TXP CORPORATION Secured Convertible Note Due: March 30, 2010
Dated:
March 30, 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.
|
No.
TXP-2-1
|
$4,000,000
|
TXP
CORPORATION
Due:
March 30, 2010
This
Secured Convertible Note (the “Note”)
is
issued by TXP
CORPORATION, a
Nevada
corporation (the “Company”),
to
CORNELL
CAPITAL PARTNERS, LP
(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 Four Million Dollars ($4,000,000) together with accrued but
unpaid interest on or before March 30, 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 six percent (6%). 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 of even date herewith (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;
2
(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”)
of
even date herewith, 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 (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;
3
(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 Xxxxxx 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 (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.
4
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
(5th)
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 (5th)
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.
5
(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.
6
(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 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) If
the
Company or any subsidiary thereof, as applicable, at any time while this Note
is
outstanding, shall issue shares of Common Stock or rights, warrants, options
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 shall be adjusted
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. 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.
7
(v) If
the
Company, at any time while this Note 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 Note 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
Note 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 Note 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 Note 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 Note, 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.
8
(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
Note, 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 Note 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 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 Note 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 Note 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 note with a principal
amount equal to the aggregate principal amount of this Note then held by such
Holder, plus all accrued and unpaid interest and other amounts owing thereon,
which such newly issued convertible Note shall have terms identical (including
with respect to conversion) to the terms of this Note, and shall be entitled
to
all of the rights and privileges of the Holder of this Note set forth herein
and
the agreements pursuant to which this Notes were issued. In the case of clause
(C), the conversion price applicable for the newly issued shares of convertible
preferred stock or convertible Notes 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.
9
(d) Other
Provisions.
(i) The
Company shall at all times reserve and keep available out of its authorized
Common Stock the full number of shares of Common Stock issuable upon conversion
of all outstanding amounts under this Note; 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.
(ii) All
calculations under this Section
4
shall be
rounded up to the nearest $0.0001 or whole share.
(iiii) 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 Note and payment of interest on this Note,
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 Note 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 Note and payment of interest hereunder. 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.
(iv) 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.
(v) The
issuance of certificates for shares of the Common Stock on conversion of this
Note 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 Note 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.
10
(vi) 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 Company 's failure to deliver certificates representing shares of Common
Stock upon conversion within the period specified herein and 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.
(vii) In
addition to any other rights available to the Holder, if the Company fails
to
deliver to the Holder such certificate or certificates pursuant to Section
4(a)(i) by
the
fifth (5th)
Trading
Day after the Conversion Date, and if after such fifth (5th)
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 market price of the Common Stock at the time of
the
sale giving rise to such purchase obligation and (B) at the option of the
Holder, either reissue a Note 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 Notes
with
respect to which the market price of the Underlying Shares on the date of
conversion was a total of $10,000 under clause (A) of the immediately preceding
sentence, the 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:
|
TXP
Corporation
|
|
|
0000
Xxxxxxxx Xxxxx
|
||
|
Richardson,
Texas 75081
|
||
|
Attention:
Xxxxxxx Xxxxxx
|
||
|
Telephone:
(000) 000-0000
|
||
|
Facsimile:
(000) 000-0000
|
||
|
With
a copy to:
|
Xxxxxxxxx
Xxxx Xxxxxxxx Xxxxxxx LLP
|
|
|
00
Xxxxxxxx, 00xx
Floor
|
||
|
New
York, New York 10006
|
||
|
Attention:
Xxxxxxx Xxxxxxxxx, Esq.
|
||
|
Telephone:
(000) 000-0000
|
||
|
Facsimile:
(000) 000-0000
|
11
|
If
to the Holder:
|
Cornell
Capital Partners, LP
|
|
|
000
Xxxxxx Xxxxxx, Xxxxx 0000
|
||
|
Jersey
City, NJ 07303
|
||
|
Attention: Xxxx
Xxxxxx
|
||
|
Telephone: (000)
000-0000
|
||
|
With
a copy to:
|
Xxxx
Xxxxx, Esq. or Xxxxx Xxxxxxxx, Esq..
|
|
|
000
Xxxxxx Xxxxxx - Xxxxx 0000
|
||
|
Jersey
City, NJ 07302
|
||
|
Telephone: (000)
000-0000
|
||
|
Facsimile: (000)
000-0000
|
||
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 or stock option plan that has been or will be approved by the Board of
Directors of the Company pursuant to which the Company’s securities may be
issued to any employee, officer, director or consultant 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 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 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).
12
“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 $.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 Note 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, (c) the shares of Common Stock issued or deemed to be
issued by the Company upon conversion of this Note, (d) any
issuance by the Company of securities in connection with a strategic partnership
or a joint venture (the primary purpose of which is not to raise equity
capital), (e) any issuance by the Company of securities as consideration for
a
merger or consolidation or the acquisition of a business, product, license,
or
other assets of another person or entity, (f)
securities which may be issued by the Company for aggregate gross proceeds
not
to exceed Two Million Dollars ($2,000,000) from sources other than the Buyer(s)
in the next six (6) months from the date hereof.
“Original
Issue Date”
shall
mean the date of the first issuance of this Note regardless of the number of
transfers and regardless of the number of instruments, which may be issued
to
evidence such Note.
13
“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
Security Agreement, the Irrevocable Transfer Agent Instructions, and the
Registration Rights Agreement.
“Underlying
Shares”
means
the shares of Common Stock issuable upon conversion of this Note 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 Note 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 Note at the time,
place, and rate, and in the coin or currency, herein prescribed. This Note
is a
direct obligation of the Company. This Note ranks pari passu with all other
Notes now or hereafter issued under the terms set forth herein. As long as
this
Note 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
Note
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
Note is mutilated, lost, stolen or destroyed, the Company shall execute and
deliver, in exchange and substitution for and upon cancellation of the mutilated
Note, or in lieu of or in substitution for a lost, stolen or destroyed Note,
a
new Note for the principal amount of this Note so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Note, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
14
Section
10. No
indebtedness of the Company is senior to this Note 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 Note.
Section
11. This
Note
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 Xxxxxx 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 Note 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 Note, 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 Note, 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 Note 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 Note. The failure of the Holder to
insist upon strict adherence to any term of this Note 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 Note.
Any
waiver must be in writing.
Section
14. If
any
provision of this Note is invalid, illegal or unenforceable, the balance of
this
Note 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 Note 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.
15
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
Note
is exchangeable for an equal aggregate principal amount of Notes 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]
16
IN
WITNESS WHEREOF,
the
Company has caused this Secured Convertible Note to be duly executed by a duly
authorized officer as of the date set forth above.
|
COMPANY:
TXP
CORPORATION
|
||
| |
|
|
| By: | /s/ Xxxxxxx X. Xxxxxx | |
|
Name: Xxxxxxx
X. Xxxxxx
|
||
|
Title: Chief
Executive Officer
|
||
17
EXHIBIT
A
CONVERSION
NOTICE
(To
be executed by the Holder in order to Convert the Note)
|
TO:
|
The
undersigned hereby irrevocably elects to convert $
of the
principal amount of Note No. TXP-2-1 into Shares of Common Stock of TXP
CORPORATION,
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 Note 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:
|
|||
18
