Exhibit 4.1 to CapSource Financial, Inc. Form 8-K/A Amendment 3 dated May 1, 2006








Exhibit 4.1  


EXHIBIT C

to Securities Purchase Agreement dated May 1, 2006


CAPSOURCE FINANCIAL, INC.


REGISTRATION RIGHTS AGREEMENT


May 1, 2006







TABLE OF CONTENTS


	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
  


  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 1

  	
   

  	
  SECURITIES TRANSFER RESTRICTIONS AND REGISTRATION RIGHTS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.1

  	
   

  	
  Transfer
  Restrictions

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.2

  	
   

  	
  Registration

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.3

  	
   

  	
  Registration
  Expenses

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.4

  	
   

  	
  Registration
  Procedures

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.5

  	
   

  	
  Indemnification

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.6

  	
   

  	
  Information
  by Holder

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.7

  	
   

  	
  Rule 144
  Reporting

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.8

  	
   

  	
  Registration
  Rights Transfers and Assignments

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.9

  	
   

  	
  Non-Registration
  Event

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2

  	
   

  	
  MISCELLANEOUS

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  Certain Definitions

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.2

  	
   

  	
  Amendment
  and Waiver

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.3

  	
   

  	
  Notices

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.4

  	
   

  	
  Governing
  Law

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.5

  	
   

  	
  Successors
  and Assigns

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.6

  	
   

  	
  Entire
  Agreement

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.7

  	
   

  	
  Delays or
  Omissions

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.8

  	
   

  	
  Severability

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.9

  	
   

  	
  Titles and
  Subtitles

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.10

  	
   

  	
  Counterparts

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.11

  	
   

  	
  Telecopy
  Execution and Delivery

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.12

  	
   

  	
  Jurisdiction;
  Venue

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.13

  	
   

  	
  Further
  Assurances

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.14

  	
   

  	
  Construction

  	
   

  	
  12

  



i






CAPSOURCE FINANCIAL, INC.


REGISTRATION RIGHTS AGREEMENT


This
Registration Rights Agreement (this “Agreement”),
dated May 1, 2006 (the “Effective Date”),
is executed by and among CapSource Financial, Inc., a Colorado corporation (the
“Company”), the investors
identified on Exhibit A (collectively, the “Investors” and each individually an
“Investor”) and Randolph M. Pentel (“Pentel”). The Company, Pentel and the
Investors are each individually referred to in this Agreement as a “Party,” and are collectively referred
to in this Agreement as the “Parties.”
Capitalized terms used herein and not otherwise defined are defined in
Section 2.1.


RECITALS


Each of the
Investors and the Company are parties to a Securities Purchase Agreement, dated
as of the Effective Date and executed by and between the Company and each
Investor, and the Parties’ rights and obligations under each Securities
Purchase Agreement are conditioned upon the execution and delivery of this
Agreement by the Investors, Pentel and the Company.


AGREEMENT


In
consideration of the mutual promises and covenants set forth in this Agreement
and the Securities Purchase Agreement, the Company, Pentel and the Investors
agree as follows:


Section 1


Securities Transfer Restrictions and
Registration Rights.


          1.1
Transfer Restrictions.


                    (a)
Each Holder agrees not to make any disposition of all or any portion of the
Registrable Securities unless and until the transferee has agreed in writing
for the Company’s benefit to be bound by this Section 1.1; provided that
and to the extent that this Section 1.1 is then applicable, and provided
further that:


                              (i)
a registration statement under the Securities Act is then effective, which
effective registration statement covers such proposed disposition and such
disposition is made in accordance with such effective registration statement;
or


                              (ii)
such Holder will have notified the Company of the proposed disposition and such
Holder will have furnished the Company with an opinion of counsel, reasonably
satisfactory to and at the sole expense of the Company, that such disposition
will not require registration of such Registrable Securities under the
Securities Act.


                              (iii)
Such Holder will have executed and delivered to the Company a document
reasonably acceptable to the Company confirming that such transferee takes such
Shares subject to all the terms and conditions of this Agreement and the
Securities Purchase Agreement in form and substance reasonably satisfactory to the
Company.


                              (iv)
Notwithstanding the provisions of Section 1.1(a)(i) and Section l.l(a)(ii),
no such registration statement or opinion of counsel will be necessary for a
transfer by a Holder (A) that is a partnership if such transfer is made to
such Holder’s partners or retired partners in 






accordance
with partnership interests, (B) that is a corporation if such transfer is
made to such corporation’s stockholders in accordance with such stockholders’
interest in such corporation, (C) that is a limited liability company if
such transfer is made to such limited liability company’s members or former
members in accordance with such members’ interest in the limited liability
company, or (D) who is an individual if such transfer is made to such
Holder’s family member or to such Holder’s trust for the benefit of such Holder
or such Holder’s family member, or (E) if such transfer is made to such
Holder’s affiliate (including, in the case of a private equity fund, other
private equity funds affiliated with such fund); provided that, in each case,
(A) the transferee will be subject to the terms of this Section 1.1
to the same extent as if such transferee were an original Holder under this
Agreement, and (B) such transferee be an “accredited investor” and that
Registrable Securities have been held for at least twelve months from the date
of the original acquisition thereof.


                    (b)
Unless otherwise specified by the provisions of this Agreement, each
certificate representing Registrable Securities will be stamped or otherwise
imprinted with a legend substantially similar to the following legend (in
addition to any legend required under applicable state securities laws):


	
   

  	
   

  
	
   

  	
  THE
  SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
  SECURITIES ACT OF 1933, AS AMENDED OR UNDER STATE SECURITIES LAWS. THESE
  SECURITIES MAY NOT BE SOLE, 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.

  



                    (c)
At any Holder’s request, the Company will be obligated to reissue to such
Holder certificates without the legend specified in Section 1.1(c) if the
Company will have (i) received an opinion of counsel at such Holder’s
expense (which counsel may be the Company’s counsel) reasonably acceptable to
the Company to the effect that the securities proposed to be disposed of may lawfully
be disposed of without registration, qualification, or legend and
(ii) delivered such securities to the Company or to the Company’s transfer
agent.


                    (d)
Any legend endorsed on an instrument pursuant to applicable state securities laws
and the stop-transfer instructions with respect to such securities will be
removed when the Company receives an order of the appropriate state securities
law authority authorizing such removal.


          1.2
Registration. The Company shall: 



                    (a)
Prepare and file with the Commission, within 60 days after the Closing Date (as
that term is defined in the Securities Purchase Agreement) (the “Filing Date”),
a registration on Form SB-2, Form S-3 or such other form of registration
statement as may be required by the Securities Act or as may be deemed
appropriate by the Company and the Investors (the “Registration Statement”) to
enable the resale of the Registrable Securities by the Holders from time to
time on the OTC Bulletin Board or in privately-negotiated transactions;  


2






          1.3
Registration Expenses.


The Company
will pay for all Registration Expenses incurred by the Holders in connection
with the Registration Statement. All Selling Expenses in connection with the
Registration Statement shall be borne by the Holders as the Holders may agree. 


          1.4
Registration Procedures.


The Company
will keep each Holder advised in writing as to the status of the Registration
Statement. At the Company’s expense, the Company will:


                    (a)
cause the Registration statement to become effective on or prior to the 180th
calendar day after the Closing Date (the “Required Effective Date”);


                    (b)
promptly and without delay prepare and file with the Commission, and
concurrently provide copies to the Holder, such amendments and supplements to
the Registration Statement and the prospectus used in connection therewith as
may be necessary to keep the Registration Statement current, effective and free
from any material misstatement or omission to state a material fact for a
period not exceeding, with respect to each Investor’s Registrable Securities,
the earlier of the (i) second anniversary of the effective date of the
Registration Statement, (ii) the date on which the Investor may sell all
Registrable Securities then held by the Holder without restriction by the
volume limitations of Rule 144(e) of the Securities Act, or (iii) such time as
all Registrable Securities have been sold pursuant to a registration statement;



                    (c)
furnish such number of prospectuses and other documents incident to such
prospectus, including any prospectus amendment or prospectus supplement, as a
Holder from time to time may reasonably request;


                    (d)
register and qualify the securities covered by such registration statement
under such other securities or Blue Sky laws of such jurisdictions as will be
reasonably requested by the Holders; provided that the Company will not be
required, in connection with any such registration and qualification or as a
condition to any such registration and qualification, to qualify to do business
or to file a general consent to service of process in any such states or
jurisdictions;


                    (e)
notify each Holder of Registrable Securities covered by such Registration
Statement at any time when a prospectus relating to such Registration Statement
is required to be delivered under the Securities Act or the occurrence of any
event as a result of which the prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing;


                    (f)
notify each Holder, promptly after it shall receive notice or obtain knowledge
thereof, of the issuance of any stop order by the Commission suspending the
effectiveness of such Registration Statement or the initiation or threatening
of any proceeding for that purpose and promptly use its best efforts to prevent
the issuance of any stop order or to obtain its withdrawal if such stop order
should be issued;


                    (g)
at the request of any such Holder, furnish: (i) at the sole expense of the
Company, an opinion dated as of the closing date of the counsel representing
the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the holder or holders making such request, covering
such matters as such underwriters and holder or holders may reasonably request;



3






and
(ii) letters dated as of the effective date of the Registration Statement
and as of the closing date, from the independent certified public accountants
of the Company, addressed to the underwriters, if any, and to the holder or
holders making such request, covering such matters as such underwriters and
holder or holders may reasonably request;


                    (h)
provide a transfer agent and registrar for all Registrable Securities
registered pursuant to this Agreement and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
Registration Statement; and


                    (i)
cause all such Registrable Securities registered pursuant to this Agreement to
be listed on the OTC Bulletin Board or such similar exchange on which
securities issued by the Company are then listed.


          1.5
Indemnification.


                    (a)
Company Indemnification. The Company will indemnify each Holder, and
each Holder’s officers, directors, members, governors, employees, partners,
legal counsel, and accountants, and each person controlling such Holder within
the meaning of Section 15 of the Securities Act with respect to any
registration, qualification, or compliance effected pursuant to this
Section 1, and each underwriter, if any, and each person who controls,
within the meaning of Section 15 of the Securities Act, any underwriter,
against all expenses, claims, losses, damages, and liabilities (or actions,
proceedings, or settlements in respect of such expenses, claims, losses,
damages, and liabilities) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular, or other document (including any related registration
statement, notification, or similar document) incident to any such
registration, qualification, or compliance, or based on any omission (or
alleged omission) to state in such document a material fact required to be
stated in such document or necessary to make the statements in such document
not misleading, or any violation by the Company of the Securities Act and any
applicable state securities laws or any rule or regulation under the Securities
Act or state securities laws applicable to the Company and relating to action
or inaction required of the Company in connection with any such registration,
qualification, or compliance, and will reimburse each such Holder, and each of
such Holder’s officers, directors, partners, legal counsel, and accountants,
and each person controlling such Holder, and each such underwriter, and each
person who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending or settling
any such claim, loss, damage, liability, or action; provided that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage, liability, or expense arises out of or is based on any untrue statement
or omission based upon written information furnished to the Company by such
Holder or underwriter and stated to be specifically for use in such document.
The Parties expressly agree and acknowledge that the indemnity agreement
contained in this Section 1.5(a) will not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the Company’s consent (which consent will not be
unreasonably withheld, delayed or conditioned).


                    (b)
Holder Indemnification. Each Holder will, if Registrable Securities held
by such Holder are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify the Company, and each
of the Company’s directors, officers, legal counsel, and accountants, and each
underwriter, if any, of the Company’s securities covered by such a registration
statement, and each person who controls the Company or such underwriter within
the meaning of Section 15 of the Securities Act, and each other such
Holder, and each of their respective officers, directors, and partners, and
each person controlling such Holder or other Company stockholder, against all
claims, losses, damages, and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any such registration 


4






statement,
prospectus, offering circular, or other document, or any omission (or alleged
omission) to state in such document a material fact required to be stated in
such document or necessary to make the statements in such document not
misleading, and will reimburse the Company, and such Holders, and directors,
officers, legal counsel, and accountants, and underwriters, and control persons
for any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability, or action,
in each case to the extent, but only to the extent, that such untrue statement
(or alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular, or other document in
reliance upon and in conformity with written information furnished to the
Company by such Holder and stated to be specifically for use in such document;
provided that such Holder’s obligations under this Section 1.5(b) will not
apply to amounts paid in settlement of any such claims, losses, damages, or
liabilities (or actions in respect of such claims, losses, damages, or
liabilities) if such settlement is effected without such Holder’s consent
(which consent will not be unreasonably withheld, delayed or conditioned); and
provided further that in no event will any indemnity under this
Section 1.5(b) exceed the net proceeds. For purposes of this
Section 1.5(b) and Section 1.5(d), the term “net proceeds,” with
respect to any particular Holder, means the proceeds from the offering received
by such Holder after deducting underwriters’ commissions, discounts, and
expenses attributable the securities sold by such Holder.



                    (c)
Indemnification Procedures. Each Party entitled to indemnification under
this Section 1.5 (the “Indemnified Party”) will give notice to the
Party required to provide indemnification (the “Indemnifying Party”)
promptly after such Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and will permit the Indemnifying Party to assume
the defense of such claim or any litigation resulting from such claim; provided
that counsel for the Indemnifying Party who will conduct the defense of such
claim or any litigation resulting from such claim, will be approved by the
Indemnified Party (whose approval will not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such Indemnified Party’s
expense. Notwithstanding the foregoing, any Indemnified Party’s failure to give
notice as provided in this Section 1.5(c) will not relieve the Indemnifying
Party of the Indemnifying Party’s obligations under this Section 1 to the
extent such failure is not prejudicial. No Indemnifying Party, in the defense
of any such claim or litigation, will, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term of such judgment or
such settlement the claimant’s or plaintiff’s release of such Indemnified Party
from all liability in respect to such claim or litigation. Each Indemnified
Party will furnish such information regarding such Indemnified Party or the
claim in question as an Indemnifying Party may reasonably request in writing
and as will be reasonably required in connection with defense of such claim and
litigation resulting from such claim.  


                    (d)
Indemnification Unavailability. If the indemnification provided for in
this Section 1.5 is held by a court of competent jurisdiction to be
unavailable to an Indemnified Party with respect to any loss, liability, claim,
damage, or expense referred to in this Section 1.5, then the Indemnifying
Party, instead of indemnifying such Indemnified Party under Section 1.5(a)
or Section 1.5(b), will contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party, on the one hand, and of the Indemnified Party, on the
other hand, in connection with the statements or omissions that resulted in
such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations; provided, however, that in no event will any
contribution by a Holder under this Section 1.5(d) exceed the net proceeds
(as defined in Section 1.5(b)). The relative fault of the Indemnifying
Party and of the Indemnified Party will be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the Parties’


5






relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.


          1.6
Information by Holder.


Each Holder
will furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as will be reasonably required in connection with any registration,
qualification, or compliance referred to in this Section 1.


          1.7
Rule 144 Reporting.


With a view to
making available the benefits of certain Commission rules and regulations that
may permit the sale of the Restricted Securities to the public without
registration, the Company agrees to:


                    (a)
file with the Commission in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act at any
time after the Company has become subject to such reporting requirements;


                    (b)
so long as a Holder owns any Restricted Securities, furnish to the Holder,
promptly upon the Holder’s written request, a written statement by the Company
as to the Company’s compliance with the reporting requirements of Rule 144
and of the Securities Act and the Exchange Act, a copy of the Company’s most
recent annual or quarterly report, and such other reports and documents so
filed as a Holder may reasonably request in taking advantage of any Commission
rule or regulation allowing a Holder to sell any such securities without
registration.


          1.8
Registration Rights Transfers and Assignments.


The Holder’s
rights to cause the Company to register securities under this Section 1
may be transferred or assigned only by a Holder (a) that is a partnership
if such transfer is made to such Holder’s partners or retired partners in
accordance with partnership interests, (b) that is a corporation if such
transfer is made to such corporation’s stockholders in accordance with such
stockholders’ interest in such corporation, (c) that is a limited
liability company if such transfer is made to such limited liability company’s
members or former members in accordance with such members’ interest in the limited
liability company, (d) if such transfer is made to such Holder’s family
member or trust for the benefit of an individual Holder and (e) if such
transfer is made to an affiliate of the Holder (including, in the case of a
private equity fund, other private equity funds affiliated with such fund);
provided that, in each case, the Company is given written notice at the time of
or within a reasonable time after such transfer or assignment, stating the name
and address of the transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned;
and provided further that the transferee or assignee of such rights assumes in
writing such Holder’s obligations under this Section 1.


          1.9
Non-Registration Event.


The Company
acknowledges and agrees that the Holder(s) will suffer material damages if the
Registration Statement is not declared effective by the Commission within 180
days after the Closing Date and maintained in the manner and within the time
periods contemplated by Section 1 hereof, and it would not be feasible to
ascertain the extent of such damages with precision. Accordingly, if the
Registration Statement is not declared effective by the Commission on or prior
to the date that is 180 days after the Closing Date (the “Non-Registration
Event”), then, for so long as the Non-Registration Event shall continue, the
Company shall pay to each Investor as liquidated damages for each month during
the pendency of such Non-Registration Event an amount equal to one (1%) percent
per month (or part  


6






thereof) of
the aggregate purchase price paid for the Shares and, if exercised, the Warrant
Shares in accordance with the terms of the Securities Purchase Agreement.
Payments to be made pursuant to this Section 1.9 shall be due and payable to
the Investors in immediately available funds within ten (10) business days
after receipt of written demand from an Investor. 


          1.10
Reissuance of Securities.  


The Company
agrees to reissue certificates representing the Registrable Securities without
the legends set forth in Sections 3(e) and 3(f) above at such time as (a) the
holder thereof is permitted to and disposes of such Registrable Securities
pursuant to Rule 144(d) and/or Rule 144(k) under the Securities Act in the
opinion of counsel reasonably satisfactory to the Company, or (b) upon resale
subject to an effective registration statement after the Registrable Securities
are registered under the Securities Act (provided that any certificate representing
Securities so registered may bear a legend relating to the prospectus delivery
requirements). The Company agrees to cooperate with the Holder in connection
with all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal
opinions necessary to allow such resales provided the Company and its counsel
receive all reasonably requested written representations from the Holder and
selling broker, if any, as well as to obtain, at the Company’s expense, the
necessary clearance by the NASD to permit NASD member firms to participate in
such resales following registration of the Registrable Securities. Provided the
Holder provides required certifications and representation letters, if any, if
the Company fails to remove any legend as required by this Section 4 (a “Legend
Removal Failure”), then beginning on the tenth (10th) day following the date
that the Investor has requested the removal of the legend and delivered all
items reasonably required by the Company to be delivered by the Holder, the
Company continues to fail to remove such legend, the Company shall pay to each
Holder or assignee holding shares subject to a Legend Removal Failure an amount
equal to one percent (1%) of the original purchase price for such shares for
each day that such Failure continues. If during any twelve (12) month period,
the Company fails to remove any legend as required by this Section 6 for an
aggregate of thirty (30) days, each Holder holding Registrable Securities
subject to a Legend Removal Failure may, at its option, require the Company to
purchase all or any portion of the Registrable Securities subject to a Legend
Removal Failure held by such Holder or assignee at a price per share equal to
120% of the applicable original purchase price or the average per share trade
price for such period, whichever is greater. 


Section 2


Miscellaneous


          2.1
Certain Definitions.


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


“Agreement” is defined in the first
paragraph of this Agreement.


“Commission” means the Securities and
Exchange Commission or any other federal agency at the time administering the
Securities Act.


“Common Stock” shall mean the Company’s
authorized shares of common stock, any additional common stock which may be
authorized in the future by the Company, and any stock into which such common
stock may hereafter be changed, and shall also include stock of the Company of
any other class which is not preferred as to dividends or as to distributions
of assets on liquidation, dissolution or winding up of the Company over any
other class of stock of the Company.


7






“Company” is defined in the first
paragraph of this Agreement.


“Effective Date” is defined in the first
paragraph of this Agreement.


“Exchange Act” means the Securities Exchange
Act of 1934, as amended, or any similar successor federal statute and the rules
and regulations thereunder, all as in effect from time to time.


“Holder” means any Investor or Pentel
who holds Registrable Securities and any holder of Registrable Securities to
whom the registration rights conferred by this Agreement have been transferred
in compliance with Section 1.1 and Section 1.9.


“Holder Indemnities” is defined in
Section 2.6.


“Indemnified Party” is defined in
Section 1.6(c).


“Indemnifying Party” is defined in
Section 1.6(c).


“Investor” is defined in the first
paragraph of this Agreement.


“Investors” is defined in the first
paragraph of this Agreement.


“Parties” and “Party” are defined in the first
paragraph of this Agreement.


“Pentel” is defined in the first
paragraph of this Agreement.


“Register,” “registered,” “registration.” and
derivatives of such
terms refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or order that such registration
statement is effective.


“Registrable Securities” means (i) the
shares of Common Stock (the “Shares”) sold by the Company pursuant to the
Securities Purchase Agreement; (ii) the shares of Common Stock issued or
issuable pursuant to the exercise of Warrants (the “Warrant Shares”) sold by
the Company pursuant to the Securities Purchase Agreement; (iii) any
Common Stock issued as a dividend or other distribution with respect to or in
exchange for or in replacement of the shares of Common Stock referenced
immediately above; provided, that Registrable Securities will not include any
shares of Common Stock that have previously been registered or that have been
sold to the public either pursuant to a registration statement or Rule 144, or
that have been sold in a private transaction in which the transferor’s rights
under this Agreement are not assigned.


“Registration Expenses” means all
expenses incurred in effecting any registration pursuant to this Agreement,
including all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and expenses of any regular or special audits incident to or required
by any such registration, fees of the NASD, transfer taxes, fees of transfer
agents and registrars, and costs of insurance, but will not include Selling
Expenses, fees and disbursements of counsel for the Holders, and the
compensation of regular Company employees, which will be paid in any event by
the Company. 


“Restricted Securities” means any
Registrable Securities required to bear the first legend set forth in
Section 1.1 (c).


8






“Rule 144” means Rule 144 as promulgated
by the Commission under the Securities Act, as Rule 144 may be amended from
time to time, or any similar successor rule that may be promulgated by the
Commission.


“Securities Act” means the Securities
Act of 1933, as amended, or any similar successor federal statute and the rules
and regulations thereunder, all as in effect from time to time.


“Selling Expenses” means all
underwriting discounts, selling commissions, and stock transfer taxes
applicable to the sale of Registrable Securities and fees and disbursements of
counsel for any Holder (other than the fees and disbursements of counsel
included in Registration Expenses).


“Securities Purchase Agreement” is
defined in the Recitals to this Agreement.


“Subsidiary” means any entity in which
the Company owns, directly or indirectly, more than 50% of (a) the
combined voting power of all classes of stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of such an
entity, if it is a corporation, (b) the capital interest or profits interest
of such entity, if it is a partnership, joint venture or similar entity, or
(c) the beneficial interest of such entity, if it is a trust, association
or other unincorporated organization.


          2.2
Amendment and Waiver.


Except as
otherwise 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 Holders holding at least two-thirds of the Registrable
Securities (excluding any of such shares that have been sold to the public or
pursuant to Rule 144). Any such amendment, waiver, discharge, or termination
effected in accordance with this Section 2.2 will be binding upon each Investor,
each Holder and each future holder of all such Holder’s securities. If an
underwriting agreement contains terms differing from this Agreement, then, as
to each Holder, the terms of such underwriting agreement will govern.


          2.3
Notices.


All notices
and other communications required or permitted under this 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 a Holder, at the Holder’s address, facsimile number, or electronic mail
address as set forth on the signature page hereof, as may be updated in
accordance with the provisions of this Agreement;


                    (b)
if to any other holder of any Company securities, at such address, facsimile
number, or electronic mail address as shown in the Company’s records, or, until
any such holder so furnishes an address, facsimile number, or electronic mail
address to the Company, then to and at the address of the last holder of such
Company securities for which the Company has contact information in the
Company’s records; or


                    (c)
if to the Company, 2305 Canyon Boulevard, Suite 103, Boulder, Colorado 80302,
which shall be addressed to the attention of the Chief Executive Officer, or at
such other address or facsimile number as the Company will have furnished to
the Investors. 


9






                    (d)
Facsimile and Electronic Mail Notice. With respect to any notice given
by the Company under any provision of the Colorado Business Corporation Act or
the Company’s Articles of Incorporation or Bylaws, each Investor agrees that
such notice may given by facsimile or by electronic mail.


                    (e)
Notice Effectiveness. Each such notice or other communication will, for
all purposes of this Agreement, 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.


          2.4
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’s conflicts-of-law
principles.


          2.5
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 a 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’ successors, assigns, heirs, executors, and
administrators.


          2.6
Entire Agreement.


This Agreement
and the exhibit to this Agreement constitute the full and entire understanding
and agreement between the Parties with regard to the subjects of this
Agreement. No Party will be liable or bound to any other Party in any manner
with regard to the subjects hereof or thereof by any warranties,
representations, or covenants except as specifically set forth in this
Agreement.


          2.7
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 to this Agreement 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 any such breach or default, or of or in any similar subsequent breach or
default, 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 by any Party with respect to any
breach or default under this Agreement, or any waiver by 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 to this Agreement, will be cumulative and not alternative.


10






          2.8
Severability.


Unless
otherwise expressly provided in this Agreement, the Investor’s rights under
this Agreement are several rights, and 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.


          2.9
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, and exhibits will, unless otherwise
provided, refer to sections and paragraphs of this Agreement and exhibits
attached to this Agreement.


          2.10
Counterparts.


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


          2.11
Facsimile Execution and Delivery.


A facsimile or
other reproduction of this Agreement may be executed by one or more Parties,
and an executed copy of this Agreement 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
as well as any facsimile or other reproduction of this Agreement.


          2.12
Jurisdiction; Venue.


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


          2.13
Further Assurances.


Each Party
agrees to execute and deliver, by the proper exercise of its 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 effectuate this Agreement.


          2.14
Construction.


The Parties
have participated jointly in negotiating and drafting this Agreement. If any
ambiguity, question of intent, or question of interpretation arises with
respect to this Agreement, then this 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. As used in this Agreement, the word “including”
means “including, without limitation.”


[signature page follows]


11






          The
Parties have executed this Registration Rights Agreement as of the Effective
Date.


	
   

  	
   

  	
   

  	
   

  	
   

  
	
  RANDOLPH M. PENTEL

  	
   

  	
  CAPSOURCE FINANCIAL, INC.

  a Colorado corporation

  
	
   

  	
   

  	
   

  
	
  


  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  By: 

  
	
   

  	
   

  	
   

  	
  


  
	
  815 Deer
  Trail Court

  	
   

  	
   

  	
  Steven
  Reichert

  
	
  St. Paul, MN
  55118

  	
   

  	
   

  	
  Vice
  President and Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  INVESTORS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PANDORA SELECT PARTNERS L.P.

  a British Virgin Islands limited partnership

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  
	
   

  	
   

  	
   

  	
  


  
	
   

  	
   

  	
   

  	
  Jonathan D.
  Wood, Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
   

  	
   

  	
  3033
  Excelsior Boulevard

  
	
   

  	
   

  	
   

  	
   

  	
  Suite 300

  
	
   

  	
   

  	
   

  	
   

  	
  Minneapolis,
  MN 55416

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  WHITEBOX INTERMARKET PARTNERS L.P.

  a British Virgin Islands limited partnership

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  


  
	
   

  	
   

  	
   

  	
  Jonathan D.
  Wood, Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Address:

  
	
   

  	
   

  	
   

  	
   

  	
  3033
  Excelsior Boulevard

  
	
   

  	
   

  	
   

  	
   

  	
  Suite 300

  
	
   

  	
   

  	
   

  	
   

  	
  Minneapolis,
  MN 55416

  



Signature Page to CapSource Financial, Inc.
Registration Rights Agreement