Exhibit 10.6            SecurityAgreement

 

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**SECURITY AGREEMENT**

 

DATEDAS OF:                    February 20,2002

 

DEBTOR:                               GenesisFinancial, Inc.

                                                200North Mullan Road, Suite 217

                                                Spokane,WA 99206, and 

 

SECUREDPARTY: **            **Temporary FinancialServices, Inc.

                                                200North Mullan Road, Suite 213

                                                Spokane,Washington 99206

 

**1.****                                     ****GRANT OF SECURITY INTEREST. **Debtor hereby grantsto Secured Party a continuing security interest in the following describedproperty of Debtor, and any additions, attachments and accessions thereto andall products and proceeds thereof, together with all guarantees, liens andsecurities in connection therewith (collectively, the “Collateral”): 

 

All assets, including: Allinventory, accounts, accounts receivable, chattel paper, documents,instruments, contract rights, real estate loans held for resale, insuranceproceeds, trademarks, tradenames and other general intangibles, furniture,fixtures, equipment, and all proceeds thereof, now owned and hereafteracquired. 

** **

**2.****                                     ****OBLIGATIONS SECURED**

**2.1**                               The security interest granted hereby is tosecure payment of a Warehousing Line of Credit Promissory Note dated February20, 2002 (the “Note”) and performance of all liabilities and obligations ofDebtor to Secured Party of every kind and description, direct or indirect,absolute or contingent, due or to become due, now existing or hereafterarising, including but not limited to indebtedness and obligations with respectto LENDER agreements, notes, advances, letters of credit, acceptances, foreignexchange contracts, suretyships, guaranties, endorsements, and checks drawnwith non-sufficient funds, together with any and all extensions, renewals andmodifications thereof (collectively, “Obligations”), and whether or not anyObligation is related to any other Obligation by class or kind or iscontemplated by the parties at the time this Security Agreement is executed. 

**2.2**                               In addition to the provisions of Section 2.1,the Obligations secured hereunder shall include all amounts payable by Debtorto Secured Party under this Security Agreement and all amounts paid orliabilities incurred by Secured Party in connection with protecting orenforcing its rights under this Security Agreement, including but not limitedto amounts described in Sections 12, 13, 16 and 20.8, and interest on any suchamounts at the interest rate established in the Note.

 

**3.****                                     ****PURCHASE MONEY SECURITY INTEREST**.  IfDebtor at any time acquires any Collateral with the proceeds of any advancefrom Secured Party, Debtor authorizes Secured Party to disburse proceeds in theamount of the purchase price of such Collateral directly to, or Debtor shallremit such proceeds directly to, the seller of such Collateral. Secured Partyshall have both a purchase money security interest and a non-purchase moneysecurity interest under the Uniform Commercial Code in such Collateral.

 

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**4.****                                     ****TITLE; ADVERSE LIENS. **Debtor warrants thatDebtor is and shall be the lawful owner of the Collateral, free of all adverseliens, encumbrances and security interests except as previously disclosed inwriting to Secured Party, with the right to sell, assign, pledge, transfer, andgrant a security interest therein. Except as expressly permitted hereunder, orunder the Agreement dated as of January 25, 2002, between Debtor and SecuredParty (hereinafter referred to as the “Investment Agreement”) Debtor shall notsell, assign, pledge, transfer or grant a security interest in any of theCollateral to any person other than Secured Party. Debtor shall defend allCollateral against the claims and demands of all persons. 

 

**5.****                                     ****CORPORATE STATUS AND AUTHORITY. **(i) Debtor isduly organized and existing under the laws of Washington and is duly qualifiedand in good standing in every other state or jurisdiction in which it is doingbusiness; and (ii) the execution, delivery, and performance hereof are withinDebtor's corporate powers and have been duly authorized, and are not incontravention of law or the terms of Debtor's charter, bylaws or otherincorporation papers, or of any indenture, agreement or undertaking to whichDebtor is a party or by which it is bound. 

 

**6.****                                     ****PERMITS AND LICENSES. **Debtor has and shallkeep in force all licenses, permits and authorizations necessary to the properconduct of its business in any state or jurisdiction in which Debtor conductsbusiness, and shall promptly obtain all such additional licenses, permits andauthorizations as hereafter may become necessary for such purposes. 

 

**7.****                                     ****PLACES OF BUSINESS AND CERTAIN LOCATIONS. **The street address of Debtor's chief executive office from which Debtormanages the main part of its operation, keeps all Collateral, and all recordsconcerning accounts, contract rights, and chattel paper is shown above. IfDebtor (i) has one or more places of business at any location other than itschief executive office or (ii) keeps Collateral or records concerning accounts,contract rights and chattel paper at any location other than its chiefexecutive office, such other locations, including the address of the servicingagent, will be provided to Secured Party by written notice within seven days ofthe date use of such other location commences. 

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**8.****                                     ****CHANGE OF NAME, STRUCTURE AND LOCATION**. Without the prior written consent of Secured Party, Debtor shall not (i)merge or consolidate with or into any person, or (ii) remove any Collateralfrom the state(s) or jurisdiction(s) indicated in this Security Agreement.Without limiting the foregoing, Debtor shall give Secured Party at least 30days prior written notice of any change of Debtor's name, identity or corporatestructure and any addition to, change in or discontinuance of its mailingaddress, its business locations, and any locations concerning the Collateral asindicated in this Security Agreement. 

 

**9.****                                     ****IDENTIFICATION AND DELIVERY OF COLLATERAL; COLLATERALREPORTS. **Debtor shall mark and identify all Collateraland all books and records pertaining to the Collateral as required by SecuredParty. Debtor shall deliver to Secured Party at Secured Party's request, alloriginal instruments, documents and title documents, leases, contracts,securities, licenses, records, and other chattel paper (together with anyrelated certificates of title) included in the Collateral, each assigned orendorsed as Secured Party may require, and all original and duplicate invoicesrepresenting sales and delivery of goods or performance of services (each ofwhich shall bear and assignment stamp acceptable to Secured Party) togetherwith evidence of delivery as may be required by Secured Party. Debtor shalldeliver to Secured Party at Secured Party's request such reports concerning theCollateral on such dates and in such detail as Secured Party from time to timemay require. The value of all inventory reflected on the reports shall be thelesser of cost or market value.

 

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**10.****                              ****FINANCIAL AND OTHER INFORMATION. **Debtor shallfurnish to Secured Party from time to time such financial statements and otherfinancial data as Secured Party may require, each in form and detail acceptableto Secured Party. Debtor warrants that all information concerning theCollateral, all financial statements, balance sheets and other financial data,and all other information furnished by Debtor to Secured Party are, or at thetime furnished shall be, accurate and correct in all material respects and ascomplete as necessary to give Secured Party true and accurate knowledge of thesubject matter. All financial information furnished by Debtor to Secured Partyshall be prepared in accordance with generally accepted accounting principlesconsistently applied.

 

**11.****                              ****INSPECTIONS. **Debtor shall at all reasonable times allowSecured Party by or through its nominees (i) to examine and inspect theCollateral; (ii) to verify the Collateral directly with applicable thirdparties such as account debtors or by any other methods; and (iii) to examine,inspect and take extracts from Debtor's books and records.

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**12.****                              ****USE AND ADVERSE LIENS. **Debtor shall not useor permit the Collateral to be used in violation of any law or regulation,waste or destroy the Collateral, or permit anything to be done that may impairthe value of the Collateral. Debtor shall promptly pay when due all taxes andassessments on the Collateral, or for its use or operation, and shall keep theCollateral free from any adverse lien, security interest or encumbrance. At itsoption, Secured Party may discharge taxes, liens, security interests orencumbrances at any time levied or placed on the Collateral and may pay for themaintenance and preservation of the Collateral, and Debtor shall pay to SecuredParty on demand all such amounts. 

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**13.****                              ****INSURANCE****. **Unless expressly waived by Secured Party,Debtor shall provide, maintain and deliver to Secured Party policies insuringthe Collateral against loss or damage by such risks, in such form and amount,for such periods and by such companies as may be satisfactory to Secured Party.All policies of insurance shall include a standard loss payable endorsement andsuch other endorsements as Secured Party may request. If Debtor fails to obtainsuch insurance, Secured Party shall have the right, but not the obligation, toobtain such insurance and Debtor shall pay to Secured Party on demand the costthereof. Secured Party is hereby appointed Debtor's attorney-in-fact to obtain,adjust, settle and cancel such insurance in Secured Party's sole discretion.Debtor hereby assigns to Secured Party all rights to receive proceeds ofinsurance to the full extent of the amount of all Obligations securedhereunder, directs any insurer to pay all proceeds directly to Secured Party,and authorizes Secured Party to endorse any check for proceeds. 

 

**14.****                              ****POSSESSION, USE AND SALE OF COLLATERAL. **Until default, Debtor may retain possession of all Collateral composedof equipment and fixtures and may use them in any lawful manner notinconsistent with the terms and conditions of this Security Agreement. Debtorshall not sell, lease, transfer or otherwise dispose of any interest in anysuch Collateral without the prior written consent of Secured Party. Untildefault, Debtor may use any Collateral composed of inventory in any lawfulmanner not inconsistent with the terms and conditions of this SecurityAgreement and the Investment Agreement, and may consume any raw materials andsupplies comprising such Collateral as may be necessary to carry on Debtor'sbusiness. Debtor may also sell such Collateral but only in the ordinary courseof business. A sale in the ordinary course of business does not include atransfer in bulk or as security for or in total or partial satisfaction of amoney debt. 

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**15.****                              ****COLLECTION OF ACCOUNTS. **Subject to thefollowing sentence, Debtor shall make collections from the account debtors onall Collateral composed of accounts, chattel paper and general intangibles asdirected by Secured Party. Secured Party may before or after any default 

 

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hereunder without priornotice to Debtor, and Debtor shall at Secured Party's request and in such formas Secured Party may require, notify the account debtors that the Collateralhas been assigned to and payment thereon shall be made directly to SecuredParty. 

 

**16.****                              ****FINANCING STATEMENTS; FURTHER ASSURANCE. **At Secured Party's request, Debtor shall execute and pay the costs offiling one or more financing statements and any other documents required by theUniform Commercial Code or other applicable laws or regulations. A carbon,photographic or other reproduction of this Security Agreement or of any relatedfinancing statement shall be sufficient as a financing statement. At therequest of Secured Party, Debtor shall do, make, execute and deliver all suchadditional and further acts, deeds, assurances and instruments as Secured Partyfrom time to time may require to more completely vest in and assure to SecuredParty its rights hereunder and in or to the Collateral, all at Debtor'sexpense. Secured Party hereby is appointed Debtor's attorney-in-fact with powerto do all acts and things which Secured Party may deem necessary to perfect andcontinue perfected its security interest in the Collateral, and to protect theCollateral.  Without the prior writtenconsent of Secured Party, Debtor shall not grant a security interest in theCollateral to any person other than Secured Party, and shall not allow anyfinancing statement or other security instrument covering Collateral or itsproceeds to be on file in any public office. 

 

**17.****                              ****EVENTS OF DEFAULT. **Time is of the essence of this Security Agreement. The occurrence ofany of the following shall, at the discretion of Secured Party, be an Event ofDefault hereunder:

**17.1**                        Default in the payment or performance of anyObligation, in any covenant or liability contained or referred to herein, inthe Agreement and/or Addenda thereto, in any note, or in any other agreementbetween Debtor and Secured Party;

**17.2**                        Any warranty, representation or statement(including but not limited to financial statements) made or furnished toSecured Party by or on behalf of Debtor or any guarantor of any of theObligations (“Guarantor”) proves to have been false in any material respectwhen made or furnished;

**17.3**                        Any indebtedness of Debtor under any note,indenture, agreement, undertaking or obligation of any kind to any person,including Secured Party, becomes due by acceleration or otherwise and is notpaid; 

**17.4**                        Default by Debtor under any lease or otherarrangement whereby Debtor occupies, or stores Collateral in, any premisesowned by any person other than Debtor;

**17.5**                        Any default under any security agreement orother instrument executed by any person which secures any of the Obligations orunder any guaranty of any Guarantor;

**17.6**                        Any guaranty of any Guarantor shall cease tobe, or shall be asserted by any person not to be, in full force and effect;

**17.7**                        Loss, theft, damage, destruction, sale(except as expressly permitted under this Security Agreement) or encumbrance toor of any of the Collateral, or the making of any levy, seizure or attachmentthereof or thereon;

**17.8**                        Death, dissolution, termination of existence,insolvency, business failure, appointment of a receiver for any part of theproperty of, assignment for the benefit of creditors by, entry of any judgmentagainst or the commencement of any proceeding under any bankruptcy orinsolvency laws by or against, Debtor, and Guarantor or any surety for Debtor,or failure of Debtor, any Guarantor or any such surety to provide Secured Partywith financial information promptly when requested; 

**17.9**                        Sale, transfer, or other disposition of allor a substantial part of the assets of Debtor or any Guarantor other than inthe ordinary course of business;

**17.10**                 Interruption or cessation of a materialportion of Debtor's ordinary business operations;

 

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**17.11**                 Secured Party in good faith believes theCollateral inadequate, unsafe, or in danger of misuse;

**17.12**                 Secured Party deems itself insecure withrespect to repayment of any of the Obligations.

 

**18.****                              ****RIGHTS AND REMEDIES**.  Upon the occurrence of anyEvent of Default and at any time thereafter, Secured Party at its option andnot withstanding any time or credit allowed by any instrument evidencing anyObligation or related thereto, may without notice declare any and allObligations immediately due and payable and terminate any commitment to extendcredit to Debtor. In such event, Secured Party shall have all the rights andremedies provided herein and in all other instruments or writings, executed byDebtor or any other person in connection with the Obligations, and as otherwiseprovided by law. Without limiting the foregoing, Secured Party may do any oneor more of the following: (i) enter upon any premises where the Collateral maybe located and remove therefrom the Collateral, and with respect to accounts,may remove any records which Secured Party deems necessary for collectionthereof; (ii) require Debtor to assemble the Collateral and make it availableto Secured Party at a place designated by Secured Party; and (iii) establish afield warehouse under the control of Secured Party on Debtor's premises andplace the Collateral therein. Secured Party in its sole discretion, withoutnotice and without bringing suit on the Obligations, may apply for and secureappointment of a receiver, receiver-manager, or receiver and manager(“receiver”) for the undersigned to take possession of Debtor's business andthe Collateral, and the incomes, rents and proceeds thereof. Debtor herebyexpressly waives any requirement that Secured Party or the receiver post a bondupon such appointment. Any receiver appointed by Secured Party, so far asconcerns responsibility for its acts, shall be deemed the agent of theundersigned and not of Secured Party. All Secured Party's rights and remedies,whether evidenced hereby or by any other agreement, instrument or writing shallbe cumulative and may be exercised singularly or concurrently.

 

**19.****                              ****ADDITIONAL SECURITY AND COLLATERAL AGREEMENT. **As additional security and collateral for the Obligations, Debtorhereby grants to Secured Party a security interest in all instruments,documents, notes, bills of exchange, title or documents of title, policies andcertificates of insurance, securities, stock certificates, bonds, goods,accounts receivable, deposits, choses in action, chattel paper, cash, propertyand the proceeds thereof (whether or not the same are Collateral hereunder)owned by Debtor or in which Debtor has an interest, which now or hereafter areat any time in the possession or control of Secured Party at any of its officesor in transit by mail or carrier to or from Secured Party or in the possessionof any third party acting in Secured Party's behalf, without regard to whetherSecured Party received the same in pledge, for safekeeping, as agent forcollection or transmission or otherwise or whether Secured Party hasconditionally released the same, shall constitute additional security andcollateral for the Obligations and may at any time be collected, negotiated,sold, assigned, set off or applied against any Obligations which are then duewhether by acceleration or otherwise. 

 

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**20.          GENERAL**

**20.1**                        Nothing contained in this Security Agreementshall be construed to obligate Secured Party to extend credit to Debtor, or enterinto any foreign exchange contracts or other contracts of any nature withDebtor.

**20.2**                        Without notice to Debtor and withoutdiminishing or affecting Secured Party's rights or Debtor's obligationshereunder, Secured Party may deal in any manner with any person who at any timeis liable for, or provides any real or personal property collateral for (i) anyof the Obligations; or (ii) any obligations constituting Collateral. Withoutlimiting the foregoing, Secured Party may, in its sole discretion: (a) providesecured or unsecured credit to Debtor; (b) agree to any number of waivers,modifications, extensions and renewals of any length of any Obligations and ofany obligations constituting Collateral; (c) impair, release (with or withoutsubstitution of new collateral) and fail to perfect a security interest in, anycollateral provided by any person, whether with respect to the Obligations orany obligations constituting Collateral; (d) sue, fail to sue, agree not tosue, release, and settle or compromise with, any person.

**20.3**                        This Security Agreement and all rights andliabilities hereunder and in and to any and all Obligations and Collateral orother security shall inure to the benefit of Secured Party and its successorsand assigns, and shall be binding upon Debtor and its successors and assigns.

**20.4**                        If at any time or times by assignment orotherwise Secured Party transfers any Obligations and Collateral or othersecurity therefor, the transferee shall become vested with Secured Party'srights and powers hereunder with respect to the Obligations, Collateral andother security transferred, whether or not specifically referred to in thetransfer. To the extent that Secured Party retains any Obligations andCollateral or other security therefor, Secured Party's rights and powershereunder shall continue with respect thereto. 

**20.5**                        Secured Party shall not be deemed to havewaived any of Secured Party's rights hereunder or under any other agreement,instrument or writing signed by Debtor unless such waiver be in writing andsigned by Secured Party. No delay or omission on the part of Secured Party inexercising any right shall operate as a waiver of such right or any otherright. A waiver on any one occasion shall not be construed as a bar or waiverof any right or remedy on any future occasion. 

**20.6**                        Any demand upon or notice to Debtor thatSecured Party may give shall be effective when served personally or depositedin the mails or by facsimile or courier addressed to the address shown above,such other address as may be designated in writing to Secured Party from timeto time, or to any address at which Secured Party customarily communicates withDebtor. 

**20.7**                        If there is more than one Debtor hereunder,all references to “Debtor” shall mean all or any one or more of them. 

**20.8**                        Whether or not litigation or arbitration iscommenced, Debtor shall pay to Secured Party on demand any and all costs andexpenses reasonably incurred or expended by Secured Party in the repossession,protection, storage, maintenance, and liquidation of any Collateral and othersecurity, in the collection or attempted collection of the Collateral and inprotecting and enforcing the rights of Secured Party hereunder, including suchadditional sums as any court or arbitrator(s) shall adjudge reasonable asattorney fees, including but not limited to costs and attorney fees incurred inany appellate proceeding, proceeding under the bankruptcy code or receivership.

**20.9**                        This Security Agreement shall be effectivewhen signed by Debtor and delivered to Secured Party.

**20.10**                 Whenever there is no outstanding Obligationand no commitment on the part of Secured Party under any agreement which mightgive rise to an Obligation, Debtor may terminate 

 

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this Security Agreement bynotice in writing delivered to Secured Party at the office of Secured Party towhich this Security Agreement was delivered. Prior to such termination, thisshall be a continuing agreement in every respect. 

**20.11**                 Even if this Security Agreement and anysecurity interest granted herein has been terminated in whole or in part(pursuant to Section 20.9 or otherwise), if any payment or other transfer toSecured Party on account of any Obligation(s) is avoided or set aside under anyapplicable bankruptcy, insolvency or fraudulent conveyance law or law for therelief of debtors or on any other basis, or if Secured Party in its solediscretion consents in good faith to any such avoidance or set aside, suchObligation(s) and the security interest granted herein shall be deemed tocontinue or be reinstated to the extent of such payment or transfer. 

**20.12**                 Any disputes claims, counterclaims, anddefenses, including those based on or arising from any alleged tort (“Claims”)relating in any way to this Security Agreement, or breach thereof, shall besettled by arbitration in accordance with the rules of the American ArbitrationAssociation or any organization which is the successor thereto, and judgmentupon the award rendered pursuant to such arbitration may be rendered in anycourt having jurisdiction thereof. The fees and expenses of any arbitrationshall be borne by the losing party. The prevailing party shall be entitled torecover from the losing party the expenses of its witnesses and reasonableattorney fees. If either party institutes any judicial proceeding relating tothis Security Agreement, such action shall not be a waiver of the right tosubmit any Claim to arbitration. In addition, each has the right before,during, and after any arbitration to exercise any number of the followingremedies, in any order or concurrently: (i) setoff; (ii) self-helprepossession; (iii) judicial or non-judicial foreclosure against real orpersonal property collateral; and (iv) provisional remedies, including injunction,appointment of receiver, attachment, claim and delivery and replevin. 

**20.13**                 This Security Agreement shall be governed byand construed and enforced in accordance with the laws of the State ofWashington without regard to conflict of law principles.  Any legal action taken in connection withthis Security Agreement shall be commenced in Spokane, Washington, and theparties agree that they will be subject to the jurisdictions of the Courts ofSpokane County, Washington.  

**20.14**                 If anything in this Security Agreement isheld to be illegal, then only that portion is void and not the entire SecurityAgreement.

**20.15**                 Secured Party shall use ordinary reasonablecare in the physical preservation and custody of the Collateral in itspossession, but shall have no other obligation to protect the Collateral or itsvalue, and in particular, Secured Party shall have no responsibility for thecollection or protection of any income on the Collateral; preservation ofrights against parties thereto or against third persons; ascertaining anymaturities, calls, conversions, exchanges, offers, tenders, or similar mattersrelating to any of the Collateral; nor for informing the undersigned withrespect to any of the above, whether or not Secured Party has or is deemed tohave knowledge thereof. The undersigned hereby waives presentment, protest,demand, or notice of non-payment to the undersigned, or to any maker, endorser,surety, guarantor, or other person who is a party to any of the Collateral, andagrees that Secured Party shall have no obligations to commence litigation,notify debtor or take any other action to prevent the running of any statute oflimitations. Further, the undersigned waives presentment, protest, demand, ornotice of non-payment to the undersigned of any portion of the indebtedness andSecured Party may grant an extension of time to or renew any obligation of theundersigned or any one or more of them, or exchange or release any Collateralor other security without first obtaining the consent of the undersigned.

 

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**21.****                              ****AGREEMENT AND ADDENDA**.  This Security Agreementsupports and backs the Warehousing Line of Credit Promissory Note dated as ofFebruary 20, 2002. 

 

Signed and Delivered toSecured Party as of the day and year first written above.

 

**GENESIS FINANCIAL, INC.**

 

 
| **/s/Micahel  A. Kirk**         |   |
|---------------------------------|--------|
| **Michael A. Kirk, President**  |   |
|                            |
| **ATTEST:**                     |
|                            |
|                            |
| **/s/Douglas  B. Durham**       |   |
| **Douglas B. Durham, Chairman** |   |
|                                 |        |  |

 

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