Exhibit 1
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is made as of
September 30, 2002, by and among TeraForce Technology Corporation, a Delaware
corporation (the "Company"), Xxxxxx X. Xxxx, an individual resident in Houston,
Texas, and Xxxxx Xxxxxxx, an individual resident in Houston, Texas
(collectively, the "Investors").
RECITALS
WHEREAS, the Investors desire to acquire, severally and not jointly, upon
the terms and conditions stated in this Agreement, an aggregate of 16,666,668
shares of the Company's Common Stock, par value $0.01 per share, (the "Common
Stock"), in exchange for $2,000,000 cash; and
WHEREAS, the Investors and the Company have agreed that the proceeds
received by the Company will be used to repay amounts outstanding under that
Business Loan Agreement between the Company and Bank One, N.A. dated June 1,
2001, as amended (the "Bank Facility"); and
WHEREAS, upon repayment of such amounts, letters of credit aggregating
$2,000,000 that have been provided by the Investors as collateral for such loan
agreement for the benefit of the Company will be released by the Bank; and
WHEREAS, the Company believes it is in the best interests of the Company
and the Stockholders to consummate the contemplated transaction; and
WHEREAS, the Company and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, the Company and the Investors hereby agree to the terms and
conditions hereinafter set forth, as follows:
AGREEMENT
ARTICLE 1
Defined Terms
As used herein, the following terms shall have the following meanings:
(a) "1933 Act" shall have the meaning set forth in the Recitals to this
Agreement.
(b) "1934 Act" shall have the meaning set forth in Article 3.5 of this
Agreement.
(c) "AAA" shall have the meaning set forth in Article 8.4 of this
Agreement.
(d) "Aggregate Cash" shall have the meaning set forth in Article 2.1 of
this Agreement.
(e) "Agreement" shall have the meaning set forth in the introduction to
this Agreement.
- 1 -
(f) "Bank" shall mean Bank One, N.A.
(g) "Bank Facility" shall have the meaning set forth in the Recitals to
this Agreement.
(h) "Business" shall mean the business currently conducted by the Company
and its subsidiaries involving the design, development, production and
sale of computing products, optical networking equipment and other
technology related products, including providing related services.
(i) "Business Day" shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions
in the state of Texas generally are authorized or required by law or
other government actions to close.
(j) "Common Stock" shall mean the Company's common stock, par value $0.01
per share.
(k) "Company" shall have the meaning set forth in the introduction to this
Agreement.
(l) "GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
(m) "Investors" shall have the meaning set forth in the introduction to
this Agreement.
(n) "New Warrants" shall have the meaning set forth in Article 2.2 of this
Agreement
(o) "Person" or "Persons" shall mean any individual, corporation, limited
liability company, voluntary association, partnership, joint venture,
trust, unincorporated organization or government or any agency,
instrumentality or political subdivision thereof, or any other form of
entity.
(p) "Registration Rights Agreement" shall mean the Registration Rights
Agreement executed an even date herewith, by and among the Company and
the Investors.
(q) "Regulation D" shall have the meaning set forth in the Recitals to
this Agreement.
(r) "SEC" shall mean the Securities and Exchange Commission or any
successor governmental authority.
(s) "SEC Documents" shall have the meaning set forth in Article 3.5 of
this Agreement.
(t) "Shares" shall have the meaning set forth in Article 2.1 of this
Agreement.
(u) "Stockholders" shall mean the stockholders of the Common Stock of the
Company as of the date hereof.
ARTICLE 2
Purchase and Sale of the Shares
2.1 Issuance of Shares. Upon the terms and subject to the conditions
contained herein, and on the basis of the representations, warranties, covenants
and agreements set forth herein, the Company agrees to
- 2 -
issue to the Investors, and the Investors agree to acquire, severally and not
jointly, in the amount set forth opposite each Investor's name on Exhibit A
attached hereto, from the Company an aggregate of 16,666,668 shares of Common
Stock (the "Shares") in exchange for an aggregate of $2,000,000 cash (the
"Aggregate Cash").
2.2 Issuance of Warrants. As additional consideration for the Aggregate
Cash the Company will issue to the Investors warrants for the purchase of an
aggregate of 400,000 shares of Common Stock (the "New Warrants") in the amount
set forth opposite each Investor's name on Schedule A attached hereto. The New
Warrants will have an exercise price of $0.12 per share, will be exercisable
until September 30, 2005 and will be in substantially the form as in Exhibit B
attached hereto.
2.3 Re-pricing of Warrants. The Investors currently hold warrants for the
purchase of an aggregate of 780,000 shares of Common Stock, as indicated on
Exhibit A, with an exercise price of $0.75 per share (the "Existing Warrants").
As additional consideration for the Aggregate Cash, the Company will amend these
warrants to reflect an exercise price of $0.12 per share.
ARTICLE 3
Representations and Warranties of the Company
The Company represents and warrants to the Investors, as of the date
hereof, as follows:
3.1 Authorization. The execution, delivery and performance by the Company
of this Agreement and the Registration Rights Agreement, and the consummation by
the Company of the transaction contemplated hereby and thereby, have been duly
authorized by all necessary corporate action. This Agreement and the
Registration Rights Agreement have been duly executed and delivered by the
Company and constitute valid and binding obligations of the Company enforceable
in accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies, and (iii) to the extent that the
indemnification provisions and the choice of law provisions contained in this
Agreement and the Registration Rights Agreement may be limited by applicable
laws or deemed against public policy. The execution, delivery and performance of
the transactions contemplated by this Agreement and the Registration Rights
Agreement and compliance with their provisions by the Company will not violate
any provision of law and will not conflict with or result in any breach of any
of the terms, conditions or provisions of, or constitute a default under, or
require a consent or waiver under, (x) the Company's Amended and Restated
Certificate of Incorporation or Restated Bylaws (each as amended to date) or (y)
any indenture, lease, agreement or other instrument to which the Company is a
party or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company which conflict or
breach would result in a material adverse effect.
3.2 Organization and Qualification. The Company is a corporation organized
under the laws of the State of Delaware, has power and authority to own its
properties and assets and to carry on its business as it is now being conducted,
and is duly qualified to do business and is in good standing in each
jurisdiction in which its ownership of property or the conduct of its business
requires such qualification, except for jurisdictions in which such failure to
be so qualified or to be in good standing would not have a material adverse
effect.
- 3 -
3.3. Issuance by the Company. Consummation of the transactions contemplated
hereby will transfer to the Investors good, valid and marketable title to the
Shares, free and clear of any liens, claims or encumbrances, except as set forth
in the Registration Rights Agreement, to the extent applicable, or in any legend
which appears on any certificate representing any of the Shares.
3.4 Issuance of Shares. The issuance and delivery of the Shares have been
at or prior to the date hereof, duly authorized by all necessary corporate
action on the part of the Company. No person has any right of first refusal or
any preemptive rights in connection with the issuance and sale of the Shares.
The Shares will be duly and validly issued, fully paid and non-assessable, with
no personal liability attaching ownership thereof, will be free and clear of all
liens, charges, restrictions, claims and encumbrances imposed by or through the
Company and will be free of restrictions on transfer other than restrictions on
transfer under this Agreement, the Registration Rights Agreement and under
applicable state and federal securities laws.
3.5 SEC Documents; Financial Statements. Since December 31, 2001, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Documents as
required. As of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with GAAP, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereto, or (ii) in the case of unaudited interim statements, to the extent they
may exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its subsidiaries as of the dates thereof and the results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end immaterial audit adjustments).
ARTICLE 4
Representations and Warranties of Investors
The Investors represent and warrant to the Company as of the date
hereof as follows:
4.1 Organization. Investors have all requisite power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby.
4.2 Authority. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby by the Investors have been
duly and validly authorized by all requisite action on the part of the
Investors. This Agreement has been duly executed and delivered by Investors and
constitutes the valid and binding obligations of Investors, enforceable against
the Investors in accordance with its terms except as the same may be limited by
equitable principles and by bankruptcy, insolvency, moratorium, and other laws
of general application affecting the enforcement of creditors' rights.
- 4 -
4.3 Investment Representations. The Investors are acquiring the Shares for
investment purposes only and not with a view to the resale or distribution of
all or any part thereof. The Investors acknowledge that the Shares have not been
registered under the 1933 Act, or the securities or "blue sky" laws of any state
or other domestic or foreign jurisdiction, and that none of such securities may
be sold, transferred or otherwise disposed of except pursuant to an effective
registration statement thereunder or an applicable exemption therefrom.
4.4 Accredited Investor. Each Investor (a) has such knowledge and
experience in financial and business matters that such Investor is capable of
evaluating the merits and risks of his or her investment in the Shares and has
the financial ability to assume the monetary risk associated therewith; (b) is
able to bear the complete loss of his or her investment in the Shares; (c) has
received such documents and information from the Company as such Investor has
requested and has had the opportunity to ask questions of, and receive answers
from, the Company and the terms and conditions of the offering of the Shares and
to obtain additional information; (d) is an "accredited investor" as defined in
Rule 501(a) of Regulation D promulgated under the 1933 Act; and (e) is not
relying upon any statements or instruments made or issued by any person other
than the Company in making a decision to invest in the Shares.
ARTICLE 5
Covenants of the Company
5.1 Release of Letters of Credit. Concurrent with the closing of this
transaction, the Company will re-pay amounts outstanding under the Bank Facility
such that the Bank will release letters of credit aggregating $2,000,000
provided by the Investors as collateral for the Bank Facility. The Bank shall
furnish to Investors prior to closing of this transaction evidence satisfactory
to Investors that the Bank shall so release such letters of credit.
5.2 Registration Rights Agreement. Upon the closing of this transaction,
the Company will enter into a Registration Rights Agreement with the Investors
in substantially the form of Exhibit C. Such Registration Rights Agreement will
provide that the Company will file a shelf registration covering the resale of
the Shares, the shares of Common Stock to be issued upon the exercise of the New
Warrants and the shares of Common Stock to be issued upon the exercise of the
Existing Warrants.
ARTICLE 6
Covenants of Investors
The Investor will vote all shares of Common Stock he then holds in favor of
a reverse split of the Common Stock, provided such reverse split is put to a
vote of the Stockholders within twelve months of the date of this Agreement and
the reverse split is proposed with (and including) a range from 1:6 and 1:12.
- 5 -
ARTICLE 7
Closing
7.1 Closing, Delivery. Closing of this transaction will occur within three
business days of the satisfaction of any conditions to Closing, but not later
than October 4, 2002. The Closing will take place at the Company's offices in
Richardson, Texas, or such other location as the Company and each of the
Investors shall mutually agree. Upon the closing, the Investors will transfer an
aggregate of $2,000,000 to the following account:
BankOne, NA,
Attn: Loan Servicing Account #1065151010
ABA #000000000
Re: Principal payment on loan #0961515929-42 in the name of
TeraforceTechnology Corporation
Upon the Closing, the Company will deliver to the Investors the Shares, the New
Warrants, the amended Existing Warrants and the Registration Rights Agreement.
Among other thing, the closing of this transaction is conditioned on the Bank's
furnishing the evidence referred to in Article 5.1 of this Agreement and the
Bank's not having revoked or otherwise changed the effect of such evidence.
ARTICLE 8
Miscellaneous
8.1 Severability. Whenever possible, each provision of this Agreement shall
be interpreted so as to be effective and valid under applicable law. If any
provision of this Agreement is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this Agreement.
8.2 Headings. The descriptive headings of this Agreement are inserted for
convenience of reference only and do not constitute a part of and shall not
affect the interpretation of this Agreement.
8.3 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed to have been sufficiently
given (a) if sent by facsimile transmission, upon telephonic confirmation of
receipt, (b) if sent by registered or certified mail, upon the sooner of the
expiration of five (5) days after deposit in the post office facilities properly
addressed with postage prepaid or acknowledgement of receipt, (c) if personally
delivered, when delivered to the party to whom notice is sent, or (d) if
delivered by a recognized overnight courier, upon receipt evidencing proof of
delivery, addressed to the appropriate party or parties, at the address of such
party set forth below, (or at such other address as such party may designate by
written notice furnished to all other parties in accordance herewith):
(a) if to the Investors:
c/o Xxx. Xxxx X. Xxxxx
Xxxxx Xxxxxxx & Co.
Xxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Telecopier: (000) 000-0000
- 6 -
AND
Xx. Xxxxxx X. Xxxx
000 Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Telecopier: (000) 000-0000
(b) if to the Company:
TeraForce Technology Corporation
0000 X. Xxxxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Telecopier: (000) 000-0000
Attn: Xx. Xxxxxx X. Xxxxx
8.4 Dispute Resolution. All disputes and claims arising out of or relating
to this Agreement that are not resolved pursuant to an agreement of the parties
shall be arbitrated in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA"), and judgment upon any arbitration
award shall be binding and may be entered in any court or other tribunal having
jurisdiction thereof, the parties hereby consenting to the jurisdiction of such
courts for this purpose. If the Company and each of the Investors cannot agree
upon an arbitrator, one shall be appointed by the AAA who shall be neutral and
experienced in the subject matter of the dispute. The arbitrator's award shall
be binding and in writing. All arbitration proceedings shall be conducted in
Dallas County, Texas.
8.5 Governing Law. This Agreement shall be construed in accordance with,
and governed in all respects by, the laws of the State of Texas, without regard
to the conflict of laws provisions thereof.
8.6 Entire Agreement. This Agreement constitutes the entire agreement of
the Company and the Investors concerning the transactions contemplated hereby,
and supersede all prior agreements and understandings, written or oral,
regarding the subject matter hereof.
8.7 Expenses. Except as otherwise provided in this Agreement, the Company
and each of the Investors shall bear their own respective expenses and legal
fees in connection with the consummation of this transaction.
8.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. This Agreement shall become effective, as of
the date specified in the opening paragraph, upon the execution by of the
Company and the Investors of at least one counterpart hereof, and it shall not
be necessary that any single counterpart bear the signatures of all parties.
Execution and delivery of this Agreement by delivery of a facsimile copy bearing
the facsimile signature of a party shall constitute a valid and binding
execution and delivery of this Agreement by such party. Such facsimile copies
shall constitute enforceable original documents.
8.9 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE
SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH ANY STATE REGULATORY
AUTHORITY HAVING JURISDICTION THEREOF AND THE ISSUANCE OF SUCH SECURITIES OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION OR IN THE ABSENCE OF
- 7 -
EXEMPTION FROM SUCH QUALIFICATION IS UNLAWFUL. THE RIGHTS OF ALL PARTIES TO THIS
AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN
EXEMPTION FROM SUCH QUALIFICATION BEING AVAILABLE.
- 8 -
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TERAFORCE TECHNOLOGY CORPORATION
By: /s/ Xxxxxx X. Xxxxx
-------------------------------------------
Name: Xxxxxx X. Xxxxx
Title: Executive Vice President and
Chief Financial Officer
INVESTORS:
/s/ Xxxxxx X. Xxxx
-----------------------------------------------
Name: Xxxxxx X. Xxxx
/s/ Xxxxx Xxxxxxx
-----------------------------------------------
Name: Xxxxx Xxxxxxx
Exhibit A
Investors
Name Address No. of Shares Common Stock Warrants
-------------- ------------- -------------- ---------------------
Xxxxxx X. Xxxx 800 Bering 8,333,334 Existing 390,000 @$0.12
Suite 210 New 200,000 @$0.12
Xxxxxxx, XX 00000
Xxxxx Xxxxxxx Xxxxx Xxxxxxx & Co. 8,333,334 Existing 390,000 @$0.12
Two Houston Center New 200,000 @$0.12
Xxxxx 0000
Xxxxxxx, XX 00000
Exhibit B
Form of New Warrant
Exhibit C
Registration Rights Agreement
