EXHIBIT 4.1
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "Agreement"), dated as of April 11, 2002,
is entered into by and between TeraForce Technology Corporation, a Delaware
corporation (the "Corporation"), with its principal office at 1240 E. Campbell
Road, Richardson, TX 75081, and St. James Capital Partners, L.P. ("St. James"),
a Delaware limited partnership and SJMB, L.P. ("SJMB"), a Delaware limited
partnership (St. James and SJMB collectively, the "Stockholder").
RECITALS
WHEREAS, St. James holds Warrant No. R-1 dated November 30, 2000 for
the purchase of 860,500 shares ("Warrant No. R-1"), and
WHEREAS, St. James holds Warrant No. R-2 dated November 30, 2000 for
the purchase of 2,119 shares ("Warrant No. R-2"), and
WHEREAS, SJMB holds Warrant No. R-3 dated November 30, 2000 for the
purchase of 3,427,001 shares ("Warrant No. R-3"), and
WHEREAS, SJMB holds Warrant No. R-4 dated November 30, 2000 for the
purchase of 10,380 shares ("Warrant No. R-4"), and
WHEREAS, St. James holds Warrant No. R-5 dated November 30, 2000 for
the purchase of 1,280,000 shares ("Warrant No. R-5"), and
WHEREAS, SJMB holds Warrant No. R-6 dated November 30, 2000 for the
purchase of 6,320,000 shares ("Warrant No. R-6"), and
WHEREAS, St. James holds Warrant No. R-7 dated November 30, 2000 for
the purchase of 1,335,991 shares ("Warrant No. R-7"), and
WHEREAS, SJMB holds Warrant No. R-8 dated November 30, 2000 for the
purchase of 6,264,009 shares ("Warrant No. R-8", collectively with Warrant No.
R-1, Warrant No. R-2, Warrant No. R-3, Warrant No. R-4, Warrant No. R-5, Warrant
No. R-6 and Warrant No. R-7, the "Warrants"), and
WHEREAS, the Stockholder and the Corporation desire to exchange (the
"Exchange") the Warrants for 1,000,000 shares of common stock of the
Corporation, par value $.01 per share (the "Common Stock") plus the Additional
Consideration, and
WHEREAS, Stockholder and the Corporation desire to treat the exchange
of the Warrants for the Common Stock as a tax-free recapitalization under
Section 368(a) of the Internal Revenue Code of 1986, as amended, and
WHEREAS, the Corporation has advised the Stockholder that it believes
that it is in the best interests of the Corporation, the Stockholder and the
other stockholders of the Corporation generally to reorganize the Corporation's
capital structure, and
WHEREAS, in order to facilitate the intended recapitalization of the
Corporation, as described in the preceding paragraph, the Stockholder is willing
to exchange all of the Warrants for 1,000,000 shares of Common Stock and the
Additional Consideration according to the terms of this Agreement, and
WHEREAS, the Corporation and the Stockholder have agreed to execute a
Registration Rights Agreement contemporaneous with this Agreement (the
"Registration Rights Agreement"), attached hereto as Exhibit A.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and in the Agreement, and other good and valuable
consideration, the adequacy of which is hereby acknowledged, the parties agree
as follows:
Section 1. Authorization. The Corporation has authorized the issuance
of 1,000,000 shares of Common Stock.
Section 2. Exchange.
2.1 At the Closing as defined in Section 3, the Stockholder agrees to
deliver to the Corporation, for cancellation and termination, the Warrants in
exchange for 1,000,000 shares of the Corporation's Common Stock (the "Final
Settlement Shares") and the Additional Consideration, if any.
2.2 Should the closing price of the Corporation's Common Stock be more
than $0.75 per share for ten (10) consecutive trading days prior to October 14,
2002, the Corporation shall issue 3,000,000 additional shares of Common Stock
(the "Additional Consideration") to the Stockholder. The Common Stock received
pursuant to this Section 2.2 shall have the same registration rights as the
Final Settlement Shares.
Section 3. Closing. The closing of the exchange set forth in Section 2
of this Agreement shall be held at the offices of Haynes and Boone, LLP, 1600 N.
Collins, Suite 2000, Richardson, Texas, at 1:00 p.m., local time, on April 30,
2002, or at such other time and place upon which the Corporation and the
Stockholder shall agree (which time and place shall be referred to as the
"Closing" and the date of the Closing is hereinafter referred to as the "Closing
Date").
Section 4. Delivery.
4.1 At Closing the Stockholder shall deliver for cancellation and
termination all certificates and agreements representing any of the Warrants of
the Corporation held by the Stockholder; and
4.2 At Closing the Corporation shall deliver to the Stockholder a
certificate representing 1,000,000 shares of Common Stock of the Corporation.
Section 5. Representations and Warranties of the Corporation
The Corporation represents and warrants to the Stockholder that the
statements contained in this Section 5 are true and correct.
-2-
5.1 Organization and Standing. The Corporation is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to own and hold its assets
and to conduct its business as presently conducted and as proposed to be
conducted by it and to enter into and perform this Agreement and to carry out
the transactions contemplated by this Agreement.
5.2 Issuance of Shares. The issuance and delivery of the shares of
Common Stock have been, or will be at or prior to the Closing, duly authorized
by all necessary corporate action on the part of the Corporation. No person has
any right of first refusal or any preemptive rights in connection with the
issuance and sale of the Shares. The shares of Common Stock, when issued, sold
and delivered against delivery of the Warrants in accordance with the provisions
of this Agreement, 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 Corporation 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.
5.3 Authorization. The execution, delivery and performance by the
Corporation of this Agreement and the Registration Rights Agreement, and the
consummation by the Corporation of the transaction contemplated hereby and
thereby, have been duly authorized by all necessary corporate action. This
Agreement and the Registration Right Agreement have been duly executed and
delivered by the Corporation and constitute valid and binding obligations of the
Corporation 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
Corporation 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, the Amended
and Restated Certificate of Incorporation or Restated Bylaws (each as amended to
date) or any indenture, lease, agreement or other instrument to which the
Corporation 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
Corporation, and will not result in a Material Adverse Effect on the
Corporation.
5.4 Additional Representations of the Corporation. The Corporation is
not currently having discussions with or in negotiations with other parties that
would be expected to lead to a significant increase in the market price of the
Common Stock of the Company. There are no current plans, discussions, or
negotiations between the Company and other parties to sell, merge or purchase
the Company or any significant division or significant assets of the Company.
There are no current plans, discussions, or negotiations between the Company and
other parties for the Company to acquire another company or any division of
another company or any assets of another company where such acquisition would be
significant to the Company or the market price of the Company's Common Stock.
The Company is in the process of attempting to complete a recapitalization and
expects to complete a reverse stock split, both of which may have a positive
effect on the market price of the Company's Common Stock. The Company has
disclosed to the
-3-
Stockholder all facts, discussions and matters material to the subject matter of
this Agreement and the value of the Stockholder's holdings.
Section 6. Representations and Warranties of the Stockholder.
6.1 Purchase for Investment; Sophistication
(a) Such Stockholder is acquiring the Final Settlement Shares
and the Additional Consideration for its own account for investment and not as a
nominee or agent and not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of distributing or selling
the same. Except as contemplated by this Agreement and the Registration Rights
Agreement, such Stockholder has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof. Such Stockholder acknowledges the restrictions on
transfer of the Shares set forth in Section 6.1(d) of this Agreement.
(b) Such Stockholder believes that such Stockholder has
received all the information that such Stockholder considers necessary or
appropriate for deciding whether to purchase the Final Settlement Shares. Such
Stockholder has had an opportunity to ask questions and receive answers from the
Corporation regarding the terms and conditions of the offer and exchange of the
Final Settlement Shares and the business, properties, prospects and financial
condition of the Corporation and to obtain additional information (to the extent
that the Corporation possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to such Stockholder or to which such Stockholder had
access. The foregoing, however, does not limit or modify the representations or
warranties of the Corporation in Section 5 of this Agreement or the right of the
Stockholder to rely thereon.
(c) Such Stockholder is experienced in evaluating and
investing in private placement transactions of securities of companies similar
to the Corporation and acknowledges that such Stockholder is able to fend for
himself or itself, can bear the economic risk of such Stockholder's investment
and has such knowledge and experience in financial and business matters that
such Stockholder is capable of evaluating the merits and risks of the investment
in the Final Settlement Shares. Such Stockholder also represents that such
Stockholder has not been organized specifically for the purpose of acquiring the
Final Settlement Shares.
(d) Such Stockholder understands that the Final Settlement
Shares and the Additional Consideration may not be sold, transferred, or
otherwise disposed of without registration under the Securities Act or an
exemption therefrom, that each stock certificate representing Final Settlement
Shares and the Additional Consideration will bear a legend to such effect and,
that in the absence of an effective registration statement covering such Final
Settlement Shares and the Additional Consideration or an available exemption
from registration under the Securities Act, the Shares must be held
indefinitely.
6.2 Authority. Such Stockholder has full power and authority to enter
into and to perform this Agreement in accordance with its terms, and this
Agreement, when executed and delivered, will constitute a valid and legally
binding obligation of such Stockholder, 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
-4-
and the choice of law provisions contained in this Agreement and the
Registration Rights Agreement may be limited by applicable laws. Such
Stockholder has good, valid and marketable title to the Warrants, free and clear
of all security interests, liens (choate or inchoate), encumbrances, mortgages,
pledges, equities, options, rights of first refusal, charges, assessments,
restrictions, reservations, defects in title and other burdens and interests of
other persons, whether arising by contract or under law or equity (collectively,
"Liens"). Consummation of the transactions contemplated hereby will transfer to
the Corporation good, valid and marketable title to all of the Warrants owned by
such Stockholder, free and clear of all Liens.
6.3 Accredited Investor. Such Stockholder is an "accredited investor,"
as such term is defined in Regulation D promulgated under the Securities Act.
Section 7. Conditions Precedent to the Stockholder's Obligation to
Consummate the Exchange.
The Corporation understands that the Stockholder's obligation to
consummate the Exchange is conditioned upon the satisfaction, on or before the
Closing, of each of the following:
7.1 Representations and Warranties Correct. All representations and
warranties of the Corporation contained herein shall remain true and correct as
of the date when made and as of the Closing as though made at such time (except
for representations and warranties that speak as of a specified date), and the
Corporation shall have performed, satisfied and complied with all covenants,
agreements and conditions required by such agreements to be performed, satisfied
or complied with by it at, or prior to, the Closing.
Section 8 Conditions Precedent to the Corporation's Obligation to
consummate the Exchange .
The Stockholder understands that the Company's obligation to consummate
the Exchange is conditioned upon the satisfaction, on or before the Closing, of
each of the following:
8.1 Representations and Warranties Correct. All representations and
warranties of the Stockholder contained herein shall remain true and correct as
of the date when made, and as of the Closing, as though made at such time
(except for representations and warranties that speak as of a specified date),
and the Stockholder shall have performed, satisfied and complied with all
covenants, agreements and conditions required by such agreements to be
performed, satisfied or complied with by it at, or prior to, the Closing.
Section 9. Release. Effective upon Closing, the Stockholder, on behalf
of itself and each of its affiliates over which it exercises control, and the
Corporation, on behalf of itself and each of its affiliates over which it
exercises control, hereby releases and forever discharges the other and its and
their respective individual, joint or mutual, past, present and future
directors, officers, affiliates, controlling persons, subsidiaries, successors
and assigns (individually, a "Releasee" and collectively, "Releasees") from any
and all claims, demands, proceedings, causes of action (other than fraud),
orders, obligations, contracts, agreements, debts and liabilities whatsoever,
whether known or unknown, suspected or unsuspected, both at law and in equity,
which the Stockholder or the Corporation or any of their respective affiliates
over which they respectively exercise control now has, have ever had or may
hereafter have against the respective Releasees of the other arising from the
beginning of time until Closing on account or arising out of or in any way
relating to the Stockholder's investments in or dealings with the Corporation,
or other cause or
-5-
event occurring contemporaneously with or prior to such date, provided, however,
that nothing contained herein shall operate to release any obligations arising
under this Agreement.
Effective upon Closing, the Corporation and the Stockholder hereby
irrevocably covenant to refrain from, directly or indirectly, asserting any
claim or demand, or commencing, instituting or causing to be commenced, any
proceeding of any kind against any Releasee, based upon any matter purported to
be released hereby.
Section 10. Voting. Stockholder hereby agrees to vote the Final
Settlement Shares and the Additional Consideration shares, if any, in favor of
an amendment to the Amended and Restated Certificate of Incorporation of the
Corporation that would effect a reverse stock split should such amendment be
proposed within the next nine months.
Section 11. Waiver. The Stockholder waives any right such Stockholder
may have to require the Corporation to repurchase any equity interest or
intangible right held by such Stockholder arising as a consequence of any change
of control that may result from the delivery of the Final Settlement Shares and
the Additional Consideration shares, if any.
Section 12. Governing Law. This Agreement shall be governed in all
respects by the laws of the State of Texas, without giving effect to the
conflicts of laws principles thereof.
Section 13. Successors; Assignments. No Purchaser may assign its rights
or delegate any of its obligations under this Agreement without the prior
written consent of the Company, and the Company may not assign its rights or
delegate any of its obligations under this Agreement without the prior written
consent of the Purchasers. Except as otherwise provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors, and administrators of the parties hereto.
Section 14. Entire Agreement; Amendment. This Agreement and the
Registration Rights Agreement and the other documents delivered pursuant hereto
and thereto constitute the full and entire understanding and agreement between
the parties with regard to the subjects hereof and thereof. This Agreement and
the Registration Rights Agreement shall supersede and cancel all prior
agreements between the parties hereto and thereto with regard to the subject
matter hereof. Neither this Agreement nor any term hereof may be amended,
waived, discharged, or terminated other than by a written instrument signed by
the party against whom enforcement of any such amendment, waiver, discharge, or
termination is sought.
Section 15. 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 acknowledgment 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-
(a) if to the Stockholder:
St. James Capital Partners, L.P.
4295 San Felipe, Suite 200
Houston, Texas 77027
(713) 871-0799
(713) 871-1028 (fax)
Attn: Mr. John Thompson
and to:
SJMB, L.P.
4295 San Felipe, Suite 200
Houston, Texas 77027
(713) 871-0799
(713) 871-1028 (fax)
Attn: Mr. John Thompson
(b) if to the Corporation:
TeraForce Technology Corporation
1240 E. Campbell Road
Richardson, TX 75081
(469) 330-4951
(469) 330-4972 fax
Attn: Robert P. Capps
Section 16. Expenses. The Company and the Purchasers shall each bear
their own expenses and legal fees with respect to this Agreement and the
transactions contemplated hereby.
Section 17. Counterparts. This Agreement may be executed in any number
of counterparts, each of which may be executed by less than all of the
Purchasers, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
Section 18. Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
Section 19. Headings. Headings and the table of contents in this
Agreement are for reference purposes only and shall not be deemed to have an
substantive effect.
THIS STOCK EXCHANGE IS BEING MADE BY THE COMPANY IN RELIANCE ON THE EXEMPTION
FROM THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") AFFORDED BY SECTION 3(a)(9) THEREOF. THE COMPANY WILL NOT PAY ANY
COMMISSION OR OTHER REMUNERATION TO ANY BROKER, DEALER, SALESMAN OR OTHER PERSON
WITH RESPECT TO THIS AGREEMENT.
* * * * *
-7-
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first stated above.
TERAFORCE TECHNOLOGY CORPORATION
A DELAWARE CORPORATION
By:
----------------------------------------
Name:
Title:
ST. JAMES CAPITAL PARTNERS, L.P.,
A DELAWARE LIMITED PARTNERSHIP
By:
----------------------------------------
Name:
Title:
SJMB, L.P.,
A DELAWARE LIMITED PARTNERSHIP
By:
----------------------------------------
Name:
Title:
-8-