Exhibit 10.25

EXECUTION COPY
 
Dated: March 16, 2007
 
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-3-3
$1,000,000

 
FIRSTGOLD, INC. (F/K/A NEWGOLD, INC.)
 
Secured Convertible Debenture
 
 
Due: March 15, 2010
 
This Secured Convertible Debenture (the “Debenture”) is issued by FIRSTGOLD,
INC. (F/K/A 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 March 15, 2010 (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,
 
 
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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 November 1, 2006 to
provide for an obligation of the Company to the Holder in a gross principal
amount of three million dollars ($3,000,000).
 
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
 
 
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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,
 
 
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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 Holder 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.
 
 
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(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.
 
 
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(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
 
 
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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
 
 
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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.
 
 
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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
 
 
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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
 
 
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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:
 
 
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If to the Company, to:
Firstgold, Inc. (f/k/a Newgold, Inc.)
 
400 Capital Mall - Suite 900
 
Sacramento, CA 95814
 
Attention: Scott Dockter
 
Telephone: (916) 449-3913
 
Facsimile: (916) 449-8259
   
With a copy to:
James W. Kluber
 
327 Copperstone Trail
 
Coppell, TX 75019
 
Telephone: (214) 447-5336
 
Facsimile: (214) 359-0306
     
Weintraub Genshlea Chediak
 
400 Capital Mall - 11th Floor
 
Sacramento, CA 95814
 
Attention: Roger Linn, Esq.
 
Telephone: (916) 558-6000
 
Facsimile: (916) 446-1611

If to the Holder:
Cornell Capital Partners, LP
 
101 Hudson Street, Suite 3700
 
Jersey City, NJ 07303
 
Attention: Mark Angelo
 
Telephone: (201) 985-8300
   
With a copy to:
David Gonzalez, Esq.
 
101 Hudson Street - Suite 3700
 
Jersey City, NJ 07302
 
Telephone: (201) 985-8300
 
Facsimile: (201) 985-8266
   

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:
 
 
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“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
 
 
13

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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
 
 
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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 Hudson 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
 
 
15

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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 INTENTIONALLY LEFT BLANK]
 

 
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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:
 
FIRSTGOLD, INC. (F/K/A NEWGOLD, INC.)
     
By: /s/ A. Scott Dockter             
 
Name:  Scott Dockter
 
Title:  Chief Executive Officer
   

 
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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
FIRSTGOLD, INC. (F/K/A 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: