Document:

<PAGE>

                                                                     Exhibit 4.2

                                                         Exhibit B to Securities
                                                              Purchase Agreement

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
EXEMPTION FROM REGISTRATION UNDER THE FOREGOING LAWS. ACCORDINGLY, THIS WARRANT
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT (i) AN OPINION OF
COUNSEL SATISFACTORY TO FIELDWORKS, INCORPORATED THAT SUCH SALE, TRANSFER OR
OTHER DISPOSITION MAY LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES
ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS OR (ii) SUCH REGISTRATION.

                           FIELDWORKS, INCORPORATED

                                   WARRANT
                                  TO PURCHASE
                            SHARES OF COMMON STOCK

     For value received, in consideration of the execution and delivery of the
Securities Purchase Agreement between the issuer of this Warrant and Industrial-
Works Holding Corp., a Delaware corporation ("Purchaser") dated November 20,
1999 ("Securities Purchase Agreement"), Purchaser and its successors or assigns
("Holder"), is entitled to purchase from FieldWorks, Incorporated, a Minnesota
corporation (the "Company'), up to 500,000 fully paid and nonassessable shares
of the Company's common stock, $.001 par value per share or such greater or
lesser number of such shares as may be determined by application of the anti-
dilution provisions of this Warrant, at the price of One Dollar $1.00 per share
(the "Warrant Exercise Price").

     This Warrant may be exercised, with respect to all 500,000 shares, upon the
seventh (7th) anniversary of the date of this Warrant (the "Seventh Anniversary
Date"), provided, however, that the exercise of this Warrant may be accelerated,
with respect to a portion of the shares, under the following circumstances:

          (a)  This Warrant may be exercised with respect to 167,000 shares (as
adjusted pursuant to Section 4(b) of this Warrant) after the closing price of
the Company's common stock averages $2.50 for five (5) consecutive trading days,
and will remain exercisable
<PAGE>

with respect to such shares for a period of three (3) years following such
acceleration, but shall no longer be exercisable with respect to such shares if
not exercised within such three-year period, or, if sooner, prior to the Seventh
Anniversary Date.

          (b)  This Warrant may be exercised with respect to an additional
167,000 shares (as adjusted pursuant  to Section 4(b) of this Warrant) after the
closing price of the Company's common stock averages $3.75 for five (5)
consecutive trading days, and will remain exercisable with respect to such
shares for a period of three (3) years following such acceleration, but shall no
longer be exercisable with respect to such shares if not exercised within such
three-year period or, if sooner, prior to the Seventh Anniversary Date.

          (c)  This Warrant may be exercised with respect to the  remaining
166,000 shares (as adjusted pursuant  to Section 4(b) of this Warrant) after the
closing price of the Company's common stock averages $5.00 for five (5)
consecutive trading days, and will remain exercisable with respect to such
shares for a period of three (3) years following such acceleration, but shall no
longer be exercisable with respect to such shares if not exercised within such
three-year period or, if sooner, prior to the Seventh Anniversary Date.

     This Warrant is subject to the following terms and conditions:

     1.   Exercise.  The rights represented by this Warrant may be exercised by
          --------
the Holder, in whole or in part, by written election, in the form set forth
below, by the surrender of this Warrant (properly endorsed if required) at the
principal office of the Company, and by payment to it by cash, certified check
or bank draft of the Warrant Exercise Price for the shares to be purchased. The
shares so purchased shall be deemed to be issued as of the close of business on
the date on which this Warrant has been exercised by payment to the Company of
the Warrant Exercise Price. Certificates for the shares of stock so purchased,
bearing the restrictive legend set forth at the end of this Warrant, shall be
delivered to Holder within fifteen (15) days after the rights represented by
this Warrant shall have been so exercised, and, unless this Warrant has expired,
a new warrant representing the number of shares, if any, with respect to which
this Warrant remains exercisable shall also be delivered to Holder hereof within
such time.  No fractional shares shall be issued upon any exercise of this
Warrant.

     2.   "Cashless" Exercise.  At Holder's option, all or any portion of the
          -------------------
Warrant Exercise Price may be paid by surrendering a portion of the shares
issuable upon exercise of this Warrant. The value of the shares so surrendered
shall be the closing price of the Company's common stock on the date of Holder's
notice of exercise.

                                      -2-
<PAGE>

     3.   Shares.  All shares that may be issued upon the exercise of the rights
          ------
represented by this Warrant shall, upon issuance, be duly authorized and issued,
fully paid and nonassessable shares.  During the period within which the rights
represented by this Warrant may be exercised, the Company shall at all times
have authorized and reserved for the purpose of issue or transfer upon exercise
of the subscription rights evidenced by this Warrant a sufficient number of
shares of its common stock to provide for the exercise of the rights represented
by this Warrant.

     4.   Adjustment.  The Warrant Exercise Price shall be subject to adjustment
          ----------
from time to time as hereinafter provided in this Section 4:

          (a)  If the Company at any time divides the outstanding shares of its
     common stock into a greater number of shares (whether pursuant to a stock
     split, stock dividend or otherwise), and conversely, if the outstanding
     shares of its common stock are combined into a smaller number of shares,
     the Warrant Exercise Price in effect immediately prior to such division or
     combination shall be proportionately adjusted to reflect the reduction or
     increase in the value of each such common share.

          (b)  If any stock dividend, capital reorganization or reclassification
     of the capital stock of the Company, or consolidation or merger of the
     Company with another corporation, or the sale of all or substantially all
     of its assets to another corporation shall be effected in such a way that
     holders of the Company's common stock shall be entitled to receive stock,
     securities or assets with respect to or in exchange for such common stock,
     then, as a condition of such stock dividend, reorganization,
     reclassification, consolidation, merger or sale, Holder shall have the
     right to purchase and receive upon the basis and upon the terms and
     conditions specified in this Warrant and in lieu of the shares of the
     common stock of the Company immediately theretofore purchasable and
     receivable upon the exercise of the rights represented hereby, such shares
     of stock, other securities or assets as would have been issued or delivered
     to the Holder if Holder had exercised this Warrant and had received such
     shares of common stock immediately prior to such stock dividend,
     reorganization, reclassification, consolidation, merger or sale. The
     Company shall not effect any such consolidation, merger or sale unless
     prior to the consummation thereof the successor corporation (if other than
     the Company) resulting from such consolidation or merger or the corporation
     purchasing such assets shall assume by written instrument executed and
     mailed to Holder at the last address of Holder appearing on the books of
     the Company the obligation to deliver to Holder such shares of stock,
     securities or assets as, in accordance with the foregoing provisions,
     Holder may be entitled to purchase.

          (c)  If and whenever the Company shall (1) issue or sell any shares of
     its common stock for a per-share consideration less than the Warrant
     Exercise Price in effect

                                      -3-
<PAGE>

     immediately prior to the time of such issuance or sale, (2) issue or sell
     any warrants, options or other rights to acquire shares of its common stock
     at a purchase price less than the Warrant Exercise Price in effect
     immediately prior to the time of such issuance or sale, or (3) issue or
     sell any other securities that are convertible into shares of its common
     stock for a purchase or exchange price less than the Warrant Exercise Price
     in effect immediately prior to the time of such issuance or sale (except
     for the issuance or sale of shares of the Company's common stock pursuant
     to stock option plans, stock purchase plans or other employee stock
     incentive programs adopted by the Company's Board of Directors, or pursuant
     to business acquisition or lease financing transactions), then, upon such
     issuance or sale, the Warrant Exercise Price shall be reduced to the price
     (calculated to the nearest cent) determined by dividing (A) an amount equal
     to the sum of (1) the number of shares of the Company's common stock
     outstanding immediately prior to such issue or sale multiplied by the then
     existing Warrant Exercise Price and (2) the consideration, if any, received
     by the Company upon such issue or sale plus the consideration to be
     received by the Company upon the exercise of such stock purchase rights by
     (B) an amount equal to the sum of (1) the number of shares of its common
     stock outstanding immediately prior to such issue or sale and (2) the
     number of its shares of common stock thus issued or sold or issuable or
     saleable upon the exercise of such purchase rights or the conversion of
     such convertible securities; provided, however, that in the event that any
     such purchase right expires or is terminated prior to the exercise of this
     Warrant, the Warrant Exercise Price shall be recalculated by deleting such
     purchase right and provided further that if an adjustment is made to the
     Warrant Exercise Price as a result of the issuance or sale of any such
     purchase rights or convertible securities, no further adjustment shall be
     made to the Warrant Exercise Price at the time such purchase rights are
     exercised or convertible securities are converted.

          (d)  Upon any adjustment of the Warrant Exercise Price, Holder shall
     thereafter be entitled to purchase, at the Warrant Exercise Price resulting
     from such adjustment, the number of shares obtained by multiplying the
     Warrant Exercise Price in effect immediately prior to such adjustment by
     the number of shares purchasable pursuant hereto immediately prior to such
     adjustment and dividing the product thereof by the Warrant Exercise Price
     resulting from such adjustment.

          (e)  Upon any adjustment of the warrant exercise price, the Company
     shall give written notice thereof to Holder, stating the Warrant Exercise
     Price resulting from such adjustment and the increase or decrease, if any,
     in the number of shares purchasable at such price upon the exercise of this
     Warrant, setting forth in reasonable detail the method of calculation and
     the facts upon which such calculation is based.

                                      -4-
<PAGE>

     5.   No Rights as Shareholder. This Warrant shall not entitle Holder to any
          ------------------------
voting rights or other rights as a shareholder of the Company.

     6.   Registration Rights.  Holder shall be entitled to certain demand
          -------------------
registration rights and also entitled to participate in any registered offering
of shares of the Company's common stock.  Holder's participation in any such
offering shall be in accordance with the procedures, and subject to the
limitations, set forth on Exhibit A to this Warrant.

     7.   Transfer.  This Warrant and all rights hereunder are transferable, in
          --------
whole or in part, at the principal office of the Company by the holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant properly
endorsed to any person or entity who represents in writing that such person or
entity is acquiring the Warrant for investment and without any view to the sale
or other distribution thereof.  Each holder of this Warrant, by taking or
holding the same, consents and agrees that the bearer of this Warrant, when
endorsed, may be treated by the Company and all other persons dealing with this
Warrant as the absolute owner hereof for any purpose and as the person entitled
to exercise the rights represented by this Warrant, or to the transfer hereof on
the books of the Company, any notice to the contrary notwithstanding; but until
such transfer on such books, the Company may treat the registered owner hereof
as the owner for all purposes.

     8.   Notices.  All demands and notices to be given hereunder shall be
          -------
delivered or sent by first class mail, postage prepaid; in the case of the
Company, addressed to its corporate headquarters, Attention: Chief Financial
Officer, 7631 Anagram Drive, Eden Prairie, MN 55344, until a new address shall
have been substituted by like notice; and in the case of Holder, addressed to
Holder at the address written below, until a new address shall have been
substituted by like notice.

    [The remainder of this page intentionally is left blank, signature page
                                   follows]

                                      -5-
<PAGE>

                          [SIGNATURE PAGE TO WARRANT]

     IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and
delivered by a duly authorized officer.

Dated:  February 22, 2000

                                           FIELDWORKS, INCORPORATED

                                           By /s/ Karen L. Engebretson
                                             ------------------------------
                                             Chief Financial Officer

Name and Address of Holder:

Industrial-Works Holding Corp.
19200 Von Karman Avenue, Suite 400
Irvine, California 92612

                                      -6-
<PAGE>

                            RESTRICTION ON TRANSFER

     The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, or the securities laws of any state and
may not be sold, transferred or otherwise disposed of except pursuant to an
effective registration statement or exemption from registration under the
foregoing laws.  Accordingly, the shares represented by this certificate may not
be sold, transferred or otherwise disposed of without (i) an opinion of counsel
satisfactory to FieldWorks, Incorporated that such sale, transfer or other
disposition may lawfully be made without registration under the Securities Act
of 1933 and applicable state securities laws or (ii) such registration.
<PAGE>

                               WARRANT EXERCISE

               (To be signed only upon exercise of this Warrant)

     The undersigned, the Holder of the foregoing Warrant, hereby irrevocably
elects to exercise the purchase right represented by such warrant for, and to
purchase thereunder, _________ shares of common stock of FieldWorks,
Incorporated, to which such warrant relates and herewith makes payment of
[$________] therefor in cash, certified check or bank draft and requests that
the certificates for such shares be issued in the name of, and be delivered to
______________, whose address is set forth below the signature of the
undersigned.

Dated: __________________

                                      ____________________________
                                      Signature

If shares are to be issued            Social Security or other Tax
other than to Holder:                 Identification No.

_________________________             ____________________________
_________________________
_________________________
_________________________

Please print present name
and address
<PAGE>

                              WARRANT ASSIGNMENT

               (To be signed only upon transfer of this Warrant)

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto __________________ the right represented by the foregoing warrant to
purchase the shares of common stock of FieldWorks, Incorporated, and appoints
_____________ attorney to transfer such right on the books of FieldWorks,
Incorporated, with full power of substitution in the premises.

Dated: __________________

                                       __________________________
                                       Signature

________________________________       Social Security or other
________________________________       Tax Identification No.
________________________________       __________________________
Please print present name
and address
<PAGE>

                                   EXHIBIT A
                                      TO
                                   WARRANT
                                   ISSUED BY
                           FIELDWORKS, INCORPORATED

                              Registration Rights
                              -------------------

     1.   Definitions. As used in this Exhibit A, the following terms shall have
          -----------
the following respective meanings:

          "Company" means FieldWorks, Incorporated, a Minnesota corporation.

          "Common Stock Equivalents" shall mean, with respect to any Eligible
Holder as of any applicable date of determination, a sum equal to (i) the number
of shares of Common Stock owned by such Eligible Holder as of such date of
determination plus (ii) with respect to any shares of Series B Preferred Stock
owned by such Eligible Holder, the number of shares of Common Stock issued or
issuable upon conversion of such Series B Preferred Stock issued or issuable
upon conversion as of the date of determination, and (iii) with respect to the
Warrant owned by such Eligible Holder, the number of shares of Common Stock
issued or issuable upon exercise of such Warrant as of the date of determination
(in each case, whether or not such Series B Preferred Stock or Warrant is so
converted or exercised).

          "Eligible Holders" means each of Industrial-Works Holding Corp. and
any Person to whom it transfers any Registrable Securities, or any of their
respective Permitted Transferees.

          "Holder" means (i) any person owning of record Registrable Securities
that have not been sold to the public or (ii) any transferee of record of such
Registrable Securities in accordance with Section 7 of the Warrant or Section
6.10 of the Securities Purchase Agreement.

          "Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.

          "Registrable Securities" means (i) Common Stock of the Company issued
or issuable upon exercise of the Warrants or on conversion of shares of Series B
Preferred Stock, and (ii) any Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any Warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, such above-described securities.

                                      A-1
<PAGE>

Notwithstanding the foregoing, Registrable Securities shall not include any
securities sold by a person to the public either pursuant to a registration
statement or Rule 144, or sold in a private transaction in which the
transferor's rights under this Exhibit A is are not assigned.
                               ---------

          "Registrable Securities then outstanding" shall be the number of
shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (i) are then issued and
outstanding or (ii) are issuable pursuant to then exercisable or convertible
securities.

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

          "SEC" or "Commission" means the United States Securities and Exchange
Commission.

          "Securities Purchase Agreement" shall mean the Agreement dated
November 20, 1999 pursuant to which the Series B Preferred Stock was sold to
Industrial-Works Holding Corp.

          "Series B Preferred Stock" shall mean the Series B Convertible
Participating Preferred Stock of the Company.

          "Warrant" shall mean the Warrant to purchase common stock issued by
the Company in connection with the closing of the transactions contemplated by
the Securities Purchase Agreement.

     2.   Demand Registrations
          --------------------

          (a)  Timing Of Demand Registrations; Required Threshold.
               --------------------------------------------------

          At any time after the first anniversary of this Agreement, any
Eligible Holder owning at least one million five hundred thousand (1,500,000)
Common Stock Equivalents (as such number may be equitably adjusted from time to
time to reflect any stock split, stock dividend, recapitalization,
reclassification, consolidation or the like) may request (such Person, the
"Initiating Holder") that the Company file a Registration Statement under the
Securities Act on an appropriate form with respect to at least fifty percent
(50%) of the Registrable Securities owned by such Initiating Holder (which form
shall be available for the sale of the Registrable Securities in accordance with
the intended method or methods of distribution thereof and shall include all
financial statements required by the SEC to be filed herewith) covering the
shares of Registrable Securities that are the subject of such request and the
Company shall file such a Registration Statement.

                                      A-2
<PAGE>

          (b)  Number of Demand Registrations.
               ------------------------------

          The Company shall be obligated to prepare, file and cause to become
effective pursuant to this Section 2 no more than two (2) Registration
Statements in the aggregate pursuant to Section 2(a) above for the Eligible
Holders; provided, however, that a Registration Statement shall not be counted
as one of the two (2) Demand Registrations hereunder unless it becomes effective
and is maintained effective in accordance with the requirements specified in
Section 6(a); provided, further, that if there is an underwriter's cutback
pursuant to Section 2(e) with respect to the second request for registration
initiated by an Eligible Holder, such requested registration shall not be deemed
to be a requested registration for purposes of the limitation to two (2) Demand
Registrations pursuant to this Section 2(b).

          (c)  Deferral by Company.
               -------------------

          Notwithstanding anything in this Section 2 to the contrary, the
Company shall not be obligated to prepare, file and cause to become effective
pursuant to this Section 2 a Registration Statement if within five (5) days of
receipt of a request for a Demand Registration the Company furnishes to the
Initiating Holder a certificate signed by the Chief Executive Officer of the
Company that, in the good faith judgment of the Board of Directors, it would be
detrimental in any material respect to the Company and its shareholders for the
Company to comply with the Demand Registration, and it is therefore essential to
defer the filing of the Registration Statement relating thereto.  Any such
deferral shall be for a period of not more than six (6) months after the
Company's receipt of the Initiating Holder's written request for registration
pursuant to this Section 2; provided, however, that the Company may not exercise
this right more than once with respect to a Demand Registration and that any
requested registration deferred, and not ultimately effected, by the Company
pursuant to the provisions of this Section 2(c) shall thereafter not be deemed
to be a requested registration for purposes of the limitation to two (2) Demand
Registrations pursuant to Section 2(a) above.

          (d)  Participation.
               -------------

          The Company shall promptly give written notice to all other Eligible
Holders upon receipt of a request for a Demand Registration pursuant to Section
2(a) above.  Such other Eligible Holders may, by written notice to the Company
and the Initiating Holder, within thirty (30) business days of the Company's
notice, elect to join in a request for a Demand Registration pursuant to Section
2(a) above, with respect to any number of shares of Registrable Securities owned
by such Eligible Holder.  The Registrable Securities of the other Eligible
Holders being offered in such Demand Registration shall be treated pari passu
with the Registrable Securities being offered by the Initiating Holder for all
purposes including "underwriter's cutbacks" under subsection (e) of this Section
and any such request by an Eligible Holder shall not be treated as either a
request by such Eligible Holder for a Piggyback Registration under Section 3 or
as a request by such Eligible

                                      A-3
<PAGE>

Holder for a Demand Registration under this Section 2.  The Company shall
include in such Demand Registration such shares of Registrable Securities for
which it has received written requests to register such shares within thirty
(30) days after such written notice has been given, provided that all the
Registrable Securities for which the Initiating Holder and the other Eligible
Holders have requested registration shall be covered by such registration
statement before any other securities are included.

          In addition, the Company shall promptly give written notice to all
eligible Holders upon receipt of a request for a demand registration by any
Person (such Person, the "Initiating Person") pursuant to any other registration
rights agreement with the Company (whether such other registration rights
agreement is entered into before or after the date hereof).  Each Eligible
Holder may, by written notice to the Company, within thirty (30) business days
of the Company's notice, elect to request a Demand Registration pursuant to
Section 2(a) above, with respect to any shares of Registrable Securities owned
by such Eligible Holder.  The Registrable Securities of the Eligible Holders
being offered in such Demand Registration shall be treated pari passu with the
registrable securities being offered by the Initiating Person for all purposes
including "underwriter's cutbacks" and any such request by an Eligible Holder
shall not be treated as either a request by such Eligible Holder for a Piggyback
Registration under Section 3 or as a request by such Eligible Holder for a
Demand Registration under this Section 2.  Further, the selection of the
managing underwriter and the underwriters for the demand registration requested
by the Initiating Person shall be subject to the approval of a majority in
interest of the Eligible Holders participating in any underwritten offering.
The Company shall include in such demand registration such shares of Registrable
Securities for which it has received written requests to register such shares
within thirty (30) days after such written notice has been given, provided that
all the Registrable Securities for which the Initiating Person and the Eligible
Holders have requested registration shall be covered by such registration
statement before any other securities are included.

          (e)  Underwriter's Cutback.
               ---------------------

          If the public offering of Registrable Securities is to be underwritten
and, in the good faith judgment of the managing underwriter, the inclusion of
all the Registrable Securities requested to be registered hereunder would
interfere with the successful marketing of such shares of Registrable
Securities, the number of shares of Registrable Securities to be included shall
be reduced and the number of shares to be included in the underwriting or
registration shall be allocated first among the Eligible Holders pro rata upon
the basis of the number of shares of Registrable Securities sought to be offered
by the Eligible Holders pursuant to such Demand Registration and any remainder
shall be allocated among the Company and the other persons entitled to
incidental registrations pro rata upon the basis of the number of shares of
Registrable Securities sought to be registered thereby.  If a person who has
requested inclusion in such Demand Registration does not agree to the terms of
any such underwriting, such person shall be excluded therefrom by written notice
from the Company, the underwriter or the Initiating Holder,

                                     A-4
<PAGE>

and the securities owned by such person(s) shall be withdrawn from registration
(the "Withdrawn Securities").

          If there are any Withdrawn Securities as a result of an Underwriter's
Cutback, then the Company shall offer to those persons who have retained rights
to include securities in the Demand Registration the right to include additional
securities in the registration in an aggregate amount equal to the number of
Withdrawn Securities that would have been included in the Demand Registration
after giving effect to the Underwriter's Cutback had such securities not been
withdrawn, with such shares to be allocated among such persons in accordance
with the allocation of rights set forth in this paragraph (e).

          (f)  Managing Underwriter.
               --------------------

          The managing underwriter or underwriters of any Underwritten Offering
covered by a Demand Registration shall be selected by a majority in interest of
the Eligible Holders participating in such Underwritten Offering and shall be
reasonably acceptable to the Company. The right of any other Holders joining in
a request for registration as provided in Section 2(d) above to registration
pursuant to this Section 2 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting on the same terms as those of the Initiating Holder (unless
otherwise mutually agreed by a majority in interest of the Eligible Holders
participating in such registration and such Holder with respect to such
participation and inclusion).

     3.   Piggyback Registrations
          -----------------------

          (a)  Participation.
               -------------

          Each time the Company decides to file a Registration Statement under
the Securities Act (other than registrations on Forms S-4 or S-8 or any
successor form thereto, and other than a Demand Registration or a demand
registration by an Initiating Person) covering the offer and sale by it or any
of its security holders of any of its securities for money, the Company shall
give written notice thereof to all Eligible Holders.  The Company shall include
in such Registration Statement such shares of Registrable Securities for which
it has received a written request from any Eligible Holder to register such
shares within twenty (20) days after such written notice has been given.  If the
Registration Statement is to cover an Underwritten Offering, such Registrable
Securities shall be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the underwriters.

                                      A-5
<PAGE>

          (b)  Underwriter's Cutback.
               ---------------------

          Subject to the requirements of Section 12 hereof, if in the good faith
judgment of the managing underwriter of such offering the inclusion of all of
the shares of Registrable Securities and any other Common Stock requested to be
registered would interfere with the successful marketing of such shares, then
the number of shares of Registrable Securities and other Common Stock to be
included in the offering shall be reduced, with the participation in such
offering to be in the following order of priority:  (1) first, the shares of
Common Stock which the Company proposes to sell for its own account, (2) second,
the shares of Registrable Securities of all Eligible Holders requested to be
included, and (3) third, any other shares of Common Stock requested to be
included.  Any necessary allocation among the Holders of shares within each of
the foregoing groups shall be pro rata among such Holders requesting such
registration based upon the number of shares of Common Stock and Registrable
Securities owned by such Holders.

          (c)  Company Control.
               ---------------

          The Company may decline to file a Registration Statement after giving
notice to Eligible Holders pursuant to Section 3(a) above, or withdraw a
Registration Statement after filing and after such notice, but prior to the
effectiveness thereof; provided that the Company shall promptly notify each
Eligible Holder in writing of any such action and provided further that the
Company shall bear all expenses incurred by each Eligible Holder or otherwise in
connection with such withdrawn Registration Statement.

     4.   Registration on Form S-3
          ------------------------

          (a)  Right to Request Registrations on Form S-3.
               ------------------------------------------

          After the Company has qualified for the use of Form S-3, in addition
to the rights contained in the foregoing provisions of this Agreement, the
Eligible Holders shall have the right to request registrations on Form S-3 or
any comparable or successor form.  Each such request shall be in writing and
shall state the anticipated number of shares of Registrable Securities to be
disposed of and the anticipated gross proceeds of such shares, and the intended
methods of disposition of such shares by such Eligible Holder or Eligible
Holders, including whether such resales are to be made on a delayed or
continuous basis pursuant to Rule 415.  The Company shall not be obligated to
effect any registration pursuant to this Section 4 if (i) the Eligible Holders
propose to sell Registrable Securities representing less than fifteen percent
(15% ) of the shares of the Registrable Securities then held by all Eligible
Holders or (ii) the circumstances described in Section 2(c) shall apply (but
subject to the limitations set forth therein).

          (b)  Application of Certain Provisions.
               ---------------------------------

                                      A-6
<PAGE>

          If the registration is for an Underwritten Offering, the provisions of
Sections 2(d) and 2(f) hereof shall also apply to such registration, except the
Company may not include any shares for its own account.

     5.   Hold-back Agreements
          --------------------

          (a)  By Holders of Registrable Securities.
               ------------------------------------

          Upon the written request of the managing underwriter of any
Underwritten Offering of the Company's securities, a Holder of Registrable
Securities shall not sell or otherwise dispose of any Registrable Securities
(other than those included in such registration) without the prior written
consent of such managing underwriter for a period (not to exceed thirty (30)
days before the effective date and one hundred twenty (120) days thereafter)
that such managing underwriter reasonably determines is necessary in order to
effect the Underwritten Offering; provided that each of the officers and
directors of the Company, and each Holder of more than one percent (1%) of the
Common Stock of the Company, shall have entered into substantially similar
holdback agreements with such managing underwriter covering at least the same
period.

          (b)  By the Company and Others.
               -------------------------

          The Company agrees:

               (1)  not to effect any public or private sale or distribution of
          any of its equity securities during the 30-day period prior to, and
          during the 120-day period after, the effective date of each
          Underwritten Offering made pursuant to a Demand Registration or a
          Piggyback Registration, if so requested in writing by the managing
          underwriter (except as part of such Underwritten Offering, pursuant to
          registrations on Forms S-4 or S-8 or any successor forms thereto), and

               (2)  not to issue any Equity Securities other than for sale in a
          registered public offering unless each of the Persons to which such
          securities are issued has entered a written agreement binding on its
          transferees not to effect any public sale or distribution of such
          securities during such 130-day period, including without limitation a
          sale pursuant to Rule 144 under the Securities Act (except as part of
          such Underwritten Registration, if and to the extent permitted
          hereunder).

     6.   Registration Procedures
          -----------------------

          If and whenever the Company is required to register Registrable
Securities pursuant to this Agreement, the Company will use all commercially
reasonable efforts to effect such

                                     A-7
<PAGE>

registration to permit the sale of such Registrable Securities in accordance
with the intended plan of distribution thereof and will as expeditiously as
practicable:

          (a)  prepare and file with the SEC as soon as practicable a
Registration Statement with respect to such Registrable Securities and use all
commercially reasonable efforts to cause such Registration Statement to become
effective and remain continuously effective until the date that is the earlier
to occur of (i) the date six months from the date such Registration Statement
was declared effective, and (ii) the date the last of the Registrable Securities
covered by such Registration Statement have been sold, provided that before
filing a Registration Statement or Prospectus or any amendments or supplements
thereto, the Company shall furnish to Holders of Registrable Securities covered
by such Registration Statement and the underwriters, if any, draft copies of all
such documents proposed to be filed, which documents will be subject to the
review of each Eligible Holder and such underwriters, and the Company shall not
file any Registration Statement or amendment thereto or any Prospectus or any
supplement thereto to which the Eligible Holders or the underwriters, if any,
shall reasonably object;

          (b)  prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement, and such supplements to the
Prospectus, as may be requested by any underwriter of Registrable Securities or
as may be required by the rules, regulations or instructions applicable to the
registration form used by the Company or by the Securities Act or rules and
regulations thereunder to keep the Registration Statement effective until all
Registrable Securities covered by such Registration Statement are sold in
accordance with the intended plan of distribution set forth in such Registration
Statement or supplement to the Prospectus;

          (c)  promptly notify the selling Holders of Registrable Securities and
the managing underwriter, if any, and (if requested by any such Person) confirm
such advice in writing,

               (1)  when the Prospectus or any supplement or post-effective
          amendment has been filed, and, with respect to the Registration
          Statement or any post-effective amendment, when the same has become
          effective,

               (2)  of any request by the SEC for amendments or supplements to
          the Registration Statement or the Prospectus or for additional
          information,

               (3)  of the issuance by the SEC of any stop order suspending the
          effectiveness of the Registration Statement or the initiation of any
          proceedings for that purpose,

                                      A-8
<PAGE>

               (4)  if at any time the representations and warranties of the
          Company contemplated by clause (1) of paragraph (o) below cease to be
          accurate in all material respects,

               (5)  of the receipt by the Company of any notification with
          respect to the suspension of the qualification of the Registrable
          Securities for sale in any jurisdiction or the initiation or
          threatening of any proceeding for such purpose, and

               (6)  of the existence of any fact which results in the
          Registration Statement, the Prospectus or any document incorporated
          therein by reference containing a misstatement;

          (d)  make all commercially reasonable efforts to obtain the withdrawal
of any order suspending the effectiveness of the Registration Statement at the
earliest practicable time;

          (e)  unless the Company objects in writing on reasonable grounds, if
requested by the managing underwriter or any Eligible Holder holding more than
twenty-five percent (25%) of the Registrable Securities then outstanding, as
promptly as practicable incorporate in a supplement or post-effective amendment
such information as the managing underwriter and such Eligible Holder agree
should be included therein relating to the sale of the Registrable Securities,
including, without limitation, information with respect to the number of shares
of Registrable Securities being sold to underwriters, the purchase price being
paid therefor by such underwriters and with respect to any other terms of the
Underwritten Offering of the Registrable Securities to be sold in such offering;
and make all required filings of such supplement or post-effective amendment as
soon as notified of the matters to be incorporated in such supplement or post-
effective amendment;

          (f)  only with respect to Demand Registrations, promptly prior to the
filing of any document which is to be incorporated by reference into the
Registration Statement or the Prospectus (after initial filing of the
Registration Statement) provide copies of such document to counsel to each of
the Eligible Holders and to the managing underwriter, if any, and make the
Company's representatives available for discussion of such document and make
such changes in such document prior to the filing thereof as counsel for each
Eligible Holder or underwriters may reasonably request;

          (g)  furnish to each selling Holder of Registrable Securities and the
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);

                                      A-9
<PAGE>

          (h)  deliver to each Eligible Holder and the underwriters, if any,
without charge, as many copies of each Prospectus (and each preliminary
prospectus) as such Persons may reasonably request (the Company hereby
consenting to the use of each such Prospectus (or preliminary prospectus) by
each of the selling Holders of Registrable Securities and the underwriters, if
any, in connection with the offering and sale of the Registrable Securities
covered by such Prospectus (or preliminary prospectus));

          (i)  prior to any public offering of Registrable Securities, use all
commercially reasonable efforts to register or qualify or cooperate with the
selling Holders of Registrable Securities, the underwriters, if any, and their
respective counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions as such underwriters may designate in writing and do
anything else necessary or advisable to enable from a legal perspective the
disposition in such jurisdictions of the Registrable Securities covered by the
Registration Statement; provided that the Company shall not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action which would subject it to general service of
process in any such jurisdiction where it is not then so subject;

          (j)  cooperate with the selling Holders of Registrable Securities and
the managing underwriter, if any, to facilitate the timely preparation and
delivery of certificates not bearing any restrictive legends representing the
Registrable Securities to be sold and cause such Registrable Securities to be in
such denominations and registered in such names as the managing underwriter may
request at least three business days prior to any sale of Registrable Securities
to the underwriters;

          (k)  use all commercially reasonable efforts to cause the Registrable
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Registrable Securities;

          (l)  if the Registration Statement or the Prospectus contains a
misstatement, prepare a supplement or post-effective amendment to the
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the Prospectus will
not contain a misstatement;

          (m)  use all commercially reasonable efforts to cause all Registrable
Securities covered by the Registration Statement to be listed on any national
securities exchange on which the Company's securities are listed or authorized
for quotation on Nasdaq, if requested by any Eligible Holder or the managing
underwriter, if any; provided, however, that the payment of any

                                     A-10
<PAGE>

required listing or other fee shall always be deemed to be "commercially
reasonable" for purposes of this Section 6(m);

          (n)  provide a CUSIP number for all Registrable Securities not later
than the effective date of the Registration Statement;

          (o)  enter into such agreements (including an underwriting agreement)
and do anything else reasonably necessary or advisable in order to expedite or
facilitate the disposition of such Registrable Securities, and in such
connection, whether or not the registration is an Underwritten Registration:

               (1)  make such representations and warranties to the Holders of
          such Registrable Securities and the underwriters, if any, in form,
          substance and scope as are customarily made by issuers to holders and
          underwriters, respectively, in similar Underwritten Offerings;

               (2)  obtain opinions of counsel to the Company and updates
          thereof (which counsel and opinions (in form, scope and substance)
          shall be reasonably satisfactory to the managing underwriter, if any,
          and each Eligible Holder) addressed to each selling Holder and the
          underwriter, if any, covering the matters customarily covered in
          opinions delivered to holders and underwriters, respectively, in
          similar Underwritten Offerings and such other matters as may be
          reasonably requested by any Eligible Holder or such underwriters;

               (3)  obtain "cold comfort" letters and updates thereof from the
          Company's independent certified public accountants addressed to the
          selling Holders of Registrable Securities and the underwriters, if
          any, such letters to be in customary form and covering matters of the
          type customarily covered in "cold comfort" letters to holders and
          underwriters, respectively, in connection with similar Underwritten
          Offerings;

               (4)  if an underwriting agreement is entered into, cause the same
          to include customary indemnification and contribution provisions and
          procedures with respect to such underwriters; and

               (5)  deliver such documents and certificates as may be reasonably
          requested by any Eligible Holder and the managing underwriter, if any,
          to evidence compliance with clause (1) above and with any customary
          conditions contained in the underwriting agreement or other agreement
          entered into by the Company.

                                     A-11
<PAGE>

The above shall be done at each closing under such underwriting or similar
agreement or as and to the extent otherwise reasonably requested by any Eligible
Holder;

          (p)  make available for inspection by representatives of any Eligible
Holder, any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney or accountant retained by the sellers
or any such underwriter, all financial and other records and pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such seller or underwriter in connection with the Registration; provided that
any records, information or documents that are designated by the Company in
writing as confidential shall be kept confidential by such Persons unless
disclosure of such records, information or documents is required by court or
administrative order; and

          (q)  otherwise use all commercially reasonable efforts to comply with
all applicable rules and regulations of the SEC relating to such Registration,
and make generally available to its security holders earnings statements
satisfying the provisions of Section 12(a) of the Securities Act, no later than
forty-five (45) days after the end of any 12-month period (or ninety (90) days,
if such period is a fiscal year) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in an Underwritten
Offering, or, if not sold to underwriters in such an offering, beginning with
the first month of the Company's first fiscal quarter commencing after the
effective date of the Registration Statement, which statements shall cover said
12-month period.

     7.   Registration Expenses
          ---------------------

          (a)  Demand Registrations and S-3 Registrations.
               ------------------------------------------

          The Company shall bear all Expenses incurred in connection with any
Demand Registrations, S-3 Registrations or any Registrations which do not become
or are not maintained effective in accordance with the requirements specified in
Section 6(a), including expenses and fees of one counsel for all Holders.
Notwithstanding the foregoing, the Underwriters' Commissions related or
attributable to Registrable Securities sold or  incurred in connection with a
Demand Registration or S-3 Registration that becomes effective shall be shared
by the Holders of the Registrable Securities whose Registrable Securities are
included in such Registration, pro rata, in accordance with the aggregate amount
of Registrable Securities sold by such Holders.

          (b)  Piggyback Registrations.
               -----------------------

          The Company shall bear all Registration Expenses incurred in
connection with any Piggyback Registrations, including expenses and fees of one
counsel for all Holders, except that each Holder of the Registrable Securities
whose Registrable Securities are included in such

                                     A-12
<PAGE>

Registration shall pay its pro rata share of the Underwriters' Commissions
related or attributable to Registrable Securities sold or incurred in such
Registration, in accordance with the amount of Registrable Securities sold by
all such Holders.

          (c)  Company Expenses.
               ----------------

          The Company also will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with any listing of the
securities to be registered on a securities exchange, and the fees and expenses
of any Person, including special experts, retained by the Company.

     8.   Termination of Registration Rights.  A Holder's registration rights
          ----------------------------------
under this Exhibit A shall terminate and be of no further force and effect if
all the Registrable Securities held by and issuable to such Holder may be sold
under Rule 144 during any ninety (90) day period.

                                     A-13<PAGE>

                                                                     EXHIBIT 4.3

                           CERTIFICATE OF DESIGNATION
                                       OF
                            SERIES OF PREFERRED STOCK

                            FIELDWORKS, INCORPORATED

                            STATEMENT OF DESIGNATION
                                       OF
                       RIGHTS, PREFERENCES AND LIMITATIONS
                                       OF
               SERIES C CONVERTIBLE PARTICIPATING PREFERRED STOCK

     The undersigned hereby certifies that the following resolutions
establishing the Series C Convertible Participating Preferred Stock of
Fieldworks, Incorporated, a Minnesota corporation (the "Company"), pursuant to
Section 302A.401 of the Minnesota Business Corporation Act, were duly adopted by
the Board of Directors of the Company on March 31, 2000:

     WHEREAS, the Board of Directors believes that it is in the best interests
of the Company to create a class of preferred stock designated as Series C
Convertible Participating Preferred Stock.

     RESOLVED, that the Resolution Establishing the Series, Setting Forth the
     Designation and Fixing the Relative Rights and Preferences of Series C
     Convertible Participating Preferred Stock, attached hereto as Exhibit A, is
     hereby adopted.

     FURTHER RESOLVED, that the officers of the Company are authorized and
     directed to prepare, execute, acknowledge and file such Certificate of
     Designation with the Secretary of State of Minnesota.

     IN WITNESS WHEREOF, the undersigned, the Chief Financial Officer of the
Company, being duly authorized on behalf of the Company, has executed this
document the 31st day of March, 2000.

                                        FIELDWORKS, INCORPORATED

                                        By:      /s/ Karen L. Engebretson
                                            -----------------------------------
                                            Karen Engebretson
                                            Chief Financial Officer

                                      -1-
<PAGE>
                                                                       Exhibit A
                                                                       ---------

                            FIELDWORKS, INCORPORATED

                      RESOLUTION ESTABLISHING THE SERIES,
                    SETTING FORTH THE DESIGNATION AND FIXING
                     THE RELATIVE RIGHTS AND PREFERENCES OF
               SERIES C CONVERTIBLE PARTICIPATING PREFERRED STOCK

     Pursuant to the powers expressly granted to the Board of Directors of
Fieldworks, Incorporated, a Minnesota corporation (the "Company"), by the
provisions of the Articles of Incorporation of the Company and Chapter 302A of
the Minnesota Business Corporation Act, the Board of Directors of the Company
duly established by written action of the Board of Directors a series of shares
consisting of 500,000 shares, with the designation of the series and the
relative rights and preferences of the series as follows:

     1.   Designation.  The designation of the series of shares is Series C
          -----------
Convertible Participating Preferred Stock (the "Series C Shares") and the number
of shares of such series is 500,000.

     2.   Dividends.  Dividends shall be payable on the Series C Shares out of
          ---------
funds legally available for the declaration of dividends only if and when
declared by the Board of Directors. In no event shall any dividend be paid or
declared, nor shall any distribution be made, on the Common Stock, unless the
holders of the Series C Shares shall have consented thereto and shall
participate in such dividend on a pro rata basis with the holders of Common
Stock, counting the Series C Shares on an as-if-converted basis.

     3.   Liquidation Preference. In the event of any liquidation, the holders
          ----------------------
of the Series C Shares then outstanding shall be entitled to receive out of the
assets of the Company, after distribution of all amounts due the holders of the
Company's Series B Convertible Participating Preferred Stock ("Series B
Preferred Stock"), but prior and in preference to any distribution of any of the
assets or surplus funds of the Company to the holders of the Common Stock or any
other class of shares of preferred stock of the Company ranking junior to the
Series C Shares with respect to payments upon Liquidation (such preferred stock
hereinafter called "Junior Liquidation Stock"), and junior to any such
distribution to the holders of any class of shares of the Company ranking senior
to the Series C Shares in such respect, an amount equal to $2.00 per share plus
any accrued and unpaid dividends thereon for each Series C Share (the "preferred
amount"). Following any distribution of assets or surplus funds of the Company
to the holders of any outstanding series of Junior Liquidation Stock, the
remainder of any such assets or, surplus funds shall be

                                      -2-
<PAGE>

distributed to the holders of the Common Stock and any other series of preferred
stock entitled to participate in distributions of assets or surplus funds upon
liquidation until each holder shall have received an amount per share equal to
the preferred amount. Thereafter, any remaining assets or funds shall be
distributed pro rata to the holders of the Common Stock, the holders of any
other series of preferred stock having a right to participate, and the holders
of the Series C Preferred Stock, counting Series C Shares on an as-if-converted
basis. If upon the occurrence of any Liquidation, the assets and funds of the
Company available for the distribution to its shareholders shall be insufficient
to pay the holders of the Series C Shares the full preferred amount to which
they shall be entitled, the holders of the Series C Shares shall share ratably
in any distribution of such assets and surplus funds available to the Series C
Shares in proportion to the Series C Shares held by them.

     4.   Voting Rights. Each holder of record of Series C Shares shall be
          -------------
entitled to notice of and to attend all meetings of the shareholders of the
Company and shall be entitled at each such meeting to a number of votes for each
Series C Share held equal to the number of shares of Common Stock into which
each share of Series C Shares is then convertible. Each holder of Common Stock
shall have one vote on all matters submitted to the shareholders for each share
of Common Stock standing in the name of such holder on the books of the Company.
Except as otherwise provided in this Section 4, and except as otherwise required
by agreement or law, the holders of the Series C Shares and the holders of
Common Stock of the Company shall vote as a single class on all matters
submitted to the shareholders.

     5.   Protective Provisions.  The Company shall not take any of the
          ---------------------
following actions without the prior affirmative written consent of the holders
of at least two-thirds (2/3) of the Series C Shares:

          (a) alter, change or amend (by merger or otherwise) any of the rights,
     preferences or privileges of the Series C Shares;

          (b) other than as provided in Section 5(c) of the Certificate of
     Designation of Rights, Preferences and Limitations of the Company's Series
     B Preferred Stock, amend, restate, alter, modify or repeal (by merger or
     otherwise) the Articles of Incorporation or the Bylaws of the Company,
     including, without limitation, amending, restating, modifying or repealing
     (by merger or otherwise) (i) any certificate of designation or preferences
     (as in effect from time to time) relating to any series of preferred stock
     or (ii) any of the rights, preferences and privileges of any other class of
     capital stock, or the terms or provisions of any option or convertible
     security;

          (c) (i) create, authorize or issue any securities or shares of any
     such class or series of securities which rank senior to or on parity with
     the Series C Shares;

                                      -3-
<PAGE>

     (ii) create, authorize or issue any securities or shares of any such class
     or series of securities the holders of which have the right to cast more
     than one vote per share, and/or have the right, voting as a class or
     series, to elect one or more members of the Board of Directors; (iii)
     create, authorize or issue any securities or shares of any such class or
     series of securities convertible into, or exercisable, redeemable or
     exchangeable for, shares of any of the foregoing; (iv) increase or decrease
     the authorized number of shares of any of the foregoing; or (v) increase or
     decrease the authorized number of Series C Shares;

          (d) (i) initiate or suffer to exist any Liquidation Event with respect
     to the Company, (ii) enter into any merger or consolidation with any other
     Person that results in the holders of the Company's capital stock
     immediately prior to such transaction owning less than fifty percent (50%)
     of the voting power of the successor entity's capital stock after such
     transaction or (iii) otherwise discontinue or dispose of more than ten
     percent (10%) of the assets of the business of the Company, taken as a
     whole.  For purposes of this Section 5, "Liquidation Event" shall mean any
     of the following events:  (i) the commencement by the Company of a
     voluntary case under the bankruptcy laws of the United States, as now or
     hereafter in effect, or the commencement of an involuntary case against the
     Company, which petition shall not be opposed within fifteen (15) days or be
     dismissed within sixty (60) days after commencement thereof; (ii) the
     appointment of a custodian for, or the taking charge by a custodian of, all
     or substantially all of the property of the Company; (iii) the commencement
     by the Company or on its behalf or with its consent of any proceeding under
     any reorganization, arrangement, adjustment of debt, relief of debtors,
     dissolution, insolvency or liquidation or similar law of any jurisdiction
     whether now or hereafter in effect; (iv) the commencement by anyone without
     the Company's consent of any proceeding of the type set forth in the
     preceding clause (iii) which is not controverted within fifteen (15) days
     thereof and dismissed within sixty (60) days after the commencement
     thereof; (v) the adjudication of the Company as insolvent or bankrupt, or
     the adoption by the Company of a plan of liquidation, (vi) the occurrence
     of any Change of Control; or (vii) the filing of a certificate of
     dissolution on behalf of the Company with the Secretary of State of the
     State of Minnesota; in any of cases (i) through (vi) above, in a single
     transaction or series of related transactions.  For purposes of this
     Section 5(d), a "Change of Control" shall be deemed to have occurred upon
     (i) the consummation of a tender for or purchase of more than fifty percent
     (50%) of the Company's Common Stock by a third party other than the holder
     of a majority of the Series C Stock, in a single transaction or series of
     related transactions, or (ii) any other transaction such that the
     shareholders of the Company immediately prior to the consummation of such
     transaction possess less than fifty percent (50%) of the voting securities
     of the surviving or continuing entity immediately after the transaction, in
     a single transaction or a series of related

                                      -4-
<PAGE>

     transactions unless such transactions have been approved by the vote of all
     directors elected or designated by the holders of the Series B Preferred
     Stock.

          (e) initiate or suffer to exist any recapitalization of the Company,
     or reclassify any authorized capital stock of the Company into any other
     class or series of Capital Stock of the Company;

          (f) redeem any shares of the Company's capital stock;

          (g) (i) acquire, in one or a series of transactions, any equity
     ownership interest, by way of merger or otherwise, in any Person, or any
     asset or assets of any Person, where the aggregate consideration payable in
     connection with such acquisition (including, without limitation, cash
     consideration, the fair market value of any securities and the net present
     value of any deferred consideration) is at least $1,000,000, or (ii) make
     any capital expenditures in excess of $500,000 individually or $1,000,000
     for any fiscal year;

          (h) change the number of directors of the Company to a number other
     than seven (7), or, under the circumstances in Section 5(c) of the Series B
     Preferred Stock's Certificate of Designation of Rights, Preferences and
     Limitations, nine (9), or the manner in which the directors are selected,
     except as set forth in Section 5(c) of the Series B Preferred Stock's
     Certificate of Designation of Rights, Preferences and Limitations;

          (i) make any material change in the nature of its business as
     conducted on the date the Series C Shares are issued, or fail to conduct
     its business in the ordinary course consistent with past practice;

          (j) sell, transfer, convey, lease or dispose of, outside the ordinary
     course of business, any material assets or properties of the Company,
     whether now or hereafter acquired, in any transaction or transactions that
     call for payments in excess of $500,000;

          (k) establish or purchase any subsidiary;

          (l) enter into any agreements, transactions or leases not in the
     ordinary course of the Company's business as conducted on the date hereof
     that call for payments in excess of $250,000;

          (m) incur any new or additional indebtedness which exceeds $500,000,
     provided that this clause (m) shall not prohibit the extension, renewal,
     amendment or refinancing (including refinancings with other lenders) of the
     Company's existing

                                      -5-
<PAGE>

     credit facility with Spectrum Commercial Services, a division of Lyon
     Financial Services, Inc. on terms no more restrictive than those contained
     in the General Credit and Security Agreement dated November 19, 1998 as
     amended on August 20,1999, (except that interest rate "spreads" may
     increase by no more than 50 basis points over prime and principal amounts
     advanced against accounts receivable or inventory (but no other amounts of
     principal) may increase or decrease provided that advance rates are no
     greater than those currently in effect); or

          (o) except for transactions on customary and reasonable terms, enter
     into any transaction with (i) any Affiliate of the Company, (ii) any
     employee of the Company, (iii) any holder of more than five percent (5%) of
     the outstanding capital stock of any class or series of capital stock of
     the Company, (iv) any member of the immediate family of any Person set
     forth in clauses (i), (ii) and (iii) above, or (v) any corporation,
     partnership, trust or other entity in which any Person set forth in clauses
     (i), (ii), (iii) or (iv) above, or member of the family of any such Person,
     is a director, officer, trustee, partner or holder of more than five
     percent (5%) of the outstanding capital stock thereof.  For purposes of
     this Agreement, the members of the "immediate family" of any Person shall
     consist of the spouse, parents, children, siblings, mothers- and fathers-
     in-law, sons- and daughters-in-law, and brothers- and sisters-in-law of
     such Person.

     6.   Conversion Rights.
          -----------------

          (a) At Option of Holders.  Holders of Series C Shares may, at their
              --------------------
option, upon surrender of the certificates therefor, convert any or all of their
Series C Shares into fully paid and nonassessable shares of Common Stock at any
time. The right of holders of Series C Shares to convert their shares shall be
exercised by surrendering for such purpose to the Company or any transfer agent
for the Series C Shares, and at such other office or offices, if any, as the
Board of Directors may designate, certificates representing the Series C Shares
to be converted, duly endorsed in blank or accompanied by proper instruments of
transfer. Upon the surrender of certificates representing the Series C Shares to
be converted, the person converting such shares shall be deemed to be the holder
of record of the Common Stock (and such other securities and property as the
holders of Series C Shares may be entitled to upon the conversion thereof, as
hereinafter provided) issuable upon such conversion, and all rights with respect
to the Series C Shares surrendered shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets receivable
upon such conversion as herein provided.

          (b) Conversion Rate/Conversion Price.  In addition to the adjustments
              --------------------------------
required by Section 6(e), 6(f) and 6(g), the conversion of Series C Shares into
Common Stock shall be governed by the following: Series C Shares shall be
convertible into that number of fully paid and nonassessable shares of Common
Stock (calculated as to each

                                      -6-
<PAGE>

conversion to the nearest 1/100th of a share) as shall be determined by
multiplying the "Conversion Rate," determined as hereinafter provided, in effect
at the time of conversion by the product of (i) the number of shares of Series C
Shares to be converted and (ii) the "Initial Conversion Price" applicable to the
shares of Series C Shares being converted (as hereinafter defined) and dividing
the product of such multiplication by the "Conversion Price" applicable to the
Series C Shares being converted, determined as hereinafter provided, in effect
at the time of conversion and making any adjustments required by Section 6(e)
hereof. The Conversion Rate shall initially be one and shall be adjusted from
time to time as provided in Section 6(e) (such conversion rate, as so adjusted
from time to time, being referred to herein as the "Conversion Rate"). The
"Initial Conversion Price" for the Series C Shares shall be the price per Series
C Share paid to the Company upon the issuance thereof. The conversion price for
Series C Shares shall initially be equal to the Initial Conversion Price and
shall be adjusted from time to time as provided in Sections 6(f) and (g) (the
conversion price for Series C Shares, as so adjusted from time to time, being
herein referred to as the "Conversion Price" applicable to such Series C
Shares).

          (c) Reservation of Shares.  A number of shares of authorized but
              ---------------------
unissued Common Stock of the Company sufficient to provide for the conversion of
all of the Series C Shares outstanding upon the basis herein provided
("Conversion Common Stock") shall at all times be reserved by the Company, free
from preemptive rights, for such conversion. If the Company shall issue any
securities or make any change in its capital structure that would change the
number of shares of Common Stock into which each Series C Share shall be
convertible as herein provided, the Company shall at the same time also make
proper provision so that thereafter there shall be a sufficient number of
additional shares of capital stock authorized and reserved, free from preemptive
rights, for conversion of the outstanding Series C Shares on the new basis. The
Company shall comply with all securities laws regulating the offer and delivery
of shares of Common Stock upon conversion of Series C Shares and shall list such
shares on any national securities exchange on which the Common Stock is listed
or have such shares admitted for quotation on the Nasdaq National or Small Cap
Market if the Common Stock is admitted for quotation thereon.

          (d) Fractional Shares.  No fractional shares of Common Stock shall be
              -----------------
issued upon the conversion of Series C Shares but, in lieu of any fraction of a
share of Common Stock that would otherwise be issuable in respect of the
aggregate number of such shares surrendered for conversion at one time by the
same holder, the Company shall pay in cash an amount equal to the product of (a)
the "Closing Price" (as defined in the next sentence) of a share of Common Stock
on the last trading day before the relevant conversion date and (b) such
fraction of a share. The "Closing Price" for each day shall be the last reported
sale price regular way or, in case no sale takes place on such day, the average
of the closing bid and asked prices regular way on such day, in either case as
reported on the New York Stock Exchange Composite Tape, or, if the Common Stock
is not listed or admitted to trading on such Exchange, on the principal national
securities exchange on which the

                                      -7-
<PAGE>

Common Stock is listed or admitted to trading, or, if the Common Stock is not
listed or admitted to trading on any national securities exchange, on the Nasdaq
National or Small Cap Market, or, if the Common Stock is not admitted for
quotation on the Nasdaq National or Small Cap Market, the average of the high
bid and low asked prices on such day as recorded by the National Association of
Securities Dealers, Inc. through Nasdaq, or, if the National Association of
Securities Dealers, Inc. through Nasdaq shall not have reported any bid and
asked prices for the Common Stock on such day, the average of the bid and asked
prices for such day as furnished by any New York Stock Exchange member firm
selected from time to time by the Company for such purpose, or, if no such bid
and asked prices can be obtained from any such firm, the fair market value of
one share of the Common Stock on such day as determined in good faith by the
Board of Directors of the Company.

          (e) Conversion Rate Adjustments.  Subject to Section 6(g) hereof, if
              ---------------------------
the Company shall (A) subdivide its outstanding Common Stock into a greater
number of shares, (B) combine the shares of its outstanding Common Stock into a
smaller number of shares or (C) declare a dividend upon its shares of Common
Stock payable in shares of Common Stock, then in each such case the Conversion
Rate in effect immediately prior thereto shall be proportionately adjusted so
that the holder of any shares of any Series C Shares thereafter surrendered for
conversion shall be entitled to receive, to the extent permitted by applicable
law, the number and kind of shares of capital stock of the Company that such
holder would have owned or have been entitled to receive after the happening of
such event had such Series C Shares been converted immediately prior to the
record date for such event (or if no record date is established in connection
with such event, the effective date for such action). An adjustment pursuant to
this Section 6(e) shall become effective immediately after the record date in
the case of a stock dividend or distribution, or immediately after the effective
date in the case of a subdivision, combination or reclassification.

          (f) Initial, One-Time Conversion Price Adjustment.  The Company
              ---------------------------------------------
contemplates a registered offering of rights to purchase common stock to its
shareholders.  If the purchase price of such offering is less than $2.00 per
share, the Conversion Price shall be adjusted to such purchase price.  If the
Company abandons, or shall not have completed such registered offering to its
existing shareholders of rights to purchase Common Stock resulting in gross
proceeds equal to or exceeding $5,000,000 on or before June 30, 2000, the
Conversion Price shall be reduced to One Dollar ($1.00) per share, effective as
of March 31, 2000, and any transactions subsequent to March 31, 2000 shall, for
purposes of Section 6(g), be evaluated using that adjusted Conversion Price.

          (g) Continuing Conversion Price Adjustments. With respect to Series C
              ---------------------------------------
Shares, if and whenever the Company shall issue or sell any shares of its Common
Stock or any securities convertible into or exercisable or exchangeable for
shares of Common Stock ("Convertible Securities") for a consideration per share
(in the case of the sale of any Convertible Securities, the amount, if any,
payable for such Convertible Security and upon

                                      -8-
<PAGE>

the exercise or conversion thereof (and/or upon the exercise or conversion of
the securities receivable upon such exercise or conversion) for each share of
Common Stock receivable thereby shall be included in determining such
consideration per share) less than the Conversion Price applicable to the Series
C Shares, in effect immediately prior to the time of such issuance or sale,
then, forthwith upon such issuance or sale, such higher Conversion Price(s) for
the Series C Shares shall be reduced to a price (calculated to the nearest tenth
of a cent) determined by dividing (x) an amount equal to the sum of (A) the
number of shares of Common Stock outstanding immediately prior to such issuance
or sale multiplied by such higher Conversion Price plus (B) the aggregate
                                                   ----
consideration, if any, received or receivable by the Company for the share of
Common Stock issued or issuable upon the exercise of any issued Convertible
Security (and/or upon the exercise or conversion of the security receivable upon
such exercise or conversion), by (y) an amount equal to the sum of (A) the
number of shares of Common Stock outstanding immediately prior to such issuance
or sale plus (B) the number of shares of Common Stock thus issued or sold or
        ----
receivable upon the exercise or conversion of the Convertible Securities (or the
securities receivable upon the exercise or conversion of such Securities). If
any Convertible Securities taken into account in any such adjustment of a
Conversion Price subsequently expire without exercise, such Conversion Price
shall be recomputed to eliminate the effect of such expired Convertible
Securities. However, no adjustment pursuant to this Section 6(g) shall be
required upon the issuance of shares of Common Stock upon conversion of any
shares of preferred stock, including the Series C Shares, outstanding prior to
such issuance or sale or upon the exercise of options available under the 1996
Directors Stock Option Plan or the 1999 Long-term Incentive Plan of the Company
as in effect prior to November 1, 1999.

          (h) Consolidations, Mergers, Sales of Assets, Reclassifications and
              ---------------------------------------------------------------
Certain Dividends.  In case of any (A) consolidation or merger of the Company
-----------------
with any other company (other than the merger of a subsidiary of the Company
into the Company in a transaction in which the Company is the surviving
corporation and the outstanding shares of capital stock of the Company are not
exchanged for or converted into any other securities, cash or other property),
(B) sale or transfer of all or substantially all of the assets of the Company
for cash, securities or other property, (C) any share exchange pursuant to which
all of the outstanding shares of Common Stock are converted into other
securities or property, or (D) issuance of any shares of the Company's capital
stock in connection with a reclassification of the Common Stock, the Company
shall, prior to or at the time of such transaction, make appropriate provision
or cause appropriate provision to be made so that the holders of each Series C
Share then outstanding shall have the right thereafter to receive the kind and
amount of shares of stock and other securities and property receivable upon such
consolidation, merger, sale, transfer, share exchange or reclassification by a
holder of the number of shares of Common Stock into which such Series C Shares
could have been converted immediately prior to the effective date of such
consolidation, merger, sale, transfer, share exchange or reclassification.  If
in connection with any such consolidation, merger, sale, transfer, share
exchange or reclassification, each holder of Common Stock is

                                      -9-
<PAGE>

entitled to elect to receive either securities, cash or other assets upon
completion of such transaction, the Company shall provide or cause to be
provided to each holder of Series C Shares the right to elect the securities,
cash or other assets into which the Series C Shares held by such holder shall be
convertible after completion of any such transaction on the same terms and
subject to the same conditions applicable to holders of the Common Stock
(including, without limitation, notice of the right to elect, limitations on the
period in which such election shall be made and the effect of failing to
exercise the election).

          (i) Rounding.  All calculations hereunder, unless otherwise specified,
              --------
shall be made to the nearest cent or to the nearest 1/100th of a share, as the
case may be.

          (j) Notices.  Whenever the Conversion Rate or a Conversion Price is
              -------
adjusted as herein provided, the Company shall give prompt notice by mail to the
holders of the outstanding Series C Shares of such adjustment, which notice
shall set forth the adjustment and the new Conversion Rate or Conversion Price.
Notwithstanding the foregoing, failure by the Company to give such notice or a
defect in such notice shall not affect the binding nature of such corporate
action of the Company.

          (k) Common Stock Defined.  As used herein, the term "Common Stock"
              --------------------
shall mean and include the presently authorized Common Stock of the Company and
shall also include any capital stock of any class of the Company (other than the
Series C Shares) hereafter authorized which shall have the right to vote on all
matters submitted to the shareholders of the Company and shall not be limited to
a fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the occurrence of
any Liquidation Event of the Company.

     7.   Preemptive Rights.  If Company offers to sell its common stock,
          -----------------
securities convertible into common stock, or any other debt (excluding debt
securities issued to banks or other financial institutions) or equity securities
other than the issuance of options or shares to employees, directors and
consultants which have been approved by the directors elected by the Series B
Preferred Stock (the "Additional Securities") it will first offer to the holders
of the Series C Shares, or, if applicable, Conversion Common Stock the right to
purchase a portion of the Additional Securities such that such holders'
aggregate percentage ownership of the Company on a fully diluted basis
("Purchasers' Percentage") will be unchanged. The offer shall set forth the
number of shares to be sold, the price, and material terms and conditions.

The right of the holders to purchase in the aggregate Additional Securities up
to but not more than the Purchaser's Percentage may be exercised as follows:

          (a) the Company shall provide each holder with written notice of the
number of securities to be issued and the cash price therefor;

                                     -10-
<PAGE>

          (b) each holder shall have the right to purchase that percentage of
such securities equal to the ratio that the number of shares of Conversion
Common Stock held by such holder bears to the total number of shares of
Conversion Common Stock held by all holders;

          (c) second, if not all holders elect to purchase their pro rata share,
then as to the excess of the amount of Purchaser's Percentage over the shares
taken by holders electing to purchase their pro rata part (such excess to be
referred to as the "Unsubscribed Shares"), the holders who do so elect shall be
offered the right to acquire pro rata among themselves based on their holdings
of Conversion Common Stock; and

          (d) if after such offer, any of the Unsubscribed Shares remain unsold,
as to such unsold Unsubscribed Shares, as the holders who agreed to purchase
their pro rata part of the Unsubscribed Shares may agree, all within thirty (30)
days of notice by the Company of such proposed issuance.

          The Company may, within thirty (30) days, sell the remaining
securities not to be purchased by the holders to third parties on the terms and
conditions set forth in the offer delivered to holders, and the holders shall be
required to deliver the consideration to Company for the securities being
purchased by the holders at the same time such third parties are required to
deliver their consideration to Company.

          Notwithstanding anything in this Section 7 to the contrary, the
holders' rights under this Section 7 shall not apply to (i) the securities of
the Company outstanding immediately prior to the issuance of the initial Series
C Shares; (ii) shares of common stock issued in connection with any stock split,
stock dividends or recapitalization of Company or upon conversion of the Series
C Shares; (iv) any borrowings, direct or indirect from financial institutions by
the Company, whether or not presently authorized, evidenced by any type of debt
instrument with no equity features; (v) securities issued pursuant to an
effective registration statement filed with the SEC in connection with a
registered public offering; (vi) equity securities issued to a financial
institution in connection with any lease financing or debt financing of the
Company approved by a two-thirds (2/3) vote of the Board of Directors; or (vii)
any transaction in which all directors of the Company elect for this Section 7
not to apply.

                                     -11-

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