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EXHIBIT 4.1
FORM OF 7% SENIOR CONVERTIBLE PROMISSORY NOTE
THE SECURITY REPRESENTED HEREBY, AND THE SECURITIES ISSUABLE
UPON CONVERSION OR REDEMPTION HEREOF, HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS
WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL
FOR THIS COMPANY, IS AVAILABLE.
DEBT RESOLVE, INC.
7% SENIOR CONVERTIBLE PROMISSORY NOTE
No. _____________
US$________________
June 28, 2005
THIS NOTE is one
of a duly authorized issue of unsecured convertible
promissory notes (each, a "NOTE" and
collectively, the "NOTES") of Debt Resolve,
Inc., a Delaware corporation (the
"COMPANY") issued pursuant to that certain
Securities Purchase Agreement, dated June
28, 2005 (the "SECURITIES PURCHASE
AGREEMENT"), between the Company, the
Holder (as defined below) and certain
other parties. The Notes are designated as
the 7% SENIOR CONVERTIBLE PROMISSORY
NOTES, in an aggregate maximum principal
face value for all Notes of this series
(the "SERIES") of up to Three Million
United States Dollars (US$3,000,000).
FOR VALUE
RECEIVED, the Company promises to pay to the order of the
registered holder hereof and its successors
and assigns (the "HOLDER"), the
principal sum of ________________________
Dollars ($_____________.00), or such
other amount as shall then equal the
outstanding principal amount hereof, in
accordance with the terms hereof, and to
pay interest on the principal sum
outstanding, at the rate of seven percent
(7%) per annum. Accrual of interest on
the outstanding principal amount shall
commence on the date hereof and shall
continue until payment in full of the
outstanding principal amount has been made
or duly provided for, or until the entire
outstanding principal amount of the
Note has been converted. This Note is
unsecured.
The Notes are
being sold pursuant to the following agreements and
instruments (collectively, with the Notes,
the "TRANSACTION DOCUMENTS"): (i) the
Securities Purchase Agreement, (ii) a term
sheet/risk factor booklet, (iii) a
registration rights agreement, (iv) a
lock-up agreement and (v) a common stock
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purchase warrant (each, a "WARRANT" and,
collectively with the Notes and the
shares of Common Stock underlying the Notes
and the Warrants, the "SECURITIES").
The Holder takes this Note subject to the
terms and restrictions set forth in
the Transaction Documents and shall be
entitled to certain rights and privileges
as set forth in the Transaction
Documents.
The following is
a statement of the rights of the Holder of this Note and
the terms and conditions to which this Note
is subject, and to which the Holder,
by acceptance of this Note, agrees:
1. Principal
Repayment. This Note and any accrued interest hereunder will
become due and payable in accordance with
the terms hereof upon the earlier of:
(i) the consummation of any initial public
offering (an "IPO") of the Company's
common stock, par value $.001 per share
(the "COMMON STOCK") and (ii) June 28,
2006 (such earlier date, the "MATURITY
DATE"), unless this Note has been
converted as described below.
2. Interest. The
holders of the Notes are entitled to receive interest at
an annual cumulative rate of seven percent
(7%) of the principal face dollar
value of this Note, payable on the Maturity
Date in cash out of funds legally
available therefore. After the Maturity
Date, interest on the overdue principal
face dollar value of this Note and accrued
interest thereon shall accrue at a
rate of fourteen percent (14%) per annum
and shall be payable on demand. Such
interest rates shall be calculated for the
actual days elapsed on the basis on a
360-day year and shall apply before and
after maturity and judgment.
3.
Conversion.
(a) Generally. All or any portion of the outstanding principal
amount
of and accrued interest under this Note
may, at any time on or prior to or after
the Maturity Date and in the Holder's sole
discretion (except as provided for in
Section 3(b) below), be converted into
shares of Common Stock at a price (the
"CONVERSION PRICE") equal to $0.425 per
share.
(b) In Connection with an IPO. Notwithstanding the provisions
of
Section 3(a) to the contrary, if, on or
prior to the Maturity Date, the Company
consummates an IPO, then, simultaneously
with the closing of such IPO, fifty
percent (50%) of the outstanding principal
amount of and accrued interest under
this Note will be converted into Common
Stock at a price equal to 85% of the
public offering price in the IPO (the "IPO
CONVERSION PRICE"). The remaining
balance of principal of and accrued
interest under this Note shall be,
simultaneously with the closing of the IPO,
repaid by the Company in cash from
the proceeds of the IPO.
(c) Mechanics of Conversion. Upon any conversion of this Note:
(i)
such principal amount converted and all
accrued but unpaid interest thereon
shall be converted and such converted
portion of this Note shall become fully
paid and satisfied, (ii) the Holder shall
surrender and deliver this Note, duly
endorsed, to the Company or such other
address which the Company shall designate
against delivery of the certificates
representing the new securities of the
Company, (iii) the Company shall promptly
deliver a duly executed Note to the
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Holder in the principal amount, if any,
that remains outstanding after any such
conversion; and (iv) in exchange for all or
any portion of the surrendered Note
described in the preceding clauses 3(c)(i)
or (ii) hereof, the Company shall
deliver to the Holder certificates
representing such number of shares of Common
Stock to which the Holder is entitled to
receive based on its conversion of the
Note, which certificates shall bear such
legends as are required under
applicable state and federal securities
laws.
(d) Issue Taxes. The Company shall pay any and all issue and
other
taxes that may be payable with respect to
any issue or delivery of shares of
Common Stock on conversion of this Note
pursuant hereto; PROVIDED, HOWEVER, that
the Holder shall not be obligated to pay
any transfer taxes resulting from any
transfer requested by any holder in
connection with any such conversion.
(e) Elimination of Fractional Interests. No fractional shares
of
Common Stock shall be issued upon
conversion of this Note, nor shall the Company
be required to pay cash in lieu of
fractional interests, it being the intent of
the parties that all fractional interests
shall be eliminated and that all
issuances of Common Stock shall be rounded
up to the nearest whole share.
4. Rights upon
Liquidation, Dissolution or Winding Up. In the event of any
liquidation, dissolution or winding up of
the Company, either voluntary or
involuntary, the holders of the Notes shall
be entitled to receive, prior and in
preference to any distribution of any of
the assets of the Company to the
holders of any debt or equity securities of
the Company, an amount equal to the
unpaid and unconverted principal face
amount of their Notes and any accrued and
unpaid interest thereon. The Holder shall
be paid in preference to any unsecured
creditors of the Company and shall be paid
pro rata in proportion to the
principal amount of Notes held by holders
of the Series if the available assets
are not sufficient to repay the Notes. The
rights of the Holder described in
this Section 4 are referred to collectively
as the "LIQUIDATION PREFERENCE."
5.
Adjustments.
(a) Splits, Subdivisions, etc. In the event that the Company should
at
any time or from time to time, after the
date of this Note, fix a record date
for the effectuation of a split or
subdivision of the outstanding shares of
Common Stock, or the determination of
holders of Common Stock entitled to
receive a dividend or other distribution
payable in additional shares of Common
Stock or other securities or rights
convertible into, or entitling the holder
thereof to receive directly or indirectly
additional shares of Common Stock
(hereinafter referred to as "COMMON STOCK
EQUIVALENTS") without payment of any
consideration by such holder for the
additional shares of Common Stock or the
Common Stock Equivalents (including the
additional shares of Common Stock
issuable upon conversion or exercise
thereof), then, as of such record date (or
the date of such dividend, distribution,
split or subdivision if no record date
is fixed), the Conversion Price or the IPO
Conversion Price, as the case may be
shall be appropriately decreased so that
the number of shares of Common Stock
issuable on conversion of this Note shall
be increased in proportion to such
increase in the aggregate number of shares
of the Common Stock outstanding.
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(b) Combinations. If
the number of shares of Common Stock outstanding
at any time after the date of this Note is
decreased by a combination of the
outstanding shares of Common Stock, then,
following the record date of such
combination, the Conversion Price or the
IPO Conversion Price, as the case may
be (in the event such an event shall occur
prior to an IPO), shall be
appropriately increased so that the number
of shares of Common Stock issuable
upon conversion of this Note shall be
decreased in proportion to such decrease
in outstanding shares.
(c) Mergers, Consolidations, etc. A merger, consolidation or
other
corporate reorganization in which the
Company's stockholders shall receive cash
or securities of another entity, or any
transaction in which all or
substantially all of the assets of the
Company are sold shall be treated as a
liquidation for purposes of the Liquidation
Preference. The Holder shall receive
prior notice of any of the foregoing
transactions and shall have an opportunity
to convert, at their sole election, the
Note prior to the consummation of any
such transaction.
(d) Dilutive Issuances. In the event that the Company shall, at
any
time while all or any portion of this Note
is outstanding, sell any shares of
Common Stock for a consideration per share
less than the Conversion Price, or
issue Common Stock Equivalents convertible
into or exchangeable for Common Stock
at an exercise or conversion price below
the Conversion Price (such actions, a
"DILUTIVE OFFERING"), then the Conversion
Price (or the IPO Conversion Price, if
applicable) shall immediately be changed
upon each such issuance such that the
Conversion Price (or the IPO Conversion
Price, as the case may be) shall be
adjusted by multiplying the then applicable
Conversion Price or IPO Conversion
Price by the following fraction:
A + B
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(A + B) + [((C - D) x B) / C]
A = Total amount of shares convertible pursuant to this Note
assuming
the entire amount of the Note is
converted.
B = Actual shares sold in the Dilutive Offering
C = Conversion Price (or IPO Conversion Price)
D = Offering price in the Dilutive Offering
(e) Computation of Consid
