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                                                                     EXHIBIT 4.2

                          AMENDED AND RESTATED BY-LAWS
                                       OF
                            SCS TRANSPORTATION, INC.

                                   ARTICLE I
                               OFFICES AND RECORDS

                  SECTION 1.01 Delaware Office. The principal office of SCS
Transportation, Inc. (the "Corporation") in the State of Delaware shall be
located in the City of Wilmington, County of New Castle, and the name and
address of its registered agent is The Corporation Trust Company, 1209 Orange
Street, Wilmington, Delaware 19801.

                  SECTION 1.02 Other Offices. The Corporation may have such
other offices, either within or without the State of Delaware, as the board of
directors of the Corporation (the "Board of Directors", and each member thereof,
a "Director") may designate or as the business of the Corporation may from time
to time require.

                  SECTION 1.03 Books and Records. The books and records of the
Corporation may be kept outside the State of Delaware at such place or places as
may from time to time be designated by the Board of Directors.

                                   ARTICLE II
                                  STOCKHOLDERS

                  SECTION 2.01 Annual Meeting. The annual meeting of the
stockholders of the Corporation shall be held on such date and at such time as
may be fixed by resolution of the Board of Directors.

                  SECTION 2.02 Special Meeting. Except as otherwise required by
law and subject to the rights of the holders of any class or series of stock
having a preference over the common stock, par value $0.001 per share, of the
Corporation (the "Common Stock") as to dividends or upon liquidation, special
meetings of stockholders of the Corporation for any purpose or purposes may be
called only by (a) the Board of Directors pursuant to a resolution stating the
purpose or purposes thereof approved by a majority of the total number of
Directors which the Corporation would have if there were no vacancies (the
"Whole Board"), (b) the Chairman of the Board of Directors (the "Chairman of the
Board"), or (c) the Chief Executive Officer of the Corporation (the "Chief
Executive Officer"). Only such business brought before the meeting pursuant to
the Corporation's notice of meeting shall be conducted at a special meeting of
stockholders.

                  SECTION 2.03 Place of Meeting. The Board of Directors, the
Chairman of the Board, or the Chief Executive Officer, as the case may be, may
designate the place, if any, of meeting for any annual meeting or for any
special meeting of the stockholders. If no designation is so made, the place of
meeting shall be the principal office of the Corporation.

                  SECTION 2.04 Notice of Meeting. Notice, stating the place, day
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be delivered by the Corporation not less than ten (10) calendar
days nor more than sixty (60) calendar days before the date on which the meeting
is to be held, either personally, by mail or by other lawful means, to each

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stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail with
postage thereon prepaid, addressed to the stockholder at such person's address
as it appears on the stock transfer books of the Corporation. Such further
notice shall be given as may be required by law. Meetings may be held without
notice if all stockholders entitled to notice are present (except when
stockholders entitled to notice attend the meeting for the express purpose of
objecting, at the beginning of the meeting, because the meeting is not lawfully
called or convened), or if notice is waived by those not present in accordance
with Section 6.04. Any previously scheduled meeting of the stockholders may be
postponed, and any special meeting of the stockholders may be canceled, by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such meeting of stockholders.

                  SECTION 2.05 Quorum and Adjournment; Voting. Except as
otherwise provided by law or by the Certificate of Incorporation, the holders of
a majority of the voting power of all outstanding shares of the Corporation
entitled to vote generally in the election of Directors (the "Voting Stock")
represented in person or by proxy, shall constitute a quorum at a meeting of
stockholders, except that when specified business is to be voted on by a class
or series of stock voting as a class, the holders of a majority of the shares of
such class or series shall constitute a quorum of such class or series for the
transaction of such business. The chairman of the meeting may adjourn the
meeting from time to time, whether or not there is such a quorum. No notice of
the time and place of adjourned meetings need be given except as required by
law. The stockholders present at a duly called meeting at which a quorum is
present may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.

                  SECTION 2.06 Proxies. At all meetings of stockholders, a
stockholder may vote by proxy executed in writing (or in such manner prescribed
by the General Corporation Law of the State of Delaware (the "DGCL")) by the
stockholder, or by such person's duly authorized attorney in fact.

                  SECTION 2.07 Notice of Stockholder Business and Nominations.

                      (a) Annual Meetings of Stockholders.

                          (i) Nominations of persons for election to the Board
                  of Directors and the proposal of business to be considered by
                  the stockholders may be made at an annual meeting of
                  stockholders (A) pursuant to the Corporation's notice of
                  meeting pursuant to Section 2.04, (B) by or at the direction
                  of the Board of Directors, or (C) by any stockholder of the
                  Corporation who was a stockholder of record at the time of
                  giving of notice provided for in this By-Law, who is entitled
                  to vote at the meeting and who complies with the notice
                  procedures set forth in this By-Law.

                          (ii) For nominations or other business to be properly
                  brought before an annual meeting by a stockholder pursuant to
                  clause (C) of paragraph (a)(i) of this Section 2.07, the
                  stockholder must have given timely notice thereof in writing
                  to the Secretary of the Corporation and such other business
                  must otherwise be a proper matter for stockholder action. To
                  be timely, a stockholder's notice must be delivered or mailed
                  to and received at the principal executive offices of the
                  Corporation and such other business must otherwise be
                  delivered or mailed to and received at the principal executive
                  offices of the Corporation not later than the close of
                  business on the 90th calendar day nor earlier than the 120th
                  calendar day prior to the

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                  anniversary date of the first mailing of the Corporation's
                  proxy statement for the immediately preceding year's annual
                  meeting. In no event shall the public announcement of an
                  adjournment of an annual meeting commence a new time period
                  for the giving of a stockholder's notice as described above.
                  Such stockholder's notice shall set forth the following items:

                              (A) as to each person whom the stockholder
                          proposes to nominate for election or reelection as a
                          Director all information relating to such person that
                          is required to be disclosed in solicitations of
                          proxies for election of Directors in an election
                          contest, or is otherwise required, in each case
                          pursuant to Regulation 14A under the Securities
                          Exchange Act of 1934, as amended (the "Exchange Act")
                          and Rule 14a-11 thereunder (including such person's
                          written consent to being named in the proxy statement
                          as a nominee and to serving as a Director if elected);

                              (B) as to any other business that the stockholder
                          proposes to bring before the meeting, a brief
                          description of the business desired to be brought
                          before the meeting, the text of the proposal or
                          business (including the text of any resolutions
                          proposed for consideration and in the event that such
                          business includes a proposal to amend these By-Laws,
                          the language of the proposed amendment), the reasons
                          for conducting such business at the meeting and any
                          material interest in such business of such stockholder
                          and the beneficial owner, if any, on whose behalf the
                          proposal is made; and

                              (C) as to the stockholder giving the notice and
                          the beneficial owner, if any, on whose behalf the
                          nomination or proposal is made (1) the name and
                          address of such stockholder and of such beneficial
                          owner, as they appear on the Corporation's books, (2)
                          the class and number of shares of the Corporation
                          which are owned beneficially and of record by such
                          stockholder and such beneficial owner, (3) a
                          representation that the stockholder is a holder of
                          record of stock of the Corporation entitled to vote at
                          such meeting and intends to appear in person or by
                          proxy at the meeting to propose such business or
                          nomination, and (4) a representation whether the
                          stockholder or the beneficial owner, if any, intends
                          or is part of a group which intends (x) to deliver a
                          proxy statement and/or form of proxy to holders of at
                          least the percentage of the Corporation's outstanding
                          capital stock required to approve or adopt the
                          proposal or elect the nominee and/or (y) otherwise to
                          solicit proxies from stockholders in support of such
                          proposal or nomination.

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                          The foregoing notice requirements shall be deemed
                          satisfied by a stockholder if the stockholder has
                          notified the Corporation of his or her intention to
                          present a proposal at an annual meeting in compliance
                          with Rule 14a-8 (or any successor thereof) promulgated
                          under the Exchange Act and such stockholder's proposal
                          has been included in a proxy statement that has been
                          prepared by the Corporation to solicit proxies for
                          such annual meeting. The Corporation may require any
                          proposed nominee to furnish such other information as
                          it may reasonably require to determine the eligibility
                          of such proposed nominee to serve as a Director.

                              (iii) Notwithstanding anything in the second
                          sentence of paragraph (a)(ii) of this Section 2.07 to
                          the contrary, in the event that the number of
                          Directors to be elected to the Board of Directors is
                          increased and there is no public announcement by the
                          Corporation naming all of the nominees for Director or
                          specifying the size of the increased Board of
                          Directors at least 30 calendar days before the date of
                          the annual meeting, a stockholder's notice required by
                          this By-Law shall also be considered timely (but only
                          with respect to nominees for any new positions created
                          by such increase) if it shall be delivered to the
                          Secretary at the principal executive offices of the
                          Corporation not later than the close of business on
                          the 10th calendar day following the day on which such
                          public announcement is first made by the Corporation.

                      (b) Special Meetings of Stockholders. Only such business
         shall be conducted at a special meeting of stockholders as shall have
         been brought before the meeting pursuant to the Corporation's notice of
         meeting under Section 2.04. Nominations of persons for election to the
         Board of Directors may be made at a special meeting of stockholders at
         which Directors are to be elected pursuant to the Corporation's notice
         of meeting (i) by or at the direction of the Board of Directors, or
         (ii) provided that the Board of Directors has determined that Directors
         shall be elected at such meeting, by any stockholder of the Corporation
         who is a stockholder of record at the time of giving of notice provided
         for in this By-Law, who shall be entitled to vote at the meeting and
         who complies with the notice procedures set forth in this By-Law. In
         the event the Corporation calls a special meeting of stockholders for
         the purpose of electing one or more Directors to the Board of
         Directors, any stockholder may nominate a person or persons (as the
         case may be) for election to such position(s) as specified in the
         Corporation's notice of meeting by complying with the stockholder's
         notice requirement of paragraph (a)(ii) of this Section 2.07 and
         delivering such notice to the Secretary at the principal executive
         offices of the Corporation not earlier than the close of business on
         the 120th calendar day prior to such special meeting and not later than
         the close of business on the later of the 90th calendar day prior to
         such special meeting or the 10th calendar day following the day on
         which public announcement is first made of the date of the special
         meeting and of the nominees proposed by the Board of Directors to be
         elected at such meeting. In no event shall the public announcement of
         an adjournment of a special meeting commence a new time period for the
         giving of a stockholder's notice as described above.

                      (c) General.

                          (i) Only such persons who are nominated in accordance
                  with the procedures set forth in this Section 2.07 shall be
                  eligible to serve as Directors and

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                  only such business shall be conducted at a meeting of
                  stockholders as shall have been brought before the meeting in
                  accordance with the procedures set forth in this By-Law.
                  Except as otherwise provided by law, the Certificate of
                  Incorporation or these By-Laws, the chairman of the meeting
                  shall have the power and duty to determine whether a
                  nomination or any business proposed to be brought before the
                  meeting was made or proposed, as the case may be, in
                  accordance with the procedures set forth in this Section 2.07
                  (including whether the stockholder or beneficial owner, if
                  any, on whose behalf the nomination or proposal is made
                  solicited (or is part of a group which solicited) or did not
                  so solicit, as the case may be, proxies in support of such
                  stockholder's nominee or proposal in compliance with such
                  stockholder's representation as required by clause
                  (a)(ii)(C)(4) of this Section 2.07) and, if any proposed
                  nomination or business is not in compliance with this By-Law,
                  to declare that such defective proposal or nomination shall be
                  disregarded. Notwithstanding the foregoing provisions of this
                  Section 2.07, if the stockholder (or a qualified
                  representative of the stockholder) does not appear at the
                  annual or special meeting of stockholders of the Corporation
                  to present a nomination or business, such nomination shall be
                  disregarded and such proposed business shall not be
                  transacted, notwithstanding that proxies in respect of such
                  vote may have been received by the Corporation.

                          (ii) For purposes of this By-Law, "public
                  announcement" shall mean disclosure in a press release
                  reported by the Dow Jones News Service, Associated Press or
                  comparable national news service or in a document publicly
                  filed by the Corporation with the Securities and Exchange
                  Commission pursuant to Section 13, 14 or 15(d) of the Exchange
                  Act.

                          (iii) Notwithstanding the foregoing provisions of this
                  Section 2.07, a stockholder shall also comply with all
                  applicable requirements of the Exchange Act and the rules and
                  regulations thereunder with respect to the matters set forth
                  in this Section 2.07. Nothing in this Section 2.07 shall be
                  deemed to affect any rights (a) of stockholders to request
                  inclusion of proposals in the Corporation's proxy statement
                  pursuant to Rule 14a-8 under the Exchange Act or (b) of the
                  holders of any series of preferred stock of the Corporation
                  ("Preferred Stock") to elect Directors in accordance with the
                  rights of such Preferred Stock as contained in the Certificate
                  of Incorporation.

                  SECTION 2.08 Procedure for Election of Directors; Required
Vote for Other Matters. Election of Directors at all meetings of the
stockholders at which Directors are to be elected shall be by ballot, and,
subject to the rights of the holders of any series of Preferred Stock to elect
Directors contained in the Certificate of Incorporation, a plurality of the
votes cast thereat shall elect Directors. Except as otherwise provided by law,
the Certificate of Incorporation, applicable stock exchange rules or other rules
and regulations applicable to the Corporation or these By-Laws, in all matters
other than the election of Directors, the affirmative vote of a majority of the
voting power of the shares present in person or represented by proxy at the
meeting and entitled to vote on the matter shall be the act of the stockholders.

                  SECTION 2.09 Inspectors of Elections; Opening and Closing the
Polls.

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                      (a) The Board of Directors by resolution shall appoint, or
         authorize an officer of the Corporation to appoint, one or more
         inspectors, which inspector or inspectors may include individuals who
         serve the Corporation in other capacities, including, without
         limitation, as officers, employees, agents or representatives, to act
         at the meetings of stockholders and make a written report thereof. One
         or more persons may be designated as alternate inspector(s) to replace
         any inspector who fails to act. If no inspector or alternate has been
         appointed to act or is able to act at a meeting of stockholders, the
         chairman of the meeting shall appoint one or more inspectors to act at
         the meeting. Each inspector, before discharging such person's duties
         shall take and sign an oath faithfully to execute the duties of
         inspector with strict impartiality and according to the best of such
         person's ability. The inspector(s) shall have the duties prescribed by
         law.

                      (b) The date and time of the opening and the closing of
         the polls for each matter upon which the stockholders will vote at a
         meeting shall be announced at the meeting by the person presiding over
         the meeting. The Board of Directors may adopt by resolution such rules
         and regulations for the conduct of the meeting of stockholders as it
         shall deem appropriate. Except to the extent inconsistent with such
         rules and regulations as adopted by the Board of Directors, the person
         presiding over any meeting of stockholders shall have the right and
         authority to convene and to adjourn the meeting, to prescribe such
         rules, regulations and procedures and to do all such acts as, in the
         judgment of such presiding officer, are appropriate for the proper
         conduct of the meeting. Such rules, regulations or procedures, whether
         adopted by the Board of Directors or prescribed by the presiding
         officer of the meeting, may include, without limitation, the following:
         (i) an agenda or order of business for the meeting; (ii) rules and
         procedures for maintaining order at the meeting and the safety of those
         present; (iii) limitations on attendance at or participation in the
         meeting to stockholders of record of the Corporation, their duly
         authorized and constituted proxies or such other persons as the
         chairman of the meeting shall determine; (iv) restrictions on entry to
         the meeting after the time fixed for the commencement thereof; and (v)
         limitations on the time allotted to questions or comments by
         participants. The presiding officer at any meeting of stockholders in
         addition to making any other determinations that may be appropriate to
         the conduct of the meeting, shall, if the facts warrant, determine and
         declare to the meeting that a matter or business was not properly
         brought before the meeting and if such presiding officer should so
         determine, such person shall so declare to the meeting that any such
         matter or business not properly brought before the meeting shall not be
         transacted or considered. Unless and to the extent determined by the
         Board of Directors or the person presiding over the meeting, meetings
         of stockholders shall not be required to be held in accordance with the
         rules of parliamentary procedure.

                                  ARTICLE III
                               BOARD OF DIRECTORS

                  SECTION 3.01 General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors. In addition to the powers and authorities by these By-Laws expressly
conferred upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these By-Laws required to be exercised or
done by the stockholders.

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                  SECTION 3.02 Chairman of the Board. The Board of Directors
shall elect a member of the Board of Directors as Chairman of the Board at its
first meeting after every annual meeting of stockholders. The Chairman of the
Board shall hold office until his successor is elected and qualified or until
his earlier resignation, removal from office (as Chairman of the Board or
director) or death except as otherwise required by law. The Chairman of the
Board shall preside at all meetings of the stockholders and of the Board of
Directors. The Chairman of the Board may also serve as an officer of the
Corporation, if so elected by the Board of Directors. The Directors also may
elect a Vice-Chairman to act in the place of the Chairman of the Board upon his
or her absence or inability to act.

                  SECTION 3.03 Regular Meetings. A regular meeting of the Board
of Directors shall be held without other notice than this By- Law in conjunction
with the annual meeting of stockholders. The Board of Directors may, by
resolution, provide the time and place for the holding of additional regular
meetings without other notice than such resolution.

                  SECTION 3.04 Special Meetings. Special meetings of the Board
of Directors shall be called at the request of the Chairman of the Board, the
Chief Executive Officer or a majority of the Board of Directors then in office.
The person or persons authorized to call special meetings of the Board of
Directors may fix the place and time of the meetings.

                  SECTION 3.05 Notice. Notice of any special meeting of
Directors shall be given to each Director at such person's business or residence
in writing by hand delivery, first-class or overnight mail or courier service,
telegram or facsimile transmission, orally by telephone or any other lawful
means. If mailed by first-class mail, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least 5 calendar days before such meeting. If by telegram,
overnight mail or courier service, such notice shall be deemed adequately
delivered when the telegram is delivered to the telegraph company or the notice
is delivered to the overnight mail or courier service company at least 24 hours
before such meeting. If by facsimile transmission, such notice shall be deemed
adequately delivered when the notice is transmitted at least 12 hours before
such meeting. If by telephone, by hand delivery or by other lawful means, the
notice shall be given at least 12 hours prior to the time set for the meeting.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the notice of
such meeting, except for amendments to these By-Laws, as provided under Section
8.01. A meeting may be held at any time without notice if all the Directors are
present (except when Directors attend for the express purpose of objecting, at
the beginning of the meeting, because it is not lawfully called or conveyed) or
if those not present waive notice of the meeting either before or after such
meeting.

                  SECTION 3.06 Action By Consent of Board of Directors. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board of Directors or committee, as the case may be, consent
thereto in accordance with applicable law.

                  SECTION 3.07 Conference Telephone Meetings. Members of the
Board of Directors or any committee thereof may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.

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                  SECTION 3.08 Quorum. Subject to Article VII of the Certificate
of Incorporation, a whole number of Directors equal to at least a majority of
the Whole Board shall constitute a quorum for the transaction of business, but
if at any meeting of the Board of Directors there shall be less than a quorum
present, a majority of the Directors present may adjourn the meeting from time
to time without further notice. The act of the majority of the Directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors.

                  SECTION 3.09 Executive and Other Committees.

                      (a) The Board of Directors may designate an Executive
         Committee to exercise, subject to applicable provisions of law, all the
         powers of the Board of Directors in the management of the business and
         affairs of the Corporation when the Board of Directors is not in
         session, including without limitation the power to declare dividends,
         to authorize the issuance of the Corporation's capital stock and to
         adopt a certificate of ownership and merger pursuant to Section 253 of
         the DGCL, by resolution similarly adopted, designate one or more other
         committees. The Executive Committee and each such other committee shall
         consist of one or more Directors. The Board of Directors may designate
         one or more Directors as alternate members of any committee, who may
         replace any absent or disqualified member at any meeting of the
         committee. Any such committee, other than the Executive Committee (the
         powers of which are expressly provided for herein), may to the extent
         permitted by law exercise such powers and shall have such
         responsibilities as shall be specified in the designating resolution.
         In the absence or disqualification of any member of such committee or
         committees, the member or members thereof present at any meeting and
         not disqualified from voting, whether or not constituting a quorum, may
         unanimously appoint another member of the Board of Directors to act at
         the meeting in the place of any such absent or disqualified member.
         Each committee shall keep written minutes of its proceedings and shall
         report such proceedings to the Board of Directors when required.

                      (b) A majority of any committee may determine its action
         and fix the time and place of its meetings, unless the Board of
         Directors shall otherwise provide. Notice of such meetings shall be
         given to each member of the committee in the manner provided for in
         Section 3.05. The Board of Directors shall have power at any time to
         fill vacancies in, to change the membership of or to dissolve any such
         committee. Nothing herein shall be deemed to prevent the Board of
         Directors from appointing one or more committees consisting in whole or
         in part of persons who are not Directors; provided, however, that no
         such committee shall have or may exercise any authority of the Board of
         Directors.

                  SECTION 3.10 Records. The Board of Directors shall cause to be
kept a record containing the minutes of the proceedings of the meetings of the
Board of Directors and of the stockholders, appropriate stock books and
registers and such books of records and accounts as may be necessary for the
proper conduct of the business of the Corporation.

                  SECTION 3.11 Compensation of Directors. Directors, as such,
may receive, pursuant to resolution of the Board of Directors, fixed fees and
other compensation for their services as directors, including, without
limitation, their services as members of committees of the directors.

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                                   ARTICLE IV
                                    OFFICERS

                  SECTION 4.01 Elected Officers. The elected officers of the
Corporation shall consist of a Chief Executive Officer, a President (who may be,
but need not be, the Chief Executive Officer), a Secretary, and a Chief
Financial Officer. The Board of Directors may elect such additional officers as
it deems necessary, including Vice Presidents and Assistant Secretaries. All
officers elected by the Board of Directors shall each have such powers and
duties as generally pertain to their respective offices, subject to the specific
provisions of this Article IV. Such officers shall also have such powers and
duties as from time to time may be conferred by the Board of Directors or by any
committee thereof. Any number of offices may be held by the same individual,
except that the offices of President and Secretary may not be held by the same
individual.

                  SECTION 4.02 Election and Term of Office. The elected officers
of the Corporation shall be elected annually by the Board of Directors at the
regular meeting of the Board of Directors held in conjunction with the annual
meeting of the stockholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as convenient. Each
officer shall hold office until such person's successor shall have been duly
elected and shall have qualified or until such person's death or until he shall
resign or be removed pursuant to Section 4.08.

                  SECTION 4.03 Chief Executive Officer. The Chief Executive
Officer shall be the senior officer of the Corporation and shall be responsible
for the supervision and control of all of the business and affairs of the
Corporation. In addition, he shall perform all such other duties as are properly
required of him by the Board of Directors. He shall make reports to the Board of
Directors and the stockholders, and shall see that all orders and resolutions of
the Board of Directors and of any committee thereof are carried into effect.

                  SECTION 4.04 President. The President shall act in a general
executive capacity and shall assist the Chief Executive Officer in the
administration and operation of the Corporation's business and general
supervision of its policies and affairs. The President shall act in the place of
the Chief Executive Officer in his absence or in the event of his death,
inability or refusal to act. He shall perform all duties and have all powers
which are delegated him by the Board of Directors or the Chief Executive
Officer. He shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized. In the event of the
absence, death, inability or refusal to act of the President, the officer
designated by the Board of Directors shall perform the duties and exercise the
powers of the President. If the Board of Directors does not elect a Chief
Executive Officer, the President shall also perform the duties and exercise the
powers of the Chief Executive Officer.

                  SECTION 4.05 Vice Presidents. Each Senior Vice President,
Executive Vice President and any Vice President shall have such powers and shall
perform such duties as from time to time may be assigned by the Board of
Directors, the Chief Executive Officer or the President.

                  SECTION 4.06 Chief Financial Officer. The Chief Financial
Officer shall exercise general supervision over the receipt, custody and
disbursement of corporate funds. The Chief Financial Officer shall cause the
funds of the Corporation to be deposited in such banks as may be authorized by
the Board of Directors, or in such banks as may be designated as depositories in
the manner provided by resolution of the Board of Directors. In general, the
Chief Financial Officer shall perform the duties incident to the office of Chief
Financial Officer

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and such further duties as from time to time may be assigned by the Board of
Directors, the Chief Executive Officer or the President.

                  SECTION 4.07 Secretary. The Secretary shall keep or cause to
be kept in one or more books provided for that purpose, the minutes of all
meetings of the Board of Directors, the committees of the Board of Directors and
the stockholders. The Secretary shall see that the books, reports, statements,
certificates and other documents and records required by law to be kept and
filed are properly kept and filed. The Secretary shall see that all notices are
duly given in accordance with the provisions of these By-Laws and as required by
law and shall be custodian of the records and the seal of the Corporation. In
general, the Secretary shall perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned by the
Board of Directors, the Chief Executive Officer or the President.

                  SECTION 4.08 Removal. Any officer elected, or agent appointed,
by the Board of Directors may be removed by the affirmative vote of a majority
of the Board of Directors whenever, in their judgment, the best interests of the
Corporation would be served thereby. Any officer or agent appointed by the Chief
Executive Officer or the President may be removed by him or her whenever, in
such person's judgment, the best interests of the Corporation would be served
thereby. No elected officer shall have any contractual rights against the
Corporation for compensation by virtue of such election beyond the date of the
election of such person's successor, such person's death, such person's
resignation or such person's removal, whichever event shall first occur, except
as otherwise provided in an employment contract or under an employee benefit
plan.

                  SECTION 4.09 Vacancies. A newly created elected office and a
vacancy in any elected office because of death, resignation, or removal may be
filled by the Board of Directors for the unexpired portion of the term at any
meeting of the Board of Directors. Any vacancy in an office appointed by the
Chief Executive Officer or the President because of death, resignation, or
removal may be filled by the Chief Executive Officer or the President.

                                   ARTICLE V
                        STOCK CERTIFICATES AND TRANSFERS

                  SECTION 5.01 Stock Certificates. The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares of
stock in such form as the Corporation may from time to time prescribe. The
certificates of stock shall be signed, countersigned and registered in such
manner as the Board of Directors may by resolution prescribe or as may otherwise
be permitted by applicable law, which resolution may permit all or any of the
signatures on such certificates to be in facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate has ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent or registrar at
the date of issue. Notwithstanding the foregoing provisions regarding share
certificates, the Corporation may provide that, subject to the rights of
stockholders under applicable law, some or all of any or all classes or series
of the Corporation's common or any preferred shares may be uncertificated
shares.

                  SECTION 5.02 Transfers of Stock. The shares of the stock of
the Corporation shall be transferred on the books of the Corporation by the
holder thereof in person

                                       10
<PAGE>

or by such person's attorney, upon surrender for cancellation of certificates
for at least the same number of shares, with an assignment and power of transfer
endorsed thereon or attached thereto, duly executed, with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require.

                  SECTION 5.03 Registered Shareholders. The Corporation shall be
entitled to treat the holder of record of any share or shares as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by law.

                  SECTION 5.04 Fixing of Record Date. The Board of Directors may
fix in advance a date, not exceeding sixty (60) days preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of shares shall go into effect, as a record date for the determination
of the stockholders entitled to notice of, and to vote at any such meeting and
any adjournment thereof, or entitled to receive payment of any such dividend, or
to any such allotment of rights, or entitled to exercise the rights in respect
of any such change, conversion or exchange of shares. In such case only the
stockholders who are stockholders of record on the record date so fixed shall be
entitled to such notice of and to vote at such meeting and any adjournment
thereof, or to receive payment of such dividend, or to receive such allotment of
rights, or to exercise such rights as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the date of closing
of the transfer books or the record date fixed as aforesaid.

                  SECTION 5.05 Lost, Stolen or Destroyed Certificates. No
certificate for shares of stock in the Corporation shall be issued in place of
any certificate alleged to have been lost, destroyed or stolen, except on
production of such evidence of such loss, destruction or theft and on delivery
to the Corporation of a bond of indemnity in such amount, upon such terms and
secured by such surety, as the Board of Directors or any financial officer may
in its or such person's discretion require.

                                   ARTICLE VI
                            MISCELLANEOUS PROVISIONS

                  SECTION 6.01 Fiscal Year. The fiscal year of the Corporation
shall begin on the first day of January and end on the last day of December of
each year.

                  SECTION 6.02 Dividends. The Board of Directors may from time
to time declare, and the Corporation may pay, dividends on its outstanding
shares in the manner and upon the terms and conditions provided by law and the
Certificate of Incorporation.

                  SECTION 6.03 Seal. The corporate seal shall have inscribed
thereon the words "Corporate Seal," the year of incorporation and the word
"Delaware."

                  SECTION 6.04 Waiver of Notice. Whenever any notice is required
to be given to any stockholder or Director under the provisions of the DGCL or
these By-Laws, a waiver thereof given in accordance with applicable law shall be
deemed equivalent to the giving of such

                                       11
<PAGE>

notice. Neither the business to be transacted at, nor the purpose of, any annual
or special meeting of the stockholders or the Board of Directors or committee
thereof need be specified in any waiver of notice of such meeting.

                  SECTION 6.05 Audits. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors, and
it shall be the duty of the Board of Directors to cause such audit to be done
annually.

                  SECTION 6.06 Resignations. Any Director or any officer,
whether elected or appointed, may resign at any time by giving written notice of
such resignation to the Chairman of the Board, the Chief Executive Officer, the
President or the Secretary, and such resignation shall be deemed to be effective
as of the close of business on the date said notice is received by the Chairman
of the Board, the Chief Executive Officer, the President, or the Secretary, or
at such later time as is specified therein. No formal action shall be required
of the Board of Directors or the stockholders to make any such resignation
effective.

                                  ARTICLE VII
                            CONTRACTS, PROXIES, ETC.

                  SECTION 7.01 Contracts. Except as otherwise required by law,
the Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on the behalf of the
Corporation by such officer or officers of the Corporation as the Board of
Directors may from time to time direct. Such authority may be general or
confined to specific instances as the Board of Directors may determine. The
Chief Executive Officer, the President or any Vice President may execute bonds,
contracts, deeds, leases and other instruments to be made or executed or for or
on behalf of the Corporation. Subject to any restrictions imposed by the Board
of Directors, either the Chief Executive Officer, the President or any Vice
President of the Corporation may delegate contractual powers to others under
such person's jurisdiction, it being understood, however, that any such
delegation of power shall not relieve such officer of responsibility with
respect to the exercise of such delegated power.

                  SECTION 7.02 Proxies. Unless otherwise provided by resolution
adopted by the Board of Directors, the Chief Executive Officer, the President or
any Vice President may from time to time appoint an attorney or attorneys or
agent or agents of the Corporation, in the name and on behalf of the
Corporation, to cast the votes which the Corporation may be entitled to cast as
the holders of stock or other securities in any other entity, any of whose stock
or other securities may be held by the Corporation, at meetings of the holders
of the stock or other securities of such other entity, or to consent in
accordance with applicable law, in the name of the Corporation as such holder,
to any action by such other entity, and may instruct the person or persons so
appointed as to the manner of casting such votes or giving such consent, and may
execute or cause to be executed in the name and on behalf of the Corporation and
under its corporate seal or otherwise, all such proxies or other instruments as
he may deem necessary or proper in the premises.

                                  ARTICLE VIII
                                   AMENDMENTS

                  SECTION 8.01 Amendments. The By-Laws may be altered or
repealed and new By-Laws may be adopted (a) at any annual or special meeting of
stockholders by the affirmative

                                       12
<PAGE>

vote of the holders of a majority of the voting power of the Voting Stock,
voting as a single class; provided, however, that any proposed alteration or
repeal of, or the adoption of any By-Law inconsistent with, Section 2.02,
Section 2.07, or Section 8.01 of these By-Laws by the stockholders shall require
the affirmative vote of the holders of at least two-thirds of the voting power
of all Voting Stock then outstanding, voting together as a single class, and
provided, further, however, that, in the case of any such stockholder action at
a special meeting of stockholders, notice of the proposed alteration, repeal or
adoption of the new By-Law or By-Laws must be contained in the notice of such
special meeting, or (b) by the affirmative vote of a majority of the Whole
Board.

                                       13
<PAGE>

                  I HEREBY CERTIFY that the foregoing is a full, true, and
correct copy of the By-Laws of SCS Transportation, Inc., a Delaware corporation,
as in effect on the date hereof.

Dated:  ___________, 2002

__________________________________
Name: ____________________________
Title: ___________________________

                                       14<PAGE>

                                                                    EXHIBIT 4.1

 SECURITIES PURCHASE AGREEMENT DATED SEPTEMBER 30, 2002 BETWEEN THE COMPANY AND
                        MORTON A. COHN AND FAYEZ SAROFIM

                          SECURITIES PURCHASE AGREEMENT

         This Securities Purchase Agreement (the "Agreement") is made as of
September 30, 2002, by and among TeraForce Technology Corporation, a Delaware
corporation (the "Company"), Morton A. Cohn, an individual resident in Houston,
Texas, and Fayez Sarofim, an individual resident in Houston, Texas
(collectively, the "Investors").

                                    RECITALS

         WHEREAS, the Investors desire to acquire, severally and not jointly,
upon the terms and conditions stated in this Agreement, an aggregate of
16,666,668 shares of the Company's Common Stock, par value $0.01 per share, (the
"Common Stock"), in exchange for $2,000,000 cash; and

         WHEREAS, the Investors and the Company have agreed that the proceeds
received by the Company will be used to repay amounts outstanding under that
Business Loan Agreement between the Company and Bank One, N.A. dated June 1,
2001, as amended (the "Bank Facility"); and

         WHEREAS, upon repayment of such amounts, letters of credit aggregating
$2,000,000 that have been provided by the Investors as collateral for such loan
agreement for the benefit of the Company will be released by the Bank; and

         WHEREAS, the Company believes it is in the best interests of the
Company and the Stockholders to consummate the contemplated transaction; and

         WHEREAS, the Company and the Investors are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D ("Regulation D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act");

         NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, the Company and the Investors hereby agree to the terms and
conditions hereinafter set forth, as follows:

                                    AGREEMENT

                                    ARTICLE 1
                                  DEFINED TERMS

         As used herein, the following terms shall have the following meanings:

         (a) "1933 Act" shall have the meaning set forth in the Recitals to this
Agreement.

         (b) "1934 Act" shall have the meaning set forth in Article 3.5 of this
Agreement.

<PAGE>

         (c) "AAA" shall have the meaning set forth in Article 8.4 of this
Agreement.

         (d) " Aggregate Cash" shall have the meaning set forth in Article 2.1
of this Agreement.

         (e) "Agreement" shall have the meaning set forth in the introduction to
this Agreement.

         (f) "Bank" shall mean Bank One, N.A.

         (g) "Bank Facility" shall have the meaning set forth in the Recitals to
this Agreement.

         (h) "Business" shall mean the business currently conducted by the
Company and its subsidiaries involving the design, development, production and
sale of computing products, optical networking equipment and other technology
related products, including providing related services.

         (i) "Business Day" shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of Texas generally are authorized or required by law or other government
actions to close.

         (j) "Common Stock" shall mean the Company's common stock, par value
$0.01 per share.

         (k) "Company" shall have the meaning set forth in the introduction to
this Agreement.

         (l) "GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.

         (m) "Investors" shall have the meaning set forth in the introduction
to this Agreement.

         (n) "New Warrants" shall have the meaning set forth in Article 2.2 of
this Agreement

         (o) "Person" or "Persons" shall mean any individual, corporation,
limited liability company, voluntary association, partnership, joint venture,
trust, unincorporated organization or government or any agency, instrumentality
or political subdivision thereof, or any other form of entity.

         (p) "Registration Rights Agreement" shall mean the Registration Rights
Agreement executed an even date herewith, by and among the Company and the
Investors.

         (q) "Regulation D" shall have the meaning set forth in the Recitals to
this Agreement.

         (r) "SEC" shall mean the Securities and Exchange Commission or any
successor governmental authority.

         (s) "SEC Documents" shall have the meaning set forth in Article 3.5 of
this Agreement.

         (t) "Shares" shall have the meaning set forth in Article 2.1 of this
Agreement.

         (u) "Stockholders" shall mean the stockholders of the Common Stock of
the Company as of the date hereof.

                                      -2-
<PAGE>

                                    ARTICLE 2
                         PURCHASE AND SALE OF THE SHARES

         2.1 Issuance of Shares. Upon the terms and subject to the conditions
contained herein, and on the basis of the representations, warranties, covenants
and agreements set forth herein, the Company agrees to issue to the Investors,
and the Investors agree to acquire, severally and not jointly, in the amount set
forth opposite each Investor's name on Exhibit A attached hereto, from the
Company an aggregate of 16,666,668 shares of Common Stock (the "Shares") in
exchange for an aggregate of $2,000,000 cash (the "Aggregate Cash").

         2.2 Issuance of Warrants. As additional consideration for the Aggregate
Cash the Company will issue to the Investors warrants for the purchase of an
aggregate of 400,000 shares of Common Stock (the "New Warrants") in the amount
set forth opposite each Investor's name on Schedule A attached hereto. The New
Warrants will have an exercise price of $0.12 per share, will be exercisable
until September 30, 2005 and will be in substantially the form as in Exhibit B
attached hereto.

         2.3 Re-pricing of Warrants. The Investors currently hold warrants for
the purchase of an aggregate of 780,000 shares of Common Stock, as indicated on
Exhibit A, with an exercise price of $0.75 per share (the "Existing Warrants").
As additional consideration for the Aggregate Cash, the Company will amend these
warrants to reflect an exercise price of $0.12 per share.

                                    ARTICLE 3
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         The Company represents and warrants to the Investors, as of the date
hereof, as follows:

         3.1 Authorization. The execution, delivery and performance by the
Company of this Agreement and the Registration Rights Agreement, and the
consummation by the Company of the transaction contemplated hereby and thereby,
have been duly authorized by all necessary corporate action. This Agreement and
the Registration Rights Agreement have been duly executed and delivered by the
Company and constitute valid and binding obligations of the Company enforceable
in accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies, and (iii) to the extent that the
indemnification provisions and the choice of law provisions contained in this
Agreement and the Registration Rights Agreement may be limited by applicable
laws or deemed against public policy. The execution, delivery and performance of
the transactions contemplated by this Agreement and the Registration Rights
Agreement and compliance with their provisions by the Company will not violate
any provision of law and will not conflict with or result in any breach of any
of the terms, conditions or provisions of, or constitute a default under, or
require a consent or waiver under, (x) the Company's Amended and Restated
Certificate of Incorporation or Restated Bylaws (each as amended to date) or (y)
any indenture, lease, agreement or other instrument to which the Company is a
party or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company which conflict or
breach would result in a material adverse effect.

         3.2 Organization and Qualification. The Company is a corporation
organized under the laws of the State of Delaware, has power and authority to
own its properties and assets and to carry on its business as it is now being
conducted, and is duly qualified to do business and is in good standing in each

                                      -3-
<PAGE>

jurisdiction in which its ownership of property or the conduct of its business
requires such qualification, except for jurisdictions in which such failure to
be so qualified or to be in good standing would not have a material adverse
effect.

         3.3. Issuance by the Company. Consummation of the transactions
contemplated hereby will transfer to the Investors good, valid and marketable
title to the Shares, free and clear of any liens, claims or encumbrances, except
as set forth in the Registration Rights Agreement, to the extent applicable, or
in any legend which appears on any certificate representing any of the Shares.

         3.4 Issuance of Shares. The issuance and delivery of the Shares have
been at or prior to the date hereof, duly authorized by all necessary corporate
action on the part of the Company. No person has any right of first refusal or
any preemptive rights in connection with the issuance and sale of the Shares.
The Shares will be duly and validly issued, fully paid and non-assessable, with
no personal liability attaching ownership thereof, will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company and will be free of restrictions on transfer other than restrictions on
transfer under this Agreement, the Registration Rights Agreement and under
applicable state and federal securities laws.

         3.5 SEC Documents; Financial Statements. Since December 31, 2001, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Documents as
required. As of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with GAAP, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its subsidiaries as of the dates thereof and the results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end immaterial audit adjustments).

                                    ARTICLE 4
                   REPRESENTATIONS AND WARRANTIES OF INVESTORS

         The Investors represent and warrant to the Company as of the date
hereof as follows:

         4.1 Organization. Investors have all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby.

                                      -4-
<PAGE>

         4.2 Authority. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby by the Investors have been
duly and validly authorized by all requisite action on the part of the
Investors. This Agreement has been duly executed and delivered by Investors and
constitutes the valid and binding obligations of Investors, enforceable against
the Investors in accordance with its terms except as the same may be limited by
equitable principles and by bankruptcy, insolvency, moratorium, and other laws
of general application affecting the enforcement of creditors' rights.

         4.3 Investment Representations. The Investors are acquiring the Shares
for investment purposes only and not with a view to the resale or distribution
of all or any part thereof. The Investors acknowledge that the Shares have not
been registered under the 1933 Act, or the securities or "blue sky" laws of any
state or other domestic or foreign jurisdiction, and that none of such
securities may be sold, transferred or otherwise disposed of except pursuant to
an effective registration statement thereunder or an applicable exemption
therefrom.

         4.4 Accredited Investor. Each Investor (a) has such knowledge and
experience in financial and business matters that such Investor is capable of
evaluating the merits and risks of his or her investment in the Shares and has
the financial ability to assume the monetary risk associated therewith; (b) is
able to bear the complete loss of his or her investment in the Shares; (c) has
received such documents and information from the Company as such Investor has
requested and has had the opportunity to ask questions of, and receive answers
from, the Company and the terms and conditions of the offering of the Shares and
to obtain additional information; (d) is an "accredited investor" as defined in
Rule 501(a) of Regulation D promulgated under the 1933 Act; and (e) is not
relying upon any statements or instruments made or issued by any person other
than the Company in making a decision to invest in the Shares.

                                    ARTICLE 5
                            COVENANTS OF THE COMPANY

         5.1 Release of Letters of Credit. Concurrent with the closing of this
transaction, the Company will re-pay amounts outstanding under the Bank Facility
such that the Bank will release letters of credit aggregating $2,000,000
provided by the Investors as collateral for the Bank Facility. The Bank shall
furnish to Investors prior to closing of this transaction evidence satisfactory
to Investors that the Bank shall so release such letters of credit.

         5.2 Registration Rights Agreement. Upon the closing of this
transaction, the Company will enter into a Registration Rights Agreement with
the Investors in substantially the form of Exhibit C. Such Registration Rights
Agreement will provide that the Company will file a shelf registration covering
the resale of the Shares, the shares of Common Stock to be issued upon the
exercise of the New Warrants and the shares of Common Stock to be issued upon
the exercise of the Existing Warrants.

                                      -5-
<PAGE>

                                    ARTICLE 6
                             COVENANTS OF INVESTORS

         The Investor will vote all shares of Common Stock he then holds in
favor of a reverse split of the Common Stock, provided such reverse split is put
to a vote of the Stockholders within twelve months of the date of this Agreement
and the reverse split is proposed with (and including) a range from 1:6 and
1:12.

                                    ARTICLE 7
                                     CLOSING

         7.1 Closing, Delivery. Closing of this transaction will occur within
three business days of the satisfaction of any conditions to Closing, but not
later than October 4, 2002. The Closing will take place at the Company's offices
in Richardson, Texas, or such other location as the Company and each of the
Investors shall mutually agree. Upon the closing, the Investors will transfer an
aggregate of $2,000,000 to the following account:

                  BankOne, NA,
                  Attn:  Loan Servicing Account #1065151010
                  ABA #111000614
                  Re:  Principal payment on loan #0961515929-42 in the name of
                  TeraforceTechnology Corporation

Upon the Closing, the Company will deliver to the Investors the Shares, the New
Warrants, the amended Existing Warrants and the Registration Rights Agreement.
Among other thing, the closing of this transaction is conditioned on the Bank's
furnishing the evidence referred to in Article 5.1 of this Agreement and the
Bank's not having revoked or otherwise changed the effect of such evidence.

                                    ARTICLE 8
                                  MISCELLANEOUS

         8.1 Severability. Whenever possible, each provision of this Agreement
shall be interpreted so as to be effective and valid under applicable law. If
any provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this Agreement.

         8.2 Headings. The descriptive headings of this Agreement are inserted
for convenience of reference only and do not constitute a part of and shall not
affect the interpretation of this Agreement.

         8.3 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed to have been sufficiently
given (a) if sent by facsimile transmission, upon telephonic confirmation of
receipt, (b) if sent by registered or certified mail, upon the sooner of the
expiration of five (5) days after deposit in the post office facilities properly
addressed with postage prepaid or acknowledgement of receipt, (c) if personally
delivered, when delivered to the party to whom notice is sent, or (d) if
delivered by a recognized overnight courier, upon receipt evidencing proof of
delivery, addressed to the appropriate party or parties, at the address of such
party set forth below, (or at such other address as such party may designate by
written notice furnished to all other parties in accordance herewith):

                                      -6-
<PAGE>

         (a) if to the Investors:

                  c/o Mrs. Raye G. White
                  Fayez Sarofim & Co.
                  Two Houston Center, Suite 2907
                  Houston, TX  77010
                  Telecopier:  (713) 654-4015

                           AND

                  Mr. Morton A. Cohn
                  800 Bering, Suite 210
                  Houston, TX 77010
                  Telecopier:  (713) 978-6196

         (b) if to the Company:

                  TeraForce Technology Corporation
                  1240 E. Campbell Road
                  Richardson, TX  75081
                  Telecopier: (469) 330-4972
                  Attn: Mr. Robert P. Capps

         8.4 Dispute Resolution. All disputes and claims arising out of or
relating to this Agreement that are not resolved pursuant to an agreement of the
parties shall be arbitrated in accordance with the Commercial Arbitration Rules
of the American Arbitration Association ("AAA"), and judgment upon any
arbitration award shall be binding and may be entered in any court or other
tribunal having jurisdiction thereof, the parties hereby consenting to the
jurisdiction of such courts for this purpose. If the Company and each of the
Investors cannot agree upon an arbitrator, one shall be appointed by the AAA who
shall be neutral and experienced in the subject matter of the dispute. The
arbitrator's award shall be binding and in writing. All arbitration proceedings
shall be conducted in Dallas County, Texas.

         8.5 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the State of Texas, without
regard to the conflict of laws provisions thereof.

         8.6 Entire Agreement. This Agreement constitutes the entire agreement
of the Company and the Investors concerning the transactions contemplated
hereby, and supersede all prior agreements and understandings, written or oral,
regarding the subject matter hereof.

         8.7 Expenses. Except as otherwise provided in this Agreement, the
Company and each of the Investors shall bear their own respective expenses and
legal fees in connection with the consummation of this transaction.

         8.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. This Agreement shall become effective, as of
the date specified in the opening paragraph, upon the execution by of the
Company and the Investors of at least one counterpart hereof, and it shall not
be necessary that any single

                                      -7-
<PAGE>

counterpart bear the signatures of all parties. Execution and delivery of this
Agreement by delivery of a facsimile copy bearing the facsimile signature of a
party shall constitute a valid and binding execution and delivery of this
Agreement by such party. Such facsimile copies shall constitute enforceable
original documents.

         8.9 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH ANY STATE REGULATORY
AUTHORITY HAVING JURISDICTION THEREOF AND THE ISSUANCE OF SUCH SECURITIES OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION OR IN THE ABSENCE OF EXEMPTION FROM SUCH QUALIFICATION IS
UNLAWFUL. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION
BEING AVAILABLE.

                                      -8-
<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

                                    TERAFORCE TECHNOLOGY CORPORATION

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

                                    INVESTORS:

                                    /S/ Morton A. Cohn
                                    -------------------------------------------
                                    Name: Morton A. Cohn

                                    /S/ Fayez Sarofim
                                    -------------------------------------------
                                    Name: Fayez Sarofim

                                      -9-

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