Exhibit 10.2            GenesisFinancial, Inc. Convertible Note dated January 25, 2002

 

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**The securities evidenced by this Note and theunderlying Conversion Stock have not been registered under the Securities Actof 1933, as amended.  Such securitiesmay not be sold or otherwise transferred except in a transaction which, in theopinion of securities counsel reasonably satisfactory to GENESIS, is exemptfrom registration under applicable federal securities laws or pursuant to aneffective Registration Statement thereunder.**

 

**GENESIS FINANCIAL,INC.**

** **

**CONVERTIBLENOTE**

 
| $200,000 |   | January 25, 2002 |   | Spokane, Washington |
|----------|--------|------------------|--------|---------------------|

 

FOR VALUE RECEIVED, GenesisFinancial, Inc., a Washington Corporation with offices at 200 North MullanRoad, Suite 217, Spokane, Washington 99206 (“GENESIS”) promises to pay to theorder of TEMPORARY FINANCIAL SERVICES, INC., a Washington corporation withoffices at 200 North Mullan Road, Suite 213, Spokane, Washington 99206 (“TFS”),the principal sum of $200,000.00 United States Currency, together with interestthereon accruing from and after January 25, 2002, as specified in thisConvertible Note (the “Note”).

 

This NOTE is issued upon thefollowing terms, to which TFS assents and GENESIS, for itself and itssuccessors, agrees as follows:

 

1.                   InterestRate.  This NOTE shall bear interest at the rate of Six Percent (6%) perannum.  Simple interest shall accrue onthis NOTE until maturity.  In the eventthis NOTE is not paid on the maturity date, this NOTE shall thereafter bearinterest until paid at the rate of Twelve Percent (12%) per annum.

 

2.                   Maturity.  Theentire outstanding unpaid principal and all accrued but unpaid interest shallbe due and payable at maturity on January 1, 2004; by cash, cashier’s check, orwire transfer in lawful money of the United States at TFS’s address or at suchother place as TFS may designate in writing ten days before maturity.  

 

3.                   Transfer.  ThisNOTE is non-transferable without the prior written consent of TFS.  Upon an approved transfer, any NOTE executedand delivered to the transferee shall bear the following restrictive legend:

 

“The securities evidenced bythis certificate have not been registered under the Securities Act of 1933, asamended.  Such securities may not besold or otherwise transferred except in a transaction which, in the opinion ofsecurities counsel reasonably satisfactory to GENESIS, is exempt fromregistration under applicable federal securities laws or pursuant to aneffective Registration Statement thereunder.

 

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4.                   NOTEHolder Not Shareholder.  This NOTE does not confer upon TFS any rightto vote or consent or to receive notice as a shareholder of GENESIS by virtueof TFS’ ownership of the NOTE.  Thisprovision does not affect rights of TFS as a shareholder of GENESIS throughownership of GENESIS common shares.

 

5.                   ConversionRights.  TFS, in its sole discretion at any timeafter January 1, 2003, and prior to maturity, may convert it, in whole only,into the face amount equivalent of 200,000 fully paid and nonassessable sharesof the Common Stock of GENESIS (the “Common Stock”) at an equivalent price ofOne Dollar ($1.00) per share of Common Stock. The shares issuable pursuant to this conversion feature are hereafterreferred to as “Conversion Stock.”

 

The conversion of the NOTEshall be on the following terms and conditions:

 

(a)                                  In the event TFS notifies GENESIS of itsintention to convert, GENESIS may, at its sole election, pay accrued interestin cash or may convert the accrued interest into Conversion Stock at the rateof one share for each one dollar of interest accrued to the date of conversion,rounded to the nearest whole dollar.

 

(b)                                 In order to convert this NOTE into ConversionStock, TFS shall surrender, at the principal office of GENESIS, this NOTE dulyendorsed to GENESIS and give written notice to GENESIS that TFS elects toconvert this NOTE.  TFS shall thereafterbe treated for all purposes as the record holder of the Conversion Stock intowhich this NOTE is convertible.  Aspromptly as possible thereafter, GENESIS shall issue and deliver to TFScertificates representing the number of shares of Conversion Stock into whichthis NOTE has been converted. Thereupon, this NOTE shall be deemed to be satisfied and discharged, andthe shares of Conversion Stock shall be fully paid and nonassessable.  Each certificate representing the shares ofcommon stock into which this NOTE has been converted shall bear the restrictivelegend set forth in Paragraph 3 herein.

 

(c)                                  No conversion shall be made by GENESIS while itsstock transfer books are closed. Any request for conversion received while thestock transfer books are closed shall be given effect as soon as the stocktransfer books are reopened.

 

(d)                                 The Board of Directors of the Corporation shallhave the right from time to time to adopt specific rules of procedure to carryout the full intent of the Conversion provisions set forth herein and to do allreasonable acts necessary thereto, provided that such rules and acts shall notviolate the specific terms of this debt instrument.

 

6.                   Adjustmentin Number of Shares.  The number of shares of Conversion Stockissuable upon conversion of this NOTE will be adjusted from time to time toreflect changes in the capitalization of GENESIS.  When the number of shares of Common Stock of GENESIS outstandingat any given time is changed to reflect a stock dividend, merger,recapitalization, or other similar adjustment is made, the number of shares ofConversion Stock issuable on conversion will be adjusted up or down to give economicaffect to the conversion rights.  Forexample, if the conversion rights entitle the holder of the NOTE to 

 

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200,000 shares on January 1 and on January 2GENESIS issues a one for one stock dividend, the NOTE would thereafter beconvertible into 400,000 shares.

 

7.                   Notices.  So longas this NOTE is outstanding, Genesis will notify TFS or the NOTE holder, as thecase may be, of any change in the capitalization of GENESIS that would or couldrequire an adjustment, in accordance with Paragraph 6, in the number of sharesof Conversion Stock into which the NOTE may be converted.

 

8.                   Eventsof Default.  The following events shall constitute eventsof default under this NOTE and shall entitle TFS to the remedies set forth.

 

a.                   ThisNOTE shall be in default upon the failure of GENESIS to pay any interest orprincipal payment in accordance with the terms of this NOTE.

 

b.                  ThisNOTE shall be in default in the event: GENESIS files any petition under any section of the United StatesBankruptcy Act; any petition is filed against GENESIS under the United StatesBankruptcy Act; GENESIS is adjudged bankrupt; or GENESIS makes any generalassignment or trust deed or trust mortgage for the benefit of creditors; ortakes advantage of any other insolvency act; or if any receiver, trustee,conservator, custodian, or similar officer is appointed for GENESIS.

 

c.                   ThisNOTE shall be in default if GENESIS is declared to be in default under anysenior credit facility.

 

9.                   Remedieson Default.  From and after the date of any default, theNOTE may be accelerated and TFS may demand payment of the entire unpaid balanceand all accrued but unpaid interest. Upon a default, it shall not be necessary for the NOTE holder to declarethe NOTE due. 

 

10.                Prepayment.  ThisNOTE be prepaid at any time after January 1, 2003.  Upon notification of prepayment, TFS shall have thirty days inwhich to elect to convert the NOTE to Conversion Stock, or to accept theprepayment amount.

 

11.                Costsof Collection.  If TFS undertakes collection of this NOTE,GENESIS agrees to pay all costs of collection, including a reasonableattorney’s fee.  GENESIS waivespresentment for payment, notice of non-payment, protest and demand, and noticeof protest, of demand and of dishonor, and the benefit of any exemption laws.

 

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12.                                 Notices.  Any notice to GENESISprovided in this NOTE shall be in writing and shall be given and effective upon(1) actual delivery to GENESIS or (2) mailing such notice by first-class U.S.mail, addressed to GENESIS at the address listed above or such other address asGENESIS may designate or (3) by facsimile transmission directed to GENESIS atGENESIS’s then current facsimile number. Any notice to TFS provided in this NOTE shall be in writing and shall begiven and effective upon (1) actual delivery to TFS or (2) mailing such noticeby first-class U.S. mail, addressed to TFS at TFS’s address aforesaid or suchother address as TFS may designate by notice to GENESIS or (3) by facsimiletransmission directed to TFS at TFS’s then current facsimile number.  If notice is sent to either party byfacsimile transmission, the original hard copy shall be forwarded to the partyentitled thereto within ten (10) days of facsimile transmission.

 

13.                                 Miscellaneous. This NOTE is to be construed and enforced in accordance with the laws ofthe State of Washington.  Jurisdictionfor enforcement and collection of the NOTE shall be the State of Washington,and venue shall be Spokane County, Washington. 

 
|   |   | GENESIS:                    |
|--------|--------|-----------------------------|
|   |   |                        |   |
|   |   |                        |   |
|   |   | By:                         | /s/Michael A.  Kirk |   |
|   |   | Michael A.  Kirk, President |   |

 

 

ATTEST:

 

 
| /s/Brad E.  Herr        |   |
|-------------------------|--------|
| Brad E. Herr, Secretary |   |   |
|                         |        |  |  |

 

 

Accepted by TFS this 25thday of January, 2002.

 

 
| /s/John R.  Coghlan        |   |   |
|----------------------------|--------|--------|
| John R. Coghlan, President |   |

 

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