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                                                                    EXHIBIT 10.2


                       FLEXTRONICS INTERNATIONAL USA, INC.
                      DESIGN/ENGINEERING SERVICES AGREEMENT

     THIS ENGINEERING SERVICES AGREEMENT ("AGREEMENT") is made as of January 11,
2002 (the "EFFECTIVE DATE"), between TeraForce Technology Corporation, having
its place of business at 1240 East Campbell Road, Richardson, TX 75081
("CLIENT") and Flextronics Design S.D., Inc., having its place of business at
4520 Executive Drive, San Diego, CA 92121-3018 ("FLEXTRONICS").

     Pursuant to an Asset Purchase Agreement by and among Flextronics, Client
and DNA Enterprises, Inc. ("DNA"), a wholly-owned subsidiary of Client,
Flextronics has purchased the design business of DNA ("ASSET PURCHASE
AGREEMENT"). As a condition to the Asset Purchase Agreement, Flextronics
withheld $1,000,000 from the Final Acquisition Consideration (defined in the
Asset Purchase Agreement) to be applied as a retainer pursuant to this Agreement
(the "PREPAYMENT").

     Client has requirements for certain engineering design services.
Flextronics has developed processes and practices for providing design and
engineering services for many different electronic applications, and at Client's
request desires to provide said services in accordance with Client's
specifications. The parties agree as follows:

1.   SCOPE, SERVICES, LICENSE.

          1.1. Scope. This Agreement sets forth the terms and conditions for the
     design services to be provided by Flextronics. Such services will be
     performed by Flextornics' engineering personnel at the direction of Client.
     Flextronics shall provide Client engineering personnel qualified to provide
     the services required by Client and will use it commercially reasonable
     efforts to provide specific personnel requested by Client.

          1.2. Services. Flextronics agrees to use reasonable commercial efforts
     to perform the services ("SERVICES") pursuant to written specifications
     described in purchase orders or changes thereto issued by Client and
     accepted by Flextronics.

          1.3. License. Client grants Flextronics a non-exclusive license during
     the term of this Agreement to use all of Client's patents, trade secrets
     and other intellectual property required to perform Flextronics'
     obligations under this Agreement.

2.   RETAINED SERVICES CONTRACT; PAYMENT FOR SERVICES AND EXPENSES.

          2.1. Retained Services Agreement. TeraForce will be required to
     purchase, and Flextronics will be required to provide 2,500 hours per month
     of design services during the



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     first three months following the Effective Date, 1,000 hours per month of
     design services during months 4 through 6 following the Effective Date, 500
     hours per month of design services during months 7 and 8 following the
     Effective Date and 265 hours per month of design services during the month
     9 following the Effective Date (the "MINIMUM HOURS"). The hourly rate
     attributed to these Minimum Hours will be $85 per hour up to a total of
     $1,000,000 in minimum fees during the first year of the Agreement (the
     "MINIMUM AMOUNT"). Any services provided in excess of the Minimum Hours
     shall be provided at Flextronics' normal rates, or such other rates on
     which Flextronics and Client agree.


          2.2. Adjustment of Minimum Hours. Flextronics shall have the right,
     but not the obligation, to reduce the Minimum Hours in the event such hours
     can be billed to a third party at a rate greater than $85 per hour. In the
     event Flextronics wishes to exercise its rights pursuant to this section,
     it must provide Client with reasonable notice that such hours will not be
     provided and the time period effecting such reduction. Any reduction in the
     Minimum Hours pursuant to this section will result in a corresponding
     decrease in the Minimum Amount.


          2.3. Invoices. Flextronics shall invoice TeraForce for the Minimum
     Hours (according to Section 2.1 above, whether or not TeraForce used the
     Flextronics design services during the period) and for any Services
     performed in excess of the Minimum Hours, on a monthly basis. In each such
     invoice, Flextronics shall credit the relevant portion of the prepayment.
     Client shall pay the amount of such invoices submitted by Flextronics (less
     any credit for the Prepayment). In the event that Client fails or refuses,
     for any reason, to make any payment due Flextronics pursuant to this
     Agreement, and in the event such payment remains delinquent for a period of
     fifteen (15) days from and after the due date thereof, Flextronics may stop
     all Services under this Agreement and retain all work in process until all
     outstanding invoices are paid in full. With respect to work performed over
     and above the Minimum Hours, to the extent that Flextronics project
     personnel cannot be reassigned to other billable work during such stoppage
     and/or in the event restart cost are incurred, additional fees may be due
     and payable before the Services can resume.

          2.4. Expenses. Client shall reimburse Flextronics at cost for all
     reasonable expenses incurred by Flextronics in the performance of Services.

          2.5. Payment. Client agrees to pay all invoices in U.S. Dollars within
     thirty (30) days of the date of the invoice. Client agrees to pay one and
     one-half percent (1.5%) monthly interest on all late payments. Furthermore,
     if Client is late with payments, or Flextronics has reasonable cause to
     believe Client may not be able to pay, Flextronics may require prepayment
     or delay shipments or suspend Services until assurances of payment
     satisfactory to Flextronics are received.



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3.   MATERIALS RELATED TO SERVICES.

     Client will provide all machinery, equipment, tooling, components, boards,
     materials and supplies necessary to perform the Services ("MATERIALS").
     Flextronics will have no responsibility to provide any Materials.

4.   CONFIDENTIAL INFORMATION. During the term of this Agreement and for three
     (3) years thereafter each party will not, disclose without the permission
     of the other party any of the other party's information which is
     conspicuously marked to indicate its confidential or proprietary nature or
     which the other party has otherwise instructed in writing to maintain as
     confidential. This paragraph shall not apply to any information which is
     publicly available or which is available from a third party without similar
     restrictions on disclosure. Upon written request of a party, the other
     shall return all such confidential information of the requesting party and
     shall destroy all copies thereof. In the event the parties have executed an
     agreement related to confidential information prior to this agreement the
     terms and conditions of that agreement shall govern confidential
     information.

5.   RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be construed to
     constitute a partnership, joint venture, agency, or employment relationship
     between Client and Flextronics or Flextronics' employees or contractors. It
     is understood that Flextronics shall at all times remain an independent
     contractor and that Client shall in no event be liable for the debts,
     liabilities, or other obligations of Flextronics.

6.   NEW DEVELOPMENTS. Except for Flextronics' existing intellectual property
     including, without limitation, Flextronics' design tools, methodologies,
     software, algorithms, or other means that may be used to design production
     means or the processes by which products are manufactured, assembled, or
     tested (including, but not limited to any intellectual property acquired by
     Flextronics from Client pursuant to the Asset Purchase Agreement of even
     date herewith), Flextronics agrees that all designs, plans, reports,
     specifications, drawings, schematics, prototypes, models, inventions,
     copyrights, and all other information and items made or conceived by
     Flextronics or by its employees, contract personnel, or agents during the
     course of this Agreement and exclusively related to the Services shall be
     and are assigned to Client as its sole and exclusive property. Upon
     Client's request Flextronics agrees to assist Client, at Client's expense,
     to obtain patents for any such inventions, including the disclosure of all
     pertinent information and data with respect thereto, the execution of all
     applications, specifications, oaths, and assignments, and all other
     instruments and papers which Client shall deem necessary to apply for and
     to assign or convey to Client, its successors and assigns or nominees, the
     sole and exclusive right, title and interest in such inventions,
     copyrights, applications and patents. Flextronics agrees to obtain or has
     obtained written assurances from its employees and contract personnel of
     their agreement to substantially the same terms as contained herein with
     regard to confidential information and such new developments.

7.   CLIENT REPRESENTATIVE. Dr. Eugene Helms shall represent Client during the
     performance of this Agreement with respect to the Services and deliverables
     defined herein, and has authority to execute modifications or additions to
     this Agreement as defined in the paragraph herein titled "Additional
     Services".


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8.   LIABILITY AND INDEMNIFICATION. Client and Flextronics hereby acknowledge
     and agree that: (a) the Services to be performed hereunder by Flextronics
     may be incorporated into a product, process or service to be developed by
     Client, (b) Client is responsible for final review, testing, and approval
     of all features of the Product and the results of the Services, and (c)
     Client has provided Flextronics with data, information and/or
     Specifications regarding the Services which have been used by and relied
     upon by Flextronics without independent verification or investigation.
     Accordingly, Client shall defend, indemnify, and hold Flextronics, its
     affiliated companies, officers, directors, employees, and agents
     ("INDEMNIFIED PARTIES") harmless from any obligations, costs, claims,
     judgments, losses, expenses and liabilities (including reasonable attorneys
     fees) incurred in connection with any such claim or alleged claim suffered
     or incurred by any of the Indemnified Parties as a result of any third
     party claim or threatened claim which arises in connection with the
     Services, Flextronics' performance under this Agreement, process or service
     of Client, including but not limited to any claim that any results from the
     Services infringe any third party's copyright, patent, trademark, or other
     intellectual property rights. This section shall survive termination or
     expiration of this Agreement.

9.   DISCLAIMER OF WARRANTY AND LIMITATION OF REMEDIES. Client understands and
     agrees that (a) nothing contained in this Agreement shall be construed as a
     warranty, either expressed or implied (including without limitation, any
     warranty of merchantability or fitness for a particular purpose), as to the
     Services performed hereunder, (b) Flextronics shall not be liable for any
     loss or damage caused by delay in furnishing Services or any other
     performance under or pursuant to this Agreement, (c) the sole and exclusive
     remedy for Flextronics' liability of any kind (including liability and
     negligence) with respect to the Services covered by this Agreement and all
     other performance by Flextronics under or pursuant to this Agreement shall
     be limited to Client's right to recover an equitable amount not to exceed
     such charges as were paid to Flextronics hereunder, and (d) in no event
     will Flextronics be liable for any loss of use, loss of profit,
     interruption of business, any indirect, special, incidental, punitive, or
     consequential damages of any kind (including lost profits) regardless of
     the form of action, whether in contract, tort (including negligence),
     strict liability or otherwise, even if Flextronics has been advised or
     should have been aware of the possibility of such damages. This section
     shall survive the termination or expiration of this Agreement.

10.  ENFORCEMENT OF AGREEMENT. If the scope of any of the provisions of this
     Agreement is too broad in any respect whatsoever to permit enforcement to
     its full extent, then such provisions shall be enforced to the maximum
     extent permitted by law, and the parties hereto consent and agree that such
     scope may be judicially modified accordingly and that the whole of such
     provisions of this Agreement shall not thereby fail, but that the scope of
     such provisions shall be curtailed only to the extent necessary to conform
     to law.

11.  ADDITIONAL SERVICES. Client and Flextronics agree:

     11.1.     Basis for Pricing; Additional Fees. The fees quoted herein,
               whether on a "time and materials" basis or a "fixed price" basis,
               are contingent upon the accuracy and



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               completeness of the Specifications and key assumptions, and the
               performance of Client's responsibilities, as described in this
               Agreement. Additional fees will be due if Flextronics is required
               to perform Additional Services or incur additional out-of-pocket
               costs due to (a) changes in scope or Specifications, (b) invalid
               assumptions, (c) failure of Client or a subcontractor of Client's
               to perform its responsibilities under this Agreement, or (d)
               extension of any milestone completion schedule due to causes
               outside of Flextronics' control. If Flextronics identifies a
               requirement for Additional Services, it will notify Client as
               soon as practical, and will receive Client's written approval
               before continuing.


     11.2.     Additional Fees Due to Delays. Additional fees at Flextronics'
               standard hourly billing rates for any time in excess of the
               Minimum Hours, plus any out-of-pocket costs incurred by
               Flextronics, will be due if Flextronics must stop Services due to
               delays caused by Client or a subcontractor of Client's failure to
               perform its responsibilities, to the extent that Flextronics
               project personnel cannot be reassigned to other billable work.


12.  NOTICES. Notices to the parties should be addressed as follows:

                         If to Flextronics:

                           Flextronics Design S.D., Inc.
                           4520 Executive Drive
                           San Diego, CA 92121-3018
                           Phone: (858) 550-1441
                           Fax: (858) 550-1442

                           with copies to:

                           Flextronics International USA Inc.
                           2090 Fortune Drive
                           San Jose, CA 95131
                           Attention:   Robert R.B. Dykes
                                        President, Systems Group and
                                        Chief Financial Officer
                           Phone:  (408) 576-7000
                           Fax:  (408) 526-9215



                           Flextronics International Ltd.
                           2 Changi Road
                           Singapore 408723
                           Attn:  Chairman
                           Phone:  (65) 844-3366
                           Fax:  (65) 842-1103



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                         If to Client:

                           TeraForce Technology Corporation
                           1240 East Campbell Road
                           Richardson, TX 75081
                           Attention:   Robert P. Capps
                                        Executive Vice President
                                        and Chief Financial Officer


13.  ASSIGNMENT. Neither this Agreement, nor any duties or obligations under
     this Agreement may be assigned by either party without the prior written
     consent of the other party. Except for this prohibition on assignment, this
     Agreement shall be binding upon and inure to the benefit of the heirs,
     successors, and assigns of the parties hereto.

14.  TERM AND TERMINATION. The term of this Agreement shall be for the greater
     of (a) one year or (b) until the Services have been completed unless
     otherwise terminated or canceled as provided herein. In the event of
     cancellation prior to completion of the Services, Client shall pay
     Flextronics the greater of (a) the Minimum Amount or (b) all outstanding
     invoices, including all work in progress and out-of-pocket costs incurred
     up to the date of cancellation plus reasonable shut-down costs. Flextronics
     agrees to deliver all results of Services paid for up to the time of
     cancellation. In the event that Flextronics cannot deliver under this
     Agreement due to causes beyond its control, Client will compensate
     Flextronics for the greater of (a) the Minimum Amount or (b all outstanding
     invoices, including all work in progress and out-of-pocket costs incurred
     up to the date of cancellation plus reasonable shut-down costs. In the
     event that Client cannot perform under this Agreement through causes beyond
     its control, Flextronics will be responsible for the return of payments
     made prior to the date of stoppage that are in excess of the greater of (a)
     the Minimum Amount or (b) work performed and out-of-pocket costs incurred.
     No such termination or cancellation shall affect the obligations of the
     parties under the sections herein titled "Confidential Information" and
     "New Developments".

15.  DISPUTE RESOLUTION. Before invoking the binding dispute mechanism set forth
     in this Agreement, the parties shall first participate in mediation of any
     dispute arising under this Agreement. If such mediation is not concluded
     within forty-five (45) days from the date of the notice of breach by one of
     the parties, then any controversy or claim relating to this Agreement
     (whether contract, tort, or both), or the breach of this Agreement, other
     than claims for a temporary restraining order, order to show cause or other
     extraordinary, equitable relief for which monetary damages are inadequate,
     shall be arbitrated by and in accordance with the then existing commercial
     arbitration rules of the American Arbitration Association. Judgment on the
     award rendered by such arbitrator(s) may be entered in any court having
     jurisdiction. If such arbitration is not convened within seventy-five (75)
     days from the date of the notice of breach by one of the parties, then
     either party may file a lawsuit to resolve the dispute. Any dispute that
     arises under or relates to this Agreement shall be resolved in Santa Clara
     County, California, or if necessary, in the state and federal courts
     located in Santa



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     Clara. This Agreement, and any dispute arising from the relationship
     between the parties to this Agreement, shall be governed by California law,
     excluding its choice of law principles. The parties consent to the
     exclusive jurisdiction of the State and Federal courts in Santa Clara
     County, California. In any litigation, arbitration, or other proceeding by
     which one party either seeks to enforce its rights under this Agreement
     (whether in contract, tort, or both) or seeks a declaration of any rights
     or obligations under this Agreement, the prevailing party shall be awarded
     reasonable attorney fees, together with any costs and expenses, to resolve
     the dispute and to enforce the final judgment.

16.  SALES TAX. Should all or any portion of the Services performed by
     Flextronics under this Agreement be deemed, at any time, by the California
     State Board of Equalization to be taxable as a result of any determination,
     audit, regulation, or statute; Flextronics shall invoice Client for such
     taxes and Client shall promptly pay all such invoices submitted by
     Flextronics.

17.  COMPLETE AGREEMENT. This Agreement contains the entire agreement between
     the parties hereto with respect to the matters covered herein. No other
     agreements (other than a precedent agreement related to confidential
     information), represented by or on behalf of the parties hereto or by their
     employees, contract personnel, or agents, or contained in any sales
     materials or brochures, shall be deemed to bind the parties hereto with
     respect to the subject matter hereof. Client acknowledges that it is
     entering into this Agreement solely on the basis of the representations
     contained herein.

18.  IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
     date indicated below.

FLEXTRONICS DESIGN S.D., INC.:

By: /s/ Ronald R. Snyder
   ----------------------------------

Title: Executive Vice President
       ------------------------------

TERAFORCE TECHNOLOGY CORPORATION

By: /s/ Robert P. Capps
   ----------------------------------

Title: Executive Vice President
       ------------------------------