perform this Agreement and the other
Transaction Documents and to consummate the transactions contemplated hereby and
thereby and to issue the Securities, in accordance with the terms hereof and
thereof, (ii) the execution and delivery of this Agreement and the other
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 Notes and the Warrants, and the issuance and reservation for
issuance of the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise thereof) 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 Transaction Document
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 Transaction Document and the other
documents or certificates executed in connection herewith and bind the Company
accordingly, and (iv) each Transaction Document 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. The Company is proposing sell
Notes and Warrants to certain other accredited investors pursuant to the
Transaction Documents.

(c) Capitalization. As of the date hereof, the authorized capital stock of the
Company consists of: (i) 50,000,000 shares of Common Stock, of which 29,703,900
shares are issued and outstanding, 900,000 shares are reserved for issuance
pursuant to the Company’s 2005 Incentive Compensation Plan, and 18,924,520
shares are reserved for issuance pursuant to securities (other than the Notes
and Warrants) exercisable for, or convertible into or exchangeable for shares of
Common Stock; and (ii) 10,000,000 shares of preferred stock, of which no shares
are issued and outstanding. All of such outstanding shares of capital stock are,
or upon issuance will be, duly authorized, validly issued, fully paid and
nonassessable. All Conversion Shares and Warrant Shares will be duly reserved
for future issuance. 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 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 (each, a “Lien”) imposed through the actions or failure to
act of the Company. Except as disclosed in the SEC Documents: (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) except for the registration
obligations with respect to the Company’s April 2005 and June/September 2005
private financing securities, 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 1933 Act (except the Registration
Rights Agreement) and (iii) except for the anti-dilution provisions of the
Company’s April 2005 and June/September 2005 private financing securities, 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)
that will be triggered by the issuance of the Notes, the Warrants, the
Conversion Shares or the Warrant Shares, and the Company is not currently
contemplating any issuances of its debt or equity securities which would trigger
the anti-dilution or price adjustment provisions contained in the Notes. The
Certificate of Incorporation of the Company as in effect on the date hereof
(“Certificate of Incorporation”), the Company’s By-laws, as in effect on the
date hereof (the “By-laws”), and all securities convertible into or exercisable
for Common Stock of the Company and the material rights of the holders thereof
in respect thereto are as described in or filed as exhibits to the SEC
Documents.

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(d) Issuance of Shares. The Conversion Shares and Warrant Shares will be duly
authorized and reserved for issuance and, upon conversion of the Notes and
exercise of the Warrants in accordance with their respective terms, will be
validly issued, fully paid and non-assessable, 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.

(e) Acknowledgment of Dilution. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares and the Warrant Shares upon conversion of the Notes or
exercise of the Warrants. The Company further acknowledges that its obligation
to issue Conversion Shares and Warrant Shares upon conversion of the Notes or
exercise of the Warrants in accordance with this Agreement, the Notes and the
Warrants is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.

(f) No Conflicts. The execution, delivery and performance of this Agreement and
the other Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance of the Conversion Shares
and the Warrant Shares) 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 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, except 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 1933
Act, the 1934 Act (as defined below) 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 any Transaction Document in accordance with the terms hereof or
thereof or to issue and sell the Notes in accordance with the terms hereof and
to issue the Conversion Shares upon conversion of the Notes. Except as disclosed
on Schedule 3(f) hereto, 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.

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(g) SEC Documents; Financial Statements. Except as disclosed on Schedule 3(g)
attached hereto, 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 Securities Exchange Act of 1934, as amended
(the “1934 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 are in the form available to the public via the SEC’s EDGAR system. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the 1934 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 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. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings prior the date hereof). As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such 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
financial statements of the Company included in the SEC Documents, the Company
has no liabilities, contingent or otherwise, other than: (i) liabilities
incurred in the ordinary course of business subsequent to December 31, 2005 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.

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(h) Absence of Certain Changes. Except as set forth in the SEC Documents or on
Schedule 3(h) attached hereto, since December 31, 2005, there has been no
material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition, results of
operations or prospects of the Company or any of its Subsidiaries. Without
limiting the foregoing and except as set forth in the SEC Documents, neither the
Company nor any Subsidiary has, since December 31, 2005:

(i) issued any stock, bonds or other corporate securities or any rights, options
or warrants with respect thereto, except as contemplated hereby and in the other
Transaction Documents;
 
(ii) borrowed any amount or incurred or become subject to any liabilities
(absolute or contingent) except trade payables incurred in the ordinary course
of business;
 
(iii) discharged or satisfied any Lien or paid any obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices;
 
(iv) declared or made any payment or distribution of cash or other property to
stockholders with respect to its stock, or purchased or redeemed, or made any
agreements so to purchase or redeem, any shares of its capital stock;
 
(v) mortgaged or pledged any of its assets, tangible or intangible, or subjected
them to any Lien;
 
(vi) sold, assigned or transferred any other tangible assets,
 
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(vii) canceled any debts or claims;
 
(viii) sold, assigned or transferred any intangible property (including any
Intellectual Property, as defined below) or disclosed any proprietary
confidential information to any persons except to potential customers, investors
or corporate partners or collaborators in the ordinary course of business
consistent with past practices (with all of such disclosures being done in a
manner consistent with applicable securities laws);
 
(ix) suffered any substantial losses or waived any rights of material value,
whether or not in the ordinary course of business, or suffered the loss of any
material amount of prospective business;
 
(x) made any changes in employee compensation in excess of $25,000;
 
(xi) except for the Company’s new 401K plan with 3% matching Company
contribution that went into effect January 1, 2006, adopted or amended any
employee benefits or plan relating thereto;
 
(xii) made capital expenditures or commitments therefor that aggregate in excess
of $25,000 for the Company and its Subsidiaries;
 
(xiii) entered into any other material transaction other than in the ordinary
course of business;
 
(xiv) made charitable contributions or pledges in excess of $5,000 in the
aggregate;
 
(xv) suffered any material damage, destruction or casualty loss, whether or not
covered by insurance;
 
(xvi) experienced any union organizing effort or strike problems with labor or
management in connection with the terms and conditions of their employment; or
 
(xvii) effected or agreed to do any of the foregoing.
 
(i) Absence of Litigation. 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 and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. Schedule
3(i) attached hereto contains a complete list and summary description of any
pending or threatened proceeding 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, without regard to whether it
would have a Material Adverse Effect.

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(j) Intellectual Property. Schedule 3(j) attached hereto sets forth a complete
and accurate listing of the Company’s and each of its Subsidiaries’ patents,
patent applications, provisional patents, trademarks, service marks, trade
names, trademark registrations, service mark registrations, copyrights,
licenses, formulae, mask works, customer lists, internet domain names, know-how
and other intellectual property, including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems, procedures
or registrations or applications relating to the same (collectively,
“Intellectual Property”). The Company owns valid title, free and clear of any
Liens, or possesses the requisite valid and current licenses or rights, free and
clear of any Liens, to use all Intellectual Property in connection with the
conduct its business as now operated (and, except as set forth in Schedule 3(j)
hereto, to the best of the Company’s knowledge, as presently contemplated to be
operated in the future). There is no claim or action by any person pertaining
to, or proceeding pending, or to the Company’s knowledge threatened, which
challenges the right of the Company or of a Subsidiary with respect to any
Intellectual Property necessary to enable it to conduct its business as now
operated (and, except as set forth in Schedule 3(j) hereto, to the best of the
Company’s knowledge, as presently contemplated to be operated in the future). To
the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current
and intended products, services and processes do not infringe on any
Intellectual Property or other rights held by any person, and the Company is
unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company has not received any notice of infringement of, or
conflict with, the asserted rights of others with respect to the Intellectual
Property. The Company and each of its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of their
Intellectual Property.

(k) No Materially Adverse Contracts, etc. Neither the Company nor any of its
Subsidiaries is subject to any charter, corporate or other legal restriction, or
any judgment, decree, order, rule or regulation which in the judgment of the
Company’s officers has or is expected in the future to have a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to any
contract or agreement which has or is reasonably expected to have a Material
Adverse Effect.

(l) Tax Matters. Except as set forth on Schedule 3(l) hereto, the Company and
each of its Subsidiaries has made or filed all federal, state and foreign income
and all other tax returns, reports and declarations required by any jurisdiction
to which it is subject and has 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 has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the 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 know of no basis for any such claim. The Company has not executed a
waiver with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, state or local tax. Except as set forth on
Schedule 3(l) hereto, the Company has not received notice that any of its tax
returns is presently being audited by any taxing authority.

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(m) Certain Transactions. Except as set forth on Schedule 3(m) attached hereto
or in the SEC Documents, there are no loans, leases, royalty agreements or other
transactions between: (i) the Company or any of its Subsidiaries or any of their
respective customers or suppliers, and (ii) any officer, employee, consultant or
director of the Company or any person owning five percent (5%) or more of the
capital stock of the Company or five percent (5%) or more of the ownership
interests of the Company or any of its Subsidiaries or any member of the
immediate family of such officer, employee, consultant, director, stockholder or
owner or any corporation or other entity controlled by such officer, employee,
consultant, director, stockholder or owner, or a member of the immediate family
of such officer, employee, consultant, director, stockholder or owner.

(n) Disclosure. All information relating to or concerning the Company or any of
its Subsidiaries, officers, directors, employees, customers or clients
(including, without limitation, all information regarding the Company’s internal
financial accounting controls and procedures): (i) set forth in this Agreement
or any other Transaction Document and/or (ii) as disclosed in any SEC Document
or exhibit or certification thereto and/or (iii) as provided to the Purchasers
pursuant to Section 2(d) hereof, is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading.

(o) 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 1933 Act, with respect to any of the Securities being offered hereby.

(p) 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 1933 Act of the
issuance of the Securities to the Purchasers. The issuance of the Securities to
the Purchasers 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.

(q) No Brokers. Except as set forth in Schedule 3(q) hereto, 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.

(r) 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 December 31, 2005, 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.

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(s) ERISA. Neither the Company nor any of its Subsidiaries has made or currently
makes any contributions to any employee pension benefit plan for its employees
which plan is subject to the Employee Retirement Income Security Act of l974, as
amended from time to time (“ERISA”).

(t) Title to Property. The Company and its Subsidiaries hold no title in fee
simple to any real property. The Company and its Subsidiaries hold good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
Liens, except such as are described on Schedule 3(t) attached hereto. Any real
property and facilities held under lease by the Company and its Subsidiaries are
held by them under valid, subsisting and enforceable leases.

(u) Insurance. The Company and each of its Subsidiaries, officers and directors,
assets and properties are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary in the businesses in which
the Company and its Subsidiaries are engaged. Neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect. The Company
has provided to Purchaser, upon Purchaser’s request, true and correct copies of
all policies relating to directors’ and officers’ liability coverage, errors and
omissions coverage, and commercial general liability coverage.

(v) Internal Accounting Controls. The Company and has not received, orally or in
writing, any adverse notification (including any “management letters”) from its
auditors relating to the Company’s internal financial controls and procedures.

(w) Books and Records. The books of account, ledgers, order books, records and
documents of the Company and its subsidiaries accurately and completely reflect
all material information relating to the business of the Company and its
Subsidiaries, the location and collection of their respective assets, and the
nature of all transactions giving rise to the obligations or accounts receivable
of the Company or any of its Subsidiaries.

(x) FCPA Matters. Neither the Company, nor any of its Subsidiaries, nor any
director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of his or her actions for, or on
behalf of, the Company: (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity, (ii) made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds, (iii)
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
governmental or private official or person.

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(y) Seniority of Notes. Upon issuance, the Notes will rank senior to any current
Indebtedness of the Company except for the Company’s previously issued 7% Senior
Convertible Promissory Notes which shall rank senior to the Notes. Except for
the Company’s previously issued 7% Senior Convertible Promissory Notes, the
Company currently has no senior or secured Indebtedness outstanding. As used
herein, the term “Indebtedness” means: (i) all obligations for borrowed money,
(b) all obligations evidenced by bonds, debentures, notes, or other similar
instruments and all reimbursement or other obligations in respect of letters of
credit or other financial products, (c) all payment obligations (other than
trade payables incurred in the ordinary course of business

(z) Assumptions or Guaranties of Indebtedness of Other Persons. Except as set
forth on Schedule 3(z) attached hereto, neither the Company nor any of its
Subsidiaries has assumed, guaranteed, endorsed, or otherwise become directly or
contingently liable on, any Indebtedness or any other agreement of any other
person.

(aa) Investments in Other Persons. Except as set forth in Schedule 3(aa)
attached hereto, neither the Company nor any of its Subsidiaries has made any
loan or advance to any person which is outstanding, nor is it committed or
obligated to make any such loan or advance, nor does the Company or any of its
Subsidiaries own any capital stock, assets compromising the business of,
obligations of, or any equity, ownership or other interest in, any person or
entity.

(bb) No Investment Company. The Company is not, and upon the issuance and sale
of the Securities as contemplated by this Agreement will not be an “investment
company” required to be registered under the Investment Company Act of 1940 (an
“Investment Company”). The Company is not controlled by an Investment Company.

(cc) Title to Collateral; Priority of Liens. The Company has good, indefeasible
and marketable title to all of the Collateral (as defined in the Security
Agreement), free and clear of all Liens. The Company has paid or discharged all
lawful claims that are due which, if unpaid, might become a Lien against or
encumbrance upon any of the Collateral. The Liens granted pursuant to the
Security Agreement are first priority liens and security interests in the
Collateral.

(dd) No Default. As of the date hereof, except as set forth in the SEC
Documents, there does not exist any Event of Default (as defined in the Notes).
 
4.    Covenants. In addition to the other agreements and covenants set forth
herein, the applicable parties hereto hereby covenant as follows:
 
(a) Stop Orders. The Company will advise each Purchaser, and Capital Growth
Financial, LLC and Maxim Group LLC (together, the “Placement Agents”), promptly
after it receives notice of issuance by the SEC, any state securities commission
or any other regulatory authority of any stop order or of any order preventing
or suspending any offering of the Securities, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such purpose.

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(b) Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
each Purchaser promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for sale to the Purchasers 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 each
Purchaser and to the Placement Agents on or prior to the Closing Date.

(c) Reporting Status. So long as any Purchaser beneficially owns any of the
Securities, the Company shall use its best efforts timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the Company
shall not terminate its status as an issuer required to file reports under the
1934 Act even if the 1934 Act or the rules and regulations thereunder would
permit such termination. Following the consummation by the Company of any
underwritten public offering of its securities occurring after the date hereof,
the Company shall file all reports required to be filed by the Company with the
SEC in a timely manner so as to become eligible, and thereafter to maintain its
eligibility, if any, for the use of Form S-3. The Company shall issue a press
release and file a Form 8-K describing the materials terms of the transaction
contemplated hereby as soon as practicable following the Closing Date but in no
event more than three (3) business days of the Closing Date, which press release
shall be subject to prior review by the Purchasers and the Placement Agents. The
Company agrees that such press release shall not disclose the name of the
Purchasers unless expressly consented to in writing by the Purchasers or unless
required by applicable law or regulation, and then only to the extent of such
requirement.

(d) Use of Proceeds. The Company shall use the proceeds from the sale of the
Notes in the manner set forth in Schedule 4(d) attached hereto and made a part
hereof and shall not, directly or indirectly, without the prior written consent
of the Placement Agents, use such proceeds for any loan to or investment in any
other corporation, partnership, enterprise or other person, including any
director or officer of the Company (except in connection with its currently
existing direct or indirect Subsidiaries).

(e) Expenses. At the Closing, the Company shall reimburse the Placement Agents
for reasonable, out-of-pocket expenses incurred by it in connection with the
negotiation, preparation, execution, delivery and performance of the Transaction
Documents, including, without limitation, reasonable attorneys’ fees and
expenses and transfer agent fees, and the commissions or other compensation due
and owing to the Placement Agents as set forth in the agreements concerning the
same by and between the Company and Capital Growth Financial, LLC, dated January
20, 2006, and by and between the Company and Maxim Group LLC, dated March 10,
2006. In addition, at the Closing, the Company will pay the Purchaser of the 15%
senior secured promissory notes a structuring fee of $28,000 and $10,000 to
cover such Purchaser’s investment costs and expenses. The Company shall pay
these fees directly out of the proceeds received at the Closing.

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(f) Authorization and Reservation of Shares. Within 30 days of closing and at
all times thereafter, the Company shall have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the full conversion or exercise of the outstanding Notes and Warrants and
issuance of the Conversion Shares and Warrant Shares in connection therewith
(based on the Conversion Price of the Notes or Exercise Price of the Warrants in
effect from time to time) and as otherwise required by the Notes and Warrants
(collectively, the “Reserved Amount”). The Company shall not reduce the number
of shares of Common Stock reserved for issuance upon conversion of Notes and
exercise of the Warrants. If at any time the number of shares of Common Stock
authorized and reserved for issuance (“Authorized and Reserved Shares”) is below
the Reserved Amount, the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of stockholders to authorize
additional shares to meet the Company’s obligations under this Section 4(f), in
the case of an insufficient number of authorized shares, obtain stockholder
approval of an increase in such authorized number of shares, and voting the
shares of the Company’s officer’s and directors in favor of an increase in the
authorized shares of the Company to ensure that the number of authorized shares
is sufficient to meet the Reserved Amount. The Company shall use its best
efforts to obtain such stockholder approval within thirty (30) days following
the date on which the number of Reserved Amount exceeds the Authorized and
Reserved Shares.
 
(g) Corporate Existence. So long as a Purchaser beneficially owns any Notes or
Warrants, the Company shall maintain its corporate existence and shall not sell
all or substantially all of the Company’s assets, except in the event of a
merger or consolidation or sale of all or substantially all of the Company’s
assets, where the surviving or successor entity in such transaction: (i) assumes
the Company’s obligations hereunder and under the agreements and instruments
entered into in connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the Over the Counter Bulletin Board,
Nasdaq National Market, Nasdaq Capital Market, New York Stock Exchange or
American Stock Exchange.
 
(h) Sarbanes-Oxley Matters. When required to do so, the Company will comply with
any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are
effective for the Company, and any and all applicable rules and regulations
promulgated by the SEC thereunder. The Company shall implement such programs and
shall take such steps reasonably necessary to provide for its future compliance
(not later than the relevant statutory and regulatory deadline therefor) with
all provisions of Section 404 of the Sarbanes-Oxley Act that shall become
applicable to the Company.
 
(i) Accounting Changes. Make, or permit any Subsidiary to make, any change in
their accounting treatment or financial reporting practices except as required
or permitted by generally accepted accounting principles in effect from time to
time
 
(j) ERISA. The Company shall not: (i) terminate any plan (“Plan”) of a type
described in Section 402l(a) of ERISA in respect of which the Company is an
“employer” as defined in Section 3(5) of ERISA so as to result in any material
liability to the Pension Benefit Guaranty Corporation (the “PBGC”) established
pursuant to Subtitle A of Title IV of ERISA; (ii) engage in or permit any person
to engage in any “prohibited transaction” (as defined in Section 406 of ERISA or
Section 4975 of the Internal Revenue Code of 1954, as amended) involving any
Plan which would subject the Company to any material tax, penalty or other
liability; (iii) incur or suffer to exist any material “accumulated funding
deficiency” (as defined in Section 302 of ERISA), whether or not waived,
involving any Plan; or (iv) allow or suffer to exist any event or condition,
which presents a material risk of incurring a material liability to the PBGC by
reason of termination of any Plan.

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(k) Indebtedness. For so long as the Notes remain outstanding and unpaid, or any
other amount is owing to any Purchaser under any Transaction Document, without
the prior written approval of a majority in interest of the Purchasers, the
Company and each of its Subsidiaries will not: (i) incur any new Indebtedness in
excess of $500,000 in the aggregate at any one time outstanding (except for
Indebtedness incurred solely for the financing of the purchase of debt
portfolios by the Company or any of its Subsidiaries), provided, however, that
any such new Indebtedness shall be junior to the Notes, unsecured, expressly
subordinated to the Notes and maturing beyond the term of the Notes; (ii) (A)
prepay any Indebtedness or (B) enter into or modify any agreement as a result of
which the terms of payment of any Indebtedness are amended or modified in a
manner which would accelerate its payment; or (iii) allow any Lien, except as
contemplated by the Security Agreement, to be placed on any assets of the
Company and any of its Subsidiaries (except for any Lien on debt portfolios
purchased by the Company or any of its Subsidiaries which Lien results solely as
a result of the financing of any such debt portfolio purchase).
 
(l) Redemptions and Dividends. For so long as the Notes remain outstanding and
unpaid, or any other amount is owing to any Purchaser under any Transaction
Document, without the prior written approval of a majority in interest of the
Purchasers (which majority in interest must include the Purchaser of the 15%
senior secured promissory notes as long as the 15% senior secured promissory
notes remain outstanding and unpaid), the Company shall not repurchase, redeem,
or declare or pay any cash dividend or distribution on, any shares of capital
stock of the Company.
 
(m) No Integration. The Company shall not make any offers or sales of any
security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
 
(n) Insurance. Subsequent to the Closing, each of the Company and its
Subsidiaries will keep their respective assets which are of an insurable
character insured by financially sound and reputable institutional insurers
against loss or damage by fire, explosion and other risks customarily insured
against by companies in similar business similarly situated as the Company and
its Subsidiaries, and the Company and its Subsidiaries will maintain, with
financially sound and reputable institutional insurers, insurance against other
hazards and risks and liability to persons and property to the extent and in the
manner which the Company reasonably believes is customary for companies in
similar business similarly situated as the Company and its Subsidiaries.

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(o) Key Man Insurance. For so long as any Purchaser holds any of the Securities,
the Company shall maintain in full force and effect its currently held “key man”
life insurance (with the Company as sole beneficiary) on the life of James D.
Burchetta and shall not reduce the amount of such insurance, change the
beneficiary thereof or make any other material changes thereto.
 
(p) Capital Expenditures. For so long as the Notes remain outstanding and
unpaid, or any other amount is owing to any Purchaser under any Transaction
Document, without the prior written approval of a majority in interest of the
Purchasers (which majority in interest must include the Purchaser of the 15%
senior secured promissory notes as long as the 15% senior secured promissory
notes remain outstanding and unpaid), the Company shall not expend in the
aggregate for the Company and all its Subsidiaries in excess of $50,000 in any
fiscal year for Capital Expenditures (as defined below). For purposes of the
foregoing, Capital Expenditures shall include payments made on account of any
deferred purchase price or on account of any indebtedness incurred to finance
any such purchase price. “Capital Expenditures” shall mean for any period, the
aggregate amount of all payments made by any person directly or indirectly for
the purpose of acquiring, constructing or maintaining fixed assets, real
property or equipment which, in accordance with generally accepted accounting
principles, would be added as a debit to the fixed asset account of the Company
or any Subsidiary.
 
(q) Lease Payments. For so long as the Notes remain outstanding and unpaid, or
any other amount is owing to any Purchaser under any Transaction Document,
without the prior written approval of a majority in interest of the Purchasers
(which majority in interest must include the Purchaser of the 15% senior secured
promissory notes as long as the 15% senior secured promissory notes remain
outstanding and unpaid), the Company shall not expend in the aggregate for the
Company and its Subsidiaries in excess of $50,000 in any fiscal year for the
lease, rental or hire of real or personal property pursuant to any rental
agreement therefor, whether an operating lease or otherwise.
 
(r) Nature of Business. For so long as the Notes remain outstanding and unpaid,
or any other amount is owing to any Purchaser under any Transaction Document,
without the prior written approval of a majority in interest of the Purchasers,
the Company shall not materially alter the nature of the Company’s business or
engage in any business other than the business engaged in or proposed to be
engaged in on the date of this Agreement.

(s) Intellectual Property. For so long as the Notes remain outstanding and
unpaid, or any other amount is owing to any Purchaser under any Transaction
Document, the Company shall and each of its Subsidiaries shall maintain in full
force and effect its existence, rights and franchises and all licenses and other
rights to use Intellectual Property owned or possessed by it and reasonably
deemed to be necessary to the conduct of its business.

(t) Properties. For so long as the Notes remain outstanding and unpaid, or any
other amount is owing to any Purchaser under any Transaction Document, each of
the Company and each of its Subsidiaries will keep its owned or leased
properties and other assets in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time make all needful and
proper repairs, renewals, replacements, additions and improvements thereto; and
each of the Company and each of its Subsidiaries will at all times comply with
each provision of all leases to which it is a party or under which it occupies
property if the breach of such provision could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.

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(u) Taxes. For so long as the Notes remain outstanding and unpaid, or any other
amount is owing to any Purchaser under any Transaction Document, the Company
shall duly pay and discharge all taxes or other claims, which might become a
lien upon any of its property except to the extent that any thereof are being in
good faith appropriately contested with adequate reserves provided therefor.

(v) Notice of Litigation. For so long as the Notes remain outstanding and
unpaid, or any other amount is owing to any Purchaser under any Transaction
Document, the Company shall promptly notify the Purchasers in writing, with a
reasonably detailed description thereof, of any litigation, legal proceeding or
dispute, other than disputes in the ordinary course of business or, whether or
not in the ordinary course of business, involving amounts in excess of Fifty
Thousand ($50,000.00) Dollars, affecting either the Company or any Subsidiary,
whether or not fully covered by insurance, and regardless of the subject matter
thereof.

(w) Additional Investment Right.

(i) From the date hereof through April 30, 2008 (the “Additional Investment
Period”), the Company grants to each Purchaser the right (the “Additional
Investment Right”) to participate in all debt, equity and/or equity-linked
financings of the Company or any of its Subsidiaries (each, an “Additional
Financing”) on the same terms as offered to other third party investors (which
may include officers, directors, existing stockholders or other “affiliates” of
the Company (as that term is defined under Rule 144)); provided, however, that
any financing for the purchase of debt portfolios by the Company or any of its
Subsidiaries shall not be considered an Additional Financing, and any such
financing for the purchase of debt portfolios shall not be subject to the
additional investment right set forth in this subsection (w); provided, further,
with respect to the Purchaser of the 15% senior secured promissory notes, and
only with respect to such Purchaser, the Additional Investment Right shall also
extend to any financing for the purchase of debt portfolios by the Company or
any of its Subsidiaries, but only if, and to the extent, consented to by any
third party investors in any such financing for the purchase of debt portfolios
by the Company or any of its Subsidiaries.

(ii)  During the Additional Investment Period, and prior to the consummation by
the Company of any Additional Financing, the Company shall notify the Agent in
writing of its intention to enter into such Additional Financing. In connection
therewith, the Company shall submit to Agent a term sheet (a “Proposed Term
Sheet”) which shall set forth in detail the terms, conditions and pricing of any
such Additional Financing.

(iii) Within fifteen (15) days of its receipt of the Proposed Term Sheet, Agent
shall notify the Company in writing as to whether any Purchaser(s) desire to
participate in the Additional Financing (it being agreed that no Purchaser shall
be obligated to participate in any Additional Financing). Any Purchaser(s) so
electing to participate shall do so on the terms set forth in the Proposed Term
Sheet and in an amount up to 100% of the amount invested by such Purchaser(s) in
the offering contemplated by this Agreement (or a pro rata portion thereof, if
the aggregate amount of the Additional Financing is less than the amount raised
in the offering contemplated by this Agreement).

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(iv) The Company will not, and will not permit its Subsidiaries to, agree,
directly or indirectly, to any restriction with any person or entity which
limits the ability of the Purchasers to participate in an Additional Financing
as contemplated herein.

(x) Registration Statement Filing. As contemplated by the Registration Rights
Agreement, the Company shall promptly file a Registration Statement (as such
term is defined in the Registration Rights Agreement), which shall include the
Registrable Securities (as such term is defined in the Registration Rights
Agreement), and the Company has no reason to believe that such Registration
Statement will not be declared effective in a timely manner.

(y) Cash Run Rate. The Company’s use of cash between the date hereof and
September 15, 2006 shall be as approximated on Schedule 4(y) attached hereto and
made a part hereof.
 
(z) Minimum Sale. For the sole benefit of the Purchaser of the 15% senior
secured promissory notes, the Company agrees that a minimum aggregate of
$1,250,000 of Notes will be sold in this offering.
 
5.    Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Purchaser or its nominee, for any Conversion Shares and Warrant Shares
in such amounts as specified from time to time by each Purchaser to the Company
upon conversion of the Notes or exercise of the Warrants in accordance with the
terms thereof (the “Irrevocable Transfer Agent Instructions”). Prior to
registration of the Conversion Shares and Warrant Shares under the 1933 Act or
the date on which the Conversion Shares and Warrant Shares may be sold pursuant
to Rule 144 without any restriction as to the number of Securities as of a
particular date that can then be immediately sold, all such certificates shall
bear the restrictive legend specified in Section 2(g) of this Agreement. The
Company warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Purchaser’s obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the Securities. If a
Purchaser provides the Company, at the cost of 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
Securities may be made without registration under the 1933 Act and such sale or
transfer is effected, the Company shall permit the transfer, and, in the case of
the Conversion Shares and Warrant Shares, promptly instruct its transfer agent
to issue one or more certificates, free from restrictive legend, in such name
and in such denominations as specified by such Purchaser. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Purchasers, 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 5 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 Purchasers 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.
 
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6.     Conditions to the Company’s Obligation to Sell. The obligation of the
Company hereunder to issue and sell the Notes and Warrants to a Purchaser at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following conditions thereto, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion:
 
(a) The applicable Purchaser shall have executed this Agreement, the Lock-Up
Agreement, the Registration Rights Agreement, the Security Agreement and the
Stock Pledge Agreement, and delivered the same to the Company.
 
(b) The applicable Purchaser shall have delivered the Purchase Price in
accordance with Section 1(b) above.
 
(c) The representations and warranties of the applicable Purchaser shall be true
and correct in all material respects, and the applicable Purchaser shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the applicable Purchaser at or prior to the Closing Date.
 
(d) No litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
 
7.    Conditions to Each Purchaser’s Obligation to Purchase. The obligation of
each Purchaser hereunder to purchase the Notes and Warrants 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 such Purchaser’s
sole benefit and may be waived by such Purchaser at any time in its sole
discretion:
 
(a) The Company shall have executed this Agreement, the Registration Rights
Agreement, the Security Agreement and the Stock Pledge Agreement (which shall
have also been executed by the co-chairmen of the Company), and delivered the
same to the Purchaser.

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(b) The Company shall have delivered to such Purchaser duly executed Notes (in
such denominations as the Purchaser shall request) and Warrants in accordance
with Section 1(b) above.
 
(c) The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Purchasers, shall have been
delivered to the Company’s Transfer Agent.
 
(d) The representations and warranties of the Company shall be true and correct
in all material respects, and the Company shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date. The Purchaser shall have received a
certificate or certificates, 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 Purchaser including, but
not limited to certificates with respect to the incumbency of the officers of
the Company executing the Transaction Documents on behalf of the Company and
Company’s good standing in the State of Delaware and such other states where it
is foreign qualified and the Company’s Certificate of Incorporation, By-laws and
Board of Directors’ resolutions relating to the transactions contemplated
hereby.
 
(e) No litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
 
(f) No event shall have occurred which would reasonably be expected to have a
Material Adverse Effect on the Company.
 
(g) The Purchaser shall have received the favorable opinion of the Company’s
counsel, dated as of the Closing Date, in the same form as Exhibit G attached
hereto.
 
(h) The Company’s controlling shareholders, officers and directors shall have
executed a Lock-Up Agreement, in the same form as Exhibit H attached hereto.
 
8.    Governing Law; Jurisdiction; Fees; Waiver of Jury Trial.
 
(a) THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAW.
 
(b) THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE NEW
YORK STATE OR UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH
RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, ANY OTHER TRANSACTION
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE PARTIES
IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH SUIT OR PROCEEDING. THE PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON
A PARTY MAILED BY FIRST CLASS MAIL IN ACCORDANCE WITH SECTION 9(e) HEREOF SHALL
BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY
SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT A PARTY’S RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. THE PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER.
 
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(c) THE PARTY OR PARTIES WHICH DO NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS
AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT PRIOR TO THE CONSUMMATION BY THE
COMPANY OF ANY UNDERWRITTEN PUBLIC OFFERING OF ITS SECURITIES SHALL BE
RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY
THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.
 
(d) EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT
TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, ANY TRANSACTION DOCUMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY.
 
9.    Miscellaneous.
 
(a) Counterparts; Signatures by Facsimile. This Agreement may be executed in one
or more counterparts (with the Purchasers each executing the counterpart in the
form of Annex A hereto). Each of such counterparts shall be deemed an original,
and all of which shall, when taken together, constitute one and the same
agreement, and shall become effective when counterparts have been signed by each
party and delivered to the other party. This Agreement, once executed by a party
(including in the manner described above), may be delivered to the other party
hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
 
(b) Headings. The headings of this Agreement are for convenience of reference
only and shall not form part of, or affect the interpretation of, this
Agreement.
 
(c) Severability. In the event that any provision of this Agreement is invalid
or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.
 
(d) Entire Agreement; Amendments. This Agreement, the other Transaction
Documents and the instruments, documents and schedules referenced herein contain
the entire understanding of the parties with respect to the matters covered
herein and therein and, except as specifically set forth herein or therein,
neither the Company nor any Purchaser makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the Company and a majority in interest of the Purchasers (which majority in
interest must include the Purchaser of the 15% senior secured promissory notes
as long as the 15% senior secured promissory notes remain outstanding and
unpaid).

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(e) Notices. Any notices required or permitted to be given under the terms of
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile transmission and shall be effective
five days after being placed in the mail, if mailed by regular United States
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile transmission, with
printed confirmation of receipt, in each case addressed to a party. The
addresses for such communications shall be:

(i)
If to the Company:

Debt Resolve, Inc.
707 Westchester Avenue, Suite L-7
White Plains, NY 10604
Attention: James D. Burchetta
Telephone: (914) 949-5500
Facsimile: (914) 428-3044

With a copy to:

Greenberg Traurig LLP
MetLife Building
200 Park Avenue, 15th Floor
New York, NY 10166
Attention: Spencer G. Feldman, Esq.
Telephone: (212) 801-9200
Facsimile: (212) 801-6400

(ii)
If to a Purchaser:  To the address and fax number set forth immediately below
such Purchaser’s name on the counterpart signature pages hereto.

With copies to:

Capital Growth Financial, Inc.
225 NE Mizner Boulevard, Suite #750
Boca Raton, FL 33432
Attention: Alan Jacobs
Telephone: (561) 417-5680
Facsimile: (561) 417-5680

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and

Maxim Group LLC
405 Lexington Avenue
New York, NY 10174
Attention: Clifford A. Teller
Telephone: (212) 895-3500
Facsimile: (212) 895-3783

Each party shall provide notice to the other party of any change in address,
telephone or facsimile number.

(f) 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 Purchaser 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 2(f) hereof, any Purchaser
may, without the consent of the Company, assign its rights hereunder to any
person that purchases Securities in a private transaction from a Purchaser or to
any of its “affiliates,” as that term is defined under the 1934 Act.

(g) 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 Agents, 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.

(h) Survival; Indemnification; Limitation on Liability.

(i) The representations and warranties of the Purchasers and the Company set
forth in Sections 2 and 3 hereof shall survive for 12 months following the
Closing Date notwithstanding any due diligence investigation conducted by or on
behalf of the Purchasers or the Company, as applicable.

(ii) The Company agrees to indemnify and hold harmless each of the Purchasers
and all of their respective officers, directors, employees, agents and
representative from and against any and all claims, costs, expenses,
liabilities, obligations, losses or damages (including reasonable legal fees) of
any nature (“Losses”), incurred by or imposed upon any such party arising as a
result of or related to any actual or alleged breach by the Company of any of
its representations, warranties and covenants set forth in Sections 3 and 4
hereof or any of its covenants, agreements and obligations under this Agreement
or any other Transaction Document.

(iii) Each Purchaser agrees, severally but not jointly, to indemnify and hold
harmless the Company and its officers, directors, employees and agents for
Losses arising arising as a result of or related to any actual or alleged breach
any breach by such Purchaser of any of its representations or warranties set
forth in Section 2 hereof or any of its covenants, agreements and obligations
under this Agreement or any other Transaction Document.

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(iv) Notwithstanding the foregoing: (A) an indemnifying party shall not be
liable for any claim for indemnification or Loss associated therewith unless and
until the aggregate amount of indemnifiable Losses which may be recovered from
the indemnifying party equals or exceeds $50,000, after which the indemnifying
party shall be liable, subject to the provisions hereof, for all Losses,
including the initial $50,000 of Losses, and (ii) in no event shall the
aggregate amount paid by an indemnifying party pursuant to this Section 9(h)
exceed $4,000,000.

(i) Publicity. The Company and the Placement Agents shall have the right to
review a reasonable period of time before issuance of any press releases or SEC
or other regulatory filings, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of the Placement Agents or the Purchasers,
to make any press release or SEC or other regulatory filings with respect to
such transactions as is required by applicable law and regulations (although the
Placement Agents shall be consulted by the Company in connection with any such
press release prior to its release and shall be provided with a copy thereof and
be given an opportunity to comment thereon).

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

(k) No Strict Construction. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

 
[Remainder of page intentionally left blank; signature pages follow.]

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

        DEBT RESOLVE, INC.  
   
   
    By:   /s/ James D. Burchetta  

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Name: James D. Burchetta
Title: Co-chairman, President and CEO

 

 
PURCHASERS:
 
The Purchasers 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.

 
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Annex A

Securities Purchase Agreement
Purchaser Counterpart Signature Page

The undersigned, desiring to: (i) enter into this Securities Purchase Agreement
dated as of _________________ ___, 2006 (the “Agreement”), between the
undersigned, Debt Resolve, Inc., a Delaware corporation (the “Company”), and the
other parties thereto, in or substantially in the form furnished to the
undersigned and (ii) purchase the securities of the Company appearing next to
the undersigned’s name on Schedule A to the Agreement, hereby agrees to purchase
such securities 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.
 
IN WITNESS WHEREOF, the undersigned has executed the Agreement as of
_________________ ___, 2006.
 
PURCHASER:
 
Name and Address, Fax No. and Social Security No./EIN of Purchaser:
 
______________________________________
 
______________________________________
 
______________________________________
 
______________________________________
 
Fax No.: _______________________________
Soc. Sec. No./EIN: _______________________
 
If a partnership, corporation, trust or other business entity:

 

        By:      

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Name:
Title:
     
If an individual:
   

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Signature
      Purchase Price:  ________________________

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