EXHIBIT 4.1
CONVERTIBLE
SUBORDINATED
PROMISSORY
DEBENTURE
FOR VALUE RECEIVED, the undersigned,
NEWPORT INTERNATIONAL GROUP, INC. (“Maker”), having a
business address at 73061 El Paseo, #205 Palm Desert, California
92260, hereby promises to pay to the order of Jenell Fontes
(“Payee” or “Holder”), at the date of
maturity set forth below, the principal amount of Two hundred and
seventy-five thousand dollars ($275,000), together with interest on
the unpaid principal amount at the rate of 12.5% per annum, and on
any overdue payment of principal at the rate of 1 ½% per month
(18% per annum), and with the principal balance and all accrued
interest being due and payable 24 months from the final closing
date of the Offering (“Offering”) pursuant to which
this Debenture is issued.
1.
Payments of Interest and Principal .
a. Interest . Maker shall pay interest to Payee on the
unpaid outstanding principal balance owed to Payee hereunder at the
rate of twelve and one half percent (12.5%) per annum to be paid
quarterly commencing the quarter ended June 30, 2005, payable
within 30 days of the end of the quarter. Interest may be paid in
cash or common stock at the option of the Company. Common stock
will be calculated at $0.375 in the event there is no public market
for the common stock. In the event a market exists for the common
stock, it will be calculated at the average closing price for the
common stock for the five trading days preceding the interest
payment date. Interest not paid within thirty (30) days following
the end of each quarter shall cause the conversion price of both
the Debentures and the warrants to be issued in connection herewith
to be reduced by 10% from the current conversion price or exercise
price per each such occurrence.
b. Maturity . Maker shall have no duty or obligation to pay
any portion of the outstanding principal amount owed hereunder,
except as hereinafter provided, 24 months from the final closing
date of the Offering pursuant to which this Debenture is issued
(“Maturity”). At Maturity, all accrued interest and
outstanding principal shall be due and payable, and shall be paid
to Payee;
c. Payments . All payments made hereunder shall be applied
as made first to the payment of interest then due, and the balance
of said payment shall be applied to the payment of the principal
sum.
2.
Placement of Payment . So long as Payee shall hold
this Debenture, all payments of principal and interest shall be
made at the address of Maker as specified herein upon presentment
of this Debenture.
3.
Prepayment . From and after the date hereof, Maker
shall have the option to prepay all, but not in part, the principal
balance, together with accrued interest on the principal amount, of
this Debenture. There is no prepayment penalty.
4.
Conversion . The Payee may convert all or any amount
of the principal amount and any accrued and unpaid interest on the
Debenture into the common stock of the Maker at a conversion price
of Thirty-Seven point five Cents ($0.375) per share of common
stock, subject to adjustment as hereinafter provided. In the event
the outstanding common stock of the Maker is hereafter changed into
or
1
exchanged for a different number or
kind of shares, or other securities of the Maker, or of another
corporation, by reason of merger, consolidation, other
reorganization, recapitalization, reclassification, combination of
shares, stock split-up, reverse stock split, forward stock split,
stock dividend, or otherwise, the aggregate number, price and kind
of securities subject to the conversion rights of this Debenture
shall be adjusted appropriately.
5.
Special Reset Terms . In the event the Maker issues
any shares of its common stock or issues any options, warrants,
convertible preferred stock or convertible debt issuable or
convertible into common stock of the Maker at an exercise or
conversion price per share less than $0.375 per share (or lesser
price resulting from any subsequent reset price below $0.375)
within two years following the final closing date of the Offering,
then the exercise price or conversion price, as the case may be, of
this Debenture shall be reset to such lower price, but with no
floor, notwithstanding the provision for adjustment provided for in
Section 1.a hereof. This reset provision shall not apply with
regard to stock options and warrants covered by a Form S-8
Registration Statement for employees, directors, and consultants
that are unanimously approved by the Board of Directors. In
addition, the reset provision shall not apply with respect to any
securities approved by a majority in interest of the principle
amount of the Debentures issued in this Offering. All price
information is subject to adjustment as provided in Section 4
above.
6.
Subordination : The Debentures will be subordinated
in right of payment to all indebtedness to banks and other
financial institutions. In addition, Holder will subordinate to any
investors or group o
