Document:

Exhibit 10.18(b) - Amendment No. 1 to Pledge and Escrow Agreement

    Exhibit
      10.18(b)

     

    Execution
      Copy 

     

    AMENDMENT
      NO. 1 TO

    PLEDGE
      AND ESCROW AGREEMENT

     

    THIS
      AMENDMENT NO. 1 TO PLEDGE AND ESCROW AGREEMENT
      (this
“Amendment”),
      is
      entered into by and between NEWGOLD,
      INC,
      a
      Delaware corporation (the “Company”),
      and
      the undersigned Buyer (the “Buyer”).

     

    WHEREAS:

     

    A. The
      parties hereto previously entered into that certain Pledge and Escrow Agreement
      dated as of September 26, 2006 (the "Agreement").
      

     

    B. The
      parties to the Agreement now desire to amend certain provisions set forth in
      the
      Agreement as more fully described herein.

     

    NOW,
      THEREFORE,
      in
      consideration of the premises and the mutual covenants contained herein and
      other good and valuable consideration, the receipt and sufficiency of which
      are
      hereby acknowledged, the Company and the Buyer hereby agree as
      follows:

     

    1.  AMENDMENT
      OF THE 1st“WHEREAS”
CLAUSE.
      The
      1st“WHEREAS”
Clause
      of the Agreement is hereby amended and replaced in its entirety
      with the following: 

     

    “WHEREAS,
      in
      order
      to secure the full and prompt payment when due (whether at the stated maturity,
      by acceleration or otherwise) of all of the Company’s obligations to the Pledgee
      or any successor to the Pledgee under this
      Agreement, the Amended Securities Purchase Agreement of even date herewith
      between the Pledgor and the Pledgee (the “Amended Securities
      Purchase Agreement”),
      the
      Convertible Debentures (the “Convertible
      Debentures”)
      issued
      or to be issued by the Company to the Pledgee, either now or in the future,
      up
      to a total of Three Million Dollars ($3,000,000) of principal, plus any
      interest, costs, fees, and other amounts owed to the Pledgee thereunder, the
      Security Agreement of even date herewith between the Pledgor and the Pledgee
      (the “Security
      Agreement”),
      and
      all other contracts entered into between the parties hereto (collectively,
      the
“Transaction
      Documents”),
      the
      Pledgor has agreed to irrevocably pledge to the Pledgee Ten Million (10,000,000)
      shares (the “Pledged
      Shares”)
      of the
      Pledgor’s common stock.”

     

    3. EFFECT
      ON OTHER TERMS.
      This
      Amendment shall be deemed effective as of November 1, 2006. All other terms
      set
      forth in the Agreement shall remain unchanged and this Amendment and the
      Agreement shall be deemed a single integrated agreement for all
      purposes.

     

    

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    IN
      WITNESS WHEREOF,
      the
      parties have caused this Amendment No. 1 to Pledge and Escrow Agreement to
      be
      duly executed as of day and year first above written.

     

    
      	 	
              COMPANY:

            
	 	
              NEWGOLD,
                INC. 

            
	 	 
	 	
              By: /s/
                A. Scott Dockter  

            
	 	
              Name: 
                Scott Dockter

            
	 	
              Title: Chief
                Executive Officer

            
	 	 
	 	
              BUYER:

            
	 	
              CORNELL
                CAPITAL PARTNERS, LP

            
	 	
              By:
                Yorkville Advisors, LLC

            
	
               

            	
              Its:
                General Partner

            
	 	 
	 	
              By:
                /s/
                Mark Angelo

            
	 	
              Name:
                Mark Angelo

            
	 	
              Title:
                President and Portfolio ManagerExhibit 10.19 - Convertible Debenture dated September 26, 2006

     

    Exhibit
      10.19

    EXECUTION
      COPY

     

    Dated:
      September 26, 2006

     

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

     

    No.
      NGLD-1-3 $1,000,000

     

    NEWGOLD,
      INC.

     

    Secured
      Convertible Debenture

     

    Due:
      September 26, 2009

     

    This
      Secured Convertible Debenture (the “Debenture”)
      is
      issued by NEWGOLD,
      INC., a
      Delaware corporation (the “Company”),
      to
CORNELL
      CAPITAL PARTNERS, LP
      (the
“Holder”),
      pursuant to that certain Securities Purchase Agreement (the “Securities
      Purchase Agreement”)
      dated
      September 26, 2006. 

     

    FOR
      VALUE RECEIVED,
      the
      Company hereby promises to pay to the Holder or its successors and assigns
      the
      principal sum of One Million Dollars ($1,000,000) together with accrued but
      unpaid interest in lawful money of the United States of America on
      or
      before September 26, 2009 (the “Maturity
      Date”)
      in
      accordance with the following terms:

     

    Section
      1. General
      Terms

     

    (a) Interest.
      Interest shall accrue on the outstanding principal balance hereof at an annual
      rate equal to eight percent (8%). Interest shall be calculated on the basis
      of a
      365-day year and the actual number of days elapsed, to the extent permitted
      by
      applicable law. Interest hereunder shall be paid on the Maturity Date (or sooner
      as provided herein) to the Holder or its assignee in whose name this Debenture
      is registered on the records of the Company regarding registration and transfers
      of Debentures in cash or in Common Stock (valued at the Closing Bid Price on
      the
      Trading Day immediately prior to the date paid) at the option of the Company.
      

     

    (b)  Security.
      This
      Debenture is secured by a Pledge and Escrow Agreement (the “Pledge
      Agreement”)
      dated
      September 26, 2006 among the Company, and the Holder, the Escrow Agent, and
      that
      certain UCC-1 filed with Delaware Secretary of State on September 19,

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    2006
      as
      File No.: 6322983 8, and the certain Memorandum of Security Agreement filed
      with
      the Pershing County Records Office, State of Nevada on February 14, 2006, as
      Roll No. 405, Page 87, and as file No. 247392, which Memorandum of Security
      Agreement was subsequently amended on or about September 26, 2006 to provide
      for
      an obligation of the Company to the Holder in a gross principal amount of two
      million two hundred thousand dollars ($2,200,000). 

     

    Section
      2. Events
      of Default.

     

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

     

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

     

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

     

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

     

    (iv)  The
      Common Stock shall cease to be quoted for trading or listing for trading on
      any
      of (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Nasdaq
      National Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin
      Board (“OTC”)
      (each,
      a “Primary
      Market”)
      and
      shall not again be quoted or listed for trading on any Primary Market within
      five (5) Trading Days of such delisting or if such delisting is for failure
      by
      the Obligor to timely file reports pursuant to Section 13 or 15(d) of the Act,
      and shall not again be quoted or listed for trading thereon within the thirty
      (30) calendar day grace period afforded by NASD Rule 6350;

     

    (v)  The
      Company or any subsidiary of the Company shall be a party to any Change of
      Control Transaction (as defined in Section
      6),
      unless
      the Holder has provided its prior written consent to such Change of Control
      Transaction; 

     

    (vi)  The
      Company shall fail to file the Underlying Shares Registration Statement (as
      defined in Section
      6)
      with
      the Commission (as defined in Section
      6),
      or the
      Underlying Shares Registration Statement shall not have been declared effective
      by the Commission, in each case within the time periods set forth in the
      Investor Registration Rights Agreement (“Registration
      Rights Agreement”)
      dated
      September 26, 2006 between the Company and the Holder;

     

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

     

    (viii)  The
      Company shall fail for any reason to deliver Common Stock certificates to a
      Holder prior to the fifth (5th)
      Trading
      Day after a Conversion Date, or the Company shall provide notice to the Holder,
      including by way of public announcement, at any time, of its intention not
      to
      comply with requests for conversions in accordance with the terms hereof and
      the
      Company fails to cure such nondelivery to the Holder within ten (10) business
      days from receipt of written notification from the Holder; 

     

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

     

    (x)  The
      Company shall fail to observe or perform any other covenant, agreement or
      warranty contained in, or otherwise commit any breach or default of any
      provision of this Debenture (except as may be covered by Section
      2(a)(i) through 2(a)(ix)
      hereof)
      or any Transaction Document (as defined in Section
      6)
      which
      is not cured with in the time prescribed, 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    or
      an
      Event of Default under any other debenture issued to the Holder in connection
      with the Securities Purchase Agreement shall occur;

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (i) This
      Debenture shall be convertible into shares of the Company’s Common Stock at the
      option of the Holder, in whole or in part at any time and from time to time,
      after the Original Issue Date (as defined in Section
      6)
      (subject to the limitations on conversion set forth in Section
      4(b)
      hereof).
      The number of shares of Common Stock issuable upon a conversion hereunder equals
      the quotient obtained by dividing (x) the outstanding amount of this Debenture
      to be converted by (y) the Conversion Price (as defined in Section
      4(c)(i)).
      The
      Holder shall receive Common Stock certificates, as specified in the Irrevocable
      transfer Agent Instructions, prior to the Fifth (5th)
      Trading
      Day after a Conversion Date. In the event that the Holder does not receive
      Common Stock certificates as specified in the Irrevocable transfer Agent
      Instructions the Company shall cure such non-delivery to the Holder within
      ten
      (10) business days from receipt of written notification from the
      Holder.

     

    (ii) Notwithstanding
      anything to the contrary contained herein, if on any Conversion Date: (1) the
      number of shares of Common Stock at the time authorized, unissued and unreserved
      for all purposes, or held as treasury stock, is insufficient to pay principal
      and interest hereunder in shares of Common Stock; (2) the Common Stock is not
      listed or quoted for trading on the a Primary Market; or (3) the Company has
      failed to timely satisfy a conversion; then, at the option of the Holder, the
      Company, in lieu of delivering shares of Common Stock pursuant to Section
      4(a)(i),
      shall
      deliver, within seven (7) Trading Days of each applicable Conversion Date,
      an
      amount in cash equal to the product of the outstanding principal amount to
      be
      converted divided by the applicable Conversion Price, and multiplied by the
      average of the Closing Bid Prices of the stock from date of the conversion
      notice till the date that such cash payment is made.

     

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

     

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

     

    (b) Certain
      Conversion Restrictions.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (i) The
      Company shall not effect any conversions of this Debenture and the Holder shall
      not have the right to convert any portion of this Debenture or receive shares
      of
      Common Stock as payment of interest hereunder to the extent that after giving
      effect to such such conversion or receipt of such interest payment, the Holder,
      together with any affiliate thereof, would beneficially own (as determined
      in
      accordance with Section 13(d) of the Exchange Act and the rules promulgated
      thereunder) in excess of 4.99% of the number of shares of Common Stock
      outstanding immediately after giving effect to such conversion or receipt of
      shares as payment of interest. Since the Holder will not be obligated to report
      to the Company the number of shares of Common Stock it may hold at the time
      of a
      conversion hereunder, unless the conversion at issue would result in the
      issuance of shares of Common Stock in excess of 4.99% of the then outstanding
      shares of Common Stock without regard to any other shares which may be
      beneficially owned by the Holder or an affiliate thereof, the Holder shall
      have
      the authority and obligation to determine whether the restriction contained
      in
      this Section will limit any particular conversion hereunder and to the extent
      that the Holder determines that the limitation contained in this Section
      applies, the determination of which portion of the principal amount of this
      Debenture is convertible shall be the responsibility and obligation of the
      Holder. If the Holder has delivered a Conversion Notice for a principal amount
      of this Debenture that, without regard to any other shares that the Holder
      or
      its affiliates may beneficially own, would result in the issuance in excess
      of
      the permitted amount hereunder, the Company shall notify the Holder of this
      fact
      and shall honor the conversion for the maximum principal amount permitted to
      be
      converted on such Conversion Date in accordance with the periods described
      in
Section
      4(a)(i)
      and, any
      principal amount tendered for conversion in excess of the permitted amount
      hereunder shall remain outstanding under this Debenture. The provisions of
      this
      Section may be waived by a Holder (but only as to itself and not to any other
      Holder) upon not less than 65 days prior notice to the Company. Other Holders
      shall be unaffected by any such waiver.

     

    (ii)
      The
      Holder shall not convert in excess of Two Hundred Fifty Thousand Dollars
      ($250,000) of principal amount of this Debenture (combined with conversions
      on
      all other debentures pursuant to the Securities Purchase Agreement) at the
      Market Conversion Price in any thirty (30) day period. Notwithstanding the
      forgoing, this conversion restriction shall not apply upon the occurrence of
      an
      Event of Default or if waived in writing by the Company. Nothing contained
      in
      this Section 3(b)(ii) hereof shall limit the Holder’s right to make conversions
      at the Fixed Conversion Price. 

     

    (c) Conversion
      Price and Adjustments to Conversion Price.

     

    (i) The
      conversion price in effect on any Conversion Date shall be equal to the lesser
      of (a) $0.4735 (the “Fixed
      Conversion Price”)
      or (b)
      ninety five percent (95%) of the lowest Volume Weighted Average Price of
      the Common Stock during the thirty (30) trading days immediately preceding
      the
      Conversion Date as quoted by Bloomberg, LP (the “Market
      Conversion Price”).
      The
      Fixed Conversion Price and the Market Conversion Price are collectively referred
      to as the “Conversion
      Price.”
The
      Conversion Price may be adjusted pursuant to the other terms of this
      Debenture.

     

    (ii) If
      the
      Company, at any time while this Debenture is outstanding, shall (a) pay a
      stock dividend or otherwise make a distribution or distributions on shares
      of
      its Common Stock or any other equity or equity equivalent securities payable
      in
      shares of Common 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Stock,
      (b) subdivide outstanding shares of Common Stock into a larger number of shares,
      (c) combine (including by way of reverse stock split) outstanding shares of
      Common Stock into a smaller number of shares, or (d) issue by reclassification
      of shares of the Common Stock any shares of capital stock of the Company, then
      the Conversion Price shall be multiplied by a fraction of which the numerator
      shall be the number of shares of Common Stock (excluding treasury shares, if
      any) outstanding before such event and of which the denominator shall be the
      number of shares of Common Stock outstanding after such event. Any adjustment
      made pursuant to this Section shall become effective immediately after the
      record date for the determination of stockholders entitled to receive such
      dividend or distribution and shall become effective immediately after the
      effective date in the case of a subdivision, combination or
      re-classification.

     

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

     

    (iv) Except
      as
      otherwise permitted by this Debenture, if the Company or any subsidiary thereof,
      as applicable, at any time while this Debenture is outstanding, shall issue
      shares of Common Stock or rights, warrants, options (excluding shares of Common
      Stock issued or issuable to officers, directors and employees of, or consultants
      to the Obligor pursuant to stock grants, option plans or other employee stock
      incentive programs, whether qualified or non-qualified, approved by the
      Obligor’s Board of Directors) or other securities or debt that are convertible
      into or exchangeable for shares of Common Stock (“Common
      Stock Equivalents”)
      entitling any Person to acquire shares of Common Stock, at a price per share
      less than the Conversion Price (if the holder of the Common Stock or Common
      Stock Equivalent so issued shall at any time, whether by operation of purchase
      price adjustments, reset provisions, floating conversion, exercise or exchange
      prices or otherwise, or due to warrants, options or rights per share which
      is
      issued in connection with such issuance, be entitled to receive shares of Common
      

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Stock
      at
      a price per share which is less than the Conversion Price, such issuance shall
      be deemed to have occurred for less than the Conversion Price), then, at the
      sole option of the Holder, the Conversion Price for a principal amount due
      and
      outstanding under this Debenture equal to the dollar amount of Common Stock
      Equivalents issued (determined by multiplying the conversion price, issuance
      price, exchange or purchase of such Common Stock Equivalents by the number
      of
      shares of the Obligor’s Common Stock issuable pursuant to the Common Stock
      Equivalent) shall be adjusted on the date of such issuance to a to mirror the
      conversion, exchange or purchase price for such Common Stock or Common Stock
      Equivalents (including any reset provisions thereof) at issue. Such adjustment
      shall be made whenever such Common Stock or Common Stock Equivalents are issued
      (calculated to the nearest cent).

     

    The
      Company shall notify the Holder in writing, no later than one (1) business
      day
      following the issuance of any Common Stock or Common Stock Equivalent subject
      to
      this Section, indicating therein the applicable issuance price, or of applicable
      reset price, exchange price, conversion price and other pricing terms. No
      adjustment under this Section shall be made as a result of issuances of Excluded
      Securities.

     

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

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    The
      entire prepayment price shall be paid in cash. This provision shall similarly
      apply to successive reclassifications or share exchanges.

     

    (vii) Whenever
      the Conversion Price is adjusted pursuant to Section
      4
      hereof,
      the Company shall promptly mail to the Holder a notice setting forth the
      Conversion Price after such adjustment and setting forth a brief statement
      of
      the facts requiring such adjustment.

     

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

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

     

    (d) Other
      Provisions.

     

    (i) All
      calculations under this Section
      4
      shall be
      rounded up to the nearest $0.0001 or whole share.

     

    (ii) The
      Company covenants that it will at all times reserve and keep available out
      of
      its authorized and unissued shares of Common Stock solely for the purpose of
      issuance upon conversion of this Debenture and payment of interest on this
      Debenture, each as herein provided, free from preemptive rights or any other
      actual contingent purchase rights of persons other than the Holder, not less
      than such number of shares of the Common Stock as shall (subject to any
      additional requirements of the Company as to reservation of such shares set
      forth in this Debenture or in the Transaction Documents) be issuable (taking
      into account the adjustments and restrictions set forth herein) upon the
      conversion of the outstanding principal amount of this Debenture and payment
      of
      interest hereunder and within three (3) Business Days following the receipt
      by
      the Company of a Holder's notice that such minimum number of Underlying Shares
      is not so reserved, the Company shall promptly reserve a sufficient number
      of
      shares of Common Stock to comply with such requirement. The Company covenants
      that all shares of Common Stock that shall be so issuable shall, upon issue,
      be
      duly and validly authorized, issued and fully paid, nonassessable and, if the
      Underlying Shares Registration Statement has been declared effective under
      the
      Securities Act, registered for public sale in accordance with such Underlying
      Shares Registration Statement.

     

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

     

    (iv) The
      issuance of certificates for shares of the Common Stock on conversion of this
      Debenture shall be made without charge to the Holder thereof for any documentary
      stamp or similar taxes that may be payable in respect of the issue or delivery
      of such certificate, provided that the Company shall not be required to pay
      any
      tax that may be payable in respect of any transfer involved in the issuance
      and
      delivery of any such certificate 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    upon
      conversion in a name other than that of the Holder of such Debenture so
      converted and the Company shall not be required to issue or deliver such
      certificates unless or until the person or persons requesting the issuance
      thereof shall have paid to the Company the amount of such tax or shall have
      established to the satisfaction of the Company that such tax has been
      paid.

     

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

     

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

     

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

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	
              If
                to the Company, to:

            	
              Newgold,
                Inc.

            
	 	
              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:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    “Approved
      Stock Plan”
means
      a
      stock option plan that has been approved by the Board of Directors of the
      Company prior to the date of the Securities Purchase Agreement, pursuant to
      which the Company’s securities may be issued only to any employee, officer or
      director for services provided to the Company.

     

    “Business
      Day”
means
      any day except Saturday, Sunday and any day which shall be a federal legal
      holiday in the United States or a day on which banking institutions are
      authorized or required by law or other government action to close.

     

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

     

    “Closing
      Bid Price”
means
      the price per share in the last reported trade of the Common Stock on a Primary
      Market or on the exchange which the Common Stock is then listed as quoted by
      Bloomberg, LP.

     

    “Commission”
means
      the Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the common stock, par value $0.001, of the Company and stock of any other class
      into which such shares may hereafter be changed or reclassified.

     

    “Conversion
      Date”
shall
      mean the date upon which the Holder gives the Company notice of their intention
      to effectuate a conversion of this Debenture into shares of the Company’s Common
      Stock as outlined herein.

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    “Excluded
      Securities”
means,
      (a) shares issued or deemed to have been issued by the Company pursuant to
      an
      Approved Stock Plan (b) shares of Common Stock issued or deemed to be issued
      by
      the Company upon the conversion, exchange or exercise of any right, option,
      obligation or security outstanding on the date prior to date of the Securities
      Purchase Agreement, provided that the terms of such right, option, obligation
      or
      security are not amended or otherwise modified on or after the date of the
      Securities Purchase Agreement, and provided that the conversion price, exchange
      price, exercise price or other purchase price is not reduced, adjusted

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    or
      otherwise modified and the number of shares of Common Stock issued or issuable
      is not increased (whether by operation of, or in accordance with, the relevant
      governing documents or otherwise) on or after the date of the Securities
      Purchase Agreement, and (c) the shares of Common Stock issued or deemed to
      be issued by the Company upon conversion of this Debenture.

     

    “Original
      Issue Date”
shall
      mean the date of the first issuance of this Debenture regardless of the number
      of transfers and regardless of the number of instruments, which may be issued
      to
      evidence such Debenture.

     

    “Person”
means
      a
      corporation, an association, a partnership, organization, a business, an
      individual, a government or political subdivision thereof or a governmental
      agency.

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended, and the rules and regulations
      promulgated thereunder.

     

    “Trading
      Day”
means
      a
      day on which the shares of Common Stock are quoted on the OTC or quoted or
      traded on such Primary Market on which the shares of Common Stock are then
      quoted or listed; provided, that in the event that the shares of Common Stock
      are not listed or quoted, then Trading Day shall mean a Business
      Day.

     

    “Transaction
      Documents”
means
      the Securities Purchase Agreement or any other agreement delivered in connection
      with the Securities Purchase Agreement, including, without limitation, the
      Pledge Agreement, the Irrevocable Transfer Agent Instructions, and the
      Registration Rights Agreement.

     

    “Underlying
      Shares”
means
      the shares of Common Stock issuable upon conversion of this Debenture or as
      payment of interest in accordance with the terms hereof.

     

    “Underlying
      Shares Registration Statement”
means
      a
      registration statement meeting the requirements set forth in the Registration
      Rights Agreement, covering among other things the resale of the Underlying
      Shares and naming the Holder as a “selling stockholder” thereunder.

     

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

     

    Section
      8. This
      Debenture shall not entitle the Holder to any of the rights of a stockholder
      of
      the Company, including without limitation, the right to vote, to receive
      dividends 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    and
      other
      distributions, or to receive any notice of, or to attend, meetings of
      stockholders or any other proceedings of the Company, unless and to the extent
      converted into shares of Common Stock in accordance with the terms
      hereof.

     

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

     

    Section
      10. As
      of the
      date hereof no indebtedness of the Company is senior to this Debenture in right
      of payment, whether with respect to interest, damages or upon liquidation or
      dissolution or otherwise. Without the Holder’s consent, the Company will not and
      will not permit any of their subsidiaries to, directly or indirectly, enter
      into, create, incur, assume or suffer to exist any indebtedness of any kind,
      on
      or with respect to any of its property or assets now owned or hereafter acquired
      or any interest therein or any income or profits there from that is senior
      in
      any respect to the obligations of the Company under this Debenture.

     

    Section
      11. This
      Debenture shall be governed by and construed in accordance with the laws of
      the
      State of New Jersey, without giving effect to conflicts of laws thereof. Each
      of
      the parties consents to the jurisdiction of the Superior Courts of the State
      of
      New Jersey sitting in 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 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

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

     

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

     

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

     

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

     

    [REMAINDER
      OF PAGE INTENTIONLLY LEFT BLANK]

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

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

     

    

    
      	 	
              COMPANY:

            
	 	
              NEWGOLD,
                INC. 

            
	 	 
	 	
              By: /s/
                A. Scott Dockter         
                  

            
	 	
              Name: 
                Scott Dockter

            
	 	
              Title: 
                Chief Executive Officer

            
	 	 

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
      A

     

    CONVERSION
      NOTICE

     

    (To
      be executed by the Holder in order to Convert the
      Debenture)

     

    
      	
               

              TO:
                

            

    

    

    The
      undersigned hereby irrevocably elects to convert $_________________of
      the
      principal amount of Debenture No. NGLD-1-__ into Shares of Common Stock of
      NEWGOLD,
      INC.,
      according to the conditions stated therein, as of the Conversion Date written
      below.

     

    
      	
               

              Conversion
                Date:

            	 
	
               

              Amount
                to be converted:

            	
               

              $

            
	
               

              Conversion
                Price:

            	
               

              $

            
	
               

              Number
                of shares of Common Stock to be issued:

            	 
	
               

              Amount
                of Debenture

               

              Unconverted:

            	
               

              $

            
	 	
               

                

               

            
	 	 
	
               

              Please
                issue the shares of Common Stock in the following name and to the
                following address:

            
	
               

              Issue
                to:

            	 
	 	 
	
               

              Authorized
                Signature:

            	 
	
               

              Name:

            	 
	
               

              Title:

            	 
	
               

              Broker
                DTC Participant Code:

            	 
	
               

              Account
                Number:

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