Exhibit 4.1

                                                         Dated: January 27, 2006

         NEITHER THIS DEBENTURE NOR THE SECURITIES  INTO WHICH THIS DEBENTURE IS
         CONVERTIBLE  HAVE BEEN  REGISTERED  WITH THE  SECURITIES  AND  EXCHANGE
         COMMISSION OR THE  SECURITIES  COMMISSION OF ANY STATE IN RELIANCE UPON
         AN EXEMPTION  FROM  REGISTRATION  UNDER THE  SECURITIES ACT OF 1933, AS
         AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
         SOLD EXCEPT PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT UNDER THE
         SECURITIES  ACT OR PURSUANT TO AN  AVAILABLE  EXEMPTION  FROM,  OR IN A
         TRANSACTION  NOT  SUBJECT  TO,  THE  REGISTRATION  REQUIREMENTS  OF THE
         SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

No. CCP-1                                                               $600,000

                                  NEWGOLD, INC.

                          Secured Convertible Debenture


                              Due January 27, 2009

         This  Secured  Convertible  Debenture  (the  "DEBENTURE")  is issued by
NEWGOLD,  INC.,  a Delaware  corporation  (the  "OBLIGOR"),  to CORNELL  CAPITAL
PARTNERS,  LP (the  "HOLDER"),  pursuant  to that  certain  Securities  Purchase
Agreement (the "SECURITIES PURCHASE AGREEMENT") of even date herewith.


                  FOR VALUE RECEIVED,  the Obligor hereby promises to pay to the
Holder or its successors  and assigns the principal sum of Six Hundred  Thousand
Dollars ($600,000)  together with accrued but unpaid interest in lawful money of
the United States of America on or before January 27, 2009 (the "MATURITY DATE")
in accordance with the following terms:


         INTEREST.  Interest shall accrue on the outstanding  principal  balance
hereof  at an  annual  rate  equal  to eight  percent  (8%).  Interest  shall be
calculated on the basis of a 365-day year and the actual number of days elapsed,
to the extent  permitted by applicable law.  Interest  hereunder will be paid to
the  Holder  or its  assignee  (as  defined  in  Section  5) in whose  name this
Debenture is registered on the records of the Obligor regarding registration and
transfers of Debentures (the "DEBENTURE REGISTER").

         RIGHT OF  REDEMPTION.  The Obligor at its option  shall have the right,
with five (5) business days advance written notice (the "REDEMPTION NOTICE"), to
redeem a portion or all amounts  outstanding  under this Debenture  prior to the
Maturity  Date.  The Obligor shall pay an amount equal to the  principal  amount
being  redeemed  plus a  redemption  premium  ("REDEMPTION  PREMIUM")  equal  to
thirteen  percent  (13%) of the  principal  amount being  redeemed,  and accrued









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interest,  (collectively  referred to as the "REDEMPTION  AMOUNT").  The Obligor
shall deliver to the Holder the Redemption  Amount on the seventh (7th) business
day after the Redemption Notice.

                  In the event the Obligor  exercises a redemption of either all
or a portion of the outstanding  principal amounts plus accrued interest due and
outstanding under this debenture as outlined herein,  the Holder shall receive a
warrant to  purchase  one hundred  thousand  (100,000)  shares of the  Company's
Common Stock for every One Hundred Thousand  Dollars  ($100,000)  redeemed,  pro
rata.  (the  "WARRANT")  The Warrant shall be  exercisable on a "cash basis" and
have an exercise  price of one  hundred  ten  percent  (110%) of the Closing Bid
Price of the Company's  Common Stock on the date of the  Redemption  Notice,  as
quoted by  Bloomberg,  LP, per share.  The Warrant shall have  "piggy-back"  and
demand registration rights and shall survive for four (4) years from the Closing
Date.

         Notwithstanding the foregoing in the event that the Obligor has elected
to redeem a portion of the  outstanding  principal  amount and accrued  interest
under this Debenture the Holder shall be permitted to convert all or any portion
of this Debenture during such three business day period.

         SECURITY  AGREEMENTS.  This Debenture is secured by a Pledge and Escrow
Agreement (the "PLEDGE Agreement") of even date herewith among the Obligor,  the
Holder,  the Escrow Agent, a Security  Agreement  (the "SECURITY  AGREEMENT") of
even date  herewith  between the Obligor  and the Holder and the  Memorandum  of
Interest dated January 30, 2006 (the "MEMORANDUM OF INTEREST").

         CONSENT OF HOLDER TO SELL CAPITAL STOCK OR GRANT SECURITY INTERESTS. So
long as the aggregate principal amount on this Debenture together with any other
Debentures issued pursuant to the Securities  Purchase  Agreement remains unpaid
and  unconverted  in an  aggregate  amount  over Two  Hundred  Thousand  Dollars
($200,000),  the Obligor shall not, without the prior consent of the Holder, (i)
issue  or  sell  any  shares  of  Common  Stock  or  preferred   stock   without
consideration or for  consideration per share less than the Closing Bid Price of
the Common Stock  determined  immediately  prior to its issuance,  (ii) issue or
sell any preferred  stock,  warrant,  option,  right,  contract,  call, or other
security or instrument  granting the holder  thereof the right to acquire Common
Stock without consideration or for consideration per share less than the Closing
Bid Price of the Common  Stock  determined  immediately  prior to its  issuance,
(iii) enter into any security instrument granting the holder a security interest
in Pledged  Property  as defined in the  Security  Agreement  , or (iv) file any
registration statements on Form S-8.

         RIGHTS OF FIRST REFUSAL.  For a period of eighteen (18) months from the
date hereof, excluding a raise of Two Million Dollars ($2,000,000) within thirty
days from January 27, 2006 on terms less favorable than this Debenture,  so long
as any portion of this Debenture is outstanding  (including principal or accrued
interest), if the Obligor intends to raise additional capital by the issuance or
sale of capital stock of the Obligor, including without limitation shares of any
class of Common Stock,  any class of preferred stock,  options,  warrants or any
other securities convertible or exercisable into shares of Common Stock (whether
the offering is conducted by the Obligor,  underwriter,  placement  agent or any
third party) the Obligor shall be obligated to offer to the Holder such issuance
or sale of capital  stock,  by  providing  in writing  the  principal  amount of
capital it intends to raise and outline of the  material  terms of such  capital




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<PAGE>
raise, prior to the offering such issuance or sale of capital stock to any third
parties including,  but not limited to, current or former officers or directors,
current or former  shareholders  and/or investors of the obligor,  underwriters,
brokers,  agents or other third parties. The Holder shall have five (5) business
days from  receipt of such notice of the sale or  issuance  of capital  stock to
accept or reject all or a portion of such capital raising offer.

         This Debenture is subject to the following additional provisions:

         SECTION  1.  This  Debenture  is  exchangeable  for an equal  aggregate
principal  amount  of  Debentures  of  different  authorized  denominations,  as
requested by the Holder  surrendering  the same. No service  charge will be made
for such registration of transfer or exchange.

         SECTION 2. EVENTS OF DEFAULT.

         (a) An "EVENT OF DEFAULT",  wherever used herein,  means any one of the
following  events  (whatever  the reason and  whether it shall be  voluntary  or
involuntary or effected by operation of law or pursuant to any judgment,  decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):

                  (i) Any default in the payment of the principal  of,  interest
on or  other  charges  in  respect  of  this  Debenture,  free of any  claim  of
subordination,  as and when the same shall become due and payable  (whether on a
Conversion Date or the Maturity Date or by acceleration or otherwise);

                  (ii) The  Obligor  shall fail to observe or perform  any other
covenant,  agreement or warranty contained in, or otherwise commit any breach or
default of any provision of this Debenture  (except as may be covered by Section
2(a)(i) hereof) or any  Transaction  Document (as defined in Section 5) which is
not cured with in the time prescribed;

                  (iii) The  Obligor  or any  subsidiary  of the  Obligor  shall
commence,  or there shall be commenced  against the Obligor or any subsidiary of
the  Obligor  under  any  applicable  bankruptcy  or  insolvency  laws as now or
hereafter in effect or any successor  thereto,  or the Obligor or any subsidiary
of  the  Obligor  commences  any  other  proceeding  under  any  reorganization,
arrangement,  adjustment of debt, relief of debtors, dissolution,  insolvency or
liquidation  or similar  law of any  jurisdiction  whether now or  hereafter  in
effect  relating  to the  Obligor or any  subsidiary  of the Obligor or there is
commenced  against  the  Obligor  or any  subsidiary  of the  Obligor  any  such
bankruptcy,  insolvency  or other  proceeding  which  remains  unanswered by the
Obligor for a period of 61 days; or the Obligor or any subsidiary of the Obligor
is  adjudicated  insolvent  or  bankrupt;  or any order of relief or other order
approving  any  such  case or  proceeding  is  entered;  or the  Obligor  or any
subsidiary of the Obligor suffers any  appointment of any custodian,  private or
court  appointed  receiver  or the  like for it or any  substantial  part of its
property which continues undischarged or unstayed for a period of sixty one (61)
days; or the Obligor or any subsidiary of the Obligor makes a general assignment
for the benefit of  creditors;  or the Obligor or any  subsidiary of the Obligor
shall by any act or failure to act expressly  indicate its consent to,  approval
of or acquiescence in any of the foregoing;  or any corporate or other action is
taken by the  Obligor  or any  subsidiary  of the  Obligor  for the  purpose  of
effecting any of the foregoing;




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<PAGE>
                  (iv)  The  Obligor  or any  subsidiary  of the  Obligor  shall
default in any of its obligations  under any other debenture,  or have failed to
cure within the time prescribed  therein,  or any mortgage,  credit agreement or
other facility,  indenture  agreement,  factoring  agreement or other instrument
under which there may be issued,  or by which there may be secured or  evidenced
any  indebtedness for borrowed money or money due under any long term leasing or
factoring  arrangement  of the  Obligor or any  subsidiary  of the Obligor in an
amount  exceeding  $100,000,  whether  such  indebtedness  now  exists  or shall
hereafter be created and such default shall result in such indebtedness becoming
or being declared due and payable prior to the date on which it would  otherwise
become due and payable;

                  (v) The Common  Stock  shall cease to be quoted for trading or
listed for  trading on either the Nasdaq  OTC  Bulletin  Board  ("OTC"),  Nasdaq
Capital Market,  New York Stock Exchange,  American Stock Exchange or the Nasdaq
National  Market (each, a "SUBSEQUENT  MARKET") and shall not again be quoted or
listed for trading thereon within five (5) Trading Days of such delisting, or if
such delisting is for failure by the Obligor to timely file reports  pursuant to
Section  13 or 15(d) of the Act,  and shall  not  again be quoted or listed  for
trading  thereon  within the thirty (30)  calendar day grace period  afforded by
NASD Rule 6350;

                  (vi) The Obligor or any  subsidiary  of the Obligor shall be a
party to any Change of Control Transaction (as defined in Section 5), unless the
Holder  has  provided  its prior  written  consent  to such  Change  of  Control
Transaction;

                  (vii) The  Obligor  shall fail to file the  Underlying  Shares
Registration Statement (as defined in Section 5) with the Commission (as defined
in Section 5), or the Underlying  Shares  Registration  Statement shall not have
been declared effective by the Commission,  in each case within the time periods
set forth in the Investor  Registration Rights Agreement  ("REGISTRATION  RIGHTS
AGREEMENT") of even date herewith between the Obligor and the Holder;

                  (viii)  If  the   effectiveness   of  the  Underlying   Shares
Registration  Statement  lapses  for  any  reason  or the  Holder  shall  not be
permitted to resell the shares of Common Stock  underlying  this Debenture under
the Underlying Shares Registration Statement, in either case, for more than five
(5)  consecutive  Trading Days or an aggregate of eight Trading Days (which need
not be consecutive  Trading Days) except for any lapse of  effectiveness  or the
Holder's  inability  to sell  pursuant  to the  Underlying  Shares  Registration
Statement  caused by the review and/or  comment by the United States  Securities
and Exchange Commission (the "SEC") relating to any reports,  schedules,  forms,
statements or other  documents  required to be filed by the Obligor with the SEC
under the Exchange Act which the Obligor fails to submit responses to within ten
(10)  business  days from  receipt of comments by the SEC or such review  and/or
comments are not resolved  within forty five (45)  calendar days from receipt of
such SEC comment letter or review notification;

                  (ix)  If  the  Holder  fails  to  receive  such   certificates
representing  shares  of  Common  Stock  upon  conversion  as  specified  in the
Irrevocable  Transfer Agent  Instructions or the Obligor shall provide notice to
the  Holder,  including  by way of  public  announcement,  at any  time,  of its
intention not to comply with or interfere with a request for conversions of this
Debenture in  accordance  with the terms hereof and pursuant to the  Irrevocable
Transfer Agent



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<PAGE>
Instructions  and the  Obligor  fails to cure such  non-delivery  to the  Holder
within ten (10)  business  days from  receipt of written  notification  from the
Holder;

(x) The  Obligor  shall  fail for any  reason to  deliver  the  payment  in cash
pursuant to a Buy-In (as defined  herein)  within three (3) business  days after
notice is claimed delivered hereunder;

          (b) During the time that any portion of this Debenture is outstanding,
if any  Event of  Default  has  occurred,  the  full  principal  amount  of this
Debenture, together with interest and other amounts owing in respect thereof, to
the date of acceleration shall become at the Holder's election,  immediately due
and payable in cash, provided however, the Holder may request (but shall have no
obligation  to request)  payment of such amounts in Common Stock of the Obligor.
In addition to any other remedies,  the Holder shall have the right (but not the
obligation)  to convert this Debenture at any time after (x) an Event of Default
or (y) the Maturity Date at the Conversion Price then in-effect. The Holder need
not provide and the Obligor hereby waives any  presentment,  demand,  protest or
other notice of any kind, and the Holder may immediately  upon the expiration of
any grace period  enforce any and all of its rights and remedies  hereunder  and
all other remedies available to it under applicable law. Such declaration may be
rescinded and annulled by 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. CONVERSION.

         (a) CONVERSION AT OPTION OF HOLDER.

                  (i)  This  Debenture  shall  be  convertible  into  shares  of
Company's  Common Stock at the option of the Holder,  in whole or in part at any
time and from time to time, after the Original Issue Date (as defined in Section
5) (subject to the  limitations on conversion set forth in Section 3(b) hereof).
The number of shares of Common Stock issuable upon a conversion hereunder equals
the quotient  obtained by dividing (x) the outstanding  amount of this Debenture
to be converted by (y) the Conversion Price (as defined in Section 3(c)(i)). The
Holder shall receive Common Stock certificates,  as specified in the Irrevocable
transfer  Agent  Instructions,  prior to the  Third  (3rd)  Trading  Day after a
Conversion  Date.  In the event that the Holder  does not receive  Common  Stock
certificates as specified in the  Irrevocable  Transfer Agent  Instructions  the
Obligor shall cure such non-delivery to the Holder within ten (10) business days
from receipt of written notification from the Holder.

                  (ii)  Notwithstanding   anything  to  the  contrary  contained
herein,  if on any Conversion  Date: (1) the number of shares of Common Stock at
the time  authorized,  unissued  and  unreserved  for all  purposes,  or held as
treasury  stock,  is  insufficient  to pay principal  and interest  hereunder in
shares of Common Stock; (2) the Common Stock is not listed or quoted for trading
on the OTC or on a  Subsequent  Market;  (3) the  Obligor  has  failed to timely
satisfy its conversion; or (4) the issuance of such shares of Common Stock would
result in a violation of Section 3(b) and the Holder is unable to sell shares of
the Company's Common Stock as a result




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<PAGE>
of a  halt  in  the  trading  of  the  Obligor's  Common  Stock,  lapse  in  the
effectiveness  of  the  Underlying  Shares  Registration   Statement  except  as
permitted under Section 2(a)(viii), or the Obligor's Common Stock shall cease to
be quoted  for  trading or listed for  trading on a  Subsequent  Market and such
delisting  is not cured  within the time  periods  outlined in Section  2(a)(v),
then, at the option of the Holder, the Obligor,  in lieu of delivering shares of
Common  Stock  pursuant to Section  3(a)(i),  shall  deliver,  within  seven (7)
Trading Days of each applicable  Conversion Date, an amount in cash equal to the
product of the  outstanding  principal  amount to be converted plus any interest
due  therein  divided  by  the  Conversion  Price,  chosen  by the  Holder,  and
multiplied  by the average of the  closing  prices of the stock from date of the
conversion notice till the date that such cash payment is made.

         Further,  if the  Obligor  shall  not  have  delivered  any cash due in
respect of conversion of this Debenture or as payment of interest thereon by the
seventh (7th) Trading Day after the  Conversion  Date, the Holder may, by notice
to the Obligor,  require the Obligor to issue shares of Common Stock pursuant to
Section  3(c),  except that for such  purpose the  Conversion  Price  applicable
thereto shall be the lesser of the Conversion  Price on the Conversion  Date and
the Conversion Price on the date of such Holder demand.  Any such shares will be
subject to the provisions of this Section.

                  (iii) The Holder shall effect conversions by delivering to the
Obligor  a  completed  notice  in the  form  attached  hereto  as  Exhibit  A (a
"CONVERSION NOTICE").  The date on which a Conversion Notice is delivered is the
"CONVERSION  DATE." Unless the Holder is converting the entire  principal amount
outstanding  under this  Debenture,  the Holder is not  required  to  physically
surrender  this  Debenture  to the  Obligor  in  order  to  effect  conversions.
Conversions  hereunder  shall  have  the  effect  of  lowering  the  outstanding
principal  amount of this Debenture plus all accrued and unpaid interest thereon
in an amount  equal to the  applicable  conversion.  The Holder and the  Obligor
shall maintain  records showing the principal  amount  converted and the date of
such  conversions.  In the event of any  dispute  or  discrepancy,  between  the
records of the Holder and the  Obligor  the  parties  hereto  shall  submit such
dispute to an  independent  third party  mutually  chosen and agreed upon by the
parties. Notwithstanding the foregoing in the event that a party hereto does not
agree with such  determination by the independent third party they shall be free
to pursue any and all legal  remedies  available  including but not limited to a
declaratory judgment by a court of competent jurisdiction.

         (b) CERTAIN CONVERSION RESTRICTIONS.

                  (i) A Holder may not convert this  Debenture or receive shares
of Common Stock as payment of interest  hereunder to the extent such  conversion
or receipt of such interest  payment  would result in the Holder,  together with
any affiliate  thereof,  beneficially  owning (as determined in accordance  with
Section  13(d) of the  Exchange  Act and the rules  promulgated  thereunder)  in
excess of 4.9% of the then  issued  and  outstanding  shares  of  Common  Stock,
including  shares  issuable upon conversion of, and payment of interest on, this
Debenture  held by such Holder  after  application  of this  Section.  Since the
Holder  will not be  obligated  to report to the Obligor the number of shares of
Common  Stock it may  hold at the time of a  conversion  hereunder,  unless  the
conversion  at issue would  result in the  issuance of shares of Common Stock in
excess of 4.9% of the then outstanding  shares of Common Stock without regard to
any other shares which may be  beneficially  owned by the Holder or an affiliate
thereof, the Holder



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<PAGE>
shall have the authority and  obligation  to determine  whether the  restriction
contained in this Section will limit any particular  conversion hereunder and to
the extent that the Holder  determines  that the  limitation  contained  in this
Section applies,  the  determination of which portion of the principal amount of
this Debenture is convertible shall be the  responsibility and obligation of the
Holder.  If the Holder has delivered a Conversion  Notice for a principal amount
of this  Debenture  that,  without regard to any other shares that the Holder or
its affiliates may  beneficially  own, would result in the issuance in excess of
the permitted amount hereunder, the Obligor shall notify the Holder of this fact
and shall honor the conversion for the maximum  principal amount permitted to be
converted on such Conversion  Date in accordance  with the periods  described in
this Section  3(b)(i).  The provisions of this Section may be waived by a Holder
(but only as to itself and not to any other  Holder)  upon not less than 65 days
prior notice to the  Obligor.  Other  Holders  shall be  unaffected  by any such
waiver.

                  (ii) The Holder  shall not  convert  in excess of One  Hundred
Thousand Dollars  ($100,000) of principal amount of this Debenture at the Market
Conversion  Price in any thirty (30)  calendar day period.  Notwithstanding  the
forgoing,  this conversion restriction shall not apply upon the occurrence of an
Event of Default or if waived in writing by the Company.

         (c) CONVERSION PRICE AND ADJUSTMENTS TO CONVERSION PRICE.

         (i) The  conversion  price in effect on any  Conversion  Date  shall be
equal to the lesser of (a) $0.2626 (the "FIXED CONVERSION  PRICE") or (b) ninety
five percent  (95%) of the lowest  Volume  Weighted  Average Price of the Common
Stock during the thirty (30) trading days  immediately  preceding the Conversion
Date as quoted by  Bloomberg,  LP (the  "MARKET  CONVERSION  PRICE").  The Fixed
Conversion Price and the Market Conversion Price are collectively referred to as
the  "CONVERSION  PRICE." The Conversion  Price may be adjusted  pursuant to the
other terms of this Debenture.

                   (ii) If the  Obligor,  at any time  while this  Debenture  is
outstanding,  shall (a) pay a stock dividend or otherwise make a distribution or
distributions  on  shares  of its  Common  Stock or any  other  equity or equity
equivalent   securities  payable  in  shares  of  Common  Stock,  (b)  subdivide
outstanding  shares of Common Stock into a larger number of shares,  (c) combine
(including  by way of reverse  stock split)  outstanding  shares of Common Stock
into a smaller number of shares, or (d) issue by  reclassification  of shares of
the  Common  Stock any shares of capital  stock of the  Obligor,  then the Fixed
Conversion  Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common  Stock  (excluding  treasury  shares,  if any)
outstanding  before such event and of which the denominator  shall be the number
of shares of Common Stock  outstanding  after such event.  Any  adjustment  made
pursuant to this Section  shall become  effective  immediately  after the record
date for the determination of stockholders  entitled to receive such dividend or
distribution and shall become effective  immediately after the effective date in
the case of a subdivision, combination or re-classification.

                  (iii) If the  Obligor,  at any time  while this  Debenture  is
outstanding,  shall issue  rights,  options or warrants to all holders of Common
Stock (and not to the Holder) entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Fixed





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<PAGE>
Conversion  Price,  then the Fixed  Conversion  Price shall be  multiplied  by a
fraction,  of which the denominator  shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants  (plus the number of  additional  shares of Common Stock
offered for  subscription or purchase),  and of which the numerator shall be the
number  of  shares of the  Common  Stock  (excluding  treasury  shares,  if any)
outstanding on the date of issuance of such rights or warrants,  plus the number
of shares which the  aggregate  offering  price of the total number of shares so
offered would purchase at the Fixed Conversion  Price.  Such adjustment shall be
made  whenever  such rights or warrants are issued,  and shall become  effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants. However, upon the expiration of any
such  right,  option or  warrant  to  purchase  shares of the  Common  Stock the
issuance  of which  resulted  in an  adjustment  in the Fixed  Conversion  Price
pursuant to this Section,  if any such right, option or warrant shall expire and
shall not have been exercised, the Fixed Conversion Price shall immediately upon
such expiration be recomputed and effective  immediately upon such expiration be
increased  to the  price  which it would  have been  (but  reflecting  any other
adjustments  in the Fixed  Conversion  Price made pursuant to the  provisions of
this Section after the issuance of such rights or warrants)  had the  adjustment
of the Fixed Conversion Price made upon the issuance of such rights,  options or
warrants  been made on the basis of offering for  subscription  or purchase only
that number of shares of the Common Stock  actually  purchased upon the exercise
of such rights, options or warrants actually exercised.

         (iv) Except as otherwise permitted by this Debenture, if the Obligor or
any  subsidiary  thereof,  as  applicable,  at any time while this  Debenture is
outstanding,  shall issue  shares of Common Stock or rights,  warrants,  options
(excluding  shares of Comon Stock issued or issuable to officers,  directors and
employees of, or  consultants  to the Obligor  pursuant to stock grants,  option
plans  or  other  employee  stock  incentive  programs,   whether  qualified  or
non-qualified, approved by the Obligor's Board of Directors) or other securities
or debt that are  convertible  into or  exchangeable  for shares of Common Stock
("COMMON  STOCK  EQUIVALENTS")  entitling any Person to acquire shares of Common
Stock, at a price per share less than the Fixed  Conversion Price (if the holder
of the Common  Stock or Common  Stock  Equivalent  so issued  shall at any time,
whether by operation of purchase price adjustments,  reset provisions,  floating
conversion,  exercise  or  exchange  prices or  otherwise,  or due to  warrants,
options or rights per share which is issued in connection with such issuance, be
entitled  to receive  shares of Common  Stock at a price per share which is less
than the Fixed Conversion  Price, such issuance shall be deemed to have occurred
for less than the  Fixed  Conversion  Price),  then,  at the sole  option of the
Holder,  the Fixed  Conversion  Price for a principal amount due and outstanding
under this  Debenture  equal to the dollar  amount of Common  Stock  Equivalents
issued (determined by multiplying the conversion price, issuance price, exchange
or  purchase  of such Common  Stock  Equivalents  by the number of shares of the
Obligor's Common Stock issuable  pursuant to the Common Stock  Equivalent) shall
be  adjusted  on the date of such  issuance  to  mirror  the  conversion  price,
issuance price, exchange or purchase price for such Common Stock or Common Stock
Equivalents  (including any reset provisions  thereof) at issue. Such adjustment
shall be made whenever such Common Stock or Common Stock Equivalents are issued.
(calculated to the nearest cent).







                                        8
<PAGE>
The Obligor  shall notify the Holder in writing,  no later than one (1) business
day  following  the  issuance  of any Common  Stock or Common  Stock  Equivalent
subject to this Section, indicating therein the applicable issuance price, or of
applicable  reset price,  exchange  price,  conversion  price and other  pricing
terms.  No adjustment  under this Section shall be made as a result of issuances
and  exercises  of  options  to  purchase  shares of  Common  Stock  issued  for
compensatory  purposes  pursuant to any of the  Obligor's  stock option or stock
purchase plans.

                  (v) If the  Obligor,  at any  time  while  this  Debenture  is
outstanding,  shall  distribute  to all holders of Common  Stock (and not to the
Holder)  evidences  of its  indebtedness  or assets or  rights  or  warrants  to
subscribe  for or  purchase  any  security,  then in each  such  case the  Fixed
Conversion Price at which this Debenture shall  thereafter be convertible  shall
be determined by multiplying the Fixed  Conversion  Price in effect  immediately
prior to the record date fixed for  determination  of  stockholders  entitled to
receive such  distribution by a fraction of which the  denominator  shall be the
Closing Bid Price determined as of the record date mentioned above, and of which
the numerator  shall be such Closing Bid Price on such record date less the then
fair market  value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith.  In either case the
adjustments  shall be  described  in a  statement  provided to the Holder of the
portion  of  assets  or  evidences  of   indebtedness  so  distributed  or  such
subscription  rights  applicable to one share of Common Stock.  Such  adjustment
shall be made whenever any such  distribution is made and shall become effective
immediately after the record date mentioned above.

                  (vi) In case of any  reclassification  of the Common  Stock or
any compulsory  share  exchange  pursuant to which the Common Stock is converted
into  other  securities,  cash or  property,  the  Holder  shall  have the right
thereafter to, at its option, (A) convert the then outstanding principal amount,
together  with all accrued but unpaid  interest and any other amounts then owing
hereunder  in  respect  of this  Debenture  into the  shares  of stock and other
securities, cash and property receivable upon or deemed to be held by holders of
the Common Stock  following such  reclassification  or share  exchange,  and the
Holder of this  Debenture  shall be  entitled  upon such event to  receive  such
amount of securities,  cash or property as the shares of the Common Stock of the
Obligor into which the then  outstanding  principal  amount,  together  with all
accrued  but unpaid  interest  and any other  amounts  then owing  hereunder  in
respect of this Debenture  could have been converted  immediately  prior to such
reclassification or share exchange would have been entitled,  or (B) require the
Obligor to prepay the outstanding  principal amount of this Debenture,  plus all
interest and other amounts due and payable thereon.  The entire prepayment price
shall  be paid in cash.  This  provision  shall  similarly  apply to  successive
reclassifications or share exchanges.

                  (vii)  The  Obligor  shall  at  all  times  reserve  and  keep
available out of its authorized Common Stock the full number of shares of Common
Stock issuable upon conversion of all outstanding  amounts under this Debenture;
and within three (3)  Business  Days  following  the receipt by the Obligor of a
Holder's  notice  that  such  minimum  number  of  Underlying  Shares  is not so
reserved,  the Obligor shall promptly  reserve a sufficient  number of shares of
Common Stock to comply with such requirement.





                                        9
<PAGE>
                  (viii) All calculations  under this Section 3 shall be rounded
up to the nearest $0.001 or whole share.

                  (ix)  Whenever the  Conversion  Price is adjusted  pursuant to
Section 3 hereof, the Obligor shall promptly mail to the Holder a notice setting
forth the  Conversion  Price after such  adjustment  and  setting  forth a brief
statement of the facts requiring such adjustment.

                  (x) If (A) the Obligor  shall declare a dividend (or any other
distribution)  on the Common  Stock;  (B) the  Obligor  shall  declare a special
nonrecurring  cash  dividend on or a  redemption  of the Common  Stock;  (C) the
Obligor  shall  authorize the granting to all holders of the Common Stock rights
or warrants to  subscribe  for or  purchase  any shares of capital  stock of any
class or of any  rights;  (D) the  approval of any  stockholders  of the Obligor
shall be required in connection with any  reclassification  of the Common Stock,
any  consolidation  or  merger  to which  the  Obligor  is a party,  any sale or
transfer  of all or  substantially  all of the  assets  of the  Obligor,  of any
compulsory  share  exchange  whereby the Common  Stock is  converted  into other
securities,  cash or property;  or (E) the Obligor shall authorize the voluntary
or  involuntary  dissolution,  liquidation  or winding up of the  affairs of the
Obligor;  then, in each case, the Obligor shall cause to be filed at each office
or agency maintained for the purpose of conversion of this Debenture,  and shall
cause to be mailed to the Holder at its last address as it shall appear upon the
stock books of the  Obligor,  at least  twenty (20)  calendar  days prior to the
applicable record or effective date hereinafter  specified, a notice stating (x)
the date on which a record  is to be taken  for the  purpose  of such  dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such  dividend,  distributions,   redemption,  rights  or  warrants  are  to  be
determined  or (y)  the  date on  which  such  reclassification,  consolidation,
merger,  sale,  transfer or share  exchange is expected to become  effective  or
close,  and the date as of which it is expected that holders of the Common Stock
of record  shall be entitled to exchange  their  shares of the Common  Stock for
securities,  cash or other  property  deliverable  upon  such  reclassification,
consolidation,  merger,  sale,  transfer or share exchange,  provided,  that the
failure to mail such  notice or any defect  therein  or in the  mailing  thereof
shall not affect the validity of the corporate  action  required to be specified
in such  notice.  The Holder is entitled to convert  this  Debenture  during the
20-day calendar period  commencing the date of such notice to the effective date
of the event triggering such notice.

                  (xi) In case of any (1) merger or consolidation of the Obligor
or any  subsidiary  of the  Obligor  which at the time  holds more than one half
(1/2) of the assets of the Obligor with or into another  Person,  or (2) sale by
the Obligor or any subsidiary of the Obligor of more than one-half of the assets
of the Obligor in one or a series of related  transactions,  a Holder shall have
the right to (A)  exercise  any rights  under  Section  2(b),  (B)  convert  the
aggregate amount of this Debenture then outstanding into the shares of stock and
other  securities,  cash and  property  receivable  upon or deemed to be held by
holders of Common Stock following such merger,  consolidation  or sale, and such
Holder shall be entitled upon such event or series of related  events to receive
such amount of securities,  cash and property as the shares of Common Stock into
which  such  aggregate  principal  amount  of this  Debenture  could  have  been
converted  immediately  prior to such merger,  consolidation or sales would have
been  entitled,  or (C) in the case of a merger or  consolidation,  require  the
surviving entity to issue to the Holder a convertible Debenture with a principal
amount equal to the aggregate  principal  amount of this  Debenture


                                       10
<PAGE>
then held by such Holder, plus all accrued and unpaid interest and other amounts
owing thereon,  which such newly issued  convertible  Debenture shall have terms
identical (including with respect to conversion) to the terms of this Debenture,
and shall be entitled to all of the rights and  privileges of the Holder of this
Debenture set forth herein and the agreements  pursuant to which this Debentures
were issued.  In the case of clause (C), the conversion price applicable for the
newly issued shares of convertible  preferred  stock or  convertible  Debentures
shall be based upon the amount of securities,  cash and property that each share
of Common Stock would receive in such  transaction  and the Conversion  Price in
effect  immediately  prior  to  the  effectiveness  or  closing  date  for  such
transaction.  The terms of any such merger,  sale or consolidation shall include
such  terms so as to  continue  to give the  Holder  the  right to  receive  the
securities,  cash and property set forth in this Section upon any  conversion or
redemption  following  such  event.  This  provision  shall  similarly  apply to
successive such events.

         (d)      OTHER PROVISIONS.

                  (i) The Obligor  covenants  that it will at all times  reserve
and keep  available out of its  authorized  and unissued  shares of Common Stock
solely for the purpose of issuance upon conversion of this Debenture and payment
of interest on this  Debenture,  each as herein  provided,  free from preemptive
rights or any other actual contingent  purchase rights of persons other than the
Holder,  not less than  such  number  of  shares  of the  Common  Stock as shall
(subject to any additional requirements of the Obligor as to reservation of such
shares  set forth in this  Debenture)  be  issuable  (taking  into  account  the
adjustments  and  restrictions of Sections 2(b) and 3(c)) upon the conversion of
the  outstanding  principal  amount of this  Debenture  and  payment of interest
hereunder.  The Obligor  covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized,  issued and fully
paid,  nonassessable  and, if the Underlying Shares  Registration  Statement has
been declared effective under the Securities Act,  registered for public sale in
accordance with such Underlying Shares Registration Statement.

                  (ii) Upon a  conversion  hereunder  the  Obligor  shall not be
required to issue stock  certificates  representing  fractions  of shares of the
Common Stock, but may if otherwise permitted,  make a cash payment in respect of
any final  fraction of a share  based on the Closing Bid Price at such time.  If
the Obligor  elects not, or is unable,  to make such a cash payment,  the Holder
shall be  entitled  to receive,  in lieu of the final  fraction of a share,  one
whole share of Common Stock.

                  (iii) The  issuance of  certificates  for shares of the Common
Stock on conversion of this Debenture shall be made without charge to the Holder
thereof  for any  documentary  stamp or  similar  taxes  that may be  payable in
respect of the issue or delivery of such certificate,  provided that the Obligor
shall not be  required  to pay any tax that may be  payable  in  respect  of any
transfer  involved in the  issuance and  delivery of any such  certificate  upon
conversion  in a name  other  than  that  of the  Holder  of such  Debenture  so
converted  and the  Obligor  shall  not be  required  to issue or  deliver  such
certificates  unless or until the  person or  persons  requesting  the  issuance
thereof  shall  have paid to the  Obligor  the  amount of such tax or shall have
established to the satisfaction of the Obligor that such tax has been paid.






                                       11
<PAGE>
                  (iv)  Nothing  herein  shall limit a Holder's  right to pursue
actual  damages or declare an Event of Default  pursuant to Section 2 herein for
the failure to receive  certificates  representing  shares of Common  Stock upon
conversion as prescribed in the Irrevocable  Transfer Agent Instructions and the
Obligor  fails to cure such  non-delivery  to the Holder within ten (10) Trading
Days from receipt of written notification from the Holder such Holder shall have
the right to pursue all remedies  available to it at law or in equity including,
without limitation,  a decree of specific  performance and/or injunctive relief,
in each case  without  the need to post a bond or provide  other  security.  The
exercise  of any such  rights  shall not  prohibit  the Holder  from  seeking to
enforce damages pursuant to any other Section hereof or under applicable law.

                  (v) In addition to any other  rights  available to the Holder,
if the Holder fails to receive such certificates  representing  shares of Common
Stock  upon   conversion  as  specified  in  the   Irrevocable   Transfer  Agent
Instructions  and the  Obligor  fails to cure such  non-delivery  to the  Holder
within ten (10)  business  days from  receipt of written  notification  from the
Holder,  and if after such tenth (10th) Trading Day the Holder  purchases (in an
open market transaction or otherwise) Common Stock to deliver in satisfaction of
a sale by such  Holder of the  Underlying  Shares  which the Holder  anticipated
receiving upon such  conversion (a "BUY-IN"),  then the Obligor shall (A) pay in
cash to the Holder (in addition to any  remedies  available to or elected by the
Holder) the amount by which (x) the Holder's  total  purchase  price  (including
brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the
product of (1) the  aggregate  number of shares of Common Stock that such Holder
anticipated  receiving from the conversion at issue multiplied by (2) the market
price of the Common  Stock at the time of the sale giving rise to such  purchase
obligation  and (B) at the option of the Holder,  either  reissue a Debenture in
the principal amount equal to the principal  amount of the attempted  conversion
or deliver  to the  Holder the number of shares of Common  Stock that would have
been issued had the Obligor timely complied with its delivery requirements under
Section  3(a)(i).  For example,  if the Holder  purchases  Common Stock having a
total  purchase  price of $11,000 to cover a Buy-In with respect to an attempted
conversion  of  Debentures  with  respect  to  which  the  market  price  of the
Underlying  Shares on the date of conversion was a total of $10,000 under clause
(A) of the immediately preceding sentence,  the Obligor shall be required to pay
the  Holder  $1,000.  The  Holder  shall  provide  the  Obligor  written  notice
indicating the amounts payable to the Holder in respect of the Buy-In.

         SECTION  4.   NOTICES.   Any  notices,   consents,   waivers  or  other
communications  required or permitted to be given under the terms hereof must be
in writing and will be deemed to have been  delivered:  (i) upon  receipt,  when
delivered  personally;  (ii)  upon  receipt,  when sent by  facsimile  (provided
confirmation of transmission  is  mechanically or  electronically  generated and
kept on file by the sending  party);  or (iii) one (1) trading day after deposit
with a nationally  recognized  overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile  numbers
for such communications shall be:











                                       12
<PAGE>
If to the Company, to:          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 5.  DEFINITIONS.  For the purposes hereof,  the following terms
shall have the following meanings:












                                       13
<PAGE>
         "BUSINESS DAY" means any day except Saturday,  Sunday and any day which
shall be a federal  legal holiday in the United States or a day on which banking
institutions  are  authorized or required by law or other  government  action to
close.

         "CHANGE  OF  CONTROL  TRANSACTION"  means  the  occurrence  of  (a)  an
acquisition  after the date hereof by an  individual  or legal entity or "group"
(as  described  in Rule  13d-5(b)(1)  promulgated  under  the  Exchange  Act) of
effective  control  (whether  through legal or  beneficial  ownership of capital
stock of the Obligor,  by contract or  otherwise)  of in excess of fifty percent
(50%) of the  outstanding  voting  securities  of the Obligor  (except  that the
acquisition of voting  securities by the Holder shall not constitute a Change of
Control Transaction for purposes hereof),  (b) a replacement at one time or over
time of more than  one-half  of the  members  of the board of  directors  of the
Obligor which is not approved by a majority of those individuals who are members
of the board of  directors on the date hereof (or by those  individuals  who are
serving as members of the board of directors on any date whose nomination to the
board of  directors  was  approved  by a majority of the members of the board of
directors who are members on the date hereof), (c) the merger,  consolidation or
sale of  fifty  percent  (50%)  or  more of the  assets  of the  Obligor  or any
subsidiary  of the  Obligor  which at the time holds more that one half (1/2) of
the assets of the  Obligor in one or a series of  related  transactions  with or
into  another  entity,  or (d) the  execution  by the Obligor of an agreement to
which the Obligor is a party or by which it is bound,  providing  for any of the
events set forth above in (a), (b) or (c).

         "COMMISSION" means the Securities and Exchange Commission.

         "COMMON STOCK" means the common stock,  par value $.001, of the Obligor
and stock of any other class into which such shares may  hereafter be changed or
reclassified.

         "CONVERSION  DATE" shall mean the date upon which the Holder  gives the
Obligor  notice of their  intention to effectuate a conversion of this Debenture
into shares of the Company's Common Stock as outlined herein.

         "CLOSING  BID  PRICE"  means the  price per share in the last  reported
trade of the Common Stock on the OTC or on the  exchange  which the Common Stock
is then listed as quoted by Bloomberg, LP.

         "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

         "ORIGINAL ISSUE DATE" shall mean the date of the first issuance of this
Debenture  regardless of the number of transfers and regardless of the number of
instruments, which may be issued to evidence such Debenture.

         "PERSON"  means  a   corporation,   an   association,   a  partnership,
organization,  a business, an individual,  a government or political subdivision
thereof or a governmental agency.

          "SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

         "TRADING  DAY"  means a day on which the  shares  of  Common  Stock are
quoted on the OTC or quoted  or  traded on such  Subsequent  Market on which the
shares of Common  Stock are



                                       14
<PAGE>
then  quoted or  listed;  provided,  that in the event that the shares of Common
Stock are not listed or quoted, then Trading Day shall mean a Business Day.

         "TRANSACTION  DOCUMENTS" means the Securities Purchase Agreement or any
other agreement  delivered in connection with the Securities Purchase Agreement,
the Security Agreement, including, without limitation, the Pledge Agreement, the
Irrevocable Transfer Agent Instructions, and the Registration Rights Agreement.

         "UNDERLYING  SHARES"  means the shares of Common  Stock  issuable  upon
conversion of this  Debenture or as payment of interest in  accordance  with the
terms hereof.

         "UNDERLYING  SHARES   REGISTRATION   STATEMENT"  means  a  registration
statement  meeting  the  requirements  set  forth  in  the  Registration  Rights
Agreement,  covering among other things the resale of the Underlying  Shares and
naming the Holder as a "selling stockholder" thereunder.

         SECTION 6. Except as expressly  provided  herein,  no provision of this
Debenture  shall  alter or impair  the  obligations  of the  Obligor,  which are
absolute and unconditional,  to pay the principal of, interest and other charges
(if any) on, this  Debenture at the time,  place,  and rate,  and in the coin or
currency,  herein  prescribed.  This  Debenture  is a direct  obligation  of the
Obligor.  This  Debenture  ranks  pari passu  with all other  Debentures  now or
hereafter issued under the terms set forth herein.  As long as this Debenture is
outstanding,  the Obligor shall not and shall cause their  subsidiaries  not to,
without the consent of the Holder,  (i) amend its certificate of  incorporation,
bylaws or other  charter  documents so as to adversely  affect any rights of the
Holder;  (ii)  repay,  repurchase  or offer to repay,  repurchase  or  otherwise
acquire shares of its Common Stock or other equity  securities  other than as to
the Underlying  Shares to the extent permitted or required under the Transaction
Documents;  or  (iii)  enter  into  any  agreement  with  respect  to any of the
foregoing.

         SECTION 7. This  Debenture  shall not  entitle the Holder to any of the
rights of a stockholder of the Obligor,  including without limitation, the right
to vote, to receive dividends and other distributions,  or to receive any notice
of, or to attend,  meetings  of  stockholders  or any other  proceedings  of the
Obligor,  unless  and to the extent  converted  into  shares of Common  Stock in
accordance with the terms hereof.

         SECTION 8. If this Debenture is mutilated,  lost,  stolen or destroyed,
the Obligor shall execute and deliver, in exchange and substitution for and upon
cancellation of the mutilated Debenture,  or in lieu of or in substitution for a
lost, stolen or destroyed Debenture, a new Debenture for the principal amount of
this Debenture so mutilated,  lost, stolen or destroyed but only upon receipt of
evidence  of such  loss,  theft or  destruction  of such  Debenture,  and of the
ownership hereof, and indemnity,  if requested,  all reasonably  satisfactory to
the Obligor.

         SECTION 9. As of the date  hereof,  no  indebtedness  of the Obligor is
senior to this Debenture in right of payment,  whether with respect to interest,
damages or upon  liquidation or  dissolution or otherwise.  Without the Holder's
consent,  the Obligor will not and will not permit any of their subsidiaries to,
directly or indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness  of any kind,  on or with  respect to any of its property or assets
now owned



                                       15
<PAGE>
or  hereafter  acquired or any interest  therein or any income or profits  there
from that is senior in any respect to the  obligations of the Obligor under this
Debenture.

         SECTION  10. This  Debenture  shall be  governed  by and  construed  in
accordance  with the laws of the State of New Jersey,  without  giving effect to
conflicts of laws thereof.  Each of the parties  consents to the jurisdiction of
the Superior  Courts of the State of New Jersey  sitting in 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 11. If the Obligor  fails to strictly  comply with the terms of
this  Debenture,  then the Obligor shall  reimburse the Holder  promptly for all
fees, costs and expenses,  including,  without  limitation,  attorneys' fees and
expenses incurred by the Holder in any action in connection with this Debenture,
including,  without  limitation,  those  incurred:  (i) in  connection  with the
rendering of legal advice as to the Holder's  rights,  remedies and  obligations
during any workout,  attempted workout (ii) collecting any sums which become due
to the Holder, (iii) defending or prosecuting any proceeding or any counterclaim
to any proceeding or appeal; or (iv) the protection, preservation or enforcement
of any rights or remedies of the Holder.

         SECTION  12. Any waiver by the Holder of a breach of any  provision  of
this Debenture  shall not operate as or be construed to be a waiver of any other
breach  of such  provision  or of any  breach  of any  other  provision  of this
Debenture. The failure of the Holder to insist upon strict adherence to any term
of this Debenture on one or more  occasions  shall not be considered a waiver or
deprive that party of the right  thereafter  to insist upon strict  adherence to
that term or any other term of this Debenture. Any waiver must be in writing.

         SECTION 13. If any provision of this  Debenture is invalid,  illegal or
unenforceable,  the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to any person or circumstance,  it shall  nevertheless
remain applicable to all other persons and  circumstances.  If it shall be found
that any interest or other amount deemed  interest due  hereunder  shall violate
applicable laws governing  usury,  the applicable rate of interest due hereunder
shall  automatically be lowered to equal the maximum permitted rate of interest.
The Obligor  covenants  (to the extent that it may lawfully do so) that it shall
not at any time insist upon,  plead, or in any manner  whatsoever  claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would  prohibit  or forgive  the  Obligor  from paying all or any portion of the
principal of or interest on this  Debenture  as  contemplated  herein,  wherever
enacted,  now or at any time  hereafter  in  force,  or  which  may  affect  the
covenants or the performance of this  indenture,  and the Obligor (to the extent
it may lawfully do so) hereby  expressly waives all benefits or advantage of any
such law,  and  covenants  that it will not, by resort to any such law,  hinder,
delay or impede the  execution  of any power herein  granted to the Holder,  but
will suffer and permit the  execution  of every such power as though no such law
has been enacted.

         SECTION 14. Whenever any payment or other obligation hereunder shall be
due on a day other than a Business  Day,  such payment shall be made on the next
succeeding Business Day.



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<PAGE>
         SECTION 15. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVE  THE  RIGHT  ANY OF THEM  MAY HAVE TO A TRIAL  BY JURY IN  RESPECT  OF ANY
LITIGATION  BASED  HEREON OR ARISING OUT OF,  UNDER OR IN  CONNECTION  WITH THIS
AGREEMENT  OR ANY  TRANSACTION  DOCUMENT  OR ANY  COURSE OF  CONDUCT,  COURSE OF
DEALING,  STATEMENTS  (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY.  THIS
PROVISION  IS  A  MATERIAL  INDUCEMENT  FOR  THE  PARTIES'  ACCEPTANCE  OF  THIS
AGREEMENT.

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<PAGE>
         IN WITNESS  WHEREOF,  the Obligor has caused this  Secured  Convertible
Debenture to be duly  executed by a duly  authorized  officer as of the date set
forth above.

                                             NEWGOLD, INC.

                                             By: /s/ SCOTT DOCKTER
                                                -------------------------------
                                             Name: Scott Dockter
                                             Title: Chief Executive Officer

















































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