PROTOSOURCE CORP
SB-2/A, EX-1.01, 2001-01-19
COMPUTER INTEGRATED SYSTEMS DESIGN
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                                                                    Exhibit 1.01
                             ProtoSource Corporation



                                 1,000,000 Units


                             UNDERWRITING AGREEMENT



                                 [       ], 2001


Kashner Davidson Securities Corporation
77 South Palm Avenue
Sarasota, Florida 34326

Gentlemen:

     ProtoSource Corporation, a corporation organized under the laws of the
State of California (the "Company"), hereby confirms its agreement with Kashner
Davidson Securities Corporation, ("Kashner") as the managing underwriter of its
securities (the "Underwriter" and together with the several underwriters the
"Underwriters"), as set forth below.


     The Company proposes to issue and sell to the Underwriters, severally and
not jointly, 1,000,000 Units (the "Units"). The Units being sold by the Company
are referred to as the "Firm Units." The Units will be sold to the public at a
price of $______ per Unit and the Underwriters will be entitled to a discount of
ten percent (10%) (resulting in a purchase price of $_____ per Unit). The
Underwriter shall also be entitled to a three percent (3%) non-accountable
expense allowance as described herein. The Units consist of two shares of Common
Stock of the Company and one Class B Warrant. The terms of the Class B Warrant
are as set forth in Exhibit WB appended hereto.

     In addition, for the sole purpose of covering over-allotments from the sale
of the Firm Shares the Company proposes to grant to the Underwriters an option
to purchase an additional 150,000 Units, (the "Firm Option Units" or the "Option
Units"), all as provided in Section 2(c) of this agreement (the "Agreement") and
to issue to you the Underwriter's Warrant (as defined in Section 2 hereof) to
purchase certain further additional shares of Units. The Firm Units and the
Option Units are collectively referred to herein as either the "Units" or the
"Securities".


     1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriter that:


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        (a) A registration statement on Form SB-2 (File No. 333-45778), with
respect to the Securities and the Underwriter's Warrant Securities (as
hereinafter defined), including a prospectus subject to completion, has been
filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the AAct "), and one
or more amendments to that registration statement may have been so filed. Copies
of such registration statement and of each amendment heretofore filed by the
Company with the Commission have been delivered to the Underwriters. After the
execution of this Agreement, the Company will file with the Commission either
(i) if the registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, a prospectus in the
form most recently included in that registration statement (or, if an amendment
thereto shall have been filed, in such amendment), with such changes or
insertions as are required by Rule 430A under the Act or permitted by Rule
424(b) under the Act and as have been provided to and approved by the
Underwriters prior to the execution of this Agreement, or (ii) if that
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to that registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Underwriter prior to the execution of this
Agreement. The Company also may file a related registration statement with the
Commission pursuant to Rule 462(b) under the Act for purposes of registering
certain additional Securities, which registration statement shall become
effective upon filing with the Commission (the "Rule 462(b) Registration
Statement"). As used in this Agreement, the term "Registration Statement" means
that registration statement, as amended at the time it was or is declared
effective, and any amendment thereto that was or is thereafter declared
effective, including all financial schedules and exhibits thereto and any
information omitted therefrom pursuant to Rule 430A under the Act and included
in the Prospectus (as hereinafter defined), together with any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each prospectus
subject to completion filed with the Registration Statement (including the
prospectus subject to completion, if any, included in the Registration Statement
at the time it was or is declared effective); and the term "Prospectus" means
the prospectus first filed with the Commission pursuant to Rule 424(b) under the
Act or, if no prospectus is so filed pursuant to Rule 424(b), the prospectus
included in the Registration Statement. The Company has caused to be delivered
to the Underwriters copies of each Preliminary Prospectus and has consented to
the use of those copies for the purposes permitted by the Act. If the Company
has elected to rely on Rule 462(b) and the Rule 462(b) Registration Statement
has not been declared effective, then (i) the Company has filed a Rule 462(b)
Registration Statement in compliance with and that is effective upon filing
pursuant to Rule 462(b) and has received confirmation of its receipt and (ii)
the Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under the Act or
the Commission has received payment of such filing fee.

        (b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus. When each Preliminary Prospectus and each
amendment and each supplement thereto was filed with the Commission it (i)
contained all statements required to be stated therein, in accordance with, and
complied with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement was or is declared
effective, it (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply with the requirements
of, the Act and the rules and regulations of the Commission thereunder and (ii)
did not or will not include any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading.
When the Prospectus and each amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment or

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<PAGE>


supplement is not required so to be filed, when the Registration Statement
containing such Prospectus or amendment or supplement thereto was or is declared
effective) and on the Firm Closing Date and any Option Closing Date (as each
such term is hereinafter defined), the Prospectus, as amended or supplemented at
any such time, (i) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply with the
requirements of, the Act and the rules and regulations of the Commission
thereunder and (ii) did not or will not include any statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The foregoing provisions of this paragraph (b) do not apply to
statements or omissions made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the Company by the
Underwriters specifically for use therein.

        (c) The Company is duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdictions of
incorporation, and duly qualified or authorized to transact business as a
foreign corporation and is in good standing in each jurisdiction where the
ownership or leasing of its properties or the conduct of its businesses require
such qualification or authorization.

        (d) The Company has full corporate power and authority, and all
necessary material authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental regulatory authorities, to own or lease its
property and conduct its business as now being conducted and as proposed to be
conducted as described in the Registration Statement and the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).

        (e) At the date of the Closing, the Company does not own, directly or
indirectly, an interest in any corporation, partnership, limited liability
company, joint venture, trust or other business entity.

        (f) The Company has an authorized, issued and outstanding capitalization
as set forth in the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus). All of the issued shares of capital stock
of the Company, have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights. There are no outstanding options,
warrants or other rights granted by the Company to purchase shares of its Common
Stock or other securities, other than as described in the Prospectus (and, if
the Prospectus is not in existence, the most recent Preliminary Prospectus). The
Firm Units have been duly authorized, by all necessary corporate action on the
part of the Company and, when the Firm Units are issued and delivered to and
paid for by the Underwriter pursuant to this Agreement, the Firm Units will be
validly issued, fully paid, nonassessable and free of preemptive rights and will
conform to the description thereof in the Prospectus (and, if the Prospectus is
not in existence, the most recent Preliminary Prospectus). No holder of
outstanding securities of the Company is entitled as such to any preemptive or
other right to subscribe for any of the Securities, and no person who has not
waived such right is entitled to have securities registered by the Company under
the Registration Statement or otherwise under the Act other than as described in
the Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).

        (g) The capital stock of the Company conforms to the description thereof
contained in the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).

        (h) All issuances of securities of the Company have been effected
pursuant to an exemption from the registration requirements of the Act. No
compensation was paid to or on behalf of any member of the National Association
of Securities Dealers, Inc. ("NASD"), or any affiliate or employee thereof, in

                                       3

<PAGE>


connection with any such issuance, except as disclosed in Schedule 1(h) hereof.

        (i) The financial statements of the Company included in the Registration
Statement and the Prospectus (and, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) fairly present the financial position of the
Company as of the dates indicated and the results of operations of the Company
for the periods specified. Such financial statements have been prepared in
accordance with accounting principles generally accepted in effect in the United
States of America, consistently applied, except to the extent that certain
footnote disclosures regarding unaudited interim periods may have been omitted
in accordance with the applicable rules of the Commission under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The financial data set forth
under the caption "Summary Financial Information" in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) fairly
present, on the basis stated in the Prospectus (or such Preliminary Prospectus),
the information included therein.

        (j) Angell & Deering has audited the financial statements of the Company
as of December 31, 1999, and they have delivered their report with respect to
the financial statements included in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), and are independent public accountants with respect to
the Company as required by the Act and the applicable rules and regulations
thereunder.

        (k) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), (i) except as otherwise
contemplated therein, there has been no material adverse change in the business,
operations, condition (financial or otherwise), earnings or prospects of the
Company, whether or not arising in the ordinary course of business, (ii) except
as otherwise stated therein, there have been no transactions entered into by the
Company and no commitments made by the Company that, individually or in the
aggregate, are material with respect to the Company, (iii) there has not been
any change in the capital stock or indebtedness of the Company, and (iv) there
has been no dividend or distribution of any kind declared, paid or made by the
Company in respect of any class of its capital stock.

        (l) The Company has full corporate power and authority to enter into and
perform its obligations under this Agreement and the Underwriter's Warrant
Agreement (as hereinafter defined). The execution and delivery of this Agreement
and the Underwriter's Warrant Agreement have been duly authorized by all
necessary corporate action on the part of the Company and this Agreement and the
Underwriter's Warrant Agreement have each been duly executed and delivered by
the Company and each is a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium and other similar laws affecting creditors'
rights generally and by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and except as
rights to indemnity and contribution under this Agreement may be limited by
applicable law. The issuance, offering and sale by the Company to the
Underwriters of the Securities pursuant to this Agreement or the Underwriter's
Securities pursuant to the Underwriter's Warrant Agreement, the compliance by
the Company with the provisions of this Agreement and the Underwriter's Warrant
Agreement, and the consummation of the other transactions contemplated by this
Agreement and the Underwriter's Warrant Agreement do not (i) require the
consent, approval, authorization, registration or qualification of or with any
court or governmental or regulatory authority, except such as have been obtained
or may be required under state securities or Blue Sky laws and, if the
registration statement filed with respect to the Securities (as amended) is not
effective under the Act as of the time of execution hereof, such as may be

                                       4

<PAGE>


required (and shall be obtained as provided in this Agreement) under the Act, or
(ii) conflict with or result in a breach or violation of, or constitute a
default under, any material contract, indenture, mortgage, deed of trust, loan
agreement, note, lease or other material agreement or instrument to which the
Company is a party or by which the Company or any of its property is bound or
subject, or the certificate of incorporation or by-laws of the Company, or any
statute or any rule, regulation, judgment, decree or order of any court or other
governmental or regulatory authority or any arbitrator applicable to the
Company.

        (m) No legal or governmental proceedings are pending to which the
Company is a party or to which the property of the Company is subject, and no
such proceedings have been threatened against the Company or with respect to any
of its property, except such as are described in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus). No
contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement that is not described therein (and, if the Prospectus is not in
existence, in the most recent Preliminary Prospectus) or filed as required.

        (n) The Company is not in (i) violation of its certificate of
incorporation, by-laws or other governing documents, (ii) violation in any
material respect of any law, statute, regulation, ordinance, rule, order,
judgment or decree of any court or any governmental or regulatory authority
applicable to it, or (iii) other than as described in the Prospectus, default in
any material respect in the performance or observance of any obligation,
agreement, covenant or condition contained in any material contract, indenture,
mortgage, deed of trust, loan agreement, note, lease or other material agreement
or instrument to which it is a party or by which it or any of its property may
be bound or subject, and no event has occurred which with notice or lapse of
time or both would constitute such a default.

        (o) The Company currently owns or possesses adequate rights to use all
intellectual property, including all trademarks, service marks, trade names,
copyrights, inventions, know-how, trade secrets, proprietary technologies,
processes and substances, or applications or licenses therefor, that are
described in the Prospectus (and if the Prospectus is not in existence, the most
recent Preliminary Prospectus), and any other rights or interests in items of
intellectual property as are necessary for the conduct of the business now
conducted or proposed to be conducted by them as described in the Prospectus
(or, such Preliminary Prospectus), and, except as disclosed in the Prospectus
(and such Preliminary Prospectus), the Company is not aware of the granting of
any patent rights to, or the filing of applications therefor by, others, nor is
the Company aware of, nor has the Company received notice of, infringement of or
conflict with asserted rights of others with respect to any of the foregoing.
All such intellectual property rights and interests are (i) valid and
enforceable and (ii) to the best knowledge of the Company, not being infringed
by any third parties.

        (p) The Company possesses adequate licenses, orders, authorizations,
approvals, certificates or permits issued by the appropriate federal, state or
foreign regulatory agencies or bodies necessary to conduct its business as
described in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), and,
except as disclosed in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), there are no pending or, to
the best knowledge of the Company, threatened, proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit.


        (q) The Company has good and marketable title to all of the properties
and assets reflected in the Company's financial statements or as described in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), subject to no lien,

                                       5

<PAGE>


mortgage, pledge, charge or encumbrance of any kind, except those reflected in
such financial statements or as described in the Registration Statement and the
Prospectus (and such Preliminary Prospectus). Except as disclosed in the
Prospectus, the Company occupies its leased properties under valid and
enforceable leases conforming to the description thereof set forth in the
Registration Statement and the Prospectus (and such Preliminary Prospectus).

        (r) The Company is not and does not intend to conduct its business in a
manner in which it would be an "investment company" as defined in Section 3(a)
of the Investment Company Act of 1940 (the "Investment Company Act").

        (s) Intentionally deleted.

        (t) No labor dispute with the employees of the Company exists, is
threatened or, to the best of the Company's knowledge, is imminent that could
result in a material adverse change in the condition (financial or otherwise),
business, prospects, net worth or results of operations of the Company, except
as described in or contemplated by the Prospectus (and, if the Prospectus is not
in existence, the most recent Preliminary Prospectus).

        (u) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company, except as described in or contemplated by the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).

        (v) The Underwriter's Warrant (as hereinafter defined) will conform to
the description thereof in the Registration Statement and in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) and, when sold to and paid for by the Underwriter in accordance with
the Underwriter's Warrant Agreement, will have been duly authorized and validly
issued and will constitute valid and binding obligations of the Company entitled
to the benefits of the Underwriter's Warrant Agreement. The shares of Common
Stock issuable upon exercise of the Underwriter's Warrant (the "Underwriter's
Warrant Shares") have been duly authorized and reserved for issuance upon
exercise of the Underwriter's Warrant by all necessary corporate action on the
part of the Company and, when issued and delivered and paid for upon such
exercise in accordance with the terms of the Underwriter's Warrant Agreement and
the Underwriter's Warrant, respectively, will be validly issued, fully paid,
nonassessable and free of preemptive rights and will conform to the description
thereof in the Prospectus (and, if the Prospectus is not in existence, the most
recent Preliminary Prospectus).

        (w) No person has acted as a finder in connection with, or is entitled
to any commission, fee or other compensation or payment for services as a finder
for or for originating, or introducing the parties to, the transactions
contemplated herein and the Company will indemnify the Underwriter with respect
to any claim for finder's fees in connection herewith. Except as set forth in
the Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), the Company has no
management or financial consulting agreement with anyone. No promoter, officer,
director or stockholder of the Company is, directly or indirectly, affiliated or
associated with an NASD member and no securities of the Company have been
acquired by an NASD member, except as previously disclosed in writing to the
Underwriter.

                                       6

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        (x) The Company has filed all federal, state, local and foreign tax
returns which are required to be filed through the date hereof, or has received
extensions thereof, and has paid all taxes shown on such returns and all
assessments received by it to the extent that the same are material and have
become due.

        (y) Neither the Company nor any director, officer, agent, employee or
other person associated with or acting on behalf of the Company has, directly or
indirectly: used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment. No transaction has occurred between or among the Company and
any of its officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not described in the
Registration Statement and the Prospectus.

        (z) Neither the Company nor any of its officers, directors or affiliates
(as defined in the Regulations), has taken or will take, directly or indirectly,
prior to the completion of the Offering, any action designed to stabilize or
manipulate the price of any security of the Company, or which has caused or
resulted in, or which might in the future reasonably be expected to cause or
result in, stabilization or manipulation of the price of any security of the
Company, to facilitate the sale or resale of any of the Securities or the Option
Securities.


     2. Purchase, Sale and Delivery of the Securities and the Underwriter's
Warrants.

        (a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth, the Company agrees to issue and sell to the Underwriter, and the
Underwriter agrees, to purchase from the Company, the number of Firm Units as
set forth opposite its name on Schedule 1 annexed hereto, at a purchase price of
$____ per Unit.


        (b) Certificates in definitive form for the Firm Securities that the
Underwriters have agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Underwriters request
upon notice to the Company at least 48 hours prior to the Firm Closing Date,
shall be delivered by or on behalf of the Company to the Underwriter, against
payment by or on behalf of the Underwriters of the purchase prices therefor by
wire transfer of immediately available funds to a bank account specified by the
Company. Such delivery of the Firm Securities shall be made at the offices of
Snow Becker Krauss P.C., Counsel for the Underwriter, 605 Third Avenue, New
York, New York, 10158, Eastern Standard Time on [DAY], [DATE] 2001, within ten
(10) business days from the Effective Date, or at such other place, time or date
as the Underwriter and the Company may agree upon, such time and date of
delivery against payment being herein referred to as the "Firm Closing Date".
The Company will make such certificates for the Firm Securities available for
checking and packaging by the Underwriter, at such offices as may be designated
by the Underwriter, at least 24 hours prior to the Firm Closing Date. In lieu of
physical delivery, the closing may occur by "DTC" delivery.

        (c) For the purpose of covering any over-allotments in connection with
the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the Underwriter an option to purchase
any or all of the Option Units, which options are exercisable by the Underwriter
on behalf of and for the account of the Underwriter. The purchase price to be
paid for any of the Option Units shall be the same price per share for the Firm
Securities set forth above in paragraph (a) of this Section 2. The option

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granted hereby may be exercised as to all or any part of the Option Units from
time to time within 45 calendar days after the Firm Closing Date. The
Underwriter shall not be under any obligation to purchase any of the Option
Units prior to the exercise of such option. The Underwriter may from time to
time exercise the option granted hereby by giving notice in writing or by
telephone (confirmed in writing) to the Company setting forth the aggregate
number of Option Units as to which the Underwriter is then exercising the option
and the date and time for delivery of and payment for such Option Units. Any
such date of delivery shall be determined by the Underwriter but shall not be
earlier than two business days or later than three business days after such
exercise of the option and, in any event, shall not be earlier than the Firm
Closing Date. The time and date set forth in such notice, or such other time on
such other date as the Underwriter and the Company may agree upon, is herein
called the "Option Closing Date" with respect to such Option Units. Upon
exercise of the option as provided herein, the Company shall become obligated to
sell to the Underwriter, and, subject to the terms and conditions herein set
forth, the Underwriter shall become obligated to purchase from the Company, the
Option Units as to which the Underwriter is then exercising its option. If the
option is exercised as to all or any portion of the Option Units, certificates
in definitive form for such Option Units, and payment therefor, shall be
delivered on the related Option Closing Date in the manner, and upon the terms
and conditions, set forth in paragraph (b) of this Section 2, except that
reference therein to the Firm Securities and the Firm Closing Date shall be
deemed, for purposes of this paragraph (c), to refer to such Option Units and
Option Closing Date, respectively.

     (d) On the Firm Closing Date, the Company will further issue and sell to
the Underwriter or, at the direction of the Underwriter, to bona fide officers
of the Underwriter, for an aggregate purchase price of $10.00, warrants to
purchase Units (the "Underwriter's Warrant") entitling the holders thereof to
purchase an aggregate of 100,000 Units for a period of four years, such period
to commence on the first anniversary of the Effective Date. The Underwriter's
Warrant shall be exercisable at a price equal to 165% of the public offering
price of the Units, and shall contain terms and provisions more fully described
herein below and as set forth more particularly in the warrant agreement
relating to the Underwriter's Warrant to be executed by the Company on the
Effective Date (the "Underwriter's Warrant Agreement"). No sale, transfer,
assignment, pledge or hypothecation of the Underwriter's Warrant shall be made
for a period of 12 months from the Effective Date, except (i) by operation of
law or reorganization of the Company, or (ii) to the Underwriter and bona fide
partners, officers (not directors)of the Underwriter and selling group members.
The terms of the Underwriter's Warrant are as set forth in Exhibit WU appended
hereto.

     3. Offering by the Underwriter. The Underwriter proposes to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus
(the "Offering").

     4. Covenants of the Company. The Company covenants and agrees with the
Underwriter that:

        (a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, to
become effective as promptly as possible. If required, the Company will file the

                                       8

<PAGE>


Prospectus and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rule 424(b) under the Act. During
any time when a prospectus relating to the Securities is required to be
delivered under the Act, the Company (i) will comply with all requirements
imposed upon it by the Act and the rules and regulations of the Commission
thereunder to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with the
Commission any prospectus or amendment referred to in the first sentence of
section (a) (i) hereof, any amendment or supplement to such prospectus or any
amendment to the Registration Statement as to which the Underwriter shall not
previously have been advised and furnished with a copy for a reasonable period
of time prior to the proposed filing and as to which filing the Underwriter
shall not have given its consent. The Company will prepare and file with the
Commission, in accordance with the rules and regulations of the Commission,
promptly upon request by the Underwriter or counsel to the Underwriter, any
amendments to the Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection with the
distribution of the Securities by the Underwriter, and will use its best efforts
to cause any such amendment to the Registration Statement to be declared
effective by the Commission as promptly as possible. The Company will advise the
Underwriter, promptly after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has been filed or declared
effective or the Prospectus or any amendment or supplement thereto as been filed
and will provide evidence satisfactory to the Underwriter of each such filing or
effectiveness.

        (b) The Company will advise the Underwriter, promptly after receiving
notice or obtaining knowledge thereof, of (i) the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or any
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, (ii) the suspension of the
qualification of any Securities for offering or sale in any jurisdiction, (iii)
the institution, threat or contemplation of any proceeding for any such purpose,
or (iv) any request made by the Commission for amending the Registration
Statement, for amending or supplementing the Prospectus or for additional
information. The Company will use its best efforts to prevent the issuance of
any such stop order and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.

        (c) The Company will, in cooperation with counsel to the Underwriter,
arrange for the qualification of the Securities for offering and sale under the
Blue Sky or securities laws of such jurisdictions as the Underwriter may
designate and will continue such qualifications in effect for as long as may be
necessary to complete the distribution of the Securities.

        (d) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if for any other reason it is necessary at
any time to amend or supplement the Prospectus to comply with the Act or the
rules or regulations of the Commission thereunder, the Company will promptly
notify the Underwriter thereof and, subject to Section 4(a) hereof, will prepare
and file with the Commission, at the Company's expense, an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
corrects such statement or omission or effects such compliance.


        (e) Intentionally left blank.

                                       9

<PAGE>


        (f) The Company will, without charge, provide to the Underwriter and to
counsel for the Underwriter (i) as many signed copies of the registration
statement originally filed with respect to the Securities and each amendment
thereto (in each case including exhibits thereto) as the Underwriter may
reasonably request, (ii) as many conformed copies of such registration statement
and each amendment thereto (in each case without exhibits thereto) as the
Underwriter may reasonably request, and (iii) so long as a prospectus relating
to the Securities is required to be delivered under the Act, as many copies of
each Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto as the Underwriter may reasonably request.

        (g) The Company, as soon as practicable, will make generally available
to its security holders and to the Underwriter an earnings statement of the
Company that satisfies the provisions of Section 11 (a) of the Act and Rule 158
thereunder.

        (h) The Company will reserve and keep available for issuance that
maximum number of authorized but unissued shares of Common Stock which are
issuable upon exercise of any outstanding warrants, the warrants included in the
Units and the Underwriter's Warrant (including the underlying securities)
outstanding from time to time.

        (i) The Company will apply the net proceeds from the sale of the
Securities being sold by it as set forth under "Use of Proceeds" in the
Prospectus.

        (j) Intentionally left blank.

        (k) Prior to the Closing Date or the Option Closing Date (if any), the
Company will not, directly or indirectly, without prior written consent of the
Underwriter, issue any press release or other public announcement or hold any
press conference with respect to the Company or its activities with respect to
the Offering (other than trade releases issued in the ordinary course of the
Company's business consistent with past practices with respect to the Company's
operations).

        (l) If, at the time that the Registration Statement becomes effective,
any information shall have been omitted therefrom in reliance upon Rule 430A
under the Act, then immediately following the execution of this Agreement, the
Company will prepare, and file or transmit for filing with the Commission in
accordance with Rule 430A and Rule 424(b) under the Act, copies of the
Prospectus including the information omitted in reliance on Rule 430A, or, if
required by such Rule 430A, a post-effective amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted.

        (m) The Company will assist the Underwriter in causing the Securities to
be listed on the Nasdaq SmallCap Market on the Effective Date and to maintain
such listing thereafter.

        (n) During the period of five years from the Firm Closing Date, the
Company will, as promptly as possible, not to exceed 135 days, after each annual
fiscal period render and distribute reports to its stockholders which will
include audited statements of its operations and changes of financial position
during such period and its audited balance sheet as of the end of such period,
as to which statements the Company's independent certified public accountants
shall have rendered an opinion and shall timely file all reports required to be
filed under the securities laws.

        (o) During a period of three years commencing with the Firm Closing
Date, the Company will furnish to the Underwriter, at the Company's expense,
copies of all periodic and special reports furnished to stockholders of the
Company and of all information, documents and reports filed with the Commission.

                                       10

<PAGE>


        (p) The Company has appointed Corporate Stock Transfer, Inc., Denver
Colorado, as transfer agent for the Common Stock, subject to the Closing. The
Company will not change or terminate such appointment for a period of three
years from the Firm Closing Date without first obtaining the written consent of
the Underwriter. For a period of three years after the Effective Date, the
Company shall cause the transfer agent to deliver promptly to the Underwriter a
duplicate copy of the daily transfer sheets relating to trading of the
Securities. The Company shall also provide to the Underwriter, on a weekly
basis, copies of the DTC special securities positions listing report.

        (q) During the period of 180 days after the date of this Agreement, the
Company will not at any time, directly or indirectly, take any action designed
to or that will constitute, or that might reasonably be expected to cause or
result in, the stabilization of the price of the Common Stock to facilitate the
sale or resale of any of the Securities.

        (r) The Company will not take any action to facilitate the sale of any
shares of Common Stock pursuant to Rule 144 under the Act if any such sale would
violate any of the terms of the Lock-up Agreements, or permit the modification
of any such Lock-up Agreements without the consent of the Underwriter.

        (s) Prior to the 120th day after the Firm Closing Date, the Company will
provide the Underwriter and their designees with four bound volumes of the
transaction documents relating to the Registration Statement and the closing(s)
hereunder, in form and substance reasonably satisfactory to the Underwriter.

        (t) The Company shall consult with the Underwriter prior to the
distribution to third parties of any financial information news releases or
other publicity regarding the Company, its business, or any terms of this
offering and the Underwriter will consult with the Company prior to the issuance
of any research report or recommendation concerning the Company's securities.
Copies of all documents that the Company or its public relations firm intend to
distribute will be provided to the Underwriter for review prior to such
distribution.

        (u) The Company and the Underwriter will advise each other immediately
in writing as to any investigation, proceeding, order, event or other
circumstance, or any threat thereof, by or relating to the Commission, the
National Association of Securities Dealers, Inc., NASDAQ or any governmental
authority, that could impair or prevent the Offering. Except as required by law
or as otherwise mutually agreed in writing, neither the Company nor the
Underwriter will acquiesce in such circumstances and each will actively defend
any proceedings or orders in that connection.

        (v) The Company shall first submit to the Underwriter certificates
representing the Securities for approval prior to printing, and shall, as
promptly as possible, after filing the Registration Statement with the
Commission, obtain CUSIP numbers for the Securities.

        (w) If not already so registered, the Company will prepare and file a
registration statement with the Commission pursuant to section 12 of the 1934
Act, and will use its best efforts to have such registration statement declared
effective by the Commission on an accelerated basis on the day after the
Effective Date. For this purpose the Company shall prepare and file with the
Commission a General Form of Registration of Securities (Form 8-A or Form 10).

                                       11

<PAGE>


        (x) For so long as the Securities are registered under the 1934 Act, the
Company will hold an annual meeting of stockholders for the election of
directors within 180 days after the end of each of the Company's fiscal years
and within 135 days after the end of each of the Company's fiscal years will
provide the Company's stockholders with the audited financial statements of the
Company as of the end of the fiscal year just completed prior thereto. Such
financial statements shall be those required by Rule 14a-3 under the 1934 Act
and shall be included in an annual report pursuant to the requirements of such
Rule.

        (y) The Company will take all necessary and appropriate actions to be
included in Standard and Poor's Corporation Descriptions or other equivalent
manual and to maintain its listing therein for a period of five (5) years from
the Effective Date or until such time as the Company's securities are listed on
the Nasdaq National Market . Such application shall be made on an accelerated
basis no more than two days following the Effective Date.

        (z) On or prior to the Effective Date, the Company will give written
instructions to the transfer agent for the Common Stock directing said transfer
agent to place stop-order restrictions against, and appropriate legends advising
of the Lock-Up Agreements on, the certificates representing the securities of
the Company owned by the persons who have entered into the Lock-up Agreements.

     5. Expenses

        (a) The Company shall pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is terminated
pursuant to Section 10 hereof, including all costs and expenses incident to (i)
the preparation, printing and filing or other production of documents with
respect to the transactions, including any costs of printing the Registration
Statement originally filed with respect to the Securities and any amendment
thereto, any Preliminary Prospectus and the Prospectus and any amendment or
supplement thereto, this Agreement, the selected dealer agreement and the other
agreements and documents governing the underwriting arrangements and any Blue
Sky memoranda, (ii) all reasonable and necessary arrangements relating to the
delivery to the Underwriter of copies of the foregoing documents, and the costs
and expenses of the Underwriter in mailing or otherwise distributing the same
including telephone charges, duplications and other accountable expenses, (iii)
the fees and disbursements of the counsel, the accountants and any other experts
or advisors retained by the Company, (iv) the preparation, issuance and delivery
to the Underwriter of any certificates evidencing the Securities, including
transfer agent's, warrant agent's and registrar's fees or any transfer or other
taxes payable thereon, (v) the qualification of the Securities under state Blue
Sky or securities laws, including filing fees and fees and disbursements of
counsel relating thereto and any fees and disbursements of local counsel, if
any, retained for such purpose, (vi) the filing fees of the Commission and the
NASD relating to the Securities, (vii) the inclusion of the Securities on The
Nasdaq SmallCap Market and in the Standard and Poor's Corporation Descriptions
Manual, (viii) any "road shows" or other meetings with prospective investors in
the Securities, including transportation, accommodation, meal, conference room,
audio-visual presentation an similar expenses, but not including such expenses
for the Underwriter or their designees and (ix) the publication of "tombstone
advertisements" in newspapers or other publications selected by the Underwriter,
and the manufacture of prospectus memorabilia. In addition to the foregoing, the
Company, shall reimburse the Underwriter for its expenses on the basis of a
non-accountable expense allowance in the amount of three percent (3%) of the
gross offering proceeds to be received by the Company. The non-accountable
expense allowance, based on the gross proceeds from the sale of the Firm
Securities, shall be deducted from the funds to be paid by the Underwriter in
payment for the Firm Securities, pursuant to Section 2 of this Agreement, on the
Firm Closing Date. To the extent any Option Shares are sold, any remaining
non-accountable expense allowance based on the gross proceeds from the sale of
the Option Shares shall be deducted from the funds to be paid by the Underwriter

                                       12

<PAGE>


in payment for the Option Shares, pursuant to Section 2 of this Agreement, on
the Option Closing Date. The Company warrants, represents and agrees that all
such payments and reimbursements will be promptly and fully made.

        (b) Notwithstanding any other provision of this Agreement, if the
Offering is terminated in accordance with the provisions of Section 6 or Section
10(a), the Company agrees that, in addition to the Company paying its own
expenses as described in subparagraph (a) above, the Company shall pay
Underwriter its vouchered expenses to the date of termination.

     6. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter to purchase and pay for the Firm Shares shall be subject, in the
Underwriter's sole discretion, to the accuracy of the representations and
warranties of the Company contained herein as of the date hereof and as of the
Firm Closing Date as if made on and as of the Firm Closing Date, to the accuracy
of the statements of the Company's officers made pursuant to the provisions
hereof, to the performance by the Company of its covenants and agreements
hereunder and to the following additional conditions:

        (a) If the Registration Statement, as heretofore amended, has not been
declared effective as of the time of execution hereof, the Registration
Statement, as heretofore amended or as amended by an amendment thereto to be
filed prior to the Firm Closing Date, shall have been declared effective not
later than 5:30 P.M., New York City time, on the date on which the amendment to
such Registration Statement containing information regarding the initial public
offering price of the Securities has been filed with the Commission, or such
later time and date as shall have been consented to by the Underwriter; if
required, the Prospectus and any amendment or supplement thereto shall have been
filed with the Commission in the manner and within the time period required by
Rule 424(b) under the Act, no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of the
Company or the Underwriter, shall be contemplated by the Commission; and the
Company shall have complied with any request of the Commission for additional
information (to be included in the Registration Statement or the Prospectus or
otherwise).

        (b) The Underwriter shall have received an opinion, dated the Firm
Closing Date, of Sichenzia, Ross & Friedman LLP, counsel to the Company,
substantially to the effect that:

            (1) the Company has been duly incorporated and are validly existing
as corporations in good standing under the laws of the jurisdiction of their
organization and are duly qualified to transact business as a foreign
corporation and is in good standing under the laws of each other jurisdiction in
which its ownership or leasing of any properties or the conduct of its business
requires such qualification, except where the failure to be in good standing or
so qualify would not have a materially adverse effect upon the Company;

            (2) the Company has full corporate power and authority to own or
lease its property and conduct its business as it is now being conducted and as
it is proposed to be conducted, as described in the Registration Statement and
the Prospectus, and the Company has full corporate power and authority to enter
into this Agreement and the Underwriter's Warrant Agreement and to carry out all
the terms and provisions hereof and thereof to be carried out by it;

            (3) to the knowledge of such counsel, there are no outstanding
options, warrants or other rights granted by the Company to purchase shares of
its Common Stock, preferred stock or other securities other than as described in
the Prospectus; the Securities have been duly authorized and the Underwriter's
Warrant Units have been duly reserved for issuance by all necessary corporate
action on the part of the Company and the Securities when issued and delivered
to and paid for by the Underwriter, pursuant to this Agreement, the
Underwriter's Warrant when issued and delivered and paid for in accordance with

                                       13

<PAGE>


this Agreement and the Underwriter's Warrant Agreement by the Underwriter, and
the Underwriters Warrant Units and the securities issuable thereunder, when
issued upon payment of the exercise price specified in the Underwriter's
Warrant, will be enforceable in accordance with their terms, validly issued,
fully paid, non-assessable and free of preemptive rights and will conform to the
description thereof in the Prospectus; to the knowledge of such counsel, no
holder of outstanding securities of the Company is entitled as such to any
preemptive or other right to subscribe for any of the Shares or the
Underwriter's Warrant Shares; and to the knowledge of such counsel, no person is
entitled to have securities registered by the Company under the Registration
Statement or otherwise under the Act other than as described in the Prospectus;

            (4) the execution and delivery of this Agreement and the
Underwriter's Warrant Agreement have been duly authorized by all necessary
corporate action on the part of the Company and this Agreement and the
Underwriter's Warrant Agreement have been duly executed and delivered by the
Company, and each is a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and other similar laws affecting creditors' rights generally and by
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law) and except as rights to indemnity and
contribution under this Agreement and the Underwriter's Warrant Agreement may be
limited by applicable securities laws and the public policy underlying such
laws;

            (5) the Underwriter's Warrant is duly authorized and upon payment of
the purchase price therefore specified in Section 2(d) of this Agreement will be
validly issued and constitute valid and binding obligations of the Company; and
the certificates representing the Securities are in due and proper form under
law;

            (6) the statements set forth in the Prospectus under the caption
"Description of Capital Stock" insofar as those statements purport to summarize
the terms of the capital stock and warrants of the Company, provide a fair
summary of such terms; to the knowledge of such counsel, the statements set
forth in the Prospectus describing statutes and regulations and the descriptions
of the consequences to the Company under such statutes and regulations are fair
summaries of the information set forth therein and are accurate in all material
respects; to the knowledge of such counsel, the statements in the Prospectus,
insofar as those statements constitute summaries of the contracts, instruments,
leases or licenses referred to therein, constitute a fair summary in all
material respects of those contracts, instruments, leases or licenses and
include all material terms thereof, as applicable;

            (7) none of (A) the execution and delivery of this Agreement and the
Underwriter's Warrant Agreement, (B) the issuance, offering and sale by the
Company to the Underwriter of the Securities pursuant to this Agreement and the
Underwriter's Warrant Units pursuant to the Underwriter's Warrant Agreement, or
(C) the compliance by the Company with the other provisions of this Agreement
and the Underwriter's Warrant Agreement and the consummation of the transactions
contemplated hereby and thereby, to the knowledge of such counsel (1) requires
the consent, approval, authorization, registration or qualification of or with
any court or governmental authority known to us, except such as have been
obtained and such as may be required under state Blue Sky or securities laws as
to which we express no opinion or (2) conflicts with or results in a breach or
violation of, or constitutes a default under, any material contract, indenture,
mortgage, deed of trust, loan agreement, note, lease or other material agreement
or instrument known to such counsel to which the Company is a party or by which
the Company or any of its property is bound or subject, or the certificate of
incorporation or by-laws of the Company, or any material statute or any
judgment, decree, order, rule or regulation of any court or other governmental
or regulatory authority known to us applicable to the Company;

                                       14

<PAGE>


            (8) to the knowledge of such counsel, (A) no legal or governmental
proceedings are pending to which the Company is a party or to which the property
of the Company is subject except those arising in the ordinary course of
business and fully covered by insurance and (B) no contract or other document is
required to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement that is not described
therein or filed as required;

            (9) to the knowledge of such counsel, the Company possesses adequate
licenses, orders, authorizations, approvals, certificates or permits issued by
the appropriate federal, state or local regulatory agencies or bodies necessary
to conduct its business as described in the Registration Statement and the
Prospectus, and, there are no pending or threatened proceedings relating to the
revocation or modification of any such license, order, authorization, approval,
certificate or permit, except as disclosed in the Registration Statement and the
Prospectus, which would have a material adverse effect on the Company;

            (10) The Company is not in violation or breach of, or in default
with respect to, any term of its certificate of incorporation or by-laws, and to
the knowledge of such counsel, the Company is not in (i) violation in any
material respect of any law, statute, regulation, ordinance, rule, order,
judgment or decree of any court or any governmental or regulatory authority
applicable to it, or (ii) default in any material respect in the performance or
observance of any obligation, agreement, covenant or condition contained in any
material contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other material agreement or instrument to which it is a party or by
which it or any of its property may be bound or subject, and no event has
occurred which with notice, lapse of time or both would constitute such a
default;

            (11) the Shares have been approved for inclusion on the Nasdaq
SmallCap Market;

            (12) the Registration Statement is effective under the Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and to our knowledge,
no stop order suspending the effectiveness of the Registration Statement or any
amendment thereto has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best knowledge of such counsel, are
contemplated by the Commission;

            (13) the Registration Statement originally filed with respect to the
Securities and each amendment thereto and the Prospectus (in each case, other
than the financial statements, the notes, schedules and other financial and
statistical information contained therein, as to which such counsel need express
no opinion) comply as to form in all material respects with the applicable
requirements of the Act and the rules and regulations of the Commission
thereunder; and

            (14) the Company is not an "investment company" as defined in
Section 3(a) of the Investment Company Act of 1940 and, if the Company conducts
its business as set forth in the Prospectus, it will not become an Investment
company" and will not be required to register under the Investment Company Act
of 1940.


     Such counsel also shall state in its opinion that it has participated in
the preparation of the Registration Statement and the Prospectus and that
nothing has come to its attention that has caused it to believe that the
Registration Statement, at the time it became effective (including the
information deemed to be a part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable), contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or as of the Firm Closing Date, contained an
untrue statement of material fact or omitted to state a material fact necessary

                                       15

<PAGE>


in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.

     In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials, copies of which certificates will
be provided to the Underwriter, and, as to matters of the laws of certain
jurisdictions, on the opinions of other counsel to the Company, which opinions
shall also be delivered to the Underwriter, in form and substance acceptable to
the Underwriter, if such other counsel expressly authorize such reliance and
counsel to the Company expressly states in their opinion that such counsel's and
the Underwriter's reliance upon such opinion is justified.

        (c) At the time this Agreement is executed, the Underwriter shall have
received a letter, dated such date, addressed to the Underwriter in form and
substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (3) below) in all respects to the
Underwriter and Underwriter's counsel, from Angell & Deering:

            (1) confirming that it is a independent certified public accountant
with respect to the Company within the meaning of the Act and the applicable
Rules and Regulations;

            (2) stating that it is their opinion that the financial statements
of the Company as included in the Registration Statement comply as to form in
all material respects with the applicable accounting requirements of the Act and
the Rules and Regulations thereunder and that the Underwriter may rely upon the
opinion of Angell & Deering, auditors for the Company, with respect to the
financial statements included in the Registration Statement;

            (3) stating that, on the basis of a limited review which included a
reading of the latest available unaudited interim financial statements of the
Company, a reading of the latest available minutes of the stockholders and board
of directors and the various committees of the boards of directors of the
Company, consultations with officers and other employees of the Company
responsible for financial and accounting matters and other specified procedures
and inquiries (which, as to the interim financial statements included in the
Registration Statement, shall constitute a review as described in SAS No. 71,
Interim Financial Statements), nothing has come to attention of Angell &
Deering, which would lead them to believe that (A) the unaudited financial
statements of the Company included in the Registration Statement do not comply
as to form in all material respects with the applicable accounting requirements
of the Act and the Rules and Regulations or are not fairly presented in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements of the
Company included in the Registration Statement, or (B) at a specified date not
more than five (5) days prior to the Effective Date, there has been any change
in the capital stock or long-term debt of the Company, or any decrease in the
stockholders' equity or net current assets or net assets of the Company as
compared with amounts shown in the September 30, 2000 consolidated balance sheet
included in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any change or
decrease, setting forth the amount of such change or decrease, and (C) during
the period from September 30, 2000 to a specified date not more than five (5)
days prior to the Effective Date, there was any decrease (increase) in net
revenues, net income (loss) or in net earnings (loss) per common share of the
Company, in each case as compared with the corresponding period ended September
30, 1999, other than as set forth in or contemplated by the Registration
Statement, or, if there was any such decrease, setting forth the amount of such
decrease (increase);

            (4) setting forth, at a date not later than five (5) days prior to
the Effective Date, the amount of liabilities of the Company;

                                       16

<PAGE>


            (5) stating that they have compared specific dollar amounts, numbers
of shares, percentages of revenues and earnings, statements and other financial
information pertaining to the Company set forth in the Prospectus in each case
to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement; and

            (6) statements as to such other matters incident to the transaction
contemplated hereby as the Underwriter may request.

        (d) At the Firm Closing Date and the Option Closing Date, if any, the
Underwriter shall have received from Angell & Deering, a letter, dated as of the
Firm Closing Date or the Option Closing Date, as the case may be, to the effect
that it reaffirms that statements made in the letter furnished pursuant to
subsection (a) of this Section 6(c), except that the specified date referred to
shall be a date not more than five (5) days prior to the Firm Closing Date or
the Option Closing Date, as the case may be, and, if the Company has elected to
rely on Rule 430A of the Rules and Regulations, to the further effect that they
have carried out procedures as specified in clause (5) of this Section 6(c) with
respect to certain amounts, percentages and financial information as specified
by the Underwriter and deemed to be a part of the Registration Statement
pursuant to Rule 430A(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (5).

        (e) The representations and warranties of the Company contained in this
Agreement shall be true and correct as if made on and as of the Firm Closing
Date; the Registration Statement shall not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
in order to make the statements therein not misleading, and the Prospectus, as
amended or supplemented as of the Firm Closing Date, shall not include any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and the Company shall have performed all
covenants and agreements and satisfied all conditions on its part to be
performed or satisfied at or prior to the Firm Closing Date.

        (f) No stop order suspending the effectiveness of the Registration
Statement or any amendment thereto shall have been issued, and no proceedings
for that purpose shall have been instituted or threatened or contemplated by the
Commission.

        (g) Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, there shall not have been any
material adverse change, or any development involving a prospective material
adverse change, in the business, operations, condition (financial or otherwise),
earnings or prospects of the Company, except in each case as described in or
contemplated by the Prospectus (exclusive of any amendment or supplement
thereto).

        (h) The Underwriter shall have received a certificate, dated the Firm
Closing Date, of the Chief Executive Officer and the Secretary of the Company to
the effect set forth in subparagraphs (e) through (g) above.

                                       17

<PAGE>


        (i) The Units and the securities of which the Units consist shall be
qualified in such jurisdictions as the Underwriter may reasonably request
pursuant to Section 4(c), and each such qualification shall be in effect and not
subject to any stop order or other proceeding on the Firm Closing Date.

        (j) The Company shall have executed and delivered to the Underwriter the
Underwriter's Warrant Agreement and a certificate or certificates evidencing the
Underwriter's Warrant, in each case in a form acceptable to the Underwriter.

        (k) The Underwriter shall have received Lock-up Agreements executed by
the persons listed on Schedule 2 annexed hereto.

        (l) On or before the Firm Closing Date, the Underwriter and counsel for
the Underwriter shall have received such further certificates, documents,
letters or other information as they may have reasonably requested from the
Company and other security holders of the Company.


     All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriter and counsel
for the Underwriter. The Company shall furnish to the Underwriter such conformed
copies of such opinions, certificates, letters and documents in such quantities
as the Underwriter and counsel for the Underwriter shall reasonably request.

     The obligation of the Underwriter to purchase and pay for any Option Shares
shall be subject, in its discretion, to each of the foregoing conditions, except
that all references to the Firm Securities and the Firm Closing Date shall be
deemed to refer to such Option Shares and the related Option Closing Date,
respectively.

     7. Indemnification and Contribution.

        (a) The Company agrees to indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter within the meaning of
Section 15 of the Act or Section 20 of the 1934 Act against any losses, claims,
damages, or liabilities, joint or several, to which the Underwriter, or such
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon:

        (1) any untrue statement or alleged untrue statement of any material
fact contained in (A) the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement thereto,
or (B) any application or other document, or any amendment or supplement
thereto, executed by the Company or based upon written information furnished by
or on behalf of the Company filed in any jurisdiction in order to qualify the
Securities under the Blue Sky or securities laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"), or

        (2) the omission or alleged omission to state in such Registration
Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus
or any amendment or supplement thereto, or any Application a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse, as incurred, the Underwriter and such
controlling person for any legal or other expenses reasonably incurred by the
Underwriter or such controlling person in connection with investigating or
defending against any loss, claim, damage, liability, action, investigation,
litigation or proceeding; provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such Registration Statement or any
amendment thereto, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto, or any Application in reliance upon and in conformity
with written information furnished to the Company by the Underwriter,
specifically for use therein. This indemnity agreement will be in addition to
any liability which the Company may otherwise have. The Company will not,
without the prior written consent of the Underwriter, or controlling person,
settle or compromise or consent to the entry of any judgment in any pending or

                                       18

<PAGE>


threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not the Underwriter or any person who
controls the Underwriter or within the meaning of Section 15 of the Act or
Section 20 of the 1934 Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.

        (b) The Underwriter will indemnify and hold harmless the Company, each
of its directors, each of its officers who signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20 of the 1934 Act against, any losses, claims, damages
or liabilities to which the Company or any such director, officer, or
controlling person may become subject under the Act or otherwise, but only
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application, or (ii) the omission or the
alleged omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application, or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
specifically for use therein; and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses reasonably incurred by the Company or any such director, officer,
or controlling person in connection with investigating or defending against any
such loss, claim, damage, liability, action investigation, litigation or
proceedings, in respect thereof. This indemnity agreement will be in addition to
any liability which the Underwriter may otherwise have.

        (c) Promptly after receipt by an indemnified party under this Section 7
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 7, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 7. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 7 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not be
liable for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.

                                       19

<PAGE>


        (d) In circumstances in which the indemnity obligation provided for in
the preceding paragraphs of this Section 7 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Securities, or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one hand
and the indemnified party on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof). The relative
benefits received by the Company on the one hand and the Underwriter on the
other shall be deemed to be in the same proportion as the total proceeds from
the Offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriter. The relative fault of the parties shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriter, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and the other
equitable considerations appropriate in the circumstances. The Company and the
Underwriter agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), the Underwriter shall
not be obligated to make contributions hereunder that in the aggregate exceed
the total public offering price of the Securities purchased by the Underwriter
under this Agreement, less the aggregate amount of any damages that the
Underwriter has otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls an Underwriter within the meaning of Section 15 of the Act or Section
20 of the 1934 Act shall have the same rights to contribution as the
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the 1934
Act, shall have the same rights to contribution as the Company.

     8. Substitution of Underwriter.

     If any Underwriter shall for any reason not permitted hereunder cancel its
obligations to purchase the Firm Securities hereunder, or shall fail to take up
and pay for the number of Firm Securities set forth opposite names in Schedule 1
hereto upon tender of such Firm Securities in accordance with the terms hereof,
then:

        (a) If the aggregate number of Firm Securities which such Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the total
number of Firm Securities, the other Underwriter shall be obligated to purchase
the Firm Securities which such defaulting Underwriter agreed but failed to
purchase.

     (b) If any Underwriter so defaults and the agreed number of Firm Securities
with respect to which such default or defaults occurs is more than 10% of the
total number of Firm Securities, the remaining Underwriters shall have the right
to take up and pay for the Firm Securities which the defaulting Underwriter
agreed but failed to purchase. If such remaining Underwriters do not, at the
Firm Closing Date, take up and pay for the Firm Securities which the defaulting
Underwriter agreed but failed to purchase, the time for delivery of the Firm

                                       20

<PAGE>


Securities shall be extended to the next business day to allow the remaining
Underwriters the privilege of substituting within twenty-four hours (including
non-business hours) another underwriter or underwriters satisfactory to the
Company. If no such underwriter or underwriters shall have been substituted as
aforesaid, within such twenty-four hour period, the time of delivery of the Firm
Securities may, at the option of the Company, be again extended to the next
following business day, if necessary, to allow the Company the privilege of
finding within twenty-four hours (including non-business hours) another
underwriter or underwriters to purchase the Firm Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase. If it shall be
arranged for the remaining Underwriter or substituted Underwriters to take up
the Firm Securities of the defaulting Underwriter as provided in this section,
(i) the Company or the Underwriter shall have the right to postpone the time of
delivery for a period of not more than seven business days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other document or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements to
the Prospectus which may thereby be made necessary, and (ii) the respective
numbers of Firm Securities to be purchased by the remaining underwriters or
substituted underwriters shall be taken as the basis of the underwriting
obligation for all purposes of this agreement.

     In the event of a default by any Underwriter, if the remaining Underwriter
shall not take up and pay for all the Firm Securities agreed to be purchased by
the defaulting Underwriter, or substitute another underwriter or Underwriter as
aforesaid, and the Company shall not find or shall not elect to seek another
underwriter or Underwriter for such Firm Securities as aforesaid, then this
Agreement shall terminate.

     If, following exercise of the option provided in Section 2(c) hereof, any
Underwriter or Underwriter shall for any reason not permitted hereunder cancel
their obligations to purchase Option Shares at the Option Closing Date, or shall
fail to take up and pay for the number of Option Shares, which it became
obligated to purchase at the Option Closing Date upon tender of such Option
Shares in accordance with the terms hereof, then the remaining Underwriter or
substituted Underwriter may take up and pay for the Option Shares of the
defaulting Underwriter in the manner provided in Section 8(b) hereof. If the
remaining Underwriter or substituted Underwriter shall not take up and pay for
all such Option Shares, the Underwriter shall be entitled to purchase the number
of Option Shares for which there is no default or, at their election, the option
shall terminate, the exercise thereof shall be of no effect.

     As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any non-defaulting Underwriter to the
Company, provided that the provisions of this Section 8 shall not in any event
affect the liability of any defaulting Underwriter to the Company arising out of
such default.

     9. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, any of its officers
or directors and the Underwriter set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (i) any investigation made by or on behalf of
the Company, any of its officers or directors, the Underwriter or any
controlling person referred to in Section 7 hereof, and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in Sections 4 and 7 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.

     10. Termination.

         (a) This Agreement may be terminated with respect to the Firm
Securities or any Option Shares in the sole discretion of the Underwriter by
notice to the Company given prior to the Firm Closing Date or the related Option
Closing Date, respectively, in the event that the Company shall have failed,

                                       21

<PAGE>


refused or been unable to perform all obligations and satisfy all conditions on
its part to be performed or satisfied under Section 6 hereunder at or prior
thereto or if at or prior to the Firm Closing Date or such Option Closing Date,
respectively. Termination of this Agreement pursuant to this Section 10 shall be
without liability of any party to any other party, except as provided in Section
5(b) and Section 7 hereof.

     11. Information Supplied by the Underwriter. The written statements as to
the underwriting commitment of the Underwriter and under the heading
"Underwriting" in the Preliminary Prospectus or the Prospectus (to the extent
such statements relate to the Underwriter) constitute the only information
furnished by the Underwriter to the Company for the purposes of Section 7(b)
hereof.

     12. Notices. All notice hereunder to or upon either party hereto shall be
deemed to have been duly given for all purposes if in writing and (i) delivered
in person or by messenger or an overnight courier service against receipt, or
(ii) sent by certified or registered mail, postage paid, return receipt
requested, or (iii) sent by telegram, facsimile, telex or similar means,
provided that a written copy thereof is sent on the same day by postage paid
first-class mail, to such party at the following address:


To the Company:                     ProtoSource Corporation
                                    2300 Tulare Street, Suite 210
                                    Fresno, CA 93721
                                    Attn: William Conis, President

With Copy To:                       Sichenzia, Ross & Freidman, LLP
                                    135 West 50th Street, 20th Floor
                                    New York, New York 10020
                                    Attn: Gregory Sichenzia, Esq.

To the Underwriter:                 Kashner Davidson Securities Corporation
                                    77 South Palm Avenue
                                    Sarasota, Florida 34326
                                    Attn: Matthew Meister

with a copy to:                     Snow Becker Krauss P.C.
                                    605 Third Avenue
                                    New York, New York 10158
                                    Attn: Charles Snow, Esq.


or such other address as either party hereto may at any time, or from time to
time, direct by notice given to the other party in accordance with this section.
The date of giving of any such notice shall be, in the case of clause (i), the
date of the receipt; in the case of clause (ii), five business days after such
notice or demand is sent; and, in the case of clause (iii), the business day
next following the date such notice is sent.

     13. Amendment. Except as otherwise provided herein, no amendment of this
Agreement shall be valid or effective, unless in writing and signed by or on
behalf of the parties hereto.

     14. Waiver. No course of dealing or omission or delay on the part of either
party hereto in asserting or exercising any right hereunder shall constitute or
operate as a waiver of any such right. No waiver of any provision hereof shall
be effective, unless in writing and signed by or on behalf of the party to be
charged therewith. No waiver shall be deemed a continuing waiver or waiver in
respect of any other or subsequent breach or default, unless expressly so stated
in writing.

                                       22

<PAGE>


     15. Applicable Law. This agreement shall be governed by, and interpreted
and enforced in accordance with, the laws of the State of New York without
regard to principles of choice of law or conflict of laws.

     16. Jurisdiction. Each of the parties hereto hereby irrevocably consents
and submits to the exclusive jurisdiction of the Courts of the State of New York
and the United States District Court for the Southern District of New York in
connection with any suit, action or other proceeding arising out of or relating
to this Agreement or the transactions contemplated hereby, waives any objection
to venue in the County of New York, State of New York, or such District and
agrees that service of any summons, complaint, notice or other process relating
to such suit, action or other proceeding may be effected in the manner provided
by clause (ii) of Section 12.

     17. Remedies. In the event of any actual or prospective breach or default
by either party hereto, the other party shall be entitled to equitable relief,
including remedies in the nature of rescission, injunction and specific
performance. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit either party from pursuing
any other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.

     18. Attorneys' Fees. The prevailing party in any suit, action or other
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby, shall be entitled to recover its costs and reasonable
attorneys' fees.

     19. Severability. The provisions hereof are severable and in the event that
any provision of this Agreement shall be determined to be invalid or
unenforceable in any respect by a court of competent jurisdiction, the remaining
provisions hereof shall not be affected, but shall, subject to the discretion of
such court, remain in full force and effect, and any invalid or unenforceable
provision shall be deemed, without further action on the part of the parties
hereto, amended and limited to the extent necessary to render the same valid and
enforceable.

     20. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original and which together shall constitute one and
the same agreement.

     21. Successors. This Agreement shall inure to the benefit of and be binding
upon the Underwriter, the Company and their respective successors and assigns.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provisions herein contained, this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person except that (i) the indemnities of the Company contained in
Section 7 of this Agreement shall also be for the benefit of any person or
persons who control any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the 1934 Act, and (ii) the indemnities of the Underwriter
contained in Section 7 of this Agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company within
the meaning of Section 15 of the Act or Section 20 of the 1934 Act. No purchaser
of Securities from the Underwriter shall be deemed a successor because of such
purchase.

     22. Titles and Captions. The titles and captions of the articles and
sections of this Agreement are for convenience of reference only and do not in
any way define or interpret the intent of the parties or modify or otherwise
affect any of the provisions hereof.

                                       23

<PAGE>


     23. Grammatical Conventions. Whenever the context so requires, each pronoun
or verb used herein shall be construed in the singular or the plural sense and
each capitalized term defined herein and each pronoun used herein shall be
construed in the masculine, feminine or neuter sense.

     24. References. The terms "herein," "hereto," "hereof," "hereby," and
"hereafter," and other terms of similar import, refer to this Agreement as a
whole, and not to any Article, Section or other part hereof.

     25. Entire Agreement. This Agreement embodies the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes any
prior agreement, commitment or arrangement relating thereto.


                         [Signatures on following page]

                                       24


<PAGE>


     If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company, and the
Underwriter.

                                            Very truly yours,


                                            PROTOSOURCE CORPORATION


                                            By:  /s/  William Conis
                                               --------------------------------
                                                      William Conis
                                                      President


The foregoing agreement is hereby confirmed and accepted as of the date first
above written.

KASHNER DAVIDSON SECURITIES CORPORATION




By:  /s/  Mathew Meister
   ---------------------------------
          Matthew Meister
          CEO

                                       25



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