Investor's Rights Agreement between VelocityHSI, Inc. and Banc of America Mortgage Capital Corporation dated April 23, 2001

Summary

This agreement is between VelocityHSI, Inc. and Banc of America Mortgage Capital Corporation. It grants the investor certain rights related to the registration of shares purchased from the company, specifically Series A Preferred Stock. The agreement outlines the investor's ability to request the company to register these shares for public sale, the process for such requests, and the responsibilities for related expenses. It also sets limits on the number of registrations allowed per year and details how shares will be handled in underwritten offerings.

EX-10.2 5 dex102.txt INVESTOR'S RIGHTS AGREEMENT DATED 4/23/01 Exhibit 10.2 INVESTOR'S RIGHTS AGREEMENT by and among VELOCITYHSI, INC. and BANC OF AMERICA MORTGAGE CAPITAL CORPORATION Dated as of April 23, 2001 This Investor's Rights Agreement (this "Agreement"), dated as of April 23, 2001, is made by and between VelocityHSI, Inc., a Delaware corporation (the "Company"), and Banc of America Mortgage Capital Corporation (the "Investor"). Whereas, the Investor has agreed to purchase from the Company, and the Company has agreed to sell to the Investor, shares of the Company's Series A Preferred Stock (the "Series A Preferred Stock") on the terms and conditions set forth in that certain Series A Convertible Preferred Stock Purchase Agreement, of even date herewith, by and between the Company and the Investor (the "Securities Purchase Agreement"); and Whereas, the parties to the Securities Purchase Agreement intend for the Investor to be granted certain registration rights, all as more fully set forth herein. Now Therefore, in consideration of the foregoing recitals, the mutual promises hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1 Registration Under Securities Act, Etc. 1.1 Registration on Request. (a) Request. At any time on or after April 23, 2002 and from time to ------- time thereafter upon the written request of Holders (the "Initiating Holders") of not less than the Required Number of Shares that the Company effect the registration under the Securities Act of all or part of such Initiating Holders' Registrable Securities (provided that the Company shall not be obligated to register less than the Required Number of Shares pursuant to such request), the Company will promptly give written notice of such requested registration to all registered Holders, and thereupon the Company will use reasonable commercial efforts to effect the registration under the Securities Act of: (i) the Registrable Securities (representing not less than the Required Number of Shares) which the Company has been so requested to register by such Initiating Holders, and (ii) all other Registrable Securities which the Company has been requested to register by the Holders thereof (such Holders together with the Initiating Holders are hereinafter referred to as the "Selling Holders") by written request given to the Company within 20 days after the giving of such written notice by the Company, all to the extent required to permit the disposition of the Registrable Securities so to be registered. (b) Registration of Other Securities. Whenever the Company shall -------------------------------- effect a registration pursuant to this Section 1.1 in connection with an underwritten offering by one or more Selling Holders, no securities other than Registrable Securities shall be included among the securities covered by such registration unless (i) the managing underwriter of such offering shall have advised each Selling Holder to be covered by such registration in writing that the inclusion of such other securities would not adversely affect such offering or (ii) the Selling Holders of not less than a majority of all Registrable Securities to be covered by such registration shall have consented in writing to the inclusion of such other securities. (c) Registration Statement Form. Registrations under this Section 1.1 --------------------------- shall be on such appropriate registration form of the Commission as shall be selected by the Company. (d) Expenses. The Selling Holders of any Registrable Securities will -------- pay the Registration Expenses in connection with any registration requested pursuant to this Section 1.1, each Selling Holder in its pro rata share. --- ---- (e) Effective Registration Statement. A registration requested -------------------------------- pursuant to this Section 1.1 shall not be deemed to have been effected: (i) unless a registration statement with respect thereto has become effective, (ii) if after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to the Selling Holders and such registration has not thereafter become effective, or (iii) if the conditions to closing specified in the underwriting agreement, if any, entered into in connection with such registration are not satisfied or waived, other than by reason of a failure on the part of the Selling Holders. (f) Selection of Underwriters. The underwriter or underwriters of ------------------------- each underwritten offering of the Registrable Securities shall be selected by the mutual agreement of the Company and the Selling Holders of a majority of the Registrable Securities so to be registered. 2 (g) Underwritten Offering; Priority in Requested Registration. . If --------------------------------------------------------- requested by the underwriters for any underwritten offering by Holders pursuant to a registration requested under this Section 1.1, the Company will enter into an underwriting agreement with such underwriters for such offering, such agreement to be reasonably satisfactory in substance and form to the Company, each such Holder and the underwriters and to contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of that type, including, without limitation, indemnities to the effect and to the extent provided in Section 1.8. The Holders of the Registrable Securities proposed to be distributed by such underwriters will cooperate with the Company in the negotiation of the underwriting agreement. Such Holders of the Registrable Securities to be distributed by such underwriters shall be parties to such underwriting agreement. Any such Holder shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Holder, such Holder's Registrable Securities, such Holder's intended method of distribution and any other representations required by law. If the managing underwriter of any underwritten offering shall advise the Company in writing (with a copy to each Selling Holder) that, in its opinion, the number of securities requested to be included in such registration exceeds the number which can be sold in such offering within a price range acceptable to the Selling Holders of a majority of the Registrable Securities requested to be included in such registration, the Company will include in such registration, to the extent of the number which the Company is so advised can be sold in such offering, Registrable Securities requested to be included in such registration, pro rata among the Selling Holders on the basis of the percentage of the Registrable Securities of such Selling Holders requested so to be registered. In connection with any such registration to which this Section 1.1(g) is applicable, no securities other than Registrable Securities shall be covered by such registration. (h) Limitations on Registration on Request. Notwithstanding anything -------------------------------------- in this Section 1.1 to the contrary, the Company shall not be required to effect, in the aggregate pursuant to this Section 1.1, without regard to the Holder making such request, more than two registrations during any twelve month period. 1.2 Incidental Registration. (a) Right to Include Registrable Securities. If the Company proposes --------------------------------------- at any time to register any of its securities under the Securities Act by registration on Forms S-1, S-2 or S-3 or any successor or similar form(s) (except registrations on such Forms or similar form(s) solely for registration of securities in connection with an employee benefit plan or dividend reinvestment plan or a merger, reorganization, or consolidation, or a registration in connection with an Initial Public Offering where no shares are being sold by any Person other than the Company), whether or not for sale for its own account, it will, each such time give prompt written notice to all registered Holders of its intention to do so and of such Holders' rights under this Section 1.2. Upon the written request of any such Holder (a "Requesting Holder") made as promptly as practicable and in any event within 20 days after the receipt of any such notice (10 days if the Company states in such written notice or gives telephonic notice to all registered Holders, with written confirmation to follow promptly thereafter, that (i) such registration will be on Form S-3 and (ii) such shorter period of time is required because of a planned filing date) (which request shall specify the Registrable Securities intended to be disposed of by such 3 Requesting Holder), the Company will use its reasonable commercial efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Requesting Holders thereof; provided, that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Requesting Holder and (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from any obligation of the Company to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights of any Holder or Holders entitled to do so to request that such registration be effected as a registration under Section 1.1 and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities being included in such registration. No registration effected under this Section 1.2 shall relieve the Company of its obligation to effect any registration upon request under Section 1.1. The Company will pay all Registration Expenses in connection with registration of Registrable Securities requested pursuant to this Section 1.2. (b) Underwritten Offering; Priority in Incidental Registrations. If the ----------------------------------------------------------- Company proposes to register any of its securities as contemplated by this Section 1.2 and such securities are to be distributed through one or more underwriters, all Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Subsection 1.4(e)) enter into an underwriting agreement in usual and customary form with the underwriter or underwriters selected for such underwriting. The Company shall not be required under Section 1.2(a) to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as customarily agreed upon between the Company and the underwriters selected by it, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. Notwithstanding the provisions of Section 1.2(a) hereof, if the managing underwriter of any underwritten offering shall inform the Company (or, in the case of a secondary offering, the selling stockholders initiating such offering) of its belief that the number or type of Registrable Securities requested to be included in such registration would materially adversely affect such offering, then the Company will include in such registration, to the extent of the number and type which the Company is (or the selling stockholders initiating such offering are) so advised can be sold in (or during the time of) such offering, first, all securities proposed by the Company (or, in the case of a secondary offering, the selling stockholders initiating such offering) to be sold for its (or their) own account, and second, such Registrable Securities and any other securities of the Company requested to be included in such registration, pro rata among all such holders on the basis of the estimated gross proceeds of the securities of such holders requested to be so included. Notwithstanding the foregoing provisions of this Section 1.2, the Company need not include any Registrable Securities of any such Requesting Holder in an underwritten offering of the Company's securities if the inclusion of such Requesting Holder's securities, in the opinion of the managing underwriter for such offering by the Company, might adversely affect such offering by the Company. Any such Holder shall not be required to make any representations or warranties to or agreement with the Company or the underwriters other than representations, warranties or agreements regarding such Holder, such Holder's Registrable Securities, such Holder's intended method of distribution and any other representations required by law. 4 (c) Underwritten Offering; Selection of Managing Underwriter. The -------------------------------------------------------- managing underwriter of any underwritten offering pursuant to this Section 1.2 shall be selected by the Company at its sole discretion. 1.3 Form S-3 Registration. If the Company shall receive from any Holder or Holders of not less than 520,750 shares of the Registrable Securities a written request or requests that the Company effect a registration on Form S-3 with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration to all other Holders; and (b) use reasonable commercial efforts to effect such registration on Form S-3 as soon as practicable of such Holder's or Holders' Registrable Securities specified in such request, together with the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) days after mailing of such notice by the Company; provided, however, that the Company shall not be obligated to -------- ------- effect any such registration pursuant to this Section 1.3 (i) if Form S-3 is not available for the registration of the Registrable Securities, (ii) if the Company has, within the twelve-month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this Section 1.4, (iii) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration or any related qualification or compliance; or (iv) during the period ending one hundred eighty (180) days after the effective date of a registration statement subject to Section 1.2. (c) Subject to the foregoing and to the provisions of Section 1.7, the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. (d) The substantive provisions of Section 1.2(b) shall apply to the registration if it relates to an underwritten offering. The Company will pay all Registration Expenses in connection with registration of Registrable Securities requested pursuant to this Section 1.3. 1.4 Registration Procedures. ----------------------- If and whenever the Company is required to effect the registration of any Registrable Securities under the Securities Act as provided in Section 1.1, 1.2 or 1.3, the Company will as expeditiously as possible: (a) in the case of a registration pursuant to Section 1.1, 1.2 or 1.3, prepare and (as soon as practicable, and in any event within 75 days in the case of Form S-1 or S-2 and 30 days in the case of a registration requested on Form S-3 after the end of the period within which requests for registration may be given to the Company) file with the Commission the requisite registration statement to effect such registration and thereafter use reasonable commercial efforts to cause such registration statement to become effective; provided, that the Company may 5 discontinue any registration of its securities which are not Registrable Securities (and, under the circumstances specified in Section 1.2(a), its securities which are Registrable Securities) at any time prior to the effective date of the registration statement relating thereto; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement for such period as shall be required for the disposition of all of such Registrable Securities, provided, that in the case of a registration pursuant to Section 1.1, 1.2 or 1.3, such period need not exceed 90 days; (c) furnish to each seller of Registrable Securities covered by such registration statement, such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller may reasonably request; (d) use reasonable commercial efforts: (i) to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities or blue sky laws of such states of the United States of America where an exemption is not available and as the sellers of Registrable Securities covered by such registration statement shall reasonably request; (ii) to keep such registration or qualification in effect for so long as such registration statement remains in effect; and (iii) to take any other action which may be reasonably necessary or advisable to enable such sellers to consummate the disposition in such jurisdictions of the securities to be sold by such sellers, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (d) be obligated to be so qualified or to consent to general service of process in any such jurisdiction; (e) to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other federal or state governmental agencies or authorities as may be necessary in the opinion of counsel to the Company and counsel to the seller or sellers thereof to consummate the disposition of such Registrable Securities; (f) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement; 6 (g) notify each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, in the judgment of the Company, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made, and at the request of any such seller promptly prepare and furnish to it a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, in the judgment of the Company, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an 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 not misleading in the light of the circumstances under which they were made; (h) otherwise use its reasonably commercial efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder, and promptly furnish to each such seller of Registrable Securities a copy of any amendment or supplement to such registration statement or prospectus; (i) provide and cause to be maintained a transfer agent and registrar (which, in each case, may be the Company) for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration; and (j) use reasonable commercial efforts to list all Registrable Securities covered by such registration statement on any national securities exchange or national quotations system on which Registrable Securities of the same class covered by such registration statement are then listed. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish the Company in writing as promptly as reasonably practicable such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing. Each Holder agrees that upon receipt of any notice from the Company of the happening of any event of the kind described in subdivision (h) of this Section 1.4, such Holder will forthwith discontinue such Holder's disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by subdivision (h) of this Section 1.4 and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession, of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. 7 1.5 Limitations, Conditions and Qualifications to Obligations Under Registration Covenants. The obligation of the Company to use its reasonable commercial efforts to cause the Registrable Securities to be registered under the Securities Act is subject to the following limitations, conditions and qualifications. (a) The Company shall be entitled to postpone or suspend for a reasonable period of time (but not exceeding 180 days, in the case of a registration pursuant to Section 1.1, 1.2 or 1.3 the filing of any registration statement otherwise required to be prepared and filed by it pursuant to Section 1.1, if the Company determines, in its reasonable judgment, that such registration and offering (i) would interfere with any financing, acquisition, merger, consolidation, material joint venture, corporate reorganization or other material transaction involving the Company or any of its Affiliates, or (ii) would require premature disclosure of any of the foregoing transactions (or of the existence of negotiations, discussions or pending proposals with respect thereto) or of any pending or threatened litigation, claim, assessment or governmental investigation which would be material to the Company, or any other event which the Company (in the judgment of management of the Company) has a bona fide business purpose for keeping confidential and the nondisclosure of - ---- ---- which in the registration statement might cause the registration statement to fail to comply with applicable disclosure requirements, provided, however, that the Company: (i) promptly gives the Holders requesting registration thereof pursuant to Section 1.1 written notice of such delay or suspension and (ii) may not delay or suspend the registration statement for such reason more than twice in any twelve (12) month period or three times in any twenty-four (24) month period or for more than one hundred eighty (180) days at any time. If the Company shall so postpone the filing of a registration statement, such Holders of Registrable Securities requesting registration thereof pursuant to Section 1.1 shall have the right to withdraw the request for registration by giving written notice to the Company within 30 days after receipt of the notice of postponement and, in the event of such withdrawal, such request shall not be counted for purposes of the requests for registration to which Holders are entitled pursuant to Section 1.1 hereof. Upon receipt of any notice from the Company of the happening of any event during the period the registration statement is effective which is of a type specified herein or as a result of which the registration statement or related prospectus contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statement therein, in light of the circumstances under which they were made not misleading, the Holders agree that they will immediately discontinue offers and sales of the Registrable Securities under the registration statement until they receive copies of a supplemental or amended prospectus that corrects the misstatements or omissions and receive notice that any post-effective amendment has become effective. If so directed by the Company, the Holders will deliver to the Company any copies of the prospectus covering the Registrable Securities in their possession at the time of receipt of such notice. In the event the Company shall give notice of the happening of an event of the kind described in this Section 1.7(a), the Company shall extend the period during which the affected registration statement is required to be maintained pursuant to this Agreement by the number of days during the period from and including the date of the giving of notice pursuant to this Section 1.7(a) to the date when the Company shall make available a prospectus supplemented or amended to conform with the requirements of the Securities Act. 8 (b) If all reports required to be filed by the Company pursuant to the Exchange Act have not been filed by the required date without regard to any extension, or if the consummation of any business combination by the Company has occurred or is probable for purposes of Rule 3-05 or Article 11 of Regulation S- X under the Securities Act, upon written notice thereof by the Company to the Holders, the rights of the Holders to offer, sell or distribute any Registrable Securities pursuant to any registration statement or to require the Company to take action with respect to the registration of any Registrable Securities pursuant to this Agreement shall be suspended until the date on which the Company has filed such reports or obtained and filed the financial information required by Rule 3-05 or Article 11 of Regulation S-X to be included or incorporated by reference, as applicable, in the registration statement and the Company shall notify the Holders as promptly as practicable when such suspension is no longer required. (c) It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. The Company shall have no obligation with respect to any registration requested pursuant to this Agreement if, as a result of the application of the preceding sentence, the number of shares of the Registrable Securities to be included in the registration does not equal or exceed the number of shares required to originally trigger the Company's obligation to initiate such registration. (d) The Company shall not be obligated to effect the registration of Registrable Securities of any Holder pursuant to Section 1.1, 1.2 or 1.3 unless such Holder consents to reasonable conditions imposed by the Company, including without limitation: (i) conditions prohibiting the sale of shares by such Holder until the registration shall have been effective for a specified period of time; (ii) conditions requiring such Holder to comply with all prospectus delivery requirements of the Securities Act and with all anti- stabilization, anti-manipulation and similar provisions of Section 10 of the Exchange Act and any rules issued thereunder by the Commission, and to furnish to the Company information about sales made in such public offering; (iii) conditions prohibiting such Holder from effecting the sale of shares upon receipt of telegraphic or written notice from the Company (until further notice) given to permit the Company to correct or update a registration statement or prospectus; and (iv) conditions requiring that at the end of the period during which the Company is obligated to keep the registration statement effective under Section 1.3(b), such Holder shall discontinue sales of shares pursuant to such registration statement upon receipt of notice from the Company of its intention to remove from registration the shares covered by such registration statement that remain unsold, and requiring such Holder to 9 notify the Company of the number of Registrable Securities registered that remain unsold promptly upon receipt of notice from the Company. (e) Holders shall use their reasonable best efforts to effect as wide a distribution of such Registrable Securities as reasonably practicable, and in no event shall any sale of Registrable Securities be made knowingly to (i) any Person (including its Affiliates) or (ii) any Persons or entities which are to the knowledge of such Holders (or to the knowledge of any underwriter for such Holders) part of any "group" within the meaning of Regulation 13D of the Exchange Act which includes such purchaser or any of its Affiliates that, after giving effect to such sale, would beneficially own securities representing more than 5% of the aggregate voting power of all outstanding voting securities of the Company. The Holders of such Registrable Securities shall secure the agreement of their underwriter or underwriters, if any, for such offering to comply with the foregoing. 1.6 Hold-back Agreement. In the case of any underwritten public offering by the Company of shares of Common Stock, each Holder agrees not to effect any disposition (other than a disposition of Registrable Securities under such underwritten public offering or a bona fide pledge or a disposition to an Affiliate of such Holder who agrees to be bound by the provisions of this paragraph) (a "Disposition") of any Registrable Securities, and not to effect any such Disposition of any other equity security of the Company or of any security convertible into or exchangeable or exercisable for any equity security of the Company (in each case, other than as part of such underwritten public offering) during the 15 days prior to, and during the 90-day period (or such longer period as may be reasonably requested by the underwriter of such offering) beginning on, the effective date of such registration statement (except as apart of such registration); provided that each Holder has received written notice of such registration at least 15 days prior to such effective date. 1.7 Indemnification. (a) Indemnification by the Company. In the event of any registration ------------------------------ of any securities of the Company under the Securities Act, the Company will, and hereby does, indemnify and hold harmless, in the case of any registration statement filed pursuant to Section 1.1, 1.2 or 1.3 each seller of any Registrable Securities covered by such registration statement, its directors, officers, partners, agents and Affiliates and each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such seller or any such underwriter within the meaning of the Securities Act (a "Controlling Person"), insofar as losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein 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, and the Company will reimburse such seller and each such director, officer, partner, agent or affiliate, underwriter and Controlling Person for any legal or any other 10 expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument executed by or on behalf of such seller or underwriter, as the case may be, specifically stating that it is for use in the preparation thereof; and provided further, that the Company shall not be liable to any seller of Registrable Securities or any Person who participates as an underwriter in the offering or sale of Registrable Securities or any other Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such seller's or Person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, to the Person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such Person if such statement or omission was corrected in such final prospectus so long as such final prospectus, and any amendments or supplements thereto, have been furnished to such seller or underwriter. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such seller or any such director, officer, partner, agent or affiliate or Controlling Person and shall survive the transfer of such securities by such seller. (b) Indemnification by the Sellers. As a condition to including any ------------------------------ Registrable Securities in any registration statement, the Company shall have received an undertaking satisfactory to it from the prospective seller of such Registrable Securities, to indemnify and hold harmless (in the same manner and to the same extent as set forth in subdivision (a) of this Section 1.9) the Company, and each director of the Company, each officer of the Company, the Company's agents and Affiliates and each other Person, if any, who controls the Company within the meaning of the Securities Act (a "Company Controlling Person"), with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement; provided, however, that the liability of such indemnifying party under this Section 1.9(b) shall be limited to the amount of net proceeds received by such indemnifying party in the offering giving rise to such liability. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or Company Controlling Person and shall survive the transfer of such securities by such seller. (c) Notices of Claims, etc. Promptly after receipt by an indemnified ---------------------- party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 1.9, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the 11 commencement of such action; provided, however, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 1.9, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties is reasonably likely to exist in respect of such claim, the indemnifying party shall be entitled to participate in and, to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties arises in respect of such claim after the assumption of the defense thereof and the indemnified party notifies the indemnifying party of such indemnified party's judgment and the basis therefor. No indemnifying party shall be liable for any settlement of any action or proceeding effected without its written consent, which consent shall not be unreasonably withheld. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. (d) Contribution. If the indemnification provided for in this Section ------------ 1.9 shall for any reason be held by a court to be unavailable to an indemnified party under subparagraph (a) or (b) hereof in respect of any loss, claim, damage or liability, or any action in respect thereof, then, in lieu of the amount paid or payable under subparagraph (a) or (b) hereof, the indemnified party and the indemnifying party under subparagraph (a) or (b) hereof shall contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating the same), (i) in such proportion as is appropriate to reflect the relative fault of the Company and the prospective sellers of Registrable Securities covered by the registration statement which resulted in such loss, claims, damage or liability, or action in respect thereof, with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as shall be appropriate to reflect the relative benefits received by the Company and such prospective sellers from the offering of the securities covered by such registration statement. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Such prospective sellers' obligations to contribute as provided in this subparagraph (d) are several in proportion to the relative value of their respective Registrable Securities covered by such registration statement and not joint. In addition, no Person shall be obligated to contribute hereunder any amounts in payment for any settlement of any action or claim effected without such Person's consent, which consent shall not be unreasonably withheld. (e) Other Indemnification. Indemnification and contribution similar --------------------- to that specified in the preceding subdivisions of this Section 1.9 (with appropriate modifications) shall 12 be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any Federal or state law or regulation of any governmental authority other than the Securities Act. (f) Indemnification Payments. The indemnification and contribution ------------------------ required by this Section 1.9 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 expense, loss, damage or liability is incurred. In any case in which it shall be judicially determined that a party is not entitled to indemnification or contribution, any payments previously received by such party hereunder shall be promptly reimbursed. (g) Conflict with Underwriting Agreement. Notwithstanding the ------------------------------------ foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten sale of Registrable Securities effected pursuant to a registration statement filed pursuant hereto are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. 2 Definitions. As used herein, unless the context otherwise requires, the following terms have the following respective meanings (capitalized terms used but not defined herein having the meanings set forth in the Securities Purchase Agreement): "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Commission" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Exchange Act of 1934, as amended, shall include a reference to the comparable section, if any, of any such similar Federal statute. "Holder" means any holder of Registrable Securities. "Person" means a corporation, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency. "Registration Expenses" means all expenses incident to the Company's performance of or compliance with Section 1, including, without limitation, all registration, filing and fees of the National Association of Securities Dealers, Inc., all listing fees, all fees and expenses of complying with securities or blue sky laws (including, without limitation, reasonable fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of "cold comfort" letters required by or incident to 13 such performance and compliance, any fees and disbursements of underwriters (including, without limitation, fees and expenses of counsel to the underwriters) customarily paid by issuers or sellers of securities; provided, however, that Registration Expenses shall exclude, and the sellers of the Registrable Securities being registered shall pay fees and disbursements of counsel representing the Holders, underwriters' or brokers' fee, discounts and commissions and transfer taxes in respect of the Registrable Securities being registered. "Registrable Securities" means (i) the shares of Common Stock, Series A Preferred Stock and the shares of Common Stock issuable upon conversion of the Series A Preferred Stock held or otherwise acquired by the Investor (including by way of issuance upon exercise or conversion of any warrants or other securities) and (ii) any Common Stock of the Company issuable or issued with respect to the Common Stock, the Series A Preferred Stock and/or warrants or other securities referred to in clause (i) by way of a merger, consolidation, stock split, stock dividend, recapitalization of the Company or similar transaction. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) they shall have been sold as permitted by, and in compliance with, Rule 144 (or successor provision) promulgated under the Securities Act, (c) the shares are held by a Holder who is not an affiliate of the Company within the meaning of Rule 144 (a "Rule 144 Affiliate") and may be sold pursuant to Rule 144(k), (d) the shares are held by a Holder who is a Rule 144 Affiliate and all the shares may be sold pursuant to Rule 144 within a period of three months in accordance with volume limitation set forth in Rule 144(e)(1), (e) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer under the Securities Act shall have been delivered by the Company and subsequent public distribution of them shall not require registration of them under the Securities Act, or (f) they shall have ceased to be outstanding. "Required Number of Shares" means Registrable Securities representing a total of 729,050 shares of Common Stock, subject to adjustment as provided in Section 11. "Securities Act" means the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. References to a particular section of the Securities Act of 1933, as amended, shall include a reference to the comparable section, if any, of any such similar Federal statute. 3 Rule 144. The Company shall take all actions reasonably necessary to enable Holders of Common Stock or Series A Preferred Stock to sell such securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission including, without limiting the generality of the foregoing, filing on a timely basis all reports required to be filed by the Exchange Act. Upon the request of any Holder of Common Stock or Series A Preferred Stock, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. 14 4 Amendments and Waivers. This Agreement may be amended with the consent of the Company and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the Holders of at least a majority of the outstanding Registrable Securities issued under the Securities Purchase Agreement. Each beneficial owner of any Registrable Securities at the time or thereafter outstanding shall be bound by any consent authorized by this Section 4, whether or not such Registrable Securities shall have been marked to indicate such consent. 5 Nominees for Beneficial Owners. In the event that any Registrable Securities are held by a nominee for the beneficial owner thereof, the beneficial owner thereof may, at its election in writing delivered to the Company, be treated as the Holder of such Registrable Securities for purposes of any request or other action by any Holder or Holders pursuant to this Agreement or any determination of any number or percentage of Registrable Securities held by any Holder or Holders contemplated by this Agreement. If the beneficial owner of any Registrable Securities so elects, the Company may require assurances reasonably satisfactory to it of such owner's beneficial ownership of such Registrable Securities. 6 Notices. All communications provided for hereunder shall be sent by courier or other overnight delivery service, shall be effective upon receipt, and shall be addressed as follows: (a) if to the Investor, at such address as the Investor shall have furnished to the Company in writing; (b) if to any other Holder, at the address that such Holder shall have furnished to the Company in writing, or, until any such other Holder so furnishes to the Company an address, then to and at the address of the last Holder of such Registrable Securities who has furnished an address to the Company; or (c) if to the Company, addressed to it at VelocityHSI, Inc., 2175 North California Boulevard, Suite 150, Walnut Creek, CA 94596, Attention: Stephen E. Carlson, or at such other address as the Company shall have furnished to each Holder at the time outstanding. 7 Assignment; Calculation of Interests in Registrable Securities. (a) This Agreement shall be binding upon and inure the benefit of and be enforceable by the parties hereto and, with respect to the Company, its respective successors and assigns and, with respect to the Investor, any beneficial owner who acquires at least 200,000 shares of any Registrable Securities, subject to the provisions respecting the minimum number or proportion of shares of Registrable Securities required in order to be entitled to certain rights, or take certain actions, contained herein. 15 (b) All references to Registrable Securities shall be calculated as if all shares of Series A Preferred Stock had been converted into shares of Common Stock as of the date of such calculation; provided, that any proportion of the Registrable Securities necessary to be determined in connection with a specific registration shall be calculated based upon the number of Registrable Securities participating in such registration only (assuming any shares of Series A Preferred Stock had been converted into shares of Common Stock.) (c) Descriptive Headings. The descriptive headings of the several -------------------- sections and paragraphs of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof. 8 Descriptive Headings. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof. 9 Governing Law; Consent to Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of California (as permitted by Section 1646.5 of the California Civil Code or any similar successor provision) without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties. Each of the parties hereto hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of the courts of the State of California and of the United States of America, in each case located in the County of San Francisco, for any action, proceeding or investigation in any court or before any governmental authority ("litigation") arising out of or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any litigation relating thereto except in such courts), and further agrees that service of any process, summons, notice or document by U.S. Registered Mail to its respective address set forth in this Agreement shall be effective service of process for any litigation brought against it in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any litigation arising out of this Agreement or the transactions contemplated hereby in the courts of the State of California or the United States of America, in each case located in the County of San Francisco, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such litigation brought in any such court has been brought in an inconvenient forum. Each of the parties irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any and all rights to trial by jury in connection with any litigation arising out of or relating to this Agreement or the transactions contemplated hereby. 10 No Inconsistent Agreements. The Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in this Agreement unless such securities are senior to the Series A Preferred Stock. Notwithstanding the foregoing, any agreement entered into by the Company in connection with the issuance of securities on parity with the Series A Preferred Stock under which the Company grants substantially similar rights 16 to those rights granted to the Holders under this Agreement will not be deemed to be "inconsistent" under this Section 10. 11 Recapitalizations, etc. In the event that any capital stock or other securities are issued in respect of, in exchange for, or in substitution of, any Registrable Securities by reason of any reorganization, recapitalization, reclassification, merger, consolidation, spin-off, partial or complete liquidation, stock dividend, split- up, sale of assets, distribution to stockholders or combination of the shares of Registrable Securities or any other change in the Company's capital structure, appropriate adjustments shall be made in this Agreement so as to fairly and equitably preserve, to the extent practicable, the original rights and obligations of the parties hereto under this Agreement. At the request of the Selling Holders of a majority of Registrable Securities in connection with any registration pursuant to Section 1.1 hereof, the Company will effect such adjustments to the outstanding Common Stock, by way of stock split or stock dividend as the Selling Holders may reasonably request to facilitate the registration and sale of the Common Stock. 12 Attorneys' Fees. In any action or proceeding brought to enforce any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the prevailing party to such action or proceeding shall be entitled to recover reasonable attorneys' fees in addition to any other available remedy. 13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 17 IN WITNESS WHEREOF, the parties have caused this Investor's Rights Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. VELOCITYHSI, INC. By: /s/ Stephen E. Carlson ------------------------------------ Name: Stephen E. Carlson Title: President and CEO BANC OF AMERICA MORTGAGE CAPITAL CORPORATION By: /s/ Richard Ford ------------------------------------ Name: Richard Ford Title: Vice President