Document:

drsv_ex411.htm

EXHIBIT 4.11

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT, dated as of __________________________, 2009 (the “Agreement”) is by and among DEBT RESOLVE, INC., a Delaware corporation (the “Company”), the holders of the Notes (as defined below), and Oswald and Yap LLP, as collateral agent for the holders of the Notes (and in such capacity, together with its successors in such capacity, the “Collateral Agent”).

 

Pursuant to the terms of a Private Placement Memorandum (as modified and supplemented and in effect from time to time, the “Memorandum”), the Company has issued to certain investors (each, a “Noteholder” and collectively, the “Noteholders”), severally and not jointly, certain 14% 36-month secured convertible notes (the “Notes”) in the aggregate principal amount of at least $50,000 and up to a maximum of $3,000,000 as more fully described in the Memorandum.  It is a material benefit to the Company that the Noteholders purchase the Notes from the Company.

 

To induce each of the Noteholders to purchase the Notes and to secure the Company’s obligations under the Notes, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company has agreed to pledge and grant a security interest in the Collateral (as hereinafter defined) as security for the Secured Obligations (as hereinafter defined).  Accordingly, the parties hereto agree as follows:

 

1.      Definitions.  Each capitalized term used herein and not otherwise defined shall have the meaning assigned to such term in the Memorandum, including all annexes thereto.  In addition, as used herein:

 

a.       “Accounts” shall have the meaning ascribed thereto in Section 3(d) hereof.

 

b.       “Business” shall mean the businesses from time to time, now or hereafter, conducted by the Company or any of its successors.

 

c.       “Collateral” shall have the meaning ascribed thereto in Section 3 hereof.

 

d.       “Collateral Agent Agreement” shall mean the Collateral Agent Agreement of even date herewith among the Noteholders and the Collateral Agent, as amended from time to time hereafter.

 

e.       “Copyright Collateral” shall mean all Copyrights, whether now owned or hereafter acquired by the Company, that are associated with the Business.

 

  

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f.      “Copyrights” shall mean all copyrights, copyright registrations and applications for copyright registrations, including, without limitation, all renewals and extensions thereof, the right to recover for all past, present and future infringements thereof, and all other rights of any kind whatsoever accruing thereunder or pertaining thereto.

 

g.      “Documents” shall have the meaning ascribed thereto in Section 3(j) hereof.

 

h.      “Equipment” shall have the meaning ascribed thereto in Section 3(h) hereof.

 

i.      “Event of Default” shall have the meaning ascribed thereto in the Notes.

 

j.      “Excluded Collateral” shall mean any: (i) licenses or user or other agreements, or consents, permits, variances, or any contracts which by their terms cannot be assigned; (ii) software or computer programs not owned by the Company; and (iii) information the assignment of which would violate privacy laws.

 

k.      “Government Contracts Collateral” shall mean all non-classified government contracts entered into and to be entered into by the Company.

 

l.      “Instruments” shall have the meaning ascribed thereto in Section 3(e) hereof.

 

m.      “Intellectual Property” shall mean, collectively, all Copyright Collateral, all Patent Collateral and all Trademark Collateral, together with (a) all inventions, processes, production methods, proprietary information, know-how and trade secrets used or useful in the Business; (b) all licenses or user or other agreements granted to the Company with respect to any of the foregoing, in each case whether now or hereafter owned or used including, without limitation, the licenses or other agreements with respect to the Copyright Collateral, the Patent Collateral or the Trademark Collateral; (c) all customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, manuals, materials standards, processing standards, catalogs, computer and automatic machinery software and programs, and the like pertaining to the operation by the Company of the Business; (d) all sales data and other information relating to sales now or hereafter collected and/or maintained by the Company that pertain to the Business; (e) all accounting information which pertains to the Business and all media in which or on which any of the information or knowledge or data or records which pertain to the Business may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data; (f) all licenses, consents, permits, variances, certifications and approvals of governmental agencies now or hereafter held by the Company pertaining to the operation by the Company and its Subsidiaries of the Business; and (g) all causes of action, claims and warranties now or hereafter owned or acquired by the Company in respect of any of the items listed above.

 

  

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n.      “Inventory” shall have the meaning ascribed thereto in Section 3(f) hereof.

 

o.      “Issuers” shall mean, collectively, the Company, and all other entities formed by the Company or entities in which the Company owns or acquires greater than a majority of the capital stock or similar interest.

 

p.      “Lien” shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction).

 

q.      “Motor Vehicles” shall mean motor vehicles, tractors, trailers and other like property, whether or not the title thereto is governed by a certificate of title or ownership.

 

r.      “Patent Collateral” shall mean all Patents, whether now owned or hereafter acquired by the Company that are associated with the Business.

 

s.      “Patents” shall mean all patents and patent applications, including, without limitation, the inventions and improvements described and claimed therein together with the reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, all income, royalties, damages and payments now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past or future infringements thereof, the right to sue for past, present and future infringements thereof, and all rights corresponding thereto throughout the world.

 

t.      “Permitted Liens” shall mean purchase money security interests and the Liens permitted pursuant to the Collateral Agent Agreement.

 

u.      “Person” shall mean and include an individual, a sole proprietorship, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization and a government or any department or agency thereof.

 

v.      “Pledged Stock” shall have the meaning ascribed thereto in Section 3(a) hereof.

 

  

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w.      “Real Estate” shall have the meaning ascribed thereto in Section 3(l) hereof.

 

x.      “Secured Obligations” shall mean, collectively, all obligations of the Company to the Noteholders in respect of the Notes.

 

y.      “Stock Collateral” shall mean, collectively, the Collateral described in clauses (a) through (c) of Section 3 hereof and the proceeds of and to any such property and, to the extent related to any such property or such proceeds, all books, certificates, correspondence, credit files, records, invoices and other documents.

 

z.      “Trademark Collateral” shall mean all Trademarks, whether now owned or hereafter acquired by the Company, that are associated with the Business.  Notwithstanding the foregoing, the Trademark Collateral does not and shall not include any Trademark which would be rendered invalid, abandoned, void or unenforceable by reason of its being included as part of the Trademark Collateral.

 

aa.     “Trademarks” shall mean all trade names, trademarks and service marks, logos, trademark and service mark registrations, and applications for trademark and service mark registrations, including, without limitation, all renewals of trademark and service mark registrations, all rights corresponding thereto throughout the world, the right to recover for all past, present and future infringements thereof, all other rights of any kind whatsoever accruing thereunder or pertaining thereto, together, in each case, with the product lines and goodwill of the business connected with the use of, and symbolized by, each such trade name, trademark and service mark.

 

bb.     “Uniform Commercial Code” or “UCC” shall mean the Uniform Commercial Code as in effect in the State of California from time to time.

 

2.      Representations and Warranties.  The Company represents and warrants to the Collateral Agent and each of the Noteholders that:

 

a.       the Company is the sole beneficial owner of the Collateral and no Lien exists or will exist upon any Collateral at any time (and, with respect to the Stock Collateral, no right or option to acquire the same exists in favor of any other Person), except for Permitted Liens and the pledge and security interest in favor of each of the Noteholders created or provided for herein which pledge and security interest constitutes a perfected pledge and security interest in and to all of the Collateral, assuming applicable financing statements are duly and properly filed (other than Intellectual Property of the Company registered or otherwise located outside of the United States of America);

 

  

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b.      any Pledged Stock directly or indirectly owned by the Company, whether issued now or in the future, will be, duly authorized, validly issued, fully paid and nonassessable, free and clear of all Liens other than Permitted Liens and none of such Pledged Stock is or will be subject to any contractual restriction, preemptive and similar rights, or any restriction under the charter or by-laws of the respective Issuers of such Pledged Stock, upon the transfer of such Pledged Stock (except for any such restriction contained herein or in a security agreement creating a Permitted Lien);

 

c.       the Company owns and possesses the right to use, and, has done nothing to authorize or enable any other Person to use, all of its Copyrights, Patents and Trademarks (other than licenses which are not material);

 

d.      the Company owns or possesses the right to use all material Copyrights, Patents and Trademarks, necessary for the operation of the Business.

 

e.      to the Company’s knowledge, (i) there is no violation by others of any right of the Company with respect to any material Copyrights, Patents or Trademarks, respectively, and (ii) the Company is not, in connection with the Business, infringing in any respect upon any Copyrights, Patents or Trademarks of any other Person; and no proceedings have been instituted or are pending against the Company or, to the Company’s knowledge, threatened, and no claim against the Company has been received by the Company, alleging any such violation; and

 

f.       the Company does not own any material Trademarks registered in the United States of America to which the last sentence of the definition of Trademark Collateral applies.

 

3.      Collateral.  As collateral security for the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations, the Company hereby pledges, grants, assigns, hypothecates and transfers to the Noteholders as hereinafter provided, a security interest in and Lien upon all of the Company’s right, title and interest in, to and under all personal property and other assets of the Company, whether now owned or hereafter acquired by or arising in favor of the Company, whether now existing or hereafter coming into existence, whether owned or consigned by or to the Company, or leased from or to the Company and regardless of wherever located, except for the Excluded Collateral (all being collectively referred to herein as “Collateral”) including:

 

a.      the Company’s direct or indirect ownership interest of any shares of capital stock of the Issuers, now or hereafter owned by the Company, together with in each case the certificates evidencing the same (collectively, the “Pledged Stock”);

 

b.      all shares, securities, moneys or property representing a dividend on any of the Pledged Stock, or representing a distribution or return of capital upon or in respect of the Pledged Stock, or resulting from a split-up, revision, reclassification or other like change of the Pledged Stock or otherwise received in exchange therefor, and any subscription warrants, rights or options issued to the holders of, or otherwise in respect of, the Pledged Stock;

 

  

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c.      without affecting the obligations of the Company under any provision prohibiting such action hereunder or under the Notes, in the event of any consolidation or merger in which any Issuer is not the surviving corporation, all shares issued to the Company of each class of the capital stock of the successor corporation (unless such successor corporation is the Company itself) formed by or resulting from such consolidation or merger (the Pledged Stock, together with all other certificates, shares, securities, properties or moneys as may from time to time be pledged hereunder pursuant to clause (a) or (b) above and this clause (c) being herein collectively called the “Stock Collateral”);

 

d.      all accounts and general intangibles (each as defined in the Uniform Commercial Code) of the Company constituting any right to the payment of money, including (but not limited to) all moneys due and to become due to the Company in respect of any loans or advances for the purchase price of Inventory or Equipment or other goods sold or leased or for services rendered, all moneys due and to become due to the Company under any guarantee (including a letter of credit) of the purchase price of Inventory or Equipment sold by the Company and all tax refunds (such accounts, general intangibles and moneys due and to become due being herein called collectively “Accounts”);

 

e.      all instruments, chattel paper or letters of credit (each as defined in the Uniform Commercial Code) of the Company evidencing, representing, arising from or existing in respect of, relating to, securing or otherwise supporting the payment of, any of the Accounts, including (but not limited to) promissory notes, drafts, bills of exchange and trade acceptances (herein collectively called “Instruments”);

 

f.       all inventory (as defined in the Uniform Commercial Code) of the Company and all goods obtained by the Company in exchange for such inventory (herein collectively called “Inventory”);

 

g.      all Intellectual Property of the Company and all other accounts or general intangibles of the Company not constituting Intellectual Property or Accounts;

 

h.      all equipment (as defined in the Uniform Commercial Code) of the Company (herein collectively called “Equipment”);

 

i.       each contract and other agreement of the Company relating to the sale or other disposition of Inventory or Equipment;

 

j.       all documents of title (as defined in the Uniform Commercial Code) or other receipts of the Company covering, evidencing or representing Inventory or Equipment (herein collectively called “Documents”);

 

k.      all rights, claims and benefits of the Company against any Person arising out of, relating to or in connection with Inventory or Equipment purchased by the Company, including, without limitation, any such rights, claims or benefits against any Person storing or transporting such Inventory or Equipment;

 

  

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l.       all estates of the Company in land together with all improvements and other structures now or hereafter situated thereon, together with all rights, privileges, tenements, hereditaments, appurtenances, easements, including, but not limited to, rights and easements for access and egress and utility connections, and other rights now or hereafter appurtenant thereto (“Real Estate”);

 

m.     all Government Contracts Collateral; and

 

n.      all other tangible or intangible property of the Company, including, without limitation, all proceeds, products and accessions of and to any of the property of the Company described in clauses (a) through (m) above in this Section 3 (including, without limitation, any proceeds of insurance thereon), and, to the extent related to any property described in said clauses or such proceeds, products and accessions, all books, certificates, correspondence, credit files, records, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of the Company or any computer bureau or service company from time to time acting for the Company.

 

4.      Further Assurances; Remedies.  In furtherance of the grant of the pledge and security interest pursuant to Section 3 hereof, the Company hereby agrees with the Collateral Agent and each of the Noteholders as follows:

 

a.      Delivery and Other Perfection.  Subject to the terms of the Collateral Agent Agreement, the Company shall:

 

i.       if any of the above-described shares, securities, monies or property required to be pledged by the Company under clauses (a), (b) and (c) of Section 3 hereof are received by the Company, forthwith either (x) deliver and pledge to the Collateral Agent such shares or securities so received by the Company (together with the certificates for any such shares and securities duly endorsed in blank or accompanied by undated stock powers duly executed in blank) all of which thereafter shall be held by the Collateral Agent, pursuant to the terms of this Agreement, as part of the Collateral; or (y) take such other action as the Collateral Agent shall reasonably deem necessary or appropriate to duly record the Lien created hereunder in such shares, securities, monies or property referred to in said clauses (a), (b) and (c) of Section 3;

 

ii.      deliver and pledge to the Collateral Agent, at the Collateral Agent’s reasonable request, any and all Instruments, endorsed and/or accompanied by such instruments of assignment and transfer in such form and substance as the Collateral Agent may request; provided, that so long as no Event of Default shall have occurred and be continuing, the Company may retain for collection in the ordinary course any Instruments received by it in the ordinary course of business and any Instruments relating to Government Contracts Collateral;

 

iii.     give, execute, deliver, file and/or record, or authorize the Collateral Agent to file and/or record, any financing statement, notice, instrument, document, agreement or other papers that may be necessary or desirable (in the reasonable judgment of the Collateral Agent) to create, preserve, perfect or validate any security interest granted pursuant hereto or to enable the Collateral Agent to exercise and enforce their rights hereunder with respect to such security interest, including, without limitation, causing any or all of the Stock Collateral to be re-registered as pledged in the name of the Collateral Agent or its nominee for the benefit of the Company (and the Collateral Agent agrees that if any Stock Collateral is registered in its name or the name of its nominee for the benefit of the Company, the Collateral Agent will thereafter promptly give to the Company copies of any notices and communications received by it with respect to the Stock Collateral), provided that notices to account debtors in respect of any Accounts or Instruments shall be subject to the provisions of Section 4(i) below;

 

  

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iv.     upon the acquisition after the date hereof by the Company of any Equipment covered by a certificate of title or ownership cause the Collateral Agent to be listed as a lienholder on such certificate of title and within 90 days of the acquisition thereof deliver evidence of the same to the Collateral Agent;

 

v.      keep accurate books and records relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Collateral Agent may reasonably require in order to reflect the security interests granted by this Agreement;

 

vi.     furnish to the Collateral Agent from time to time (but, unless an Event of Default shall have occurred and be continuing, no more frequently than quarterly) statements and schedules further identifying and describing the Copyright Collateral, the Patent Collateral and the Trademark Collateral, respectively, and such other reports in connection with the Copyright Collateral, the Patent Collateral and the Trademark Collateral, as the Collateral Agent may reasonably request, all in reasonable detail;

 

vii.    permit representatives of the Collateral Agent, upon reasonable notice, at any time during normal business hours to inspect and make abstracts from its books and records pertaining to the Collateral, and permit representatives of the Collateral Agent to be present at the Company’s place of business to receive copies of all communications and remittances relating to the Collateral, and forward copies of any notices or communications by the Company with respect to the Collateral, all in such manner as the Collateral Agent may reasonably require; provided, however, that in each case, the Company shall not be required to provide access to any materials or by any representatives of the Collateral Agent if the Company determines that access to such information or by such representatives could adversely affect the attorney-client privilege between the Company and its counsel or could result in the disclosure of trade secrets, material nonpublic information or other confidential or proprietary information; and

 

viii.   upon the occurrence and during the continuance of any Event of Default, upon request of the Collateral Agent, promptly notify each account Company in respect of any Accounts or Instruments that such Collateral has been assigned to the Collateral Agent hereunder, and that any payments due or to become due in respect of such Collateral are to be made directly to the Collateral Agent.

 

b.      Other Financing Statements and Liens.  Except with respect to Permitted Indebtedness, without the prior written consent of the Collateral Agent, the Company shall not file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement or like instrument with respect to the Collateral in which the Collateral Agent is not named as the sole secured party for the benefit of each of the Noteholders.

 

  

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c.       Preservation of Rights.  The Collateral Agent shall not be required to take steps necessary to preserve any rights against prior parties to any of the Collateral.

 

d.      Special Provisions Relating to Certain Collateral.

 

i.       Stock Collateral.

 

                                (1)     The Company will cause the Stock Collateral to constitute at all times 100% of the total number of shares of each class of capital stock of each Issuer then outstanding that is owned directly or indirectly by the Company.

 

                                (2)     So long as no Event of Default shall have occurred and be continuing, the Company shall have the right to exercise all voting, consensual and other powers of ownership pertaining to the Stock Collateral for all purposes not inconsistent with the terms of this Agreement, any other Transaction Document or any other instrument or agreement referred to herein or therein, provided that the Company agrees that it will not vote the Stock Collateral in any manner that is inconsistent with the terms of this Agreement, and the Collateral Agent shall execute and deliver to the Company or cause to be executed and delivered to the Company all such proxies, powers of attorney, dividend and other orders, and all such instruments, without recourse, as the Company may reasonably request for the purpose of enabling the Company to exercise the rights and powers which it is entitled to exercise pursuant to this Section.

 

                                (3)     Unless and until an Event of Default has occurred and is continuing, the Company shall be entitled to receive and retain any dividends on the Stock Collateral paid in cash out of earned surplus.

 

                                (4)     If any Event of Default shall have occurred, then so long as such Event of Default shall continue, and whether or not the Collateral Agent exercises any available right to declare any Secured Obligations due and payable or seeks or pursues any other relief or remedy available to it under applicable law or under this Agreement, the Notes or any other agreement relating to such Secured Obligations, all dividends and other distributions on the Stock Collateral shall be paid directly to the Collateral Agent and retained by it as part of the Stock Collateral, subject to the terms of this Agreement, and, if the Collateral Agent shall so request in writing, the Company agrees to execute and deliver to the Collateral Agent appropriate additional dividend, distribution and other orders and documents to that end, provided that if such Event of Default is cured, any such dividend or distribution theretofore paid to the Collateral Agent shall, upon request of the Company (except to the extent theretofore applied to the Secured Obligations) be returned by the Collateral Agent to the Company.

 

ii.       Intellectual Property.

 

(1)     For the purpose of enabling the Collateral Agent to exercise rights and remedies under Section 4(e) hereof at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, the Company hereby grants to the Collateral Agent, to the extent assignable, an irrevocable, non-exclusive license without the right to grant sublicenses (exercisable without payment of royalty or other compensation to the Company) to use any of the Intellectual Property now owned or hereafter acquired by the Company, wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof.

 

  

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(2)     Notwithstanding anything contained herein to the contrary, so long as no Event of Default shall have occurred and be continuing, the Company will be permitted to exploit, use, enjoy, protect, license, sublicense, assign, sell, dispose of or take other actions with respect to the Intellectual Property in the ordinary course of the business of the Company.  In furtherance of the foregoing, unless an Event of Default shall have occurred and is continuing, the Collateral Agent shall from time to time, upon the request of the Company, execute and deliver any instruments, certificates or other documents, in the form so requested, which the Company shall have certified are appropriate (in its judgment) to allow it to take any action permitted above (including relinquishment of the license provided pursuant to clause (1) immediately above as to any specific Intellectual Property).  Further, upon the payment in full of all of the Secured Obligations or earlier expiration of this Agreement or release of the Collateral, the Collateral Agent shall grant back to the Company the license granted pursuant to clause (1) immediately above.  The exercise of rights and remedies under Section 4 hereof by the Collateral Agent shall not terminate the rights of the holders of any licenses or sublicenses theretofore granted by the Company in accordance with the first sentence of this clause (2).

 

e.      Events of Default, etc.  During the period during which an Event of Default shall have occurred and be continuing:

 

i.       the Company shall, at the request of the Collateral Agent, assemble the Collateral owned by it at such place or places, reasonably convenient to both the Collateral Agent and the Company, designated in its request;

 

ii.      the Collateral Agent may make any reasonable compromise or settlement deemed desirable with respect to any of the Collateral and may extend the time of payment, arrange for payment in installments, or otherwise modify the terms of, any of the Collateral;

 

iii.     the Collateral Agent shall have all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code (whether or not said Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including, without limitation, the right, to the maximum extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if the Collateral Agent were the sole and absolute owner thereof (and the Company agrees to take all such action as may be appropriate to give effect to such right);

 

iv.     the Collateral Agent in its discretion may, in its name or in the name of the Company or otherwise, demand, sue for, collect or receive any money or property at any time payable or receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and

 

  

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v.      the Collateral Agent may upon ten business days’ prior written notice to the Company of the time and place, with respect to the Collateral or any part thereof which shall then be or shall thereafter come into the possession, custody or control of the Collateral Agent, or any of its respective agents, sell, lease, assign or otherwise dispose of all or any of such Collateral, at such place or places as the Collateral Agent deems best, and for cash or on credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of time or place thereof (except such notice as is required above or by applicable statute and cannot be waived) and the Collateral Agent or anyone else may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale), and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of the Company, any such demand, notice or right and equity being hereby expressly waived and released.  In the event of any sale, assignment, or other disposition of any of the Trademark Collateral, the goodwill of the Business connected with and symbolized by the Trademark Collateral subject to such disposition shall be included, and the Company shall supply to the Collateral Agent or its designee, for inclusion in such sale, assignment or other disposition, all Intellectual Property relating to such Trademark Collateral.  The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the same may be so adjourned.

 

The proceeds of each collection, sale or other disposition under this Section 4(e), including by virtue of the exercise of the license granted to the Collateral Agent in Section 4(d)(ii)(1) hereof, shall be applied in accordance with Section 4(i) hereof.

 

The Company recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, the Collateral Agent may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof.  The Company acknowledges that any such private sales to an unrelated third party in an arm’s length transaction may be at prices and on terms less favorable to the Collateral Agent than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit the respective Issuer thereof to register it for public sale.

 

f.      Deficiency.  If the proceeds of sale, collection or other realization of or upon the Collateral pursuant to Section 4(e) hereof are insufficient to cover the costs and expenses of such realization and the payment in full of the Secured Obligations, the Company shall remain liable for any deficiency.

 

g.      Removals, etc.  Without at least 30 calendar days’ prior written notice to the Collateral Agent, the Company shall not: (i) maintain any of its books or records with respect to the Collateral at any office or maintain its chief executive office or its principal place of business at any place, or permit any Inventory or Equipment to be located anywhere other than at the Company’s address; or (ii) change its corporate name, or the name under which it does business.

 

  

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h.      Private Sale.  The Collateral Agent shall incur no liability as a result of the sale of the Collateral, or any part thereof, at any private sale to an unrelated third party in an arm’s length transaction pursuant to Section 4(e) hereof conducted in a commercially reasonable manner.  The Company hereby waives any claims against the Collateral Agent arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if the Collateral Agent accepts the first offer received and does not offer the Collateral to more than one offeree.

 

i.      Application of Proceeds.  Except as otherwise herein expressly provided, the proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by the Collateral Agent under this Section 4, shall be applied by the Collateral Agent in accordance with the Collateral Agent Agreement.

 

j.      Attorney-in-Fact.  Without limiting any rights or powers granted by this Agreement to the Collateral Agent while no Event of Default has occurred and is continuing, upon the occurrence and during the continuance of any Event of Default, the Collateral Agent is hereby appointed the attorney-in-fact of the Company for the purpose of carrying out the provisions of this Section 4 and taking any action and executing any instruments which the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest.  Without limiting the generality of the foregoing, so long as the Noteholders shall be entitled under Section 4 to make collections in respect of the Collateral, the Collateral Agent shall have the right and power to receive, endorse and collect all checks made payable to the order of the Company representing any dividend, payment, or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same.

 

k.      Perfection.  (i) Prior to or concurrently with the execution and delivery of this Agreement, the Company shall file or deliver to Collateral Agent for filing and permit the Collateral Agent to file without further authorization such financing statements and other documents, prepared by the Collateral Agent, in such offices as the Collateral Agent may reasonably request to perfect the security interests granted by Section 3 of this Agreement, and (ii) at any time requested by the Collateral Agent, the Company shall deliver to the Collateral Agent all share certificates of capital stock directly or indirectly owned by the Company in the Issuers accompanied by undated stock powers duly executed in blank.

 

  

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l.      Termination.  When all Secured Obligations shall have been paid in full, this Agreement shall immediately terminate without any further action on the part of either party, and the Collateral Agent shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof in accordance with the Collateral Agent Agreement.  The Collateral Agent shall also execute and deliver to the Company upon such termination such Uniform Commercial Code termination statements, certificates for terminating the Liens on the Motor Vehicles and such other documentation as shall be reasonably requested by the Company to effect the termination and release of the Liens on the Collateral.

 

m.     Expenses.  The Company agrees to pay to the Collateral Agent all reasonable out-of-pocket expenses (including reasonable expenses for legal services of every kind) of, or incident to, the enforcement of any of the provisions of this Section 4, or performance by the Collateral Agent of any obligations of the Company in respect of the Collateral which the Company has failed or refused to perform upon reasonable notice, or any actual or attempted sale, or any exchange, enforcement, collection, compromise or settlement in respect of any of the Collateral, and for the care of the Collateral and defending or asserting rights and claims of the Collateral Agent in respect thereof, by litigation or otherwise, including expenses of insurance, and all such expenses shall be Secured Obligations to the Collateral Agent secured under Section 3 hereof.

 

n.      Further Assurances.  The Company agrees that, from time to time upon the written request of the Collateral Agent, the Company will execute and deliver such further documents and do such other acts and things as the Collateral Agent may reasonably request in order fully to effect the purposes of this Agreement.

 

o.      Indemnity.  Each of the Noteholders and the Company hereby jointly and severally covenants and agrees to reimburse, indemnify and hold the Collateral Agent harmless from and against any and all claims, actions, judgments, damages, losses, liabilities, costs, transfer or other taxes, and expenses (including, without limitation, reasonable attorneys’ fees and expenses) incurred or suffered without any bad faith or willful misconduct by the Collateral Agent, arising out of or incident to this Agreement or the administration of the Collateral Agent’s duties hereunder, or resulting from its actions or inactions as Collateral Agent.

 

  

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5.      Miscellaneous.

 

a.      Modifications in Writing.  No waiver or modification of any of the terms or provisions of this Agreement shall be valid or binding unless set forth in a writing signed by all of the parties to this Agreement, and then only to the extent therein specifically set forth.

 

b.      Notices.  Any notice pursuant to this Agreement by the Company, the Noteholders or the Collateral Agent shall be in writing and shall be deemed to have been duly given if delivered personally, or if mailed by certified mail, postage prepaid, or transmitted by facsimile, to the parties at the addresses or facsimile numbers set forth below.

 

(i)      Noteholder Address.  If to the Noteholder, addressed to the Noteholder at the address set forth below Noteholder’s signature on the signature page of the Subscription Agreement, as it may be amended by the Noteholder from time to time by written notice to the Company and the Collateral Agent.

 

(ii)     Company Address.  If to the Company, addressed to it at 150 White Plains Road, Suite 108, Tarrytown, New York, 10591, Attention: David M. Rainey, President, Facsimile No.:  (914) 428-3044.

 

(iii)    Collateral Agent Address.  If to the Collateral Agent, addressed to it at 16148 Sand Canyon Avenue, Irvine, California, 92618, Attention: Lynne Bolduc, Esq., Facsimile No.:  (949) 788-8980.

All such notices and other communications will (1) if delivered personally to the address as provided in this Section 5(b), be deemed given upon delivery, (2) if delivered by facsimile transmission to the facsimile number as provided in this Section 5(b), be deemed given upon receipt, and (iii) if delivered by mail in the manner described above to the address as provided in this Section 5(b), be deemed given upon receipt (in each case regardless of whether such notice is received by any other person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section 5(b)).  Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto.

           c.           Entire Agreement; Severability.  This Agreement constitutes the full and entire understanding, promise and agreement between the parties with respect to the subject matter hereof, and it supersedes, merges and renders void every other prior written and oral understanding, promise or agreement between the parties.  If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement, the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms, and the parties shall use good faith to negotiate a substitute, valid and enforceable provision that replaces the excluded provision and that most nearly effects the parties’ intent in entering into this Agreement.

THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.

 

  

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d.      Choice of Law.  This Agreement and the rights of the parties hereunder shall be governed by and construed in accordance with the laws of the State of California including all matters of construction, validity, performance, and enforcement and without giving effect to the principles of conflict of laws.

e.      Exclusive Jurisdiction and Venue.  The parties agree that the Courts of the County of Orange, State of California shall have sole and exclusive jurisdiction and venue for the resolution of all disputes arising under the terms of this Agreement and the transactions contemplated herein.

f.       Attorneys’ Fees.  In the event any Party hereto shall commence legal proceedings against the other to enforce the terms hereof, or to declare rights hereunder, as the result of a breach of any covenant or condition of this Agreement, the prevailing party in any such proceeding shall be entitled to recover from the losing party its costs of suit, including reasonable attorneys' fees, as may be fixed by the court.

 

g.      Successors and Assigns.  This Agreement shall be binding upon the parties hereto, their successors and assigns.

 

h.      Counterparts.   This Agreement may be executed in counterparts and delivered by facsimile, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

i.        No Waiver.  No failure on the part of the Collateral Agent or any of its agents to exercise, and no course of dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Collateral Agent or any of its agents of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  The remedies herein are cumulative and are not exclusive of any remedies provided by law.

 

 

[SIGNATURE PAGE FOLLOWS.]

 

  

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

 

 

 

	COMPANY:	 	 	 
	DEBT RESOLVE, INC.	 	 	 
	 	 	 	 
	By:	 	 	 
	 	 	 	 
	 	 /s/ David M. Rainey	 	 
	Name:	David Rainey,	 	 
	Title:	President and CEO	 	 
	Address:	150 White Plains Road, Suite 108	 	 
	 	Tarrytown, New York 10591	 	 
	Fax No.:	(914) 428-3044	 	 
	 	 	 	 
	COLLATERAL AGENT:	 	 
	Oswald & Yap LLP	 	 
	 	 	 	 
	By:	 	 	 
	 	 	 	 
	 	/s/ Lynne Bolduc,	 	 
	Name:	Lynne Bolduc,	 	 
	Title:	Partner	 	 
	Address:	16148 Sand Canyon Avenue	 	 
	 	Irvine, California 92618	 	 
	Fax No.:	(949) 788-8980	 	 
	 	 	 	 
	NOTEHOLDER:	 	 	 
	[	]	 	 
	 	 	 	 
	Acknowledgment contained in the Omnibus Signature Page in the Subscription Agreement	 	 

 

 

 16drsv_ex412.htm

EXHIBIT 4.12

DEBT RESOLVE, INC.

INVESTORS’ RIGHTS AGREEMENT

THIS INVESTORS’ RIGHTS AGREEMENT (the “Agreement”) is dated and effective as of this _____ day of _____, 2009 (the “Effective Date”) by Debt Resolve, Inc., a Delaware corporation (the “Company”), and the purchaser(s) of the Company’s 14% secured convertible notes (the “Notes”) listed on the signature page attached hereto (the “Investor”).  The Notes are convertible into Units of the Company’s securities, each $1.50 “Unit” consisting of ten shares of the Company’s common stock (the “Note Shares”) and six two-year warrants (the “Note Warrants”) each to purchase one share of the Company’s common stock (the “Warrant Shares”) at an exercise price of $0.40 per Warrant Share.

WHEREAS, references herein to the “Company” refer to Debt Resolve, Inc., and any corporation which shall succeed or assume the obligations of Debt Resolve, Inc.;

WHEREAS, the Company has delivered to each Investor certain information about the Company in a Private Placement Memorandum dated October 14, 2009 (the “Memorandum”), of which this Agreement is an Exhibit;

WHEREAS, any undefined terms in this Agreement have the meaning ascribed to them in the Memorandum;

WHEREAS, each Investor has entered into the terms of that certain Subscription Agreement dated the date hereof (each, a “Subscription Agreement”), pursuant to which the Investor is purchasing and the Company is issuing and selling the Notes; and

WHEREAS, the Company has agreed to grant the Investor certain registration rights for the Note Shares and the Warrants Shares, and certain pre-emptive rights in the Company’s future equity or debt offerings.

NOW THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties hereto agree as follows:

1.           Registration Rights.

(a)           No later than 90 calendar days after the Final Closing date, the Company shall prepare and file with the Securities and Exchange Commission (the “SEC”) a registration statement on an appropriate registration statement form under the Securities Act of 1933 (the “Registration Statement”), at the sole expense of the Company (except as specifically provided in Section 1(c) hereof), in respect of each Investor, so as to permit a public resale in the United States of all of the common stock underlying the Notes, including the Note Shares and the Warrant Shares (collectively, the “Registrable Securities”) under the Securities Act of 1933 (the “Act”) by the Investor as selling stockholder and not as underwriter.  Only shares of common stock may be registered under the Registration Statement.  Note Shares and Warrant Shares shall be Registrable Securities whether or not the Notes have been converted or the Warrants have been exercised.  The Company will notify each Investor of the effectiveness of the Registration Statement (the “Effective Date”) within three Trading Days of the date thereof (a “Trading Day” is each day on which the Nasdaq Global Select Market is open for quotation).

 

  

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(b)           The Company will maintain the Registration Statement and any amendments filed thereto effective under the Act for a period of two years from the Effective Date.

(c)           All fees, disbursements and out-of-pocket expenses and costs incurred by the Company in connection with the preparation and filing of the Registration Statement and in complying with applicable securities and “blue sky” laws (including, without limitation, all attorneys’ fees of the Company, registration, qualification, notification and filing fees, printing expenses, escrow fees, blue sky fees, expenses and the expense of any special audits incident to or required by any such registration and the reasonable expenses and fees of one counsel for the holders of Registrable Securities not to exceed $25,000) shall be borne by the Company.  The Investors shall bear the cost of underwriting and/or brokerage discounts, fees and commissions, if any, applicable to the Registrable Securities being registered.  The Company shall not be required to qualify Registrable Securities in any state which will require an escrow or other restriction relating to the Company and/or the sellers, or which will require the Company to qualify to do business in such state or require the Company to file therein any general consent to service of process.  The Company at its expense will supply each Investor with copies of the applicable Registration Statement and the prospectus included therein and other related documents in such quantities as may be reasonably requested by such Investor.

(d)           The Investor will cooperate with the Company in all respects in connection with this Agreement, including timely supplying all information reasonably requested by the Company (which shall include all information regarding the Investor and proposed manner of sale of the Registrable Securities required to be disclosed in any Registration Statement) and executing and returning all documents reasonably requested in connection with the registration and sale of the Registrable Securities.  Any delay or delays caused by the Investor, or by any other purchaser of securities of the Company having registration rights similar to those contained herein, through such person’s failure to cooperate as required hereunder shall not constitute a breach or default of the Company under this Agreement.

(e)           Whenever the Company is required by any of the provisions of this Agreement to effect the registration of any of the Registrable Securities under the Act, the Company shall (except as otherwise provided in this Agreement), as expeditiously as possible, subject to the assistance and cooperation as reasonably required of the Investor with respect to each Registration Statement:

(i)           register and qualify the Registrable Securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions as the Investor shall reasonably request (subject to the limitations set forth in Section 1(b) above), and do any and all other acts and things which may be necessary or advisable to enable the Investor to consummate the public sale or other disposition in such jurisdiction of the securities owned by the Investor;

 

  

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(ii)           cause the Registrable Securities to be, and continue to be, quoted or listed on a national securities exchange or an automated quotation system;

(iii)           notify the Investor, at any time when a prospectus relating thereto covered by the Registration Statement is required to be delivered under the Act, of the happening of any event of which it has knowledge as a result of which the prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and the Company shall prepare and file a curative amendment as promptly as commercially reasonable;

(iv)          as promptly as practicable after becoming aware of such event, notify the Investor, (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the SEC of any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time and take all lawful action to effect the withdrawal, recession or removal of such stop order or other suspension; and

(v)           provide a transfer agent and registrar for all securities registered pursuant to the Registration Statement and a CUSIP number for all such securities.

(f)           With respect to any sale of Registrable Securities pursuant to the Registration Statement, each Investor hereby covenants with the Company (i) not to make any sale of the Registrable Securities without effectively causing the prospectus delivery requirements under the Act to be satisfied, and (ii) to notify the Company promptly upon disposition of all of the Registrable Securities held by such Investor.

(g)           The Company acknowledges that there is no adequate remedy at law for failure by it to comply with the provisions of Section 1 of this Agreement and that such failure would not be adequately compensable in damages, and therefore agrees that its agreements contained in this Section 1 may be specifically enforced.  In the event that the Registration Statement is not filed with the SEC by 90 calendar days after the Final Closing date (the “Registration Default”), then for every calendar day that the Company is late in filing the Registration Statement beyond such deadline, the Company shall issue to each Investor on a pro-rata basis, as liquidated damages for such failure and not as a penalty, additional shares of common stock  in whole share increments equal to 1% of the Registrable Securities held by such Investor until such Registration Statement has been filed or 90 calendar days, whichever is earlier.  Notwithstanding anything to the contrary contained herein, (i) the failure of the Registration Statement to be declared effective, (ii) the Company’s failure to maintain the effectiveness of the Registration Statement, or (iii) the inability of an Investor to use an otherwise effective Registration Statement to effect resales of the Registrable Securities shall not constitute a Registration Default and shall not trigger the accrual of liquidated damages hereunder.

 

  

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                If the Company does not issue the additional shares of common stock as liquidated damages to the Investors as set forth above, the Company will pay the Investors’ reasonable costs of collection, including reasonable attorneys’ fees, in addition to the liquidated damages.  The registration of the Registrable Securities pursuant to this Section 1 shall not affect or limit an Investor’s other rights or remedies as set forth in this Agreement.

(h)           Rule 144.  If the Registration Statement is not in registration or effective, the Company will, at its own expense, provide any and all legal opinions required for the removal of the restrictive legend from any Warrant Certificates or certificates for Registrable Securities pursuant to Rule 144 of the Act and will process any written request for removal of the restrictive legend within five business days of receiving the request.  For every calendar day that the Company is late in providing a requested opinion and for up to 90 calendar days, the Company will pay to the holder of the Registrable Securities liquidated damages of additional shares of common stock in whole share increments of 1% per day of the value of the Registrable Securities held by such Investor whose legends were requested to be removed.

2.           Indemnity and Contribution.

(a)           The Company agrees to indemnify and hold harmless the Investor, its officers, directors, employees, partners, legal counsel and accountants, and each person controlling such Investor within the meaning of Section 15 of the Act, and each person who controls any underwriter within the meaning of Section 15 of the Act, from and against any losses, claims, damages, expenses or liabilities (or actions or proceedings in respect thereof) to which such Investor or such other indemnified person may become subject (including in settlement of litigation, whether commenced or threatened) insofar as such losses, claims, damages, expenses or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact in the Registration Statement, including all documents filed as a part thereof and information deemed to be a part thereof, on the effective date thereof, or any amendment or supplements thereto, or arise out of any failure by the Company to fulfill any undertaking or covenant included in the Registration Statement or to perform its obligations hereunder or under applicable law and the Company will, as incurred, reimburse such Investor, each of its respective officers, directors, employees, partners, legal counsel and accountants, and each person controlling such Investor, and each person who controls any such underwriter, for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend, settling, compromising or paying such action, proceeding or claim; provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage, expense or liability (or action or proceeding in respect thereof) arises out of, or is based upon, (i) the failure of any Investor, or any of their agents, affiliates or persons acting on their behalf, to comply with the covenants and agreements contained in this Agreement with respect to the sale of Registrable Securities, (ii) an untrue statement or omission in such Registration Statement in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by or on behalf of the Investor, or any of its agents, affiliates or persons acting on its behalf, and stated to be specifically for use in preparation of the Registration Statement and not corrected in a timely manner by the Investor in writing or (iii) an untrue statement or omission in any prospectus that is corrected in any subsequent prospectus, or supplement or amendment thereto, that was delivered to the Investor prior to the pertinent sale or sales by such Investor and not delivered by the Investor to the individual or entity to which it made such sale(s) prior to such sale(s).

 

  

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(b)            The Investor agrees to indemnify and hold harmless the Company from and against any losses, claims, damages, expenses or liabilities (or actions or proceedings in respect thereof) to which the Company may become subject (under the Act or otherwise) insofar as such losses, claims, damages, expenses or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon (i) the failure of the Investor or any of its agents, affiliates or persons acting on its behalf, to comply with the covenants and agreements contained in this Agreement with respect to the sale of Registrable Securities; or (ii) an untrue statement or alleged untrue statement of a material fact or omission to state a material fact in the Registration Statement in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by or on behalf of such Investor and stated to be specifically for use in preparation of the Registration Statement; provided, however, that the Investor shall not be liable in any such case for (i) any untrue statement or alleged untrue statement or omission in any prospectus or Registration Statement which statement has been corrected, in writing, by such Investor and delivered to the Company before the sale from which such loss occurred; or (ii) an untrue statement or omission in any prospectus that is corrected in any subsequent prospectus, or supplement or amendment thereto, that was delivered to the Investor prior to the pertinent sale or sales by the Investor and delivered by the Investor to the individual or entity to which it made such sale(s) prior to such sale(s), and the Investor, severally and not jointly, will, as incurred, reimburse the Company for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim.  Notwithstanding the foregoing, the Investor shall not be liable or required to indemnify the Company in the aggregate for any amount in excess of the net amount received by the Investor from the sale of the Registrable Securities, to which such loss, claim, damage, expense or liability (or action proceeding in respect thereof) relates.

(c)           Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 2, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action and, subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall wish, to assume the defense thereof.  After notice from the indemnifying person to such indemnified person of the indemnifying person’s election to assume the defense thereof, the indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof; provided, however, that if there exists or shall exist a conflict of interest that would, in the opinion of counsel to the indemnified party, make it inappropriate under applicable laws or codes of professional responsibility for the same counsel to represent both the indemnified person and such indemnifying person or any affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel at the expense of such indemnifying person; provided, further, that the indemnifying person shall not be obligated to assume the expenses of more than one counsel to represent all indemnified persons.  In the event of such separate counsel, such counsel shall agree to reasonably cooperate.

 

  

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(d)            If the indemnification provided for in this Section 2 is unavailable or insufficient to hold harmless an indemnified party under Section 2(a) or 2(b) above in respect of any losses, claims, damages, expenses or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, expenses or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Investor, or its agents, affiliates or persons acting on its behalf, on the other in connection with the statements or omissions which resulted in such losses, claims, damages, expenses or liabilities (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations.  The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Investor, or its agents, affiliates or persons acting on its behalf, on the other and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.  The Company and the Investor agree that it would not be just and equitable if contribution pursuant to this Section 2(d) were determined by any other method of allocation which does not take into account the equitable considerations referred to above in this Section 2(d).  The amount paid or payable by an indemnified party as a result of the losses, claims, damages, expenses or liabilities (or actions or proceedings in respect thereof) referred to above in this Section (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.  In any event, the Investor shall not be liable or required to contribute to the Company in the aggregate for any amount in excess of the net amount received by the Investor from the sale of its Registrable Securities.

(e)           Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement will control.

3.           Information by Investor.  Each Investor holding securities included or to be included in any registration will furnish to the Company such information regarding such Investor as the Company may reasonably request in writing and as will be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement.

 

  

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4.           Preemptive Rights.

 

(a)           Subsequent Offerings.  During the two years immediately following the execution of this Agreement, each Investor shall have a right of first refusal to purchase his, her or its pro rata share of all Equity Securities or Convertible Debt Securities, as those terms are defined below and referred to collectively as “Securities,” that the Company may, from time to time, propose to sell and issue for cash after the date of this Agreement, other than the Securities excluded by Section 4(f) hereof; provided, however, that such Investor shall be, at the time of the offer of such Securities, an “accredited investor” as such term is defined under Rule 501(a) promulgated under the Act and shall have provided to the Company with evidence reasonably satisfactory to the Company that such Investor is an “accredited investor.”  Each Investor’s pro rata share is equal to the ratio of (a) the number of shares of common stock (including all shares of common stock issued or issuable upon conversion of the Notes or exercise of the Note Warrants) which such Holder is deemed to be a holder immediately prior to the issuance of such Securities to (b) the total number of shares of the Company’s Fully Diluted Common (as defined below) immediately prior to the issuance of the Securities.  The term “Equity Securities” shall mean (i) any shares of common stock, preferred stock or other equity security of the Company, (ii) any equity security convertible, with or without consideration, into any shares of common stock, preferred stock or other equity security (including any option to purchase such a convertible security), (iii) any security carrying any warrant or right to subscribe to or purchase any shares of common stock, preferred stock or other equity security or (iv) any such warrant or right.  The term “Convertible Debt Securities” shall mean any bonds, notes, debentures, or other debt security of the Company, whether or not bearing interest as long as it has any element which is convertible into Equity Securities.  For purposes of calculating an Investor’s pro rata share pursuant to this Section 4(a), the number of shares of the Company’s common stock which such Investor is deemed to hold may, at the election of such Investor, include shares held by any entity affiliated with such Investor, provided that, if such affiliated entity is also an Investor, such shares shall only be counted once in such pro rata calculation, such that the shares are included for only one such Investor.  The term “Fully Diluted Common” shall mean the sum of (i) the number of shares of common stock outstanding immediately prior to such issuance, plus (ii) the number of shares of common stock into which any preferred stock outstanding immediately prior to such issuance may be converted at the applicable conversion price then in effect, plus (iii) the number of shares of common stock and preferred stock for which any options to purchase, rights to subscribe, Note Warrants, other warrants or derivative equity securities are outstanding or authorized by any duly adopted stock option plan or other plan of the Company prior to such issuance, plus (iv) the number of shares of common stock into which any other convertible or exchangeable securities, including Note Warrants and convertible debt securities, outstanding immediately prior to such issuance may be converted or exchanged.

 

(b)           Exercise of Rights.  If the Company proposes to issue any Securities, it shall give each Investor written notice (the “First Refusal Notice”) of its intention, describing the Securities, the price and the terms and conditions upon which the Company proposes to issue the same.  Each Investor shall have ten business days from the giving of such notice to agree to purchase its pro rata share of the Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of Securities to be purchased.  If the Investors fail to exercise in full the rights of first refusal, the Company may thereafter sell the Securities in respect of which the Investors’ rights were not exercised, at a price and upon general terms and conditions no more favorable to the purchasers thereof than specified in the First Refusal Notice.  Notwithstanding the foregoing, the Company shall not be required to offer or sell such Securities to any Investor who would cause the Company to be in violation of applicable federal or state securities laws by virtue of such offer or sale.

 

  

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(c)           Sale Without Notice.  In lieu of giving notice to the Investors prior to the issuance of Securities as provided in Section 4(b), the Company may elect to give notice to the Investors within 30 calendar days after the issuance of Securities.  Such notice shall describe the type, price and terms of the Securities.  Each Investor shall have 30 calendar days from the date of receipt of such notice to elect to purchase its pro rata share of Securities (as defined in Section 4(a), and calculated by excluding such already issued Securities from the Fully Diluted Common).  The closing of such sale shall occur within 60 calendar days of the date of notice to the Investors.

 

(d)           Transfer of Rights of First Refusal.  The rights of first refusal of each Investor under this Section 4 may be transferred so long as the transferee agrees to be bound by the terms and conditions of this Agreement and the Company receives written notice within 20 calendar days after such transfer.

 

(f)           Excluded Securities.  The rights of first refusal established by this Section 4 shall have no application to any of the following Securities:

 

(i)           Securities issued pursuant to stock splits, stock dividends or other recapitalization transactions;

 

(ii)           Securities issued to employees, officers, directors, consultants, contractors or advisors of the Company pursuant to stock purchase or stock option plans or agreements or other incentive stock arrangements approved by the Board of Directors of the Company;

 

(iii)           Securities issued to lenders, equipment lessors or other parties providing goods or services to the Company;

 

(iv)           Securities issued in connection with acquisition, merger or other business combination transactions;

 

(v)           Securities issued upon exercise of any warrants issued to a broker-dealer registered as such with the SEC for services rendered to the Company;

 

(vi)           Securities issued in strategic partnership transactions;

 

(vii)           Securities issued in any other transaction in which exemption from the right of first refusal provisions of this Section 4 is approved by the holders of a majority of the then outstanding Notes; and

 

(viii)           Securities issued upon the exercise or conversion of securities outstanding as of the date of this Agreement.

 

  

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5.           Covenants of the Company.

(a)           The Company shall remain current in its reporting requirements under the Securities Exchange Act of 1934 for a period of two years after the Final Closing.

(b)           The Company shall at all times reserve a sufficient number of authorized but unissued shares of common stock for issuance upon exercise of the Investor Warrants.

(c)           All Company insiders shall be subject to dribble-out agreements whereby each holder will be required not to sell or otherwise dispose of any securities of the Company for a period beginning the date of the memorandum and continuing for 180 calendar days following the effective date of the Registration Statement, if our insiders, in the aggregate, have already sold or disposed of 500,000 shares of common stock during the 30 days preceding the proposed sale or disposition.

6.           Miscellaneous.

(a)           Severability.  The provisions of this Agreement are severable, so that the invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other term or provision of this Agreement, which shall remain in full force and effect.

(b)           Specific Performance.  In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, the Company and the Investor shall be entitled to specific performance of the agreements and obligations of the other parties hereunder and to such other injunctive or other equitable relief as may be granted by a court of competent jurisdiction.

(c)           Governing Law.  This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California (without reference to the conflicts of law provisions thereof).

(d)           Exclusive Jurisdiction and Venue.  The parties agree that the Courts of the County of Orange, State of California shall have sole and exclusive jurisdiction and venue for the resolution of all disputes arising under the terms of this Agreement and the transactions contemplated herein.

(e)           Notices.  Any notice pursuant to this Agreement by the Company or by an Investor shall be in writing and shall be deemed to have been duly given if delivered personally, or if mailed by certified mail, postage prepaid, or transmitted by facsimile, to the parties at the addresses or facsimile numbers set forth below.

(i)           Investor Address.  If to an Investor, addressed to Investor at the address set forth below Investor’s signature on the signature page of the Subscription Agreement, as it may be amended from time to time by the Investor by written notice to the Company.

(ii)           Company Address.  If to the Company addressed to it at 150 White Plains Road, Suite 108, Tarrytown, New York, 10591, Attention: David M. Rainey, President, Facsimile No.:  (914) 428-3044.

 

  

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All such notices and other communications will (1) if delivered personally to the address as provided in this Section 6(e), be deemed given upon delivery, (2) if delivered by facsimile transmission to the facsimile number as provided in this Section 6(e), be deemed given upon receipt, and (iii) if delivered by mail in the manner described above to the address as provided in this Section 6(e), be deemed given upon receipt (in each case regardless of whether such notice is received by any other person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section 6(e)).  Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto.

(f)           Complete Agreement.  This Agreement together with the Subscription Agreement, the Memorandum and the Exhibits attached thereto, constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings and negotiations, both written and oral, among the parties or any of them with respect to the subject matter of this Agreement.

(g)           Pronouns.  Whenever the content may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice versa.

(h)           Counterparts and Facsimile Signatures.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one Agreement binding on all the parties hereto.  The parties are entitled to rely on delivery of a facsimile copy of this Agreement and delivery of such executed Agreement shall be legally effective to create a valid and binding agreement between the Company and each Investor in accordance with the terms hereof.

(i)           Captions.  Captions of sections have been added only for convenience and shall not be deemed to be a part of this Agreement.

(j)           Further Assurances.  Each of the parties hereto will from time to time execute and deliver all such further documents and instruments and do all acts and things as the other party may, either before or after the Initial Closing, reasonably require to effectively carry out or better evidence or perfect the full intent and meaning of this Agreement.

(k)           Attorneys’ Fees.  In the event any party hereto shall commence legal proceedings against the other to enforce the terms hereof, or to declare rights hereunder, as the result of a breach of any covenant or condition of this Agreement, the prevailing party in any such proceeding shall be entitled to recover from the losing party its costs of suit, including reasonable attorneys’ fees, as may be fixed by the court.

 

[Signature pages follow]

  

10

  

 

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the day and year first above written.

 

	 	COMPANY:	 
	 	 	 
	 	DEBT RESOLVE, INC.,	 
	 	a Delaware corporation	 
	 	 	 	 
	
 

	
By: 

	/s/ David M. Rainey	 
	 	Name:	David Rainey,	 
	 	Title:	President and CEO	 
	 	Address:	150 White Plains Road, Suite 108	 
	 	 	Tarrytown, New York 10591	 
	 	Fax No.:	(914) 428-3044	 
	 	 	 	 
	 	 	 	 
	 	INVESTOR:	 
	 	 	 	 
	 	[                                                                    ]	 
	 	
Acknowledgment contained in the Omnibus 

Signature Page in the Subscription Agreement

	 

 

  

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