Exhibit 10.2 to CapSource Financial, Inc. Form 8-K/A Amendment 3 dated May 1, 2006








Exhibit 10.2  



CAPSOURCE FINANCIAL, INC.


SECURITIES PURCHASE AGREEMENT


May 1, 2006









TABLE OF CONTENTS


	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
 

	
 

	
Page


	
 


	
SECTION 1

	
PURCHASE AND
  SALE OF SECURITIES

	
 

	
1


	
 

	
1.1

	
Sale and
  Issuance of Securities

	
 

	
1


	
 

	
1.2

	
The Closing

	
 

	
1


	
SECTION 2

	
DELIVERIES

	
 

	
1


	
 

	
2.1

	
Closing
  Deliveries

	
 

	
1


	
SECTION 3

	
THE
  COMPANY’S REPRESENTATIONS AND WARRANTIES

	
 

	
2


	
 

	
3.1

	
Organization
  and Standing

	
 

	
2


	
 

	
3.2

	
Corporate
  Power

	
 

	
2


	
 

	
3.3

	
Subsidiaries

	
 

	
2


	
 

	
3.4

	
Capitalization

	
 

	
2


	
 

	
3.5

	
Financial
  Statements; Accounts Receivable.

	
 

	
3


	
 

	
3.6

	
Changes

	
 

	
4


	
 

	
3.7

	
Material
  Obligations

	
 

	
5


	
 

	
3.8

	
Material
  Contracts

	
 

	
5


	
 

	
3.9

	
Intellectual
  Property

	
 

	
7


	
 

	
3.10

	
Title to
  Properties and Assets

	
 

	
8


	
 

	
3.11

	
No Defaults

	
 

	
8


	
 

	
3.12

	
Compliance
  with Other Instruments

	
 

	
8


	
 

	
3.13

	
Litigation

	
 

	
8


	
 

	
3.14

	
Tax Returns
  and Payments

	
 

	
8


	
 

	
3.15

	
Employees

	
 

	
9


	
 

	
3.16

	
Related
  Party Obligations

	
 

	
9


	
 

	
3.17

	
Environmental
  and Safety Laws

	
 

	
9


	
 

	
3.18

	
Condition of
  Properties

	
 

	
10


	
 

	
3.19

	
Licenses

	
 

	
10


	
 

	
3.20

	
Insurance

	
 

	
10


	
 

	
3.21

	
Consent

	
 

	
10


	
 

	
3.22

	
Offering

	
 

	
10


	
 

	
3.23

	
Brokers or
  Finders

	
 

	
10


	
 

	
3.24

	
No Market
  Manipulation

	
 

	
10


	
 

	
3.25

	
Reporting
  Company

	
 

	
11


	
 

	
3.26

	
Information
  Concerning Company

	
 

	
11


	
 

	
3.27

	
Stop
  Transfer Order

	
 

	
11


	
 

	
3.28

	
No
  Integrated Offering

	
 

	
11


	
 

	
3.29

	
No General
  Solicitation

	
 

	
11


	
 

	
3.30

	
Listing

	
 

	
11


	
 

	
3.31

	
Correctness
  of Representations

	
 

	
11


	
 

	
3.32

	
Disclosure

	
 

	
12


	
SECTION 4

	
THE
  INVESTOR’S REPRESENTATIONS AND WARRANTIES

	
 

	
12


	
 

	
4.1

	
No
  Registration

	
 

	
12


	
 

	
4.2

	
Investment
  Intent

	
 

	
12


	
 

	
4.3

	
Investment
  Experience

	
 

	
12


	
 

	
4.4

	
Speculative
  Nature of Investment

	
 

	
12


	
 

	
4.5

	
Access to
  Data and Documentation

	
 

	
12


	
 

	
4.6

	
Accredited
  Investor

	
 

	
13





i






TABLE OF CONTENTS
(continued)




	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
 

	
 

	
Page


	
 


	
 

	
4.7

	
Residency

	
 

	
13


	
 

	
4.8

	
Rule 144

	
 

	
13


	
 

	
4.9

	
Authorization

	
 

	
13


	
 

	
4.10

	
Further
  Limitations on Disposition

	
 

	
13


	
 

	
4.11

	
Legend;
  Restriction on Transfer

	
 

	
14


	
 

	
4.12

	
Warrant
  Legend

	
 

	
14


	
SECTION 5

	
COVENANTS OF
  THE COMPANY

	
 

	
15


	
 

	
5.1

	
Stop Orders

	
 

	
15


	
 

	
5.2

	
Listing

	
 

	
15


	
 

	
5.3

	
Market
  Regulations

	
 

	
15


	
 

	
5.4

	
Reporting
  Requirements

	
 

	
15


	
 

	
5.5

	
Use of
  Proceeds

	
 

	
15


	
 

	
5.6

	
Reservation
  of Common Stock

	
 

	
16


	
 

	
5.7

	
Designation
  of Board Members

	
 

	
16


	
 

	
5.8

	
Taxes

	
 

	
16


	
 

	
5.9

	
Insurance

	
 

	
16


	
 

	
5.10

	
Books and
  Records

	
 

	
16


	
 

	
5.11

	
Governmental
  Authorities

	
 

	
16


	
 

	
5.12

	
Intellectual
  Property

	
 

	
16


	
 

	
5.13

	
Properties

	
 

	
16


	
 

	
5.14

	
Correctness
  of Representations

	
 

	
16


	
SECTION 6

	
INVESTOR’S
  CLOSING CONDITIONS

	
 

	
17


	
 

	
6.1

	
Representations
  and Warranties

	
 

	
17


	
 

	
6.2

	
Covenants

	
 

	
17


	
 

	
6.3

	
Blue Sky

	
 

	
17


	
 

	
6.4

	
Due
  Diligence

	
 

	
17


	
 

	
6.5

	
Convertible
  Debt

	
 

	
17


	
 

	
6.6

	
Registration
  Rights Agreement

	
 

	
17


	
 

	
6.7

	
Voting
  Agreement

	
 

	
17


	
 

	
6.8

	
Reservation
  of Shares of Conversion Stock

	
 

	
17


	
 

	
6.9

	
Payment of
  Fees

	
 

	
17


	
 

	
6.10

	
Intentionally
  Omitted

	
 

	
17


	
 

	
6.11

	
Compliance
  Certificate

	
 

	
17


	
 

	
6.12

	
Legal
  Opinion

	
 

	
18


	
 

	
6.13

	
Secretary’s
  Certificate; Amendment to Bylaws

	
 

	
18


	
 

	
6.14

	
Consents;
  Permits and Waivers

	
 

	
18


	
 

	
6.15

	
Proceedings
  and Documents

	
 

	
18


	
SECTION 7

	
THE
  COMPANY’S CLOSING CONDITIONS

	
 

	
18


	
 

	
7.1

	
Representations
  and Warranties

	
 

	
18


	
 

	
7.2

	
Covenants

	
 

	
18


	
 

	
7.3

	
Compliance
  with Securities Laws

	
 

	
18


	
 

	
7.4

	
Registration
  Rights Agreement

	
 

	
18


	
 

	
7.5

	
Intentionally
  Omitted

	
 

	
18


	
 

	
7.6

	
Consents and
  Waivers

	
 

	
18


	
 

	
7.7

	
Proceedings
  and Documents

	
 

	
18





ii






TABLE OF CONTENTS
(continued)




	
 

	
 

	
 

	
 

	
 


	
 

	
 

	
 

	
Page


	
 


	
SECTION 8

	
MISCELLANEOUS

	
 

	
19


	
 

	
8.1

	
Opinion

	
 

	
19


	
 

	
8.2

	
Amendment

	
 

	
19


	
 

	
8.3

	
Notices

	
 

	
19


	
 

	
8.4

	
Payment of
  Fees; Option

	
 

	
20


	
 

	
8.5

	
Governing
  Law

	
 

	
20


	
 

	
8.6

	
Survival

	
 

	
20


	
 

	
8.7

	
Successors
  and Assigns

	
 

	
20


	
 

	
8.8

	
Entire
  Agreement

	
 

	
20


	
 

	
8.9

	
Delays or
  Omissions

	
 

	
21


	
 

	
8.10

	
Severability

	
 

	
21


	
 

	
8.11

	
Titles and
  Subtitles

	
 

	
21


	
 

	
8.12

	
Counterparts

	
 

	
21


	
 

	
8.13

	
Facsimile
  Execution and Delivery

	
 

	
21


	
 

	
8.14

	
Jurisdiction
  and Venue

	
 

	
21


	
 

	
8.15

	
Further
  Assurances

	
 

	
21


	
 

	
8.16

	
Construction

	
 

	
21





iii






EXHIBITS


	
 

	
 


	
A

	
Schedule of
  Investors


	
B

	
Form of
  Warrant


	
C

	
Form of
  Registration Rights Agreement


	
D

	
Form of
  Voting Agreement and Irrevocable Proxy


	
E

	
Wire
  Transfer Instructions


	
F

	
Form of
  Compliance Certificate


	
G

	
Form of
  Legal Opinion


	
H

	
Form of
  Secretary’s Certificate





SCHEDULES


	
 

	
 


	
3.3

	
Subsidiaries
  


	
3.4(e)

	
Warrants,
  options or other rights to acquire stock


	
3.5(a)

	
Financial
  Statements; Off balance sheet transactions


	
3.6(g)

	
Material
  changes in compensation


	
3.6(l)

	
Debts or
  other obligations


	
3.6(n)

	
Share
  issuance


	
3.8(a)

	
Material
  Contracts


	
3.8(c)

	
Affiliates
  arrangements


	
3.9(a)

	
Intellectual
  Property Agreements


	
3.15

	
Employment
  Matters


	
3.16

	
Debts owed
  to Affiliates


	
3.19

	
Licenses,
  Permits, etc.


	
3.23

	
Broker


	
3.25

	
SEC 12 month
  filing exceptions 


	
3.26

	
Material
  Adverse Changes





iv






CapSource Financial, Inc.


SECURITIES PURCHASE AGREEMENT


This
Securities Purchase Agreement (this “Agreement”),
dated May 1, 2006 (the “Effective
Date”), is executed by and between CapSource Financial, Inc., a
Colorado corporation (the “Company”), and
the entity listed on the Schedule of Investors attached as Exhibit A
(the “Investor”).  The Company and the Investor are
each individually referred to in this Agreement as a “Party,” and are collectively referred to in this
Agreement as the “Parties.”


SECTION 1


Purchase and Sale of Securities


          1.1
Sale and Issuance of Securities.  Subject to the terms and conditions of this
Agreement, the Investor agrees to purchase at the Closing (as defined in
Section 1.2), and the Company agrees to sell and issue to the Investor at
the Closing, 2,500,000 shares of the Company’s Common Stock, $.01 par value per
share (the “Shares”) and a
warrant, in the form attached as Exhibit B (the “Warrant”), to purchase 2,500,000
shares of Common Stock at an exercise price of $.90 per share (the “Warrant Shares”) for a purchase
price of$.40per Share and Warrant, for the aggregate
purchase price of $1,000,000 (the “Purchase Price”).  Such Shares together with the Warrants, are
collectively referred to herein as the “Securities”.


          1.2
The Closing.  The closing of the purchase and sale of
the Securities described herein shall take place at the offices of Whitebox
Advisors, LLC, 3033 Excelsior Boulevard, Suite 300, Minneapolis, Minnesota
55416, at 8:30 a.m., Minneapolis time, on May 1, 2006 (the “Closing”), or at such other place
or different time or day as may be mutually acceptable to the Investor and the
Company.


SECTION 2


Deliveries


          2.1
Closing Deliveries.


                    (a)
At the Closing, the Investor will deliver to the Company (i) an executed
counterpart signature page to this Agreement; (ii) executed counterpart
signature page to the Registration Rights Agreement dated as of the Effective
Date by and among the Company, Randolph M. Pentel and the Investors listed on
Exhibit A thereto in the form attached hereto as Exhibit C (the “Registration Rights Agreement”);
and (iii) payment of the Purchase Price for the Securities purchased by
the Investor at such Closing by (A) certified check payable to the
Company; or (B) wire transfer of immediately available funds to the bank
account designated on the wire transfer instructions set forth on Exhibit D.  This Agreement and the Registration Rights
Agreement, together with the exhibits, Schedule of Exceptions (as defined
below), and all other documents required to be delivered in connection herewith
and therewith, shall be referred to collectively as the “Transaction Agreements.”






SECTION 3


The Company’s Representations and Warranties


Except as set
forth on the schedules delivered separately to the Investor in connection with
this Agreement (the “Schedules”),
the Company represents and warrants to the Investor as of the Effective Date as
follows:


          3.1
Organization and Standing.  The Company is a corporation duly
organized and existing under, and by virtue of, the laws of the State of
Colorado and is in good standing under such laws.  The Company has the requisite corporate power and authority to
own and operate the Company’s properties and assets, and to carry on the
Company’s business as presently conducted.
The Company is presently qualified to do business as a foreign
corporation in each jurisdiction where the failure to be so qualified would
have a Material Adverse Effect. No proceeding has been instituted in any
jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification.  “Material Adverse Effect”
shall mean any event, happening, occurrence or development that,
individually or in the aggregate, whether or not arising in the ordinary course
of business, could reasonably be expected to have a material adverse effect on
the Company’s business, operations, properties, prospects, assets, liabilities
or condition (financial or otherwise).  


          3.2 Corporate Power.  The Company has all
requisite legal and
corporate power and authority to execute and deliver the Transaction
Agreements, to sell and issue the Securities in accordance with this Agreement,
to issue Warrant Shares issuable upon exercise of the Warrants, and to carry
out and perform the Company’s obligations under the terms of the Transaction
Agreements.  The Transaction Agreements
have been duly authorized, executed and delivered by the Company and are valid
and binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors’
rights generally.


          3.3
Subsidiaries.   Except as set forth on Schedule 3.3,
the Company does not own or control, directly or indirectly, any interest in
any corporation, partnership, limited liability company, association, or other
business entity.


          3.4 Capitalization.  


                    (a)
The Company’s authorized capital stock consists of 100,000,000 shares of
undesignated stock, of which 12,378,657 shares of Common Stock, par value $.01
per share, were issued and outstanding as of March 27, 2006. 


                    (b)
The outstanding shares of the Company’s Common Stock are duly authorized,
validly issued, fully paid, and non-assessable.


                    (c)
The Company has reserved:


                              (i)
2,875,000 shares of Common Stock for issuance pursuant to this Agreement;


                              (ii)
2,875,000 shares of Common Stock for issuance upon exercise of the Warrant
issued pursuant to this Agreement;


2






                              (iii)
550,000 shares of Common Stock for issuance to employees, directors,
consultants, and advisors pursuant to the Company’s 2001 Stock Option Plan
under which no options to purchase shares of Common Stock are issued and
outstanding as of the Effective Date; 


                              (iv)
937,334 shares of Common Stock for issuance in
connection with discretionary warrants that have been issued and are
outstanding as of the Effective Date; and


                              (v)
4,359,328 shares of Common Stock for issuance in connection with the shares and
warrant that will be issued to Mr. Pentel as a result of the conversion by him
of his outstanding notes pursuant to Section 6.5 hereof;  


                    (d)
The Shares, when issued, delivered and paid for in compliance with the
provisions of this Agreement, will be validly issued, fully paid and
non-assessable.  The Warrant Shares
issuable upon exercise of the Warrants have been duly and validly reserved and,
when issued in compliance with the provisions of this Agreement, the Warrant,
and applicable law, will be validly issued, fully paid, and
non-assessable.  The Shares and Warrant
Shares will be free of any liens or encumbrances, other than any liens or
encumbrances created by or imposed upon the Investor; provided, however, that
the Shares and Warrant Shares are subject to transfer restrictions under state
and/or federal securities laws and as set forth in the Transaction
Agreements.  The Shares and Warrant
Shares are not subject to any preemptive rights or first refusal rights.  Neither the offer nor issuance of the
Securities constitutes an event under any anti-dilution provisions of any
securities issued or issuable by the Company which will either increase the
number of shares issuable pursuant to such provisions or decrease the consideration
per share to be received by the Company pursuant to such provisions.


                    (e)
Except as set forth on Schedule 3.4(e), there are no outstanding
agreements or preemptive or similar rights affecting the Company’s capital
stock and no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of capital stock of the Company.


                    (f)
There are no shareholder agreements, voting agreements, proxy rights or other
similar agreements with respect to the Company’s Common Stock to which the
Company is a party or  between or among
any of the Company’s shareholders.


          3.5
Financial Statements; Accounts Receivable.



                    (a)
The Company’s: (i) Form 10-KSB for the year ended December 31, 2005,
as filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2006; and
(ii) unaudited balance sheet, statements of operations, shareholders’
equity and cash flow as of and for the three months ended March 31, 2006 (the “Balance Sheet Date”),
complete and
correct copies of which are attached hereto as Schedule 3.5(a) (collectively,
the “Financial Statements”),
present fairly the financial position of the Company as of such dates and the
results of operations for the periods covered thereby (subject, in the case of
the interim financial statements, to year-end audit adjustments) and have been
prepared in accordance with generally accepted accounting principles
consistently applied (“GAAP”),
except as to the absence of footnotes thereto.
Specifically, but not by way of limitation, (x) the balance sheets or
notes thereto disclose all of the debts, liabilities and obligations of any
nature of the Company properly accrued
at December 31, 2005 and at the Balance Sheet Date which,
individually or in the aggregate, are material and which in accordance with
GAAP would be required to be disclosed in such balance sheets, and the omission
of which would, in the aggregate, have a Material Adverse Effect on the
Company; (y) except as set forth on Schedule 3.5(a), the Company does
not have any off-balance sheet arrangements or transactions; and (z) the
Financial Statements include appropriate reserves for all taxes and other
liabilities accrued at such date but not yet payable.


3






                    (b)
All accounts receivable of the Company referenced in the Financial Statements
(except such accounts receivable as have been collected since such date) are
valid and enforceable claims, and the goods and services sold and delivered
which gave rise to such accounts were sold and delivered in conformity with the
applicable purchase orders, payor contracts, agreements and specifications.  Such accounts receivable are subject to no
valid defense or offsets.  The Company’s
uncollectible accounts will not exceed the reserves for doubtful accounts.


          3.6
Changes.  Since the Balance Sheet Date, the
Company has not:


                    (a)
suffered any change in  the Company’s
assets, liabilities, financial condition, or operating results, except for
changes in the ordinary course of business, none of which have had a Material
Adverse Effect;


                    (b)
suffered any damage, destruction, or loss (whether or not covered by insurance)
that, in any case or in the aggregate, have had a Material Adverse Effect;


                    (c)
agreed to waive or actually waived any valuable right or any material debt owed
to the Company;


                    (d)
suffered any change or amendment to any agreement by which the Company or any
of the Company’s assets or properties are bound or subject, except to the
extent that any such change or amendment has not had, or will not likely have,
a Material Adverse Effect;


                    (e)
made any loans to the Company’s employees, officers or directors, or to any
members of their respective immediate families, other than travel advances and
other advances made in the ordinary course of the Company’s business;


                    (f)
received any Company officer’s resignation or terminated any Company officer;


                    (g)
except as set forth on Schedule 3.6(g), made any material change in any
compensation arrangement or agreement with any employee; 


                    (h)
made any declaration or payment of any dividend or other distribution;


                    (i)
received notice or become aware that the Company has lost a customer or that
any Company customer has canceled a material order, which loss or cancellation
would constitute a Material Adverse Effect; or


                    (j)
suffered any change or amendment to any agreement relating to a change in the
contingent obligations of the Company;


                    (k)
received notice of any labor organization activity related to the Company;


                    (l)
except as set forth on Schedule 3.6(l), incurred any debt obligation or
liability, including any debts assumed or guaranteed by the Company, except
those for immaterial amounts and for current liabilities incurred in the
ordinary course of business;


                    (m)
made any sale, assignment or transfer of any patents, trademarks, copyrights,
trade secrets or other intangible assets;


4






                    (n)
except as set forth on Schedule 3.6(n), issued or sold any partnership
interests, shares of capital stock or other securities or granted any options,
warrants or other purchase rights with respect thereto other than as
contemplated by this Agreement;


                    (o)
suffered any other event or condition of any character that has had, or could
be reasonably expected to have, a Material Adverse Effect; or


                    (p)
made any arrangement or commitment by the Company to do any of the acts
described in (a) through (o) above.


          3.7
Material Obligations.  The Company has no liabilities or
obligations (whether absolute, accrued, contingent or otherwise), except for
such liabilities or obligations specifically reflected in balance sheets in the
Financial Statements and current liabilities incurred in the ordinary course of
business since the Balance Sheet Date, which are not, either in any individual
case or in the aggregate, material to the Company.


          3.8
Material Contracts.


                    (a)
Set forth on Schedule 3.8(a) is a detailed list of the Company’s bona fide and
existing contracts that, individually or in the aggregate, are material to the
business, properties, prospects, assets, liabilities or condition (financial or
otherwise) of the Company (except as in Section 3.8(a)(ii)) (“Material Contracts”), specifically
referring to this Section 3.8 and identifying such contracts in accordance
with the following subsections:


                              (i)
each license or franchise agreement, either as licensor or licensee or
franchisor or franchisee, including any related to intellectual property, or
distributor, dealership or sales agency contract, agreement or understanding;


                              (ii)
a true and complete description of all real properties owned by the Company;


                              (iii)
each indenture, lease, sublease, license or other instrument under which the
Company claims or holds a leasehold interest in real property (including any
agreement related to the purchase or sale of such assets);


                              (iv)
each lease of personal property involving payments remaining to or from the
Company in excess of $10,000;


                              (v)
each collective bargaining agreement, employment agreement, consulting
agreement, noncompetition agreement, nondisclosure agreement, inventions
assignment agreement, executive compensation plan, profit sharing plan, bonus
plan, restricted stock award agreement, deferred compensation agreement, employee
pension retirement plan, employee benefit stock option, stock awards or stock
purchase plan, buy-sell agreement and any other employee or shareholder
agreements or employee benefit plans, entered into or adopted by the Company;


                              (vi)
each bank account (or account with other financial institutions) maintained by
the Company, together with the persons authorized to make withdrawals from such
account;


5






                              (vii)
the name of each employee of the Company whose salary exceeds $50,000 per year
and the remuneration currently payable (including bonus or commission
arrangements) to each such employee;


                              (viii)
the name, amount and vesting schedule of each employee, officer, director or
consultant granted stock options, warrants or other similar rights;


                              
(ix) each partnership, joint venture, alliance or other similar agreement or
arrangement with another entity;


                              
(x) each promissory note, indenture, mortgage, loan agreement, guaranty,
security agreement, pledge or similar agreement with any lender;


                              
(xi) each agreement granting voting rights, registration rights, first negotiating
rights or preemptive rights to a third party; and


                              
(xii) each material product development, research, manufacturing, marketing,
sales distribution or supply agreement, warranty or indemnification agreement,
purchase agreement, royalty agreement, product, patent or trademark licensing
or assignment agreement and any other material contract entered into by the
Company or by which the Company is bound.


                    (b)
The Company is not in default or, but for the giving of notice or passage of
time would be in default, under any Material Contract.


                    (c)
Except as set forth on Schedule 3.8(c), there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors, affiliates or any affiliate thereof.


                    (d)
There are no agreements, instruments, contracts, judgments, orders, writs or
decrees to which the Company is a party or by which it is bound which may
involve (i) obligations of, or payments to, the Company in excess of
$10,000 (other than obligations of, or payments to, the Company arising from
purchase or sale agreements entered into in the ordinary course of business),
(ii) the transfer or license of any patent, copyright, trade secret or
other proprietary right to or from the Company (other than licenses arising
from the purchase of “off the shelf products”), (iii) provisions
restricting the development, manufacture or distribution of the Company’s
products or services, or (iv) indemnification by the Company with respect
to infringements of proprietary rights (other than indemnification obligations
arising from purchase or sale of goods and services or license agreements
entered into in the ordinary course of business).


                    (e)
The Company has not (i) declared or paid any dividends, or authorized or
made any distribution upon or with respect to any class or Series of its
capital stock, (ii) incurred or guaranteed any indebtedness for money
borrowed or any other liabilities (other than with respect to indebtedness and
other obligations incurred in the ordinary course of business or as
specifically disclosed in the Financial Statements) individually in excess of
$10,000 or, in the case of indebtedness and/or liabilities individually less than
$10,000, in excess of $20,000in
the aggregate, (iii) made any loans or advances to any person, other than
ordinary advances for travel expenses, or (iv) sold, exchanged or
otherwise disposed of any of its assets or rights, other than the sale of its inventory
in the ordinary course of business.


                    (f)
For the purposes of subsections (d) and (e) above, all indebtedness,
liabilities, agreements, understandings, instruments, contracts and proposed
transactions involving the same person 


6






or entity
(including persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.


          3.9
Intellectual Property.


                    (a)
The Company owns or possesses sufficient legal rights to all trademarks,
service marks, trade names, patents, copyrights, trade secrets, licenses
(software or otherwise), information, processes, and similar proprietary rights
(collectively, “Intellectual Property”)
necessary to the Company’s business as presently conducted.  The Company has no knowledge nor has it
received notice that the conduct of the Company’s business as presently
conducted materially conflicts with or infringes the Intellectual Property
Rights of others.  Except for agreements
with the Company’s own employees or consultants listed in Schedule 3.9(a)
and Material Contracts for standard end-user license agreements, and for
support/maintenance agreements and agreements entered in the ordinary course of
the Company’s business, there are no material outstanding options, licenses, or
agreements relating to the foregoing, and the Company is not bound by or a
party to any material options, licenses, or agreements with respect to the
Intellectual Property of any other person or entity.  The Company has not received any written communication alleging
that the Company has violated any of the Intellectual Property of any other
person or entity.  The Company is not
obligated to make any payments by way of royalties, fees, or otherwise to any
owner of, licensor of, or claimant to any Intellectual Property with respect to
the use of such Intellectual Property in connection with the conduct of the
Company’s business as presently conducted.  There are no material agreements, understandings, instruments,
contracts, judgments, orders, or decrees to which the Company is a party or by
which the Company is bound that involve indemnification by the Company with
respect to Intellectual Property infringements (other than indemnification
obligations arising from purchase or sale of goods and services or license and
other agreements entered into in the ordinary course of business).


                    (b)
No employee is obligated under any contract or other agreement, or subject to
any judgment, decree, or order of any court or administrative agency, that
would materially interfere with the use of such employee’s best efforts to
promote the Company’s interests or that would conflict with the Company’s business
as presently conducted.  Neither the
execution nor delivery of this Agreement, nor the Company employees’ conduct of
the Company’s business, nor the Company’s conduct of the Company’s business as
presently conducted, will conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant, or instrument under which any of such employees is now
obligated.  The Company does not believe
that it is or will be necessary to use any inventions of any of the Company’s
employees made before their employment by the Company.


                    (c)
Each Company employee has executed a confidential information, non-competition
and invention assignment agreement, substantially in the form(s) made available
to the Investor (each, a “Confidentiality
Agreement”).  No employee
has excluded from such employee’s Confidentiality Agreement any works or
inventions that were made by such employee before such employee’s employment
with the Company and that are also relevant to the Company’s business as
currently conducted or as proposed to be conducted.  Each Company consultant who has had access to the Company’s
intellectual property has entered into an agreement containing appropriate
confidentiality, non-competition and invention assignment provisions.


          3.10
Title to Properties and Assets.  The Company has good and marketable
title to the Company’s properties and assets, and the Company has good title to
all of the Company’s leasehold interests, in each case subject to no material
mortgage, pledge, lien, lease, or encumbrance, except for (a) liens for
current taxes not yet due and payable, (b) liens imposed by law and
incurred in the ordinary course of business for obligations not past due,
(c) liens in respect of pledges or deposits under workers’


7






 compensation laws or similar legislation, and
(d) possible minor liens, encumbrances, and title defects that do not in
any case have a Material Adverse Effect on the value of the property subject
thereto or have a Material Adverse Effect on the Company’s operations and that
have not arisen other than in the ordinary course of the Company’s business.


          3.11
No Defaults.  Neither the Company nor any of its
subsidiaries is in violation of its Articles of Incorporation or Bylaws.  Neither the Company nor any of its
subsidiaries is (i) in default under or in violation of any other agreement or
instrument to which it is a party or by which it or any of its properties are
bound or affected, which default or violation would have a Material Adverse
Effect on the Company, (ii) in default with respect to any order of any court,
arbitrator or governmental body or subject to or party to any order of any
court or governmental authority arising out of any action, suit or proceeding
under any statute or other law respecting antitrust, monopoly, restraint of
trade, unfair competition or similar matters, or (iii) in violation of any
statute, rule or regulation of any governmental authority which violation would
have a Material Adverse Effect on the Company.


          3.12
Compliance with Other Instruments.  The Company’s execution, delivery, and
performance of and compliance with the Transaction Agreements and the Company’s
issuance of the Securities and, if exercised, the Warrant Shares issuable upon
exercise of the Warrants, will not result in any violation of, or conflict
with, or constitute a default under, the Articles of Incorporation or Bylaws,
each as amended to date, or any of the Company’s agreements, nor result in the
creation of any mortgage, pledge, lien, or encumbrance upon any of the
Company’s properties or assets.


          3.13
Litigation.  There is no action, suit, proceeding or
investigation pending or currently threatened in writing against the Company
that questions the validity of this Agreement, the other Transaction
Agreements, any Material Contracts or the right of the Company to enter into
any of such agreements, or to consummate the transactions contemplated hereby
or thereby, or which could be expected to result, either individually or in the
aggregate, in any Material Adverse Effect or any change in the current equity
ownership of the Company, nor is the Company aware that there is any basis for
any of the foregoing.  The foregoing
includes, without limitation, actions pending or threatened, either verbally or
in writing, involving the prior employment of any of the Company’s employees,
their use in connection with the Company’s business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers.  The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality.
There is no action, suit, proceeding or investigation by the Company
currently pending or which the Company intends to initiate.


          3.14
Tax Returns and Payments.  The Company has filed with appropriate
federal, state, and local governmental agencies all tax returns that the
Company is required to file.  All taxes
shown to be due and payable on such returns, any assessments imposed, and all
other taxes due and payable by the Company have been paid or will be paid
before the time they become delinquent.
The Company has not been advised in writing or otherwise become aware
(a) that any of the Company’s tax returns have been or are being audited
as of the Effective Date or (b) of any deficiency in assessment or
proposed judgment with respect to the Company’s federal, state, or local taxes.


          3.15
Employees.


                    (a)
The Company has no collective bargaining agreements with any of its
employees.  There is no labor union
organizing activity pending or threatened with respect to the Company.  No employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract, proprietary information and invention assignment
agreement or any other agreement relating to the right of any such individual
to be employed by, or to 


8






contract with,
the Company because of the nature of the business to be conducted by the
Company; and the continued employment by the Company of its present employees,
and the performance of the Company’s contracts with its independent
contractors, will not result in any such violation.  The Company has not received any notice alleging that any such
violation has occurred.  Except as set
forth on Schedule 3.15, no employee of the Company has been granted the
right to continued employment by the Company or to any material compensation
following termination of employment with the Company.  The Company is not aware that any officer, key employee or group
of employees intends to terminate his, her or their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of employees.


                    (b)
Each officer and key employee of the Company is currently devoting one hundred
percent (100%) of his or her business time to the conduct of the business of
the Company.  The Company is not aware
that any officer or key employee of the Company is planning to work less than
full time at the Company in the future.
No officer or key employee is currently working or, to the Company’s
knowledge, plans to work for a competitive enterprise, whether or not such
officer or key employee is or will be compensated by such enterprise, and all
officers and key employees have signed and are subject to noncompetition
agreements in connection with their employment by the Company.


          3.16
Related Party Obligations.  Except as set forth on Schedule 3.16,
no Company employee, officer, director or shareholder, and no immediate family
member of any Company employee, officer, director, or shareholder, is indebted
to the Company, nor is the Company indebted (or committed to make loans or
extend or guarantee credit) to any of such persons other than (a) for
payment of salary for services rendered, (b) reimbursement for reasonable
expenses incurred on the Company’s behalf, and/or (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Company’s
Board of Directors and stock purchase agreements approved by the Company’s
Board of Directors).  None of such
persons have any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has
a business relationship or in any firm or corporation that competes with the
Company, except in connection with the ownership of stock in publicly-traded
companies.  No Company employee,
officer, director, or stockholder, nor any their immediate family members, is,
directly or indirectly, interested in any Material Contract with the Company
(other than such Material Contracts that relate to any such person’s ownership
of Company capital stock or other Company securities).


          3.17
Environmental and Safety Laws.  The Company is not in violation of any
applicable statute, law or regulation relating to the environment or
occupational health and safety, and no expenditures are or are reasonably
anticipated to be required in order to comply with any such existing statute,
law or regulation.  During the period
that the Company has owned or leased its properties and facilities,
(i) there have been no disposals, releases or threatened releases of
Hazardous Materials (as defined below) by the Company on, from or under such
properties or facilities, and (ii) other than normal office products and
cleaning supplies, it has not used, generated, manufactured or stored on, under
or about such properties or facilities or transported to or from such properties
or facilities any Hazardous Materials.
For purposes of this Section, the terms “disposal,” “release” and
“threatened release” shall have the definitions assigned thereto by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
42 U.S.C. Section 9601, et seq. as
amended (“CERCLA”).  For the purposes of this Section, “Hazardous Materials” shall mean any
hazardous or toxic substance, material or waste, which is regulated under, or
defined as a “hazardous substance,” “pollutant,” “contaminant,”  “toxic
chemical,”  “hazardous  material,” “toxic substance” or “hazardous
chemical” under (1) CERCLA; (2) the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. Section 11001, et
seq.; (3) the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq.; (4) the
Toxic Substance Control Act, 15 U.S.C. Section 2601, et seq.; (5) the Occupational Safety and Health Act of
1970, 29 


9






U.S.C. Section
651, et seq.; (6) regulations
promulgated under any of the above statutes; or (7) any applicable state
or local statute, ordinance, rule or regulation that has a scope or purpose
similar to those statutes identified above.


          3.18
Condition of Properties.  The offices and material equipment,
inventory and other assets of the Company have been kept in reasonable
condition and repair in the ordinary course of business, are reasonably fit and
suitable for the purposes for which they are being used and are believed by the
Company to conform in all material respects with applicable ordinances,
regulations and laws.


          3.19
Licenses.  The Company possesses from the
appropriate agency, commission, board and government body and authority,
whether state, local, federal or foreign, all licenses, permits,
authorizations, approvals, franchises and rights which (i) are necessary
for it to engage in the business currently conducted by it, and (ii) if
not possessed by the Company, would have a Material Adverse Effect.  A list of all material licenses, permits,
approvals and similar rights currently in effect is set forth on Schedule
3.19.


          3.20
Insurance.  The Company has in full force and effect
fire and casualty insurance policies and insurance against other hazards,
risks, and liabilities to persons and property to the extent and in the manner
customary for similarly situated companies in similar businesses, and such
insurance policies have been issued by financially sound, duly licensed and
reputable insurers. 


          3.21
Consent.  Other than the declaration of
effectiveness by the SEC of any registration statement required to be filed
pursuant to the Registration Rights Agreement, no consent, approval,
authorization or order of any court, governmental agency or body or arbitrator
having jurisdiction over the Company, or any of its affiliates, the NASD, OTC
Bulletin Board or the Company’s shareholders is required for execution of the
Transaction Agreements, including, without limitation the issuance and sale of
the Securities and the performance of the Company’s obligations under the
Transaction Agreements.


          3.22
Offering.  Subject in part to the accuracy of the
Investor’s representations and warranties in Section 4, the offer, sale,
and issuance of the Securities in compliance with the terms of this Agreement
constitute transactions exempt from the registration requirements of
Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), and all
applicable state securities laws.
Neither the Company nor any agent on its behalf has solicited or will
solicit any offers to sell or has offered to sell or will offer to sell all or
any part of the Securities to any person or persons so as to bring the sale of
such Securities by the Company within the registration provisions of the
Securities Act or any applicable state securities laws.


          3.23
Brokers or Finders.  Except as set forth on Schedule 3.23,
the Company has not engaged any brokers, finders, or agents, and the Investor
has not incurred, and will not incur, directly or indirectly, as a result of any
action taken by the Company, any liability for brokerage or finders’ fees or
agents’ commissions or any similar charges in connection with the Transaction
Agreements. 


          3.24
No Market Manipulation.  The Company has not taken, and will not
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price
of the common stock of the Company to facilitate the sale or resale of the
Securities or affect the price at which the Securities may be issued.


          3.25
Reporting Company.  The Company is a publicly-held company
subject to reporting obligations pursuant to Sections 15(d) and 13 of the
Securities Exchange Act of 1934 (the “Exchange
Act”) and has a class of common stock registered pursuant to Section
12(g) of the Exchange Act.  The
Company’s Common Stock is listed on the OTC Bulletin Board.  Pursuant to the provisions of the 


10






Exchange Act,
the Company has timely filed all reports and other materials required to be
filed thereunder with the Securities and Exchange Commission (together with any
and all filings made under the Securities Act, the “SEC Filings”) during the preceding twelve months except as
set forth on Schedule 3.25 hereto.


          3.26
Information Concerning Company.  The Company’s SEC Filings contain all
material information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein.  Since the Balance
Sheet Date and except as stated in Schedule 3.26, there has been no
material adverse change in the Company’s business, financial condition or
affairs that has not been disclosed in an SEC Filings as required by the
Exchange Act, not disclosed in the SEC Filings.  The SEC Filings do not contain any untrue statement of a material
fact or omit to state a material fact in light of the circumstances when made
required to be stated therein or necessary to make the statements therein not
misleading.


          3.27
Stop Transfer Order.  The Securities are restricted securities as
of the date of this Agreement.  The
Company will not issue any stop transfer order or other order impeding the sale
and delivery of the Securities, except as may be required by federal securities
laws, in which case the Company will promptly provide written notice of such
stop order with an explanation of the basis for such stop order to the Investor
as provided below in Section 5.1.


          3.28
No Integrated Offering.  Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the Securities
pursuant to this Agreement to be integrated with prior offerings by the Company
for purposes of the Securities Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
OTC Bulletin Board nor will the Company or any of its affiliates or
subsidiaries take any action or steps that would cause the offering of the
Securities to be integrated with other offerings.  The Company has not conducted and will not conduct any offering
other than the transactions contemplated hereby that will be integrated with
the issuance of the Securities.


          3.29
No General Solicitation.  Neither the Company, nor any of its
affiliates or any person acting on its or their behalf, has engaged in any form
of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Securities.


          3.30
Listing.  The Company’s Common Stock is quoted on, and
listed for trading on the OTC Bulletin Board.
The Company has not received any oral or written notice that its Common
Stock will be delisted from the OTC Bulletin Board or that the Common Stock
does not meet all requirements for the continuation of such listing, and the
Company is not aware of any event or circumstance that will or may cause the
Company’s Common Stock to be delisted from the OTC Bulletin Board.


          3.31
Correctness of Representations.  The Company represents that the foregoing
representations and warranties are true and correct as of the date hereof, and,
unless the Company otherwise notifies the Investor in writing prior to the
Closing Date, shall be true and correct as of the Closing Date.


          3.32
Disclosure.  To the best knowledge of the Company,
the Company has made available to the Investor, all the information that the
Investor has requested for deciding whether to purchase the Securities.  Neither the Transaction Agreements nor any
other documents or certificates delivered in connection with this Agreement,
which shall include the Company’s SEC Filings, when taken as a whole, contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the 


11






statements
contained herein or therein not misleading in light of the circumstances under
which they were made.


SECTION 4


The Investor’s Representations and Warranties


As a material
inducement to the Company to enter into this Agreement and consummate the
transactions contemplated hereby, the Investor hereby makes to the Company the
representations and warranties contained in this Section 4.


          4.1
No Registration.  The Investor understands and expressly
acknowledges that the Securities have not been, and will not be, registered
under the Securities Act in reliance on a specific exemption from the
Securities Act’s registration provisions, the availability of which depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of the Investor’s representations as expressed in this Agreement or
otherwise made pursuant to this Agreement.


          4.2
Investment Intent.  The Investor is acquiring the Securities
for investment for the Investor’s own account, not as a nominee or agent, and
not with the view to, or for resale in connection with, any distribution of the
Securities.


          4.3
Investment Experience.  The Investor (or the Investor’s
purchaser representative, within the meaning of Regulation D, Rule 501 (h)
promulgated by the SEC), has substantial experience in evaluating and investing
in private placement transactions of securities in companies similar to the
Company so that the Investor or such purchaser representative is capable of
evaluating the merits and risks of the Investor’s investment in the Company and
has the capacity to protect the Investor’s own interests.  The Investor has received, carefully
reviewed and understands the terms and conditions set forth in this Agreement
and the other Transaction Agreements which contains the financial statements of
the Company and other information important to an investment in the Company.


          4.4
Speculative Nature of Investment.  The Investor understands and expressly
acknowledges that the Investor’s investment in the Company is speculative and
entails a substantial degree of risk and the Investor is in a position to lose
the entire amount of the Investor’s investment.


          4.5
Access to Data and Documentation.  The Investor acknowledges that it has
reviewed this Agreement, along with the Exhibits and Schedules attached hereto,
and the other Transaction Agreements and made its own investigation of the
Company, its business, personnel and prospects; has had an opportunity to
discuss the Company’s business, management, and financial affairs with the
Company’s management and the terms of this investment.  The Investor has also had an opportunity to
ask questions of the Company’s officers, which questions were answered to the
Investor’s full satisfaction, and obtain such additional information and
documents as the Investor considers necessary or advisable in order to form a
decision concerning an investment in the Company.  This Section 4.5 does not limit or modify the Company’s
representations and warranties contained in Section 3 or the Investor’s
right to rely on the Company’s representations and warranties.


          4.6
Accredited Investor.  The Investor is an “accredited investor”
within the meaning of Regulation  D,
Rule 501 (a), promulgated by the Securities and Exchange Commission.


          4.7
Residency.  The Investor’s place and state of residency,
or, in the case of a partnership, corporation, or other entity, such entity’s
principal place of business, is correctly set forth on Exhibit A.


12






          4.8
Rule 144.  Investor acknowledges and agrees that
the Shares, and, if issued, the Warrant Shares are “restricted securities” as
defined in Rule 144 promulgated under the Securities Act, as in effect from
time to time, and must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available.  Investor has been advised or
is aware of the provisions of Rule 144, which permits limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things: the availability of certain current
public information about the Company, the resale occurring following the
required holding period under Rule 144 and the number of shares being sold
during any three-month period not exceeding specified limitations.


          4.9
Authorization.


                    (a)
The Investor has all requisite power and authority to execute and deliver the
Transaction Agreements, to purchase the Securities under this Agreement, and to
carry out and perform the Investor’s obligations under the terms of the
Transaction Agreements.  All action
required by the Investor for the authorization, execution, delivery, and
performance of the Transaction Agreements, and the performance of all of the
Investor’s obligations under the Transaction Agreements, has been taken.


                    (b)
The Transaction Agreements, when
executed and delivered by the Investor, will constitute the Investor’s
valid and legally binding obligations, enforceable in accordance with their
terms except: (i) to the extent that the indemnification provisions
contained in the Registration Rights Agreement may be limited by applicable law
and public policy principles, (ii) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors’ rights generally, and (iii) as limited
by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies or by general equity principles.


          4.10
Further Limitations on Disposition.  The Investor hereby acknowledges and
agrees to be bound by the transfer restrictions associated with the Securities
set forth in the Registration Rights Agreement.  In addition, the Investor hereby acknowledges and agrees as
follows:


                    (a)
Without in any way limiting the representations and warranties set forth
elsewhere in this Section 4 or any covenants set forth in this Agreement,
the Investor agrees not to make any disposition of all or any portion of the
Securities unless and until (i) there is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement or (ii) the
Investor will have notified the Company of the proposed disposition and, if
reasonably requested by and at the sole expense of the Company, the Investor
will have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will be exempt from
registration under the Securities Act.


                    (b)
Notwithstanding the foregoing subsection, no such registration statement or
opinion of counsel will be necessary for a transfer by the Investor:


                              (i)
to a fund, partnership, limited liability company, or other entity that is
affiliated with the transferring Investor;


                              (ii)
to a partner or member (or retired partner or member) of the transferring
Investor, or to the estate of any such partner or member (or retired partner or
member);


                              (iii)
to the transferring Investor’s spouse, siblings, lineal descendants, or
ancestors by gift, will, or intestate succession; or


13






                              (iv)
in compliance with Rule 144(k) (or any successor provision) of the Securities
Act so long as the Company is furnished with satisfactory evidence of full
compliance with Rule 144(k) (or any successor provision); provided, however, that,
in the case of Section 4.10(b)(i), Section 4.10(b)(ii), or Section 4.10
(b)(iii), the transferee agrees in writing to be subject to the terms of this
Agreement and other Transaction Agreements to the same extent as if such
transferee were an original Investor under this Agreement; provided, further,
however, that any proposed purchaser, assignee, transferee or pledgee be an
“accredited investor” and that the Securities have been held for twelve months
from the date of the Closing and applicable to any such Securities.  The Investor will cause any proposed
purchaser, assignee, transferee, or pledgee of any Securities held by the
Investor to take and hold such securities subject to the provisions and upon
the conditions of this Agreement.  The
Investor consents to the Company’s making a notation on the Company’s records
and giving instructions to any transfer agent for the Company’s capital stock
to implement the transfer restrictions established in this Agreement.


          4.11
Legend; Restriction on Transfer.  The Investor understands and agrees that the
certificates evidencing the Shares and Warrant Shares, or any other securities
issued in respect thereof upon any stock split, stock dividend,
recapitalization, merger, consolidation, or similar event, will bear the legend
required by the Transaction Agreements, and federal and state securities laws,
including the following: 


	
 

	
 

	
 


	
 

	
“THE SHARES
  REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
  ACT OF 1933, AS AMENDED, OR UNDER STATE SECURITIES LAWS.  THESE SHARES MAY NOT BE SOLD, OFFERED FOR
  SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
  STATEMENT UNDER SUCH ACT OR LAWS OR AN OPINION OF COUNSEL REASONABLY
  SATISFACTORY TO CAPSOURCE FINANCIAL, INC. THAT SUCH REGISTRATION IS NOT
  REQUIRED.”

	
 





          4.12
Warrant Legend.  The Warrants shall bear the following legend:


	
 

	
 

	
 


	
 

	
“THIS
  WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
  BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER STATE
  SECURITIES LAW.  THIS WARRANT AND THE
  COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED
  FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
  STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR LAWS OR AN OPINION OF COUNSEL
  REASONABLY SATISFACTORY TO CAPSOURCE FINANCIAL, INC. THAT SUCH REGISTRATION
  IS NOT REQUIRED.”

	
 





SECTION 5


Covenants of the Company


The Company
covenants and agrees with the Investor as follows:


          5.1
Stop Orders.  The Company will advise the Investor,
promptly after it receives notice of issuance by the SEC, any state securities
commission or any other regulatory authority, of any stop order or of any order
preventing or suspending any offering of any securities of the Company, or of
the suspension of the qualification of the Common Stock of the Company for
offering or sale in any 


14






jurisdiction,
or the initiation of any proceeding for any such purpose, and such notice shall
include an explanation of the basis for any such order, suspension or
proceeding.


          5.2
Listing.  The Company shall promptly secure the
listing of the Shares and Warrant Shares issuable upon exercise of the Warrants
on the OTC Bulletin Board (subject to official notice of issuance) and shall
maintain such listing so long as any of the Shares, Warrant or Warrant Shares
are held by the Investor.  The Company
will maintain the listing of its Common Stock on the OTC Bulletin Board or, in
the alternative, a national securities exchange or automated quotation system,
such as the NASDAQ SmallCap Market or American Stock Exchange, and will comply
in all respects with the Company’s reporting, filing and other obligations
under the bylaws or rules of the National Association of Securities Dealers,
Inc. (“NASD”)
and the OTC Bulletin Board.  The Company
will provide the Investor with copies of all notices it receives notifying the
Company of the threatened or actual delisting of the Common Stock from the OTC
Bulletin Board provided the provisions of such information to the Investor
would not violate the provisions of Regulation FD under the Securities Act.


          5.3
Market Regulations.  The Company shall notify the SEC, NASD, the
OTC Bulletin Board and applicable state authorities, in accordance with their
requirements, if any, of the transactions contemplated by the Transaction
Agreements, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal
and valid issuance of the Securities to the Investor and promptly provide
copies thereof to the Investor.


          5.4
Reporting Requirements.  From the Closing Date and until three (3)
years following the earlier of the expiration or exercise of the Warrants, the
Company will (i) cause its Common Stock to continue to be registered under
Sections 12(b) or 12(g) of the Exchange Act, (ii) comply in all respects with
its reporting and filing obligations under the Exchange Act, (iii) comply with
all reporting requirements that is applicable to an issuer with a class of
Shares registered pursuant to Section 12(g) of the Exchange Act, and (iv)
comply with all requirements related to the registration statement filed with
the SEC covering the Shares and Warrant Shares under the terms of the
Registration Rights Agreement (the “Registration Statement”).  The Company will use its best efforts not to
take any action or file any document (whether or not permitted by the
Securities Act or the Exchange Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and filing
obligations under said Acts so long as any of the Shares, Warrants or Warrant
Shares are held by the Investor.  


          5.5
Use of Proceeds.  The Company shall use the proceeds from this
offer and sale of the Securities for the acquisition of Prime Time Equipment,
Inc. and for general corporate purposes; provided, however, that at no time may
the Company utilize such proceeds for payment of or reduction of any indebtedness
of the Company, whether now existing or hereinafter incurred. 


          5.6
Reservation of Common Stock.  The Company shall reserve from its
authorized but unissued Common Stock, for as long as the Warrants remain
outstanding, one share of Common Stock for each Warrant Share issuable from
time-to-time upon exercise of the Warrants.


          5.7 Designation of Board Member.  The
Company agrees to enter into and deliver
to the Investor a Voting Agreement and Irrevocable Proxy, in the form attached
hereto as Exhibit D, pursuant to which the Company shall cause to be
nominated for, and Randolph Pentel agrees to vote all of the Common Stock
beneficially owned by him in favor of, the election of one (1) individual to be
designated from time to time by the Investor as a member of the Company’s Board
of Directors (the “Designated Director”), to serve until such time as the
Investor no longer hold any of the Shares, Warrants or Warrant Shares.  The Company also agrees that, within fifteen
(15) days following the Closing, it shall undertake to cause its Board of
Directors to perform all steps necessary (including, if appropriate, an action
to increase the size of the board to create a directorship vacancy as permitted
by Section 3.11 of the 


15






Company’s Bylaws),
to appoint the Designated Director to serve as a director of the Company until
the Company’s next annual meeting of shareholders or until his or her successor
is duly elected and qualified.


          5.8
Taxes.  The Company will promptly pay and discharge,
or cause to be paid and discharged, when due and payable, all lawful taxes,
assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company; provided, however, that any such
tax, assessment, charge or levy need not be paid if the validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company shall have set aside on its books adequate reserves with respect
thereto, except that the Company will pay all such contested taxes,
assessments, charges or levies immediately upon the commencement of proceedings
to foreclose any lien which may have attached as security therefore.


          5.9
Insurance.  The Company will keep its assets which are of
an insurable character insured by financially sound, duly licensed and
reputable insurers against loss or damage by fire, explosion and other risks
customarily insured against by companies in the Company’s line of business and
not in any event less than 100% of the insurable value of the property insured;
and the Company will maintain, with financially sound, duly licensed and
reputable insurers, insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated and to the extent available on
commercially reasonable terms.


          5.10
Books and Records.  The Company will keep true records and books
of account in which full, true and correct entries will be made of all dealings
or transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.


          5.11
Governmental Authorities.  The Company shall duly observe and conform to
all applicable requirements of governmental or quasi-governmental authorities
relating to the conduct of its business or to its properties or assets.


          5.12
Intellectual Property.  The Company shall maintain in full force and
effect its corporate existence, rights and franchises and all licenses and
other rights to use intellectual property owned or possessed by it and
reasonably deemed to be necessary to the conduct of its business.


          5.13
Properties.  The Company will keep its properties in
good repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will at all
times comply with each provision of all leases to which it is a party or under
which it occupies property if the breach of such provision could reasonably be
expected to have a material adverse effect


          5.14
Correctness of Representations.
 The Company represents that the
foregoing representations and warranties are true and correct as of the date
hereof and, unless the Company otherwise notifies the Investor prior to the
Closing Date (as hereinafter defined), shall be true and correct as of the
Closing Date.


SECTION 6


Investor’s Closing Conditions


The Investor’s
obligation to purchase the Securities at a Closing is subject to the
fulfillment, on or before such Closing, of each of the following conditions,
unless waived by such Investor:


16






          6.1
Representations and Warranties.  The representations and warranties made
by the Company in Section 3 (as modified by the disclosures on the
Schedule of Exceptions which may be updated from time to time in connection
with the Closing) will be true and correct in all respects as of the Closing.


          6.2
Covenants.  All covenants, agreements, and
conditions contained in this Agreement to be performed by the Company on or
before the Closing will have been performed or complied with in all material
respects on or before such Closing.


          6.3
Blue Sky.  The Company will have received all
necessary Blue Sky law permits and qualifications, or have available
corresponding exemptions, as required by any state for the offer and sale of
the Shares and the Common Stock issuable upon conversion of the Shares.


          6.4
Due Diligence.  The
Investor will have completed, as determined in its sole discretion, the
Investor’s legal and financing due diligence review of the Company, and such
review will have been determined by the Investor to be satisfactory. 


          6.5
Convertible Debt.  The Company’s outstanding indebtedness
owed to Randolph M. Pentel together with all accrued but unpaid interest
thereon, which totals $871,865.89 as of May 1, 2006, will have converted into
shares and warrants to purchase shares of the Company’s Common Stock at the
same price per share and warrant paid by the Investor for the purchase of
Shares and Warrants hereby, and the Investor will have received satisfactory
evidence thereof; provided that such shares and warrant shares received by
Randolph M. Pentel upon the completion of the foregoing conversion shall be
subject to and entitled to the benefits of the Registration Rights Agreement,
in the form attached hereto as Exhibit C, to the same extent as the
Investor’s Shares and Warrant Shares, and Randolph  M. Pentel shall be party to such Registration Rights
Agreement.  


          6.6 Registration Rights Agreement.  The
Company, Randolph M.
Pentel and the Investor will have executed and delivered the Registration
Rights Agreement in the form attached as Exhibit C, which shall be in a
form acceptable to the Investor in its sole discretion.


          6.7 Voting Agreement.  The Company,
Randolph M. Pentel and the
Investor will have executed and delivered the Voting Agreement and Irrevocable
Proxy in the form attached as Exhibit C, which shall be in a form
acceptable to the Investor in its sole discretion.


          6.8
Reservation of Shares of Conversion Stock.  The Shares and Warrant Shares shall have
been duly authorized and reserved for issuance.


          6.9
Payment of Fees.  All fees required to be paid at the
Closing under Section 8.4 shall have been paid.


          6.10
[Intentionally Omitted]


          6.11
Compliance Certificate.  The Company will have delivered to
counsel for the Investor, a certificate, executed on the Company’s behalf by
the Company’s Chief Financial Officer, in substantially the form attached as Exhibit F,
certifying the satisfaction of the closing conditions listed in
Section 6.1 and Section 6.2.


          6.12
Legal Opinion.  The Investor will have received from the
Company’s legal counsel a legal opinion, dated as of the Effective Date, in
substantially the form attached as Exhibit G.


17






          6.13
Secretary’s Certificate.  The Company will have delivered to
counsel for the Investor, a certificate, executed on the Company’s behalf by
the Company’s Secretary, in substantially the form attached as Exhibit H.  


          6.14
Consents; Permits and Waivers.  The Company shall have obtained any and
all consents, authorizations, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by this Agreement and the other
Transaction Agreements.


          6.15
Proceedings and Documents.  The Investor’s counsel will have
reasonably approved (a) all proceedings undertaken in connection with the
transactions contemplated by the Transaction Agreements and (b) all
documents and instruments incident to such proceedings.


SECTION 7


The Company’s Closing Conditions


The Company’s
obligation to sell and issue the Securities at the Closing is subject to the
fulfillment on or before the Closing of the following conditions, unless waived
by the Company:


          7.1
Representations and Warranties.  The representations and warranties
contained in Section 4 of the Investor at the Closing will be true and
correct when made and will be true and correct as of the date of such Closing.


          7.2
Covenants.  All covenants, agreements, and
conditions contained in the Transaction Agreements to be performed by Investor
on or before the Closing will have been performed or complied with in all
material respects as of the Closing.


          7.3
Compliance with Securities Laws.  The Company will be satisfied that the
offer and sale of the Securities will be qualified or exempt from registration
or qualification under all applicable federal and state securities laws.


          7.4
Registration Rights Agreement.  The Company, Randolph M. Pentel and the
Investor will have executed and delivered the Registration Rights Agreement in
the form attached as Exhibit C. 


          7.5
[Intentionally Omitted]


          7.6
Consents and Waivers.  The Company will have received any and
all consents, permits, and waivers necessary or appropriate for consummating
the transactions contemplated by the Transaction Agreements.


          7.7
Proceedings and Documents.  The Company’s counsel will have
reasonably approved (a) all corporate proceedings and other proceedings
undertaken in connection with the transactions contemplated by the Transaction
Agreements at the Closing, and (b) all documents and instruments incident
to such proceedings.


18






SECTION 8


Miscellaneous


          8.1 Opinion.  The offer and sale of the
Securities is being
made pursuant to the exemption from the registration provisions of the
Securities Act of 1933, as amended, afforded by Rule 506 of Regulation D
promulgated thereunder.  On the Closing
Date, the Company will provide an opinion reasonably acceptable to the Investor
from the Company’s legal counsel opining on the availability of the Regulation
D exemption as it relates to the offer and issuance of the Securities.  A form of the legal opinion is annexed
hereto as Exhibit G.  The Company
will provide, at the Company’s expense, such other legal opinions in the future
as are reasonably necessary for the exercise of the Warrants.


          8.2
Amendment.  Except as expressly provided in this
Agreement, neither this Agreement nor any term of this Agreement may be
amended, waived, discharged, or terminated other than by a written instrument
referencing this Agreement and signed by the Company and the Investor. 


          8.3
Notices.  All notices and other communications
required or permitted under this Agreement or under any other Transaction
Agreement will be in writing and will be mailed by registered or certified
mail, postage prepaid, sent by facsimile, sent by electronic mail, or otherwise
delivered by hand or by messenger addressed:



                    (a)
if to the Company, to:


	
 

	
 

	
 


	
 

	
CapSource
  Financial, Inc.

	
CapSource
  Financial, Inc.


	
 

	
2305 Canyon
  Boulevard

	
1729 Donegal
  Drive


	
 

	
Suite 103

	
Woodbury, MN
  55125


	
 

	
Boulder, CO
  80302

	
Attn: Steven
  Reichert, Secretary


	
 

	
Attn:  Fred C. Boethling, CEO

	
Facsimile
  number: (651) 578-6614


	
 

	
Facsimile
  number:  (303) 245-0521

	
 


	
 

	
 

	
 


	
 

	
with a copy
  by facsimile only to:

	
 


	
 

	
 

	
 


	
 

	
Rider
  Bennett LLP

  33 South 6th St.

  Minneapolis, MN 55402

  Attn:  David B. Dean

  Facsimile number:  (612) 337-7616

	
 


	
 

	
 

	
 





                    (b)
if to the Investor, to the name, address and telecopy number set forth on Exhibit
A for the Investor.


                    (c)
Each such notice or other communication will, for all purposes of this
Agreement and the other Transaction Agreements, be treated as effective or
having been given when delivered if delivered personally, or, if sent by mail,
at the earlier of its receipt or 72 hours after such communication has been
deposited in a regularly maintained receptacle for the deposit of the United
States mail, addressed and mailed as specified above or, if sent by facsimile,
upon confirmation of facsimile transfer or, if sent by electronic mail, when
directed to the electronic mail address set forth on Exhibit A.


19






          8.4
Payment of Fees; Option.


                    (a)
Legal Fees of Investor.  The Company shall pay to legal counsel for
the Investor all legal fees and expenses incurred by the Investor and its
advisors, Whitebox Advisors, LLC (“Whitebox
Advisors”), in connection with this Agreement, the other Transaction
Agreements and the Registration Statement, including but not limited to any and
all fees and expenses related to due diligence or other matters relating to or
arising out of any of the foregoing.


                    (b)
Origination Fee; Option to Purchase
Additional Securities.  


                              (i)The
Company will pay to
Whitebox Advisors an origination fee equal to two percent (2%) of the Purchase
Price for the Securities sold pursuant to this Agreement (“Origination Fee”). The Origination Fee
shall be paid to Whitebox Advisors on the Closing Date by wire transfer to the
account so designated by Whitebox Advisors. 


                              
(ii) For a period of 180 days from the Closing Date, the Investor will have the
option, in its sole discretion, to subscribe for and purchase from the Company
an additional 375,000 Shares at a purchase price of $.40 per share and a
Warrant to purchase 375,000 Warrant Shares with an exercise price of $.90 per
share. Upon subscription for and purchase of such additional Shares and
Warrants, the Company will issue and deliver to the Investor, certificates
representing the Shares along with a Warrant for the purchase of such Warrant
Shares in form of attached hereto as Exhibit B.


                    
(c) Indemnification for Fees.
The Company on the one hand, and the Investor on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any other persons claiming brokerage commissions, finder’s fees
or other similar payments, except as specified in Section 8.4(b) above, on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby and arising out of such party’s actions. Except as set
forth in Section 8.4(b) or on Schedule 3.23, the Company represents
that there are no other parties entitled to receive fees, commissions, or
similar payments in connection with this Agreement.


          8.5
Governing Law. This
Agreement will be governed in all respects by the internal laws of the State of
Minnesota as applied to agreements entered into among Minnesota residents to be
performed entirely within Minnesota, without regard to Minnesota
conflicts-of-law principles.


          8.6
Survival. The
representations, warranties, covenants, and agreements made in this Agreement
will survive any investigation made by any Party and the closing of the
transactions contemplated by this Agreement.


          8.7
Successors and Assigns. This
Agreement, and any and all rights, duties, and obligations under this
Agreement, will not be assigned, transferred, delegated, or sublicensed by any
Party without the other Party’s prior written consent. Any attempt by any Party
without such prior written consent to assign, transfer, delegate, or sublicense
any rights, duties, or obligations that arise under this Agreement will be
void. Subject to the foregoing and except as otherwise provided in this
Agreement, the provisions of this Agreement will inure to the benefit of, and
be binding upon, the Parties’ respective successors, assigns, heirs, executors,
and administrators.


          8.8
Entire Agreement. The
Transaction Agreements constitute the full and entire understanding and
agreement between the Parties with regard to the subject matter hereof and
thereof, and no Party will be liable or bound to any other Party in any manner
with regard to the subject matter hereof 


20






or thereof by
any warranties, representations, or covenants, in each case except as specifically
set forth in the Transaction Agreements.


          8.9
Delays or Omissions. Except
as expressly provided in this Agreement, no delay or omission to exercise any
right, power, or remedy accruing to any Party upon any breach or default of any
other Party under this Agreement will impair any such right, power, or remedy
of such non-defaulting Party, nor will such delay or omission be construed to
be a waiver of any such breach or default, or an acquiescence in such breach or
default, or of or in any similar breach or default subsequently occurring, nor
will any waiver of any single breach or default be deemed a waiver of any other
previous or subsequent breach or default. Any waiver, permit, consent, or
approval of any kind or character on the part of any Party of any breach or
default under this Agreement, or any waiver on the part of any Party of any
provisions or conditions of this Agreement, must be in writing and will be
effective only to the extent specifically set forth in such writing. All remedies,
either under this Agreement or by law or otherwise afforded to any Party, will
be cumulative and not alternative.


          8.10
Severability. Unless
otherwise expressly provided in this Agreement, each Investor’s rights under
this Agreement and under the other Transaction Agreements are several rights,
not rights jointly held with any of the other Investors. If any provision of
this Agreement becomes or is declared by a court of competent jurisdiction to
be illegal, unenforceable, or void, then this Agreement will continue in full
force and effect without such illegal, unenforceable, or void provision, and
the Parties agree to negotiate, in good faith, a legal and enforceable
substitute provision which most nearly effects the Parties’ intent in entering
into this Agreement as expressed in this Agreement.


          8.11
Titles and Subtitles. The
titles and subtitles used in this Agreement are used for convenience only and
are not to be considered in construing or interpreting this Agreement. All references
in this Agreement to sections, paragraphs, exhibits, and schedules will, unless
otherwise provided, refer to sections and paragraphs of this Agreement and
exhibits and schedules attached to this Agreement.


          8.12
Counterparts. This
Agreement may be executed in any number of counterparts, each of which will be
enforceable against the Parties actually executing such counterparts, and all
of which together will constitute one instrument.


          8.13
Facsimile Execution and Delivery.
A facsimile or other reproduction of this Agreement and/or the other
Transaction Agreements may be executed by one or more Parties, and an executed
copy of this Agreement and/or the other Transaction Agreements may be delivered
by one or more Parties by facsimile or similar electronic transmission device
pursuant to which the signature of or on behalf of such Party can be seen, and
such execution and delivery will be considered valid, binding, and effective
for all purposes. At any Party’s request, all Parties agree to execute an
original of this Agreement and/or any other Transaction Agreements as well as
any facsimile or other reproduction hereof and/or thereof.


          8.14
Jurisdiction and Venue. With
respect to any disputes arising out of or related to this Agreement or to any
other Transaction Agreement, the Parties consent to the exclusive jurisdiction
of, and venue in, the state courts in Hennepin County, Minnesota (or, in the
event of exclusive federal jurisdiction, the federal courts of the District of
Minnesota).


          8.15
Further Assurances. Each
Party agrees to execute and deliver, by the proper exercise of such Party’s
corporate, limited liability company, partnership, or other powers, all such
other and additional instruments and documents and do all such other acts and
things as may be necessary to more fully perform this Agreement.


21






          8.16
Construction. The Parties
have participated jointly in negotiating and drafting this Agreement and the
other Transaction Agreements. If any ambiguity, question of intent, or question
of interpretation arises with respect to this Agreement or any other
Transaction Agreement, then this Agreement or that other Transaction Agreement
will be construed as if drafted jointly by the Parties, and no presumption or
burden of proof will arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement or of any other
Transaction Agreement. As used in this Agreement and in the other Transaction
Agreements, the word “including” means “including, without limitation.”


[signature page follows]


22






The Parties
have executed this Securities Purchase Agreement as of the Effective Date.


	
 

	
 

	
 


	
 

	
CAPSOURCE FINANCIAL, INC.,


	
 

	
 

	
 


	
 

	
By:

	
 


	
 

	
 

	



	
 

	
 

	
Steven
  Reichert


	
 

	
 

	
Vice
  President and Secretary


	
 

	
 

	
 


	
 

	
INVESTOR:


	
 

	
 

	
 


	
 

	
PANDORA SELECT PARTNERS L.P.


	
 

	
 

	
 


	
 

	
By:

	
 


	
 

	
 

	



	
 

	
 

	
Jonathan D.
  Wood


	
 

	
 

	
Chief
  Financial Officer





23






EXHIBIT
A


Schedule
of Investor


	
 

	
 

	
 

	
 

	
 


	
Investors

	
 

	
Securities Being Acquired

	
 

	
Purchase Price


	


	
 

	


	
 

	



	
 

	
 

	
 

	
 

	
 


	
Pandora Select Partners L.P.
3033 Excelsior Boulevard, Suite 300

  Minneapolis, Minnesota 55416

  Attn: Jonathan Wood

  Facsimile number: (612) 253-6151

	
 

	
2,500,000 Shares and a 
warrant to purchase 2,500,000 Shares

	
 

	
$1,000,000





A-1






EXHIBIT
B


Form
of Warrant



See Exhibit 4.4 to this Current Report on Form 8-K/A.



B-1






EXHIBIT
C


Form
of Registration Rights Agreement



See Exhibit 4.1 to this Current Report on Form 8-K/A.



C-1






EXHIBIT
D


Form
of Voting Agreement and Irrevocable Proxy



See Exhibit 4.5 to this Current Report on Form 8-K/A.



D-1






EXHIBIT E


Wire Transfer Instructions*








	*  	Portions
of this document have been omitted pursuant to a request for confidential treatment. Such
material has been filed separately with the Securities and Exchange Commission.  












E-1







EXHIBIT
F


Form
of Compliance Certificate


(attached)


F-1










CAPSOURCE FINANCIAL, INC.


COMPLIANCE CERTIFICATE


 


This Compliance Certificate is delivered pursuant to Section 6.11 of that certain Securities Purchase Agreement dated as of May 1, 2006 (the “Agreement”) by and among CapSource Financial, Inc., a Colorado corporation (the “Company”) and the Investor listed on Exhibit A to the Agreement.  Unless otherwise defined herein, capitalized terms used herein have the meaning ascribed to them in the Agreement.


The undersigned hereby certifies that:


1.           The representations and warranties set forth in Section 3 of the Agreement (as modified by the disclosures on the Schedule of Exceptions)  are true and correct in all respects at and as of the date hereof.  


2.           The Company has performed or complied in all respects with all of the covenants, agreements and conditions required to be performed by it under the Agreement as of the date hereof.


3.           The Agreement and other Transaction Agreements to which the Company is a party have been duly executed and delivered on behalf of the Company by Steven Reichert, as Vice President and Secretary of the Company, who was duly elected or appointed, qualified and authorized to act in such capacity at the time of the execution and delivery thereof. 


 





	
            
 Dated:  
 	
            May 1, 2006
 	
             
 	
             
 	
              
 
	
             
 	
             
 	
             
 	
            Steven J. Kutcher

Chief Financial Officer
 





 





-1-






EXHIBIT G


Form of Legal Opinion



See Exhibit G to Exhibit 10.1 to this Current Report on Form 8-K/A.



G-1






EXHIBIT H


Form of Secretary’s Certificate


See Exhibit H to Exhibit 10.1 to this Current Report on Form 8-K/A.


H-1









CAPSOURCE FINANCIAL, INC.


SECRETARY’S CERTIFICATE


 


This Secretary’s Certificate is delivered pursuant to Section 6.13 of that certain Securities Purchase Agreement dated as of May 1, 2006 (the “Agreement”) by and among CapSource Financial, Inc., a Colorado corporation (the “Company”) and the Investor listed on Exhibit A to the Agreement.  Unless otherwise defined herein, capitalized terms used herein have the meaning ascribed to them in the Agreement.


The undersigned hereby certifies that:


1.           Attached hereto as Exhibit A are true, correct and complete copies of the resolutions duly adopted by the Board of Directors of the Company on April 21, 2006, authorizing the execution, delivery and performance by the Company of the Agreement and the other Transaction Agreements to which the Company is a party and the consummation of all the transactions contemplated thereby.  Such resolutions have not been amended or rescinded since the date thereof.  


2.           Attached hereto as Exhibit B is a true, correct and complete copy of the Company’s Bylaws.  The Bylaws have been duly adopted and have not been modified, amended or rescinded since the date thereof. 


 





	
            
 Dated:  
 	
            May 1, 2006
 	
             
 	
             
 	
              
 
	
             
 	
             
 	
             
 	
            Steve Reichert, Secretary
 







 


-1-













Schedules to Exhibit 10.2*  



	*  	See schedules to Exhibit 10.1, filed herewith.