Document:

exv4w21

 

Exhibit 4.21

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 April 30, 2006

     This Common Stock Purchase Warrant (the “Warrant”) certifies that for
value received, O. S. Wyatt, Jr. (the “Holder”) is entitled to subscribe for
and purchase from the Company (as hereinafter defined), in whole or in part,
3,250,000 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., Houston, Texas time, on April 30, 2006.
This Warrant is issued in connection with the extension of a letter of credit
provided by the Holder that secures certain indebtedness of the Company.

     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 $0.29 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 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

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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., Houston, Texas time, on April 30,
2006. 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 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.

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     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     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 shall occur 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 Company’s 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 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. 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:

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          (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 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

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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 Company’s
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.

     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.

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ARTICLE IV

MISCELLANEOUS

     4.1     Entire Agreement. This Warrant, together with the Reimbursement
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 the offices of the Company at 1240
East Campbell Road, Richardson, Texas 75081, Attn: Chief Executive 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

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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: February 27, 2004

	 	 	 	 	 
	 	 	TERAFORCE TECHNOLOGY CORPORATION
	 
	 	 	 	 
	

	 	By: /s/
	 	Robert P. Capps
	 	 	

	 
	 	 	 	 
	

	 	Name:
	 	Robert P. Capps
	

	 	Title:
	 	Executive Vice President and Chief Financial
	

	 	 	 	Officer

7exv4w22

 

Exhibit 4.22

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 April 30, 2006

     This Common Stock Purchase Warrant (the “Warrant”) certifies that for
value received, O. S. Wyatt, Jr. (the “Holder”) is entitled to subscribe for
and purchase from the Company (as hereinafter defined), in whole or in part,
3,250,000 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., Houston, Texas time, on April 30, 2006.
This Warrant is issued in connection with the extension of a letter of credit
provided by the Holder that secures certain indebtedness of the Company.

     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 $0.55 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 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

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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., Houston, Texas time, on April 30,
2006. 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 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.

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     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     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 shall occur 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 Company’s 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 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. 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:

3

 

          (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 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

4

 

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 Company’s
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.

     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.

5

 

ARTICLE IV

MISCELLANEOUS

     4.1     Entire Agreement. This Warrant, together with the Reimbursement
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 the offices of the Company at 1240
East Campbell Road, Richardson, Texas 75081, Attn: Chief Executive 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

6

 

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: February 27, 2004

	 	 	 	 	 
	 	 	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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