EXHIBIT 4.2
FORM OF WARRANTS
THE SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND, ACCORDINGLY, THE
SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY MAY
NOT BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAWS.
WARRANT
to Purchase Common Stock of
TERAFORCE TECHNOLOGY CORPORATION
Expiring on March 31, 2007
This Common Stock Purchase Warrant (the "Warrant") certifies that for
value received, [INVESTOR] (the "Holder") is entitled to subscribe for and
purchase from the Company (as hereinafter defined), in whole or in part,
[_________] shares of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (as hereinafter defined) at the Exercise
Price (as hereinafter defined), subject, however, to the provisions and upon the
terms and conditions hereinafter set forth. This Warrant and all rights
hereunder shall expire at 5:00 p.m., Dallas, Texas time, on March 31, 2007.
As used herein, the following terms shall have the meanings set forth
below:
"Company" shall mean TeraForce Technology Corporation, a Delaware
corporation, and shall also include any successor thereto with respect to the
obligations hereunder, by merger, consolidation or otherwise.
"Common Stock" shall mean and include the Company's Common Stock, par
value $0.01 per share, authorized on the date of the original issue of this
Warrant.
"Exercise Price" shall mean $0.15 per share of Common Stock payable
upon exercise of the Warrant, as adjusted pursuant to the provisions hereof.
"Market Price" for any day, when used with reference to Common Stock,
shall mean the price of said Common Stock determined as follows: (x) the last
reported sale price for the Common Stock on such day on the principal securities
exchange on which the Common Stock is listed or admitted to trading or if no
such sale takes place on such date, the average of the closing bid and asked
prices thereof as officially reported, or, if not so listed or admitted to
trading on any securities exchange, the last sale price for the Common Stock on
the National Association of Securities Dealers National Market on such date, or,
if there shall have been no trading on such date or if the Common Stock shall
not be listed on such system,
the average of the closing bid and asked prices in the over-the-counter market
as furnished by any NASD member firm selected from time to time by the Company
for such purpose, in each such case, unless otherwise provided herein, averaged
over a period of ten (10) consecutive Trading Days prior to the date as of which
the determination is to be made; or (y) if the Common Stock shall not be listed
or admitted to trading as provided in clause (x) above, the fair market value of
the Common Stock as determined in good faith by the Board of Directors of the
Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
"Trading Days" shall mean any days during the course of which the
principal securities exchange on which the Common Stock is listed or admitted to
trading is open for the exchange of securities.
"Warrant Shares" shall mean the shares of Common Stock purchased or
purchasable by the Holder hereof upon the exercise of the Warrant.
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ARTICLE I
EXERCISE OF WARRANT
1.1 Method of Exercise. The Warrant represented hereby may be exercised
by the Holder hereof, in whole or in part, at any time and from time to time on
or after the date hereof until 5:00 p.m., Dallas, Texas time, on March 31, 2007.
To exercise the Warrant, the Holder hereof shall deliver to the Company (i) a
written notice in the form of the Subscription Notice attached as an exhibit
hereto, stating therein the election of such Holder to exercise the Warrant in
the manner provided in the Subscription Notice; and (ii) payment in full of the
Exercise Price (A) in cash or by bank check for all Warrant Shares purchased
hereunder or (B) if permitted pursuant to Section 1.6 below, by notifying the
Company that this warrant is being exercised pursuant to a Cashless Exercise (as
defined in Section 1.6) or (C) a combination of (A) and (B) above; and (iii)
this Warrant. The Warrant shall be deemed to be exercised on the date of receipt
by the Company of the Subscription Notice, accompanied by payment for the
Warrant Shares and surrender of this Warrant, as aforesaid, and such date is
referred to herein as the "Exercise Date". Upon such exercise, the Company
shall, as promptly as practicable and in any event within ten (10) business
days, issue and deliver to such Holder a certificate or certificates for the
full number of the Warrant Shares purchased by such Holder hereunder, and shall,
unless the Warrant has expired or has been redeemed, deliver to the Holder
hereof a new Warrant representing the portion, if any, that shall not have been
exercised, in all other respects identical to this Warrant. As permitted by
applicable law, the Person in whose name the certificates for Common Stock are
to be issued shall be deemed to have become a holder of record of such Common
Stock on the Exercise Date and shall be entitled to all of the benefits of such
holder on the Exercise Date, including without limitation the right to receive
dividends and other distributions for which the record date falls on or after
the Exercise Date and to exercise voting rights.
1.2 Reservation of Shares. The Company shall reserve at all times so
long as the Warrant remains outstanding, free from preemptive rights, out of its
treasury Common Stock or its authorized but unissued shares of Common Stock, or
both, solely for the purpose of effecting the exercise of the Warrant, a
sufficient number of shares of Common Stock to provide for the exercise of the
Warrant.
1.3 Valid Issuance. All shares of Common Stock that may be issued upon
exercise of the Warrants will, upon issuance by the Company, be duly and validly
issued, fully paid and non-assessable and free from all taxes, liens and charges
with respect to the issuance thereof.
1.4 No Fractional Shares. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If any
fraction of a share of Common Stock would be issuable on the exercise of this
Warrant, the Company shall pay an amount in cash calculated by it to be equal to
the Market Price of one share of Common Stock at the time of such exercise
multiplied by such fraction computed to the nearest whole cent.
1.5 Securities Purchase Agreement; Registration Rights Agreement. This
Warrant is issued in connection with that certain Reimbursement Agreement dated
March 26, 2003 between the Company and the Holder (the "Reimbursement
Agreement"). Except as otherwise set forth in that certain Registration Rights
Agreement dated as of March 26, 2003 between the Company and the Holder (the
Registration Rights Agreement), the Warrant and the Warrant Shares are not
registered pursuant to the Securities Act and may not be transferred absent an
effective registration statement or an exemption from such registration.
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1.6 Cashless Exercise. If (i) the Company and the Holder mutually
elect; or (ii) the Warrant Shares to be issued are not registered for resale to
the extent required by the Registration Rights Agreement, then, notwithstanding
anything to the contrary, the Holder may exercise, at its election, in its sole
discretion, this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon exercise of this
Warrant, elect instead to receive the Warrant Shares through a cashless or
net-issue exercise of the Warrant (Cashless Exercise). The Holder shall exchange
the Warrant subject to a Cashless Exercise for that number of Warrant Shares
determined by multiplying the number of Warrant Shares issuable hereunder by a
fraction, the numerator of which shall be the difference between (x) the Market
Price and (y) the Exercise Price for each such Warrant Share, and the
denominator of which shall be the Market Price; the Subscription Notice shall
set forth the calculation upon which the Cashless Exercise is based.
ARTICLE II
TRANSFER
2.1 Ownership of Warrant. The Company may deem and treat the Person in
whose name the Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary unless agreed to in writing by the Company.
2.2 Restrictions on Transfer of Warrants. The Holder of the Warrant
agrees that the Warrant is not transferrable without the prior written consent
of the Company and any such transfer without such consent shall be void and
without effect, unless such transfer occurs by operation of law. Subject to the
restrictions on transfer of the Warrant in this Section 2.2, the Company, from
time to time, shall register the transfer of the Warrant in such books upon
surrender of this Warrant at the 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. Subject to the terms of the
Registration Rights Agreement and notwithstanding any other provisions contained
in this Warrant, the Holder hereof understands and agrees that the following
restrictions and limitations shall be applicable to all Warrant Shares and to
all resales or other transfers thereof pursuant to the Securities Act, and that
as a condition to the exercise of such warrant that the following are and will
be true and correct:
(A) The Holder hereof agrees that the Warrant Shares shall not
be sold or otherwise transferred unless the Warrant Shares are
registered under the Securities Act and applicable state securities or
blue sky laws or are exempt therefrom.
(B) A legend in substantially the following form will be
placed on the certificate(s) evidencing the Warrant Shares:
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"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 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.
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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 Reduction of Exercise Price. If, during the 180 day period
immediately after the date of this Warrant, the Company shall issue Common Stock
at a price of less than $0.12 per share, issue warrants with an exercise price
of less than $0.12 share, or issue convertible securities with a conversion rate
of less than $0.12 per share, than the Exercise Price shall be reduced to such
lesser amount.
3.3 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.
3.4 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
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stating that the Exercise Price and the number of Warrant Shares purchasable
upon exercise of the Warrant have been adjusted and setting forth the adjusted
Exercise Price and the adjusted number of Warrant Shares purchasable upon the
exercise of the Warrant.
ARTICLE IV
MISCELLANEOUS
4.1 Entire Agreement. This Warrant, together with the Securities
Purchase Agreement and the Registration Rights Agreement, contain the entire
agreement between the Holder hereof and the Company with respect to the Warrant
Shares purchasable upon exercise hereof and the related transactions and
supersedes all prior arrangements or understandings with respect thereto.
4.2 Governing Law; Venue. This warrant shall be governed by and
construed in accordance with the laws of the State of Texas. Venue for any
dispute arising under this Warrant shall lie in the state or federal courts of
Dallas County, Texas.
4.3 Waiver and Amendment. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of the Holder hereof and the Company, except that any waiver of any
term or condition, or any amendment or supplementation, of this Warrant shall be
in writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Warrant shall not in any way effect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with every
term or condition of this Warrant.
4.4 Illegality. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.
4.5 Copy of Warrant. A copy of this Warrant shall be filed among the
records of the Company.
4.6 Notice. Any notice or other document required or permitted to be
given or delivered to the Holder or the Company hereof shall be in writing and
will deemed to have been delivered: (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided a confirmation of
transmission is mechanically generated and kept on file by the sending party);
or (iii) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be: any
notice or other document required or permitted to be given or delivered to the
Company shall be sent to the offices of the Company at 1240 East Campbell Road,
Richardson, Texas 75081, Attn: Chief Financial Officer, Telecopy No. (469)
330-4972 or such other address as shall have been furnished in writing by the
Company to the Holder of this Warrant. Any notice sent or required to be sent
hereunder to the Holder shall be sent to the address of the Holder as contained
in the corporate records of the Company or such other address as shall have been
furnished in writing by the Holder to the Company.
4.7 Limitation of Liability; Not Stockholders. No provision of this
Warrant shall be construed as conferring upon the Holder hereof the right to
vote, consent, receive dividends or receive
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notices (other than as herein expressly provided) in respect of meetings of
stockholders for the election of directors of the Company or any other matter
whatsoever as a stockholder of the Company. No provision hereof, in the absence
of affirmative action by the Holder hereof to purchase shares of Common Stock,
and no mere enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of such Holder for the purchase price of any
shares of Common Stock or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
4.8 Exchange, Loss, Destruction, etc. of Warrant. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of this Warrant, and in the case of any such loss, theft or
destruction upon delivery of a bond of indemnity or such other security in such
form and amount as shall be reasonably satisfactory to the Company, or in the
event of such mutilation upon surrender and cancellation of this Warrant, the
Company will make and deliver a new Warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions
of this Section 4.8 in lieu of any Warrant alleged to be lost, destroyed or
stolen, or in lieu of any mutilated Warrant, shall constitute an original
contractual obligation on the part of the Company. This Warrant shall be
promptly canceled by the Company upon the surrender hereof in connection with
any exchange or replacement. The Company shall pay all taxes (other than
securities transfer taxes or income taxes) and all other expenses and charges
payable in connection with the preparation, execution and delivery of Warrants
pursuant to this Section 4.8.
4.9 Registration Rights. The Warrant Shares shall be entitled to such
registration rights under the Securities Act and under applicable state
securities laws as are specified in the Registration Rights Agreement.
4.10 Headings. The Article and Section and other headings herein are
for convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name.
Dated: March 26, 2003
TERAFORCE TECHNOLOGY CORPORATION
By:
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Name: Robert P. Capps
Title: Executive Vice President and Chief
Financial Officer
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