EXHIBIT 4.1
Reimbursement Agreement
REIMBURSEMENT AGREEMENT
BY AND AMONG
DNA COMPUTING SOLUTIONS, INC.
TERAFORCE TECHNOLOGY CORPORATION
AND
XXXXXXX X. XXXX
XXXXXX X. XXXXXXXX XX
XXXXXX X. XXXXXXX
XXXXX XXXXXXX
XXXXX XXXXXX
XXXX XXXXXX
XXXXXX XXXXXXXX
DATED AS OF MARCH 26, 2003
REIMBURSEMENT AGREEMENT
This REIMBURSEMENT AGREEMENT dated as of March 26, 2003, (the
"Agreement), is made by and between TERAFORCE TECHNOLOGY CORPORATION, a Delaware
corporation ("TERA"), DNA COMPUTING SOLUTIONS, INC, a Delaware corporation and
a wholly-owned subsidiary of TERA ("DNA-CS") (TERA and DNA-CS collectively
referred to as the Companies) and XXXXXXX X. XXXX, an individual residing in
Texas, XXXXXX X. XXXXXXXX XX, an individual residing in Texas, XXXXXX X.
XXXXXXX, an individual residing in Texas, XXXXX XXXXXXX, an individual residing
in Texas, XXXXX XXXXXX, an individual residing in Texas, XXXXXX XXXXXXXX, an
individual residing in Texas, and XXXX XXXXXX, an individual residing in Texas
(each individual a "Guarantor" and collectively the "Guarantors") (the TERA,
DNA-CS and Guarantors collectively referred to as the "Parties")
WITNESSETH:
WHEREAS, the Companies contemplate entering into a loan
agreement with First Capital Bank (the "Bank") providing for the loan of up to
$1,000,000 to DNA-CS (the "Loan Agreement"); and
WHEREAS, DNA-CS will granted the Bank a security interest in
certain assets, including accounts receivable and inventories; and
WHEREAS, in order to enter into the Loan Agreement the Bank
has required the Guarantors to provide limited guarantees aggregating
$1,350,000; and
WHEREAS, in order to induce the Bank to enter into the Loan
Agreement, each Guarantor has executed a limited guarantee to secure the loan
there under in the amount as indicated in Schedule I (the "Guarantee"); and
WHEREAS, the Bank shall provide Advances (as hereinafter
defined) to the DNA-CS in accordance with the provisions of the Loan Agreement
and shall be entitled to make demand upon the Guarantors pursuant to the
provisions of the Guarantees in the case of an Event of Default (as defined in
the Loan Agreement) by the Companies under the Loan Agreement; and
NOW, THEREFORE, in consideration of the foregoing, the
Companies and the Guarantors covenant and agree 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 Loan Agreement provided that the principal
amount outstanding shall never exceed the Loan Maximum.
"Agreement" shall have the meaning specified in the preamble.
"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 TERA.
"Demand for Reimbursement" shall have the meaning specified in
Section 3.1(a).
"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
Guarantee.
"Guarantor" and "Guarantors" shall have the meanings specified
in the preamble.
"Guarantee" shall have the meaning set forth in the recitals.
"Guarantor's Percentage " shall mean the amount of a
Guarantor's Guarantee divided by the aggregate amount of Guarantees provided by
the Guarantors.
"Loans" shall mean the Companies' obligations pursuant to the
Loan Agreement and the Loan Agreement.
"Loan Documents" shall mean the Loan Agreement 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
$1,000,000.
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"Person" means an individual, corporation, partnership,
association, limited liability company, trust, estate or other similar business
entity or organization, including a Governmental Authority.
"Registration Rights Agreement" shall have the meaning
specified in Section 4.3.
"Reimbursement Obligation" shall have the meaning specified
in Section 3.1(a).
"Related Documents" shall mean the Warrants and the
Registration Rights Agreement.
"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 sub clause (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 here for;
(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;
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(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
(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 Guarantees. On the terms and subject to the terms hereof,
each Guarantor agrees to provide the Guarantee in the amount as indicated on
Schedule I in substantially the form as in Exhibit A.
ARTICLE III
ASSUMPTION OF LOAN, REIMBURSEMENT
Section 3.1 Assumption of Loan. Should the Guarantors be required to
make payment to the Bank pursuant to the Guarantee, the Companies hereby consent
to the assumption of the Loan by the Guarantors, including all collateral
rights. The Companies will use their best efforts to facilitate such assumption.
Section 3.2. Reimbursable Amounts and Other Payments
(a) Amounts. Should the Guarantors not elect to, or be unable
for any reason to, assume the Loan, the Companies shall reimburse each Guarantor
the amount paid by the Guarantor to the Bank equal to the amount of his
Guarantor Advance and any interest, 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 Companies 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, such as copies of documents provided by
the Bank to the Guarantors, 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). The Guarantors may, at
their election, receive interest payments in shares of Common Stock. The number
of shares of Common Stock to be issued shall be determined by dividing the
amount of the interest payment by $0.12.
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(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 DNA-CS'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.
(b) The DNA-CS 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 DNA-CS, TERA and the
Bank; or
(iii) any claims whatsoever of the DNA-CS or TERA
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 Companies 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 DNA-CS and TERA and shall
not result in any liability to Guarantor.
Section 3.4 Indemnity In addition to the rights and obligations set
forth in Section 3.1(a), the Companies 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.
Section 3.5 Agreement Among Guarantors Upon the Bank invoking any or
all of the Guarantees, each Guarantor shall fund an amount equal to the total
amount of payments made to the Bank times his Guarantor's Percentage. Should any
Guarantor's Guarantor Advance be in excess of this amount, the other Guarantors
shall reimburse that Guarantor such that each
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Guarantor Advance is proportionate to each Guarantor's Percentage. Such
reimbursement shall be made within 30 days of a demand from another Guarantor.
ARTICLE IV
CONVERSION RIGHTS AND WARRANTS
Section 4.1. Warrants. As an inducement to enter into this Agreement,
TERA agrees to issue to the Guarantors Warrants to purchase an aggregate of
8,333,334 shares of Common Stock at an exercise price per share of $0.15, the
form of which is attached as Exhibit B (the "Warrants"). Each Guarantor shall
receive Warrants to purchase a number of shares of Common Stock equal to the
aggregate number of Warrants times his Guarantor's Percentage.
Section 4.2 Conversion Rights. As long as any Loans are outstanding or
DNA-CS is able to incur Loans under the Loan Agreement, each Guarantor shall
have the right to purchase a number of shares of Common Stock equal to his
proportionate share of the Loan Maximum divided by $0.12. Proceeds from the
issuance of such shares of Common Stock shall be utilized by TERA to repay
amounts outstanding under the Loan Agreement and cause the Bank to release
Guarantees underlying the amount of the Loan repaid. The Companies will
undertake such procedures to ensure the Guarantor that the Guarantee will be
released immediately upon the purchase of the shares of Common Stock. Further,
each Guarantor shall have the right to covert any Reimbursement Obligation into
a number of shares of Common Stock equal to the amount of the Reimbursement
Obligation divided by $0.12. The Companies shall give the Guarantors not less
than 30 days notice of the intent to repay the Loans and obtain the release of
the Guarantees.
Section 4.3. Registration Rights. The TERA further agrees to grant the
registration rights to register the resale of the shares of Common Stock to be
issued pursuant to the Conversion Rights and the Warrants and the in accordance
with the Registration Rights Agreement attached hereto as Exhibit C (the
"Registration Rights Agreement").
Section 4.4. Subsequent Financings. Should TERA, within 180 days of the
date of this agreement, issue Common Stock at a price per share less than $0.12,
or issue warrants or convertible securities that provide for an exercise or
conversion price of less than $0.12 per share, then the conversion rate in
Section 4.2 above shall be reduced to such lesser amount and the exercise price
of the warrants shall be reduced to such lesser amount.
Section 4.5 Sharing of Consideration. Should any Guarantor be required
to make a Guarantor Advance in an amount in excess of an amount equal to the
Loan Maximum times his Guarantor's Percentage and does not receive reimbursement
from the other Guarantors pursuant to Section 3.5 of this Agreement and within
the time frame required by Section 3.5, that Guarantor shall receive additional
Warrants and Conversion Rights proportionate with the amount of such excess
funding. Any Guarantor not making reimbursement to other Guarantors pursuant to
Section 3.5 of this Agreement shall forfeit Warrants and Conversion Rights
proportionate to the amount of reimbursement not made.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1. Representations and Warrants of the TERA and DNA-CS. TERA
and DNA-CS hereby represents and warrants to Guarantors as follows:
(a) Corporate Existence and Good Standing. Each 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
it 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 TERA and DNA-CS and each is valid,
binding and enforceable against the TERA and DNA-CS 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 TERA or DNA-CS or constitute
on the part of the TERA or DNA-CS a material breach of or a material default
under any agreement or other instrument to which the either company is a party
or any existing law, administrative regulation, or, to its knowledge, any court
order or consent decree to which TERA or DNA-CS is subject, or by which any of
its properties is bound.
5.2 Representations of Guarantors. Each Guarantor represents and
warrants to the TERA and DNA-CS 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. Each Guarantor represents and
warrants that he or she (a) has such knowledge and experience in financial and
business matters that such Guarantor is capable of evaluating the merits and
risks of his or her investment and has the financial ability to assume the
monetary risk associated therewith; (b) is able to bear the complete loss of his
or her investment; (c) has received such documents and information from the TERA
or DNA-CS as such Guarantor has requested and has had the opportunity to ask
questions of, and receive answers from, the TERA and DNA-CS and the terms and
conditions of the offering of the
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Warrants and the Common Stock to be issued pursuant to the Conversion Rights and
the Warrants and to obtain additional information; (d) is an "accredited
investor" as defined in Rule 501(a) of Regulation D promulgated under the 1933
Act; and (e) is not relying upon any statements or instruments made or issued by
any person other than the TERA or DNA-CS in making a decision to invest in the
Shares.
ARTICLE VI
AFFIRMATIVE AND NEGATIVE COVENANTS
Section 6.1 Conduct of Business. The TERA and DNA-CS covenant and agree
that each 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.
Section 6.1 Limitation on Borrowings. TERA and DNA-CS covenant and
agree that amount of the Loans shall not exceed an amount equal to the sum of
(a) the amount of DNA-CS inventories multiplied by 50% and (b) the amount if
DNA-CS accounts receivable multiplied by 80%.
Section 6.2 Pledge of Assets. The Companies will not pledge any assets,
other than in relation to the Loan Agreement, without the express consent of the
Guarantors.
ARTICLE VII
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 Guarantors: to the addresses as indicated on Schedule I
If to the Company: TeraForce Technology Corporation
Attn.: Xxxxxx X. Xxxxxxxx, Chairman & CEO
0000 Xxxx Xxxxxxxx Xxxx
Xxxxxxxxxx, Xxxxx 00000
Telecopier: (000) 000-0000
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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 TERA, DNA-CS and each of the
Guarantors.
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 Guarantors
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 TERA and DNA-CS do not agree or intend to pay, and Guarantors
do 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 Guarantors to charge or collect more for entering into this
Agreement than the maximum amount Guarantors 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 Companies.
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.
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This Agreement has been signed by the Company as of the date first
above written.
TERA:
TeraForce Technology Corporation
By: /s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx, Executive Vice President
DNA-CS:
DNA Computing Solutions, Inc.
By: /s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx, Executive Vice President
GUARANTORS:
/s/ Xxxxxxx X. Xxxx
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Xxxxxxx X. Xxxx
/s/ Xxxxxx X. Xxxxxxxx XX
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Xxxxxx X. Xxxxxxxx XX
/s/ Xxxxxx X. Xxxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxxx
/s/ Xxxxx Xxxxxxx
-----------------------------------------
Xxxxx Xxxxxxx
/s/ Xxxxx Xxxxxx
-----------------------------------------
Xxxxx Xxxxxx
/s/ Xxxx Xxxxxx
-----------------------------------------
Xxxx Xxxxxx
/s/ Xxxxxx Xxxxxxxx
-----------------------------------------
Xxxxxx Xxxxxxxx
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