COMMON STOCK PURCHASE OPTION
 
THE SECURITIES REPRESENTED BY THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.
 
Option To Purchase Common Stock of TXP Corporation
 
Option No.: SHORES 1
Number of Shares:
35,000,000
 
Exercise Price:
$0.01
 
Expiration Date:
May 29, 2013

Date of Issuance: May 29, 2008

Michael C. Shores (the “Grantor”) hereby grants, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, to
YA Global Investments, L.P. (the “Holder”), the registered holder hereof or its
permitted assigns, the option, subject to the terms of this Common Stock
Purchase Option (the “Option”), to purchase from the Grantor upon, at any time
or times on or after the date hereof, but not after 11:59 P.M. Eastern Time on
the Expiration Date (as defined herein) up to 35,000,000 of the Grantor’s shares
(the “Option Shares”) of Common Stock (as defined herein) of TXP Corporation, a
Nevada corporation (the “Company”) at the Exercise Price per share (as defined
herein) or as subsequently adjusted. The Grantor acknowledges that the Holder
has extended financial accommodations to the Company and is making additional
loans to the Company pursuant to the Securities Purchase Agreement entered into
between the Company and the Holder on the date hereof, and the Grantor, as the
majority shareholder of the Company will directly benefit from the extension of
such financial accommodation and acknowledges that without the grant of this
Option, the Holder would not be willing to enter into the Securities Purchase
Agreement. The Grantor acknowledges that this Option is irrevocable.
 
Section 1. Definitions. The following words and terms as used in this Option
shall have the following meanings:
 
(a) “Business Day” means any day other than Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to remain closed.
 
 
 

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(b) “Closing Bid Price” means the closing bid price of Common Stock as quoted on
the Principal Market (as reported by Bloomberg Financial Markets (“Bloomberg”)
through its “Volume at Price” function).
 
(c) “Common Stock” means (i) the Company’s common stock, par value $.001 per
share.
 
(d) “Escrow Agent” shall mean the escrow agent appointed by the Grantor and the
Holder pursuant to the escrow agreement dated May 29, 2008 to hold the shares of
Common Stock underlying this Option for delivery to the Holder upon exercise.
 
(e) “Exercise Price” shall be $0.01 or as subsequently adjusted as provided in
hereof.
 
(f) “Expiration Date” means the date written on the first page of this Option.
 
(g) “Issuance Date” means the date hereof.
 
(h) “Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
 
(i) “Securities Act” means the Securities Act of 1933, as amended.
 
(j) “Securities Purchase Agreement” means the Securities Purchase Agreement
between the Company and the Holder dated May 29, 2008.
 
Section 2. Exercise of Option.
 
(a) Vesting Schedule. The Option to purchase the number of Option Shares set
forth herein shall vest and become exercisable pursuant to the following
schedule:
 
Vesting Date
 
Option Shares Vested
         
The Issuance Date
   
18,261,000
           
The Second Closing Date (as defined in the Securities Purchase Agreement)
   
9,130,000
           
The Third Closing Date (as defined in the Securities Purchase Agreement)
   
7,609,000
 

 
 
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(b) Exercise Procedures. Subject to the terms and conditions hereof, this Option
may be exercised with respected to vested Option Shares by the Holder hereof, at
any time on any Business Day on or after the opening of business on such
Business Day, commencing with the first day after the date hereof, and prior to
11:59 P.M. Eastern Time on the Expiration Date (i) by delivery of a written
notice, in the form of the exercise notice attached as Exhibit A hereto (the
“Exercise Notice”), of such holder’s election to exercise this Option, which
notice shall specify the number of Option Shares to be purchased, and payment to
the Grantor of an amount equal to the Exercise Price applicable to the Option
Shares being purchased, multiplied by the number of Option Shares (at the
applicable Exercise Price) as to which this Option is being exercised (plus any
applicable issue or transfer taxes) (the “Aggregate Exercise Price”) in cash or
wire transfer of immediately available funds (“Cash Basis”) or (ii) if at the
time of exercise, the Option Shares are not subject to an effective registration
statement, by delivering an Exercise Notice and in lieu of making payment of the
Aggregate Exercise Price in cash or wire transfer, elect instead to receive upon
such exercise the “Net Number” of shares of Common Stock determined according to
the following formula (the “Cashless Exercise”):
 
Net Number = (A x B) – (A x C)
                                     B
 
For purposes of the foregoing formula:

A = the total number of Option Shares with respect to which this Option is then
being exercised.

B = the Closing Bid Price of the Common Stock on the date of exercise of the
Option.

C = the Exercise Price then in effect for the applicable Option Shares at the
time of such exercise.

In the event of any exercise of the rights represented by this Option in
compliance with this Section 2, the Holder shall deliver the Exercise Notice to
the Escrow Agent, with a copy to the Grantor, which Exercise Notice shall
represent and warrant that either the Aggregate Exercise Price has been paid to
the Grantor or that such exercise is a Cashless Exercise and the Holder elects
to receive the Net Number of Option Shares, the Escrow Agent shall deliver to
the Holder the Option Shares as set forth in the Exercise Notice. Upon delivery
of the Exercise Notice and either payment of the Aggregate Exercise Price or
election of a Cashless Exercise, the Holder of this Option shall be deemed for
all corporate purposes to have become the holder of record of the Option Shares
with respect to which this Option has been exercised.
 
(c) If the holder and the Grantor are unable to agree upon the determination of
the Exercise Price or arithmetic calculation of the Option Shares within one (1)
day of such disputed determination or arithmetic calculation being submitted to
the holder, then the Grantor shall immediately submit via facsimile (i) the
disputed determination of the Exercise Price or the Closing Bid Price to an
independent, reputable investment banking firm. The Grantor shall cause the
investment banking firm to perform the determinations or calculations and notify
the Grantor and the Holder of the results no later than forty-eight (48) hours
from the time it receives the disputed determinations or calculations. Such
investment banking firm’s determination or calculation, as the case may be,
shall be deemed conclusive absent manifest error.
 
 
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(d) No fractional Option Shares are to be issued upon any pro rata exercise of
this Option, but rather the number of Option Shares issued upon such exercise of
this Option shall be rounded down to the nearest whole number.
 
(e) Beneficial Ownership Limitation. The Holder shall not have the right to
exercise any portion of this Option to the extent that after giving effect to
such exercise, 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. For purposes of this Option, in determining
the number of outstanding shares of Common Stock the Holder may rely on the
number of outstanding shares of Common Stock as reflected in (1) the Company’s
most recent Form 10-Q or Form 10-K, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
 
Section 3. Option Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Option shall be
entitled to vote or receive dividends or be deemed the holder of shares of
capital stock of the Company for any purpose, nor shall anything contained in
this Option be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the exercise by the holder of this Option of Option Shares.
 
Section 4. Subdivision. If, and whenever, prior to the expiration of the Option
or distribution to the Holder of all the Option Shares, the Company shall effect
a subdivision or consolidation of shares of Common Stock or the payment of a
stock dividend on Common Stock without receipt of consideration by the Company,
the number of shares of Common Stock with respect to which this Options may
thereafter be exercised or satisfied, as applicable, (a) in the event of an
increase in the number of outstanding shares, shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (b) in the event of a reduction in the number of outstanding shares, shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased.
 
Section 5.  Recapitalization. If the Company recapitalizes or otherwise changes
it capital structure, thereafter upon any exercise of the Option, the Holder
shall be entitled to receive under such Options, in lieu of the number of shares
of Common Stock then covered by such Options, the number and class of shares of
stock and securities to which the Holder would have been entitled pursuant to
the terms of the recapitalization if, immediately prior to such
recapitalization, the Holder had been the holder of record of the number of
shares of Common Stock then covered by such Options.
 
 
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Section 6. Representations of Holder. The holder of this Option, by the
acceptance hereof, represents that it is acquiring this Option and the Option
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Option or
the Option Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the Holder does not agree to hold this Option or any of the Option Shares for
any minimum or other specific term and reserves the right to dispose of this
Option and the Option Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. The holder of
this Option further represents, by acceptance hereof, that, as of this date,
such holder is an “accredited investor” as such term is defined in
Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act (an “Accredited Investor”).
 
Section 7. Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Option 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 receipt is received by the sending party transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one Business 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 Holder:
YA Global Investments, L.P.
 
101 Hudson Street – Suite 3700
 
Jersey City, NJ 07302
 
Attention: Mark A. Angelo
 
Telephone: (201) 985-8300
 
Facsimile: (201) 985-8266
   
With Copy to:
David Gonzalez, Esq.
 
101 Hudson Street – Suite 3700
 
Jersey City, NJ 07302
 
Telephone: (201) 985-8300
 
Facsimile: (201) 985-8266
   
If to the Grantor, to:
Michael Shores
 
c/o TXP Corporation
 
1299 Commerce Drive
 
Richardson, Texas 75081
 
Attention: Michael Shores
 
Telephone: (214) 575-9300
 
Facsimile: (214) 575-9314
   
With a copy to:
Hodgson Russ LLP
 
1540 Broadway, 24th Floor
 
New York, New York 10036
 
Attention: Eric Pinero, Esq.
 
Telephone: (212) 751-4300
 
Facsimile: (212) 751-0928

 
 
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Each party shall provide five days’ prior written notice to the other party of
any change in address or facsimile number. Written confirmation of receipt
(A) given by the recipient of such notice, consent, facsimile, waiver or other
communication, (or (B) 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 8. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR EACH PARTY HERETO
TO ENTER INTO THIS OPTION, THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS OPTION AND/OR ANY AND
ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS TRANSACTION.
 
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
 
 
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IN WITNESS WHEREOF, the Grantor has caused this Option to be signed as of the
date first set forth above.
 

 
/s/ Michael C. Shores
 
Michael C. Shores

 
 
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EXHIBIT A TO OPTION
 
EXERCISE NOTICE
 
TO BE EXECUTED
BY THE REGISTERED HOLDER TO EXERCISE THIS OPTION
 
TO PURCHASE SHARES OF TXP CORPORATION
 
The undersigned holder hereby exercises the right to purchase ______________ of
the shares of Common Stock (“Option Shares”) of TXP Corporation (the “Company”)
from Michael C. Shores (the “Grantor”), evidenced by the attached Option (the
“Option”). Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Option.
 
Specify Method of exercise by check mark:
 
1. ___ Cash Exercise
 
(a) Payment of Exercise Price. The holder has paid the Aggregate Exercise Price
of $______________ to the Grantor in accordance with the terms of the Option.
 
(b) Delivery of Option Shares. The Grantor shall deliver to the holder _________
Option Shares in accordance with the terms of the Option.
 
2. ___ Cashless Exercise
 
(a) Payment of Exercise Price. In lieu of making payment of the Aggregate
Exercise Price, the holder elects to receive upon such exercise the Net Number
of shares of Common Stock determined in accordance with the terms of the Option.
 
(b) Delivery of Option Shares. The Grantor shall deliver to the holder _________
Option Shares in accordance with the terms of the Option.
 
Date: _______________ __, ______

Name of Registered Holder

By:
 
Name:
 
Title:
 

 
 

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