EXHIBIT 4.37
PROMISSORY NOTE
FACE AMOUNT $540,000
PRICE $460,000
INTEREST RATE 0% per month
NOTE NUMBER June- 2005-101
ISSUANCE DATE June 2, 2005
MATURITY DATE December 20, 2005
FOR VALUE RECEIVED, NeWave, Inc., a Utah corporation (the "Company"), (OTC
BB: NWWV) hereby promises to pay DUTCHESS PRIVATE EQUITIES FUND, II, L.P. (the
"Holder") within the Maturity Date, or earlier, the Amount of Five Hundred and
Forty Thousand Dollars ($540,000) U.S., in such amounts, at such times and on
such terms and conditions as are specified herein (this "Note").
Any capitalized terms not defined in this Note are defined in the
Investment Agreement for the Equity Line of Credit between Preston Capital
Partners, LLC (the "Investor") and the Company (the "Investment Agreement").
ARTICLE 1 METHOD OF PAYMENT
Payments made by the Company in satisfaction of this Note (each a
"Payment," and collectively, the "Payments") shall be made from each Put from
the Equity Line of Credit with the Investor given by the Company to the
Investor. The Company shall make payments to the Holder in the amount of
Thirty-three percent (33%) of each Put Amount (the "Payment Amount") until the
Face Amount is paid in full, minus any fees due. First payment will be due at
the successful Closing of the first Put ("Payment Date" or "Payment Dates"), and
all subsequent payments will be made at the Closing of every Put thereafter,
until this Note is paid in full. Notwithstanding any provision to the
contrary in this Note, the Company may pay in full to the Holder the Face
Amount, or any balance remaining thereof, in readily available funds at any time
and from time to time without penalty. Failure to do so will constitute an
Event of Default under this Agreement and the Holder may immediately seek to
take actions as described under Article 4 of this Agreement.
Payments pursuant to this Note shall be made directly from the Closing of
each Put ("Put Closing") and shall be wired directly to the Holder from the
Investor on the Closing Date. The Holder shall retain the sole right and from
time to time may elect to lower the amount of a payment ("Lowered Payment
Amount") if so requested by the Company. In the event of a Lowered Payment
Amount, the next payment under this Note will be increased by the greater of 1)
the percentage difference between the next Payment and the Lowered Payment
Amount (Example: If the Company places a Put for $100,000 ($25,000 of which
would go toward payment of the Face Amount of this Note) and the Company
requests a Lowered Payment such that $15,000 will go toward payment of the Face
Amount of this Note (thus, the Company owes Holder $10,000, which is 40% less
than the total amount owed to the Holder under such Put), and the next Put is
for $500,000 ($125,000 of which will go toward payment of the Face Amount of
this Note), then the total amount owed to the Holder under this Put will be
$125,000 multiplied by 1.60) or 2) the actual dollar amount difference between
the next payment and the Lowered Payment Amount.
The Company hereby authorizes the Investor to make Payments directly to the
Holder upon Closing of each Put. The Agreement shall serve as authorization for
disbursement of any funds from the Equity Line until such time as the Face
Amount is received.
ARTICLE 2 COLLATERAL
The Company does hereby agree to allow the Holder to use the 25 Put Notices
("Collateral") from Note Numbers February 2005 101 and April 2005 101, May 2005
101 ("Prior Notes") to the Investor as Collateral for this Note.
ARTICLE 3 UNPAID AMOUNTS
In the event that on the Maturity Date the Company has any remaining amounts
unpaid on this Note (the "Residual Amount"), shall cause an Event of Default
under this Agreement and the Holder may immediately seek to take actions as
described under Article 4 of this Agreement.
ARTICLE 4 DEFAULTS AND REMEDIES
Section 4.1 Events of Default. An "Event of Default" or "Default" occurs if
(a) the Company does not make the Payment of the Face Amount of this Note within
two (2) business days of the applicable Closing of a Put or the Maturity Date,
as applicable, upon redemption or otherwise, (b) the Company, pursuant to or
within the meaning of any Bankruptcy Law (as hereinafter defined): (i)
commences a voluntary case; (ii) consents to the entry of an order for relief
against it in an involuntary case; (iii) consents to the appointment of a
Custodian (as hereinafter defined) of it or for all or substantially all of its
property; (iv) makes a general assignment for the benefit of its creditors; or
(v) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (A) is for relief against the Company in an involuntary
case; (B) appoints a Custodian of the Company or for all or substantially all of
its property; or (C) orders the liquidation of the Company, and the order or
decree remains unstayed and in effect for sixty (60) calendar days; (c) the
Company's $0.001 par value common stock (the "Common Stock") is suspended or is
no longer listed on any recognized exchange, including an electronic
over-the-counter bulletin board, for in excess of two (2) consecutive trading
days; or (d) the registration statement for the underlying shares in the
Investment Agreement does not remain effective for any reason or (e) the Company
fails to comply with the Articles of this Agreement as outlined. As used in
this Article 4.1, the term "Bankruptcy Law" means Title 11 of the United States
Code or any similar federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
In the Event of Default, the Holder may elect to secure a portion of the
Company's assets not to exceed 200% of the Face Amount of the Note, including,
but not limited to: accounts receivable, cash, marketable securities, equipment,
building, land or inventory. The Holder may also elect to garnishee Revenue
from the Company in an amount that will repay the Holder on the schedules
outlined in this Agreement.
For EACH Event of Default, as outlined in this Agreement, the Holder can
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exercise its right to increase the Face Amount of the Debenture by ten percent
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(10%) as an initial penalty and for each Event of Default under this Agreement.
In addition, the Holder may elect to increase the Face Amount by two and
one-half percent (2.5%) per month paid as a penalty for liquated damages
("Liquidated Damages"). The Liquated Damages will be compounded daily. It is
the intention and acknowledgement of both parties that the Liquidated Damages
not be deemed as interest.
In the event of a Default , the Holder shall also have the right, but not the
obligation, to 1) switch the Residual Amount to a three-year ("Convertible
Maturity Date"), 10% interest bearing convertible debenture at the terms
described in Article 4.2 (the "Convertible Debenture"). At such time of Default,
the Convertible Debenture shall be considered closed ("Convertible Closing
Date"). If the Holder chooses to convert the Residual Amount to a Convertible
Debenture, the Company shall have twenty (20) business days after notice of the
same (the "Notice of Convertible Debenture") to file a registration statement
covering an amount of shares equal to 300% of the Residual Amount. Such
registration statement shall be declared effective under the Securities Act of
1933, as amended (the "Securities Act"), by the Securities and Exchange
Commission (the "Commission") within 40 business days of the date the Company
files such Registration Statement. In the event the Company does not file such
registration statement within twenty (20) business days of the Holder's
request, or such registration statement is not declared by the Commission to be
effective under the Securities Act within the time period described above , the
Residual Amount shall increase by $1,000 per day. In the event the Company is
given the option for accelerated effectiveness of the registration statement, it
agrees that it shall cause such registration statement to be declared effective
as soon as reasonably practicable. In the event that the Company is given the
option for accelerated effectiveness of the registration statement, but chooses
not to cause such registration statement to be declared effective on such
accelerated basis, the Residual Amount shall increase by $1,000 per day
commencing on the earliest date as of which such registration statement would
have been declared to be effective if subject to accelerated effectiveness; or
2) the Holder may increase the Payment Amount described under Article 1 to
fulfill the repayment of the Residual Amount. The Company shall provide full
cooperation to the Holder in directing funds owed to the Holder on any Put to
the Investor. The Company agrees to diligently carry out the terms outlined
in the Investment Agreement for delivery of any such shares. In the event the
Company is not diligently fulfilling its obligation to direct funds owed to the
Holder from Puts to the Investor, as reasonably determined by the Holder, the
Holder may, after giving the Company two (2) business days' advance notice to
cure the same, elect to increase the Residual Amount of the Note by 2.5% each
day, compounded daily.
Article 4.2 Conversion Privilege
(a) The Holder shall have the right to convert the Convertible Debenture
into shares of Common Stock at any time following the Convertible Closing Date
which is before the close of business on the Convertible Maturity Date. The
number of shares of Common Stock issuable upon the conversion of the Convertible
Debenture shall be determined pursuant to Article 4.3, but the number of shares
issuable shall be rounded up or down, as the case may be, to the nearest whole
share.
(b) The Convertible Debenture may be converted, whether in whole or in part,
at any time and from time to time.
(c) In the event all or any portion of the Convertible Debenture remains
outstanding on the Convertible Maturity Date (the "Debenture Residual Amount"),
the unconverted portion of such Convertible Debenture will automatically be
converted into shares of Common Stock on such date in the manner set forth in
Article 4.3.
Article 4.3 Conversion Procedure.
The Residual Amount may be converted, in whole or in part any time and from time
to time, following the Convertible Closing Date. Such conversion shall be
effectuated by surrendering to the Company, or its attorney, the Convertible
Debenture to be converted together with a facsimile or original of the signed
notice of conversion (the "Notice of Conversion"). The date on which the
Notice of Conversion is effective ("Conversion Date") shall be deemed to be the
date on which the Holder has delivered to the Company a facsimile or original of
the signed Notice of Conversion, as long as the original Convertible
Debenture(s) to be converted are received by the Company within five (5)
business days thereafter. At such time that the original Convertible Debenture
has been received by the Company, the Holder can elect whether a reissuance of
the Convertible Debenture is warranted, or whether the Company can retain the
Convertible Debenture as to a continual conversion by the Holder.
Notwithstanding the above, any Notice of Conversion received by 4:00 P.M. EST
shall be deemed to have been received the following business day (receipt being
via a confirmation of the time such facsimile to the Company is received).
(a) Common Stock to be Issued. Upon the conversion of any Convertible
Debentures, and upon receipt by the Company or its attorney of a facsimile or
original of the Holder's signed Notice of Conversion, the Company shall instruct
its transfer agent to issue stock certificates without restrictive legends or
stop transfer instructions, if at that time the aforementioned registration
statement described in Article 4.1 has been declared effective (or with proper
restrictive legends if the registration statement has not as yet been declared
effective), in such denominations to be specified at conversion representing the
number of shares of Common Stock issuable upon such conversion, as applicable.
In the event that the Debenture is aged one year and deemed sellable under Rule
144, the Company shall, upon a Notice of Conversion, instruct the transfer agent
to issue free trading certificates without restrictive legends, subject to other
applicable securities laws. The Company is responsible to provide all costs
associated with the issuance of the shares, including but not limited to the
opinion letter, FedEx of the certificates and any other costs that arise. The
Company shall act as registrar and shall maintain an appropriate ledger
containing the necessary information with respect to each Convertible Debenture.
The Company warrants that no instructions, other than these instructions, have
been given or will be given to the transfer agent and that the Common Stock
shall otherwise be freely resold, except as may be set forth herein or subject
to applicable law.
(b) Conversion Rate. Holder is entitled to convert the Debenture Residual
Amount , plus accrued interest, anytime following the Convertible Maturity Date,
at the lesser of (i) 75% of the average of the lowest closing bid price during
the fifteen (15) trading days immediately preceding the Convertible Maturity
Date or (ii) 75% of the lowest bid price for the twenty (20) trading days
immediately preceding the Convertible Maturity Date ("Fixed Conversion Price").
No fractional shares or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded up or down, as
the case may be, to the nearest whole share.
(c) Nothing contained in the Convertible Debenture shall be deemed to
establish or require the payment of interest to the Holder at a rate in excess
of the maximum rate permitted by governing law. In the event that the rate of
interest required to be paid exceeds the maximum rate permitted by governing
law, the rate of interest required to be paid thereunder shall be automatically
reduced to the maximum rate permitted under the governing law and such excess
shall be returned with reasonable promptness by the Holder to the Company.
(d) It shall be the Company's responsibility to take all necessary actions
and to bear all such costs to issue the Common Stock as provided herein,
including the responsibility and cost for delivery of an opinion letter to the
transfer agent, if so required. Holder shall be treated as a shareholder of
record on the date Common Stock is issued to the Holder. If the Holder shall
designate another person as the entity in the name of which the stock
certificates issuable upon conversion of the Convertible Debenture are to be
issued prior to the issuance of such certificates, the Holder shall provide to
the Company evidence that either no tax shall be due and payable as a result of
such transfer or that the applicable tax has been paid by the Holder or such
person. Upon surrender of any Convertible Debentures that are to be converted in
part, the Company shall issue to the Holder a new Convertible Debenture equal to
the unconverted amount, if so requested in writing by the Holder.
(e) Within five (5) business days after receipt of the documentation
referred to above in Article 4.2, the Company shall deliver a certificate, for
the number of shares of Common Stock issuable upon the conversion. In the event
the Company does not make delivery of the Common Stock as instructed by Holder
within five (5) business days after the Conversion Date, then in such event the
Company shall pay to the Holder one percent (1%) in cash of the dollar value of
the Debenture Residual Amount remaining after said conversion, compounded daily,
per each day after the fifth (5th) business day following the Conversion Date
that the Common Stock is not delivered to the Purchaser.
The Company acknowledges that its failure to deliver the Common Stock
within five (5) business days after the Conversion Date will cause the Holder to
suffer damages in an amount that will be difficult to ascertain. Accordingly,
the parties agree that it is appropriate to include in this Note a provision
for liquidated damages The parties acknowledge and agree that the liquidated
damages provision set forth in this section represents the parties' good faith
effort to quantify such damages and, as such, agree that the form and amount of
such liquidated damages are reasonable and will not constitute a penalty. The
payment of liquidated damages shall not relieve the Company from its obligations
to deliver the Common Stock pursuant to the terms of this Convertible Debenture.
(f) The Company shall at all times reserve (or make alternative written
arrangements for reservation or contribution of shares) and have available all
Common Stock necessary to meet conversion of the Convertible Debentures by the
Holder of the entire amount of Convertible Debentures then outstanding. If, at
any time the Holder submits a Notice of Conversion and the Company does not have
sufficient authorized but unissued shares of Common Stock (or alternative shares
of Common Stock as may be contributed by stockholders of the Company) available
to effect, in full, a conversion of the Convertible Debentures (a "Conversion
Default," the date of such default being referred to herein as the "Conversion
Default Date"), the Company shall issue to the Holder all of the shares of
Common Stock which are available, and the Notice of Conversion as to any
Convertible Debentures requested to be converted but not converted (the
"Unconverted Convertible Debentures"), may be deemed null and void upon written
notice sent by the Holder to the Company. The Company shall provide notice of
such Conversion Default ("Notice of Conversion Default") to the Holder, by
facsimile within three (3) business days of such default (with the original
delivered by overnight mail or two day courier), and the Holder shall give
notice to the Company by facsimile within five (5) business days of receipt of
the original Notice of Conversion Default (with the original delivered by
overnight mail or two day courier) of its election to either nullify or confirm
the Notice of Conversion.
The Company agrees to pay the Holder payments for a Conversion Default
("Conversion Default Payments") in the amount of (N/365), multiplied by .24,
multiplied by the initial issuance price of the outstanding or tendered but not
converted Convertible Debentures held by the Holder, where N = the number of
days from the Conversion Default Date to the date (the "Authorization Date")
that the Company authorizes a sufficient number of shares of Common Stock to
effect conversion of all remaining Convertible Debentures. The Company shall
send notice ("Authorization Notice") to the Holder that additional shares of
Common Stock have been authorized, the Authorization Date, and the amount of
Holder's accrued Conversion Default Payments. The accrued Conversion Default
shall be paid in cash or shall be convertible into Common Stock at the
conversion rate set forth in the first sentence of this paragraph, upon written
notice sent by the Holder to the Company, which Conversion Default shall be
payable as follows: (i) in the event the Holder elects to take such payment in
cash, cash payments shall be made to the Holder by the fifth (5th) day of the
following calendar month, or (ii) in the event Holder elects to take such
payment in stock, the Holder may convert such payment amount into Common Stock
at the conversion rate set forth in the first sentence of this paragraph at any
time after the fifth (5th) day of the calendar month following the month in
which the Authorization Notice was received, until the expiration of the
mandatory three (3) year conversion period.
The Company acknowledges that its failure to maintain a sufficient number of
authorized but unissued shares of Common Stock to effect in full a conversion of
the Convertible Debentures will cause the Holder to suffer damages in an amount
that will be difficult to ascertain. Accordingly, the parties agree that it is
appropriate to include in this Agreement a provision for liquidated damages.
The parties acknowledge and agree that the liquidated damages provision set
forth in this section represents the parties' good faith effort to quantify such
damages and, as such, agree that the form and amount of such liquidated damages
are reasonable and will not constitute a penalty. The payment of liquidated
damages shall not relieve the Company from its obligations to deliver the Common
Stock pursuant to the terms of this Convertible Debenture.
(g) If, by the fifth (5th) business day after the Conversion Date of any
portion of the Convertible Debentures to be converted (the "Delivery Date"), the
transfer agent fails for any reason to deliver the Common Stock upon conversion
by the Holder and after such Delivery Date, the Holder purchases, in an open
market transaction or otherwise, shares of Common Stock (the "Covering Shares")
solely in order to make delivery in satisfaction of a sale of Common Stock by
the Holder (the "Sold Shares"), which delivery such Holder anticipated to make
using the Common Stock issuable upon conversion (a "Buy-In"), the Company shall
pay to the Holder, in addition to any other amounts due to Holder pursuant to
this Convertible Debenture, and not in lieu thereof, the Buy-In Adjustment
Amount (as defined below). The "Buy In Adjustment Amount" is the amount equal
to the excess, if any, of (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Covering Shares over (y) the net proceeds
(after brokerage commissions, if any) received by the Holder from the sale of
the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the
Holder in immediately available funds within five (5) business days of written
demand by the Holder. By way of illustration and not in limitation of the
foregoing, if the Holder purchases shares of Common Stock having a total
purchase price (including brokerage commissions) of $11,000 to cover a Buy-In
with respect to shares of Common Stock it sold for net proceeds of $10,000, the
Buy-In Adjustment Amount which the Company will be required to pay to the Holder
will be $1,000.
(h) The Company shall defend, protect, indemnify and hold harmless the
Holder and all of its shareholders, officers, directors, employees, counsel,
and direct or indirect investors and any of the foregoing person's agents or
other representatives (including, without limitation, those retained in
connection with the transactions contemplated by this Agreement) (collectively,
the "Article 4.3(h) Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Article 4.3(h) Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys' fees and disbursements
(the "Article 4.3(h) Indemnified Liabilities"), incurred by any Article 4.3(h)
Indemnitee as a result of, or arising out of, or relating to (i) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (ii) any breach of any covenant,
agreement, or obligation of the Company contained in the Transaction Documents
or any other certificate, instrument, or document contemplated hereby or
thereby, (iii) any cause of action, suit, or claim brought or made against such
Article 4.3(h) Indemnitee by a third party and arising out of or resulting from
the execution, delivery, performance, or enforcement of the Transaction
Documents or any other certificate, instrument, or document contemplated hereby
or thereby, (iv) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Common Stock
underlying the Convertible Debenture ("Securities"), or (v) the status of the
Holder or holder of the Securities as an investor in the Company, except insofar
as any such misrepresentation, breach or any untrue statement, alleged untrue
statement, omission, or alleged omission is made in reliance upon and in
conformity with written information furnished to the Company by the Holder or
the Investor which is specifically intended by the Holder or the Investor to be
relied upon by the Company, including for use in the preparation of any such
registration statement, preliminary prospectus, or prospectus, or is based on
illegal trading of the Common Stock by the Holder or the Investor. To the extent
that the foregoing undertaking by the Company may be unenforceable for any
reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities that is permissible under
applicable law. The indemnity provisions contained herein shall be in addition
to any cause of action or similar rights the Holder may have, and any
liabilities the Holder may be subject to.
ARTICLE 5 REGISTRATION
The Company agrees not to file any registration statement (including those
on Form S-8) without the prior written approval of the Holder. In the event the
Company does file a registration statement without the express written consent
of the Holder, it shall be deemed an Event of Default, and the Holder may elect
to take actions under Article 4. The Company must also issue the Holder an
equal number of Shares included in the Registration Statement as a additional
penalty for liquidated damages.
ARTICLE 6 MERGERS
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes in
writing the obligations of the Company under this Note and immediately after
such transaction no Event of Default exists. Any reference herein to the
Company shall refer to such surviving or transferee corporation and the
obligations of the Company shall terminate upon such written assumption. Failure
to do so will constitute an Event of Default under this Agreement and the Holder
may immediately seek to take actions as described under Article 4 of this
Agreement.
ARTICLE 7 ADDITIONAL FINANCING
The Company will not enter into any additional financing agreements
without prior expressed written consent from the Holder, which shall not be
unreasonably withheld. In the Event the Company does enter into another
financing arrangement without written consent it will constitute an Event of
Default under this Agreement and the Holder may immediately seek to take actions
as described under Article 4 of this Agreement.
ARTICLE 8 NOTICE
Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Note must be in writing and will
be deemed to have been delivered (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided a confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
If to the Company:
Michael Hill, Chief Executive Officer
NeWave, Inc.
404 EAST 1ST STREET, #1345
LONG BEACH, CA 90802
Telephone: (562) 983-5331
Facsimile: (562) 964-9232
If to the Holder:
Dutchess Private Equities Fund, II, LP
Douglas Leighton
312 Stuart Street, Third Floor
Boston, MA 02116
(617) 960-3570
Each party shall provide five (5) business days prior notice to the other
party of any change in address, phone number or facsimile number.
ARTICLE 9 TIME
Where this Note authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a holiday in
which the United States Stock Markets ("US Markets") are closed ("Holiday"), or
authorizes or requires the payment of money or the performance of a condition or
obligation within, before or after a period of time computed from a certain
date, and such period of time ends on a Saturday or a Sunday or a Holiday, such
payment may be made or condition or obligation performed on the next succeeding
business day, and if the period ends at a specified hour, such payment may be
made or condition performed, at or before the same hour of such next succeeding
business day, with the same force and effect as if made or performed in
accordance with the terms of this Note. A "business day" shall mean a day on
which the US Markets are open for a full day or half day of trading.
ARTICLE 10 NO ASSIGNMENT
This Note shall not be assigned.
ARTICLE 11 RULES OF CONSTRUCTION.
In this Note, unless the context otherwise requires, words in the singular
number include the plural, and in the plural include the singular, and words of
the masculine gender include the feminine and the neuter, and when the tense so
indicates, words of the neuter gender may refer to any gender. The numbers and
titles of sections contained in the Note are inserted for convenience of
reference only, and they neither form a part of this Note nor are they to be
used in the construction or interpretation hereof. Wherever, in this Note, a
determination of the Company is required or allowed, such determination shall be
made by a majority of the Board of Directors of the Company and, if it is made
in good faith, it shall be conclusive and binding upon the Company and the
Holder.
ARTICLE 12 GOVERNING LAW
The validity, terms, performance and enforcement of this Note shall be
governed and construed by the provisions hereof and in accordance with the laws
of the Commonwealth of Massachusetts applicable to agreements that are
negotiated, executed, delivered and performed solely in the Commonwealth of
Massachusetts.
ARTICLE 13 LITIGATION
The parties to this agreement will submit all disputes arising under this
agreement to arbitration in Boston, Massachusetts before a single arbitrator of
the American Arbitration Association ("AAA"). The arbitrator shall be selected
by application of the rules of the AAA, or by mutual agreement of the parties,
except that such arbitrator shall be an attorney admitted to practice law in the
Commonwealth of Massachusetts. No party to this agreement will challenge the
jurisdiction or venue provisions as provided in this section.
ARTICLE 14 RESERVED
ARTICLE 15 RESERVED
ARTICLE 16 INDEMNIFICATION
In consideration of the Holder's execution and delivery of this Agreement
and the acquisition and funding by the Holder of the Note hereunder and in
addition to all of the Company's other obligations under the documents
contemplated hereby, the Company shall defend, protect, indemnify and hold
harmless the Holder and all of its shareholders, officers, directors, employees,
counsel, and direct or indirect investors and any of the foregoing person's
agents or other representatives (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnities") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities" ), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in the Note, or any other
certificate, instrument or document contemplated hereby or thereby (ii) any
breach of any covenant, agreement or obligation of the Company contained in the
Note or any other certificate, instrument or document contemplated hereby or
thereby, except insofar as any such misrepresentation, breach or any untrue
statement, alleged untrue statement, omission or alleged omission is made in
reliance upon and in conformity with written information furnished to the
Company by, or on behalf of, the Holder or is based on illegal trading of the
Common Stock by the Holder. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities that is permissible under applicable law. The indemnity provisions
contained herein shall be in addition to any cause of action or similar rights
the Holder may have, and any liabilities the Holder may be subject to.
ARTICLE 17 HOLDER SHARES
The Company shall issue fifty-four thousand (54,000) shares of
unregistered, restricted Common Stock to the Holder as an incentive for the
investment ("Shares"). The Shares shall be issued and delivered immediately to
the Holder and shall carry piggyback registration rights. In the event the
Shares are not registered in the next registration statement, the Company shall
pay to the Holder, as a penalty, twenty-four thousand (54,000) additional shares
of common stock for each time a registration statement is filed and the Shares
are not included. The Holder retains the right to waive such penalty, in the
event Holder chooses to do so.
ARTICLE 18 USE OF PROCEEDS
The Company will use proceeds for the consulting agreement with Republic
Dial. The remaining amount will go toward the purchase of the Mytel phone
switch. This shall not to be used to pay down long-term debt to any financial
institution.
ARTICLE 19 SENIOR OBLIGATION
The Company shall cause this Note and all other existing Notes and
Debentures with the Holder ("Holder's Debt") to be senior in right of payment to
all other Indebtedness of the Company.
ARTICLE 20 DOCUMENT PREPARATION FEES
The Company shall pay to Dutchess Advisors, LLC ten thousand dollars
($10,000) directly from closing, for the preparation of documents.
ARTICLE 21 REVOLVER DUE TO HOLDER AND EFUND CAPITAL PARTNERS, LLC ("EFUND")
The Company agrees to pay off the Revolver funded by eFund and Holder,
dated March 9, 2004 (the "Revolver"), including any interest due as outlined in
the Revolver, after the Face Amount is paid off in full on the same Payment
schedule outlined in Article 1. The Holder hereby agrees that this article
supersedes the Prior Note's Articles 20. Failure to make payments as outlined
will constitute an Event of Default under this Agreement and the Holder may
immediately seek to take actions as described under Article 4 of this Agreement.
Until such time as both the Face Amount and the Revolver is fully paid off, the
terms and conditions of this Agreement shall be in effect and all Articles
enforceable, including any Events of Default.
Any misrepresentations shall be considered a breach of contract and will
constitute an Event of Default under this Agreement and the Holder may
immediately seek to take actions as described under Article 4 of this Agreement.
*****
IN WITNESS WHEREOF, the Company has duly executed this Note as of the date first
written above.
NEWAVE, INC.
By: /s/ Michael Hill
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Name: Michael Hill
Title: Chief Executive Officer
DUTCHESS PRIVATE EQUITIES FUND, II, L.P.
BY ITS GENERAL PARTNER DUTCHESS
CAPITAL MANAGEMENT, LLC
By: /s/ Douglas H. Leighton
--------------------------
Name: Douglas H. Leighton
Title: A Managing Member