Unassociated Document


     

    Exhibit
      10.6

     

    SELLING
      AGREEMENT

     

    This
      Selling Agreement ("Agreement") made this 8th
      day of
      March 2006 by and between KH Funding Company, a Maryland corporation (the
      "Company"), and CapWest Securities Inc., a Colorado corporation
      ("Seller") (collectively, the "Parties").


     

    WHEREAS,
      the
      Company is an issuer of investment debt securities, and has registered or will
      register the Investment Debt Securities it issues under the Securities Act
      of
      1933
      ("1933 Act"), to the extent required thereby, on Form SB-2 ("Registration
      Statement"); and


     

    WHEREAS,
      the
      Board
      of Directors of the Company ("Board") has established and authorized
      the issuance of
      those
      types of Investment Debt Securities listed on Schedule A hereto
      (each,
      a "Note"
      and collectively, the "Notes"), as the same may be amended from time to time
      by
      mutual written agreement of
      the
      Parties (" Schedule A"); and


     

    WHEREAS,
      Seller
      desires to act as an authorized seller of the Notes; and


     

    WHEREAS,
      Seller
      is a broker-dealer registered under the Securities Exchange Act of 1934 ("1934
      Act") and a member of
      the
      National Association of Securities Dealers, Inc. ("NASD"); and


     

    NOW
      THEREFORE,
      in
      consideration of the mutual covenants herein contained and other good and
      valuable consideration, the receipt of which is hereby acknowledged, the Parties
      agree as follows:

     

    1. Appointment
      and Obligation of Seller.


     

    The
      Company hereby appoints Seller as an authorized seller of the Notes and Seller
      hereby accepts such appointment. By accepting this appointment, Seller
      represents and
      warrants that it is a business corporation duly organized, validly existing,
      and
      in good standing
      under
      the laws of the State of its incorporation as indicated above, and that it
      has
      full corporate power, authority and legal right to execute, deliver, and perform
      its duties and comply with its obligations under this Agreement. Further, Seller
      expressly represents that it is a member of the NASD and a registered
      broker-dealer under the 1934 Act, and in such states as broker-dealer
      registration may be required for the conduct of its business. 

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    2. Sale
      of Notes. 


     

    2.1
      Availability
      of Notes.
      The
      Company agrees to issue such Notes as Seller may sell in accordance with the
      terms and conditions set forth herein and the disclosures contained in the
      Company's
      Registration Statement.

     

    2.2
      Best
      Efforts.
      Seller
      agrees to use its best efforts to promote the sale of the Notes, but
      is
      not obligated to sell any specific number of Notes.

     

    2.3
      Rejection
      or Suspension of Sales: Corporate Actions.
      Notwithstanding anything herein to the contrary, the Company may, at any time,
      reject for any reason any order to purchase any Note. In addition, the Company
      may suspend or terminate the offering of any Note, if such action is required
      by
      law, judicial order, or by regulatory authorities having jurisdiction, or if
      the
      Board, in its sole discretion, determines that such action is in the best
      interests of the Company. Further, the Company reserves the right at all times
      to terminate the future offering of Notes and to take any corporate actions,
      including, but not limited to, the dissolution, merger, and sale of its assets,
      solely upon the authorization of its Board.


     

    2.4
      Purchase
      Payments.
      Seller
      shall accept purchase payments for Notes as described in the Company's then
      effective prospectus relating to the Notes as it may be amended or supplemented
      from time to time ("Prospectus," unless the context otherwise
      requires).


     

    2.5
      Manner
      of Offering.
      Seller
      shall offer the Notes for sale in the manner described in the Company's
      Prospectus, and only in those jurisdictions where Seller is legally able to
      offer or sell such Notes and where the Notes have been properly registered
      or
      qualified, or are exempt from registration.


     

    2.6
      Sales
      Commissions.
      As
      compensation for services rendered hereunder, Seller shall be entitled to
      payment of a commission on the sale of Certificates in accordance with Schedule
      A.


     

    2.7
      Order
      and Payment Processing.
      Seller
      shall immediately transmit to the Company any order to purchase Notes. Such
      order shall consist of a completed application to purchase a Note, accompanied
      by a check made payable to the Company, or any other form of payment deemed
      acceptable by the Company. The Company, in its sole discretion, reserves the
      right to reject, for any reason, any application for the purchase of a
      Note.


     

    2.8
      Purchases
      for Own Account.
      Seller
      shall not purchase Notes for its own account for purposes of resale to the
      public. Seller may purchase Notes for its own investment account upon its
      written assurance to the Company that the purchase is for investment purposes
      only and that such Certificates will not be resold.


     

    2.9
      Non-Exclusivity.
      Notwithstanding anything herein to the contrary, the Company may appoint other
      broker-dealers who are registered as such under the 1934 Act and members
      of the
      NASD,
      in addition to Seller to serve as authorized sellers of the Company's Notes,
      and
      the Notes may be directly sold by the Company without the services of any
      broker-dealer.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    3. Withdrawal,
      Surrender, Conversion and Exchange Requests.

     

    Seller
      shall immediately forward any withdrawal, surrender or conversion request,
      or a
      request to exchange one type of Note for another, that it receives to the
      Company. All such requests shall be provided in a manner deemed acceptable
      by
      the Company. The Company will make payments of withdrawal and surrender proceeds
      directly to the Note holder.

     

    4. Allocation
      of Expenses.

     

    Except
      as
      set forth herein, each Party shall bear all expenses of fulfilling its duties
      and obligations under this Agreement. However, the Company may bear some of
      Seller's initial costs in selling the Certificates, as the Parties may mutually
      agree from time to time.


     

    5. Marketing
      Materials.


     

    5.1 Preparation,
      Printing, and Distribution.
      Except
      as provided below, the Company, at
      its
      sole cost, shall be responsible for preparing, printing, and distributing,
      or
      causing the same to
      be done,
      all marketing materials to be used in connection with its offer and sale of
      Notes. Seller may create marketing materials in connection with the sale of
      the
      Notes. However, any such marketing materials shall be created at the Seller's
      sole cost, and the Company shall be entitled to use such marketing materials
      at
      any time in its sole discretion with consent of Seller, which will not be
      unreasonably withheld. The Company will reimburse the Seller for the filing
      fees
      paid to the NASD for any marketing materials it may use.


     

    5.2
      Company
      Approval.
      Seller
      shall submit definitive copies of all marketing materials it creates to the
      Company for its approval; consent shall not be unreasonably withheld, at least
      ten (10) business days prior to their first use. The Company shall be deemed
      to
      have granted its approval of such marketing materials unless it objects within
      such ten (10) business day period.


     

    
      5.3 Regulatory
        Approvals.
        To the
        extent required and in a timely manner: (i) Seller shall file with the NASD,
        or
        any other regulatory body, as appropriate, all marketing materials it employs
        (other than the prospectus, annual and semi-annual reports) in the offer
        and
        sale of Notes, whether such materials are created by Seller or the Company
        for
        Seller's use. Seller shall obtain all necessary regulatory approvals of any
        marketing materials it proposes to employ, and shall, provide to the Company,
        promptly after receipt thereof, a copy of each NASD approval of marketing
        materials submitted to the NASD for review and approval. 

    

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    6.
      Non-Marketing
      Materials.


     

    6.1
      Note
      Holder Correspondence.
      Seller,
      at its sole cost, shall be responsible for preparing, printing, and
      distributing, or causing the same to be done, all correspondence with Note
      holders in its capacity as an authorized Seller, except for correspondence
      prepared, printed, and distributed by Seller at the Company's
      request. Seller shall, from time to time, make such correspondence available to
      the Company for review upon request.


     

    6.2
      Confirmations.
      The
      Company, at its sole cost, shall be responsible for preparing, printing, and
      distributing in a timely manner, or causing the same to be done, confirmations
      of Note holder transactions generated by the seller and required to be delivered
      pursuant to applicable law. The Seller acknowledges its responsibilities as
      a
      Broker/Dealer to comply with the confirmation Rules under the 1934 Act and
      agrees to provide such information as is required under those rules to the
      company.


     

    6.3
      Prospectuses,
      Reports, etc.
      The
      Company, at its sole cost, shall be responsible for preparing, printing, and
      distributing, or causing the same to be done, all Prospectuses, Reports, and
      other
      documents required by applicable law to be provided to Note holders of each
      series, and for
      filing such materials with the SEC or any other regulatory body, as appropriate,
      and shall obtain
      any
      necessary regulatory approvals or clearances of these materials.

     

    7. Conduct
      of Business.


     

    7.1
      General.
      In
      selling Notes, Seller shall comply in all respects with the requirements of
      all
      federal and state laws and regulations and the regulations of the NASD, relating
      to the sale of the Notes. Neither Seller nor any other person is authorized
      by
      the Company to give any information or to make any representations, other than
      those contained in the Company's Registration Statement, Prospectus or Reports,
      and any marketing materials authorized by the Company as provided in section
      5
      above.


     

    7.2
      Independent
      Contractor.
      Seller
      shall undertake and discharge its obligations hereunder as an independent
      contractor and shall, unless otherwise expressly provided or authorized, have
      no
      authority to act for or represent the Company in any way and shall not be deemed
      to be an employee of the Company. Seller shall be responsible for its own
      conduct and the employment, control and conduct of its agents and employees,
      and
      for injury to such agents or employees or to others through its agents or
      employees. Seller shall assume full responsibility for its agents and employees
      under applicable statutes and agrees to pay all employer taxes


     

    7.3
      Non-Exclusive
      Services.
      Seller's
      services pursuant to this Agreement shall not be deemed to be exclusive, and
      Seller may render similar services for other companies
      in the offering of their Notes, consistent with its best efforts obligations
      set
      forth herein.


     

    7.4
      Records.
      Seller
      shall prepare and maintain full and accurate books and records of its business
      as conducted under this Agreement, including transactions by its registered
      representatives; as such books and records are required to be maintained by
      applicable law and regulations, including applicable rules of the SEC and NASD.
      Such books and records shall remain the property of Seller. Seller shall,
      however, make such books and records available to the Company or regulatory
      authorities at any reasonable time and place upon request,

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    7.5
      Notice.
      Seller
      shall promptly provide notice to the Company of any inquiry or investigation
      with respect to Seller's activities initiated or conducted by the NASD, SEC,
      or
      any other federal or state regulatory entity.

     

    8. Termination.


     

    This
      Agreement may be terminated at any time without cause and without the payment
      of
      any penalty, by the Company or by Seller, on thirty days written notice to
      the
      other party.

     

    9. Definitions.


     

    Intentionally
      left blank.

     

    10. Notices.

     

    Any
      notice under this Agreement shall be in writing, addressed and delivered, or
      mailed postage
      prepaid, to the other party at such address as the other party may designate
      for
      the receipt
      of
      notices. Until further notice to the other party, it is agreed that the address
      of the Company shall be 10801 Lockwood Drive, Suite 370, Silver Spring, MD
      20901, and the address for Seller shall be 3900
      S.
      Wadsworth Blvd., Suite 590, Lakewood, CO 80235.


     

    11.
       Severability.

     

    If
      any
      provision of this Agreement shall be held or made invalid by a court decision,
      statute, rule, or otherwise, the remainder of this Agreement shall not be
      affected thereby.

     

    12. Confidentiality.


     

    Each
      party to this agreement shall maintain the confidentiality of any client list
      or
      any other
      proprietary information that it may acquire in the performance of this
      agreement.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    13. Applicable
      Law.


     

    This
      Agreement shall be governed by the laws of the State of
      Maryland

     

    14. Parties
      to Cooperate.


     

    The
      Company and Seller agree to fully cooperate with each other in assuring
      compliance under this Agreement with all federal and state laws and
      regulations.

     

    15. Indemnification

     

    15.1
      By
      Company.
      The
      Company hereby agrees to indemnify and hold Seller harmless from and against
      any
      and all losses, liability, damages and expenses (including reasonable attorneys'
      fees and expenses) which Seller may incur or be obligated to pay, or for which
      it may become liable or be compelled to pay in any action, claim or proceeding
      against it, for or by reason of any breach by the Company of any of the
      representations or covenants of the Company in this Agreement, or, to the extent
      permitted by law, any such losses, liabilities, damages or expenses, based
      on
      any untrue statements of material facts or material omissions contained in
      the
      Registration Statement, including any prospectus contained therein or any
      amendment or supplement thereto.


     

    15.2.
      By
      Seller.
      Seller
      hereby agrees to indemnify and hold the Company harmless from and against any
      and all losses, liability, damages and expenses (including reasonable attorneys'
      fees and expenses) which the Company may incur or be obligated to pay or for
      which it may become liable or be compelled to pay in any action, claim or
      proceeding against it, for or by reason of any breach of any of the
      representations or covenants of Seller in this Agreement, including, without
      limitation, Seller's failure to comply with the provisions of paragraph 7.1
      of
      this Agreement.

     

    15.3
      Survival
      of Provisions.
      The
      provisions of this paragraph 15 shall survive the expiration or termination
      of
      this Agreement.

     

    IN
      WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of
      the
      date first written above.

     

    CapWest
      Securities, Inc.,

    A
      Colorado corporation

    


     

    _______________________

    Larry
      Behrends

    Executive
      Vice President

    


     

    KH
      Funding Company,

    A
      Maryland corporation

     

     

    __________________

    Robert
      L.
      Harris

    Chief
      Executive Officer, President

    


    
      
        
        

      

      
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    SCHEDULE
      A

    


    This
      Schedule A is an integral part of the Agreement to which it is attached.
      Capitalized terms
      used herein have the same meaning as given to them in the Agreement, except
      as
      otherwise
      noted.
      This Schedule A sets out the names of the types of Notes covered by the
      Agreement and the compensation of Seller for the services rendered with respect
      thereto.

    NAMES
      OF NOTES

    


    Series
      3 Senior Secured Notes:

    One
      Day
      Demand Notes

    Thirty
      Day Demand Notes

    One
      Year
      Fixed Term Notes

    Three
      Year Fixed Term Notes

    Five
      Year
      Fixed Term Notes

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    Series
      4 Subordinated Unsecured Notes:

    One
      Year
      Fixed Term Notes

    Three
      Year Fixed Term Notes

    Five
      Year
      Fixed Term Notes

    


    COMPENSATION

    


    For
      its
services
      rendered
      pursuant to the Agreement, Seller shall be entitled to receive
      as full
      compensation therefore, the
      following sales concessions (subject to any
      scheduled
      variations or eliminations of concessions as set forth in the Company's
      Prospectus):

    


    Concession
      Schedule

    


    All
      concessions are due upon the sale of any Note and calculated as
      a
      percentage of the
      initial
      purchase payment for such Note, except
      that
      with
      respect to the sale of the One Day and Thirty Day Demand Notes, where the
      concession and marketing allowance is payable quarterly, and shall be calculated
      on the average daily balance for the respective previous quarter. Trailers
      are
      also calculated as a percentage of the initial purchase payment for such Note
      and to be paid annually after the 1st
      anniversary.

    


    A.
      For
      Series 3 Senior Secured Notes 

    

      
        	
                · 

              	 	
                One
                  Day Demand Notes

              	 	
                0.50%
                  per annum

              
	
                · 

              	 	
                Thirty
                  Day Demand Notes

              	 	
                0.60%
                  per annum

              
	
                · 

              	 	
                One
                  Year Fixed Term Notes

              	 	
                1.00%

              
	
                · 

              	 	
                Three
                  Year Fixed Term Notes

              	 	
                2.00%+
                  0.20% annual trail

              
	
                · 

              	 	
                Five
                  Year Fixed Term Notes

              	 	
                3.00%+
                  0.20% annual trail

              


      

    

     

    B.
      For
      Series 4 Subordinated Notes

    

      
        	
                · 

              	 	
                One
                  Year Fixed Term Notes

              	 	
                1.00%

              
	
                · 

              	 	
                Three
                  Year Fixed Term Notes

              	 	
                2.00%+
                  0.40% annual trail

              
	
                · 

              	 	
                Five
                  Year Fixed Term Note

              	 	
                3.00%+
                  0.40% annual trail

              


      

    

    


    A
      concession becomes payable only upon acceptance, by the Company, of the
      application to purchase a Note, and after payment for such Note has been
      verified and cleared. The Company will make payment of all concessions and
      marketing allowance then payable by the 15th
      of each
      calendar month. 

     

    
      
        
        

      

      
        8