Document:

drsv_ex45.htm

EXHIBIT 4.5

These Securities Have Not Been Registered For Offer or Sale Under The Securities Act Of 1933 Or Any State securities laws.  They May Not Be Sold Or Offered For Sale Except Pursuant To An Effective Registration Statement Under Said Act And Any Applicable State Securities Law Or An Applicable Exemption From Such Registration Requirements.

 

SECURITIES PURCHASE AGREEMENT

 

SECURITIES PURCHASE AGREEMENT (“Agreement”) dated as of May 15, 2009, between Debt Resolve, Inc., a Delaware corporation (the “Company”), and each person or entity listed as a Purchaser on Schedule I attached to this Agreement (collectively and individually, the “Purchaser”).  Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Note (as defined below).

 

W I T N E S S E T H:

 

Whereas, the Company desires to sell, and the Purchasers desire to purchase, 14% Secured Convertible Notes of the Company, which notes shall be in the aggregate principal amount of up to One Million Five Hundred Thousand Dollars ($1,500,000) and shall be in substantially the form of Exhibit A hereto (collectively referred to as the “Notes” and individually referred to as a “Note”); and

 

Whereas, in connection with the purchase of the Notes, this Agreement also provides for the grant to the Purchasers of warrants to purchase additional shares of common stock, par value $0.001 per share, of the Company (“Common Stock”).

 

Now, Therefore, in consideration of the foregoing premises and the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

ARTICLE I

 

PURCHASE AND SALE OF NOTE

 

Section 1.1. Purchase of Notes.  At the Closing (as hereinafter defined) and subject to the terms and conditions hereof and in reliance upon the representations, warranties and agreements contained herein, the Company will issue and sell to the Purchasers, and the Purchasers will buy from the Company, the Notes for an aggregate purchase price of up to One Million Five Hundred Thousand Dollars ($1,500,000) (the “Purchase Price”).  The amount of Notes to be purchased by each Purchaser is set forth on Schedule I hereto.  For purposes hereof, the term “Conversion Shares” means any shares of Common Stock into which the Notes are convertible according to their terms.

 

Section 1.2. The Closing.  The purchase and sale of the Note shall take place at a closing or closings (the “Closing(s)”) on the date hereof or such other date as the Purchaser and the Company may agree upon (the “Closing Date(s)”).  At the Closing(s), the Company shall deliver to the Purchasers the Notes purchased hereunder, registered in the name of the Purchasers or their respective nominees.  On the Closing Date(s) the Purchaser shall deliver by wire transfer the Purchase Price hereunder to an account designated in writing by the Company.  In addition, each party shall deliver all documents, instruments and writings required to be delivered by such party pursuant to this Agreement at or prior to the Closing.

 

Section 1.3. Warrants.  In addition to the Note, at the Closing(s), the Company will execute and deliver to each Purchaser a warrant, substantially in the form attached hereto as Exhibit B, to purchase such number of shares Common Stock as shall be equal to the principal amount of such Purchaser’s Note (the “Warrants”).  The shares of Common Stock that are issuable pursuant to the Warrants are hereafter referred to as the “Warrant Shares.”

 

Section 1.4. Security Agreement.  At the Closing(s), the Company and the Purchasers will enter into a Security Agreement in substantially the form set forth as Exhibit C hereto (the “Security Agreement”).

 

  

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ARTICLE II

 

REPRESENTATIONS AND WARRANTIES

 

Section 2.1. Representations and Warranties of the Company.  The Company hereby makes the following representations and warranties to the Purchaser as of the date hereof and the Closing Date:

 

(a) Organization and Qualification; Material Adverse Effect.  The Company is a corporation duly incorporated under the laws of the State of Delaware and has the requisite corporate power to own its properties and to carry on its business as now being conducted.  The Company is duly qualified as a foreign corporation to do business in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary other than those in which the failure so to qualify would not have a Material Adverse Effect.  “Material Adverse Effect” means any adverse effect on the business, operations, properties, prospects or financial condition of the Company and its subsidiaries, if any, and which is (either alone or together with all other adverse effects) material to the Company and its subsidiaries.

 

(b) Authorization; Enforcement.  (i)  The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note, the Warrant, the Security Agreement and any other agreements or documents delivered by the Company at the Closing (“Transaction Documents”) and to issue the Note and Warrant in accordance with the terms hereof, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including the issuance of the Note, have been duly authorized by all necessary corporate action, and no further consent or authorization of the Company or its Board of Directors (or any committee or subcommittee thereof) or stockholders is required, (iii) the Transaction Documents have been duly executed and delivered by the Company, (iv) the Transaction Documents constitute valid and binding obligations of the Company enforceable against the Company, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of creditors' rights and remedies or by other equitable principles of general application, and (v) the Warrant Shares issuable upon the exercise of the Warrant and the Conversion Shares have been duly authorized and, upon issuance thereof and payment therefor in accordance with the terms of the Warrant and the Notes, as the case may be, will be validly issued, fully paid and non-assessable, free and clear of any and all liens, claims and encumbrances.

 

(c) 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 and issuance of the Note, the Conversion Shares, the Warrant and the Warrant Shares will not (i) result in a violation of the Certificate of Incorporation; (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or 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 other than those that have already occurred, or (iii) to the Company’s knowledge result in a violation of any law, rule, regulation, order, judgment or decree (including United States federal and state securities laws) 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, except in the case of clause (ii), such conflicts that would not have a Material Adverse Effect.

 

  

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(d) SEC Documents.  Since December 31, 2007, the Company has 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 filed 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 as the “SEC Documents”), except for the Company’s annual report on Form 10-K for the year ended December 31, 2008 and First Quarter 10-Q for the three months ended March 31, 2009.  To the Company’s knowledge, 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.

 

Section 2.2. Representations and Warranties of the Purchasers.  Each Purchaser (severally and not jointly) hereby makes the following representations and warranties to the Company as of the date hereof and the Closing Date:

 

(a) Accredited Investor Status; Sophisticated Purchaser. The Purchaser is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “1933 Act”).  The Purchaser has such knowledge and experience in financial and business matters that the Purchaser is capable of evaluating the merits and risks of the purchase of the Note, the Conversion Shares, the Warrant, and the Warrant Shares.  The Purchaser is not registered as a broker or dealer under Section 15(a) of the 1934 Act, affiliated with any broker or dealer registered under Section 15(a) of the 1934 Act, or a member of the Financial Industry Regulatory Authority.

 

(b) Information. The Purchaser and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company which have been requested and materials relating to the offer and sale of the Note, the Conversion Shares, the Warrant, and the Warrant Shares which have been requested by the Purchaser.  The Purchaser and its advisors, if any, have been afforded the opportunity to ask questions of the Company.  The Purchaser acknowledges that (i) Purchaser has been provided with and has reviewed copies of the following filings made by the Company with the U.S. Securities and Exchange Commission: Form 10-KSB for the year ended December 31, 2007, filed on April 16, 2008 (as amended April 24, 2009), Form 10-Qs for the quarters ended March 31, 2008, June 30, 2008 and September 30, 2008, filed on May 21, 2008, August 18, 2008 and November 19, 2008, respectively, and Form 8-Ks filed on May 16, 2008, May 30, 2008, June 10, 2008, June 23, 2008, August 20, 2008, October 1, 2008, and November 12, 2008; and (ii) Purchaser’s purchase of the Note, Warrant, and (if applicable) the Conversion Shares and Warrant Shares involves a high degree of risk and that Purchaser may never recover Purchaser’s investment in these securities.

 

  

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(c) Investment Representation. The Purchaser is purchasing the Note and the Warrant for the Purchaser’s own account and not with a view to distribution in violation of any securities laws.  The Purchaser has been advised and understands that neither the Note, the Conversion Shares issuable upon the conversion of the Note, the Warrant, nor the Warrant Shares issuable upon exercise of the Warrant have been registered under the 1933 Act or under the “blue sky” laws of any jurisdiction and may be resold only if registered pursuant to the provisions of the 1933 Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law.  The Purchaser has been advised and understands that the Company, in issuing the Note and the Warrant, is relying upon, among other things, the representations and warranties of the Purchaser contained in this Section 2.2 in concluding that such issuance is a “private offering” and is exempt from the registration provisions of the 1933 Act.

 

(d) Rule 144. The Purchaser understands that there is no public trading market for the Note or Warrant, that none is expected to develop, and that the Note and Warrant must be held indefinitely unless and until such Note and the Warrant, or if applicable, the Conversion Shares and Warrant Shares received upon exercise of the Note and Warrant, respectively, are registered under the 1933 Act or an exemption from registration is available.  The Purchaser has been advised or is aware of the provisions of Rule 144 promulgated under the 1933 Act.

 

ARTICLE III

 

COVENANTS

 

Section 3.1. Prohibition on Net Short Positions.  From and including the date of this Agreement, the Purchaser agrees that such Purchaser shall not maintain a Net Short Position.  “Net Short Position” shall mean that the aggregate number of shares of Common Stock held in a short position by such Purchaser exceeds the sum of (i) the number of shares of Common Stock owned by such Purchaser, plus (ii) the number of Warrant Shares or Conversion Shares issuable to such Purchaser.

 

  

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Section 3.2. Senior Status of Notes.  Beginning on the date of this Agreement and for so long as any Notes remain outstanding, neither the Company nor any subsidiary of the Company shall, without the prior written consent of Purchasers holding a majority of the aggregate outstanding Principal Amount of the Notes, incur or otherwise become liable with respect to any indebtedness that would rank senior or pari passu to the Notes in order of payment, except that (i) indebtedness and obligations in existence on the date hereof and trade payables incurred in the ordinary course of business shall not be required to be subordinated to the Notes, and the Company may pay such obligations and payables as they become due, (ii) the Notes shall be subordinate to the Company’s and its subsidiaries’ outstanding debt to Empire Advisors LLC until it is discharged, (iii) the Company shall be permitted to incur secured indebtedness used solely to finance the purchase or lease of assets (provided that such debt may only be secured by the purchased or leased assets and not by any other assets of the Company) and shall be permitted to pay such indebtedness as it becomes due, (iv) the Notes shall be pari passu to, and the Company shall be permitted to incur, secured indebtedness pursuant to and in accordance with the terms of the Memorandum of Terms for the Private Placement of 14% Convertible Notes of Debt Resolve, Inc., dated March 24, 2009, between Finance 500, Inc. and the Company (as it may be amended or supplemented from time to time), and (v) the Notes shall be subordinate to, and the Company shall be permitted to incur, any indebtedness under a Qualified Credit Facility.  For purposes hereof, a “Qualified Credit Facility” shall mean any secured or unsecured credit facility that the Company may obtain after the date hereof from a lender that makes commercial loans or extends commercial credit facilities in the ordinary course of its business which is secured by inventory and/or accounts receivable.  Purchaser hereby agrees to execute any acknowledgment or sign any reasonable subordination agreement evidencing the fact that the Notes are subordinate to such a credit facility in all respects, including right of payment and security.

 

ARTICLE IV

 

LEGEND AND STOCK

 

Upon payment therefor as provided in this Agreement, the Company will issue the Note in the name the Purchaser or its designees and in such denominations to be specified by the Purchaser prior to (or from time to time subsequent to) Closing.  The Note and Warrant and any certificate representing Conversion Shares or Warrant Shares issued upon conversion or exercise thereof, prior to such Conversion Shares or Warrant Shares being registered under the 1933 Act for resale or available for resale under Rule 144 under the 1933 Act, shall be stamped or otherwise imprinted with a legend in substantially the following form:

 

These Securities Have Not Been Registered For Offer or Sale Under The Securities Act Of 1933 Or Any State securities laws.  They May Not Be Sold Or Offered For Sale Except Pursuant To An Effective Registration Statement Under Said Act And Any Applicable State Securities Law Or An Applicable Exemption From Such Registration Requirements.

 

The Company agrees to reissue the Note, Conversion Shares, and Warrant Shares without the legend set forth above, at such time as (i) the holder thereof is permitted to dispose of securities pursuant to Rule 144 under the 1933 Act, or (ii) such securities are sold to a purchaser or purchasers who (in the opinion of counsel to the seller or such purchaser(s), in form and substance reasonably satisfactory to the Company and its counsel) are able to dispose of such shares publicly without registration under the 1933 Act, or (iii) such securities have been registered under the 1933 Act.

 

  

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ARTICLE V

 

GOVERNING LAW; MISCELLANEOUS

 

Section 5.1. Governing Law.  THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.

 

Section 5.2. Counterparts.  This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature.

 

Section 5.3. Headings.  The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

 

Section 5.4. Severability.  If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.

 

Section 5.5. Entire Agreement; Amendments; Waivers.  This Agreement supersedes all other prior oral or written agreements between the Purchaser, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein (including the other Transaction Documents) 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 the Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Purchaser, and no provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought.

 

Section 5.6. Notices.  Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing, must be delivered by (i) courier, mail or hand delivery or (ii) facsimile, and will be deemed to have been delivered upon receipt. The addresses and facsimile numbers for such communications shall be:

 

  

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If to the Company:

	 	 	 
	 	 	Debt Resolve, Inc.
	 	 	150 White Plains Road, Suite 108
	 	 	Tarrytown, New York 10591
	 	 	Telephone:  (914) 949-5500
	 	 	Fax:  (914) 428-3044
	 	 	Attention: David M. Rainey, President, Chief Financial Officer, Treasurer and Secretary
	 	 	 
	 	With a copy to:
	 	 	 
	 	 	Greenberg Traurig, LLP
	 	 	MetLife Building
	 	 	200 Park Avenue, 15th Floor
	 	 	New York, New York 10166
	 	 	Telephone:  (212) 801-9200
	 	 	Facsimile:  (212) 801-6400
	 	 	Attention:  Spencer G. Feldman, Esq.
	 	 	 
	 	If to the Transfer Agent:
	 	 	 
	 	 	American Stock Transfer & Trust Company
	 	 	59 Maiden Lane
	 	 	Plaza Level
	 	 	New York, New York  10039
	 	 	Telephone:  (718) 921-8124
	 	 	Facsimile:  (718) 236-2641
	 	 	 
	 	If to the Purchasers, to the addresses listed on Schedule I hereto.

 

Each party shall provide five (5) days prior written notice to the other party of any change in address, telephone number or facsimile number.  Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

 

Section 5.7. Successors and Assigns.  Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any permitted assignee.  The Purchaser may assign some or all of its rights hereunder to any permitted assignee of the Note or Warrant; provided, however, that any such assignment shall not release the Purchaser from its obligations hereunder unless such obligations are assumed by such assignee and the Company has consented to such assignment and assumption.

 

  

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Section 5.8. 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.

 

Section 5.9. Days.  Unless the context refers to “business days” or “Trading Days”, all references herein to “days” shall mean calendar days.  “Trading Day” shall mean a day on which there is trading on the market or exchange on which the Common Stock is then principally traded, listed, or quoted.

 

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed as of the date and year first above written.

 

COMPANY:

	 	
DEBT RESOLVE, INC.

 

By:_______________________________

Name:

Title:

 

 

Signatures of Purchasers on following page(s)

 

  

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COUNTERPART SIGNATURE PAGE

TO SECURITIES PURCHASE AGREEMENT

DATED MAY 15, 2009,

AMONG DEBT RESOLVE, INC.

 AND THE “PURCHASERS” IDENTIFIED THEREIN

The undersigned hereby executes and delivers the Securities Purchase Agreement to which this Signature Page is attached, which, together with all counterparts of the Securities Purchase Agreement and Signature Pages of the Company and other “Purchasers” under the Securities Purchase Agreement, shall constitute one and the same document in accordance with the terms of the Securities Purchase Agreement.

 

 

	PURCHASER: ____________________________	 	 	 
	 	 	 	 
	By:_____________________________________	 	 	 
	 	 	 	 
	Name:___________________________________	 	 	 
	 	 	 	 
	Title:____________________________________	 	 	 

 

  

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EXHIBIT A

 

Form of Note

 

 

 

 

 

 

 

 

  

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EXHIBIT B

 

Form of Warrant

 

 

 

 

 

 

 

  

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SCHEDULE I

	
Purchaser

	 	
Address

	 	
Principal Amount of Notes

	  	 	  	 	  
	  	 	  	 	  
	  	 	  	 	  
	  	 	  	 	  
	  	 	  	 	  
	  	 	  	 	  
	  	 	  	 	  
	  	 	  	 	  
	  	 	  	 	  
	  	 	  	 	  
	  	 	  	 	  
	  	 	  	 	  
	  	 	  	 	  
	  	 	  	 	  
	  	 	  	 	  

 

 

 

12drsv_ex46.htm

EXHIBIT 4.6

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.

 

THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER OF THE NOTE IN THE EVENT OF A PARTIAL REDEMPTION.  AS A RESULT, FOLLOWING ANY REDEMPTION OF ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT AND ACCRUED INTEREST SET FORTH BELOW.

 

14% SECURED CONVERTIBLE NOTE

 

OF

 

DEBT RESOLVE, INC.

 

Note No.:  ___

Original Principal Amount: $____________

Issuance Date:  May __, 2009

Tarrytown, New York

 

This Note (this “Note”) is one of a duly authorized issue of Notes issued by Debt Resolve, Inc., a corporation duly organized and existing under the laws of the State of Delaware (the “Company”), designated as the Company's 14% Secured Convertible Note in an aggregate principal amount of up to One Million Five Hundred Thousand Dollars ($1,500,000.00) (the “Notes”).  All principal and unpaid interest under this Note shall become due and payable on May __, 2012 (the “Maturity Date”).

 

For Value Received, the Company hereby promises to pay to the order of ___________, or its registered assigns or successors-in-interest (“Holder”), the principal sum of _________________________________ ($__________) together with all accrued but unpaid interest thereon, if any, on the Maturity Date, in accordance with the terms hereof.  Interest on the unpaid principal balance hereof shall accrue at the rate of 14.0% per annum from the issuance date specified above (the “Issuance Date”), until the same becomes due and payable on the Maturity Date, or such earlier date upon acceleration in accordance with the terms hereof or of the other Transaction Documents.  Interest on this Note shall accrue daily commencing on the Issuance Date and shall be computed on the basis of a 365-day year and actual days elapsed and shall be payable in accordance with Section 1 hereof.  Notwithstanding anything to the contrary contained herein, this Note shall bear interest on the due and unpaid Principal Amount from and after the occurrence and during the continuance of an Event of Default pursuant to Section 3(a), at the rate (the “Default Rate”) equal to the lower of fourteen percent (14.0%) per annum or the highest rate permitted by law.  Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs, then to unpaid interest and fees and any remaining amount to principal.

 

  

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Except as otherwise provided herein, all payments of principal and interest on this Note shall be made in lawful money of the United States of America by wire transfer of immediately available funds to such account as the Holder may from time to time designate by written notice in accordance with the provisions of this Note.  This Note may be prepaid in whole or in part at any time without penalty.  Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a Business Day.

 

Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Securities Purchase Agreement dated on or about the Issuance Date pursuant to which the Note was originally issued (the “Purchase Agreement”).  For purposes hereof the following terms shall have the meanings ascribed to them below:

 

“Business Day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the City of New York are authorized or required by law or executive order to remain closed.

 

“Conversion Price” shall be $0.15 per share, as adjusted as set forth herein.

 

“Convertible Securities” means any convertible securities, warrants, options or other rights to subscribe for or to purchase or exchange for, shares of Common Stock.

 

“Debt” shall mean indebtedness of any kind.

 

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

 

“Per Share Selling Price” shall include the amount actually paid by third parties for each share of Common Stock in a sale or issuance by the Company.  A sale of shares of Common Stock shall include the sale or issuance of rights, options, warrants or convertible, exchangeable or exercisable securities, issued or sold on or subsequent to the Issuance Date, under which the Company is or may become obligated to issue shares of Common Stock, and in such circumstances the Per Share Selling Price of the Common Stock covered thereby shall also include the exercise, exchange or conversion price thereof.  If shares are issued for a consideration other than cash, the Per Share Selling Price shall be the fair market value of such consideration as determined in good faith by the board of directors of the Company.

 

“Principal Amount” shall refer to any unpaid principal amounts outstanding under this Note.

 

“Principal Market” shall mean the principal market, exchange, or quotation service on which the Common Stock is then listed or quoted for trading.

 

“Securities Act” shall mean the Securities Act of 1933, as amended.

 

  

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“Trading Day” shall mean a day on which there is trading on the Principal Market.

 

“Underlying Shares” means the shares of Common Stock into which this Note is convertible in accordance with the terms hereof.

 

The following terms and conditions shall apply to this Note:

 

Section 1.      Payments of Principal and Interest.

 

(a)           Interest Payments.  The Company shall pay all accrued but unpaid interest on the Principal Amount of this Note (the “Interest Amount”), at the Maturity Date of the Note (each an “Interest Payment Date”).  The Interest Amount shall be paid in cash or shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at the discretion of the Note Holder.  If paid in stock, the conversion rate shall be $0.15 per share.

 

(b)           Payment of Principal.  Subject to the provisions hereof, the Principal Amount of this Note and all remaining accrued and unpaid interest shall be due and payable on the Maturity Date.  Payment of the Principal Amount shall be effected in cash or stock at the discretion of the Note Holder.  If paid in stock, the conversion rate shall be $0.15 per share.

 

(c)           Taxes.  The Company may withhold and pay over to the relevant authorities any appropriate tax or other legally required withholdings from any interest payment to be made to the Holder to the extent that such withholding is required by the Internal Revenue Code or any other applicable law, rule, or regulation.

 

(d)           Security.  This Note is secured by a security interest in certain assets of the Company pursuant to that certain Security Agreement, dated of even date herewith, among the Company, the Holder, and the other “Purchasers” under the Purchase Agreement.

 

Section 2.              Seniority.  The obligations of the Company hereunder shall rank senior to all other Debt of the Company, whether now or hereinafter existing, except as and to the extent set forth in Section 3.2 of the Purchase Agreement.

 

  

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Section 3.             Defaults and Remedies.

 

(a)           Events of Default.  An “Event of Default” is:  (i) a default in payment of the Principal Amount, when due, or failure to pay any accrued but unpaid interest thereon of the Note within five (5) days after the date such interest payment is due; (ii) a default in the timely issuance of the Underlying Shares upon and in accordance with the terms hereof (where for purposes of this Note, the term timely shall mean within ten (10) days following the conversion date) (iii) failure by the Company for thirty (30) days after written notice has been received by the Company to comply with any other material provision of the Note, the Purchase Agreement or the Transaction Documents, (iv) a material breach by the Company of its representations or warranties in the Purchase Agreement or  Transaction Documents that remains uncured for thirty (30) business days after notice  to the Company; (v) any event or condition shall occur which (x) results in the acceleration of the maturity of any material long-term debt (other than the Note) of the Company or any of its subsidiaries, or (y) enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such material long-term debt or any or person acting on behalf of such holder’s behalf to accelerate the maturity thereof, or (vi) if the Company or any of its subsidiaries is subject to any Bankruptcy Event.  “Bankruptcy Event” means any of the following events: (a) the Company or any subsidiary commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any subsidiary thereof; (b) there is commenced against the Company or any subsidiary any such case or proceeding that is not dismissed within 30 days after commencement; (c) the Company or any subsidiary is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) the Company or any subsidiary suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 30 days; (e) the Company or any subsidiary makes a general assignment for the benefit of creditors; (f) the Company or any subsidiary, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

(b)           Remedies.  If an Event of Default occurs and is continuing with respect to this Note, the Holder may declare all of the then outstanding Principal Amount of this Note, including any interest due thereon, to be due and payable immediately.  The Company shall pay interest on such amount in cash at the Default Rate to the Holder if such amount is not paid within two (2) days of Holder’s request.  The remedies under this Note shall be cumulative.

 

  

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Section 4.              Covenants.  The Company hereby covenants and agrees that, for so long as any Notes remain outstanding, unless the Purchasers shall otherwise consent in writing, the Company shall not, and shall not permit any subsidiary to, directly or indirectly after the date hereof (a) create, assume, or otherwise become or remain obligated in respect of, or permit or suffer to exist or to be created, assumed or incurred or to be outstanding any indebtedness, other than as permitted in Section 3.2 of the Purchase Agreement, (b) assign, transfer, encumber or otherwise dispose of Collateral (as defined in that certain Security Agreement, dated May __, 2009, between the Company, the Agent and the Investors (as defined therein) (the “Security Agreement”)), except as permitted under Section 5(a) of the Security Agreement; (c) guaranty or become surety for the obligations of any other person, other than any guaranty or surety with respect to the obligations of a subsidiary of the Company or any guaranty or surety made in the ordinary course of the Company’s business, provided that such guaranty or surety does not exceed $500,000 in the aggregate; (d) acquire (whether for cash, property, services, assumption of debt, securities or otherwise) any shares of capital stock, bonds, notes, debentures, time deposits or other securities of any other person, in excess of the aggregate amount of $1.0 million over any rolling 12-month period; (e) purchase or otherwise acquire (whether for cash, property, services, assumption of debt, securities or otherwise) any Assets (defined below) in excess of the aggregate amount of $3.0 million over any rolling 12-month period; (f) engage in or consummate any sale, purchase, merger or other transaction or series of transactions that would result in any person (including any syndicate or group deemed to be a “person” under Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended, or any successor provision) having (i) beneficial ownership, directly or indirectly, of more than 40% of the equity of the Company or (ii) the right to appoint or cause to be appointed a majority of new officers of the Company; or (g) engage in or consummate any consolidation of the Company with, or merger of the Company into, any other person, any merger of another person into the Company, or any sale, lease or exchange of all or substantially all of the property and assets of the Company to another person.  For purposes of this paragraph, the term “Assets” shall mean any capital assets or fixed assets, provided that such term shall not include inventory or other assets purchased in ordinary course of the Company’s business.

 

Section 5.              Conversion.

 

(a)           Conversion by Holder.  From and after the Issuance Date and subject to the terms hereof and restrictions and limitations contained herein, the Holder shall have the right, at Holder's option, at any time and from time to time to convert, in part or in whole, the outstanding Principal Amount and all accrued and unpaid interest under this Note into shares of Common Stock at the Conversion Price of $0.15 per share, by delivering to the Company a fully executed notice of conversion in the form of conversion notice attached hereto as Exhibit A (the “Conversion Notice”), which may be transmitted by facsimile (with the original mailed on the same date by certified or registered mail, postage prepaid and return receipt requested).  The Conversion Notice shall specify a date for the conversion to be effective, which date shall be no earlier than the date on which the Conversion Notice is delivered (the “Conversion Date”), and the Conversion Notice shall be irrevocable when delivered.

 

  

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(b)           Conversion Procedures.  Upon conversion of this Note pursuant to this Section 5, the outstanding Principal Amount hereunder shall be converted into such number of fully paid, validly issued and non-assessable shares of Common Stock, free of any liens, claims and encumbrances, as is determined by dividing the outstanding Principal Amount being converted by the Conversion Price of $0.15 and any accrued but unpaid interest shall be paid in cash or stock on the same basis as the principal converted.  The Company will deliver to the Holder not later than three (3) Trading Days after the Conversion Date, a certificate or certificates which shall be free of restrictive legends and trading restrictions (assuming that a registration statement covering those shares has been declared effective), representing the number of shares of Common Stock being acquired upon the conversion of this Note.

 

(c)           Conversion Price Adjustments.

 

(i)           Stock Dividends, Splits and Combinations.  If the Company or any of its subsidiaries, at any time while the Note is outstanding (A) shall pay a stock dividend or otherwise make a distribution or distributions on any equity securities (including instruments or securities convertible into or exchangeable for such equity securities but excluding any stockholder rights granted pursuant to a poison pill) in shares of Common Stock, (B) subdivide outstanding Common Stock into a larger number of shares, (C) combine outstanding Common Stock into a smaller number of shares, or (D) issues new securities by reclassification of the shares of Common Stock of the Company, then, and in each such case, the Conversion Price in effect immediately prior to such event or the record date therefor, whichever is earlier, shall be adjusted so that the Holder shall be entitled to receive the number of shares of Common Stock or other securities of the Company which such Holder would have owned or have been entitled to receive after the occurrence of any of the events described above, had such Note been surrendered for conversion immediately prior to the occurrence of such event or record date therefore, whichever is earlier.  Any adjustment made pursuant to this Section 5(c) shall become effective (x) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of shares of Common Stock entitled to receive such dividend or distribution, or (y) in the case of such subdivision, reclassification or combination, at the close of business on the day upon which such corporate action becomes effective.

 

(ii)           Distributions.  If the Company or any of its subsidiaries, at any time while the Note is outstanding, shall distribute to all holders of Common Stock evidences of its indebtedness or assets or cash or rights or warrants to subscribe for or purchase any security of the Company or any of its subsidiaries (excluding those referred to in Section 5(c)(i) above), then concurrently with such distributions to holders of Common Stock, the Company shall distribute to the Holder of this Note the amount of such indebtedness, assets, cash or rights or warrants which the Holder of this Note would have received had this Note been converted into Common Stock at the then applicable the Conversion Price immediately prior to the record date for such distribution.

 

  

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(iii)           Rounding of Adjustments. All calculations under this Section 5(c) shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.

 

(iv)           Notice of Adjustments. Whenever the Conversion Price is adjusted pursuant to this Section 5(c), the Company shall promptly deliver to the Holder of this Note, a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment, provided that any failure to so provide such notice shall not affect the automatic adjustment hereunder.

 

(v)           Fundamental Changes.   In case any transaction or event (including, without limitation, any merger, consolidation, combination, recapitalization, sale of assets, tender or exchange offer, reclassification, compulsory share exchange or liquidation) shall occur in which all or substantially all outstanding shares of Common Stock are converted into or exchanged or acquired for or constitute the right to receive stock, or other securities, cash, property or assets (each, “Fundamental Change”), the Holder of this Note outstanding immediately prior to the occurrence of such Fundamental Change shall have the right upon any subsequent conversion to receive the kind and amount of stock, other securities, cash, property or assets that such holder would have received if such share had been converted immediately prior to such Fundamental Change.

 

(d)           Reservation and Issuance of Underlying Securities.  The Company covenants that it will at all times reserve and keep available out of its authorized and unissued Common Stock solely for the purpose of issuance upon conversion of this Note, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holder of this Note, not less than such number of shares of Common Stock as shall be issuable (taking into account the adjustments under this Section 5) upon the conversion of this Note hereunder in Common Stock.  The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid, nonassessable and freely tradeable.

 

  

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(e)           No Fractions.  Upon a conversion hereunder the Company shall not be required to issue stock certificates representing fractions of shares of Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the closing price of a share of Common Stock at such time.  If the Company elects not, or is unable, to make such cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock.

 

(f)           Charges, Taxes and Expenses.  Issuance of certificates for shares of Common Stock upon the conversion of this Note (including repayment in stock) shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the Holder, this Note when surrendered for conversion shall be accompanied by an assignment form; and provided further, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any such transfer.

 

(g)           Cancellation.  After all of the Principal Amount (including accrued but unpaid interest and default payments at any time owed on this Note) has been paid in full or converted into Common Stock, this Note shall automatically be deemed canceled and the Holder shall promptly surrender the Note to the Company at the Company’s principal executive offices.

 

Section 6.              General.

 

(a)           Payment of Expenses.  The Company agrees to pay all reasonable charges and expenses, including attorneys' fees and expenses, which may be incurred by the Holder in successfully enforcing this Note and/or collecting any amount due under this Note.

 

(b)           Savings Clause.  In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.  In no event shall the amount of interest paid hereunder exceed the maximum rate of interest on the unpaid principal balance hereof allowable by applicable law.  If any sum is collected in excess of the applicable maximum rate, the excess collected shall be applied to reduce the principal debt.  If the interest actually collected hereunder is still in excess of the applicable maximum rate, the interest rate shall be reduced so as not to exceed the maximum allowable under law.

 

  

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(c)           Amendment.  Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.

 

(d)           Assignment, Etc.  The Holder may assign or transfer this Note to any transferee.  The Holder shall notify the Company of any such assignment or transfer promptly.  This Note shall be binding upon the Company and its successors and shall inure to the benefit of the Holder and its successors and permitted assigns.

 

(e)           Amendments and Waivers.

 

A.           The provisions of this Note, including, but not limited to, any decision to convert the Note, any waiver of the restrictive covenants or adjustment provision and any change to a conversion price, may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Company and the Holders of not less than 50% in Principal Amount of the Notes then outstanding (the “Required Holders”); provided, however, that no such amendment, modification or waiver which would (i) modify this Section 6(e), (ii) extend the Maturity Date for more than one year, or (iii) reduce the Principal Amount or any amounts payable hereunder or (iv) not be uniform and non-discriminatory as to any particular Note, shall be made without the consent of the Holder of each Note so affected.

 

B.            Except as provided herein, no failure or delay on the part of the Holder in exercising any power or right under this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right.  No notice to or demand on the Company in any case shall entitle it to any notice or demand in similar or other circumstances.  No waiver or approval by the Holder shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions.  No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder.

 

(f)           Governing Law; Jurisdiction.

 

(i)           Governing Law.  THIS NOTE WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.

 

(ii)           Jurisdiction.  The Company irrevocably submits to the jurisdiction of any State or Federal Court sitting in the State of New York, County of New York, over any suit, action, or proceeding arising out of or relating to this Note.  The Company irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action, or proceeding brought in such a court and any claim that suit, action, or proceeding has been brought in an inconvenient forum.

 

  

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The Company agrees that the service of process upon it mailed by certified or registered mail, postage prepaid and return receipt requested (and service so made shall be deemed complete three days after the same has been posted as aforesaid) or by personal service shall be deemed in every respect effective service of process upon it in any such suit or proceeding.  Nothing herein shall affect Holder's right to serve process in any other manner permitted by law.  The Company agrees 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.

 

(iii)           No Jury Trial.  The Company hereby knowingly and voluntarily waives any and all rights it may have to a trial by jury with respect to any litigation based on, or arising out of, under, or in connection with, this Note.

 

(g)           Replacement Notes.  This Note may be exchanged by Holder at any time and from time to time for a Note or Notes with different denominations representing an equal aggregate outstanding Principal Amount, as reasonably requested by Holder, upon surrendering the same.  No service charge will be made for such registration or exchange.  In the event that Holder notifies the Company that this Note has been lost, stolen or destroyed, a replacement Note identical in all respects to the original Note (except for registration number and Principal Amount, if different than that shown on the original Note), shall be issued to the Holder, provided that the Holder executes and delivers to the Company an agreement reasonably satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with the Note.

 

(h)           Cancellation.  After all of the Principal Amount (including accrued but unpaid interest and default payments at any time owed on this Note) has been paid in full, this Note shall automatically be deemed canceled and the Holder shall promptly surrender the Note to the Company at the Company’s principal executive offices.

 

(i)           Notices Procedures.  Any and all notices or other communications or deliveries to be provided by the Holder hereunder, shall be in writing and delivered personally, by confirmed facsimile, or by a nationally recognized overnight courier service to the Company at the facsimile telephone number or address of the principal place of business of the Company as set forth in the Purchase Agreement.  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or by a nationally recognized overnight courier service addressed to the Holder at the facsimile telephone number or address of the Holder appearing on the books of the Company, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder.  Any notice or other communication or deliveries hereunder shall be deemed delivered (i) upon receipt, when delivered personally, (ii) when sent by facsimile, upon receipt if received on a Business Day prior to 5:00 p.m. (New York Time), or on the first Business Day following such receipt if received on a Business Day after 5:00 p.m. (New York Time) or (iii) upon receipt, when deposited with a nationally recognized overnight courier service.

 

 

[signature on following page]

 

  

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed on the date first set forth above.

 

 

	 	DEBT RESOLVE, INC.	 
	 	 	 	 
	 	 	 	 
	
Date

	
By: 

	/s/ 	 
	 	 	Name:	 
	 	 	Title:	 

 

  

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EXHIBIT A

 

FORM OF CONVERSION NOTICE

 

(To be Executed by the Holder

in order to Convert a Note)

 

The undersigned hereby elects to convert the aggregate outstanding Principal Amount (as defined in the Note) indicated below of this Note into shares of Common Stock, $0.001 par value per share (the “Common Stock”), of Debt Resolve, Inc. (the “Company”) according to the conditions hereof, as of the date written below.  If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith.  No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

	Conversion information:	 	 
	 	Date to Effect Conversion	 
	 	 	 
	 	 	 
	 	Aggregate Principal Amount of Note Being Converted	 
	 	 	 
	 	 	 
	 	Number of shares of Common Stock to be Issued $0.15 per share	 
	 	 	 
	 	 	 
	 	Applicable Conversion Price	 
	 	 	 
	 	 	 
	 	Signature	 
	 	 	 
	 	 	 
	 	Name	 
	 	 	 
	 	 	 
	 	Address	 
	 	 	 
	 	 	 
	 	Social Security Number	 

 

 

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