Document:

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                                                                    EXHIBIT 10.2

                         REGISTRATION RIGHTS AGREEMENT

     This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of June 12,
2000, is entered into by and among Data Race Inc., a Texas corporation, with
headquarters located at 12400 Network Blvd., San Antonio, Texas 78249-3341 (the
"Company"), and the undersigned buyers (each, a "Buyer" and collectively, the
"Buyers").

     WHEREAS:

     A.  In connection with the Securities Purchase Agreement by and among the
parties dated as of June 12, 2000 (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, (i) to issue and sell to the Buyers 1,572,738
shares of the Company's Common Stock, no par value per share (the "Common
Shares") and (ii) to issue Warrants (the "Warrants") which will be exercisable
to purchase 471,822 shares of Company Common Stock (the "Warrant Shares"); and

     B.  To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 Act"), and
applicable state securities laws.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Buyers hereby
agree as follows:

     1.  DEFINITIONS.
         -----------

         As used in this Agreement, the following terms shall have the following
meanings:

         a.  "Investor" means a Buyer, any transferee or assignee thereof to
whom a Buyer assigns its rights under this Agreement and who agrees to become
bound by the provisions of this Agreement in accordance with Section 9 and any
transferee or assignee thereof to whom a transferee or assignee assigns its
rights under this Agreement and who agrees to become bound by the provisions of
this Agreement in accordance with Section 9.

         b.  "Person" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.

         c.  "Register," "registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
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          d.  "Registrable Securities" means the Common Shares purchased
pursuant to the Securities Purchase Agreement and the Warrant Shares issued or
issuable upon exercise of the Warrants and any shares of capital stock issued or
issuable with respect to the Common Shares, Warrants or Warrant Shares as a
result of any stock split, stock dividend, recapitalization, exchange, anti-
dilution rights or similar event or otherwise, without regard to any limitation
on exercise of the Warrants.

          e.  "Registration Statement" means a registration statement of the
Company filed under the 1933 Act and pursuant to Rule 415.

Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.

     2.   REGISTRATION.
          ------------

          a.  Mandatory Registration. The Company shall prepare, and, as soon as
              ----------------------
practicable but in no event later than thirty (30) calendar days after the date
hereof, file with the SEC a Registration Statement or Registration Statements
(as is necessary) on Form S-3 (or if such form is unavailable, such other form
as is available for registration) covering the resale of all of the Registrable
Securities.  The initial Registration Statement prepared pursuant hereto shall
register for resale at least that number of Company common stock shares equal to
the number of Registrable Securities as of the date immediately preceding the
date the Registration Statement is initially filed with the SEC, subject to
adjustment as provided in Section 3(b).  The Company shall use its best efforts
to have the Registration Statement declared effective by the SEC as soon as
practicable, but in no event later than one-hundred twenty (120) calendar days
after the date hereof.

          b.  Piggy-Back Registrations.  If at any time prior to the expiration
              ------------------------
of the Registration Period (as defined in Section 3(a)) the Company proposes to
file with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the 1933 Act of any of its securities
(other than on Form S-4 or Form S-8 (or their equivalents at such time) relating
to securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock option
or other employee benefit plans) the Company shall promptly send to each
Investor written notice of the Company's intention to file a Registration
Statement and of such Investor's rights under this Section 2(b) and, if within
twenty (20) days after receipt of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all or any
part of the Registrable Securities such Investor requests to be registered,
subject to the priorities set forth in Section 2(b) below.  No right to
registration of Registrable Securities under this Section 2(b) shall be
construed to limit any registration required under Section 2(a).  The
obligations of the Company under this Section 2(b) may be waived by the Buyers.
If an offering in connection with which an Investor is entitled to registration
under this Section 2(b) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Company common stock included in such underwritten offering.  If a

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registration pursuant to this Section 2(b) is to be an underwritten public
offering and the managing underwriter(s) advise the Company in writing, that in
their reasonable good faith opinion, marketing or other factors dictate that a
limitation on the number of shares of Company common stock which may be included
in the Registration Statement is necessary to facilitate and not adversely
affect the proposed offering, then the Company shall include in such
registration: (1) first, all securities the Company proposes to sell for its own
account, (2) second, up to the full number of securities proposed to be
registered for the account of the holders of securities entitled to inclusion of
their securities in the Registration Statement by reason of demand registration
rights, and (3) third, the securities requested to be registered by the
Investors and other holders of securities entitled to participate in the
registration, as of the date hereof, drawn from them pro rata based on the
number each has requested to be included in such registration.

          c.  Allocation of Registrable Securities.  The initial number of
              ------------------------------------
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held, or
which could be held, by each Investor at the time the Registration Statement
covering such initial number of Registrable Securities or increase thereof is
declared effective by the SEC.  In the event that an Investor sells or otherwise
transfers any of such Person's Registrable Securities, each transferee shall be
allocated a pro rata portion of the then remaining number of Registrable
Securities included in such Registration Statement for such transferor.  Any
shares of Common Stock included in a Registration Statement and which remain
allocated to any Person which ceases to hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of
Registrable Securities then held by such Investors.

          d.  Legal Counsel.  Subject to Section 5 hereof, the Buyers  shall
              -------------
have the right to select one legal counsel to review and oversee any offering
pursuant to this Section 2 ("Legal Counsel"), which shall be Strategic
Investment Counsel, LLC or such other counsel as thereafter designated by the
holders of a majority of Registrable Securities.  The Company shall reasonably
cooperate with Legal Counsel in performing the Company's obligations under this
Agreement.

          e.  [Reserved.]

          f.  Rule 416.  The Company and the Investors each acknowledge that
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each Registration Statement prepared in accordance hereunder shall include an
indeterminate number of Registrable Securities pursuant to Rule 416 under the
1933 Act so as to cover any and all Registrable Securities which may become
issuable (i) to prevent dilution resulting from stock splits, stock dividends or
similar transactions and (ii) if permitted by law, by reason of the anti-
dilution provisions contained in the Securities Purchase Agreement and the
Warrants in accordance with the terms thereof (collectively, the "Rule 416
Securities").  In this regard, although the Company shall not be required to
refer to Rule 416 in the Registration Statement, the Company agrees to use all
reasonable efforts to ensure that the maximum number of Registrable Securities
which may be registered pursuant to Rule 416 under the 1933 Act are covered by
each Registration Statement and, absent guidance from the SEC or other
definitive authority to the contrary, the Company shall use all reasonable
efforts to affirmatively support and to not take any position adverse to the
position that each Registration Statement filed hereunder covers all of the Rule
416 Securities.  If the Company

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determines that the Registration Statement filed hereunder does not cover all of
the Rule 416 Securities, the Company shall immediately (i) provide to each
Investor written evidence setting forth the basis for the Company's position and
the authority therefor and (ii) prepare and file an amendment to such
Registration Statement or a new Registration Statement in accordance with
Section 2(g).

          g.  Sufficient Number of Shares Registered.  In the event the number
              --------------------------------------
of shares available under a Registration Statement filed pursuant to Section
2(a) is insufficient to cover all of the Registrable Securities or an Investor's
allocated portion of the Registrable Securities pursuant to Section 2(c) (a
"Deficit Failure"), the Company shall amend the Registration Statement, or file
a new Registration Statement (on the short form available therefor, if
applicable), or both, so as to cover at least one hundred percent (100%) of such
Registrable Securities in each case, as soon as practicable, but in any event
not later than fifteen (15) days after the necessity therefor arises.  The
Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof.  For purposes of the foregoing provision, the number of shares
available under a Registration Statement shall be deemed "insufficient to cover
all of the Registrable Securities" if at any time the number of Registrable
Securities is greater than the number of shares of Company common stock
available for resale under such Registration Statement.

     3.   RELATED OBLIGATIONS.
          -------------------

     Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(b) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2(a) or 2(g),
the Company will use its best efforts to effect the registration of the
Registrable Securities in accordance with the intended method of disposition
thereof and, pursuant thereto, the Company shall have the following obligations:

          a.  The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the thirtieth (30th) calendar day after the date hereof for the registration
of Registrable Securities pursuant to Section 2(a)) and use its best efforts to
cause such Registration Statement relating to the Registrable Securities to
become effective as soon as possible after such filing (but in no event later
than one-hundred twenty (120) calendar days after the date hereof for the
registration of Registrable Securities pursuant to Section 2(a)), and keep such
Registration Statement effective pursuant to Rule 415 at all times until the
earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto) or (ii) the date on which the
Investors shall have sold all the Registrable Securities (the "Registration
Period"), which Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.

          b.  The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the

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prospectus used in connection with such Registration Statement, which prospectus
is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be
necessary to keep such Registration Statement effective at all times during the
Registration Period, and, during such period, comply with the provisions of the
1933 Act with respect to the disposition of all Registrable Securities of the
Company covered by such Registration Statement until such time as all of such
Registrable Securities shall have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
such Registration Statement.

          c.  The Company shall permit Legal Counsel to review and comment upon
a Registration Statement and all amendments and supplements thereto at least
seven (7) days prior to their filing with the SEC (or such shorter period as
Legal Counsel may agree), and not file any document in a form to which Legal
Counsel reasonably objects.  The Company shall not submit a request for
acceleration of the effectiveness of a Registration Statement or any amendment
or supplement thereto without the prior approval of Legal Counsel, which consent
shall not be unreasonably withheld.  The Company shall furnish to Legal Counsel,
without charge, (i) any correspondence from the SEC or the staff of the SEC to
the Company or its representatives relating to any Registration Statement, (ii)
promptly after the same is prepared and filed with the SEC, one copy of any
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits and (iii) upon the effectiveness of any Registration Statement, one
copy of the prospectus included in such Registration Statement and all
amendments and supplements thereto.

          d.  The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement, without charge, (i)
promptly after the same is prepared and filed with the SEC, at least one copy of
such Registration Statement and any amendment(s) thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits, (ii) upon the effectiveness of any Registration Statement, fifteen
(15) copies of the prospectus included in such Registration Statement and all
amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including
copies of any preliminary or final prospectus, as such Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by such Investor.

          e.  The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such

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jurisdiction. The Company shall promptly notify Legal Counsel and each Investor
who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threatening of any proceeding for such purpose.

          f.  In the event Investors who hold a majority of the Registrable
Securities being offered in the offering select underwriters for the offering,
the Company shall enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
and reasonable indemnification and contribution obligations, with the
underwriters of such offering.

          g.  As promptly as practicable after becoming aware of such event, the
Company shall notify Legal Counsel and each Investor in writing of the happening
of any event as a result of which the prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a 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, and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to Legal Counsel and each
Investor (or such other number of copies as Legal Counsel or such Investor may
reasonably request).  The Company shall also promptly notify Legal Counsel and
each Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to Legal Counsel and each Investor by facsimile
on the same day of such effectiveness and by overnight mail), (ii) of any
request by the SEC for amendments or supplements to a Registration Statement or
related prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate.

          h.  The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
or the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify Legal Counsel and each Investor who holds Registrable
Securities being sold (and, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.

          i.  At the request of any Investor, the Company shall furnish to such
Investor, on the date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as an Investor may reasonably request
if required by an underwriter, (i) a letter, dated such date, from the Company's
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, and (ii) an
opinion, dated as of such date, of counsel representing the

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<PAGE>

Company for purposes of such Registration Statement, in form, scope and
substance as is customarily given in an underwritten public offering, addressed
to the underwriters and the Investors.

          j.  The Company shall make available for inspection by (i) any
Investor, (ii) Legal Counsel, (iii) any underwriter participating in any
disposition pursuant to a Registration Statement, (iv) one firm of accountants
or other agents retained by the Investors, and (v) one firm of attorneys
retained by such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably necessary for
each Inspector to carry out the purposes of this Agreement, and cause the
Company's officers, directors and employees to supply all information which any
Inspector may reasonably request; provided, however, that each Inspector shall
hold in strict confidence and shall not make any disclosure (except to an
Investor) or use of any Record or other information which the Company determines
in good faith to be confidential, and of which determination the Inspectors are
so notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise
required under the 1933 Act, (b) the release of such Records is ordered pursuant
to a final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement of which the Inspector has knowledge.  Each Investor
agrees that it shall, upon learning that disclosure of such Records is sought in
or by a court or governmental body of competent jurisdiction or through other
means, give prompt notice to the Company and allow the Company, at its expense,
to undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.

          k.  The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement.  The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

          l.  The Company shall use its best efforts either to (i) cause all the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq National Market.  The Company shall pay all
fees and expenses in connection with satisfying its obligation under this
Section 3(l).

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<PAGE>

          m.  [Reserved.]

          n.  The Company shall provide a transfer agent and registrar of all
such Registrable Securities not later than the effective date of such
Registration Statement.

          o.  If requested by the managing underwriters or an Investor, the
Company shall (i) immediately incorporate in a prospectus supplement or post-
effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any other terms
of the underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration Statement
if requested by a shareholder or any underwriter of such Registrable Securities.

          p.  The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.

          q.  [Reserved.]

          r.  The Company shall otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC in connection with any
registration hereunder and the Company shall use its best efforts to file with
the SEC in a timely manner all reports and documents required of the Company
under the 1933 Act and the 1934 Act (as defined in Section 6(a)).

          s.  Within two (2) business days after the Registration Statement
which includes the Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to deliver,
to the transfer agent for such Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) confirmation that the Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
                                                    ---------

          t.  [Reserved.]

          u.  The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.

          v.  Notwithstanding anything to the contrary contained in this
Agreement, the Registration Statement shall register only the Registrable
Securities.

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<PAGE>

     4.   OBLIGATIONS OF THE INVESTORS.
          ----------------------------

          a.  At least seven (7) days prior to the first anticipated filing date
of the Registration Statement, the Company shall notify each Investor in writing
of the information the Company requires from each such Investor if such Investor
elects to have any of such Investor's Registrable Securities included in such
Registration Statement.  It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself and the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request.

          b.  Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of any Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.

          c.  In the event any Investor elects to participate in an underwritten
public offering pursuant to Section 2, each such Investor agrees to enter into
and perform such Investor's obligations under an underwriting agreement, in
usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities.

     5.   EXPENSES OF REGISTRATION.
          ------------------------

          All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company and fees and disbursements of
Legal Counsel, shall be paid by the Company.

     6.   INDEMNIFICATION.
          ---------------

          In the event any Registrable Securities are included in a Registration
Statement under this Agreement:

          a.  To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents,
representatives of, and each Person, if any, who controls any Investor within
the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and any underwriter (as defined in the 1933 Act) for the
Investors, and the directors and officers of, and each Person, if any, who
controls, any such underwriter within the meaning of the 1933 Act or the 1934
Act (each, an "Indemnified Person"), against any losses,

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<PAGE>

claims, damages, liabilities, judgments, fines, penalties, charges, costs,
reasonable attorneys' fees, amounts paid in settlement or expenses, joint or
several, (collectively, "Claims") incurred in investigating, preparing or
defending any action, claim, suit, inquiry, proceeding, investigation or appeal
taken from the foregoing by or before any court or governmental, administrative
or other regulatory agency, body or the SEC, whether pending or threatened,
whether or not an indemnified party is or may be a party thereto ("Indemnified
Damages"), to which any of them may become subject insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other "blue sky" laws of any jurisdiction
in which Registrable Securities are offered ("Blue Sky Filing"), or the omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, "Violations"). The Company shall
reimburse the Investors and each such underwriter or controlling person,
promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified
Person arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by such
Indemnified Person or underwriter for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(d); (ii) with respect to any
preliminary prospectus, shall not inure to the benefit of any such person from
whom the person asserting any such Claim purchased the Registrable Securities
that are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(d), and the Indemnified Person was promptly advised in
writing not to use the incorrect prospectus prior to the use giving rise to a
violation and such Indemnified Person, notwithstanding such advice, used it;
(iii) shall not be available to the extent such Claim is based on a failure of
the Investor to deliver or to cause to be delivered the prospectus made
available by the Company, if such prospectus was timely made available by the
Company pursuant to Section 3(d); and (iv) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the

                                      -10-
<PAGE>

Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.

          b.  In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same manner
as is set forth in Section 6(a), the Company, each of its directors, each of its
officers who signs the Registration Statement, each Person, if any, who controls
the Company within the meaning of the 1933 Act or the 1934 Act (collectively and
together with an Indemnified Person, an "Indemnified Party"), against any Claim
or Indemnified Damages to which any Indemnified Party may become subject, under
the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified
Damages 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 to the Company by such Investor
expressly for use in connection with such Registration Statement; and, subject
to Section 6(d), such Investor will reimburse any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) and the agreement with respect to contribution contained in Section
7 shall not apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of such Investor, which consent
shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Section 6(b) for only that amount of a Claim
or Indemnified Damages as does not exceed the net proceeds to such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.

          c.  The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.

          d.  Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
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 control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying

                                      -11-
<PAGE>

party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The Company shall pay reasonable fees for only one separate legal
counsel for the Investors, and such legal counsel shall be selected by the
Investors holding a majority in interest of the Registrable Securities included
in the Registration Statement to which the Claim relates. The Indemnified Party
or Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person which
relates to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the consent of the Indemnified
Party or Indemnified Person, consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such claim or
litigation. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action.

          e.  The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.

          f.  The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.

                                      -12-
<PAGE>

          7.   CONTRIBUTION.
               ------------

               To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.

          8.   LIQUIDATED DAMAGES.
               ------------------

               The Company agrees that the Buyers will suffer damages if the
Company fails to fulfill its obligations pursuant to Sections 2(a), 2(g), 3(a),
3(b), 3(e), 3(h) or 3(v) of this Agreement (each such event referred to herein
as a "Registration Default") and that it would not be possible to ascertain the
extent of such damages. Accordingly, in the event of such Registration Default,
the Company hereby agrees to pay liquidated damages ("Liquidated Damages") to
each Buyer following the occurrence of such Registration Default in an amount
determined by multiplying (i) $.0763 per Common Share then held by such Buyer by
(ii) the percentage derived by dividing (A) the actual number of days elapsed
from the last day of the date of the Registration Default or the prior 30-day
period, as applicable, to the day such Registration Default has been completely
cured by (B) 30, in cash, or at the Buyer's option, but subject to the Company's
reasonable consent, in the number of shares of Company common stock equal to the
quotient of (v) the dollar amount of the Liquidated Damages on the Payment Date
(as defined below) by (w) the closing bid price of the Company's common stock as
of the date of the Registration Default (as quoted in the Principal Market or
the market or exchange where the Company's common stock is then traded). The
Liquidated Damages payable pursuant hereto shall be payable within five (5)
business days from the end of the calendar month commencing on the first
calendar month in which the Registration Default occurs (each, a "Payment
Date"). In the event the Buyer elects to receive the Liquidated Damages amount
in shares of Company common stock, such shares shall also be considered
Registrable Securities and shall have the registration rights set forth in this
Agreement (subject to any limitations with respect to the registration of such
shares under the 1933 Act). The Company shall not be obligated to pay any
Liquidated Damages under this Section with respect to Registration Defaults
which may be continuing after the second anniversary of the date of issuance of
the relevant Common Shares. Further, the Company shall not be obligated to pay
to any Buyer any Liquidated Damages to the extent that any Registration Default
is attributable to any material breach by Buyer of this Agreement or the
Securities Purchase Agreement.

                                      -13-
<PAGE>

          9.   ASSIGNMENT OF REGISTRATION RIGHTS.
               ---------------------------------

               The rights under this Agreement shall be automatically assignable
by the Investors to any transferee of all or any portion of Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws; provided,
however, that the transferee or assignee may subsequently transfer or assign all
or any portion of the Registrable Securities if an exemption from registration
under the 1933 Act is applicable to such transfer or assignment; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement.

          10.  AMENDMENT OF REGISTRATION RIGHTS.
               --------------------------------

               Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who then hold two-thirds (2/3) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any Person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.

          11.  MISCELLANEOUS.
               -------------

               a.   A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.

                                      -14-
<PAGE>

          b.   Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Agreement must be in writing
and will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one business 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:

          If to the Company:

               Data Race Inc.
               12400 Network Blvd.
               San Antonio, TX 78249-3341
               Telephone: (210 )263-2000
               Facsimile: (210) 558-0356
               Attention: Jim Scogin

          With a copy to:

               Akin, Gump, Strauss, Hauer & Feld, L.L.P.
               300 Convent Street, Suite 1500
               San Antonio, Texas 78205
               Telephone: (210) 281-7000
               Facsimile: (210) 224-2035
               Attention: Pat Ryan, Esq.

          If to Legal Counsel:

               Strategic Investment Counsel, LLC
               666 Dundee Road, Suite 1901
               Northbrook, Illinois 60062
               Telephone:  (847) 564-9293
               Facsimile:  (847) 564-5497
               Attention:  Anthony J. Ribaudo, Esq.

If to a Buyer, to it at the address and facsimile number set forth on the
Schedule of Buyers attached hereto, with copies to such Buyer's representatives
as set forth on the Schedule of Buyers, or at such other address and/or
facsimile number and/or to the attention of such other person as the recipient
party has specified by written notice given to each other party five days prior
to the effectiveness of such change.

          c.  Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

                                      -15-
<PAGE>

          d.  This Agreement shall be governed by and construed in all respects
by the internal laws of the State of Illinois (except for the proper application
of the United States federal securities laws), without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of
Illinois or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Illinois. Each party hereby
irrevocably submits to the non-exclusive jurisdiction of the state and federal
courts sitting the City of Chicago, for the adjudication of any dispute
hereunder. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

          e.  This Agreement, the Securities Purchase Agreement and the Warrants
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Securities Purchase Agreement and the Warrants
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.

          f.  Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.

          g.  The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.

          h.  This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement.  This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

          i.  Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

          j.  All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding a majority of the Registrable Securities.

          k.  The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.

                                      -16-
<PAGE>

          l.  This Agreement is intended for the benefit of the parties hereto
and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.

                           [Signature Page Follows]

                                      -17-
<PAGE>

          IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.

COMPANY:                            BUYERS:

DATA RACE INC.                      CRANSHIRE CAPITAL, L.P.

By: /s/ James G. Scogin       By:   Downsview Capital, Incorporated, the General
                                            Partner
Name: James G. Scogin
Title: SVP - Chief Financial        By: /s/ Mitchell Kopin
    Officer                         Name:   Mitchell Kopin
                                    Title:  President

                                    KEYWAY INVESTMENTS LTD.

                                    By: /s/ Dave Moore
                                    Name: Dave Moore
                                    Title: Director

                                    LIONHART INVESTMENTS LTD.

                                    By: /s/ Terrence P. Duffy
                                    Name: Terrence P. Duffy
                                    Title: Director

                                    EURAM CAP STRAT. "A" FUND LIMITED

                                    By:  JMJ Capital, Inc., the Investment
                                         Manager

                                    By: /s/ Mitchell Kopin
                                    Name:  Mitchell Kopin
                                    Title:  President

                          *Signature Page Continues*
<PAGE>

                                    ICN CAPITAL LTD.

                                    By: /s/ Dave Moore
                                    Name: Dave Moore
                                    Title: Director

                                    G-BAR LIMITED PARTNERSHIP

                                    By: /s/ Matthew Gray
                                    Name: Matthew Gray
                                    Title: Vice President
<PAGE>

                              SCHEDULE OF BUYERS

                                             Investor's Address
          Investor Name                     and Facsimile Number
         ------------------------      -------------------------------

Cranshire Capital, L.P.                666 Dundee Rd., Ste. 1901
                                       Northbrook, Illinois 60062
                                       Attn: Mitchell Kopin
                                       (p)  847/562-9030
                                       (f)  847/562-9031

Keyway Investments Ltd.                19 Mount Havelock
                                       Douglas, Isle of Man
                                       United Kingdom
                                       1M1 2QG
                                       Attn: Martin Peters
                                       (p)  011-44-171-323-2131
                                       (f)  011-44-171-323-0773

Lionhart Investments Ltd.              19 Camp Rd.
                                       Heston Court
                                       Wimbeldon, London SW194UW
                                       United Kingdom
                                       Attn: Terry Duffy
                                       (p)  011-44-181-947-6934
                                       (f)  011-44-181-971-0212

EURAM Cap Strat. "A" Fund
Limited                                c/o JMJ Capital, Inc.
                                       666 Dundee Rd., Ste. 1901
                                       Northbrook, IL 60062
                                       Attn: Mitchell Kopin
                                       (p) 847/562-9030
                                       (f) 847/562-9031
<PAGE>

ICN Capital Ltd.                  19 Mount Havelock
                                       Douglas, Isle of Man
                                       United Kingdom
                                       1M1 2QG
                                       Attn: Ann Nicholson
                                       (p) 011-44-1624-623911
                                       (f) 011-44-1624-677313

G-Bar Limited Partnership              440 S. LaSalle St., Ste. 650
                                       Chicago, IL 60605
                                       Attn: Av Gray
                                       (p)312/362-4211
                                       (f)312/362-4208
<PAGE>

                                                                       EXHIBIT A
                        FORM OF NOTICE OF EFFECTIVENESS
                           OF REGISTRATION STATEMENT

[TRANSFER AGENT]
Attn:____________________

      Re: DATA RACE INC.
          --------------

Ladies and Gentlemen:

      We are counsel to Data Race Inc., a Texas corporation (the "Company"), and
have represented the Company in connection with that certain Securities Purchase
Agreement (the "Purchase Agreement") entered into by and among the Company and
the buyers named therein (collectively, the "Holders") pursuant to which the
Company issued to the Holders shares of its Common Stock, no par value per
share, (the "Common Shares") and Warrants exercisable into its Common Stock (the
"Warrant Shares"). Pursuant to the Purchase Agreement, the Company also has
entered into a Registration Rights Agreement with the Holders (the "Registration
Rights Agreement") pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the Common Shares and Warrant Shares, under the Securities
Act of 1933, as amended (the "1933 Act"). In connection with the Company's
obligations under the Registration Rights Agreement, on June 12, 2000, the
Company filed a Registration Statement on Form S-3 (File No. _____________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names each of the Holders as
a selling stockholder thereunder.

      In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, that
any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Registrable Securities are available for resale under the 1933 Act pursuant
to the Registration Statement.

                              Very truly yours,

                              [ISSUER'S COUNSEL]

                              By:_______________________

cc:   [LIST NAMES OF HOLDERS]<PAGE>

                                                                    EXHIBIT 10.3

                                    WARRANT

THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"1933 ACT"), OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN
FORM, REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER THE 1933 ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.  ANY SUCH
OFFER, SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH THE APPLICABLE STATE
SECURITIES LAWS.

                                DATA RACE INC.

                       Warrant To Purchase Common Stock

Warrant No.: 2000-D-01                                 Number of Shares: 255,570
Date of Issuance: June 12, 2000

Data Race Inc., a Texas corporation (the "Company"), hereby certifies that, for
Ten United States Dollars ($10.00) and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, CRANSHIRE CAPITAL,
L.P., the registered holder hereof or its permitted assigns, is entitled,
subject to the terms set forth below, to purchase from the Company upon
surrender of this Warrant, at any time or times on or after the date hereof, but
not after 11:59 P.M. Central Time on the Expiration Date (as defined herein)
255,570 fully paid nonassessable shares of Common Stock (as defined herein) of
the Company (the "Warrant Shares") at the purchase price per share provided in
Section 1(b) below.

     Section 1.

          (a) Securities Purchase Agreement.  This Warrant is one of the
              -----------------------------
Warrants (the "Warrants") issued pursuant to the terms of that certain
Securities Purchase Agreement dated as of June 12, 2000, among the Company and
the Buyers referred to therein (the "Securities Purchase Agreement").

          (b) Definitions.  The following words and terms as used in this
              -----------
Warrant shall have the following meanings:
<PAGE>

               (i)    "Common Stock" means (i) the Company's common stock, no
par value per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.

               (ii)   "Common Stock Deemed Outstanding" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 8(b)(i) and 8(b)(ii) hereof regardless of whether the Options (as
defined below) or Convertible Securities (as defined below) are actually
exercisable or convertible at such time, but excluding any shares of Common
Stock owned or held by or for the account of the Company or issuable upon
exercise of the Warrants.

               (iii)  "Convertible Securities" means any stock or securities
(other than Options) directly or indirectly convertible into or exchangeable for
Common Stock.

               (iv)   "Exempt Issuance" means (A) a loan from a commercial bank
which has only an incidental equity feature, (B) any transaction involving the
Company's issuances of securities (1) as consideration in a merger or
consolidation, (2) in connection with a strategic partnership or joint venture
(the primary purpose of which is not to raise equity capital), or (3) as
consideration for the acquisition of a business, product, license or other
assets by the Company, (C) the issuance of common stock in a firm commitment,
underwritten public offering, (D) the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, (E) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan, stock purchase plan or other plan or written
compensation agreement for the benefit of the Company's employees, directors,
consultants or advisors, or (F) the issuance of securities pursuant to any
shareholder rights plan adopted by the Company prior to the Closing (as defined
in the Securities Purchase Agreement).

               (v)    "Expiration Date" means the date two (2) years from the
date of this Warrant or, if such date falls on a Saturday, Sunday or other day
on which banks are required or authorized to be closed in the City of Chicago or
the State of Illinois or on which trading does not take place on the principal
exchange or automated quotation system on which the Common Stock is traded (a
"Holiday"), the next date that is not a Holiday.

               (vi)   "Options" means any rights, warrants or options to
subscribe for or purchase Common Stock or Convertible Securities.

               (vii)  "Other Securities" means (i) the other Warrants and (ii)
the shares of Common Stock issued from time to time pursuant to the Securities
Purchase Agreement.

               (viii) "Person" means an individual, a limited liability company,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.

                                      -2-
<PAGE>

               (ix)  "Principal Market" means the Nasdaq National Market.

               (x)   "Securities Act" means the Securities Act of 1933, as
amended.

               (xi)  "Warrant" means this Warrant and all Warrants issued in
exchange, transfer or replacement of any thereof.

               (xii) "Warrant Exercise Price" shall be $5.45 per common share,
subject to adjustment as hereinafter provided.

     Section 2.  Exercise of Warrant.
                 -------------------

          (a)  Subject to the terms and conditions hereof, this Warrant may be
exercised by the holder hereof then registered on the books of the Company, in
whole or in part, at any time on any business day on or after the opening of
business on the date hereof and prior to 11:59 P.M. Central Time on the
Expiration Date by (i) delivery of a written notice, in the form of the
subscription notice attached as Exhibit A hereto (the "Exercise Notice"), of
                                ---------
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which this Warrant is being exercised (plus any applicable issue or
transfer taxes) (the "Aggregate Exercise Price") in cash or by check or wire
transfer, and (iii) the surrender to a common carrier for delivery to the
Company as soon as practicable following such date, this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction); provided, that if such Warrant Shares are to be
issued in any name other than that of the registered holder of this Warrant,
such issuance shall be deemed a transfer and the provisions of Section 7 shall
be applicable.  In the event of any exercise of the rights represented by this
Warrant in compliance with this Section 2(a), a certificate or certificates for
the Warrant Shares so purchased, in such denominations as may be requested by
the holder hereof and registered in the name of, or as directed by, the holder,
shall be delivered at the Company's expense to, or as directed by, such holder
as soon as practicable, and in no event later than two business days, after the
Company's receipt of the Exercise Notice, the Aggregate Exercise Price and this
Warrant (or an indemnification undertaking with respect to this Warrant in the
case of its loss, theft or destruction).  Upon delivery of the Exercise Notice
and Aggregate Exercise Price referred to in clause (ii) above, the holder of
this Warrant shall be deemed for all corporate purposes to have become the
holder of record of the Warrant Shares with respect to which this Warrant has
been exercised, irrespective of the date of delivery of this Warrant as required
by clause (iii) above or the certificates evidencing such Warrant Shares.

          (b)  Unless the rights represented by this Warrant shall have expired
or shall have been fully exercised, the Company shall, as soon as practicable
and in no event later than five (5) business days after any exercise and at its
own expense, issue a new Warrant identical in all respects to this Warrant
exercised except it shall represent rights to purchase the number of Warrant
Shares

                                      -3-
<PAGE>

purchasable immediately prior to such exercise under this Warrant exercised,
less the number of Warrant Shares with respect to which such Warrant is
exercised.

          (c) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but rather the number of shares of Common Stock issued
upon exercise of this Warrant shall be rounded up or down to the nearest whole
number.

          (d) If the Company shall fail for any reason or for no reason to issue
to the holder on a timely basis as described in this Section 2, a certificate
for the number of shares of Common Stock to which the holder is entitled upon
the holder's exercise of this Warrant or a new Warrant for the number of shares
of Common Stock to which such holder is entitled pursuant to Section 2(b)
hereof, the Company shall, in addition to any other remedies under this Warrant
or the Securities Purchase Agreement or otherwise available to such holder,
including any indemnification under the Securities Purchase Agreement, pay as
additional damages in cash to such holder on each day the issuance of such
Common Stock certificate or new Warrant, as the case may be, is not timely
effected an amount equal to .25% of the product of (A) the sum of the number of
shares of Common Stock not issued to the holder on a timely basis and to which
the holder is entitled and/or, the number of shares represented by the portion
of this Warrant which is not being converted, as the case may be, and (B) the
average of the closing bid price of the Common Stock for the three consecutive
trading days immediately preceding the last possible date which the Company
could have issued such Common Stock or Warrant, as the case may be, to the
holder without violating this Section 2.

          (e) Limitation on Beneficial Ownership.  The Company shall not effect
              ----------------------------------
any exercise of this Warrant and no holder of this Warrant shall have the right
to exercise this Warrant pursuant to Section 2 to the extent that after giving
effect to such exercise such Person (together with such Person's affiliates) (A)
would beneficially own in excess of 4.9% of the outstanding shares of the Common
Stock following such exercise and (B) would have acquired, through exercise of
this Warrant or otherwise, in excess of  4.9% of the outstanding shares of the
Common Stock following such exercise during the 60-day period ending on and
including such date of exercise.  For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by a Person and its
affiliates or acquired by a Person and its affiliates, as the case may be, shall
include the number of shares of Common Stock issuable upon exercise of this
Warrant with respect to which the determination of such sentence is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (i) exercise of the remaining, non-exercised Warrant beneficially owned by
such Person and its affiliates and (ii) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
(including, without limitation, any warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein beneficially
owned by such Person and its affiliates.  Except as set forth in the preceding
sentence, for purposes of this Section 2(e), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.  Notwithstanding anything to the contrary contained herein,
each Exercise Notice shall constitute a representation by the holder submitting
such Exercise Notice that, after giving effect to such Exercise Notice, (A) the
holder will not beneficially own (as determined in accordance with this Section
2(e)) and (B) during the 60-day

                                      -4-
<PAGE>

period ending on and including such date of exercise, the holder will not have
acquired, through exercise of this Warrant or otherwise, a number of shares of
Common Stock in excess of 4.9% of the outstanding shares of Common Stock as
reflected in the Company's most recent Form 10-Q or Form 10-K, as the case may
be, or more recent public press release or other public notice by the Company
setting forth the number of shares of Common Stock outstanding, but after giving
effect to exercise of this Warrant by such holder since the date as of which
such number of outstanding shares of Common Stock was reported.

     Section 3.  Covenants as to Common Stock.  The Company hereby covenants and
                 ----------------------------
agrees as follows:

          (a) This Warrant is, and any Warrant issued in substitution for or
replacement of this Warrant will upon issuance be, duly authorized and validly
issued.

          (b) All Warrant Shares which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issue thereof.

          (c) During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved at least 100% of the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.

          (d) The Company shall promptly secure the listing of the shares of
Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.

          (e) The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant will take all such actions as may be necessary or appropriate in
order that the

                                      -5-
<PAGE>

Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.

     Section 4.  Taxes.  The Company shall pay any and all taxes which may be
                 -----
payable with respect to the issuance and delivery of Warrant Shares upon
exercise of this Warrant.

     Section 5.  Warrant Holder Not Deemed a Stockholder.  Except as otherwise
                 ---------------------------------------
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of the
Company for any purpose, nor shall anything contained in this Warrant be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which he or she is
then entitled to receive upon the due exercise of this Warrant.  In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company.  Notwithstanding this
Section 5, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.

     Section 6.  Representations of Holder.  The holder of this Warrant, by the
                 -------------------------
acceptance hereof, represents that it is acquiring this Warrant and the Warrant
Shares for its own account for investment only and not with a view towards, or
for resale in connection with, the public sale or distribution of this Warrant
or the Warrant Shares, except pursuant to sales registered or exempted under the
Securities Act; provided, however, that by making the representations herein,
the holder does not agree to hold this Warrant or any of the Warrant Shares for
any minimum or other specific term and reserves the right to dispose of this
Warrant and the Warrant Shares at any time in accordance with or pursuant to a
registration statement or an exemption under the Securities Act.  The holder of
this Warrant further represents, by acceptance hereof, that, as of this date,
such holder is an  "accredited investor" as such term is defined in Rule 501(a)
of Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act (an "Accredited Investor").

     Section 7.  Ownership and Transfer.
                 ----------------------

          (a) The Company shall maintain at its principal executive offices (or
such other office or agency of the Company as it may designate by notice to the
holder hereof), a register for this Warrant, in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each transferee.  The Company may treat the
person in whose name any Warrant is registered on the register as the owner and
holder thereof for all purposes, notwithstanding any notice to the contrary, but
in all events recognizing any transfers made in accordance with the terms of
this Warrant.

                                      -6-
<PAGE>

          (b) This Warrant and the rights granted to the holder hereof are
transferable, in whole or in part, upon surrender of this Warrant, together with
a properly executed warrant power in the form of Exhibit B attached hereto;
provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 7(c) below.

          (c) The holder of this Warrant understands that this Warrant has not
been and is not expected to be, registered under the Securities Act or any state
securities laws, and may not be offered for sale, sold, assigned or transferred
unless (a) subsequently registered thereunder, or (b) such holder shall have
delivered to the Company an opinion of counsel, in generally acceptable form, to
the effect that the securities to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such registration;
provided that (i) any sale of such securities made in reliance on Rule 144
promulgated under the Securities Act may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may require compliance with some other exemption
under the Securities Act or the rules and regulations of the Securities and
Exchange Commission thereunder; and (ii) neither the Company nor any other
person is under any obligation to register the Warrants under the Securities Act
or any state securities laws or to comply with the terms and conditions of any
exemption thereunder.

          (d) The Company is obligated to register the Warrant Shares for resale
under the Securities Act pursuant to the Registration Rights Agreement dated
June 12, 2000 by and between the Company and the Buyers listed on the signature
page thereto (the "Registration Rights Agreement") and the initial holder of
this Warrant (and certain assignees thereof) is entitled to the registration
rights in respect of the Warrant Shares as set forth in the Registration Rights
Agreement.

                                      -7-
<PAGE>

     Section 8.  Adjustment of Warrant Exercise Price and Number of Shares.  The
                 ---------------------------------------------------------
Warrant Exercise Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted from time to time as follows:

          (a) Adjustment of Warrant Exercise Price and Number of Shares upon
              --------------------------------------------------------------
Issuance of Common Stock.  If and whenever on or after the date of issuance of
------------------------
this Warrant, the Company issues or sells, or in accordance with Section 8(b) is
deemed to have issued or sold, any shares of Common Stock (including the
issuance or sale of shares of Common Stock owned or held by or for the account
of the Company, but excluding shares of Common Stock deemed to have been issued
by the Company in connection with an Exempt Issuance or upon exercise or
conversion of the Other Securities) for a consideration per share less than the
Warrant Exercise Price in effect immediately prior to such time (the "Applicable
Price"), then immediately after such issue or sale the Warrant Exercise Price
then in effect shall be reduced to an amount equal to the product of (x) the
Warrant Exercise Price in effect immediately prior to such issue or sale and (y)
the quotient determined by dividing (1) the sum of (I) the product derived by
multiplying the Applicable Price by the number of shares of Common Stock Deemed
Outstanding immediately prior to such issue or sale, plus (II) the
consideration, if any, received by the Company upon such issue or sale, by (2)
the product derived by multiplying the (I) Applicable Price by (II) the number
of shares of Common Stock Deemed Outstanding immediately after such issue or
sale.  Upon each such adjustment of the Warrant Exercise Price hereunder, the
number of shares of Common Stock acquirable upon exercise of this Warrant shall
be adjusted to the number of shares determined by multiplying the Warrant
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Common Stock acquirable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.

          (b) Effect on Warrant Exercise Price of Certain Events.  For purposes
              --------------------------------------------------
of determining the adjusted Warrant Exercise Price under Section 8(a) above, the
following shall be applicable:

              (i) Issuance of Options.  If the Company in any manner grants any
                  -------------------
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion or exchange of
any Convertible Securities issuable upon exercise of any such Option is less
than the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share.  For purposes of this
Section 8(b)(i), the "lowest price per share for which one share of Common Stock
is issuable upon exercise of such Options or upon conversion or exchange of such
Convertible Securities" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option and upon conversion or exchange of any Convertible Security
issuable upon exercise of such Option. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock or of
such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such

                                      -8-
<PAGE>

Convertible Securities. Notwithstanding the foregoing, no adjustment shall be
made pursuant to this Section 8(b)(i) to the extent that such adjustment is
based solely on the fact that the Convertible Securities issuable upon exercise
of such Option are convertible into or exchangeable for Common Stock at a price
which varies with the market price of the Common Stock.

               (ii)  Issuance of Convertible Securities.  If the Company in any
                     ----------------------------------
manner issues or sells any Convertible Securities and the lowest price per share
for which one share of Common Stock is issuable upon such conversion or exchange
thereof is less than the Applicable Price, then such share of Common Stock shall
be deemed to be outstanding and to have been issued and sold by the Company at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this Section 8(b)(ii), the "lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange" shall be equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to one share of Common
Stock upon the issuance or sale of the Convertible Security and upon conversion
or exchange of such Convertible Security. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustment of the Warrant Exercise Price had been or are to be made
pursuant to other provisions of this Section 8(b), no further adjustment of the
Warrant Exercise Price shall be made by reason of such issue or sale.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 8(b)(ii) to the extent that such adjustment is based solely on the fact
that such Convertible Securities are convertible into or exchangeable for Common
Stock at a price which varies with the market price of the Common Stock.

               (iii) Change in Option Price or Rate of Conversion.  If the
                     --------------------------------------------
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
acquirable hereunder shall be correspondingly readjusted.  For purposes of this
Section 8(b)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change.  No adjustment shall be made if such adjustment would result in an
increase of the Warrant Exercise Price then in effect.

               (iv)  Treatment of Expired Options and Unexercised Convertible
                     --------------------------------------------------------
Securities.  If, in any case, the total number of shares of Common Stock
----------
issuable upon the exercise of any Option or upon exercise, conversion or
exchange of any Convertible Security is not, in fact, issued and the rights to
exercise such Option or to exercise, convert or exchange such Convertible

                                      -9-
<PAGE>

Securities shall have expired or terminated, the Warrant Exercise Price then in
effect will be readjusted to the Warrant Exercise Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual number of shares
of Common Stock issued upon exercise or conversion thereof) never been issued.

          (c)  Effect on Warrant Exercise Price of Certain Events.  For purposes
               --------------------------------------------------
of determining the adjusted Warrant Exercise Price under Sections 8(a) and 8(b),
the following shall be applicable:

               (i)  Calculation of Consideration Received. In case any Option is
                    -------------------------------------
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01.  If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the amount received by the Company therefor before deduction of reasonable
commissions, underwriting discounts or allowances or other similar reasonable
expenses incurred by the Company.  If any Common Stock, Options or Convertible
Securities are issued or sold for a consideration other than cash, the amount of
such consideration received by the Company will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Company will be the market
price of such securities for the twenty (20) consecutive trading days
immediately preceding the date of receipt.  If any Common Stock, Options or
Convertible Securities are issued to the owners of the non-surviving entity in
connection with any merger in which the Company is the surviving entity, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be.  The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of Warrants
representing a majority of the shares of Common Stock obtainable upon exercise
of the Warrants then outstanding.  If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be determined
within five business days after the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser jointly selected by the Company and
the holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding.  The determination of
such appraiser shall be final and binding upon all parties and the fees and
expenses of such appraiser shall be borne by the Company.

               (ii) Record Date.  If the Company takes a record of the holders
                    -----------
of Common Stock for the purpose of entitling them (1) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (2) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon

                                      -10-
<PAGE>

the declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

          (d)  Adjustment of Warrant Exercise Price upon Subdivision or
               --------------------------------------------------------
Combination of Common Stock.  If the Company at any time after the date of
---------------------------
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased.  If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of shares
of Common Stock obtainable upon exercise of this Warrant will be proportionately
decreased.

          (e)  Distribution of Assets.  If the Company shall declare or make any
               ----------------------
distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, property or
securities of a subsidiary) (a "Distribution"), at any time after the issuance
of this Warrant, then, in each such case:

               (i)  the Warrant Exercise Price in effect immediately prior to
the close of business on the record date fixed for the determination of holders
of Common Stock entitled to receive the Distribution shall be reduced, effective
as of the close of business on such record date, to a price determined by
multiplying such Warrant Exercise Price by a fraction of which (A) the numerator
shall be the Closing bid price on the trading day immediately preceding such
record date minus the value of the Distribution (as determined in good faith by
the Company's Board of Directors) applicable to one share of Common Stock, and
(B) the denominator shall be the Closing bid price on the trading day
immediately preceding such record date; and

               (ii) either (A) the number of Warrant Shares obtainable upon
exercise of this Warrant shall be increased to a number of shares equal to the
number of shares of Common Stock obtainable immediately prior to the close of
business on the record date fixed for the determination of holders of Common
Stock entitled to receive the Distribution multiplied by the reciprocal of the
fraction set forth in the immediately preceding clause (i), or (B) in the event
that the Distribution is of common stock of a company whose common stock is
traded on a national securities exchange or a national automated quotation
system, then the holder of this Warrant shall receive an additional warrant to
purchase Common Stock, the terms of which shall be identical to those of this
Warrant, except that such warrant shall be exercisable into the amount of the
assets that would have been payable to the holder of this Warrant pursuant to
the Distribution had the holder exercised this Warrant immediately prior to such
record date and with an exercise price equal to the amount by which the exercise
price of this Warrant was decreased with respect to the Distribution pursuant to
the terms of the immediately preceding clause (i).

                                      -11-
<PAGE>

          (f)  Certain Events.  If any event occurs of the type contemplated by
               --------------
the provisions of this Section 8 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's Board of Directors will make an appropriate adjustment in the Warrant
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Warrants;
provided that no such adjustment will increase the Warrant Exercise Price or
decrease the number of shares of Common Stock obtainable as otherwise determined
pursuant to this Section 8.

          (g)  Notices.
               -------

               (i)   Immediately upon any adjustment of the Warrant Exercise
Price, the Company will give written notice thereof to the holder of this
Warrant, setting forth in reasonable detail, and certifying, the calculation of
such adjustment.

               (ii)  The Company will give written notice to the holder of this
Warrant at least twenty (20) days prior to the date on which the Company closes
its books or takes a record (A) with respect to any dividend or distribution
upon the Common Stock, (B) with respect to any pro rata subscription offer to
holders of Common Stock or (C) for determining rights to vote with respect to
any Organic Change (as defined below), dissolution or liquidation, provided that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to such holder.

               (iii) The Company will also give written notice to the holder of
this Warrant at least twenty (20) days prior to the date on which any Organic
Change, dissolution or liquidation will take place, provided that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to such holder.

                                      -12-
<PAGE>

     Section 9.  Purchase Rights; Reorganization, Reclassification,
                 --------------------------------------------------
Consolidation, Merger or Sale.
-----------------------------

          (a) If at any time after the date hereof, the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then the holder of this Warrant
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon complete
exercise of this Warrant immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.

          (b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change."  Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will use its best efforts to
secure from the Person purchasing such assets or the successor resulting from
such Organic Change (in each case, the "Acquiring Entity") written agreement (in
form and substance satisfactory to the holders of Warrants representing a
majority of the shares of Common Stock obtainable upon exercise of the Warrants
then outstanding) to deliver to each holder of Warrants in exchange for such
Warrants, a security of the Acquiring Entity evidenced by a written instrument
substantially similar in form and substance to this Warrant and satisfactory to
the holders of the Warrants (including, an adjusted warrant exercise price equal
to the value for the Common Stock reflected by the terms of such consolidation,
merger or sale, and exercisable for a corresponding number of shares of Common
Stock acquirable and receivable upon exercise of the Warrants, if the value so
reflected is less than the Warrant Exercise Price in effect immediately prior to
such consolidation, merger or sale).  Prior to the consummation of any other
Organic Change, the Company shall use its best efforts to make appropriate
provision (in form and substance satisfactory to the holders of Warrants
representing a majority of the shares of Common Stock obtainable upon exercise
of the Warrants then outstanding) to insure that each of the holders of the
Warrants will thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the exercise of such holder's
Warrants, such shares of stock, securities or assets that would have been issued
or payable in such Organic Change with respect to or in exchange  for the number
of shares of Common Stock which would have been acquirable and receivable upon
the exercise of such holder's Warrant as of the date of such Organic Change
(without taking into account any limitations or restrictions on the
exerciseability of this Warrant).

          (c) In the event the Company proposes to effect an Organic Change,
then in addition to any other rights the holder may have, the holder shall have
the right to effect a Cashless

                                      -13-
<PAGE>

Exercise (as defined below), by presentation and surrender of this Warrant to
the Company at its principal executive offices with a written notice of the
holder's intention to effect a Cashless Exercise, including a calculation of the
number of shares of Common Stock to be issued upon such exercise in accordance
with the terms hereof. A "Cashless Exercise" shall mean that, in lieu of paying
the Warrant Exercise Price in cash, the holder shall surrender this Warrant for
that number of Warrant Shares determined by subtracting from the number of
Warrant Shares otherwise issuable to the holder upon such exercise, an amount of
Warrant Shares (the "Surrendered Shares") having a closing bid price (as
reported by Bloomberg) on the date immediately preceding the date of the
exercise notice equal to the Aggregate Exercise Price (as defined in Section 2)
of the Warrant Shares for which this Warrant is being exercised; and thereafter
the Surrendered Shares shall no longer be available for issuance hereunder.

     Section 10.  Lost, Stolen, Mutilated or Destroyed Warrant.  If this Warrant
                  --------------------------------------------
is lost, stolen, mutilated or destroyed, the Company shall, on receipt of an
indemnification undertaking, issue a new Warrant of like denomination and tenor
as this Warrant so lost, stolen, mutilated or destroyed.

     Section 11.  Notice.  Any notices, consents, waivers or other
                  ------
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered:  (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically  or electronically generated and
kept on file by the sending party); or (iii) one business 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:

          If to the Company:

               Data Race Inc.
               12400 Network Blvd.
               San Antonio, TX 78249-3341
               Telephone: (210) 263-2000
               Facsimile: (210) 558-0365
               Attention: Jim Scogin

          With copy to:

               Akin, Gump, Strauss, Hauer & Feld, L.L.P.
               300 Convent Street, Suite 1500
               San Antonio, Texas 78205
               Telephone: (210) 281-7000
               Facsimile: (210) 224-2035
               Attention: Pat Ryan, Esq.

                                      -14-
<PAGE>

If to a holder of this Warrant, to it at the address and facsimile number set
forth on the Schedule of Buyers to the Securities Purchase Agreement, with
copies to such holder's representatives as set forth on such Schedule of Buyers,
or at such other address and facsimile as shall be delivered to the Company upon
the issuance or transfer of this Warrant.  Each party shall provide five days'
prior written notice to the other party of any change in address or facsimile
number.  Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

     Section 12.  [Reserved.]

     Section 13.  Date.  The date of this Warrant is June 12, 2000.  This
                  ----
Warrant, in all events, shall be wholly void and of no effect after the close of
business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.

     Section 14.  Amendment and Waiver.  Except as otherwise provided herein,
                  --------------------
the provisions of the Warrants may be amended 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 has obtained the written consent of the
holders of Warrants representing a majority of the shares of Common Stock
obtainable upon exercise of the Warrants then outstanding; provided that no such
action may increase the Warrant Exercise Price of the Warrants or decrease the
number of shares or class of stock obtainable upon exercise of any Warrants
without the written consent of the holder of such Warrant.

     Section 15.  Descriptive Headings; Governing Law.  The descriptive headings
                  -----------------------------------
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant.  This Warrant
shall be governed by the internal laws of the State of Illinois, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of Illinois or any other jurisdictions) that would cause the application
of the laws of any jurisdictions other than the State of Illinois.

                           [Signature Page Follows]

                                      -15-
<PAGE>

     This Warrant has been duly executed by the Company as of the date first set
forth above.

                                        DATA RACE INC.

                                        By: /s/ James G. Scogin
                                        Name: James G. Scogin
                                        Title: SVP - Chief Financial Officer
<PAGE>

                             EXHIBIT A TO WARRANT
                             --------------------

                               SUBSCRIPTION FORM

       TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT

                                DATA RACE INC.

     The undersigned holder hereby exercises the right to purchase ____________
of the shares of Common Stock ("Warrant Shares") of Data Race Inc., a Texas
corporation (the "Company"), evidenced by the attached Warrant (the "Warrant").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings set forth in the Warrant.

     1.  Payment of Warrant Exercise Price.  The holder shall pay the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

     2.  Delivery of Warrant Shares.  The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

Date:__________ _____, _________

Name of Registered Holder

By: ____________________________
Name: __________________________
Title: _________________________
<PAGE>

                             EXHIBIT B TO WARRANT
                             --------------------

                             FORM OF WARRANT POWER

FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Data Race Inc., a Texas corporation,
represented by warrant certificate no. _____, standing in the name of the
undersigned on the books of said corporation.  The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.

Dated: _________, 200_

                                                  ______________________________

                                                  By:___________________________
                                                  Name:_________________________
                                                  Title:________________________

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