Exhibit 4.1
Dated: January 27, 2006
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
No. CCP-1 $600,000
NEWGOLD, INC.
Secured Convertible Debenture
Due January 27, 2009
This Secured Convertible Debenture (the "DEBENTURE") is issued by
NEWGOLD, INC., a Delaware corporation (the "OBLIGOR"), to CORNELL CAPITAL
PARTNERS, LP (the "HOLDER"), pursuant to that certain Securities Purchase
Agreement (the "SECURITIES PURCHASE AGREEMENT") of even date herewith.
FOR VALUE RECEIVED, the Obligor hereby promises to pay to the
Holder or its successors and assigns the principal sum of Six Hundred Thousand
Dollars ($600,000) together with accrued but unpaid interest in lawful money of
the United States of America on or before January 27, 2009 (the "MATURITY DATE")
in accordance with the following terms:
INTEREST. Interest shall accrue on the outstanding principal balance
hereof at an annual rate equal to eight percent (8%). Interest shall be
calculated on the basis of a 365-day year and the actual number of days elapsed,
to the extent permitted by applicable law. Interest hereunder will be paid to
the Holder or its assignee (as defined in Section 5) in whose name this
Debenture is registered on the records of the Obligor regarding registration and
transfers of Debentures (the "DEBENTURE REGISTER").
RIGHT OF REDEMPTION. The Obligor at its option shall have the right,
with five (5) business days advance written notice (the "REDEMPTION NOTICE"), to
redeem a portion or all amounts outstanding under this Debenture prior to the
Maturity Date. The Obligor shall pay an amount equal to the principal amount
being redeemed plus a redemption premium ("REDEMPTION PREMIUM") equal to
thirteen percent (13%) of the principal amount being redeemed, and accrued
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interest, (collectively referred to as the "REDEMPTION AMOUNT"). The Obligor
shall deliver to the Holder the Redemption Amount on the seventh (7th) business
day after the Redemption Notice.
In the event the Obligor exercises a redemption of either all
or a portion of the outstanding principal amounts plus accrued interest due and
outstanding under this debenture as outlined herein, the Holder shall receive a
warrant to purchase one hundred thousand (100,000) shares of the Company's
Common Stock for every One Hundred Thousand Dollars ($100,000) redeemed, pro
rata. (the "WARRANT") The Warrant shall be exercisable on a "cash basis" and
have an exercise price of one hundred ten percent (110%) of the Closing Bid
Price of the Company's Common Stock on the date of the Redemption Notice, as
quoted by Bloomberg, LP, per share. The Warrant shall have "piggy-back" and
demand registration rights and shall survive for four (4) years from the Closing
Date.
Notwithstanding the foregoing in the event that the Obligor has elected
to redeem a portion of the outstanding principal amount and accrued interest
under this Debenture the Holder shall be permitted to convert all or any portion
of this Debenture during such three business day period.
SECURITY AGREEMENTS. This Debenture is secured by a Pledge and Escrow
Agreement (the "PLEDGE Agreement") of even date herewith among the Obligor, the
Holder, the Escrow Agent, a Security Agreement (the "SECURITY AGREEMENT") of
even date herewith between the Obligor and the Holder and the Memorandum of
Interest dated January 30, 2006 (the "MEMORANDUM OF INTEREST").
CONSENT OF HOLDER TO SELL CAPITAL STOCK OR GRANT SECURITY INTERESTS. So
long as the aggregate principal amount on this Debenture together with any other
Debentures issued pursuant to the Securities Purchase Agreement remains unpaid
and unconverted in an aggregate amount over Two Hundred Thousand Dollars
($200,000), the Obligor shall not, without the prior consent of the Holder, (i)
issue or sell any shares of Common Stock or preferred stock without
consideration or for consideration per share less than the Closing Bid Price of
the Common Stock determined immediately prior to its issuance, (ii) issue or
sell any preferred stock, warrant, option, right, contract, call, or other
security or instrument granting the holder thereof the right to acquire Common
Stock without consideration or for consideration per share less than the Closing
Bid Price of the Common Stock determined immediately prior to its issuance,
(iii) enter into any security instrument granting the holder a security interest
in Pledged Property as defined in the Security Agreement , or (iv) file any
registration statements on Form S-8.
RIGHTS OF FIRST REFUSAL. For a period of eighteen (18) months from the
date hereof, excluding a raise of Two Million Dollars ($2,000,000) within thirty
days from January 27, 2006 on terms less favorable than this Debenture, so long
as any portion of this Debenture is outstanding (including principal or accrued
interest), if the Obligor intends to raise additional capital by the issuance or
sale of capital stock of the Obligor, including without limitation shares of any
class of Common Stock, any class of preferred stock, options, warrants or any
other securities convertible or exercisable into shares of Common Stock (whether
the offering is conducted by the Obligor, underwriter, placement agent or any
third party) the Obligor shall be obligated to offer to the Holder such issuance
or sale of capital stock, by providing in writing the principal amount of
capital it intends to raise and outline of the material terms of such capital
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raise, prior to the offering such issuance or sale of capital stock to any third
parties including, but not limited to, current or former officers or directors,
current or former shareholders and/or investors of the obligor, underwriters,
brokers, agents or other third parties. The Holder shall have five (5) business
days from receipt of such notice of the sale or issuance of capital stock to
accept or reject all or a portion of such capital raising offer.
This Debenture is subject to the following additional provisions:
SECTION 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.
SECTION 2. EVENTS OF DEFAULT.
(a) An "EVENT OF DEFAULT", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) Any default in the payment of the principal of, interest
on or other charges in respect of this Debenture, free of any claim of
subordination, as and when the same shall become due and payable (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise);
(ii) The Obligor shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any breach or
default of any provision of this Debenture (except as may be covered by Section
2(a)(i) hereof) or any Transaction Document (as defined in Section 5) which is
not cured with in the time prescribed;
(iii) The Obligor or any subsidiary of the Obligor shall
commence, or there shall be commenced against the Obligor or any subsidiary of
the Obligor under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Obligor or any subsidiary
of the Obligor commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to the Obligor or any subsidiary of the Obligor or there is
commenced against the Obligor or any subsidiary of the Obligor any such
bankruptcy, insolvency or other proceeding which remains unanswered by the
Obligor for a period of 61 days; or the Obligor or any subsidiary of the Obligor
is adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Obligor or any
subsidiary of the Obligor suffers any appointment of any custodian, private or
court appointed receiver or the like for it or any substantial part of its
property which continues undischarged or unstayed for a period of sixty one (61)
days; or the Obligor or any subsidiary of the Obligor makes a general assignment
for the benefit of creditors; or the Obligor or any subsidiary of the Obligor
shall by any act or failure to act expressly indicate its consent to, approval
of or acquiescence in any of the foregoing; or any corporate or other action is
taken by the Obligor or any subsidiary of the Obligor for the purpose of
effecting any of the foregoing;
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(iv) The Obligor or any subsidiary of the Obligor shall
default in any of its obligations under any other debenture, or have failed to
cure within the time prescribed therein, or any mortgage, credit agreement or
other facility, indenture agreement, factoring agreement or other instrument
under which there may be issued, or by which there may be secured or evidenced
any indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Obligor or any subsidiary of the Obligor in an
amount exceeding $100,000, whether such indebtedness now exists or shall
hereafter be created and such default shall result in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise
become due and payable;
(v) The Common Stock shall cease to be quoted for trading or
listed for trading on either the Nasdaq OTC Bulletin Board ("OTC"), Nasdaq
Capital Market, New York Stock Exchange, American Stock Exchange or the Nasdaq
National Market (each, a "SUBSEQUENT MARKET") and shall not again be quoted or
listed for trading thereon within five (5) Trading Days of such delisting, or if
such delisting is for failure by the Obligor to timely file reports pursuant to
Section 13 or 15(d) of the Act, and shall not again be quoted or listed for
trading thereon within the thirty (30) calendar day grace period afforded by
NASD Rule 6350;
(vi) The Obligor or any subsidiary of the Obligor shall be a
party to any Change of Control Transaction (as defined in Section 5), unless the
Holder has provided its prior written consent to such Change of Control
Transaction;
(vii) The Obligor shall fail to file the Underlying Shares
Registration Statement (as defined in Section 5) with the Commission (as defined
in Section 5), or the Underlying Shares Registration Statement shall not have
been declared effective by the Commission, in each case within the time periods
set forth in the Investor Registration Rights Agreement ("REGISTRATION RIGHTS
AGREEMENT") of even date herewith between the Obligor and the Holder;
(viii) If the effectiveness of the Underlying Shares
Registration Statement lapses for any reason or the Holder shall not be
permitted to resell the shares of Common Stock underlying this Debenture under
the Underlying Shares Registration Statement, in either case, for more than five
(5) consecutive Trading Days or an aggregate of eight Trading Days (which need
not be consecutive Trading Days) except for any lapse of effectiveness or the
Holder's inability to sell pursuant to the Underlying Shares Registration
Statement caused by the review and/or comment by the United States Securities
and Exchange Commission (the "SEC") relating to any reports, schedules, forms,
statements or other documents required to be filed by the Obligor with the SEC
under the Exchange Act which the Obligor fails to submit responses to within ten
(10) business days from receipt of comments by the SEC or such review and/or
comments are not resolved within forty five (45) calendar days from receipt of
such SEC comment letter or review notification;
(ix) If the Holder fails to receive such certificates
representing shares of Common Stock upon conversion as specified in the
Irrevocable Transfer Agent Instructions or the Obligor shall provide notice to
the Holder, including by way of public announcement, at any time, of its
intention not to comply with or interfere with a request for conversions of this
Debenture in accordance with the terms hereof and pursuant to the Irrevocable
Transfer Agent
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Instructions and the Obligor fails to cure such non-delivery to the Holder
within ten (10) business days from receipt of written notification from the
Holder;
(x) The Obligor shall fail for any reason to deliver the payment in cash
pursuant to a Buy-In (as defined herein) within three (3) business days after
notice is claimed delivered hereunder;
(b) During the time that any portion of this Debenture is outstanding,
if any Event of Default has occurred, the full principal amount of this
Debenture, together with interest and other amounts owing in respect thereof, to
the date of acceleration shall become at the Holder's election, immediately due
and payable in cash, provided however, the Holder may request (but shall have no
obligation to request) payment of such amounts in Common Stock of the Obligor.
In addition to any other remedies, the Holder shall have the right (but not the
obligation) to convert this Debenture at any time after (x) an Event of Default
or (y) the Maturity Date at the Conversion Price then in-effect. The Holder need
not provide and the Obligor hereby waives any presentment, demand, protest or
other notice of any kind, and the Holder may immediately upon the expiration of
any grace period enforce any and all of its rights and remedies hereunder and
all other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by Xxxxxx at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon. Upon an Event of Default, notwithstanding any
other provision of this Debenture or any Transaction Document, the Holder shall
have no obligation to comply with or adhere to any limitations, if any, on the
conversion of this Debenture or the sale of the Underlying Shares.
SECTION 3. CONVERSION.
(a) CONVERSION AT OPTION OF HOLDER.
(i) This Debenture shall be convertible into shares of
Company's Common Stock at the option of the Holder, in whole or in part at any
time and from time to time, after the Original Issue Date (as defined in Section
5) (subject to the limitations on conversion set forth in Section 3(b) hereof).
The number of shares of Common Stock issuable upon a conversion hereunder equals
the quotient obtained by dividing (x) the outstanding amount of this Debenture
to be converted by (y) the Conversion Price (as defined in Section 3(c)(i)). The
Holder shall receive Common Stock certificates, as specified in the Irrevocable
transfer Agent Instructions, prior to the Third (3rd) Trading Day after a
Conversion Date. In the event that the Holder does not receive Common Stock
certificates as specified in the Irrevocable Transfer Agent Instructions the
Obligor shall cure such non-delivery to the Holder within ten (10) business days
from receipt of written notification from the Holder.
(ii) Notwithstanding anything to the contrary contained
herein, if on any Conversion Date: (1) the number of shares of Common Stock at
the time authorized, unissued and unreserved for all purposes, or held as
treasury stock, is insufficient to pay principal and interest hereunder in
shares of Common Stock; (2) the Common Stock is not listed or quoted for trading
on the OTC or on a Subsequent Market; (3) the Obligor has failed to timely
satisfy its conversion; or (4) the issuance of such shares of Common Stock would
result in a violation of Section 3(b) and the Holder is unable to sell shares of
the Company's Common Stock as a result
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of a halt in the trading of the Obligor's Common Stock, lapse in the
effectiveness of the Underlying Shares Registration Statement except as
permitted under Section 2(a)(viii), or the Obligor's Common Stock shall cease to
be quoted for trading or listed for trading on a Subsequent Market and such
delisting is not cured within the time periods outlined in Section 2(a)(v),
then, at the option of the Holder, the Obligor, in lieu of delivering shares of
Common Stock pursuant to Section 3(a)(i), shall deliver, within seven (7)
Trading Days of each applicable Conversion Date, an amount in cash equal to the
product of the outstanding principal amount to be converted plus any interest
due therein divided by the Conversion Price, chosen by the Holder, and
multiplied by the average of the closing prices of the stock from date of the
conversion notice till the date that such cash payment is made.
Further, if the Obligor shall not have delivered any cash due in
respect of conversion of this Debenture or as payment of interest thereon by the
seventh (7th) Trading Day after the Conversion Date, the Holder may, by notice
to the Obligor, require the Obligor to issue shares of Common Stock pursuant to
Section 3(c), except that for such purpose the Conversion Price applicable
thereto shall be the lesser of the Conversion Price on the Conversion Date and
the Conversion Price on the date of such Holder demand. Any such shares will be
subject to the provisions of this Section.
(iii) The Holder shall effect conversions by delivering to the
Obligor a completed notice in the form attached hereto as Exhibit A (a
"CONVERSION NOTICE"). The date on which a Conversion Notice is delivered is the
"CONVERSION DATE." Unless the Holder is converting the entire principal amount
outstanding under this Debenture, the Holder is not required to physically
surrender this Debenture to the Obligor in order to effect conversions.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture plus all accrued and unpaid interest thereon
in an amount equal to the applicable conversion. The Holder and the Obligor
shall maintain records showing the principal amount converted and the date of
such conversions. In the event of any dispute or discrepancy, between the
records of the Holder and the Obligor the parties hereto shall submit such
dispute to an independent third party mutually chosen and agreed upon by the
parties. Notwithstanding the foregoing in the event that a party hereto does not
agree with such determination by the independent third party they shall be free
to pursue any and all legal remedies available including but not limited to a
declaratory judgment by a court of competent jurisdiction.
(b) CERTAIN CONVERSION RESTRICTIONS.
(i) A Holder may not convert this Debenture or receive shares
of Common Stock as payment of interest hereunder to the extent such conversion
or receipt of such interest payment would result in the Holder, together with
any affiliate thereof, beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules promulgated thereunder) in
excess of 4.9% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of, and payment of interest on, this
Debenture held by such Holder after application of this Section. Since the
Holder will not be obligated to report to the Obligor the number of shares of
Common Stock it may hold at the time of a conversion hereunder, unless the
conversion at issue would result in the issuance of shares of Common Stock in
excess of 4.9% of the then outstanding shares of Common Stock without regard to
any other shares which may be beneficially owned by the Holder or an affiliate
thereof, the Holder
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shall have the authority and obligation to determine whether the restriction
contained in this Section will limit any particular conversion hereunder and to
the extent that the Holder determines that the limitation contained in this
Section applies, the determination of which portion of the principal amount of
this Debenture is convertible shall be the responsibility and obligation of the
Holder. If the Holder has delivered a Conversion Notice for a principal amount
of this Debenture that, without regard to any other shares that the Holder or
its affiliates may beneficially own, would result in the issuance in excess of
the permitted amount hereunder, the Obligor shall notify the Holder of this fact
and shall honor the conversion for the maximum principal amount permitted to be
converted on such Conversion Date in accordance with the periods described in
this Section 3(b)(i). The provisions of this Section may be waived by a Holder
(but only as to itself and not to any other Holder) upon not less than 65 days
prior notice to the Obligor. Other Holders shall be unaffected by any such
waiver.
(ii) The Holder shall not convert in excess of One Hundred
Thousand Dollars ($100,000) of principal amount of this Debenture at the Market
Conversion Price in any thirty (30) calendar day period. Notwithstanding the
forgoing, this conversion restriction shall not apply upon the occurrence of an
Event of Default or if waived in writing by the Company.
(c) CONVERSION PRICE AND ADJUSTMENTS TO CONVERSION PRICE.
(i) The conversion price in effect on any Conversion Date shall be
equal to the lesser of (a) $0.2626 (the "FIXED CONVERSION PRICE") or (b) ninety
five percent (95%) of the lowest Volume Weighted Average Price of the Common
Stock during the thirty (30) trading days immediately preceding the Conversion
Date as quoted by Bloomberg, LP (the "MARKET CONVERSION PRICE"). The Fixed
Conversion Price and the Market Conversion Price are collectively referred to as
the "CONVERSION PRICE." The Conversion Price may be adjusted pursuant to the
other terms of this Debenture.
(ii) If the Obligor, at any time while this Debenture is
outstanding, shall (a) pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (b) subdivide
outstanding shares of Common Stock into a larger number of shares, (c) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (d) issue by reclassification of shares of
the Common Stock any shares of capital stock of the Obligor, then the Fixed
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
(iii) If the Obligor, at any time while this Debenture is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to the Holder) entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Fixed
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Conversion Price, then the Fixed Conversion Price shall be multiplied by a
fraction, of which the denominator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants (plus the number of additional shares of Common Stock
offered for subscription or purchase), and of which the numerator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants, plus the number
of shares which the aggregate offering price of the total number of shares so
offered would purchase at the Fixed Conversion Price. Such adjustment shall be
made whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants. However, upon the expiration of any
such right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Fixed Conversion Price
pursuant to this Section, if any such right, option or warrant shall expire and
shall not have been exercised, the Fixed Conversion Price shall immediately upon
such expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Fixed Conversion Price made pursuant to the provisions of
this Section after the issuance of such rights or warrants) had the adjustment
of the Fixed Conversion Price made upon the issuance of such rights, options or
warrants been made on the basis of offering for subscription or purchase only
that number of shares of the Common Stock actually purchased upon the exercise
of such rights, options or warrants actually exercised.
(iv) Except as otherwise permitted by this Debenture, if the Obligor or
any subsidiary thereof, as applicable, at any time while this Debenture is
outstanding, shall issue shares of Common Stock or rights, warrants, options
(excluding shares of Comon Stock issued or issuable to officers, directors and
employees of, or consultants to the Obligor pursuant to stock grants, option
plans or other employee stock incentive programs, whether qualified or
non-qualified, approved by the Obligor's Board of Directors) or other securities
or debt that are convertible into or exchangeable for shares of Common Stock
("COMMON STOCK EQUIVALENTS") entitling any Person to acquire shares of Common
Stock, at a price per share less than the Fixed Conversion Price (if the holder
of the Common Stock or Common Stock Equivalent so issued shall at any time,
whether by operation of purchase price adjustments, reset provisions, floating
conversion, exercise or exchange prices or otherwise, or due to warrants,
options or rights per share which is issued in connection with such issuance, be
entitled to receive shares of Common Stock at a price per share which is less
than the Fixed Conversion Price, such issuance shall be deemed to have occurred
for less than the Fixed Conversion Price), then, at the sole option of the
Holder, the Fixed Conversion Price for a principal amount due and outstanding
under this Debenture equal to the dollar amount of Common Stock Equivalents
issued (determined by multiplying the conversion price, issuance price, exchange
or purchase of such Common Stock Equivalents by the number of shares of the
Obligor's Common Stock issuable pursuant to the Common Stock Equivalent) shall
be adjusted on the date of such issuance to mirror the conversion price,
issuance price, exchange or purchase price for such Common Stock or Common Stock
Equivalents (including any reset provisions thereof) at issue. Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents are issued.
(calculated to the nearest cent).
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The Obligor shall notify the Holder in writing, no later than one (1) business
day following the issuance of any Common Stock or Common Stock Equivalent
subject to this Section, indicating therein the applicable issuance price, or of
applicable reset price, exchange price, conversion price and other pricing
terms. No adjustment under this Section shall be made as a result of issuances
and exercises of options to purchase shares of Common Stock issued for
compensatory purposes pursuant to any of the Obligor's stock option or stock
purchase plans.
(v) If the Obligor, at any time while this Debenture is
outstanding, shall distribute to all holders of Common Stock (and not to the
Holder) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security, then in each such case the Fixed
Conversion Price at which this Debenture shall thereafter be convertible shall
be determined by multiplying the Fixed Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Closing Bid Price determined as of the record date mentioned above, and of which
the numerator shall be such Closing Bid Price on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to the Holder of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(vi) In case of any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holder shall have the right
thereafter to, at its option, (A) convert the then outstanding principal amount,
together with all accrued but unpaid interest and any other amounts then owing
hereunder in respect of this Debenture into the shares of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
the Common Stock following such reclassification or share exchange, and the
Holder of this Debenture shall be entitled upon such event to receive such
amount of securities, cash or property as the shares of the Common Stock of the
Obligor into which the then outstanding principal amount, together with all
accrued but unpaid interest and any other amounts then owing hereunder in
respect of this Debenture could have been converted immediately prior to such
reclassification or share exchange would have been entitled, or (B) require the
Obligor to prepay the outstanding principal amount of this Debenture, plus all
interest and other amounts due and payable thereon. The entire prepayment price
shall be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(vii) The Obligor shall at all times reserve and keep
available out of its authorized Common Stock the full number of shares of Common
Stock issuable upon conversion of all outstanding amounts under this Debenture;
and within three (3) Business Days following the receipt by the Obligor of a
Holder's notice that such minimum number of Underlying Shares is not so
reserved, the Obligor shall promptly reserve a sufficient number of shares of
Common Stock to comply with such requirement.
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(viii) All calculations under this Section 3 shall be rounded
up to the nearest $0.001 or whole share.
(ix) Whenever the Conversion Price is adjusted pursuant to
Section 3 hereof, the Obligor shall promptly mail to the Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(x) If (A) the Obligor shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Obligor shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Obligor shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Obligor
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Obligor is a party, any sale or
transfer of all or substantially all of the assets of the Obligor, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (E) the Obligor shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Obligor; then, in each case, the Obligor shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture, and shall
cause to be mailed to the Holder at its last address as it shall appear upon the
stock books of the Obligor, at least twenty (20) calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Holder is entitled to convert this Debenture during the
20-day calendar period commencing the date of such notice to the effective date
of the event triggering such notice.
(xi) In case of any (1) merger or consolidation of the Obligor
or any subsidiary of the Obligor which at the time holds more than one half
(1/2) of the assets of the Obligor with or into another Person, or (2) sale by
the Obligor or any subsidiary of the Obligor of more than one-half of the assets
of the Obligor in one or a series of related transactions, a Holder shall have
the right to (A) exercise any rights under Section 2(b), (B) convert the
aggregate amount of this Debenture then outstanding into the shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger, consolidation or sale, and such
Holder shall be entitled upon such event or series of related events to receive
such amount of securities, cash and property as the shares of Common Stock into
which such aggregate principal amount of this Debenture could have been
converted immediately prior to such merger, consolidation or sales would have
been entitled, or (C) in the case of a merger or consolidation, require the
surviving entity to issue to the Holder a convertible Debenture with a principal
amount equal to the aggregate principal amount of this Debenture
10
then held by such Holder, plus all accrued and unpaid interest and other amounts
owing thereon, which such newly issued convertible Debenture shall have terms
identical (including with respect to conversion) to the terms of this Debenture,
and shall be entitled to all of the rights and privileges of the Holder of this
Debenture set forth herein and the agreements pursuant to which this Debentures
were issued. In the case of clause (C), the conversion price applicable for the
newly issued shares of convertible preferred stock or convertible Debentures
shall be based upon the amount of securities, cash and property that each share
of Common Stock would receive in such transaction and the Conversion Price in
effect immediately prior to the effectiveness or closing date for such
transaction. The terms of any such merger, sale or consolidation shall include
such terms so as to continue to give the Holder the right to receive the
securities, cash and property set forth in this Section upon any conversion or
redemption following such event. This provision shall similarly apply to
successive such events.
(d) OTHER PROVISIONS.
(i) The Obligor covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of Common Stock
solely for the purpose of issuance upon conversion of this Debenture and payment
of interest on this Debenture, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holder, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Obligor as to reservation of such
shares set forth in this Debenture) be issuable (taking into account the
adjustments and restrictions of Sections 2(b) and 3(c)) upon the conversion of
the outstanding principal amount of this Debenture and payment of interest
hereunder. The Obligor covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and, if the Underlying Shares Registration Statement has
been declared effective under the Securities Act, registered for public sale in
accordance with such Underlying Shares Registration Statement.
(ii) Upon a conversion hereunder the Obligor shall not be
required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Closing Bid Price at such time. If
the Obligor elects not, or is unable, to make such a cash payment, the Holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(iii) The issuance of certificates for shares of the Common
Stock on conversion of this Debenture shall be made without charge to the Holder
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Obligor
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such Debenture so
converted and the Obligor shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Obligor the amount of such tax or shall have
established to the satisfaction of the Obligor that such tax has been paid.
11
(iv) Nothing herein shall limit a Holder's right to pursue
actual damages or declare an Event of Default pursuant to Section 2 herein for
the failure to receive certificates representing shares of Common Stock upon
conversion as prescribed in the Irrevocable Transfer Agent Instructions and the
Obligor fails to cure such non-delivery to the Holder within ten (10) Trading
Days from receipt of written notification from the Holder such Holder shall have
the right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief,
in each case without the need to post a bond or provide other security. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
(v) In addition to any other rights available to the Holder,
if the Holder fails to receive such certificates representing shares of Common
Stock upon conversion as specified in the Irrevocable Transfer Agent
Instructions and the Obligor fails to cure such non-delivery to the Holder
within ten (10) business days from receipt of written notification from the
Holder, and if after such tenth (10th) Trading Day the Holder purchases (in an
open market transaction or otherwise) Common Stock to deliver in satisfaction of
a sale by such Holder of the Underlying Shares which the Holder anticipated
receiving upon such conversion (a "BUY-IN"), then the Obligor shall (A) pay in
cash to the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the
product of (1) the aggregate number of shares of Common Stock that such Holder
anticipated receiving from the conversion at issue multiplied by (2) the market
price of the Common Stock at the time of the sale giving rise to such purchase
obligation and (B) at the option of the Holder, either reissue a Debenture in
the principal amount equal to the principal amount of the attempted conversion
or deliver to the Holder the number of shares of Common Stock that would have
been issued had the Obligor timely complied with its delivery requirements under
Section 3(a)(i). For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of Debentures with respect to which the market price of the
Underlying Shares on the date of conversion was a total of $10,000 under clause
(A) of the immediately preceding sentence, the Obligor shall be required to pay
the Holder $1,000. The Holder shall provide the Obligor written notice
indicating the amounts payable to the Holder in respect of the Buy-In.
SECTION 4. NOTICES. Any notices, consents, waivers or other
communications required or permitted to be given under the terms hereof 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
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) trading 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:
12
If to the Company, to: Newgold, Inc.
000 Xxxxxxx Xxxx - Xxxxx 000
Xxxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
With a copy to: Xxxxx X. Xxxxxx
000 Xxxxxxxxxxx Xxxxx
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Xxxxxxxxx Genshlea Chediak
000 Xxxxxxx Xxxx - 00xx Xxxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxxx Xxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Holder: Cornell Capital Partners, LP
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
With a copy to: Xxxxx Xxxxxxxx, Esq.
000 Xxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) business days prior to the effectiveness of such
change. Written confirmation of receipt (i) given by the recipient of such
notice, consent, waiver or other communication, (ii) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (iii) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.
SECTION 5. DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:
13
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a federal legal holiday in the United States or a day on which banking
institutions are authorized or required by law or other government action to
close.
"CHANGE OF CONTROL TRANSACTION" means the occurrence of (a) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Obligor, by contract or otherwise) of in excess of fifty percent
(50%) of the outstanding voting securities of the Obligor (except that the
acquisition of voting securities by the Holder shall not constitute a Change of
Control Transaction for purposes hereof), (b) a replacement at one time or over
time of more than one-half of the members of the board of directors of the
Obligor which is not approved by a majority of those individuals who are members
of the board of directors on the date hereof (or by those individuals who are
serving as members of the board of directors on any date whose nomination to the
board of directors was approved by a majority of the members of the board of
directors who are members on the date hereof), (c) the merger, consolidation or
sale of fifty percent (50%) or more of the assets of the Obligor or any
subsidiary of the Obligor which at the time holds more that one half (1/2) of
the assets of the Obligor in one or a series of related transactions with or
into another entity, or (d) the execution by the Obligor of an agreement to
which the Obligor is a party or by which it is bound, providing for any of the
events set forth above in (a), (b) or (c).
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock, par value $.001, of the Obligor
and stock of any other class into which such shares may hereafter be changed or
reclassified.
"CONVERSION DATE" shall mean the date upon which the Holder gives the
Obligor notice of their intention to effectuate a conversion of this Debenture
into shares of the Company's Common Stock as outlined herein.
"CLOSING BID PRICE" means the price per share in the last reported
trade of the Common Stock on the OTC or on the exchange which the Common Stock
is then listed as quoted by Bloomberg, LP.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of this
Debenture regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"TRADING DAY" means a day on which the shares of Common Stock are
quoted on the OTC or quoted or traded on such Subsequent Market on which the
shares of Common Stock are
14
then quoted or listed; provided, that in the event that the shares of Common
Stock are not listed or quoted, then Trading Day shall mean a Business Day.
"TRANSACTION DOCUMENTS" means the Securities Purchase Agreement or any
other agreement delivered in connection with the Securities Purchase Agreement,
the Security Agreement, including, without limitation, the Pledge Agreement, the
Irrevocable Transfer Agent Instructions, and the Registration Rights Agreement.
"UNDERLYING SHARES" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof.
"UNDERLYING SHARES REGISTRATION STATEMENT" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.
SECTION 6. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligations of the Obligor, which are
absolute and unconditional, to pay the principal of, interest and other charges
(if any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Obligor. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as this Debenture is
outstanding, the Obligor shall not and shall cause their subsidiaries not to,
without the consent of the Holder, (i) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holder; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock or other equity securities other than as to
the Underlying Shares to the extent permitted or required under the Transaction
Documents; or (iii) enter into any agreement with respect to any of the
foregoing.
SECTION 7. This Debenture shall not entitle the Holder to any of the
rights of a stockholder of the Obligor, including without limitation, the right
to vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of stockholders or any other proceedings of the
Obligor, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
SECTION 8. If this Debenture is mutilated, lost, stolen or destroyed,
the Obligor shall execute and deliver, in exchange and substitution for and upon
cancellation of the mutilated Debenture, or in lieu of or in substitution for a
lost, stolen or destroyed Debenture, a new Debenture for the principal amount of
this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of
evidence of such loss, theft or destruction of such Debenture, and of the
ownership hereof, and indemnity, if requested, all reasonably satisfactory to
the Obligor.
SECTION 9. As of the date hereof, no indebtedness of the Obligor is
senior to this Debenture in right of payment, whether with respect to interest,
damages or upon liquidation or dissolution or otherwise. Without the Holder's
consent, the Obligor will not and will not permit any of their subsidiaries to,
directly or indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness of any kind, on or with respect to any of its property or assets
now owned
15
or hereafter acquired or any interest therein or any income or profits there
from that is senior in any respect to the obligations of the Obligor under this
Debenture.
SECTION 10. This Debenture shall be governed by and construed in
accordance with the laws of the State of New Jersey, without giving effect to
conflicts of laws thereof. Each of the parties consents to the jurisdiction of
the Superior Courts of the State of New Jersey sitting in Xxxxxx County, New
Jersey and the U.S. District Court for the District of New Jersey sitting in
Newark, New Jersey in connection with any dispute arising under this Debenture
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on FORUM NON CONVENIENS to the bringing of any
such proceeding in such jurisdictions.
SECTION 11. If the Obligor fails to strictly comply with the terms of
this Debenture, then the Obligor shall reimburse the Holder promptly for all
fees, costs and expenses, including, without limitation, attorneys' fees and
expenses incurred by the Holder in any action in connection with this Debenture,
including, without limitation, those incurred: (i) in connection with the
rendering of legal advice as to the Holder's rights, remedies and obligations
during any workout, attempted workout (ii) collecting any sums which become due
to the Holder, (iii) defending or prosecuting any proceeding or any counterclaim
to any proceeding or appeal; or (iv) the protection, preservation or enforcement
of any rights or remedies of the Holder.
SECTION 12. Any waiver by the Holder of a breach of any provision of
this Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Debenture. Any waiver must be in writing.
SECTION 13. If any provision of this Debenture is invalid, illegal or
unenforceable, the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum permitted rate of interest.
The Obligor covenants (to the extent that it may lawfully do so) that it shall
not at any time insist upon, plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would prohibit or forgive the Obligor from paying all or any portion of the
principal of or interest on this Debenture as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this indenture, and the Obligor (to the extent
it may lawfully do so) hereby expressly waives all benefits or advantage of any
such law, and covenants that it will not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such power as though no such law
has been enacted.
SECTION 14. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day.
16
SECTION 15. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.
[REMAINDER OF PAGE INTENTIONLLY LEFT BLANK]
17
IN WITNESS WHEREOF, the Obligor has caused this Secured Convertible
Debenture to be duly executed by a duly authorized officer as of the date set
forth above.
NEWGOLD, INC.
By: /s/ XXXXX XXXXXXX
-------------------------------
Name: Xxxxx Xxxxxxx
Title: Chief Executive Officer
18
