Document:

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                                                                     EXHIBIT 4.2

                      Form of Registration Rights Agreement

                          REGISTRATION RIGHTS AGREEMENT

         This Registration Rights Agreement (the "Agreement") is dated as of
__________ and is by and between TeraForce Technology Corporation, a Delaware
corporation (the "Company") and __________, a resident of _________, (the
"Investor").

                                    RECITALS

         WHEREAS, as of an even date herewith, the Company and the Investor
executed a Securities Purchase Agreement ( the "Securities Purchase Agreement");
and

         WHEREAS, pursuant to the Securities Purchase Agreement, the Investor
will acquire ________shares of the Company's Common Stock, par value $.01 per
share ( the "Shares"); and

         WHEREAS, the parties desire to set forth the Investor's rights and the
Company's obligations to cause the registration of the Registrable Securities
(as defined herein) pursuant to the Securities Act (as defined herein);

         NOW, THEREFORE, in consideration of the transactions contemplated by
the Securities Purchase Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

Section 1. Definitions and Usage.

         As used in this Agreement:

         1.1 Definitions.

         (a) "Blackout Period" shall have the meaning set forth in Section 3.

         (b) "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 New York generally are authorized or required by law or other
government actions to close.

         (c) "Commission" shall mean the Securities and Exchange Commission.

         (d) "Common Stock" shall mean (i) the common stock of the Company, par
value $.01 per share, and (ii) shares of capital stock of the Company issued by
the Company in respect of or in exchange for shares of such common stock in
connection with any stock dividend or distribution, stock split-up,
recapitalization, recombination or exchange by the Company generally of shares
of such common stock.

         (e) "Continuously Effective," with respect to a specified registration
statement, shall mean that it shall not cease to be effective and available for
Transfers of Registrable Securities thereunder for longer than either (i) any
ten (10) consecutive business days, or (ii) an aggregate of fifteen (15)
business days during the period specified in the relevant provision of this
Agreement.

         (f) "Effectiveness Period" shall have the meaning set forth in Section
2.

         (g) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

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         (h) "Filing Date" shall have the meaning set forth in Section 2.

         (i) "Holders" shall mean the Investor and the transferees of the
Registrable Securities of the Investor, at such times as such Persons shall own
Registrable Securities. For purposes of this Agreement, a Person will be deemed
to be a holder and an owner of Registrable Securities whenever such Person has
the right to acquire such Registrable Securities (by conversion, purchase or
otherwise), whether or not such acquisition has actually been effected and
whether or not such right is currently exercisable.

         (j) "Person" shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, incorporated
organization, association, corporation, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).

         (k) "Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplement by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

         (l) "Register," "registered," and "registration" shall refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering by the Commission of effectiveness of such registration statement or
document.

         (m) "Registrable Securities" shall mean the Shares; provided, however,
that Registrable Securities shall not include any Registrable Securities which
have theretofore been registered and sold pursuant to the Securities Act or
which have been sold to the public pursuant to Rule 144 or any similar rule
promulgated by the Commission pursuant to the Securities Act, and, provided
further, the Company shall have no obligation under Section 2 or Section 3 to
register any Registrable Securities if the Company delivers to the Holders
requesting such registration an opinion of counsel to the effect that the
proposed sale or disposition of all of the Registrable Securities for which
registration was requested does not require registration under the Securities
Act for a sale or disposition in a single public sale, and offers to remove any
and all legends restricting transfer from the certificates evidencing such
Registrable Securities.

         (n) "Registration Statement" means the registration statement and any
additional registration statements contemplated by Section 2 including (in each
case) the Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference or deemed to be incorporated
by reference in such registration statement.

         (o) not used

         (p) "Securities Act" shall mean the Securities Act of 1933, as amended.

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

         (r) "Transfer" shall mean and include the act of selling, giving,
transferring, creating a trust (voting or otherwise) and transferring title
thereto, assigning or otherwise disposing of (other than pledging, hypothecating
or otherwise transferring as security) (and correlative words shall have
correlative meanings); provided however, that any transfer or other

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disposition upon foreclosure or other exercise of remedies of a secured creditor
after an event of default under or with respect to a pledge, hypothecation or
other transfer as security shall constitute a "Transfer."

         (s) "Violation" shall have the meaning set forth in Section 6.

         1.2 Usage.

         (a) References to a Person are also references to its assigns and
successors in interest (by means of merger, consolidation or sale of all or
substantially all the assets of such Person or otherwise, as the case may be).

         (b) References to Registrable Securities "owned" by a Holder shall
include Registrable Securities beneficially owned by such Person but which are
held of record in the name of a nominee, trustee, custodian, or other agent.

         (c) References to a document are to a document as amended, waived and
otherwise modified from time to time and references to a statute or other
governmental rule are to a statute or other governmental rule as amended and
otherwise modified from time to time (and references to any provision thereof
shall include references to any successor provision).

         (d) References to Sections or to Schedules or Exhibits are to sections
hereof or schedules or exhibits hereto, unless the context otherwise requires.

         (e) The definitions set forth herein are equally applicable both to the
singular and plural forms and the feminine, masculine and neuter forms of the
terms defined.

         (f) The term "including" and correlative terms shall be deemed to be
followed by "without limitation" whether or not followed by such words or words
of like import.

         (g) The term "hereof" and similar terms refer to this Agreement as a
whole.

         (h) The "date of" any notice or request given pursuant to this
Agreement shall be determined in accordance with Section 10.2.

Section 2. Shelf Registration. On or prior to ___________ (the "Filing Date"),
the Company shall prepare and file with the Commission a "Shelf" Registration
Statement covering all Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. The Registration Statement shall be on
Form S-3 (if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3 such registration shall be on another
appropriate form in accordance herewith). The Company shall use its best efforts
to cause the Registration Statement to be declared effective under the
Securities Act as promptly as possible after the filing thereof, and shall use
its best efforts to keep such Registration Statement Continuously Effective
under the Securities Act until the date when all Registrable Securities covered
by such Registration Statement have been sold or may be sold without
restrictions pursuant to Rule 144(k) as determined by the counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable to
the Company's transfer agent (the "Effectiveness Period"), provided, however,
that the Company shall not be deemed to have used its best efforts to keep the
Registration Statement effective during the Effectiveness Period if it
voluntarily takes any action that would result in the Holder not being able to
sell the Registrable Securities covered by such Registration Statement during
the Effectiveness Period, unless such action is pursuant to a Blackout Period
(as defined in Section 3) permitted hereunder, required under applicable law or
the Company has filed a post-effective amendment to the Registration Statement
and the Commission has not declared it effective. . Other provisions of this
Agreement not withstanding, the Registration Statement may include shares of
Common Stock held by other holders or to be issued to other holders upon the
exercise of warrants.

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Section 3. Registration Procedures.

         In connection with the Company's registration obligations hereunder,
the Company shall:

         (a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith) which
shall contain the "Plan of Distribution" and cause the Registration Statement to
become effective and remain effective as provided herein; provided, however,
that not less than ten (10) Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall (i) furnish to the Holder
copies of all such documents proposed to be filed, which documents (other than
those incorporated or deemed to be incorporated by reference) will be subject to
the review and comment of the Holder, and (ii) cause its officers and directors,
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the reasonable opinion of respective counsel
to the Holder, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Investor
shall reasonably object on a timely basis.

         (b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement Continuously Effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file with
the Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as reasonably possible to any comments received from
the Commission with respect to the Registration Statement or any amendment
thereto and as promptly as reasonably possible provide the Holder true and
complete copies of all correspondence from and to the Commission relating to the
Registration Statement; and (iv) comply in all material respects with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the Effectiveness Period in accordance with the intended methods of
disposition by the Holder set forth in the Registration Statement as so amended
or in such Prospectus as so supplemented.

         (c) Notify the Holder as promptly as reasonably possible (and, in the
case of (i)(A) below, not less than five (5) days prior to such filing) and (if
requested by such Holder) confirm such notice in writing no later than one (1)
Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to the Holder); and
(C) with respect to the Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the Commission or any
other Federal or state governmental authority for amendments or supplements to
the Registration Statement or Prospectus or for additional information; (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement covering any or all of the Registrable Securities or
the initiation of any proceedings for that purpose; (iv) if at any time any of
the representations and warranties of the Company contained in any agreement
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose; and (vi) the occurrence of any event that makes any
statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to

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be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that in the case of the Registration Statement, it will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, and that in the case of the Prospectus or any Prospectus supplement,
it will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

         (d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.

         (e) Furnish to the Holder, without charge, at least one conformed copy
of each Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Holder (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.

         (f) Promptly deliver to Holder, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Holder may reasonably request; and the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by the selling Holder in connection with the offering and
sale of the Registrable Securities covered by such Prospectus and any amendment
or supplement thereto.

         (g) If the Registration Statement refers to the Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.

         (h) Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(f) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c)(i); and (ii) it and its officers, directors or affiliates, if any,
will comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.

         (i) If there is a significant business opportunity (including but not
limited to the acquisition or disposition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or similar
transaction) available to the Company which its Board of Directors reasonably
determines not to be in the Company's best interest to disclose, then the
Company may suspend the right of the Holder to sell Registrable Securities under
a Registration Statement for one period not to exceed 20 Business Days during
the Effectiveness Period (the "Blackout Period").

         (j) Use all reasonable efforts to cause the Common Stock, if the Common
Stock is then listed on a securities exchange or included for quotation in a
recognized trading market, to continue to be so listed or included for a
reasonable period of time after the offering.

         (k) Use all reasonable efforts to cause the Registrable Securities
covered by the Registration Statement to be registered with or approved by such
other United States or state governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to enable the
selling Holders of Registrable Securities to consummate the disposition of such
Registrable Securities.

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Section 4. Holders' Obligations. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Securities of any selling Holder of Registrable
Securities that such selling Holder shall:

         4.1 Furnish to the Company such information regarding such Selling
Holder, the number of the Registrable Securities owned by it, and the intended
method of disposition of such securities as shall be required to effect the
registration of such selling Holder's Registrable Securities, and to cooperate
with the Company in preparing such registration.

Section 5. Expenses of Registration.

         5.1 The Company shall bear and pay all expenses and fees incurred in
connection with the Registration Statement pursuant to Section 2 for any Holder
(which right may be Transferred to any Person to whom Registrable Securities are
Transferred as permitted by Section 7), including registration, qualification
and filing fees, exchange listing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, blue sky fees and expenses and the
expenses of any special audits incident to or required by any such registration,
but excluding underwriting discounts and commissions relating to Registrable
Securities (which shall be paid by the Holders) and fees and expenses of counsel
to the Holder.

Section 6. Indemnification; Contribution. If any Registrable Securities are
included in a registration statement under this Agreement:

         6.1 To the extent permitted by applicable law, the Company shall
indemnify and hold harmless each Holder, each Person, if any, who controls such
Holder within the meaning of the Securities Act, and each affiliate, officer,
director, partner, agent and employee of such Holder and such controlling
Person, against any and all losses, claims, damages, liabilities and expenses
(joint or several), including attorneys' fees and disbursements and expenses of
investigation, incurred by such party pursuant to any actual or threatened
action, suit, proceeding or investigation, or to which any of the foregoing
Persons may become subject under the Securities Act, the Exchange Act or other
federal or state laws, insofar as such losses, claims, damages, liabilities and
expenses arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"):

                  (a) Any untrue statement or alleged untrue statement of a
         material fact contained in the Registration Statement, including any
         preliminary Prospectus or final Prospectus contained therein, or any
         amendments or supplements thereto;

                  (b) The omission or alleged omission to state therein a
         material fact required to be stated therein, or necessary to make the
         statements therein not misleading; or

                  (c) Any violation or alleged violation by the Company of the
         Securities Act, the Exchange Act, any applicable state securities law
         or any rule or regulation promulgated under the Securities Act, the
         Exchange Act or any applicable state securities law;

         provided, however, that the indemnification required by this Section
6.1 shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or expense if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or expense to the extent that it arises out of or is based upon a Violation that
occurs in reliance upon and in conformity with written information furnished to
the Company by the indemnified party expressly for use in connection with such
registration; provided, further, that the indemnity agreement contained in this
Section 6 shall not apply to any Holder to the extent that any such loss is
based on or arises out of an untrue statement or alleged untrue statement of a
material fact, or an omission or alleged omission to state a material fact,

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contained in or omitted from any preliminary prospectus if the final prospectus
shall correct such untrue statement or alleged untrue statement, or such
omission or alleged omission, and a copy of the final prospectus has not been
sent or given to such person at or prior to the confirmation of sale to such
person if such Holder was under an obligation to deliver such final prospectus
and failed to do so.

         6.2 To the extent permitted by applicable law, each Holder, severally
and not jointly, shall indemnify and hold harmless the Company, each of its
directors, each of its officers who shall have signed the Registration
Statement, and each Person, if any, who controls the Company within the meaning
of the Securities Act, against any and all losses, claims, damages, liabilities
and expenses, including attorneys' fees and disbursements and expenses of
investigation, incurred by such party pursuant to any actual or threatened
action, suit, proceeding or investigation, or to which any of the foregoing
Persons may otherwise become subject under the Securities Act, the Exchange Act
or other federal or state laws, insofar as such losses, claims, damages,
liabilities and expenses arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; provided,
however, that the indemnification required by this Section 6.2 shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
expense if settlement is effected without the consent of the relevant Holder of
Registrable Securities, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, the liability of the Holder under this Section
6.2 shall be limited in an amount equal to the net proceeds from the sale of the
shares sold by such Holder, unless such liability arises out of or is based on
willful conduct or gross negligence by such Holder.

         6.3 Promptly after receipt by an indemnified party under this Section 6
of notice of the commencement of any action, suit, proceeding, investigation or
threat thereof made in writing for which such indemnified party may make a claim
under this Section 6, such indemnified party shall deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the fees and disbursements and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time following the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 6 but shall not relieve the indemnifying
party of any liability that it may have to any indemnified party otherwise than
pursuant to this Section 6. Any fees and expenses incurred by the indemnified
party (including any fees and expenses incurred in connection with investigating
or preparing to defend such action or proceeding) shall be paid to the
indemnified party, as incurred, within thirty (30) days of written notice
thereof to the indemnifying party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
hereunder). Any such indemnified party shall have the right to employ separate
counsel in any such action, claim or proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel shall be the expenses
of such indemnified party unless (i) the indemnifying party has agreed to pay
such fees and expenses or (ii) the indemnifying party shall have failed to
promptly assume the defense of such action, claim or proceeding or (iii) the
named parties to any such action, claim or proceeding (including any impleaded
parties) include both such indemnified party and the indemnifying party, and
such indemnified party shall have been advised by counsel that there may be one
or more legal defenses available to it which are different from or in addition
to those available to the indemnifying party and that the assertion of such
defenses would create a conflict of interest such that counsel employed by the
indemnifying party could not faithfully represent the indemnified party (in
which case, if such indemnified party notifies the indemnifying party in writing
that it elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such action, claim or proceeding on behalf of such

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indemnified party, it being understood, however, that the indemnifying party
shall not, in connection with any one such action, claim or proceeding or
separate but substantially similar or related actions, claims or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (together with appropriate local counsel) at any time
for all such indemnified parties, unless in the reasonable judgment of such
indemnified party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties with respect to such action,
claim or proceeding, in which event the indemnifying party shall be obligated to
pay the fees and expenses of such additional counsel or counsels). No
indemnifying party shall be liable to an indemnified party for any settlement of
any action, proceeding or claim without the written consent of the indemnifying
party, which consent shall not be unreasonably withheld.

         6.4 If the indemnification required by this Section 6 from the
indemnifying party is unavailable or insufficient to hold harmless an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to in this Section 6:

                  (a) The indemnifying party, in lieu of indemnifying such
         indemnified party, shall contribute to the amount paid or payable by
         such indemnified party as a result of such losses, claims, damages,
         liabilities or expenses in such proportion as is appropriate to reflect
         (i) the relative benefits received by the indemnifying party or
         parties, on the one hand and the indemnified party on the other from
         the sale of the Registrable Securities, or (ii) if the allocation
         provided by the foregoing clause (i) is not permitted by applicable
         law, not only the relative benefits referred to in clause (i) above but
         also the relative fault of the indemnifying party on the one hand and
         indemnified parties on the other in connection with the actions which
         resulted in such losses, claims, damages, liabilities or expenses, as
         well as any other relevant equitable considerations. The relative fault
         of such indemnifying party and indemnified parties shall be determined
         by reference to, among other things, whether any Violation has been
         committed by, or relates to information supplied by, such indemnifying
         party or indemnified parties, and the parties' relative intent,
         knowledge, access to information and opportunity to correct or prevent
         such Violation. The amount paid or payable by a party as a result of
         the losses, claims, damages, liabilities and expenses referred to above
         shall be deemed to include, subject to the limitations set forth in
         Section 6.1 and Section 6.2, any legal or other fees or expenses
         reasonably incurred by such party in connection with any investigation
         or proceeding.

                  (b) The parties hereto agree that it would not be just and
         equitable if contribution pursuant to this Section 6.4 were determined
         by pro rata allocation or by any other method of allocation which does
         not take into account the equitable considerations referred to in
         Section 6.4(a). No Person guilty of fraudulent misrepresentation
         (within the meaning of Section 11(f) of the Securities Act) shall be
         entitled to contribution from any Person who was not guilty of such
         fraudulent misrepresentation.

                  (c) Notwithstanding the provisions of this Section 6.4, a
         Holder shall not be required to contribute any amount or make any other
         payments under this Agreement that in the aggregate exceed the net
         proceeds received by the Holder from the sales of the Registrable
         Securities of the Company.

         6.5 The obligations of the Company and the selling Holders of
Registrable Securities under this Section 6 shall survive the completion of any
offering of Registrable Securities pursuant to a registration statement under
this Agreement, and otherwise.

Section 7. Transfer of Registration Rights. The rights of a Holder hereunder may
be Transferred in whole or in part to (i) any affiliate (as defined in Rule
12b-2 under the Exchange Act) of a Holder or (ii) any other Person upon the
prior written consent of the Company; provided, however, that any such
transferee that is not a party to this Agreement shall have executed and
delivered to the Secretary of the Company a

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properly completed agreement substantially in the form of Exhibit A, and
provided, further, that the transferor shall have delivered to the Secretary of
the Company, no later than 15 days following the date of the Transfer, written
notification of such Transfer setting forth the name of the transferor, name and
address of the transferee and the number of Registrable Securities which shall
have been so Transferred.

Section 8. Amendment, Modification and Waivers; Further Assurances.

                  (a) This Agreement may be amended with the consent of the
         parties hereto and the Company may take any action herein prohibited,
         or omit to perform any act herein required to be performed by it, only
         if the Company shall have obtained the written consent of the Holder.

                  (b) No waiver of any terms or conditions of this Agreement
         shall operate as a waiver of any other breach of such terms and
         conditions or any other term or condition, nor shall any failure to
         enforce any provision hereof operate as a waiver of such provision or
         of any other provision hereof. No written waiver hereunder, unless it
         by its own terms explicitly provides to the contrary, shall be
         construed to effect a continuing waiver of the provisions being waived
         and no such waiver in any instance shall constitute a waiver in any
         other instance or for any other purpose or impair the right of the
         party against whom such waiver is claimed in all other instances or for
         all other purposes to require full compliance with such provision.

                  (c) Each of the parties hereto shall execute all such further
         instruments and documents and take all such further action as any other
         party hereto may reasonably require in order to effectuate the terms
         and purposes of this Agreement.

Section 9. Assignment; Benefit. This Agreement and all of the provisions hereof
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, assigns, executors, administrators or successors;
provided, however, that except as specifically provided herein with respect to
certain matters, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned or delegated by the Company without the
prior written consent of the Holder. A Holder may Transfer its rights hereunder
to a successor in interest to the Registrable Securities owned by such assignor
as permitted by Section 7.

Section 10. Miscellaneous.

         10.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING REGARD TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF. EACH OF THE PARTIES HEREBY SUBMITS TO
PERSONAL JURISDICTION AND WAIVES ANY OBJECTION AS TO VENUE IN THE COUNTY OF
DALLAS, STATE OF TEXAS. THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT.

         10.2 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):

                                       9
<PAGE>

         (a) if to the Investor:

         (b) if to the Company:

                  TeraForce Technology Corporation
                  1240 E. Campbell Road
                  Richardson, TX 75081
                  (469) 330-4951
                  (469) 330-4972 fax
                  Attn: Robert P. Capps

         10.3 Entire Agreement; Integration. This Agreement supersedes all prior
agreements between or among any of the parties hereto with respect to the
subject matter contained herein, and this Agreement embodies the entire
understanding among the parties relating to such subject matter.

         10.4 Section Headings. Section headings are for convenience of
reference only and shall not affect the meaning of any provision of this
Agreement.

         10.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which shall
together constitute one and the same instrument. All signatures need not be on
the same counterpart.

         10.6 Severability. If any provision of this Agreement shall be invalid
or unenforceable, such invalidity or unenforceability shall not affect the
validity and enforceability of the remaining provisions of this Agreement,
unless the result thereof would be unreasonable, in which case the parties
hereto shall negotiate in good faith as to appropriate amendments hereto.

         10.7 Filing. A copy of this Agreement and of all amendments thereto
shall be filed at the principal executive office of the Company with the
corporate recorder of the Company.

         10.8 Termination. This Agreement may be terminated at any time by a
written instrument signed by the parties hereto. Unless sooner terminated in
accordance with the preceding sentence, this Agreement (other than Section 6
hereof) shall terminate in its entirety on such date as there shall be no
Registrable Securities outstanding or issuable by the Company.

         10.9 No Third Party Beneficiaries. Nothing herein expressed or implied
is intended to confer upon any Person, other than the parties hereto or their
respective permitted assigns, successors, heirs and legal representatives, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.

                                       10
<PAGE>

         IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first written above.

                                       TERAFORCE TECHNOLOGY CORPORATION

                                       By:
                                          --------------------------------------
                                       Name: Herman M. Frietsch
                                       Title: Chief Executive Officer

                                       INVESTOR:

                                       -----------------------------------------

                                       11<PAGE>
                                                                     EXHIBIT 4.3

                             Reimbursement Agreement

                             REIMBURSEMENT AGREEMENT

                                 BY AND BETWEEN

                        TERAFORCE TECHNOLOGY CORPORATION

                                       AND

                                O. S. WYATT, JR.

                          Dated as of December 30, 2002

<PAGE>
                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                            <C>
Parties...........................................................................................................1

Preamble..........................................................................................................1

                                                      ARTICLE I

Section 1.1       Definitions.....................................................................................2
Section 1.2       Interpretation..................................................................................5

                                                     ARTICLE II

Section 2.1       Guaranty........................................................................................6
Section 2.2       Prior Obligations...............................................................................6

                                                     ARTICLE III

Section 3.1       Reimbursable Amounts and Other Payments.........................................................6
Section 3.2       Obligations Absolute............................................................................6
Section 3.3       Security Interest...............................................................................7
Section 3.4       Indemnity.......................................................................................7

                                                     ARTICLE IV

Section 4.1       Warrants........................................................................................7
Section 4.2       Additional Warrants.............................................................................8
Section 4.3       Registration Rights.............................................................................8

                                                      ARTICLE V

Section 5.1       Representations and Warrants of the Company.....................................................8
Section 5.2       Representations of the Guarantor................................................................9

                                                     ARTICLE VI

Section 6.1       Conduct of Business.............................................................................9

                                                     ARTICLE VII

Section 7.1       Restrictions on Borrowing.......................................................................9
Section 7.2       Liens and Pledges of Assets and Stock...........................................................9
Section 7.3       No Mergers, etc. ...............................................................................9
</Table>

                                       ii
<PAGE>
<Table>
<S>                                                                                                            <C>
                                                    ARTICLE VIII

Section 8.1       Successors and Assigns.........................................................................10
Section 8.2       Notices........................................................................................10
Section 8.3       Amendment......................................................................................10
Section 8.4       Effect of Delay and Waivers....................................................................11
Section 8.5       Counterparts...................................................................................11
Section 8.6       Severability...................................................................................11
Section 8.7       Governing Law and Jurisdiction.................................................................11
Section 8.8       Prior Agreements...............................................................................11
</Table>

                                       iii
<PAGE>
                             REIMBURSEMENT AGREEMENT

                  This REIMBURSEMENT AGREEMENT dated as of December 30, 2002,
(the "Agreement), is made by and between TERAFORCE TECHNOLOGY CORPORATION, a
Delaware corporation (the "Company"), and O. S. WYATT, JR., an individual
residing in Harris County, Texas ("Wyatt" or "Guarantor") (the Company and
Guarantor collectively referred to as the "Parties")

                                   WITNESSETH:

                  WHEREAS, effective June 1, 2001, the Company entered into a
loan arrangement with Bank One, N.A. (the "Bank") providing for the loan of up
to $4,500,000 to the Company (the "June Loan Agreement"); and

                  WHEREAS, in order to induce the Bank to enter into the June
Loan Agreement, Wyatt and certain other persons issued letters of credit in the
aggregate face amount of $5,000,000 (the "Letters of Credit") in order to secure
the loan thereunder; and

                  WHEREAS, amounts outstanding under the June Loan Agreement and
the face amount of the Letters of Credit have been reduced by $2,000,000 and the
Company and the Bank have entered into an amendment and extension of the June
Loan Agreement (the "Amended Loan Agreement");

                  WHEREAS, in order to induce the Bank to enter into the Amended
Loan Agreement, pursuant to consideration to be given by the Company to
Guarantor, Guarantor has caused to be issued to the Bank a letter of credit in
the face amount of $3,000,000 and substantially in the form as in Exhibit A
hereto (the "New Letter of Credit");

                  WHEREAS, the Bank shall provide Advances (as hereinafter
defined) to the Company in accordance with the provisions of the Amended Loan
Agreement and, subject to the terms and conditions of the Amended Loan
Agreement, shall be entitled to make demand upon Guarantor pursuant to the
provisions of New Letter of Credit in the case of an Event of Default (as
defined in the Loan Agreement) by the Company under the Amended Loan Agreement
or Amended Loan Documents (as hereinafter defined); and

                  WHEREAS, effective October 12, 2001 the Company entered into a
loan agreement with the Bank providing for the loan of up to $1,500,000 to the
Company (the "October Loan Agreement"); and

                  WHEREAS, in order to induce the Bank to enter into the October
Loan Agreement, Wyatt executed a limited guarantee to secure the loan there
under (the "Guarantee"); and

                                       1
<PAGE>

                  WHEREAS, the Company and the Bank have entered into a series
of extensions of the October Loan Agreement and expect to enter into a further
extension and amendment of this agreement (the "Amended October Loan
Agreement"); and

                  WHEREAS, in order to induce the Bank to enter into the Amended
October Loan Agreement, the Guarantor has agreed to continue to provide the
Guarantee in a form acceptable to the Bank; and

                  WHEREAS, Guarantor has agreed to continue to provide the
Guarantee and the New Letter of Credit provided that the Company executes and
delivers this Agreement, subject to the terms and conditions provided herein;
and

                  WHEREAS, the Bank shall provide Advances (as hereinafter
defined) to the Company in accordance with the provisions of the Amended October
Loan Agreement and, subject to the terms and conditions of the Amended October
Loan Agreement, shall be entitled to make demand upon Guarantor pursuant to the
provisions of the Guarantee in the case of an Event of Default (as defined in
the Loan Agreement) by the Company under the Amended October Loan Agreement or
Amended October Loan Documents (as hereinafter defined); and

                  WHEREAS, the Guarantor has made cash advances to the Company
aggregate $600,000 and as evidenced by the Promissory Notes; and

                  WHEREAS, the Guarantor has agreed to extend the due date for
the Promissory Notes to September 15, 2003;

                  NOW, THEREFORE, in consideration of the foregoing, the Company
hereby covenants and agrees with Guarantor as follows:

                                    ARTICLE I
                                  GENERAL TERMS

         Section 1.1. Definitions. As used in this Agreement, the following
terms shall have the following meanings:

                  "Advances" shall mean an advance of funds under and subject to
the terms and conditions of the Amended Loan Agreement and the Amended October
Loan Agreement and other Loan Documents, provided that the principal amount
outstanding shall never exceed the Loan Maximum.

                  "Agreement" shall have the meaning specified in the preamble.

                  "Amended Loan Agreement" shall have the meaning specified in
the recitals and in substantially the form as in Exhibit F.

                                       2
<PAGE>

                  "Amended October Loan Agreement" shall have the meaning
specified in the recitals and in substantially the form as in Exhibit G.

                  "Associated Expenses" shall mean the expenses associated with
recovering the Guarantor Advances, excluding the Guarantor Advances and interest
thereon.

                  "Bank" shall have the meaning set forth in the recitals.

                  "Common Stock" shall mean the common stock, par value $0.01,
of the Company.

                  "Company" shall have the meaning specified in the preamble.

                  "Demand for Reimbursement" shall have the meaning specified in
Section 3.1(a).

                  "Draft" means, with respect to the New Letter of Credit, any
negotiable or non-negotiable instrument or demand for payment on the New Letter
of Credit or the Guarantee.

                  "Existing Warrants" shall mean the aggregate of the following:
(i) warrants for the purchase of 360,000 shares of Common Stock at a price of
$0.20 per share, expiring October 31, 2004; (ii)warrants for the purchase of
600,000 shares of Common Stock at a price of $0.80 per share, expiring October
31, 2004; (iii) warrants for the purchase of 150,000 shares of Common Stock at a
price of $0.75 per share, expiring December 31, 2003; and (iv) warrants for the
purchase of 720,000 shares of Common Stock at a price of $0.75 per share,
expiring May 31, 2004.

                  "Governmental Authority" means any United States or foreign
federal, territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.

                  "Guarantor Advance" shall mean the amount of money advanced by
the Guarantor to the Bank pursuant to a demand for payment by the Bank on the
New Letter of Credit or the Guarantee.

                  "Guarantor" shall have the meaning specified in the preamble.

                  "Guarantee" shall have the meaning set forth in the recitals.

                  "Issuer" shall mean the party providing the New Letter of
Credit. Specifically, the Issuer is O. S. Wyatt, Jr.

                  "June Loan Agreement" shall have the meaning set forth in the
recitals.

                  "Letters of Credit" shall have the meaning set forth in the
recitals.

                                       3
<PAGE>

                  "Lien" means any lien, mortgage, security interest, pledge,
assignment, charge, title retention agreement or encumbrance of any kind and any
other arrangement for a creditor's claim to be satisfied from assets or proceeds
prior to the claims of other creditors or the owners.

                  "Loans" shall mean the Company's obligations pursuant to the
Amended Loan Agreement and the Amended October Loan Agreement.

                  "New Loan Agreement" shall have the meaning set forth in the
recitals.

                  "Loan Documents" shall mean the Amended Loan Agreement and
Amended October Loan Agreement with the Bank and all exhibits and related
documents thereto, as they may be amended, extended or modified from time to
time, including, without limitation, a promissory note.

                  "Loan Maximum" shall mean the principal amounts outstanding of
Four Million Two Hundred Thousand Dollars ($4,200,000).

                  "New Letter of Credit" shall have the meaning set forth in the
recitals.

                  "October Reimbursement Agreement" shall mean that
Reimbursement Agreement dated October 19, 2001 by and between TeraForce
Technology Corporation and O.S. Wyatt, Jr.

                  "Original Reimbursement Agreement" shall mean that certain
Reimbursement Agreement dated June 1, 2001 among the Company, and O.S. Wyatt,
Jr., Fayez Sarofim, and Morton Cohn.

                  "Permitted Liens" means (a) Liens for taxes or governmental
assessments, employee benefit obligations, charges or claims the payment of
which is not yet due, or are being contested in good faith for which adequate
reserves have been established or (b) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen and other similar Persons and
other Liens imposed by applicable law incurred in the ordinary course of
business for sums not yet delinquent or not material in amount and being
contested in good faith.

                  "Person" means an individual, corporation, partnership,
association, limited liability company, trust, estate or other similar business
entity or organization, including a Governmental Authority.

                  "Promissory Notes" shall mean collectively that promissory
note dated September 29, 2001 by the Company payable to Oscar S. Wyatt, Jr., in
the amount of $250,000; that promissory note dated October 5, 2001 by the
Company payable to Oscar S. Wyatt, Jr., in the amount of $250,000; and that
promissory note dated October 12, 2001 by the Company payable to Oscar S. Wyatt,
Jr., in the amount of $100,000.

                  "Registration Rights Agreement" shall have the meaning
specified in Section 5.2.

                                       4
<PAGE>

                  "Reimbursement Obligation" shall have the meaning specified in
Section 3.1(a).

                  "Related Documents" shall mean the Warrants, the Replacement
Warrants and the Registration Rights Agreement.

                  "Security Agreement" shall have the meaning specified in
Section 3.3.

                  "Warrants" shall have the meaning specified in Section 4.1.

         Section 1.2. Interpretation.

                  (a) In this Agreement:

                           (i) the singular number includes the plural number
and vice versa;

                           (ii) reference to any gender includes each other
gender;

                           (iii) the words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Agreement as a whole and not to
any particular Article, Section or other subdivision;

                           (iv) reference to any Person includes such Person's
heirs, administrators, successors and assigns but, if applicable, only if such
heirs, administrators, successors and assigns are permitted by this Agreement,
and reference to a Person in a particular capacity excludes such Person in any
other capacity or individually, provided that nothing in this subclause (iv) is
intended to authorize any assignment not otherwise permitted by this Agreement;

                           (v) reference to any agreement, document or
instrument means such agreement, document or instrument as amended, supplemented
or modified and in effect from time to time in accordance with the terms thereof
and, if applicable, the terms hereof, and reference to the Note includes any
Note issued pursuant hereto in extension or renewal hereof and in substitution
or replacement herefor;

                           (vi) unless the context indicates otherwise,
reference to any Article, Section, Schedule or Exhibit means such Article or
Section hereof or such Schedule or Exhibit hereto;

                           (vii) the words "including" (and with correlative
meaning "include") means including, without limiting the generality of any
description preceding such term;

                           (viii) with respect to the determination of any
period of time, the word "from" means "from and including" and the word "to"
means "to, but excluding";

                           (ix) reference to any law means such as amended,
modified, codified or reenacted, in whole or in part, and in effect from time to
time; and

                                       5
<PAGE>

                   (b) No provision of this Agreement shall be interpreted or
construed against any Person solely because that Person or its legal
representative drafted such provision.

                                   ARTICLE II
                                 THE GUARANTIES

         Section 2.1 Guaranty. On the terms and subject to the terms hereof,
Guarantor agrees to cause to be issued the New Letter of Credit and will
continue to provide the Guarantee in a form reasonably acceptable to the Bank.
The New Letter of Credit shall be substantially in the form attached hereto as
Exhibit A.

         Section 2.2 Prior Obligations. The obligation under this section
supersede the obligations of the Guarantor pursuant to the Original
Reimbursement Agreement and the October Reimbursement Agreement.

                                   ARTICLE III
                                  REIMBURSEMENT

         Section 3.1. Reimbursable Amounts and Other Payments

                  (a) Amounts. The Company shall reimburse Guarantor the amount
paid by Guarantor to the Bank equal to the amount of his Guarantor Advance and
any taxes, fees, charges or other costs and expenses incurred by Guarantor in
connection with such payment (the "Reimbursement Obligation"). Each such
Reimbursement Obligation shall be paid by the Company to Guarantor promptly upon
written demand from Guarantor ("Demand for Reimbursement"), but in no event
later than thirty (30) days after such demand. Each such Demand for
Reimbursement, in order to be valid, shall be accompanied by sufficient
documentation supporting the amount of the Reimbursement Obligation.

                  (b) Interest. The Company shall pay interest on any and all
amounts remaining unpaid under Section 3.1(a) at any time from the date such
amounts become payable until paid in full, payable on demand, at simple interest
at the prime rate established by Bank One, N.A., plus 2.0% per annum (or, if
less, the highest rate permitted under applicable law).

                  (c) Currency. All payments by the Company to Guarantor shall
be made in lawful currency of the United States of America and in immediately
available funds at, and pursuant to, such instructions as Guarantor may from
time to time give.

         Section 3.2. Obligations Absolute.

                  (a) The Company's obligations under this Article III shall be
absolute and unconditional irrespective of any set-off, counterclaim, or defense
to payment which the Company may have or have had against the Bank.

                                       6
<PAGE>

                  (b) The Company hereby agrees that Guarantor shall not be
responsible for, and the Reimbursement Obligations shall not be affected by,
among other things,

                           (i) the validity or genuineness of documents or of
                           any endorsements thereon even though such documents
                           shall prove to be invalid, fraudulent, or forged;

                           (ii) any dispute between the Company and the Bank; or

                           (iii) any claims whatsoever of the Company against
                           the Bank.

                  (c) Guarantor shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, howsoever transmitted, in connection with the Guaranty, except for
errors or omissions caused by Guarantor's primary negligence or willful
misconduct.

                  (d) The Company agrees that any action taken or omitted by the
Guarantor in connection with the Guaranty, provided Guarantor's actions are not
the result of Guarantor's primary negligence, willful misconduct, or breach of
contractual obligations, shall be binding on the Company and shall not result in
any liability to Guarantor.

         Section 3.3 Security Interest The Company hereby appoints Wyatt as its
true and lawful attorney-in-fact to execute and deliver on the Company's behalf
the Security Agreement upon the occurrence of any Reimbursement Obligation, the
form of which is attached as Exhibit B, (the "Security Agreement") and execute
and file any necessary UCC financing statements, to grant to Guarantors a valid
lien and security interest in the Accounts and Inventory (each as defined in the
Security Agreement) of the Company.

         Section 3.4 Indemnity In addition to the rights and obligations set
forth in Section 3.1(a), the Company hereby agrees to indemnify and hold
harmless Guarantor, and each of his respective successors, heirs and assigns,
from and against any and all claims and damages, losses, liabilities, costs or
expenses (including reasonable attorneys fees) which Guarantor may incur by
reason of or in connection with the issuance, execution and delivery or transfer
or payment or failure to pay the Guarantee except to the extent of the primary
negligence or willful misconduct of Guarantor, or as may be attributable to
Guarantor's breach of his obligations under this Agreement.

                                   ARTICLE IV
                                    WARRANTS

         Section 4.1. Warrants. As an additional inducement to enter into this
Agreement, the Company agrees to issue to Wyatt Warrants to purchase an
aggregate of 960,000 shares of

                                       7
<PAGE>

Common Stock at an exercise price per share of NO AND 12/100 DOLLARS ($0.12),
the form of which is attached as Exhibit C (the "Warrants").

         Section 4.2. Additional Warrants. As an inducement to enter into this
Agreement, but for which Wyatt would not do, the Company agrees to issue to
issue Replacement Warrants to purchase an aggregate of 1,830,000 shares of
Common Stock at an exercise price per share of NO AND 12/100 DOLLARS ($0.12),
the form of which is attached as Exhibit D (the "Replacement Warrants"). The
Replacement Warrants will be issued upon the exchange and cancellation of the
Existing Warrants.

         Section 4.3. Registration Rights. The Company further agrees to grant
the registration rights to register the resale of the shares of Common Stock to
be issued pursuant to the Warrants and the Replacement Warrants in accordance
with the Registration Rights Agreement attached hereto as Exhibit E (the
"Registration Rights Agreement").

                                    ARTICLE V
                         REPRESENTATIONS AND WARRANTIES

         Section 5.1. Representations and Warrants of the Company. The Company
hereby represents and warrants to Guarantor as follows:

                  (a) Corporate Existence and Good Standing. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own its property and carry on its business as now conducted, and is
in good standing and authorized to do business in each jurisdiction in which the
Company owns real property or conducts such business, where the failure to
maintain such good standing or authorization is reasonably expected to have a
materially adverse effect on its business, operations or financial or other
condition, or could materially adversely affect its ability to perform its
obligations under this Agreement.

                  (b) Authorization and Validity. This Agreement and Related
Documents have been duly authorized by all necessary corporate action, and each
has been duly executed and delivered by the Company and each is valid, binding
and enforceable against the Company in accordance with its terms except as may
be limited by bankruptcy or insolvency laws and similar laws affecting creditor
rights generally and by generally and by general principles of equity.

                  (c) No Conflict; Government Consent; Title to Assets; No
Liens. Neither the execution and delivery of this Agreement and Related
Documents, nor the consummation of the transactions contemplated hereby or
thereby nor compliance with the terms hereof or thereof under the circumstances
contemplated hereby or thereby will conflict with, are prohibited by or will
contravene, violate or constitute a breach of or a default under the Amended and
Restated Certificate of Incorporation or By-Laws of the Company or constitute on
the part of the Company a material breach of or a material default under any
agreement or other instrument to which the Company is a party or any existing
law, administrative regulation, or, to its knowledge, any court order or consent
decree to which the Company is subject, or by which any of its properties is
bound.

                                       8
<PAGE>

                  5.2 Representations of Guarantor. Guarantor represents and
warrants to the Company that he has full power and authority to execute and
deliver this Agreement and the Related Documents, and that this Agreement and
Related Documents are valid, binding and enforceable in accordance with their
terms as they relate to such Guarantor, except as may be limited by bankruptcy
and insolvency laws, and similar laws affecting creditors rights generally and
by general principals of equity. Guarantor represents and warrants to the
Company that the provisions of Section 2.3 of the Warrant and the Additional
Warrant are true and correct as though made on the date hereof, and will be true
and correct on the date of exercise of the Warrant and the Additional Warrant.

                                   ARTICLE VI
                              AFFIRMATIVE COVENANTS

         Section 6.1 Conduct of Business. The Company covenants and agrees that
it shall remain duly incorporated, validly existing and in good standing as a
domestic corporation in the State of Delaware, will not voluntarily dissolve
without first discharging its obligations under this Agreement.

                                   ARTICLE VII
                               NEGATIVE COVENANTS

         Section 7.1. Restrictions on Borrowing. So long as the New Letter of
Credit or the Guarantee is outstanding, except for obligations of the Company on
the date hereof or under the Amended Loan Agreement or the Amended October Loan
Agreement, and extensions or refinancings under such agreements, the Company
shall not, nor permit any of its subsidiaries to, create, incur, assume or
suffer to exist any liability for borrowed money with an aggregate amount
outstanding in excess of $1,000,000, without the consent of Guarantor, which
consent shall not be unreasonably withheld.

         Section 7.2. Liens and Pledges of Assets and Stock. So long as the New
Letter of Credit or Guarantee is outstanding, the Company shall not create,
incur, assume or suffer to exist, directly or indirectly, any Lien on its assets
without the consent of Guarantor, which consent shall not be unreasonably
withheld; provided, however, that this Section 7.2 shall not prohibit the
Company from creating, assuming or suffering to exist the following Liens: (i)
Liens existing as of the date hereof and renewals and replacements thereof or
the repledging of assets pledged thereunder; (ii) Liens incurred in the ordinary
course of business not in connection with the borrowing of money; (iii) Liens
arising from this Agreement an the documents in connection therewith; and (iv)
Permitted Liens.

         Section 7.3 No Mergers, etc. Except as otherwise permitted in the Loan
Agreement or herein, the Company will not sell, transfer or otherwise dispose of
all or substantially all of its assets (either in a single transaction or in a
series of related transactions), and will not merge into or consolidate with any
partnership, corporation or other entity and will not permit one or more
partnerships, corporations or other entities to merge into or consolidate with
it without the prior express written consent of Guarantor, which consent will
not be unreasonably withheld.

                                       9
<PAGE>

                                  ARTICLE VIII
                                    COVENANTS

         Section 8.1 Successors and Assigns. This Agreement shall be binding
upon each party and their respective successors, heirs and assigns.

         Section 8.2. Notices. All notices, requests and demands to or upon the
respective parties shall be in writing (including by facsimile) and, unless
otherwise expressly provided herein, shall be deemed to have been duly given or
made (a) in the case of delivery by hand, when delivered, (b) in the case of
delivery by mail, three (3) days after being deposited in the mails, postage
prepaid, or (c) in the case of delivery by facsimile, when sent and receipt has
been confirmed, addressed as follows:

                  If to Wyatt:               O. S. Wyatt, Jr.
                                             8 Greenway Plaza, Suite 930
                                             Houston, Texas 77046
                                             Telecopier: (713) 877-7192

                  If to the Company:         TeraForce Technology Corporation
                                             Attn.: Herman M. Frietsch, Chairman
                                                    & CEO
                                             1240 East Campbell Road
                                             Richardson, Texas 75081
                                             Telecopier: (469) 330-4999

                  with a copy to:            Haynes and Boone, LLP
                                             2505 Plano Road,
                                             Suite 4000
                                             Richardson, TX 75082
                                             Attn.: Lanny Boeing, Esq.
                                             Telecopier: (972) 692-9053

         Any entity entitled to receive notice hereunder may, by notice given
hereunder, designate any further or different addresses to which subsequent
notices, certificates or other communications shall be sent.

         Section 8.3. Amendment. This Agreement may be amended, modified or
discharged only upon an agreement in writing of the Company and Guarantor.

                                       10
<PAGE>

         Section 8.4. Effect of Delay and Waivers. No delay or omission to
exercise any right or power accruing upon any default, omission or failure of
performance hereunder shall impair any such right or power or shall be construed
to be a waiver thereof, but any such right and power may be exercised from time
to time and as often as may be deemed expedient. In order to entitle Guarantor
to exercise any remedy now or hereafter existing at law or in equity or by
statute, it shall not be necessary to give any notice, other than such notice as
may be herein expressly required. In the event any provision contained in this
Agreement should be breached by any party and thereafter waived by the other
party so empowered to act, such waiver shall be limited to the particular breach
so waived and shall not be deemed to waive any other breach hereunder. No
waiver, amendment, release or modification of this Agreement shall be
established by conduct, custom or course of dealing, but solely by an instrument
in writing duly executed by the parties thereunto duly authorized by this
Agreement.

         Section 8.5. Counterparts. This Agreement may be executed
simultaneously in counterparts, each of which shall be deemed an original, but
both of which together shall constitute one and the same instrument.

         Section 8.6. Severability. The invalidity or unenforceability of any
one or more phrases, sentences, clauses or Sections contained in this Agreement
shall not affect the validity or enforceability of the remaining portions of
this Agreement, or any part thereof. In particular, this section means (among
other things) that the Company does not agree or intend to pay, and Guarantor
does not agree to contract for, charge, collect, take, reserve or receive
(collectively referred to herein as "charge or collect"), any amount in the
nature of interest or in the nature of a fee for anything construed to be a
loan, which would in any way or event (including demand, prepayment, or
acceleration) cause Guarantor to charge or collect more for entering into this
Agreement than the maximum amount Guarantor would be permitted to charge or
collect by federal law or the laws of the State of Texas. Any such excess
interest or unauthorized fee shall, instead or anything stated to the contrary,
be applied first to reduce the principal balance of the loan, if any, and when
the principal has been paid in full, refunded to the Company.

         Section 8.7. Governing Law and Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of Texas.

         Section 8.8 Prior Agreements. This Agreement supercedes the Original
Reimbursement Agreement and the October Reimbursement Agreement.

                                       11
<PAGE>

This Agreement has been signed by the Company as of the date first above
written.

                                       COMPANY:
                                       TeraForce Technology Corporation

                                       By: /s/ Herman M. Frietsch
                                          -------------------------------------
                                          Herman M. Frietsch, Chairman and CEO

                                       GUARANTOR:

                                       /s/ O. S. Wyatt Jr.
                                       -----------------------
                                       O. S. Wyatt, Jr.

                                       12

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