Dated: December 13, 2007
NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE 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.
TXP CORPORATION
Secured Convertible Note
Due: December 13, 2010
This
Secured Convertible Note (the “
Note ”)
is issued by
TXP CORPORATION ,
a
Nevada corporation (the “
Company ”),
to
YA GLOBAL INVESTMENTS, L.P. (F/K/A CORNELL CAPITAL PARTNERS,
L.P.) (the
“
Holder ”),
pursuant to that certain Securities Purchase Agreement (the
“
Securities Purchase Agreement ”)
dated March 30, 2007.
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 on or before December 13,
2010 (the “
Maturity Date ”)
in accordance with the following terms:
Section 1 .
General Terms
(a)
Interest .
Interest shall accrue on the outstanding principal balance hereof
at an annual rate equal to eight percent (8%). Interest shall be
calculated on the basis of a 365-day year and the actual number of
days elapsed, to the extent permitted by applicable law. Interest
hereunder shall be paid on the Maturity Date (or sooner as provided
herein) to the Holder or its assignee in whose name this Note is
registered on the records of the Company regarding registration and
transfers of Notes 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 .
The
Note is
secured by a security interest in certain assets of the Company,
including intellectual property and rights to intellectual
property, as evidenced by the Security Agreement dated as of March
30, 2007 (the “
Security Agreement ”).
(c)
Monthly Payments .
Beginning on the date that is the twelve (12) month anniversary of
the date hereof, the Company shall make monthly payments of
interest, and beginning on the date that is the eighteen (18) month
anniversary of the date hereof, the Company shall make monthly
payments of interest plus principal payments in the amount of One
Hundred Thousand Dollars ($100,000) (such payments shall be
referred to as “
Scheduled Payments ”).
After the first Scheduled Payment, each subsequent Scheduled
Payment shall be due and payable on the same day of each subsequent
calendar month until the Maturity Date. All payments in respect of
the indebtedness evidenced hereby shall be made in collected funds,
and shall be applied to principal, accrued interest and charges and
expenses owing under or in connection with this Note in such order
as the Holder elects, except that payments shall be applied to
accrued interest before principal. Notwithstanding the foregoing,
this Note shall become due and immediately payable, including all
accrued but unpaid interest, upon an Event of Default (as defined
in
Section 2 hereof).
Notwithstanding any provision of this Section 1(c) to the contrary,
the Holder may, at its option and in its sole discretion, deliver a
written notice to the Company at least two (2) days prior to any
Scheduled Payment due date electing to have the payment of all or
any portion of Scheduled Payment payable on the next Scheduled
Payment due date deferred to the Maturity Date. Any amount deferred
to the Maturity Date pursuant to this Section shall continue to
accrue interest through the Maturity Date. In the event that the
Company redeems a portion of the principal amount outstanding under
this Note, the Company shall be entitled to an off-set to the
amount of principal due pursuant to the next Schedule Payment equal
to the amount of principal redeemed or converted (the
“
Off-Set Amount ”).
In such event the Company shall be obligated to make the next
Scheduled Payment reduced by any Off-Set Amount as contemplated
hereunder.
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 Note, 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 or any subsidiary of 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 undismissed for a
period of 61 days; or the Company or any subsidiary of 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 or any
subsidiary of the Company makes a general assignment for the
benefit of creditors; or the Company or any subsidiary of the
Company shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they
become due; or the Company or any subsidiary of the Company
shall call a meeting of its creditors with a view to arranging
a composition, adjustment or restructuring of its debts; or
the Company or any subsidiary 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 or any subsidiary of
the Company for the purpose of effecting any of the
foregoing;
(iii)
The
Company or any subsidiary of the Company shall default in any
of its obligations under any other debenture 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;
(v)
The
Company or any subsidiary of the Company shall be a party to
any Change of Control Transaction (as defined in
Section 6 );
(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 as of March 30, 2007, 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
Note 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);
(viii)
The
Company shall fail for any reason to deliver Common Stock
certificates to a Holder prior to the fifth (5
th )
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;
(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)
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 Note (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 Note is outstanding, if any
Event of Default has occurred and
shall continue for a period of ten (10) days after a notice of
such default has been delivered by the Holder to the Obligor
(the
“Notice Period ”)
,
the full principal amount of this Note, 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. If an Event
of Default shall occur the Conversion Price shall be reduced to
twenty percent (20%) of the lowest Volume Weighted Average Price,
as quoted by Bloomberg, LP, of the Common Stock during the thirty
(30) trading days immediately preceding the date upon which the
Event of Default occurred (the “
Default Conversion Price ”),
provided however, that the Default Conversion Price may not be
lower than $0.10, as adjusted pursuant to this Note. Furthermore,
in addition to any other remedies, the Holder shall have the right
(but not the obligation) to convert this Note 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 and without 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. Except with respect to the limitation
set forth in Section 4(b)(i) hereof upon an Event of Default,
notwithstanding any other provision of this Note 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 Note
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 Note 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 Closing Bid Price of the of the Common
Stock, as reported by Bloomberg, LP, is less than the Conversion
Price, (ii) the Underlying Share Registration Statement is
effective, 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 twenty percent (20%) 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
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 Note,
subject to the limitations set forth in
Section 4(b) .
On the fourth (4
th )
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
Note shall be convertible into shares of 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 Note to be converted by (y) the
Conversion Price (as defined in
Section 4(c)(i) ).
The Company shall deliver Common Stock certificates to the Holder
prior to the Fifth (5
th )
Trading Day after a Conversion Date.
(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 three (3) 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 highest Closing
Bid Price 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 Note by the fifth (5
th )
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 Note, the Holder is not required to
physically surrender this Note to the Company in order to effect
conversions. Conversions hereunder shall have the effect of
lowering the outstanding principal amount of this Note 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, the
records of the Holder shall be controlling and determinative in the
absence of manifest error.
(b)
Certain Conversion Restrictions .
(i)
The
Company shall not effect any conversions of this Note and the
Holder shall not have the right to convert any portion of this
Note 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
Note 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 Note 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
Note. 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)
(RESERVED)
(c)
Conversion Price and Adjustments to Conversion Price
.
(i)
The
conversion price in effect on any Conversion Date shall be
equal to $0.41 per share (the “
Conversion Price ”).
In the event that the Company has not raised at least One Million
Dollars ($1,000,000) in additional equity capital between the date
of the First Closing and the date that is one hundred twenty (120)
days after the date of the First Closing (the “Equity
Requirement Date”), the Conversion Price shall automatically
become $0.25 per share, effective the first Business Day after the
Equity Requirement Date. The Conversion Price may be adjusted
pursuant to the terms of this Note.
(ii)
If
the Company, at any time while this Note 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 Note 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
b
|
