<PAGE>

                                                                    Exhibit 10.7

                                                                  EXECUTION COPY

                         REGISTRATION RIGHTS AGREEMENT


     This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 11,
                                               ---------
2001, is entered into by and among Data Race Inc., a Texas corporation doing
business as IP Axess, with headquarters located at 6509 Windcrest Drive, Suite
120, Plano, Texas 75024 (the "Company"), and the undersigned buyers (each, a
                              -------
"Buyer" and collectively, the "Buyers").
------                         ------

     WHEREAS:

     A.  In connection with the Securities Purchase Agreement by and among the
parties dated as of May ___, 2001 (the "Securities Purchase Agreement"), the
                                        -----------------------------
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, (i) to issue and sell to the Buyers $700,000
principal amount of its 10% Secured Convertible Promissory Notes (the "Notes")
                                                                       -----
which will be initially convertible into 2,333,333.3 shares (the "Conversion
                                                                  ----------
Shares") of the Common Stock, no par value (the "Common Stock") of the Company
------                                           ------------
and (ii) to issue and sell Warrants (the "Warrants") which will be exercisable
                                          --------
to purchase 1,666,666.7 shares (the "Warrant Shares") of the Common Stock; and
                                     --------------

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

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

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

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

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

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

                                      -1-
<PAGE>

          (c) "Register," "registered," and "registration" refer to a
               --------    ----------        ------------
registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the 1933 Act and pursuant to
Rule 415 under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
                                   --------
of effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
                                         ---

          (d) "Registrable Securities" means the Conversion Shares issued or
               ----------------------
issuable upon conversion of the Notes and the Warrant Shares issued or issuable
upon exercise of the Warrants and any shares of capital stock issued or issuable
with respect to the Conversion Shares, or the Warrant Shares as a result of any
stock split, stock dividend, recapitalization, exchange, anti-dilution rights or
similar event or otherwise, without regard to any limitation on conversion of
the Note or exercise of the Warrants.

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

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

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

          (a)  Mandatory Registration. The Company shall prepare, and, within
               ----------------------
thirty (30) calendar days after the date hereof (or, if less, five (5) days
after the effective date of the Registration Statement on Form S-3 which is on
file with the SEC as of the date hereof, Registration No. 333-57166), file with
the SEC a Registration Statement or Registration Statements (as is necessary) on
Form S-3 (or if such form is unavailable, such other form as is available for
registration) covering the resale of all of the Registrable Securities. The
initial Registration Statement prepared pursuant hereto shall register for
resale at least that number of Company common stock shares equal to the number
of Registrable Securities as of the date immediately preceding the date the
Registration Statement is initially filed with the SEC, subject to adjustment as
provided in Section 3(b). The Company shall use its best efforts to have the
Registration Statement declared effective by the SEC as soon as practicable, but
in no event later than sixty (60) calendar days after the date of filing
thereof.

          (b) Piggy-Back Registrations.  If at any time prior to the expiration
              ------------------------
of the Registration Period (as defined in Section 3(a)) the Company proposes to
file with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the 1933 Act of any of its securities
(other than on Form S-4 or Form S-8 (or their equivalents at such time) relating
to securities to be issued solely in connection with any acquisition of any
entity or business or equity securities issuable in connection with stock option
or other employee benefit plans) the Company shall promptly send to each
Investor written notice of the Company's intention to file a Registration
Statement and of such Investor's rights under this Section 2(b) and, if within
twenty (20) days after receipt of such notice, such Investor shall so request in
writing, the Company

                                      -2-
<PAGE>

shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, subject to the priorities
set forth in Section 2(b) below. No right to registration of Registrable
Securities under this Section 2(b) shall be construed to limit any registration
required under Section 2(a). The obligations of the Company under this Section
2(b) may be waived by the Buyers. If an offering in connection with which an
Investor is entitled to registration under this Section 2(b) is an underwritten
offering, then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the Company, offer and
sell such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Company common stock included
in such underwritten offering. If a registration pursuant to this Section 2(b)
is to be an underwritten public offering and the managing underwriter(s) advise
the Company in writing, that in their reasonable good faith opinion, marketing
or other factors dictate that a limitation on the number of shares of Company
common stock which may be included in the Registration Statement is necessary to
facilitate and not adversely affect the proposed offering, then the Company
shall include in such registration: (1) first, all securities the Company
proposes to sell for its own account, (2) second, up to the full number of
securities proposed to be registered for the account of the holders of
securities entitled to inclusion of their securities in the Registration
Statement by reason of demand registration rights, and (3) third, the securities
requested to be registered by the Investors and other holders of securities
entitled to participate in the registration, as of the date hereof, drawn from
them pro rata based on the number each has requested to be included in such
registration.

          (c) Allocation of Registrable Securities.  The initial number of
              ------------------------------------
Registrable Securities included in any Registration Statement filed pursuant to
Section 2(b) above and each increase in the number of Registrable Securities
included therein shall be allocated pro rata among the Investors based on the
number of Registrable Securities held, or which could be held, by each Investor
at the time the Registration Statement covering such initial number of
Registrable Securities or increase thereof is declared effective by the SEC.  In
the event that an Investor sells or otherwise transfers any of such Person's
Registrable Securities, each transferee shall be allocated a pro rata portion of
the then remaining number of Registrable Securities included in such
Registration Statement for such transferor.  Any shares of Common Stock included
in a Registration Statement and which remain allocated to any Person which
ceases to hold any Registrable Securities shall be allocated to the remaining
Investors, pro rata based on the number of Registrable Securities then held by
such Investors.

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

          (e)  [Omitted]

          (f) Rule 416.  The Company and the Investors each acknowledge that
              --------
each Registration Statement prepared in accordance hereunder shall include an
indeterminate number of Registrable Securities pursuant to Rule 416 under the
1933 Act so as to cover any and all Registrable

                                      -3-
<PAGE>

Securities which may become issuable (i) to prevent dilution resulting from
stock splits, stock dividends or similar transactions and (ii) if permitted by
law, by reason of the anti-dilution provisions contained in the Securities
Purchase Agreement, the Notes and the Warrants in accordance with the terms
thereof (collectively, the "Rule 416 Securities"). In this regard, although the
                            -------------------
Company shall not be required to refer to Rule 416 in the Registration
Statement, the Company agrees to use all reasonable efforts to ensure that the
maximum number of Registrable Securities which may be registered pursuant to
Rule 416 under the 1933 Act are covered by each Registration Statement and,
absent guidance from the SEC or other definitive authority to the contrary, the
Company shall use all reasonable efforts to affirmatively support and to not
take any position adverse to the position that each Registration Statement filed
hereunder covers all of the Rule 416 Securities. If the Company determines that
the Registration Statement filed hereunder does not cover all of the Rule 416
Securities, the Company shall immediately (i) provide to each Investor written
evidence setting forth the basis for the Company's position and the authority
therefor and (ii) prepare and file an amendment to such Registration Statement
or a new Registration Statement in accordance with Section 2(g).

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

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

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

          (a) As required by Section 2(a), the Company shall prepare and file
with the SEC a Registration Statement with respect to the Registrable Securities
and the Company shall use its best efforts to cause such Registration Statement
relating to the Registrable Securities to become effective pursuant to Section
2(a), and keep such Registration Statement effective pursuant to Rule 415 at all
times until the earlier of (i) the date as of which the Investors may sell all
of the Registrable Securities without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto) or (ii) the date on which
the Investors shall have sold all the Registrable Securities (the "Registration
                                                                   ------------
Period"), which Registration Statement (including any amendments or supplements
------

                                      -4-
<PAGE>

thereto and prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.

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

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

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

          (e) The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as Legal Counsel or any Investor reasonably requests, (ii) prepare and
file in those jurisdictions, such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period,

                                      -5-
<PAGE>

and (iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
Legal Counsel and each Investor who holds Registrable Securities of the receipt
by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.

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

          (g) As promptly as practicable after becoming aware of such event, the
Company shall notify Legal Counsel and each Investor in writing of the happening
of any event as a result of which the prospectus included in a Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to Legal Counsel and each
Investor (or such other number of copies as Legal Counsel or such Investor may
reasonably request).  The Company shall also promptly notify Legal Counsel and
each Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to Legal Counsel and each Investor by facsimile
on the same day of such effectiveness and by overnight mail), (ii) of any
request by the SEC for amendments or supplements to a Registration Statement or
related prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate.

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

          (i) At the request of any Investor, the Company shall furnish to such
Investor, on the date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as an Investor may reasonably request
if required by an underwriter, (i) a letter, dated such date,

                                      -6-
<PAGE>

from the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
and (ii) an opinion, dated as of such date, of counsel representing the Company
for purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters and the Investors.

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

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

          (l) The Company shall use its best efforts either to (i) cause all the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on

                                      -7-
<PAGE>

the Nasdaq National Market. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this Section 3(l).

          (m)  [Omitted]

          (n)  [Omitted]

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

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

          (q)  [Omitted]

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

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

          (t)  [Omitted]

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

                                      -8-
<PAGE>

          (v) Notwithstanding anything to the contrary contained in this
Agreement, the Registration Statement (other than a Registration Statement filed
pursuant to Section 2(b) above) shall register only the Registrable Securities.

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

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

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

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

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

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

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

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

          (a) To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents,
representatives of, and each Person, if any, who controls any Investor within
the meaning of the 1933 Act or the Securities Exchange Act of 1934,

                                      -9-
<PAGE>

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

                                      -10-
<PAGE>

indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.

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

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

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

                                      -11-
<PAGE>

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

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

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

                                      -12-
<PAGE>

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

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

                                      -13-
<PAGE>

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

          The Company agrees that the Buyers will suffer damages if the Company
fails to fulfill its obligations pursuant to Sections 2(a), 2(g), 3(a), 3(b),
3(e), 3(h) or 3(v) of this Agreement or Section 4(f) of the Securities Purchase
Agreement (each such event referred to herein as a "Registration Default") and
                                                    --------------------
that it would not be possible to ascertain the extent of such damages.
Accordingly, in the event of such Registration Default, the Company hereby
agrees to pay liquidated damages ("Liquidated Damages") to each Buyer following
                                   ------------------
the occurrence of such Registration Default in an amount determined by
multiplying (i) two percent (2%) of the aggregate consideration paid by such
Buyer pursuant to the Securities Purchase Agreement after the Registered
Securities then held by such Buyer, by (ii) the percentage derived by dividing
(A) the actual number of days elapsed from the last day of the date of the
Registration Default or the prior 30-day period, as applicable, to the day such
Registration Default has been completely cured by (B) 30, in cash, or at the
Buyer's option, but subject to the Company's reasonable consent, in the number
of shares of Company common stock equal to the quotient of (v) the dollar amount
of the Liquidated Damages on the Payment Date (as defined below) by (w) the
closing bid price of the Company's common stock as of the date of the
Registration Default (as quoted in the Principal Market or the market or
exchange where the Company's common stock is then traded).  The Liquidated
Damages payable pursuant hereto shall be payable within five (5) Business Days
from the end of each calendar month commencing on the first calendar month in
which the Registration Default occurs (each, a "Payment Date").  In the event
                                                ------------
the Buyer elects to receive the Liquidated Damages amount in shares of Company
common stock, such shares shall also be considered Registrable Securities and
shall have the registration rights set forth in this Agreement (subject to any
limitations with respect to the registration of such shares under the 1933 Act).
The Company shall not be obligated to pay any Liquidated Damages under this
Section with respect to Registration Defaults which may be continuing after the
second anniversary of the date of issuance of the relevant shares of Common
Stock.  Further, the Company shall not be obligated to pay to any Buyer any
Liquidated Damages to the extent that any Registration Default is attributable
to any material breach by Buyer of this Agreement or the Securities Purchase
Agreement.

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

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

                                      -14-
<PAGE>

herein; and (v) such transfer shall have been made in accordance with the
applicable requirements of the Securities Purchase Agreement.

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

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

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

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

          (b) Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered:  (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); or (iii) one Business Day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same.  The addresses and facsimile numbers for such
communications shall be:

          If to the Company:

               Data Race, Inc.
               6509 Windcrest Drive, Suite 120
               Plano, Texas 75024
               Telephone:  (972) 205-4005
               Facsimile:  (210) 558-0356
               Attention:  James G. Scogin

                                      -15-
<PAGE>

          With a copy to:

               Jackson Walker L.L.P.
               901 Main Street, Suite 6000
               Dallas, Texas 75202
               Telephone:  (214) 953 - 5801
               Facsimile:  (214) 953 - 5736
               Attention:  James S. Ryan, III, Esq.

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

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

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

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

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

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

          (h) This Agreement may be executed in identical counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement.  This Agreement, once executed by a party, may be delivered to
the other party hereto by facsimile

                                      -16-
<PAGE>

transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.

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

          (j) All consents and other determinations to be made by the Investors
pursuant to this Agreement shall be made, unless otherwise specified in this
Agreement, by Investors holding at least two-thirds of the Registrable
Securities.

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

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


                                 [Signature Page Follows]

                                      -17-
<PAGE>

                                   EXHIBIT D



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

COMPANY:                            BUYERS:

DATA RACE, INC.                     FIRST CAPITAL GROUP OF TEXAS II, L.P.
                                    By:  First Capital Group Investment,
                                       Partners LP, its General Partner
                                      By:  First Capital Group Management
                                           Company, LP, its General Partner

By:                                       By:
   -----------------------------------        ----------------------------------
  James G. Scogin, Vice President and             Jeffrey P. Blanchard, Managing
Partner
  Chief Financial Officer

                                    ICN Capital Ltd.

                                    By:                   , its
                                       ------------------       -------------

                                    By:
                                       ------------------------
                                    Name:
                                         ----------------------
                                    Title:
                                          ---------------------
<PAGE>

                                   EXHIBIT D


SCHEDULE OF BUYERS
------------------


          Investor Name                                Contact Information
------------------------------------------------------------------------------
First Capital Group of Texas II, L.P.        750 E. Mulberry, Suite 305
                                             San Antonio, TX 78212
                                             Attention:  Jeffrey P. Blanchard
                                             (p) 210-736-4233
                                             (f) 210-736-5449
------------------------------------------------------------------------------
ICN Capital Ltd.                             19 Mount Havelock
                                             Douglas, Isle of Man
                                             United Kingdom
                                             1M1 2QG
                                             Attn: Ann Nicholson
                                             (p)011-44-1624-623911
                                             (f)011-44-1624-677313
------------------------------------------------------------------------------
<PAGE>

                                   EXHIBIT D


                                                                       EXHIBIT A

                        FORM OF NOTICE OF EFFECTIVENESS
                           OF REGISTRATION STATEMENT



[TRANSFER AGENT]
Attn:
     ----------------------

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

Ladies and Gentlemen:

      We are counsel to Data Race Inc., a Texas corporation (the "Company"), and
have represented the Company in connection with that certain Securities Purchase
Agreement dated as of May ___, 2001 (the "Purchase Agreement") entered into by
and among the Company and the buyers named therein (collectively, the "Holders")
pursuant to which the Company issued to the Holders $700,000 principal amount of
its 10% Secured Convertible Promissory Notes (the "Notes") which are convertible
into shares (the "Conversion Shares") of the Common Stock, no par value (the
"Common Stock"), of the Company and Warrants exercisable into shares (the
"Warrant Shares") of the Common Stock.  Pursuant to the Purchase Agreement, the
Company also has entered into a Registration Rights Agreement with the Holders
(the "Registration Rights Agreement") pursuant to which the Company agreed,
among other things, to register the Registrable Securities (as defined in the
Registration Rights Agreement), including the Conversion Shares and the Warrant
Shares, under the Securities Act of 1933, as amended (the "1933 Act").  In
connection with the Company's obligations under the Registration Rights
Agreement, on _________, 2001, the Company filed a Registration Statement on
Form S-3 (File No. _____________) (the "Registration Statement") with the
Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities which names each of the Holders as a selling stockholder thereunder.

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

                              Very truly yours,

                              [ISSUER'S COUNSEL]

                              By:
                                 -------------------------------------


cc:   [LIST NAMES OF HOLDERS]