Document:

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                                                                     EXHIBIT 4.2

 REGISTRATION RIGHTS AGREEMENT DATED SEPTEMBER 30, 2002 BETWEEN THE COMPANY AND
                        MORTON A. COHN AND FAYEZ SAROFIM

                          REGISTRATION RIGHTS AGREEMENT

         This Registration Rights Agreement (the "Agreement") is dated as of
September 30, 2002 and is by and between TeraForce Technology Corporation, a
Delaware corporation (the "Company") and Morton A. Cohn, an individual resident
in Houston, Texas, and Fayez Sarofim, an individual resident in Houston, Texas
(collectively, the "Investors").

                                    RECITALS

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

         WHEREAS, pursuant to the Securities Purchase Agreement, the Investors
will acquire 16,666,668 shares of the Company's Common Stock, par value $.01 per
share ( the "Common Stock") and warrants for the purchase of an aggregate of
400,000 shares of Common Stock with an exercise price of $0.12 per share ( the "
New Warrants"); and amended warrants for the purchase of an aggregate of 780,000
shares of Common Stock with an exercise price of $0.12 per share (the "Existing
Warrants");

         WHEREAS, the parties desire to set forth the Investors' 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 the Reimbursement 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

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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, the shares of
Common Stock to be issued upon the exercise of the New Warrants and the shares
of Common Stock to be issued upon the exercise of the Existing Warrants;
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

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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) "Reimbursement Agreement" shall that Reimbursement Agreement by and
among the Company and the Investors and Oscar S. Wyatt, Jr. dated June 1, 2001.

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

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

         (r) "Shares" shall mean the shares of Common Stock issued pursuant to
the Securities Purchase Agreement.

         (s) "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."

         (t) "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.

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         (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 November 30, 2002 (the
"Filing Date"), the Company shall prepare and file with the Commission a "Shelf"
Registration Statement covering all Registrable Securities for an offering to be
made on a continuous basis pursuant to Rule 415. The Registration Statement
shall be on Form S-3 (if the Company is not then eligible to register for resale
the Registrable Securities on Form S-3 such registration shall be on another
appropriate form in accordance herewith). The Company shall use its best efforts
to cause the Registration Statement to be declared effective under the
Securities Act as promptly as possible after the filing thereof, and shall use
its best efforts to keep such Registration Statement Continuously Effective
under the Securities Act until the date when all Registrable Securities covered
by such Registration Statement have been sold or may be sold without
restrictions pursuant to Rule 144(k) as determined by the counsel to the Company
pursuant to a written opinion letter to such effect, addressed and acceptable to
the Company's transfer agent (the "Effectiveness Period"), provided, however,
that the Company shall not be deemed to have used its best efforts to keep the
Registration Statement effective during the Effectiveness Period if it
voluntarily takes any action that would result in the Holder not being able to
sell the Registrable Securities covered by such Registration Statement during
the Effectiveness Period, unless such action is pursuant to a Blackout Period
(as defined in Section 3) permitted hereunder, required under applicable law or
the Company has filed a post-effective amendment to the Registration Statement
and the Commission has not declared it effective. Other provisions of this
Agreement not withstanding, the Registration Statement may include shares of
Common Stock held by other holders or to be issued to other holders upon the
exercise of warrants.

         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 each of the
Holders 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 each of the Holders, 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 each of the Holders, to conduct a reasonable investigation
within the meaning of the Securities Act. The Company shall not file the

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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 each of the Holders 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 a Holder) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to the Holder); and
(C) with respect to the Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the Commission or any
other Federal or state governmental authority for amendments or supplements to
the Registration Statement or Prospectus or for additional information; (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement covering any or all of the Registrable Securities or
the initiation of any proceedings for that purpose; (iv) if at any time any of
the representations and warranties of the Company contained in any agreement
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose; and (vi) the occurrence of any event that makes any
statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to 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

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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 each of the Holders, 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 a Holder (including those previously furnished or incorporated by
reference) promptly after the filing of such documents with the Commission.

         (f) Promptly deliver to each of the Holders, without charge, as many
copies of the Prospectus or Prospectuses (including each form of prospectus) and
each amendment or supplement thereto as a 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 a 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) Each of the Holders covenants and agrees that (i) it will not sell
any Registrable Securities under the Registration Statement until it has
received copies of the Prospectus as then amended or supplemented as
contemplated in Section 3(f) and notice from the Company that such Registration
Statement and any post-effective amendments thereto have become effective as
contemplated by Section 3(c)(i); and (ii) it and its officers, directors or
affiliates, if any, will comply with the prospectus delivery requirements of the
Securities Act as applicable to it in connection with sales of Registrable
Securities pursuant to the Registration Statement.

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

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

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

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

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

         Section 5. Expenses of Registration.

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

         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

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by the indemnified party expressly for use in connection with such registration;
provided, further, that the indemnity agreement contained in this Section 6
shall not apply to any Holder to the extent that any such loss is based on or
arises out of an untrue statement or alleged untrue statement of a material
fact, or an omission or alleged omission to state a material fact, 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

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expenses of such counsel shall be the expenses of such indemnified party unless
(i) the indemnifying party has agreed to pay such fees and expenses or (ii) the
indemnifying party shall have failed to promptly assume the defense of such
action, claim or proceeding or (iii) the named parties to any such action, claim
or proceeding (including any impleaded parties) include both such indemnified
party and the indemnifying party, and such indemnified party shall have been
advised by counsel that there may be one or more legal defenses available to it
which are different from or in addition to those available to the indemnifying
party and that the assertion of such defenses would create a conflict of
interest such that counsel employed by the indemnifying party could not
faithfully represent the indemnified party (in which case, if such indemnified
party notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action, claim or
proceeding on behalf of such 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

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         meaning of Section 11(f) of the Securities Act) shall be entitled to
         contribution from any Person who was not guilty of such fraudulent
         misrepresentation.

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

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

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

                                      -10-
<PAGE>

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 Investors:

                  c/o Mrs. Raye G. White
                  Fayez Sarofim &  Company
                  Two Houston Center, Suite 2907
                  Houston, TX  77010
                  Telecopier:  (713) 654-4015

                          AND

                  Mr. Morton A. Cohn
                  800 Bering, Suite 210
                  Houston, TX  77010
                  Telecopier:  (713) 978-6196

         (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,

                                      -11-
<PAGE>

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.

         10.10 Prior Agreements. This Agreement supercedes prior Registration
Rights Agreement between the Company and the Investors dated June 1, 2001.

                                      -12-
<PAGE>

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

                                       TERAFORCE TECHNOLOGY CORPORATION

                                       By: /S/ Robert P. Capps
                                          ------------------------------------
                                       Name:   Robert P. Capps
                                            ----------------------------------
                                       Title:     Executive Vice President
                                             ---------------------------------

                                       INVESTORS

                                       MORTON A. COHN

                                       /S/ Morton A. Cohn
                                       ---------------------------------------

                                       FAYEZ SAROFIM

                                       /S/ Fayez Sarofim
                                       ---------------------------------------

                                      -13-<PAGE>

                                                                    EXHIBIT 4.3

         FORM OF AMENDED AND RESTATED WARRANT EXPIRING MAY 31, 2004 WITH
                        EXERCISE PRICE OF $0.12 PER SHARE

THE SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAW AND, ACCORDINGLY, THE
SECURITIES REPRESENTED BY THIS WARRANT AND THE COMMON STOCK ISSUABLE THEREBY MAY
NOT BE RESOLD, PLEDGED, OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER, THE SECURITIES ACT AND IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAWS.

                          AMENDED AND RESTATED WARRANT

                           to Purchase Common Stock of

                        TERAFORCE TECHNOLOGY CORPORATION

                            Expiring on May 31, 2004

         This Amended and Restated Common Stock Purchase Warrant (the "Warrant")
certifies that for value received, ____________ (the "Holder") is entitled to
subscribe for and purchase from the Company (as hereinafter defined), in whole
or in part, 240,000 shares of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock (as hereinafter defined) at the Exercise
Price (as hereinafter defined), subject, however, to the provisions and upon the
terms and conditions hereinafter set forth. This Warrant and all rights
hereunder shall expire at 5:00 p.m., Houston, Texas time, on May 31, 2004. This
Warrant is issued in replacement and substitution of that certain warrant for
the purchase of 240,000 shares of Common Stock at an exercise price of $0.75 per
share expiring on May 31, 2004 originally issued on June 1, 2001 and in
replacement and substitution of any subsequent replacement warrant issued in
connection, replacement or substitution thereof.

         As used herein, the following terms shall have the meanings set forth
below:

         "Company" shall mean TeraForce Technology Corporation, a Delaware
corporation, and shall also include any successor thereto with respect to the
obligations hereunder, by merger, consolidation or otherwise.

         "Common Stock" shall mean and include the Company's Common Stock, par
value $0.01 per share, authorized on the date of the original issue of this
Warrant.

         "Exercise Price" shall mean $0.12 per share of Common Stock payable
upon exercise of the Warrant, as adjusted pursuant to the provisions hereof.

         "Market Price" for any day, when used with reference to Common Stock,
shall mean the price of said Common Stock determined as follows: (x) the last
reported sale price for the Common Stock on such day on the principal securities
exchange on which the Common Stock is listed or admitted to trading or if no
such sale takes place on such date, the average of the closing bid and asked
prices thereof as officially

                                      -1-
<PAGE>

reported, or, if not so listed or admitted to trading on any securities
exchange, the last sale price for the Common Stock on the National Association
of Securities Dealers National Market on such date, or, if there shall have been
no trading on such date or if the Common Stock shall not be listed on such
system, the average of the closing bid and asked prices in the over-the-counter
market as furnished by any NASD member firm selected from time to time by the
Company for such purpose, in each such case, unless otherwise provided herein,
averaged over a period of ten (10) consecutive Trading Days prior to the date as
of which the determination is to be made; or (y) if the Common Stock shall not
be listed or admitted to trading as provided in clause (x) above, the fair
market value of the Common Stock as determined in good faith by the Board of
Directors of the Company.

         "Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.

         "Securities Act" means the Securities Act of 1933, as amended from time
to time.

         "Trading Days" shall mean any days during the course of which the
principal securities exchange on which the Common Stock is listed or admitted to
trading is open for the exchange of securities.

         "Warrant Shares" shall mean the shares of Common Stock purchased or
purchasable by the Holder hereof upon the exercise of the Warrant.

                                      -2-
<PAGE>

                                    ARTICLE I

                               EXERCISE OF WARRANT

         1.1 Method of Exercise. The Warrant represented hereby may be exercised
by the Holder hereof, in whole or in part, at any time and from time to time on
or after the date hereof until 5:00 p.m., Houston, Texas time, on May 31, 2004.
To exercise the Warrant, the Holder hereof shall deliver to the Company (i) a
written notice in the form of the Subscription Notice attached as an exhibit
hereto, stating therein the election of such Holder to exercise the Warrant in
the manner provided in the Subscription Notice; and (ii) payment in full of the
Exercise Price in cash or by bank check for all Warrant Shares purchased
hereunder or (B) if permitted pursuant to Section 1.6 below, by notifying the
Company that this warrant is being exercised pursuant to a Cashless Exercise (as
defined in Section 1.6) or (C) a combination of (A) and (B) above; and (iii)
this Warrant. The Warrant shall be deemed to be exercised on the date of receipt
by the Company of the Subscription Notice, accompanied by payment for the
Warrant Shares and surrender of this Warrant, as aforesaid, and such date is
referred to herein as the "Exercise Date". Upon such exercise, the Company
shall, as promptly as practicable and in any event within ten (10) business
days, issue and deliver to such Holder a certificate or certificates for the
full number of the Warrant Shares purchased by such Holder hereunder, and shall,
unless the Warrant has expired or has been redeemed, deliver to the Holder
hereof a new Warrant representing the portion, if any, that shall not have been
exercised, in all other respects identical to this Warrant. As permitted by
applicable law, the Person in whose name the certificates for Common Stock are
to be issued shall be deemed to have become a holder of record of such Common
Stock on the Exercise Date and shall be entitled to all of the benefits of such
holder on the Exercise Date, including without limitation the right to receive
dividends and other distributions for which the record date falls on or after
the Exercise Date and to exercise voting rights.

         1.2 Reservation of Shares. The Company shall reserve at all times so
long as the Warrant remains outstanding, free from preemptive rights, out of its
treasury Common Stock or its authorized but unissued shares of Common Stock, or
both, solely for the purpose of effecting the exercise of the Warrant, a
sufficient number of shares of Common Stock to provide for the exercise of the
Warrant.

         1.3 Valid Issuance. All shares of Common Stock that may be issued upon
exercise of the Warrants will, upon issuance by the Company, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issuance thereof.

         1.4 No Fractional Shares. The Company shall not be required to issue
fractional shares of Common Stock on the exercise of this Warrant. If any
fraction of a share of Common Stock would be issuable on the exercise of this
Warrant, the Company shall pay an amount in cash calculated by it to be equal to
the Market Price of one share of Common Stock at the time of such exercise
multiplied by such fraction computed to the nearest whole cent.

         1.5 Securities Purchase Agreement; Registration Rights Agreement. This
Warrant was originally issued in connection with that certain Reimbursement
Agreement dated June 1, 2001 between the Company and the Holder, and the
exercise price of such warrant was adjusted pursuant to that certain Securities
Purchase Agreement dated September 30, 2002 between the Company and the Holder
(the "Securities Purchase Agreement"). Except as otherwise set forth in that
certain Registration Rights Agreement dated September 30, 2002 between the
Company and the Holder (the "Registration Rights Agreement"), the Warrant and
the Warrant Shares are not registered pursuant to the Securities Act and may not
be transferred absent an effective registration statement or an exemption from
such registration.

                                      -3-
<PAGE>

         1.6 Cashless Exercise. If (i) the Company and the Holder mutually
elect; or (ii) the Warrant Shares to be issued are not registered for resale to
the extent required by the Registration Rights Agreement, then, notwithstanding
anything to the contrary, the Holder may exercise, at its election, in its sole
discretion, this Warrant in whole or in part and, in lieu of making the cash
payment otherwise contemplated to be made to the Company upon exercise of this
Warrant, elect instead to receive the Warrant Shares through a cashless or
"net-issue" exercise of the Warrant ("Cashless Exercise"). The Holder shall
exchange the Warrant subject to a Cashless Exercise for that number of Warrant
Shares determined by multiplying the number of Warrant Shares issuable hereunder
by a fraction, the numerator of which shall be the difference between (x) the
Market Price and (y) the Exercise Price for each such Warrant Share, and the
denominator of which shall be the Market Price; the Subscription Notice shall
set forth the calculation upon which the Cashless Exercise is based.

                                   ARTICLE II

                                    TRANSFER

         2.1 Ownership of Warrant. The Company may deem and treat the Person in
whose name the Warrant is registered as the Holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary unless agreed to in writing by the Company.

         2.2 Restrictions on Transfer of Warrants. The Holder of the Warrant
agrees that the Warrant is not transferrable without the prior written consent
of the Company and any such transfer without such consent shall be void and
without effect, unless such transfer occurs by operation of law. Subject to the
restrictions on transfer of the Warrant in this Section 2.2, the Company, from
time to time, shall register the transfer of the Warrant in such books upon
surrender of this Warrant at the Companys principal office, properly endorsed or
accompanied by appropriate instruments of transfer and written instructions for
transfer satisfactory to the Company. Upon any such transfer and upon payment by
the Holder or its transferee of any applicable transfer taxes, a new Warrant
shall be issued to the transferee and the transferor (as their respective
interests may appear) and the surrendered Warrant shall be canceled by the
Company. The Holder shall pay all taxes and all other expenses and charges
payable in connection with the transfer of the Warrant pursuant to this Section
2.2.

         2.3 Compliance with Securities Laws. Subject to the terms of the
Registration Rights Agreement and notwithstanding any other provisions contained
in this Warrant, the Holder hereof understands and agrees that the following
restrictions and limitations shall be applicable to all Warrant Shares and to
all resales or other transfers thereof pursuant to the Securities Act, and that
as a condition to the exercise of such warrant that the following are and will
be true and correct:

                  (A) The Holder hereof agrees that the Warrant Shares shall not
         be sold or otherwise transferred unless the Warrant Shares are
         registered under the Securities Act and applicable state securities or
         blue sky laws or are exempt therefrom.

                  (B) A legend in substantially the following form will be
         placed on the certificate(s) evidencing the Warrant Shares:

                                      -4-
<PAGE>

                           "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
                  NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
                  AMENDED (THE "SECURITIES ACT"), OR ANY OTHER APPLICABLE
                  SECURITIES LAW AND, ACCORDINGLY, THE SECURITIES REPRESENTED BY
                  THIS CERTIFICATE MAY NOT BE RESOLD, PLEDGED, OR OTHERWISE
                  TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
                  STATEMENT UNDER, OR UPON RECEIPT OF AN OPINION OF COUNSEL
                  REASONABLY ACCEPTABLE TO THE COMPANY PURSUANT TO A TRANSACTION
                  EXEMPT FROM REGISTRATION UNDER, THE SECURITIES ACT AND IN
                  ACCORDANCE WITH ANY OTHER APPLICABLE SECURITIES LAWS."

                  (C) Stop transfer instructions will be imposed with respect to
         the Warrant Shares so as to restrict resale or other transfer thereof,
         subject to this Section 2.3.

                  (D) The Holder is an accredited investor within the meaning of
         Rule 501 of Regulation D as promulgated under the Securities Act, and
         will be so as a condition of purchasing any of the Warrant Shares. The
         Holder will acquire the Warrant, and if exercised, any Warrant Shares
         for its own account for investment purposes and not with a view towards
         distribution. The Holder must bear the economic risk of the investment
         for an indefinite period of time because the Warrant and Warrant Shares
         have not been registered under the Securities Act and therefore cannot
         be sold unless they are subsequently registered under the Securities
         Act or an exemption from such registration is available. The Holder has
         received and carefully reviewed copies of all documents filed by the
         Company with the Securities and Exchange Commission as of the date
         hereof, and will do so before each exercise of the Warrant. No
         representations or warranties have been made to the Holder by the
         Company, the officers or directors of the Company, or any agent,
         employee or affiliate of any of them. The Holder is aware that the
         Warrant and any purchase of the Warrant Shares involves a high degree
         of risk and that it may sustain, and has the financial ability to
         sustain, the loss of its entire investment. The Holder has had the
         opportunity to ask questions of, and receive answers, satisfactory to
         it from the Company's management regarding the Company. The Holder
         understands that no Federal or State governmental authority has made
         any finding or determination relating to the fairness of an investment
         in the Warrant or Warrant Shares and that no Federal or State
         governmental authority has recommended or endorsed, or will recommend
         or endorse, the investment herein. The Holder, in making the decision
         to acquire the Warrant, and if it is exercised, the purchase of the
         Warrant Shares subscribed for, has relied upon independent
         investigations made by it and has not relied on any information or
         representations made by third parties. The Holder has significant
         assets, and upon consummation of the purchase of the Warrant Shares,
         will continue to have significant assets exclusive of the Warrant
         Shares. The Holder understands that the Warrant, and if exercised, the
         Warrant Shares are being offered and sold to it in reliance on specific
         provisions of Federal and State securities laws and that the Company is
         relying upon the truth and accuracy of the representations, warranties,
         agreements, acknowledgments and understandings of the Holder set forth
         herein in order to determine the applicability of such provisions. The
         Holder, in making the decision to purchase the Warrant, and if
         exercised, the Warrant Shares subscribed for, has relied upon
         independent investigations made by it and has not relied on any
         information or representations made by third parties.

                                      -5-
<PAGE>

                                   ARTICLE III

                                  ANTI-DILUTION

         3.1 Anti-Dilution Provisions. If the outstanding shares of the Companys
Common Stock shall be subdivided into a greater number of shares or a dividend
in Common Stock shall be paid in respect of Common Stock, the Exercise Price in
effect immediately prior to such subdivision or at the record date of such
dividend shall simultaneously with the effectiveness of such subdivision or
immediately after the record date of such dividend be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Exercise Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Exercise Price, the number of Warrant Shares purchasable upon the exercise of
this Warrant shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Exercise Price in effect
immediately in effect prior to such adjustment, by (ii) the Exercise Price in
effect immediately after such adjustment.

         3.2 Reorganizations and Asset Sales. If any capital reorganization or
reclassification of the capital stock of the Company, or any consolidation,
merger or share exchange of the Company with another Person, or the sale,
transfer or other disposition of all or substantially all of its assets to
another Person shall be effected in such a way that a holder of Common Stock of
the Company shall be entitled to receive capital stock, securities or assets
with respect to or in exchange for their shares, then as part of any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, lawful provision shall be made so that the Holder of this Warrant shall have
the right thereafter to receive upon exercise hereof the kind and amount of
shares of stock or other securities or property which such Holder would have
been entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger or sale, as the case may be, such Holder
had held the number of shares of Common Stock which were the purchasable upon
the exercise of this Warrant. In any such case, appropriate adjustment (as
reasonably determined in good faith by the Board of Directors of the Company)
shall be made in the application of the provisions set forth herein with respect
to the rights and interests thereafter of the Holder of this Warrant, such that
the provisions set forth herein (including provisions with respect to adjustment
of the Exercise Price) shall thereafter be applicable, as nearly as is
reasonably practicable, in relation to any shares of stock or other securities
or property thereafter deliverable upon the exercise of this Warrant.

         3.3 Notice of Adjustment. Whenever the Exercise Price or the number of
Warrant Shares issuable upon the exercise of the Warrant shall be adjusted as
herein provided, or the rights of the Holder hereof shall change by reason of
other events specified herein, the Company shall compute the adjusted Exercise
Price and the adjusted number of Warrant Shares in accordance with the
provisions hereof and shall prepare a notice setting forth the adjusted Exercise
Price and the adjusted number of Warrant Shares issuable upon the exercise of
the Warrant or specifying the other shares of stock, securities or assets
receivable as a result of such change in rights, and showing in reasonable
detail the facts and calculations upon which such adjustments or other changes
are based. The Company shall cause to be mailed to the Holder hereof, no later
than 10 days after any such adjustment as herein provided, copies of such notice
stating that the Exercise Price and the number of Warrant Shares purchasable
upon exercise of the Warrant have been adjusted and setting forth the adjusted
Exercise Price and the adjusted number of Warrant Shares purchasable upon the
exercise of the Warrant.

                                      -6-
<PAGE>

                                   ARTICLE IV

                                  MISCELLANEOUS

         4.1 Entire Agreement. This Warrant, together with the Securities
Purchase Agreement and the Registration Rights Agreement, contain the entire
agreement between the Holder hereof and the Company with respect to the Warrant
Shares purchasable upon exercise hereof and the related transactions and
supersedes all prior arrangements or understandings with respect thereto.

         4.2 Governing Law; Venue. This warrant shall be governed by and
construed in accordance with the laws of the State of Texas. Venue for any
dispute arising under this Warrant shall lie in the state or federal courts of
Harris County, Texas.

         4.3 Waiver and Amendment. Any term or provision of this Warrant may be
waived at any time by the party which is entitled to the benefits thereof and
any term or provision of this Warrant may be amended or supplemented at any time
by agreement of the Holder hereof and the Company, except that any waiver of any
term or condition, or any amendment or supplementation, of this Warrant shall be
in writing. A waiver of any breach or failure to enforce any of the terms or
conditions of this Warrant shall not in any way effect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with every
term or condition of this Warrant.

         4.4 Illegality. In the event that any one or more of the provisions
contained in this Warrant shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Warrant shall not, at the election of the party for whom the
benefit of the provision exists, be in any way impaired.

         4.5 Copy of Warrant. A copy of this Warrant shall be filed among the
records of the Company.

         4.6 Notice. Any notice or other document required or permitted to be
given or delivered to the Holder or the Company hereof shall be in writing and
will deemed to have been delivered: (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided a confirmation of
transmission is mechanically generated and kept on file by the sending party);
or (iii) one (1) day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be: any
notice or other document required or permitted to be given or delivered to the
Company shall be sent to the offices of the Company at 1240 East Campbell Road,
Richardson, Texas 75081, Attn: Chief Executive Officer, Telecopy No. (469)
330-4972 or such other address as shall have been furnished in writing by the
Company to the Holder of this Warrant, with a copy to Michael T. Larkin, Esq.,
Buck, Keenan & Gage, L.L.P., 700 Louisiana, Suite 5100, Houston, Texas 77002,
Telecopy No. (713) 225-3719. Any notice sent or required to be sent hereunder to
the Holder shall be sent to the address of the Holder as contained in the
corporate records of the Company or such other address as shall have been
furnished in writing by the Holder to the Company.

         4.7 Limitation of Liability; Not Stockholders. No provision of this
Warrant shall be construed as conferring upon the Holder hereof the right to
vote, consent, receive dividends or receive notices (other than as herein
expressly provided) in respect of meetings of stockholders for the election of
directors of the Company or any other matter whatsoever as a stockholder of the
Company. No provision

                                      -7-
<PAGE>

hereof, in the absence of affirmative action by the Holder hereof to purchase
shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder hereof, shall give rise to any liability of such Holder
for the purchase price of any shares of Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

         4.8 Exchange, Loss, Destruction, etc. of Warrant. Upon receipt of
evidence satisfactory to the Company of the loss, theft, mutilation or
destruction of this Warrant, and in the case of any such loss, theft or
destruction upon delivery of a bond of indemnity or such other security in such
form and amount as shall be reasonably satisfactory to the Company, or in the
event of such mutilation upon surrender and cancellation of this Warrant, the
Company will make and deliver a new Warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions
of this Section 4.8 in lieu of any Warrant alleged to be lost, destroyed or
stolen, or in lieu of any mutilated Warrant, shall constitute an original
contractual obligation on the part of the Company. This Warrant shall be
promptly canceled by the Company upon the surrender hereof in connection with
any exchange or replacement. The Company shall pay all taxes (other than
securities transfer taxes or income taxes) and all other expenses and charges
payable in connection with the preparation, execution and delivery of Warrants
pursuant to this Section 4.8.

         4.9 Registration Rights. The Warrant Shares shall be entitled to such
registration rights under the Securities Act and under applicable state
securities laws as are specified in the Registration Rights Agreement.

         4.10 Headings. The Article and Section and other headings herein are
for convenience only and are not a part of this Warrant and shall not affect the
interpretation thereof.

         IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name.

Dated: October 3, 2002.

                                        TERAFORCE TECHNOLOGY CORPORATION

                                        By:
                                           ------------------------------------
                                        Name:    Robert P. Capps
                                        Title:   Executive Vice President
                                                 and Chief Financial Officer

                                      -8-

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