Document:

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Exhibit 4.3

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 [INVESTOR, a resident of Texas, (the
“Investor”).

RECITALS

     WHEREAS, as of an even date herewith, the Company and the Investor
executed a Reimbursement Agreement ( the “Reimbursement Agreement”); and

     WHEREAS, pursuant to the Reimbursement Agreement, the Investor will
acquire warrants for the purchase of up to [ ] shares of the Company’s Common
Stock, par value $.01 per share (“Common Stock”) and shall have the right to
acquire up to an additional [ ] shares of Common Stock upon the exercise of
Conversion Rights, as defined in the Reimbursement Agreement ( collectively 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.

     (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.

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     (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
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 December 31, 2004 (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

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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.

     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

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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 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.

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     (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.

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

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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, 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

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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 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

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that is not a party to this Agreement shall have executed and delivered to the
Secretary of the Company a 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):

     (a) if to the Investor:

9

 

     (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

 

     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:  	 	Robert P. Capps 	 
	 	Title:  	 	Executive Vice President 	 

11exv10w1

 

	 	 	 	 	 

Exhibit 10.1

LOAN AGREEMENT

     THIS LOAN AGREEMENT (as it may be amended or modified from time to time,
together with all exhibits and schedules attached hereto from time to time,
this “Agreement”) is entered into as of the 30th day of July, 2004 (the
“Effective Date”) by and between DNA COMPUTING SOLUTIONS, INC., a Delaware
corporation, (“Borrower”), Borrower’s address for purposes of this Agreement
being 1240 East Campbell Road, Richardson, Texas 75081, and, FIRSTCAPITAL BANK,
SSB, 5433 Westheimer, Suite 100, Houston, Texas 77056, (together with its
successors and assigns, “Lender”). Borrower has applied to Lender for a
commercial loan and other financial accommodations, including those which may
be described on any exhibit or schedule attached to this Agreement. Such loan
and financial accommodations are referred to collectively in this Agreement as
the “Loan”. Borrower understands and agrees that: (a) in granting, renewing,
or extending the Loan, Lender is relying upon Borrower’s representations,
warranties, and agreements, as set forth in this Agreement; (b) the granting,
renewing, or extending of the Loan by Lender at all times shall be subject to
Lender’s sole judgment and discretion; and, (c) such Loan shall be and shall
remain subject to the following terms and conditions of this Agreement.

     TERM. This Agreement shall be effective as of the Effective Date, and
shall continue until the “Final Maturity Date” (as hereinafter defined), unless
sooner terminated in accordance with the terms hereof.

     DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement shall
have the meanings attributed to such terms in the Texas Business and Commerce
Code (the Texas Uniform Commercial Code). All references to dollar amounts
shall mean amounts in lawful money of the United States of America.

	 	 	Accounts. The word “Accounts” means all of Borrower’s presently
existing or hereafter acquired or created accounts, accounts
receivable, and all other rights to receive the payment of money
or other considerations by virtue of merchandise sold or leased,
services rendered, or other considerations given, and including,
in any event, all accounts within the meaning of the Uniform
Commercial Code in effect in any applicable jurisdiction.
	 
	 	 	Advance. The word “Advance” means a disbursement of Loan funds
under this Agreement.
	 
	 	 	Applicable Law. The words “Applicable Law” mean that law in
effect from time to time and applicable to the Collateral, the
parties to this Agreement, and the Notes, which lawfully permits
the charging and collection of the highest permissible lawful
nonusurious rate of interest on the Notes, including laws of the
State of Texas and laws of the United States of America. In no
event shall the provisions of Chapter 346 of the Texas Finance
Code (which regulates certain revolving credit loan accounts and
revolving tri-party accounts) apply to the Loan.

 

 

	 	 	Base Rate. The words “Base Rate” shall mean the prime rate of
interest as posted in the Money Rates section of the Wall Street
Journal, being the base rate on corporate loans posted by at least
75% of the nation’s 30 largest banks. If the publication of this
rate is discontinued by the Wall Street Journal, a comparable
reference rate designated by Lender as a substitute therefor shall
be the Base Rate.
	 
	 	 	Borrowing Base. The words “Borrowing Base” shall mean the sum of
Five Hundred Seventy-Five Thousand and No/100 Dollars
($575,000.00). In addition to the foregoing, if Lender, in its
sole and absolute discretion, determines that there has been a
material adverse change in the financial condition of any
Guarantor, Lender may reduce the Borrowing Base by the amount of
that Guarantor’s Investment, as that amount is set forth in
Exhibit “A” to the Guaranty Agreement.
	 
	 	 	Business Day. The words “Business Day” mean any day excluding
Saturday, Sunday, and any day which is a legal holiday under the
laws of the State of Texas or is a day on which banking
institutions located in the State of Texas are closed.
	 
	 	 	Collateral. The word “Collateral” means all of Borrower’s right,
title, and interest in and to the “Accounts”, the “Equipment”, and
the “Inventory” (as each such term is hereinafter defined),
whether now owned or existing or hereafter arising or acquired and
wherever arising or located, including all accessions, additions,
replacements, and substitutions thereto or thereof; and, all
products and proceeds thereof.
	 
	 	 	Equipment. The word “Equipment” means all of Borrower’s
equipment, machinery, chattels, tools, parts, machine tools,
furniture, furnishings, fixtures and supplies of every nature,
presently existing or hereafter acquired or created (including but
not limited to, all equipment and wherever located, all
accessions, additions and improvements thereto and substitutions
therefor and all parts and equipment which may be attached to or
which are necessary for the operation and use of such personal
property, whether or not the same shall be deemed to be affixed to
real property, and all rights under or arising out of present or
future contracts relating to the foregoing and in any event, all
equipment within the meaning of the Uniform Commercial Code in
effect in any applicable jurisdiction.
	 
	 	 	Event of Default. The words “Event of Default” mean and include
without limitation any of the Events of Default set forth below in
the section entitled “EVENTS OF DEFAULT”.
	 
	 	 	Final Maturity Date. The words “Final Maturity Date” mean the
date on which all amounts under all “Loans” (as hereinafter
defined) shall become fully due and payable. Unless extended in
writing by Borrower and Lender, the Final Expiration Date is that
day which is eighteen (18) months after the Effective Date.

1

 

	 	 	Grantor. The word “Grantor” means and includes without limitation
each and all of the persons or entities granting a Security
Interest in any Collateral for the Indebtedness, including without
limitation all Borrowers granting such a Security Interest.
	 
	 	 	Guarantor. The word “Guarantor” means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with any Indebtedness.
	 
	 	 	Guaranty Agreement. The words “Guaranty Agreement” mean that
Guaranty Agreement of even date herewith executed by the
Guarantors, whereby each of the Guarantors guaranties, among other
things, the payment of all or a portion of the Indebtedness.
	 
	 	 	Indebtedness. The word “Indebtedness” means and includes without
limitation all Loans, together with all other obligations, debts
and liabilities of Borrower to Lender, or any one or more of them,
as well as all claims by Lender against Borrower, or any one or
more of them, whether now or hereafter existing, voluntary or
involuntary, due or not due, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or
jointly with others; and, whether Borrower may be obligated as a
guarantor, surety, or otherwise.
	 
	 	 	Inventory. The word “Inventory” means all of Borrower’s inventory
in all of its forms, wherever located, now or hereafter existing
and whether acquired by purchase, merger or otherwise, and all raw
materials and work in process therefor, all finished goods thereof
and all materials used or consumed in the manufacture, packing,
shipping, advertising, selling, leasing or production thereof,
including such goods in which Borrower has an interest in mass or
a joint or other interest or right of any kind, and such goods
which are returned to or repossessed by Borrower, and all
accessions thereto and products thereof, and including in any
event all inventory within the meaning of the Uniform Commercial
Code in effect in any applicable jurisdiction.
	 
	 	 	Loan. The word “Loan” means the commercial loan and financial
accommodations from Lender to Borrower which are described herein
or described on any exhibit or schedule attached to this Agreement
from time to time.
	 
	 	 	Maximum Legal Rate. The words “Maximum Legal Rate” mean, at any
time, the maximum rate of interest under applicable law that the
Lender may charge a Borrower. The Maximum Legal Rate shall be
calculated in a manner that takes into account any and all fees,
payments, and other charges in respect of this Agreement and the
Related Documents that constitute interest under applicable law.
Each change in any interest rate provided for herein based upon
the Maximum Legal Rate resulting from a change in the Maximum
Legal Rate shall take effect without notice to the Borrower at the
time of such change in the Maximum Legal Rate. For purposes of
determining the Maximum Legal Rate under Texas law, the

2

 

	 	 	applicable rate ceiling shall be the weekly rate ceiling described
in, and computed in accordance with, Chapter 303, Subchapter A, of
the Texas Finance Code.
	 
	 	 	Multiple Advance Credit Note/Note. The words “Multiple Advance
Credit Note” and the word “Note” each means the $575,000.00 Note
to be dated as of the Effective Date and to be executed by
Borrower in favor of Lender pursuant to the credit facility
described in this Agreement, as well as any substitute,
replacement or refinancing note or notes therefore. The principal
amount outstanding under the Note may be prepaid, in full or in
part, at any time and from time to time, without premium or
penalty.
	 
	 	 	Related Documents. The words “Related Documents” mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
	 
	 	 	Security Agreement. The words “Security Agreement” mean the
Security Agreement of even date herewith, to be executed by
Borrower, as debtor, and Lender, as secured party, covering, and
creating a Security Interest against the Collaterals, and securing
the payment of the Indebtedness, as it may be extended, modified,
or renewed from time to time, and any other agreements, whether
created by law, contract, or otherwise, evidencing, governing,
representing, or creating a Security Interest against any of the
Personal Property.
	 
	 	 	Security Interest. The words “Security Interest” mean and
include, without limitation, any type of collateral security which
secures the payment of the Indebtedness or the performance of any
of Borrower’s obligations as described in this Agreement, whether
in the form of a lien, charge, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor’s
lien, equipment trust, conditional sale, trust receipt, lien or
title retention contract, lease or consignment intended as a
security device, or any other security or lien interest
whatsoever, whether created by law, contract, or otherwise.

     LINE OF CREDIT. The line of credit covered by this Agreement consists of
a working capital revolving line of credit (the “Line of Credit”). Subject to
the conditions precedent to an Advance as specified herein, and subject to the
other terms and conditions of this Agreement: Lender agrees to make Advances to
Borrower from time to time from the Effective Date to the Final Maturity Date
pursuant to the Line of Credit, provided the aggregate amount of such Advances
pursuant to the Line of Credit outstanding at any time does not exceed the
Borrowing Base. The Line of Credit will be evidenced by the Revolving Credit
Note. Within the foregoing limits, Borrower may borrow, partially or wholly
repay, and reborrow under the Line of Credit as follows.

	 	 	Conditions Precedent to Each Advance. Lender’s obligation to make
any Advance to or for the account of Borrower under the Line of
Credit is

3

 

	 	 	subject to the following conditions precedent, with all documents,
instruments, opinions, reports, and other items required under
this Agreement to be in form and substance satisfactory to Lender:

	 	(a)	 	Lender shall have received evidence that this
Agreement and all Related Documents have been duly
authorized, executed, and delivered by Borrower to Lender.
	 
	 	(b)	 	The Security Interests in the Collateral shall have
been duly authorized, created, and perfected with first lien
priority and shall be in full force and effect.
	 
	 	(c)	 	The Guaranty Agreement shall have been executed by
each Guarantor, delivered to Lender, and shall be in full
force and effect.
	 
	 	(d)	 	Borrower shall have paid to Lender all fees, costs,
and expenses specified in this Agreement and the Related
Documents as are then due and payable.
	 
	 	(e)	 	There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under
this Agreement, or any of the Related Documents, and there
shall not exist a condition which, with the passage of time,
the giving of notice, or the performance of some other
ministerial act would constitute an Event of Default under
this Agreement or any of the Related Documents.

     Subject to the remaining conditions of this Agreement, Lender will make
Advances to Borrower under the Revolving Credit Note as follows:

	 	 	Making Loan Advances. Advances under the Line of Credit may be
requested orally by authorized persons. Lender may, but need not,
require that all oral requests be confirmed in writing. Each
Advance shall be conclusively deemed to have been made at the
request of and for the benefit of Borrower: (a) when credited to
any deposit account of Borrower maintained with Lender; or, (b)
when advanced in accordance with the instructions of an authorized
person. Lender, at its option, may set a cutoff time, after which
all requests for Advances will be treated as having been requested
on the next succeeding Business Day. As long as Lender is acting
in good faith, Borrower hereby holds Lender harmless from any
claim that Lender made an Advance on the request of a person who
was not an authorized person.
	 
	 	 	Cessation of Advances. If Lender has made any commitment to make
any Loan to Borrower, whether under this Agreement or under any
other agreement, Lender shall have no obligation to make Loan
Advances or to disburse Loan proceeds if: (a) Borrower is in
default under the terms of this Agreement or any of the Related
Documents or any other agreement that Borrower has with Lender;
(b) Borrower becomes insolvent, files a petition in bankruptcy or
similar proceedings, or is adjudged a bankrupt;

4

 

	 	 	(c) there occurs a material adverse change in Borrower’s financial
condition or in the value of any Collateral securing any Loan; (d)
any Guarantor seeks, claims or otherwise attempts to limit, modify
or revoke such Guarantor’s guaranty of the Loan or any other loan
with Lender; or, (e) Lender in good faith deems itself insecure,
even though no Event of Default shall have occurred.
	 
	 	 	Mandatory Loan Repayments. If at any time the aggregate principal
amount of the outstanding Advances with respect to the Line of
Credit shall exceed the Borrowing Base, Borrower, immediately upon
written or oral notice from Lender, shall pay to Lender an amount
equal to the difference between: (i) the outstanding principal
balance of the Advances under the Line of Credit; and, (ii) the
Borrowing Base. On the Final Maturity Date, Borrower shall pay to
Lender in full the aggregate unpaid principal amount of all
Advances evidenced by the Revolving Credit Note then outstanding
and all accrued unpaid interest thereon, together with all other
applicable fees, costs and charges, if any, not yet paid with
respect to the Loan evidenced by the Revolving Credit Note.
	 
	 	 	Loan Account. Lender shall maintain on its books a record of
account in which Lender shall make entries for each Advance and
such other debits and credits as shall be appropriate in
connection with the Line of Credit facility.

     COLLATERAL. To secure the payment of the Loan and the performance of all
obligations and duties owed by Borrower to Lender and arising out of or related
in any way to this Agreement (collectively, the “Obligations”), Borrower shall
grant to Lender a Security Interest in the Collateral. Lender’s Security
Interest in the Collateral shall be a continuing lien and shall include the
proceeds and products of the Collateral, including, without limitation, the
proceeds of any insurance.

     NEGATIVE COVENANTS.

     Borrower covenants and agrees with Lender that, while this Agreement is in
effect, Borrower shall not, without the prior written consent of Lender:

	 	 	Continuity of Operations. (a) Engage in any business activities
substantially different from those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire
or consolidate with any other entity, change ownership, change its
name, dissolve, transfer or sell Collateral out of the ordinary
course of business, or (c) make any distribution with respect to
any shares or capital account, whether by reduction of capital or
otherwise (except such distributions as are consistent with prior
distributions made by Borrower as reflected on the financial
reports made available to and acknowledged by Lender in writing,
and which are justifiable given the financial condition of
Borrower at the time of such distributions).

5

 

     Payments to Guarantors/Shareholders. Pay, outside of the ordinary course
of Borrower’s business, any amounts now outstanding and owing, or coming to be
owed, by Borrower, to any of the Guarantors or to any of the shareholders of
Borrower.

     NOTICE OF FINAL AGREEMENT. THIS AGREEMENT AND ALL OTHER DOCUMENTS
RELATING TO THESE LOANS CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING
TO THESE LOANS.

     UCC FINANCING STATEMENT. Borrower hereby authorizes Lender or its agents
or assigns to file one or more such Financing Statements if permitted in the
relevant jurisdiction. Borrower will pay the cost of filing all such Financing
Statements in all public offices wherever filing is deemed by Lender to be
necessary or desirable.

     ADDENDUM. This Agreement incorporates all addenda as if set forth in full
herein.

     RIGHT OF SETOFF. Borrower grants to Lender a contractual security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender, all of Borrower’s right, title, and interest in and to Borrower’s
accounts with Lender (whether checking, savings, or other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding, however, all IRA and Keogh
accounts, and all trust accounts for which the grant of a security interest
would be prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts.

     EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement.

	 	 	Default on Indebtedness. Failure of Borrower to make any payment
when due on the Loans.
	 
	 	 	Other Defaults. Failure of Borrower to comply with or to perform
when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
	 
	 	 	Default in Favor of Third Parties. Should Borrower default under
any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower’s
property or Borrower’s ability to repay the Loans or perform their
respective obligations under this Agreement or any of the Related
Documents.

6

 

	 	 	False Statements. Any warranty, representation or statement made
or furnished to Lender by or on behalf of Borrower under this
Agreement or the Related Documents is false or misleading in any
material respect at the time made or furnished, or becomes false
or misleading at any time thereafter.
	 
	 	 	Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure
of the Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
	 
	 	 	Death or Insolvency. The dissolution or termination of Borrower’s
existence as a going business; the death of any one or more of the
Guarantors; the insolvency of any Borrower; the appointment of a
receiver for any part of Borrower’s property; any assignment by
Borrower for the benefit of creditors; any type of creditor
workout; or, the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
	 
	 	 	Creditor or Forfeiture Proceedings. Commencement of foreclosure
or forfeiture proceedings, whether by judicial proceeding,
self-help, repossession or any other method, by any creditor of
Borrower against any Collateral, or by any governmental agency.
This includes a garnishment, attachment, or levy on or of any of
Borrower’s deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by
Borrower as to the validity or reasonableness of the claim which
is the basis of the creditor or forfeiture proceeding, and if
Borrower gives Lender written notice of the creditor or forfeiture
proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
	 
	 	 	Events Affecting Guarantor. Any of the preceding events occurs
with respect to any Guarantor of any of the Indebtedness or any
Guarantor dies or becomes incompetent, or revokes or disputes the
validity of, or his or its liability under, the Guaranty
Agreement.
	 
	 	 	Change in Ownership. The resignation or expulsion of any person
with an ownership interest (or sharing ratio) of twenty-five
percent (25%) or more in Borrower.
	 
	 	 	Adverse Change. A material adverse change occurs in Borrower’s or
a Guarantor’s financial condition, or Lender believes the prospect
of payment or performance of the Indebtedness is impaired.
	 
	 	 	Insecurity. Lender, in good faith, deems itself insecure.
	 
	 	 	Right to Cure. If any default is curable, it may be cured (and no
Event of Default will have occurred) if Borrower or Guarantor, as
the case may be, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within
fourteen (14) days; or, (b) with respect to a

7

 

	 	 	non-monetary default, if the cure requires more than fourteen (14)
days, immediately initiates steps which Lender, in Lender’s sole
discretion, deems to be sufficient to cure the default, and
thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably
practicable.

     EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur,
except where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement, the Related
Documents, and every other agreement between Lender and any one or more of the
Borrowers immediately will terminate (including any obligation to make Loan
Advances or disbursements), and, at Lender’s option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the “Death or Insolvency” subsection above, including any such event as it
applies to any Guarantor, such acceleration shall be automatic and not
optional. In addition, Lender shall have all the rights and remedies expressly
provided elsewhere in this Agreement and in the Related Documents or available
at law, in equity, or otherwise. Except as may be prohibited by applicable
law, all of Lender’s rights and remedies shall be cumulative and may be
exercised singularly or concurrently. Election by Lender to pursue any remedy
shall not exclude pursuit of any other remedy, and an election to make
expenditures or to take action to perform an obligation of Borrower or of any
Guarantor shall not affect Lender’s right to declare a default and to exercise
its rights and remedies.

     MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a
part of this Agreement:

	 	 	Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties
as to the matters set forth in this Agreement. No alteration of
or amendment to this Agreement shall be effective unless given in
writing and signed by the party or parties sought to be charged or
bound by the alteration or amendment.
	 
	 	 	Governing Law. This Agreement has been delivered to Lender and
accepted by Lender in the State of Texas. If there is a lawsuit,
and if the transaction evidenced by this Agreement occurred in
Harris County, Texas, Borrower agrees upon Lender’s request to
submit to the jurisdiction of the Federal or state courts of
Harris County, the State of Texas. This Agreement shall be
governed by and construed in accordance with the laws of the State
of Texas and applicable Federal laws. The provisions of this
paragraph are subject to any provisions on arbitration contained
in this Agreement and/or in any Related Documents.
	 
	 	 	Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.

8

 

	 	 	Consent to Loan Participation. Borrower agrees and consents to
Lender’s sale or transfer, whether now or later, of one or more
participation interests in one or both of the Loans to one or more
purchasers, whether related or unrelated to Lender. Lender may
provide, without any limitation whatsoever, to any one or more
purchasers, or potential purchasers, any information or knowledge
Lender may have about Borrower or about any other matter relating
to the Loans, and Borrower hereby waives any rights to privacy it
may have with respect to such matters. Borrower additionally
waives any and all notices of sale of participation interests, as
well as all notices of any repurchase of such participation
interests, subject to the terms and conditions of the Loan
Agreement. Borrower also agrees that the purchasers of any such
participation interests will be considered as the absolute owners
of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing
the sale of such participation interests. Borrower further waives
all rights of offset or counterclaim that it may have now or later
against Lender or against any purchaser of such a participation
interest and unconditionally agrees that either Lender or such
purchaser may enforce Borrower’s obligation under the Loans
irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the purchaser
of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may
have against Lender.
	 
	 	 	Costs and Expenses. Except as otherwise limited by the Texas
Credit Code and the Texas Finance Code, Borrower agrees to pay
upon demand all of Lender’s expenses related to the Loans,
including, without limitation, attorneys’ fees, incurred in
connection with the preparation, execution, enforcement, and
modification of this Agreement or in connection with the Loans
made pursuant to this Agreement. Lender may hire one or more
attorneys to help collect the Indebtedness if Borrower does not
pay, and Borrower will pay Lender’s reasonable attorneys’ fees.
Borrower also will pay Lender all other amounts actually incurred
by Lender as court costs, and all lawful fees for filing,
recording, or releasing to any public office any instrument
securing the Indebtedness; the reasonable cost actually expended
for repossessing, storing, preparing for sale, and selling any
Collateral; fees for noting a lien on or transferring a
certificate of title to any motor vehicle offered as security for
the Indebtedness; and, premiums or identifiable charges incurred
in connection with the acquisition of insurance which Lender is
authorized to obtain hereunder or under any Related Documents.
	 
	 	 	Notices. Subject to the ability of Lender, at its option, to make
Advances on the oral request of an authorized person as specified
hereinabove, all notices required to be given under this Agreement
shall be given in writing, may be sent by telefacsimile (unless
otherwise required by law), and shall be effective when actually
received by the party for whom intended or, if not sooner
received: on the first (1st) Business Day after deposited with a
nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party

9

 

	 	 	to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by
giving formal written notice to the other parties, specifying that
the purpose of the notice is to change the party’s address. For
notice purposes, Borrower will keep Lender informed at all times
of Borrower’s current address(es).
	 
	 	 	Payment of Interest and Fees. Notwithstanding any other provision
of this Agreement or any provision of any Related Document,
Borrower does not agree or intend to pay, and Lender does not
agree or intend 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
these Loans, or any other Loan with Borrower, which would in any
way or event (including demand, prepayment, or acceleration) cause
Lender to charge or collect more for the Loan than the maximum
Lender would be permitted to charge or collect by any applicable
federal law or any applicable law of the State of Texas. Any such
excess interest or unauthorized fee shall, instead of anything
stated to the contrary, be applied first to reduce the unpaid
principal balance of the Loan, and when the principal has been
paid in full, be refunded to Borrower. The right to accelerate
maturity of sums due under this Agreement does not include the
right to accelerate any interest which has not otherwise accrued
on the date of such acceleration, and Lender does not intend to
charge or collect any unearned interest in the event of
acceleration. All sums paid or agreed to be paid to Lender for
the use, forbearance or detention of sums paid under this
Agreement shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the full term
of the applicable Loan evidenced by this Agreement until payment
in full so that the rate or amount of interest on account of any
Loan evidenced by this Agreement does not exceed the applicable
usury ceiling. When the term “interest” is used in the context of
“payment of interest”, it is the intent of the parties that all
such references shall be to accrued and unpaid interest, and in no
event will Borrower ever be required to pay unearned interest.
	 
	 	 	Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to
any person or circumstance, such finding shall not render that
provision invalid or unenforceable as to any other persons or
circumstances. If feasible, any such offending provision shall be
deemed to be modified to be within the limits of enforceability or
validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and
enforceable.
	 
	 	 	Subsidiaries and Affiliates of Borrower. To the extent the
context of any provisions of this Agreement makes it appropriate,
including, without limitation, any representation, warranty or
covenant, the word “Borrower” as used herein shall include all
subsidiaries and affiliates of Borrower. Notwithstanding the
foregoing however, under no circumstances shall this Agreement be
construed to require Lender to make any Loan or other financial
accommodation to any subsidiary or affiliate of Borrower.

10

 

	 	 	Successors and Assigns. All covenants and agreements contained by
or on behalf of a party hereto shall bind its successors and
assigns and shall inure to the benefit of the other party, its
successors and assigns. Borrower shall not, however, have the
right to assign its rights under this Agreement or any interest
therein, without the prior written consent of Lender.
	 
	 	 	Survival. All warranties, representations, and covenants made by
a party in this Agreement or in any certificate or other
instrument delivered by that party to the other party under this
Agreement shall be considered to have been relied upon by the
party to whom made and will survive the making of the Loans and
delivery to Lender of the Related Documents, regardless of any
investigation made by the party to whom made or on that party’s
behalf.
	 
	 	 	Time is of the Essence. Time is of the essence in the performance
of this Agreement.
	 
	 	 	Waiver. A party hereto shall not be deemed to have waived any
rights under this Agreement unless such waiver is given in writing
and signed by that party. No delay or extension on the part of a
party hereto in exercising any right shall operate as a waiver of
such right or any other right. A waiver by a party hereto of a
provision of this Agreement shall not prejudice or constitute a
waiver of that party’s right otherwise to demand strict compliance
with that provision or any other provision of this Agreement. No
prior waiver by Lender, nor any course of dealing between Lender
and Borrower, or between Lender and any Guarantor, shall
constitute a waiver of any rights or of any obligations of either
party hereto or of any Guarantor as to any future transactions.
Whenever the consent of a party hereto is required under this
Agreement, the granting of such consent by that party in any
instance shall not constitute continuing consent in subsequent
instances where such consent is required, and in all cases such
consent may be granted or withheld in the sole discretion of that
party.

     BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF THE
EFFECTIVE DATE.

11

 

	 	 	 
	BORROWER:

	 	LENDER:
	 

	 	 
	DNA COMPUTING SOLUTIONS, INC., a

	 	FIRSTCAPITAL BANK, SSB
	Delaware corporation
	 	 

	 	 	 	 	 	 	 
	By:

	 	/s/ Robert P Capps	 	By:
	 	/s/ Brian Dore
	

	 	
 	 	 	 	
 
	 	 	     Robert P Capps	 	 	Brian Dore, Banking Officer
	

	 	     Executive Vice- President	 	 	 	 

12

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