NEWGOLD, INC. Secured Convertible Debenture Due: November 30, 2009
Exhibit
10.20
EXECUTION
COPY
Dated:
December 1, 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.
NGLD-2-3$1,000,000
NEWGOLD,
INC.
Due:
November 30, 2009
This
Secured Convertible Debenture (the “Debenture”)
is
issued by NEWGOLD,
INC., a
Delaware corporation (the “Company”),
to
CORNELL
CAPITAL PARTNERS, LP
(the
“Holder”),
pursuant to that certain Securities Purchase Agreement (the “Securities
Purchase Agreement”)
dated
September 26, 2006.
FOR
VALUE RECEIVED,
the
Company hereby promises to pay to the Holder or its successors and assigns
the
principal sum of One Million Dollars ($1,000,000) together with accrued but
unpaid interest in lawful money of the United States of America on
or
before November 30, 2009 (the “Maturity
Date”)
in
accordance with the following terms:
Section
1. General
Terms
(a) 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 shall be paid on the Maturity Date (or sooner
as provided herein) to the Holder or its assignee in whose name this Debenture
is registered on the records of the Company regarding registration and transfers
of Debentures in cash or in Common Stock (valued at the Closing Bid Price on
the
Trading Day immediately prior to the date paid) at the option of the Company.
(b) Security.
This
Debenture is secured by a Pledge and Escrow Agreement (the “Pledge
Agreement”)
dated
September 26, 2006 among the Company, and the Holder, the Escrow Agent, and
that
certain UCC-1 filed with Delaware Secretary of State on September 19,
2006
as
File No.: 6322983 8, and the certain Memorandum of Security Agreement filed
with
the Pershing County Records Office, State of Nevada on February 14, 2006, as
Roll No. 405, Page 87, and as file No. 247392, which Memorandum of Security
Agreement was subsequently amended on or about September 26, 2006 to provide
for
an obligation of the Company to the Holder in a gross principal amount of two
million two hundred thousand dollars ($2,200,000).
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 upon an Optional Redemption (as
defined in Section
3(a)),
the
Maturity Date, by acceleration, or otherwise;
(ii) The
Company shall commence, or there shall be commenced against the Company or
any
subsidiary of the Company under any applicable bankruptcy or insolvency laws
as
now or hereafter in effect or any successor thereto, or the Company or any
subsidiary of the Company 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 Company or any subsidiary of the Company
or
there is commenced against the Company or any subsidiary of the Company any
such
bankruptcy, insolvency or other proceeding which remains unanswered by the
Company for a period of 61 days; or the Company is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Company or any subsidiary of the Company 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 Company makes a general
assignment for the benefit of creditors; or the Company of the Company 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 Company for the purpose of effecting any of the foregoing;
(iii) The
Company 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 Company or any subsidiary of the Company
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;
(iv) The
Common Stock shall cease to be quoted for trading or listing for trading on
any
of (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the
Nasdaq
National Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin
Board (“OTC”)
(each,
a “Primary
Market”)
and
shall not again be quoted or listed for trading on any Primary Market 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;
(v) The
Company or any subsidiary of the Company shall be a party to any Change of
Control Transaction (as defined in Section
6),
unless
the Holder has provided its prior written consent to such Change of Control
Transaction;
(vi) The
Company shall fail to file the Underlying Shares Registration Statement (as
defined in Section
6)
with
the Commission (as defined in Section
6),
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”)
dated
September 26, 2006 between the Company and the Holder;
(vii) 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 Company with the SEC under the Exchange Act which
the Company 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;
(viii) The
Company shall fail for any reason to deliver Common Stock certificates to a
Holder prior to the fifth (5th)
Trading
Day after a Conversion Date, or the Company shall provide notice to the Holder,
including by way of public announcement, at any time, of its intention not
to
comply with requests for conversions in accordance with the terms hereof and
the
Company fails to cure such nondelivery to the Holder within ten (10) business
days from receipt of written notification from the Holder;
(ix) The
Company 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;
(x) The
Company 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) through 2(a)(ix)
hereof)
or any Transaction Document (as defined in Section
6)
which
is not cured with in the time prescribed,
or
an
Event of Default under any other debenture issued to the Holder in connection
with the Securities Purchase Agreement shall occur;
(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 Company. Furthermore, 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
Company hereby waives any presentment, demand, protest or other notice of any
kind, and the Holder may immediately or 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. Redemptions.
(a) Company’s
Optional Cash Redemption.
The
Company at its option shall have the right to redeem (“Optional
Redemption”)
a
portion or all amounts outstanding under this Debenture prior to the Maturity
Date provided
that
as of
the date of the Holder’s receipt of a Redemption Notice (as defined herein) (i)
the volume weighted average price of the Company’s Common Stock, as reported by
Bloomberg, LP, has been $0.55 for ten (10) consecutive Trading days (ii) the
Underlying Share Registration Statement is effective for a period of at least
one hundred twenty (120) calendar days, and (iii) no Event of Default has
occurred. The Company shall pay an amount equal to the principal amount being
redeemed plus a redemption premium (“Redemption
Premium”)
equal
to ten percent (10%) of the principal amount being redeemed, and accrued
interest, (collectively referred to as the “Redemption
Amount”).
In
order to make a redemption, the Company shall first provide five (5) calendar
days advance written notice to the Holder of its intention to make a redemption
(the “Redemption
Notice”)
setting forth the amount of principal it desires to redeem. After receipt of
the
Redemption Notice the Holder shall have three (3) business days to elect to
convert all or any portion of this Debenture, subject to the limitations set
forth in Section
4(b).
On the
fourth (4th)
business day after the Redemption Notice, the Company shall deliver to the
Holder the Redemption Amount with respect to the principal amount redeemed
after
giving effect to conversions effected during the three (3) business day period.
Section
4. Conversion.
(a) Conversion
at Option of Holder.
(i) This
Debenture shall be convertible into shares of the 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
6)
(subject to the limitations on conversion set forth in Section
4(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
4(c)(i)).
The
Holder shall receive Common Stock certificates, as specified in the Irrevocable
transfer Agent Instructions, prior to the Fifth (5th)
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 Company 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 a Primary Market; or (3) the Company has
failed to timely satisfy a conversion; then, at the option of the Holder, the
Company, in lieu of delivering shares of Common Stock pursuant to Section
4(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 divided by the applicable Conversion Price, and multiplied by the
average of the Closing Bid Prices of the stock from date of the conversion
notice till the date that such cash payment is made.
Further,
if the Company shall not have delivered any cash due in respect of conversion
of
this Debenture by the seventh (7th)
Trading
Day after the Conversion Date, the Holder may, by notice to the Company, require
the Company to issue shares of Common Stock pursuant to Section
4(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 Company 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 Company 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 Company 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) The
Company shall not effect any conversions of this Debenture and the Holder shall
not have the right to convert any portion of this Debenture or receive shares
of
Common Stock as payment of interest hereunder to the extent that after giving
effect to such such conversion or receipt of such interest payment, the Holder,
together with any affiliate thereof, would beneficially own (as determined
in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 4.99% of the number of shares of Common Stock
outstanding immediately after giving effect to such conversion or receipt of
shares as payment of interest. Since the Holder will not be obligated to report
to the Company 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 4.99% 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 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 Company 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
Section
4(a)(i)
and, any
principal amount tendered for conversion in excess of the permitted amount
hereunder shall remain outstanding under this Debenture. 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 Company. Other Holders
shall be unaffected by any such waiver.
(ii)
The
Holder shall not convert in excess of Two Hundred Fifty Thousand Dollars
($250,000) of principal amount of this Debenture (combined with conversions
on
all other debentures pursuant to the Securities Purchase Agreement) at the
Market Conversion Price in any thirty (30) 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. Nothing contained
in
this Section 3(b)(ii) hereof shall limit the Holder’s right to make conversions
at the Fixed Conversion Price.
(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) $0.4735 (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
Company, 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 Company, then
the 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
Company, 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 Conversion Price, then the 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 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 Conversion Price pursuant
to
this Section, if any such right, option or warrant shall expire and shall not
have been exercised, the 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
Conversion Price made pursuant to the provisions of this Section after the
issuance of such rights or warrants) had the adjustment of the 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 Company 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 Common
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 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 Conversion Price, such issuance shall
be deemed to have occurred for less than the Conversion Price), then, at the
sole option of the Holder, the 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 a to mirror the
conversion, 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).
The
Company 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 of Excluded
Securities.
(v) If
the
Company, 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 Conversion Price at which this Debenture
shall thereafter be convertible shall be determined by multiplying the
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 Company 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 Company 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) Whenever
the Conversion Price is adjusted pursuant to Section
4
hereof,
the Company 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.
(viii) If
(A)
the Company shall declare a dividend (or any other distribution) on the Common
Stock; (B) the Company shall declare a special nonrecurring cash dividend on
or
a redemption of the Common Stock; (C) the Company 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 Company shall be required in connection
with
any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of all or substantially all of
the
assets of the Company, of any compulsory share exchange whereby the Common
Stock
is converted into other securities, cash or property; or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding
up of
the affairs of the Company; then, in each case, the Company 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 Company, 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.
(ix) In
case
of any (1) merger or consolidation of the Company or any subsidiary of the
Company which at the time holds more than one half (1/2) of the assets of the
Company with or into another Person, or (2) sale by the Company or any
subsidiary of the Company of more than one-half of the assets of the Company
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 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 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) All
calculations under this Section
4
shall be
rounded up to the nearest $0.0001 or whole share.
(ii) The
Company 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 Company as to reservation of such shares set
forth in this Debenture or in the Transaction Documents) be issuable (taking
into account the adjustments and restrictions set forth herein) upon the
conversion of the outstanding principal amount of this Debenture and payment
of
interest hereunder and within three (3) Business Days following the receipt
by
the Company of a Holder's notice that such minimum number of Underlying Shares
is not so reserved, the Company shall promptly reserve a sufficient number
of
shares of Common Stock to comply with such requirement. The Company 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.
(iii) Upon
a
conversion hereunder the Company 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 Company 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.
(iv) 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 Company 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 Company 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 Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been
paid.
(v) 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.
(vi) 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 Company 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 Conversion Price of the Common Stock sold 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 Company timely complied with its
delivery requirements under Section
4(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 Conversion 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 Company shall be required to pay the Holder $1,000.
The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In.
Section
5. 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:
|
If
to the Company, to:
|
Newgold,
Inc.
|
|
000
Xxxxxxx Xxxx - Xxxxx 000
|
|
|
Sacramento,
CA 95814
|
|
|
Attention:
Xxxxx Xxxxxxx
|
|
|
Telephone:
(000) 000-0000
|
|
|
Facsimile:
(000) 000-0000
|
|
|
With
a copy to:
|
Xxxxx
X. Xxxxxx
|
|
000
Xxxxxxxxxxx Xxxxx
|
|
|
Coppell,
TX 75019
|
|
|
Telephone: (000)
000-0000
|
|
|
Facsimile: (000)
000-0000
|
|
|
Xxxxxxxxx
Genshlea Chediak
|
|
|
400
Capital Mall - 11th
Floor
|
|
|
Sacramento,
CA 95814
|
|
|
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
|
|
|
Jersey
City, NJ 07303
|
|
|
Attention: Xxxx
Xxxxxx
|
|
|
Telephone: (000)
000-0000
|
|
|
With
a copy to:
|
Xxxxx
Xxxxxxxx, Esq.
|
|
000
Xxxxxx Xxxxxx - Xxxxx 0000
|
|
|
Jersey
City, NJ 07302
|
|
|
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
6. Definitions.
For the
purposes hereof, the following terms shall have the following
meanings:
“Approved
Stock Plan”
means
a
stock option plan that has been approved by the Board of Directors of the
Company prior to the date of the Securities Purchase Agreement, pursuant to
which the Company’s securities may be issued only to any employee, officer or
director for services provided to the Company.
“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 Company, by contract or otherwise) of in
excess of fifty percent (50%) of the outstanding voting securities of the
Company (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 Company 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 Company or any subsidiary of the Company 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 Company
of
an agreement to which the Company is a party or by which it is bound, providing
for any of the events set forth above in (a), (b) or (c).
“Closing
Bid Price”
means
the price per share in the last reported trade of the Common Stock on a Primary
Market or on the exchange which the Common Stock is then listed as quoted by
Bloomberg, LP.
“Commission”
means
the Securities and Exchange Commission.
“Common
Stock”
means
the common stock, par value $0.001, of the Company 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 Company notice of their intention
to effectuate a conversion of this Debenture into shares of the Company’s Common
Stock as outlined herein.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended.
“Excluded
Securities”
means,
(a) shares issued or deemed to have been issued by the Company pursuant to
an
Approved Stock Plan (b) shares of Common Stock issued or deemed to be issued
by
the Company upon the conversion, exchange or exercise of any right, option,
obligation or security outstanding on the date prior to date of the Securities
Purchase Agreement, provided that the terms of such right, option, obligation
or
security are not amended or otherwise modified on or after the date of the
Securities Purchase Agreement, and provided that the conversion price, exchange
price, exercise price or other purchase price is not reduced, adjusted
or
otherwise modified and the number of shares of Common Stock issued or issuable
is not increased (whether by operation of, or in accordance with, the relevant
governing documents or otherwise) on or after the date of the Securities
Purchase Agreement, and (c) the shares of Common Stock issued or deemed to
be issued by the Company upon conversion of this Debenture.
“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 Primary Market on which the shares of Common Stock are 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, 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
7. Except
as
expressly provided herein, no provision of this Debenture shall alter or impair
the obligations of the Company, 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 Company. 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 Company 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
8. This
Debenture shall not entitle the Holder to any of the rights of a stockholder
of
the Company, 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 Company, unless and to the extent
converted into shares of Common Stock in accordance with the terms
hereof.
Section
9. If
this
Debenture is mutilated, lost, stolen or destroyed, the Company 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
Company.
Section
10. As
of the
date hereof no indebtedness of the Company 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 Company 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 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 Company under this Debenture.
Section
11. 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
12. If
the
Company fails to strictly comply with the terms of this Debenture, then the
Company 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) during any workout, attempted workout, and/or
in
connection with the rendering of legal advice as to the Holder’s rights,
remedies and obligations, (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
13. 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
14. 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 Company 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 Company 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
Company (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 impeded the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every such
as
though no such law has been enacted.
Section
15. 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.
Section
16. 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
17. 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]
IN
WITNESS WHEREOF,
the
Company has caused this Secured Convertible Debenture to be duly executed by
a
duly authorized officer as of the date set forth above.
|
COMPANY:
|
|
|
NEWGOLD,
INC.
|
|
|
By: /s/
X. Xxxxx
Xxxxxxx
|
|
|
Name:
Xxxxx Xxxxxxx
|
|
|
Title:
Chief Executive Officer
|
|
EXHIBIT
A
CONVERSION
NOTICE
(To
be executed by the Holder in order to Convert the
Debenture)
|
TO:
|
The
undersigned hereby irrevocably elects to convert $_________________of
the
principal amount of Debenture No. NGLD-___-3 into Shares of Common Stock of
NEWGOLD,
INC.,
according to the conditions stated therein, as of the Conversion Date written
below.
|
Conversion
Date:
|
|
|
Amount
to be converted:
|
$
|
|
Conversion
Price:
|
$
|
|
Number
of shares of Common Stock to be issued:
|
|
|
Amount
of Debenture
Unconverted:
|
$
|
|
|
|
|
Please
issue the shares of Common Stock in the following name and to the
following address:
|
|
|
Issue
to:
|
|
|
Authorized
Signature:
|
|
|
Name:
|
|
|
Title:
|
|
|
Broker
DTC Participant Code:
|
|
|
Account
Number:
|
|
