Document:

exv4w2

 

EXHIBIT 4.2

     THIS NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE SENIOR DEBT
SECURITIES INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITARY (AS DEFINED IN THE INDENTURE) OR A NOMINEE THEREOF. THIS NOTE IS
EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE AND, UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES
IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY.

     UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION, TO THE COMPANY (AS DEFINED
BELOW) OR TO ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

	 	 	 	 	 
	REGISTERED
 
No. 1	 	
UNITEDHEALTH GROUP

INCORPORATED

4.875% Notes due April 1, 2013
	 	$450,000,000

CUSIP

No. 91324P AE 2

     UNITEDHEALTH GROUP INCORPORATED, a Minnesota corporation
(hereinafter called the “Company”, which term includes any successor
corporation under the Indenture referred to below), for value received, hereby
promises to pay to CEDE & CO., or registered assigns, the principal sum of FOUR
HUNDRED FIFTY MILLION DOLLARS ($450,000,000) on April 1, 2013 (the “Stated
Maturity”), and to pay interest thereon from March 25, 2003 or from the most
recent date to which interest has been paid or duly provided for, semi-annually
on April 1 and October 1 in each year (each, an “Interest Payment Date”),
commencing October 1, 2003, and at Maturity, at the rate of 4.875% per annum,
until the principal hereof is paid or duly made available for payment.
Interest on this Note shall be calculated on the basis of a 360-day year
consisting of twelve 30-day months. The interest so payable and punctually
paid or duly provided for on any Interest Payment Date will, as provided in
such Indenture, be paid to the Person in whose name this Note (or one or more
Predecessor Securities) is registered at the close of business on the “Regular
Record Date” for such interest, which shall be the March 15 or September 15
(whether or not a Business Day, as hereinafter defined) next preceding each
such Interest Payment Date. Any such interest which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the registered Holder hereof on the relevant
Regular Record Date by virtue of having been such Holder, and

 

 

 may be paid (i) to the Person in whose
name this Note (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to the
Holder of this Note not less than 10 days prior to such Special Record Date or
(ii) in any other lawful manner not inconsistent with the requirements of any
securities exchange on which this Note may be listed, and upon such notice as
may be required by such exchange, if, after notice given by the Company to the
Trustee of the proposed payment pursuant to this clause (ii), such manner of
payment shall be deemed practicable by the Trustee. In the event that a
payment of principal or interest is due on a date that is not a Business Day
(as defined below), the related payment of principal or interest shall be made
on the next succeeding Business Day with the same force and effect as if made
on the date such payment was due, and no interest shall accrue on the amount so
payable for the period from and after such Interest Payment Date or date of
Maturity, as the case may be. “Business Day” shall mean any day other than a
Saturday, a Sunday or a legal holiday in The City of New York on which banking
institutions are authorized or required by law, regulation or executive order
to close.

     Payment of the principal of and the interest on this Note will be made at
the office or agency of the Company maintained for that purpose in The City of
New York, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts;
provided, however, that, at the option of the Company, interest may be paid by
check mailed to the address of the Person entitled thereto as such address
shall appear in the Security Register. Payment of the principal of and
interest on this Note due at Maturity will be made in immediately available
funds upon presentation of this Note.

     Reference is hereby made to the further provisions of this Note set forth
on the reverse side hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

     Unless the certificate of authentication hereon has been executed by or on
behalf of the Trustee under the Indenture by the manual signature of one of its
authorized signatories, this Note shall not be entitled to any benefits under
the Indenture or be valid or obligatory for any purpose.

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     IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.

Dated: March 25, 2003

	 	 	 	 	 
	 	 	UNITEDHEALTH GROUP
INCORPORATED
	 	 	 	 	 
	 	 	
By:	 	 
	 	 	 	 	

	 	 	 	 	Name: Patrick J. Erlandson
	 	 	 	 	Title: Chief Financial Officer
	 	 	 	 	 
	 	 	
Attest:	 	 
	 	 	 	 	

	 	 	 	 	Name: David J. Lubben
	 	 	 	 	Title: General Counsel and Secretary

	 
	TRUSTEE’S CERTIFICATE OF
          AUTHENTICATION
	 
	This is one of the Securities of the

series designated herein and issued

pursuant to the within-mentioned

Indenture
	 
	Dated: March 25, 2003
	 
	THE BANK OF NEW YORK,

as Trustee
	 
	By:
	

	Authorized Signatory

UnitedHealth Group Incorporated

4.875% Notes due April 1, 2013

-3-

 

[REVERSE SIDE OF NOTE]

     This Note is one of a duly authorized issue of securities of the Company
(herein called the “Notes”) issued and to be issued in one or more series under
a senior debt securities Indenture dated as of November 15, 1998, as amended
by an Amendment to Indenture dated as of November 6, 2000, as further
supplemented by an Officers’ Certificate and Company Order dated March 25, 2003
pursuant to Section 301 of the Indenture (herein called, the “Indenture”)
between the Company and The Bank of New York, as Trustee (herein called the
“Trustee”, which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Trustee and the Holders of the
Notes, and the terms upon which the Notes are, and are to be, authenticated and
delivered. This Note is one of the series designated on the face hereof,
limited in initial aggregate principal amount to $450,000,000; provided,
however, that the Company may, so long as no Event of Default has occurred and
is continuing, without the consent of the Holders of the Notes of this series,
issue additional notes with the same terms as the Notes of this series, and
such additional notes shall be considered part of the same series under the
Indenture as the Notes of this series.

     The Notes will not be entitled to any sinking fund.

Redemption

     The Notes are redeemable, in whole or in part at any time before the
Stated Maturity, at the option of the Company at a Redemption Price equal to
the greater of (i) 100% of the principal amount of the Notes to be redeemed and
(ii) the sum of the present values of the remaining scheduled payments of
principal and interest on the Notes to be redeemed (excluding the portion of
any such interest accrued to the Redemption Date) discounted to the Redemption
Date on a semi-annual basis (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Yield (as defined below), plus 15 basis points,
plus, in each case, accrued and unpaid interest to the Redemption Date. For
this purpose, the following terms have the following meanings:

	 	•	 	“Treasury Yield” means, with respect to any Redemption Date,
the rate per year equal to the semi-annual equivalent yield to
maturity or interpolated (on a day count basis) yield to maturity of
the Comparable Treasury Issue, assuming a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price for such Redemption Date.
	 
	 	•	 	“Comparable Treasury Issue” means the United States Treasury
security selected by an Independent Investment Banker appointed by
the Trustee after consultation with the Company as having an actual
or interpolated maturity comparable to the remaining term of the
Notes that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues
of corporate debt securities of comparable maturity to the remaining
term of the Notes.
	 
	 	•	 	“Comparable Treasury Price” means, with respect to any
Redemption Date, (i) the average of the Reference Treasury Dealer
Quotations for such Redemption Date, after excluding the highest and
lowest such Reference Treasury Dealer Quotations for such Redemption Date, or (ii) if the Trustee obtains fewer than four such
Reference Treasury Dealer Quotations, the average of all such
Reference Treasury Dealer Quotations.

-4-

 

	 	•	 	“Independent Investment Banker” means either Banc of America
Securities LLC or J.P. Morgan Securities Inc. or their respective
successors or, if such firms are unwilling or unable to select the
Comparable Treasury Issue, one of the remaining Reference Treasury
Dealers appointed by the Trustee after consultation with the
Company.
	 
	 	•	 	“Reference Treasury Dealer” means (i) each of Banc of America
Securities LLC or J.P. Morgan Securities Inc. or their affiliates
and any other primary U.S. Government securities dealer in the
United States (a “Primary Treasury Dealer”) designated by, and not
affiliated with, either Banc of America Securities LLC or J.P.
Morgan Securities Inc., provided, however, that if Banc of America
Securities LLC or J.P. Morgan Securities Inc. or any of their
respective affiliates shall cease to be a Primary Treasury Dealer,
the Company will appoint another Primary Treasury Dealer as a
substitute for such entity and (ii) any other Primary Treasury
Dealer selected by the Trustee.
	 
	 	•	 	“Reference Treasury Dealer Quotations” means, with respect to
each Reference Treasury Dealer and any Redemption Date, the average,
as determined by the Trustee, of the bid and asked prices for the
Comparable Treasury Issue (expressed, in each case, as a percentage
of its principal amount) quoted in writing to the Trustee by such
Reference Treasury Dealer at 5:00 p.m. on the third business day
preceding such Redemption Date.

     A notice of redemption may provide that it is subject to certain
conditions that will be specified in the notice. If those conditions are not
met, the redemption notice will be of no effect and the Company will not be
obligated to redeem this Note.

     A partial redemption of the Notes may be effected on a pro rata basis (and
in such manner as complies with applicable legal and stock exchange
requirements, if any) or in such method as the Trustee, in the exercise of its
reasonable discretion, deems fair and appropriate. The Trustee may provide for
the selection for redemption of portions in amounts of $1,000 or whole
multiples of $1,000; except that if all of the Notes of a Holder are to be
redeemed, the entire outstanding amount of Notes held by such Holder, even if
not a multiple of $1,000, shall be redeemed.

     Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of the Notes to be redeemed.

     Unless any Note called for redemption shall not be paid upon surrender
thereof for redemption, on and after the Redemption Date interest will cease to
accrue on the Notes or portions thereof called for redemption.

Miscellaneous Provisions

     If an Event of Default with respect to the Notes shall occur and be
continuing, the principal of the Notes may be declared due and payable in the
manner and with the effect provided in the Indenture.

-5-

 

     The Indenture contains provisions for defeasance at any time of the
Company’s obligations in respect of (i) the entire indebtedness of this Note or
(ii) certain restrictive covenants with respect to this Note, in each case upon
compliance with certain conditions set forth therein.

     The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series issued
under the Indenture at any time by the Company and the Trustee with the consent
of the Holders of not less than a majority in aggregate principal amount of the
Securities of all series at the time Outstanding affected thereby. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities of any series at
the time Outstanding to waive certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note
shall be conclusive and binding upon such Holder and upon all future Holders of
this Note and of any Notes issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof, whether or not notation of such consent
or waiver is made upon this Note.

     No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Note, at the time, place and rate, and in the coin or
currency, herein and in the Indenture prescribed.

     As provided in the Indenture and subject to certain limitations set forth
therein and in this Note, the transfer of this Note is registrable in the
registry books of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for the purpose in
any place where the principal of (and premium, if any) and interest on this
Note are payable, duly endorsed, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Trustee duly executed by
the Holder hereof or by his attorney duly authorized in writing, and thereupon
one or more new Notes, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.

     The Notes of this series are issuable only in fully registered form
without coupons in minimal initial purchase amounts of $1,000 and any amount in
excess thereafter which is an integral multiple of $1,000. As provided in the
Indenture and subject to certain limitations therein set forth, Notes of this
series are exchangeable for a like aggregate principal amount of Notes of this
series and of like tenor of a different authorized denomination, as requested
by the Holder surrendering the same.

     No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith, other than in
certain cases provided in the Indenture.

     Prior to due presentment of this Note for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Note is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.

-6-

 

     This Note shall be governed by and construed in accordance with the laws
of the State of New York.

     All capitalized terms used in this Note which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.

-7-

 

ABBREVIATIONS

     The following abbreviations, when used in this instrument, shall be
construed as though they were written out in full according to applicable laws
or regulations:

            
       TEN COM—as tenants in common
    
              
TEN ENT—as tenants by the entireties
          
        
JT TEN—as joint tenants with right of survivorship
          
            
             
and not as tenants in common
            
       
UNIF
GIFT MIN ACT—                    Custodian                    

               

               
               
               
     (Cust)            
            (Minor)

under Uniform Gift to Minors Act

 

            
            
            
            

(State)

Additional abbreviations may be used though not in the above list.

            
            
            
            
            
            

-8-

 

     FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto

PLEASE INSERT SOCIAL SECURITY OR

OTHER IDENTIFYING NUMBER OF

ASSIGNEE

	 
	

	(Name and address of assignee, including zip code, must be printed or typewritten)
	 
	

	the within Note, and all rights thereunder, hereby irrevocably constituting and appointing
	 
	

	Attorney to transfer said Note on the books of the within Company, with full power of substitution in the premises

	 	 	 	 	 
	Dated	 	 	 	 
	 	 	

	 	

	 	 	 	 	 
	 	 	 	 	

     NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Note in every particular, without
alteration or enlargement or any change whatsoever.

     SIGNATURE GUARANTEE: Signatures must be guaranteed by an “eligible
institution” meeting the requirements of the Security Registrar, which
requirements include membership or participation in the Security Transfer Agent
Medallion Program (“STAMP”) or such other “signature guarantee program” as may
be determined by the Security Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

-9-<PAGE>

                                   Exhibit 4.1

THE SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND, ACCORDINGLY, THE
SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY MAY
NOT BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAWS.

                                     WARRANT

                           to Purchase Common Stock of

                        TERAFORCE TECHNOLOGY CORPORATION

                           Expiring on March 31, 2007

         This Common Stock Purchase Warrant (the "Warrant") certifies that for
value received, SSJ Enterprises LLC(the "Holder") is entitled to subscribe for
and purchase from the Company (as hereinafter defined), in whole or in part,
Four Million Three Hundred Thirty-three Thousand Three Hundred Thirty-Three
(4,333,333) shares of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (as hereinafter defined) at the Exercise
Price (as hereinafter defined), subject, however, to the provisions and upon the
terms and conditions hereinafter set forth. This Warrant and all rights
hereunder shall expire at 5:00 p.m., Dallas, Texas time, on March 31, 2007.

         As used herein, the following terms shall have the meanings set forth
below:

         "Company" shall mean TeraForce Technology Corporation, a Delaware
corporation, and shall also include any successor thereto with respect to the
obligations hereunder, by merger, consolidation or otherwise.

         "Common Stock" shall mean and include the Company's Common Stock, par
value $0.01 per share, authorized on the date of the original issue of this
Warrant.

         "Exercise Price" shall mean $0.15 per share of Common Stock payable
upon exercise of the Warrant, as adjusted pursuant to the provisions hereof.

         "Market Price" for any day, when used with reference to Common Stock,
shall mean the price of said Common Stock determined as follows: (x) the last
reported sale price for the Common Stock on such day on the principal securities
exchange on which the Common Stock is listed or admitted to trading or if no
such sale takes place on such date, the average of the closing bid and asked
prices thereof as officially reported, or, if not so listed or admitted to
trading on any securities exchange, the last sale price for the

                                       1
<PAGE>

Common Stock on the National Association of Securities Dealers National Market
on such date, or, if there shall have been no trading on such date or if the
Common Stock shall not be listed on such system, the average of the closing bid
and asked prices in the over-the-counter market as furnished by any NASD member
firm selected from time to time by the Company for such purpose, in each such
case, unless otherwise provided herein, averaged over a period of ten (10)
consecutive Trading Days prior to the date as of which the determination is to
be made; or (y) if the Common Stock shall not be listed or admitted to trading
as provided in clause (x) above, the fair market value of the Common Stock as
determined in good faith by the Board of Directors of the Company.

         "Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.

         "Securities Act" means the Securities Act of 1933, as amended from time
to time.

         "Trading Days" shall mean any days during the course of which the
principal securities exchange on which the Common Stock is listed or admitted to
trading is open for the exchange of securities.

         "Warrant Shares" shall mean the shares of Common Stock purchased or
purchasable by the Holder hereof upon the exercise of the Warrant.

                                    ARTICLE I

                               EXERCISE OF WARRANT

         1.1 Method of Exercise. The Warrant represented hereby may be exercised
by the Holder hereof, in whole or in part, at any time and from time to time on
or after the date hereof until 5:00 p.m., Dallas, Texas time, on March 31, 2007.
To exercise the Warrant, the Holder hereof shall deliver to the Company (i) a
written notice in the form of the Subscription Notice attached as an exhibit
hereto, stating therein the election of such Holder to exercise the Warrant in
the manner provided in the Subscription Notice; and (ii) payment in full of the
Exercise Price (A) in cash or by bank check for all Warrant Shares purchased
hereunder or (B) if permitted pursuant to Section 1.6 below, by notifying the
Company that this warrant is being exercised pursuant to a Cashless Exercise (as
defined in Section 1.6) or (C) a combination of (A) and (B) above; and (iii)
this Warrant. The Warrant shall be deemed to be exercised on the date of receipt
by the Company of the Subscription Notice, accompanied by payment for the
Warrant Shares and surrender of this Warrant, as aforesaid, and such date is
referred to herein as the "Exercise Date". Upon such exercise, the Company
shall, as promptly as practicable and in any event within ten (10) business
days, issue and deliver to such Holder a certificate or certificates for the
full number of the Warrant Shares purchased by such Holder hereunder, and shall,
unless the Warrant has expired or has been redeemed, deliver to the Holder
hereof a new Warrant representing the portion, if any, that shall not have been
exercised, in all other respects identical to this Warrant. As permitted by
applicable law, the Person in whose name the certificates for Common Stock are
to be issued shall be deemed to have become a holder of record of such Common
Stock on the Exercise Date and shall be entitled to all of the benefits of such
holder on the Exercise Date, including without limitation the right to receive
dividends and other distributions for which the record date falls on or after
the Exercise Date and to exercise voting rights.

         1.2 Reservation of Shares. The Company shall reserve at all times so
long as the Warrant remains outstanding, free from preemptive rights, out of its
treasury Common Stock or its authorized but

                                       2
<PAGE>

unissued shares of Common Stock, or both, solely for the purpose of effecting
the exercise of the Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of the Warrant.

         1.3 Valid Issuance. All shares of Common Stock that may be issued upon
exercise of the Warrants will, upon issuance by the Company, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof.

         1.4 No Fractional Shares. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If any
fraction of a share of Common Stock would be issuable on the exercise of this
Warrant, the Company shall pay an amount in cash calculated by it to be equal to
the Market Price of one share of Common Stock at the time of such exercise
multiplied by such fraction computed to the nearest whole cent.

         1.5 Securities Purchase Agreement; Registration Rights Agreement. This
Warrant is issued in connection with that certain Securities Purchase Agreement
dated March 14, 2003 between the Company and the Holder (the "Reimbursement
Agreement"). Except as otherwise set forth in that certain Registration Rights
Agreement dated as of March 14, 2003 between the Company and the Holder (the
Registration Rights Agreement), the Warrant and the Warrant Shares are not
registered pursuant to the Securities Act and may not be transferred absent an
effective registration statement or an exemption from such registration.

         1.6 Cashless Exercise. If (i) the Company and the Holder mutually
elect; or (ii) the Warrant Shares to be issued are not registered for resale to
the extent required by the Registration Rights Agreement, then, notwithstanding
anything to the contrary, the Holder may exercise, at its election, in its sole
discretion, this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon exercise of this
Warrant, elect instead to receive the Warrant Shares through a cashless or
net-issue exercise of the Warrant (Cashless Exercise). The Holder shall exchange
the Warrant subject to a Cashless Exercise for that number of Warrant Shares
determined by multiplying the number of Warrant Shares issuable hereunder by a
fraction, the numerator of which shall be the difference between (x) the Market
Price and (y) the Exercise Price for each such Warrant Share, and the
denominator of which shall be the Market Price; the Subscription Notice shall
set forth the calculation upon which the Cashless Exercise is based.

                                   ARTICLE II

                                    TRANSFER

         2.1 Ownership of Warrant. The Company may deem and treat the Person in
whose name the Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary unless agreed to in writing by the Company.

         2.2 Restrictions on Transfer of Warrants. The Holder of the Warrant
agrees that the Warrant is not transferrable without the prior written consent
of the Company and any such transfer without such consent shall be void and
without effect, unless such transfer occurs by operation of law. Subject to the
restrictions on transfer of the Warrant in this Section 2.2, the Company, from
time to time, shall register the transfer of the Warrant in such books upon
surrender of this Warrant at the Companys principal office, properly endorsed or
accompanied by appropriate instruments of transfer and written instructions for
transfer satisfactory to the Company. Upon any such transfer and upon payment by
the Holder or its

                                       3
<PAGE>

transferee of any applicable transfer taxes, a new Warrant shall be issued to
the transferee and the transferor (as their respective interests may appear) and
the surrendered Warrant shall be canceled by the Company. The Holder shall pay
all taxes and all other expenses and charges payable in connection with the
transfer of the Warrant pursuant to this Section 2.2.

         2.3 Compliance with Securities Laws. Subject to the terms of the
Registration Rights Agreement and notwithstanding any other provisions contained
in this Warrant, the Holder hereof understands and agrees that the following
restrictions and limitations shall be applicable to all Warrant Shares and to
all resales or other transfers thereof pursuant to the Securities Act, and that
as a condition to the exercise of such warrant that the following are and will
be true and correct:

                  (A) The Holder hereof agrees that the Warrant Shares shall not
         be sold or otherwise transferred unless the Warrant Shares are
         registered under the Securities Act and applicable state securities or
         blue sky laws or are exempt therefrom.

                  (B) A legend in substantially the following form will be
         placed on the certificate(s) evidencing the Warrant Shares:

                           "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
                  NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
                  AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE
                  SECURITIES LAW AND, ACCORDINGLY, THE SECURITIES REPRESENTED BY
                  THIS CERTIFICATE MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE
                  TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
                  STATEMENT UNDER, OR UPON RECEIPT OF AN OPINION OF COUNSEL
                  REASONABLY ACCEPTABLE TO THE COMPANY PURSUANT TO A TRANSACTION
                  EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN
                  ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS."

                   (C) Stop transfer instructions will be imposed with respect
         to the Warrant Shares so as to restrict resale or other transfer
         thereof, subject to this Section 2.3.

                  (D) The Holder is an accredited investor within the meaning of
         Rule 501 of Regulation D as promulgated under the Securities Act, and
         will be so as a condition of purchasing any of the Warrant Shares. The
         Holder will acquire the Warrant, and if exercised, any Warrant Shares
         for its own account for investment purposes and not with a view towards
         distribution. The Holder must bear the economic risk of the investment
         for an indefinite period of time because the Warrant and Warrant Shares
         have not been registered under the Securities Act and therefore cannot
         be sold unless they are subsequently registered under the Securities
         Act or an exemption from such registration is available. The Holder has
         received and carefully reviewed copies of all documents filed by the
         Company with the Securities and Exchange Commission as of the date
         hereof, and will do so before each exercise of the Warrant. No
         representations or warranties have been made to the Holder by the
         Company, the officers or directors of the Company, or any agent,
         employee or affiliate of any of them. The Holder is aware that the
         Warrant and any purchase of the Warrant Shares involves a high degree
         of risk and that it may sustain, and has the financial ability to
         sustain, the loss of its entire investment. The Holder has had the
         opportunity to ask questions of, and receive answers, satisfactory to
         it from the Company's management regarding the Company. The Holder
         understands that no Federal or State governmental authority has made
         any finding or determination relating to the fairness of an investment
         in the Warrant or Warrant

                                       4
<PAGE>

         Shares and that no Federal or State governmental authority has
         recommended or endorsed, or will recommend or endorse, the investment
         herein. The Holder, in making the decision to acquire the Warrant, and
         if it is exercised, the purchase of the Warrant Shares subscribed for,
         has relied upon independent investigations made by it and has not
         relied on any information or representations made by third parties. The
         Holder has significant assets, and upon consummation of the purchase of
         the Warrant Shares, will continue to have significant assets exclusive
         of the Warrant Shares. The Holder understands that the Warrant, and if
         exercised, the Warrant Shares are being offered and sold to it in
         reliance on specific provisions of Federal and State securities laws
         and that the Company is relying upon the truth and accuracy of the
         representations, warranties, agreements, acknowledgments and
         understandings of the Holder set forth herein in order to determine the
         applicability of such provisions. The Holder, in making the decision to
         purchase the Warrant, and if exercised, the Warrant Shares subscribed
         for, has relied upon independent investigations made by it and has not
         relied on any information or representations made by third parties.

                                   ARTICLE III

                                  ANTI-DILUTION

         3.1 Anti-Dilution Provisions. If the outstanding shares of the Companys
Common Stock shall be subdivided into a greater number of shares or a dividend
in Common Stock shall be paid in respect of Common Stock, the Exercise Price in
effect immediately prior to such subdivision or at the record date of such
dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Exercise Price, the number of Warrant Shares purchasable upon the exercise of
this Warrant shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Exercise Price in effect
immediately in effect prior to such adjustment, by (ii) the Exercise Price in
effect immediately after such adjustment.

         3.2 Reorganizations and Asset Sales. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation,
merger or share exchange of the Company with another Person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another Person shall be effected in such a way that a holder of Common Stock of
the Company shall be entitled to receive capital stock, securities or assets
with respect to or in exchange for their shares, then as part of any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, lawful provision shall be made so that the Holder of this Warrant shall have
the right thereafter to receive upon exercise hereof the kind and amount of
shares of stock or other securities or property which such Holder would have
been entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger or sale, as the case may be, such Holder
had held the number of shares of Common Stock which were the purchasable upon
the exercise of this Warrant. In any such case, appropriate adjustment (as
reasonably determined in good faith by the Board of Directors of the Company)
shall be made in the application of the provisions set forth herein with respect
to the rights and interests thereafter of the Holder of this Warrant, such that
the provisions set forth herein (including provisions with respect to adjustment
of the Exercise Price) shall thereafter be applicable, as nearly as is
reasonably practicable, in relation to any shares of stock or other securities
or property thereafter deliverable upon the exercise of this Warrant.

                                       5
<PAGE>

         3.3 Notice of Adjustment. Whenever the Exercise Price or the number of
Warrant Shares issuable upon the exercise of the Warrant shall be adjusted as
herein provided, or the rights of the Holder hereof shall change by reason of
other events specified herein, the Company shall compute the adjusted Exercise
Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare a notice setting forth the adjusted Exercise
Price and the adjusted number of Warrant Shares issuable upon the exercise of
the Warrant or specifying the other shares of stock, securities or assets
receivable as a result of such change in rights, and showing in reasonable
detail the facts and calculations upon which such adjustments or other changes
are based. The Company shall cause to be mailed to the Holder hereof, no later
than 10 days after any such adjustment herein provided, copies of such notice
stating that the Exercise Price and the number of Warrant Shares purchasable
upon exercise of the Warrant have been adjusted and setting forth the adjusted
Exercise Price and the adjusted number of Warrant Shares purchasable upon the
exercise of the Warrant.

                                   ARTICLE IV

                                  MISCELLANEOUS

         4.1 Entire Agreement. This Warrant, together with the Securities
Purchase Agreement and the Registration Rights Agreement, contain the entire
agreement between the Holder hereof and the Company with respect to the Warrant
Shares purchasable upon exercise hereof and the related transactions and
supersedes all prior arrangements or understandings with respect thereto.

         4.2 Governing Law; Venue. This warrant shall be governed by and
construed in accordance with the laws of the State of Texas. Venue for any
dispute arising under this Warrant shall lie in the state or federal courts of
Dallas County, Texas.

         4.3 Waiver and Amendment. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of the Holder hereof and the Company, except that any waiver of any
term or condition, or any amendment or supplementation, of this Warrant shall be
in writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Warrant shall not in any way effect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with every
term or condition of this Warrant.

         4.4 Illegality. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.

         4.5 Copy of Warrant. A copy of this Warrant shall be filed among the
records of the Company.

         4.6 Notice. Any notice or other document required or permitted to be
given or delivered to the Holder or the Company hereof shall be in writing and
will deemed to have been delivered: (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided a confirmation of
transmission is mechanically generated and kept on file by the sending party);
or (iii) one (1) 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: any
notice or other document required or permitted to be given or delivered to the
Company shall be sent to

                                       6
<PAGE>

the offices of the Company at 1240 East Campbell Road, Richardson, Texas 75081,
Attn: Chief Financial Officer, Telecopy No. (469) 330-4972 or such other address
as shall have been furnished in writing by the Company to the Holder of this
Warrant. Any notice sent or required to be sent hereunder to the Holder shall be
sent to the address of the Holder as contained in the corporate records of the
Company or such other address as shall have been furnished in writing by the
Holder to the Company.

         4.7 Limitation of Liability; Not Stockholders. No provision of this
Warrant shall be construed as conferring upon the Holder hereof the right to
vote, consent, receive dividends or receive notices (other than as herein
expressly provided) in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision hereof, in the absence of affirmative action by the Holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
such Holder for the purchase price of any shares of Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.

         4.8 Exchange, Loss, Destruction, etc. of Warrant. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of this Warrant, and in the case of any such loss, theft or
destruction upon delivery of a bond of indemnity or such other security in such
form and amount as shall be reasonably satisfactory to the Company, or in the
event of such mutilation upon surrender and cancellation of this Warrant, the
Company will make and deliver a new Warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions
of this Section 4.8 in lieu of any Warrant alleged to be lost, destroyed or
stolen, or in lieu of any mutilated Warrant, shall constitute an original
contractual obligation on the part of the Company. This Warrant shall be
promptly canceled by the Company upon the surrender hereof in connection with
any exchange or replacement. The Company shall pay all taxes (other than
securities transfer taxes or income taxes) and all other expenses and charges
payable in connection with the preparation, execution and delivery of Warrants
pursuant to this Section 4.8.

         4.9 Registration Rights. The Warrant Shares shall be entitled to such
registration rights under the Securities Act and under applicable state
securities laws as are specified in the Registration Rights Agreement.

         4.10 Headings. The Article and Section and other headings herein are
for convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.

         IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name.

Dated: March 17, 2003

                                  TERAFORCE TECHNOLOGY CORPORATION

                                  By: /s/ Robert P. Capps
                                     ------------------------------------------
                                  Name:  Robert P. Capps
                                  Title: Executive Vice President and Chief
                                         Financial Officer

                                       7

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