Promissory Notes, 18% 12 Month Unsecured
MOUNTAIN STATES CAPITAL, INC.
RESCISSION/DISTRIBUTION
BROKER/DEALER AGREEMENT
Dated March 31, 2000
and Amended May 3, 2000
Heritage West Securities, Inc.
3550 North Central Avenue
Suite 1800
Phoenix, Arizona 85012
Dear Sirs:
Mountain States Capital, Inc., an Arizona corporation (the "Company"), is
directing a registered offer of rescission (the "Rescission Offer") to all
persons who are holders of certain promissory notes ("Outstanding Notes")
previously issued by the Company. The current owners of the Outstanding Notes
are listed on the attached "Rescission List" (such persons are referred to
herein as the "Rescission Offerees"). The Company is also offering to sell to
the public newly issued promissory notes (the "New Notes"). The Rescission Offer
and the offering of New Notes are described in that certain Form SB-2
Registration Statement to be filed with the Securities and Exchange Commission
(the "Registration Statement").
Heritage West Securities, Inc. (the "Broker/Dealer") will act as
Broker/Dealer strictly in an agency capacity (i) to transmit the offer of
rescission by the Company, (ii) to effect the consummation of rescission by any
Rescission Offerees who accept such offer, provided that Broker/Dealer's
responsibilities shall be limited to the payment to such exercising Rescission
Offerees of amounts due to them from funds provided by the Company to
Broker/Dealer for such purpose, and in no event shall Broker/Dealer be obligated
to pay any such amounts from any other funds or sources, (iii) to oversee a
separate account for the deposit of the $2,200,000 minimum proceeds to be raised
pursuant to the Company's Registration Statement, and (iv) to distribute the New
Notes on a best efforts basis. Capitalized terms not defined herein shall have
the respective meanings ascribed to them in the Registration Statement.
1. REGISTRATION STATEMENT. The Company has prepared the Registration
Statement and is solely responsible for the contents thereof.
2. PROCEDURE FOR REPAYING OUTSTANDING NOTES. As and when Broker/Dealer
shall receive from Rescission Offerees notices of acceptance of the rescission
offer made in accordance with the terms and conditions of the Registration
Statement, Broker/Dealer shall calculate the amount due under the terms set
forth in the Registration Statement, and shall so inform the Company of such
acceptance(s) (including the names of all accepting Rescission Offerees) and of
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such calculation. The Company shall within five (5) business days remit to
Broker/Dealer check(s) (or, in the case of Rescission Offerees who have
subscribed for New Notes, New Notes) in the calculated amount, which
Broker/Dealer shall send to the accepting Rescission Offerees after
Broker/Dealer receives the canceled promissory note(s).
3. PROCEDURE FOR DISTRIBUTION OF NEW NOTES. As and when Broker/Dealer shall
receive acceptances from offerees of the offer of New Notes, Broker/Dealer shall
tender completed documentation with respect thereto to the Company for
acceptance. Funds received by Broker/Dealer shall be held in escrow until the
minimum offering amounts are satisfied, all as described in the Registration
Statement.
4. AGREEMENTS OF THE COMPANY. The Company agrees with Broker/Dealer as
follows:
(a) The Company will furnish to Broker/Dealer one copy of the
Registration Statement and will provide a copy of each amendment to it.
(b) The Company will prepare a prospectus relating to the Registration
Statement in accordance with all applicable SEC and state securities authorities
rules and regulations, and will provide to Broker/Dealer as many copies of such
prospectus as Broker/Dealer may reasonably request for offerees of the New
Notes.
(c) The Company will pay all reasonable and verifiable third-party
costs, expenses, fees and taxes incident to (i) the printing and delivery of the
Registration Statement and all amendments or supplements to it, (ii) the
printing and delivery of all other agreements, memoranda, correspondence and
other documents printed and delivered in connection with the Registration
Statement and the Rescission Offer, (iii) furnishing such copies of the
Registration Statement and all amendments and supplements thereto, (iv) the
performance by the Company of its account set up and Noteholder funds
distribution obligations under this Agreement, and (v) all other reasonable and
necessary third-party hard costs associated with the distribution of the
Registration Statement or the prospectus relating thereto and all expenses
associated with the Rescission Offer, provided that the Company shall have
approved each such cost or expense exceeding $250 prior to the incurrence
thereof.
(d) In addition to the expenses described in Section 4(c) and the
commissions described in Section 4(e) with respect to the New Notes, the Company
shall pay the Broker/Dealer a total fee equal to the greater of $25,000 or One
and One-Half Percent (1 1/2%) of the total amount of the face value of the
Outstanding Notes as to which the Rescission Offer is accepted by Rescission
Offerees who elect to roll their Outstanding Note balances into New Notes. Upon
execution of this Agreement, the sum of $12,500 shall be paid to the
Broker/Dealer for services to be performed.
The remainder of the Broker/Dealer's fee shall be paid as follows:
(i) $10,000 within thirty (30) days of this Agreement; and
(ii) The balance due Broker/Dealer upon conclusion of the Rescission
Offer (at such time as the percentage of the total amount of the face value of
the rescinded Notes can be calculated).
(e) The Broker/Dealer's fee for all New Notes issued pursuant to the
Registration Statement shall be as follows:
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(i) Three Percent (3%) annually of the face amount of all New Notes
where the offeree is identified by the Broker-Dealer where the Company does not
have an existing relationship with the offeree.
(ii) One and One Half Percent (1 1/2%) annually of the face amount of
all other New Notes that are issued pursuant to the Registration Statement.
- If the Company and the Broker/Dealer agree that other broker-dealers
are to be utilized in the further distribution of the New Notes, then
supplemental fees will be negotiated amongst the parties on a case by case
basis.
- All fees under this Section 4(e) shall be payable in twelve equal
monthly installments paid monthly in arrears, beginning thirty days after the
date of the Company's receipt of subscription proceeds for the New Notes. The
fees will be paid for such terms and renewal terms as the New Notes are
outstanding. In the event the Company elects to retire any New Notes prior to
their maturity, the Company will be obligated to compensate the Broker/Dealer
only through the end of the monthly installment that would be due for the month
that any New Notes are retired.
(f) The Company will do and perform all things required or necessary
to be done and performed under this Agreement by the Company in connection with
the Rescission Offer to satisfy all conditions precedent to the completion of
the Rescission Offer, including, but not limited to maintaining its existence
and maintaining or providing for adequate assets to fulfill the Company's
responsibilities through the final distribution of funds in connection
therewith.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The Company
represents and warrants to, and covenants with, the Broker/Dealer that:
(a) The Registration Statement will be prepared in compliance with all
applicable laws, is accurate in all material respects, and does not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading.
Any prospectus prepared by the Company relating to the Registration Statement,
any amendment to the Registration Statement and any prospectus relating to such
amended Registration Statement will be accurate in all material respects, will
not contain any untrue statement of a material fact and will not omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading.
(b) The financial statements included in the Registration Statement
and any prospectus, together with the related schedules and notes, present
fairly the financial position of the Company at the dates indicated and the
statement of operations, stockholders' equity and cash flows of the Company for
the periods specified; said financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved.
(c) Since the dates as of which information is given in the
Registration Statement and any prospectus, except as otherwise stated therein,
(i) there has been no material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company, whether or not arising in the ordinary course of business (a "Material
Adverse Effect"), and (ii) there have been no transactions entered into by the
Company or any of its subsidiaries, other than those in the ordinary course of
business, which are material with respect to the Company and its subsidiaries
considered as one enterprise.
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(d) This Agreement has been duly authorized, executed and delivered by
the Company, and this Agreement constitutes the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity relating to enforceability. The
Company has full power and authority to enter into and perform its obligations
under this Agreement. The execution, delivery and performance of this Agreement,
the compliance by the Company with all provisions hereof and the consummation of
the transactions contemplated hereby will not conflict with or result in a
breach of any of the terms or provisions of, or a default under, the charter or
by laws of the Company. No consent, approval, authorization or order of any
court or any governmental agency or body is required for the consummation by the
Company of the transactions contemplated hereby, except such as have been
obtained.
6. REPRESENTATIONS AND WARRANTIES OF BROKER/DEALER. The Broker/Dealer
represents and warrants to the Company that:
(a) Broker/Dealer: (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation; (ii) has all requisite corporate power and authority to conduct
the business in which it is currently engaged; (iii) is duly qualified as a
foreign corporation, licensed and in good standing under the laws of each
jurisdiction where the conduct of its business requires such qualification; and
(iv) has the corporate power and authority to execute, deliver and perform its
obligations under this Agreement.
(b) Broker/Dealer is in compliance with, and meets all the applicable
requirements of, the National Association of Securities Dealers and the United
States Securities Exchange Commission. Broker/Dealer is duly registered or
qualified as a broker/dealer and otherwise has the legal ability to perform its
obligations under this Agreement, in Arizona, California, New Mexico, Colorado,
Texas, Kansas, Oregon, Florida and Utah. To the extent necessary to comply with
applicable law, the Broker/Dealer will use its best efforts to register or
qualify as a broker/dealer in Tennessee.
(c) This Agreement has been duly executed and delivered by the
Broker/Dealer, and this Agreement constitutes the legal, valid and binding
obligations of the Broker/Dealer enforceable against the Broker/Dealer in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity relating to
enforceability.
(d) Broker/Dealer will engage in the distribution of the New Notes on
a best efforts basis.
7. BLUE SKY QUALIFICATIONS. The Company will use its best efforts, in
cooperation with the Broker/Dealer, to qualify at the Company's expense the
Securities for offering and sale under the applicable securities laws of such
states and other jurisdictions (domestic or foreign) as the Broker/Dealer may
designate and to maintain such qualifications in effect for a period of not less
than one year from the effective date of the Registration Statement.
8. INDEMNIFICATION OF BROKER/DEALER. (a) The Company agrees to indemnify
and hold harmless the Broker/Dealer and each person, if any, who controls the
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Broker/Dealer within the meaning of Section 15 of the Securities Act of 1933, as
amended (the "1933 Act"), or Section 20 of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), against any and all loss, liability, claim, damage
and expense whatsoever (including, without limitation, cost of counsel and other
professionals incurred by Broker/Dealer in responding to or investigating any
matter), as incurred, arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any prospectus relating to the
Registration Statement or any amendment thereto, or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Broker/Dealer shall give notice as promptly as reasonably
practicable to the Company of any action commenced against it in respect of
which indemnity may be sought hereunder, but failure to so notify the Company
shall not relieve the Company from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. Counsel to the Broker/Dealer shall be selected by the
Broker/Dealer, although the Company may participate at its own expense in the
defense of any such action. The Company shall not, without the prior written
consent of the Broker/Dealer, settle or compromise or consent to the entry of
any judgment with respect to any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 7.
9. OPINION OF COUNSEL. The Company shall deliver to the Broker/Dealer the
opinion of Quarles & Brady, LLP, securities counsel to the Company, in form and
substance satisfactory to the Broker/Dealer, addressing the compliance of the
Rescission Offer and the offering of New Notes with applicable securities laws.
10. BROKER/DEALER TO OVERSEE SEPARATE ACCOUNT. The Broker/Dealer agrees to
accept appointment as agent for the deposit funds to a separate account (the
"Separate Account") that will hold the $2,200,000 minimum proceeds to be raised
pursuant to the Company's Registration Statement. The Broker/Dealer and the
Company agree to execute an agreement that more completely describes the
parties' undertakings with regard to the Separate Account (the "Separate Account
Agreement"). A summary of the Broker/Dealers' role in overseeing the Separate
Account will be as follows:
(a) All funds initially received by the Broker/Dealer pursuant to the
Company's Registration Statement will be deposited or wired to the Separate
Account maintained at Valley Bank, 3550 N. Central Ave., Phoenix, Arizona 85012.
The Broker/ Dealer shall cause all checks issued or wires to be sent by New Note
investors to be made payable to Heritage West Securities FBO Mountain States
Capital, Inc.
(b) If the sum of canceled Old Noted (as that term is defined in the
Registration Statement) and New Note investor funds on deposit in the Separate
Account total $2,200,000 at any time prior to the termination of the Separate
Account Agreement, then the Broker/Dealer shall release the Separate Account
funds to the Company. If the minimum amount of canceled Old Noted and New Note
investor funds in the Separate Account has not met or exceeded $2,200,000 prior
to the termination date of the Separate Account Agreement, the Broker/Dealer
shall within a reasonable time following the termination date refund to each of
the New Note investors all sums paid pursuant to their New Note subscription
agreements.
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11. TERMINATION. Either party may terminate this Agreement if the other
party has materially breached the terms of this Agreement and has not cured the
breach within thirty days of receiving written notice of the breach from the
non-breaching party. In the event of a breach by Broker/Dealer, any fees paid or
payable by the Company will be equitably adjusted to reflect the Broker/Dealer's
actual performance hereunder.
12. MISCELLANEOUS. Notices given pursuant to any provision of this
Agreement shall be addressed as follows: (a) if to the Company, Mountain States
Capital, Inc., 1407 East Thomas Road, Phoenix, Arizona 85014, and (b) if to you,
do Paul F. Arutt at Heritage West Securities, Inc., 3550 North Central Avenue,
Suite 1800, Phoenix, Arizona 85012, or in any case to such other address as the
person to be notified may have requested in writing.
This Agreement shall be governed and construed in accordance with the laws
of the State of Arizona.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the Broker/Dealer.
Very truly yours,
MOUNTAIN STATES CAPITAL, INC.
By: /s/ Chad Collins
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Chad Collins, President
Confirmed in Phoenix, Arizona
on the date first above mentioned.
HERITAGE WEST SECURITIES, INC.
By: /s/ Paul F. Arutt
------------------------------
Paul F. Arutt, President
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