Exhibit 10.1.           Genesis Financial, Inc. StockInvestment Agreement dated January 25, 2002

 

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# GENESIS FINANCIAL, INC.

# STOCK INVESTMENT AGREEMENT

 

This Agreement is made as of January 25,2002, among GENESIS FINANCIAL, INC., a Washington corporation (the “GENESIS”),and the Purchasers listed in Section 1.1.2, below (the “Purchasers”).

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# 1.                                       Authorizationand Sale of Common Stock and Convertible Debt.

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## 1.1.                              Common Stock.

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## 1.1.1.                     Authorization.  GENESIS will authorize the sale and issuanceof up to 500,000 shares (the “Shares”) of its common stock (the “CommonStock”).

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## 1.1.2.                     Sale of Common Stock. Subject tothe terms and conditions hereof, GENESIS will severally issue and sell to eachof such Purchasers, and the Purchasers will severally buy from GENESIS, the totalnumber of shares of Common Stock at the aggregate purchase price set forth inthe following table.  References to“Purchaser” in the remainder of this Stock Investment Agreement (this“Agreement”) will be to the individual listed purchasers set forth in theTable, or all of the listed purchasers, as the context requires.

 
| **Name**                                             |   | **Shares** |   | **Consideration**                                                                           |    |
|------------------------------------------------------|--------|------------|--------|---------------------------------------------------------------------------------------------|---------|
| Michael A. Kirk (“Kirk”)                   |   | 25,000     |   | $                                                                                           | 25,000  |   |
| Douglas B. Durham (“Durham”)               |   | 25,000     |   | $                                                                                           | 25,000  |   |
| Temporary Financial Services, Inc. (“TFS”) |   | 200,000    |   | $                                                                                           | 200,000 |   |
| Temporary Financial Services, Inc. (“TFS”) |   | 250,000    |   | 50,000  shares of TFS Common Stock valued at $5.00 per share or $250,000 in the  aggregate. |    |
| Totals                                               |   | 500,000    |   | $                                                                                           | 500,000 |   |

 

1.2.                              ConvertibleDebt.  In addition to the Common Stockbeing purchased pursuant to Section 1.1, TFS will also loan Genesis $200,000 inthe form of Convertible Debt, evidenced by a Convertible Note (the “ConvertibleNote”), incorporating the following terms and conditions is attached as ExhibitA.

 

1.2.1.                     TheConvertible Note will mature on January 4, 2004.

 

1.2.2.                     Theinterest rate will be 6%, and interest shall accrue from the date the principalamount is advanced to GENESIS.

 

1.2.3.                     TFSwill enter into appropriate subordination agreements with GENESIS’ seniorlender if required by Genesis’ senior secured lender or if necessary tofacilitate favorable terms on the senior secured debt.

 

1.2.4.                     TheConvertible Note will contain loan covenants and default provisions that mirrorthe default provisions of any senior secured debt.

 

1.2.5.                     TheConvertible Note will be convertible into additional shares of Genesis’ commonstock at the rate of $1.00 per share for the principal at the date ofconversion (up to a maximum of 200,000 shares).  If the holder of the Convertible Note elects to convert, theinterest accrued to the date of conversion may be converted into stock at therate of $1.00 per share, or paid in cash, at the election

 

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of Genesis. The Convertible Debt may be converted into Common Stock at any timeafter January 1, 2003.

 

1.2.6.                     Thecommon stock underlying the conversion feature of the Convertible Note ishereafter referred to as the Conversion Stock.

 

# 2.                                       ClosingDates: Delivery

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## 2.1.                              Closing Dates. The closing of thepurchase and sale of the Common hereunder shall be held at the offices ofTemporary Financial Services, Inc. at 1:00 p.m., on January 25, 2002 (the“Closing”), or at such other time and place that GENESIS and the Purchasersshall agree (the date of the Closing is hereinafter referred to as the “ClosingDate”).

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## 2.2.                              Delivery.

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## 2.2.1.                     At the Closing, GENESIS willdeliver to each Purchaser a certificate or certificates, registered in suchPurchaser’s name and in the amount as set forth on the Section 1.1.2, againstpayment of the purchase price.

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## 2.2.2.                     At the Closing, GENESIS willdeliver to TFS, the executed Convertible Note against payment of the faceamount.

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## 2.2.3.                     At Closing, TFS will deliverpayment for the Common Stock, the Convertible Note, and a Certificate for50,000 shares of TFS Common Stock.

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# 3.                                       Representationsand Warranties of GENESIS

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## 3.1.                              Organization and Standing;Articles and Bylaws. GENESIS is a corporation duly organized and existingunder, and by virtue of, the laws of the State of Washington and is in goodstanding under such laws. GENESIS has requisite corporate power and authorityto own and operate its properties and assets, and to carry on its business aspresently conducted and as proposed to be conducted. GENESIS is not presently qualifiedto do business as a foreign corporation in any jurisdiction, and the failure tobe so qualified will not have a materially adverse affect on GENESIS’ businessas now conducted or as now proposed to be conducted.

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## 3.2.                              Corporate Power. GENESIS willhave at the Closing Date all requisite legal and corporate power and authorityto execute and deliver this agreement, to sell and issue the Common Stockhereunder, and to carry out and perform its obligations under the terms of thisAgreement.

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## 3.3.                              Subsidiaries. GENESIS has nosubsidiaries or affiliated companies and does not otherwise own or control,directly or indirectly, any equity interest in any corporation, association orbusiness entity.

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## 3.4.                              Capitalization. The authorizedcapital stock of GENESIS consists, or at the Closing Date will consist, of100,000,000 shares of common stock, of which 1,400,000 shares are issued andoutstanding, and 10,000,000 shares of Preferred Stock, none of which

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## is issued and outstanding. The outstandingshares have been duly authorized and validly issued, and are fully paid andnonassessable. GENESIS has reserved shares of Common Stock for issuancehereunder, 224,000 shares of common stock for issuance upon conversion of theConvertible Note, and 650,000 shares of common stock for issuance to employees,consultants, or directors under stock plans or arrangements approved by itsBoard of Directors. No options to purchase shares of common stock are currentlyissued and outstanding. All outstanding securities of GENESIS were issued incompliance with applicable federal and state securities laws.

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## 3.5.                              Authorization. All corporateaction on the part of GENESIS, its directors and shareholders necessary for theauthorization, execution, delivery and performance of this Agreement byGENESIS, the authorization, sale, issuance and delivery of the Common Stock,the Convertible Note and the Conversion Stock and the performance of all ofGENESIS’ obligations hereunder has been taken or will be taken prior to theClosing. This Agreement, when executed and delivered by GENESIS, shallconstitute a valid and binding obligation of GENESIS, enforceable in accordancewith its terms. The Shares, when issued in compliance with the provisions ofthis Agreement, will be validly issued, fully paid and nonassessable.

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## 3.6.                              Financial Statements. GENESIS isa newly formed company and all of the company’s initial capitalization will bethe result of the transactions described in this Agreement.  Accordingly, financial statements will notbe required prior to the Closing Date.

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## 3.7.                              Material Liabilities. GENESIShas no material liabilities or obligations, except the liabilities andobligations incurred in connection with the organization of the corporation andthe preparation of documentation for this transaction.

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## 3.8.                              Litigation, etc. There are noactions, suits, proceedings or investigations pending against GENESIS or itsproperties before any court or governmental agency (nor, to the best of GENESIS’knowledge, is there any reasonable basis for or threat of such litigation).

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## 3.9.                              Employees. To the best ofGENESIS’ knowledge, no employee of GENESIS is in violation of any term of anyemployment contract or any other contract or agreement relating to therelationship of such employee with GENESIS or any other party as a result ofthe business conducted or to be conducted by GENESIS.

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## 3.10.                        Certain Transactions. GENESIS isnot indebted, directly or indirectly, to any of its officers, directors orshareholders or to their respective spouses or children, and none of itsofficers, directors or, to the best of GENESIS’ knowledge, shareholders, or anymembers of their immediate families, are indebted to GENESIS.

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## 3.11.                        Material Contracts andObligations. Except as noted on Exhibit B (attached), GENESIS is not subject toany material contracts or obligations.

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## 3.12.                        Registration Rights. Except asset forth in this Agreement, GENESIS is not under any contractual obligation toregister any of its presently outstanding securities or any of its securitieswhich may hereafter be issued.

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## 3.13.                        Governmental Consent, etc. Noconsent, approval or authorization of (or designation, declaration or filingwith) any governmental authority is required in connection with the validexecution and delivery of this Agreement, or the offer, sale or issuance of theCommon Stock, or the consummation of any other transaction contemplated hereby.

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## 3.14.                        Offering.  The offer, sale and issuance of the CommonStock and the Convertible Debt to be issued in conformity with the terms ofthis Agreement, constitute transactions exempt from the registrationrequirements of Section 5 of the Securities Act of 1933, as amended (the“Securities Act”).

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## 3.15.                        Brokers or Finders; OtherOffers. Except as described in Exhibit C (attached), GENESIS has not incurred,and will not incur, directly or indirectly, as a result of any action taken byGENESIS, any liability for brokerage or finders’ fees or agents’ commissions orany similar charges in connection with this Agreement.

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## 3.16.                        Employee Benefit Plans. GENESISdoes not have any Employee Benefit Plan as defined in the Employee RetirementIncome Security Act of 1974, as amended. It is understood by the parties that GENESIS intends to adopt anEmployee Benefit Plan following the Closing Date.  The Employee Benefit Plan will allow for grants of incentivestock options (ISO’s), and for Non-qualified Stock Options (NQSO’s).  As described in Section 3.4., GENESISintends to reserve up to 650,000 Common shares for distribution under theplan.  Of the 650,000 shares reservedfor issuance under the plan, options for 500,000 shares are reserved for keyemployees and/or consultants of GENESIS, and 150,000 may be directed to personsselected by TFS.  The grant of optionsunder the plan will be subject to the discretion and approval of the Board ofDirectors of GENESIS.  Any optionsissued to Kirk, Durham, TFS, Coghlan, or their affiliates will include vestingat 20% per year over a five year period and an option price of 120% of the fairmarket value of the shares at the time of the grant.

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## 3.17.                        Minute Books. The minute booksof GENESIS provided to counsel for the Purchasers contain a complete summary ofall meetings of directors and shareholders since the time of incorporation andreflect all transactions referred to in such minutes accurately in all materialrespects.

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## 3.18.                        Disclosure. This Agreement withthe Exhibits and GENESIS’ Business Plan, when taken as a whole, do not containany untrue statement of a material fact or omit to state a material factnecessary in order to make the statements contained herein or therein notmisleading in light of the circumstances under which they were made. TheBusiness Plan and the financial projections contained in the Business Plan wereprepared in good faith; however, GENESIS does not warrant that it will achievesuch financial projections.

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# 4.                                       SECTION 4 -Representations and Warranties of the Purchasers

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# Each Purchaser hereby severallyrepresents and warrants to GENESIS with respect to the purchase of the Sharesas follows:

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## 4.1.                              Experience. It has substantialexperience in evaluating and investing in private placement transactions ofsecurities in companies similar to GENESIS so that it is capable of evaluatingthe merits and risks of its investment in GENESIS and has the capacity toprotect its own interests.

 

## 4.2.                              Investment Intent. It isacquiring the Common Stock for investment for its own account, not as a nomineeor agent, and not with the view to, or for resale in connection with, anydistribution thereof. It understands that the Shares and the Conversion Stockhave not been, and will not be, registered under the Securities Act by reasonof a specific exemption from the registration provisions of the Securities Act,the availability of which depends upon, among other things, the bona fidenature of the investment intent and the accuracy of such Purchaser’srepresentations as expressed herein and in the Suitability Questionnaire.

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## 4.3.                              Rule 144. It acknowledges thatthe Common Stock must be held indefinitely unless subsequently registered underthe Securities Act or unless an exemption from such registration is available.It is aware of the provisions of Rule 144 promulgated under the Securities Act(Rule 144) which permits limited resale of shares purchased in a privateplacement subject to the satisfaction of certain conditions, including, amongother things, the existence of a public market for the shares.

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## 4.4.                              No Public Market. It understandsthat no public market now exists for any of the securities issued by GENESISand that GENESIS has made no assurances that a public market will ever existfor GENESIS’ securities.

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## 4.5.                              Access to Data. It has had anopportunity to discuss GENESIS’ business, management and financial affairs withGENESIS’ management and has had the opportunity to review GENESIS’ facilitiesand Business Plan. It has also had an opportunity to ask questions of officersof GENESIS, which questions were answered to its satisfaction. It understandsthat such discussions, as well as any written information issued by GENESIS,including the Business Plan, were intended to describe certain aspects ofGENESIS’s business and prospects but were not a thorough or exhaustivedescription.

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## 4.6.                              Authorization. This Agreementwhen executed and delivered by such Purchaser will constitute a valid andlegally binding obligation of the Purchaser, enforceable in accordance with itsterms.

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## 4.7.                              Brokers or Finders. Except asdescribed in Exhibit C, GENESIS has not incurred and will not incur, directlyor indirectly, as a result of any action taken by such Purchaser, any liabilityfor brokerage or finders’ fees or agents’ commissions or any similar charges inconnection with this Agreement.

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# 5.                                       Purchasers’Conditions to Closing

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# The Purchasers’ obligations topurchase the Shares at the Closing are subject to the fulfillment of thefollowing conditions, the waiver of which shall not be effective against anyPurchaser who does not consent in writing thereto:

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## 5.1.                              Representations and WarrantiesCorrect. The representations and warranties made by GENESIS in Section 3 hereofshall be true and correct when made, and shall be true and correct on theClosing Date.

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## 5.2.                              Covenants. All covenants,agreements and conditions contained in this Agreement to be performed byGENESIS on or prior to the Closing Date shall have been performed or compliedwith in all material respects.

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## 5.3.                              Compliance with State SecuritiesLaws. GENESIS shall have obtained all permits and qualifications required byany state for the offer and sale of the Shares and the Convertible Debt(including the underlying stock to be issued on conversion), or shall have theavailability of exemptions therefrom.

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## 5.4.                              Legal Matters. All materialmatters of a legal nature which pertain to this Agreement and the transactionscontemplated hereby shall have been reasonably approved by counsel to thePurchasers.

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## 5.5.                              Directors. Effective as of theClosing Date, GENESIS’s Board of Directors will consist of Michael A. Kirk,Douglas B. Durham and Brad E. Herr.

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# 6.                                       SECTION 6 -GENESIS’s Conditions to Closing

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# GENESIS’s obligation to sell andissue the Shares at the Closing Date is, at the option of GENESIS, subject tothe fulfillment as of the Closing Date of the following conditions:

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## 6.1.                              Representations and WarrantiesCorrect. The representations made by the Purchasers in Section 4 hereof shallbe true and correct when made, and shall be true and correct on the ClosingDate.

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## 6.2.                              Compliance with State SecuritiesLaws. GENESIS shall have obtained all permits and qualifications required byany state for the offer and sale of the Shares and the Conversion Stock, orshall have the availability of exemptions therefrom.

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## 6.3.                              Legal Matters. All materialmatters of a legal nature which pertain to this Agreement, and the transactionscontemplated hereby, shall have been reasonably approved by counsel to GENESISand counsel to Purchasers.

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## 6.4.                              Grant of Option.  At or prior to Closing, TFS shall haveprovided to Kirk and Durham, an option to purchase up to 200,000 shares of theGenesis Common Stock that TFS is acquiring pursuant to this Stock InvestmentAgreement.  The form of the Option isattached as Exhibit D.

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# 7.                                       SECTION 7 -Affirmative Covenants of GENESIS

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# GENESIS hereby covenants andagrees as follows:

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## 7.1.                              Financial Information. Subjectto Section 7.4, GENESIS will mail the following reports to each Purchaser forso long as such Purchaser is a holder of any of the Common Stock or ConvertibleNote:

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### 7.1.1.                     As soon as practicable after theend of each fiscal year, and in any event within 90 days thereafter,consolidated balance sheets of GENESIS and its subsidiaries, if any, as of theend of such fiscal year, and consolidated statements of operations andconsolidated statements of cash flows of GENESIS and its subsidiaries, if any,for such year, prepared in accordance with generally accepted accountingprinciples and setting forth in each case in comparative form similarinformation for the previous fiscal year, all in reasonable detail and auditedor reviewed by independent public accountants selected by GENESIS.

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### 7.1.2.                     As soon as practicable after theend of the first, second and third quarterly accounting periods in each fiscalyear of GENESIS and in any event within 45 days thereafter, a consolidatedbalance sheet of GENESIS and its subsidiaries, if any, as of the end of eachsuch quarterly period, and consolidated statements of operations andconsolidated statements of cash flows of GENESIS and its subsidiaries, if any,for such period and for the current fiscal year to date, prepared in accordancewith generally accepted accounting principles (other than for accompanyingnotes), all in reasonable detail and certified by an officer of GENESIS.

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## 7.2.                              Assignment of Rights toFinancial Information. The rights granted pursuant to Section 7.1 may not beassigned or otherwise conveyed by any Purchaser or by any subsequent transfereeof any such rights without the prior written consent of GENESIS.

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## 7.3.                              Termination of Covenants. Thecovenants set forth in Sections 7.1 shall terminate and be of no further forceor effect at such time as GENESIS is required to file reports pursuant toSections 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the“Exchange Act”).

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## 7.4.                              Key Man Life Insurance. As soonas possible after the Closing Date, GENESIS shall use its best efforts toobtain and shall thereafter maintain key man life insurance on the lives ofMichael A. Kirk and Douglas B. Durham in the amount of $-0- each, with allproceeds payable to GENESIS.

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## 7.5.                              Employment Agreements.  GENESIS will enter into employmentagreements with Kirk and Durham.  Theform of the employment agreements are included as Exhibit E (attached).

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## 7.6.                              Confidentiality Agreements.Unless otherwise determined by the Board of Directors, all future employees andconsultants of GENESIS who have access to confidential information shall berequired to execute and deliver Confidentiality Agreements in substantially theform of Exhibit F attached hereto. Prior to Closing, Genesis shall

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## have obtained such Confidentiality Agreementsfrom Kirk and Durham (contained in their employment agreements).

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## 7.7.                              Taxes and Other Liabilities.GENESIS will pay and discharge, before the same become delinquent and beforepenalties accrue thereon, all undisputed taxes, assessments and governmentalcharges upon or against it or any of its properties, and all its otherundisputed material liabilities at any time existing.

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## 7.8.                              Notice of Litigation andDisputes. GENESIS will promptly notify each Purchaser that is entitled toreceive financial statements pursuant to Section 7.1 of any suits or litigationinstituted against it, if such suit would have a material adverse effect onGENESIS.

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## 7.9.                              Election of Directors. So longas at least one-quarter of the Common Stock issued hereunder and/or uponconversion of the Convertible Note are held of record by Purchasers, (a) KIRKand DURHAM agree that in any election of a director or directors of GENESIS,they shall vote all of their shares of capital stock of GENESIS in such amanner that immediately after such election GENESIS’ Board of Directors shallinclude at least one representative selected by Temporary Financial Services,Inc., (b) GENESIS will use its best efforts to cause such representative(s) tobe elected to GENESIS’s Board of Directors; and (c) in the event of any vacancyon the Board of Directors, GENESIS and KIRK and DURHAM will use their bestefforts to fill the vacancy such that the Board will include therepresentative(s) selected by Temporary Financial Services,Inc.  If GENESIS is determined to be in defaultunder its senior credit facility, or is in default under the Convertible Note,TFS will be entitled to the number of representatives equal to a majority ofthe Board of Directors, and that number shall be substituted for “one” inParagraph 7.8(a), above.

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## 7.10.                        Use of Proceeds. GENESIS shalluse the proceeds from the sale of the Shares and the Convertible Debt forworking capital in accordance with the financial projections included in theBusiness Plan.

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## 7.11.                        Rule 144 Reporting. With a viewto making available to the Purchasers the benefits of certain rules andregulations of the Securities and Exchange Commission which may permit the saleof the Common Stock and Conversion Stock to the public without registration,after such time as a public market exists for the Common Stock of GENESIS,GENESIS agrees to use its best efforts to:

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### 7.11.1.               Make and keep public informationavailable, as those terms are understood and defined in Rule 144 under theSecurities Act, at all times after the date that GENESIS becomes subject to thereporting requirements of the Exchange Act;

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### 7.11.2.               Use its best efforts to filewith the Securities and Exchange Commission in a timely manner all reports andother documents required of GENESIS under the Securities Act and the ExchangeAct (at any time after it has become subject to such reporting requirements);and

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### 7.11.3.               So long as a Purchaser owns anyRestricted Securities (as defined in Section 8.1 hereof), furnish to thePurchaser forthwith upon request a written statement by GENESIS as to itscompliance with the reporting requirements of Rule 144, and of the SecuritiesAct and the Exchange Act (at any time after it has become subject to suchreporting requirements), a copy of the most recent annual or quarterly reportof GENESIS filed with the Securities and Exchange Commission, and such otherreports and documents of GENESIS and other information in the possession of orreasonably obtainable by GENESIS as a Purchaser may reasonably request inavailing itself of any rule or regulation of the Securities and ExchangeCommission allowing a Purchaser to sell any such securities withoutregistration.

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# 8.                                       SECTION 8 —Restrictions on Transferability of Securities; Compliance with Securities Act;Registration Rights

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## 8.1.                              Restrictions on Transferability.The Common Stock and the Convertible Note and/or the Conversion Stock shall notbe sold, assigned, transferred or pledged except in compliance with applicablelaws and regulations governing the transfers of restricted securities.

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## 8.2.                              Restrictive Legend. Eachcertificate representing (i) the Common Stock, (ii) the Convertible Note, (iii)the Conversion Stock and (iv) any other securities issued in respect of theCommon Stock, the Convertible Note, or the Conversion Stock, upon any stocksplit, stock dividend, recapitalization, merger, consolidation or similarevent, shall be stamped or otherwise imprinted with a legend in the followingform (in addition to any legend required under applicable state securitieslaws):

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# THE SHARES REPRESENTED BY THISCERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, ASAMENDED. SUCH SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATEDIN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIESUNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THATSUCH REGISTRATION IS NOT REQUIRED. COPIES OF THE AGREEMENT COVERING THEPURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NOCOST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THESECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THECORPORATION.

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## 8.3.                              Each Purchaser and Holderconsents to GENESIS making a notation on its records and giving instructions toany transfer agent of the Shares or the Conversion Stock in order to implementthe restrictions on transfer established in this Section 8.

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## 8.4.                              Registration Rights.

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### 8.4.1.                     Notice of Registration. If atany time or from time to time GENESIS shall determine to register any of itssecurities, either for its own account or the account of a security holder or holders,other than a registration relating solely to employee benefit plans or aregistration relating solely to a Commission Rule 145 transaction, GENESISwill:

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#### 8.4.1.1.                                    promptlygive to each Purchaser under this Agreement written notice thereof; and

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#### 8.4.1.2.                                    includein such registration (and any related qualification under blue sky laws orother compliance), and in any underwriting involved therein, all theRegistrable Securities specified in a written request or requests, made within20 days after receipt of such written notice from GENESIS, by any Purchaser.

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#### 8.4.1.3.                                    Forthis purpose, the Registrable Securities include all of the Common Stock, andthe Conversion Stock (if any is then outstanding), being purchased byPurchasers in accordance with the terms of this Stock Investment Agreement. Inthis Section 8, the owners of the Registrable Securities at the time of theproposed registration are referred to as Holders of the securities.

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### 8.4.2.                     Underwriting. If theregistration of which GENESIS gives notice is for a registered public offeringinvolving an underwriting, GENESIS shall so advise the Purchasers as a part ofthe written notice given pursuant to Section 8.4.1.1. In such event the rightof any Purchaser to registration pursuant to this Section 8.4 shall beconditioned upon:

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### 8.4.2.1.                                    such Purchaser’s participationin such underwriting and the inclusion of such Purchaser’s RegistrableSecurities in the underwriting to the extent provided herein.

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### 8.4.2.2.                                    All Purchasers proposing todistribute their securities through such underwriting shall (together withGENESIS and any other shareholders distributing their securities through suchunderwriting) enter into an underwriting agreement in customary form with themanaging underwriter selected for such underwriting by GENESIS. Notwithstandingany other provision of this Section 8.4, if the managing underwriter determinesthat marketing factors require a limitation of the number of shares to beunderwritten, the managing underwriter may limit the Registrable Securities tobe included in such registration.

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### 8.4.2.2.1.                           GENESIS shall so advise allHolders and the number of shares of Registrable Securities that may be includedin the registration and underwriting shall be allocated among all Holders inproportion, as nearly as practicable, to the respective amounts of RegistrableSecurities held by such Holders at the time of filing the registration

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### statement. To facilitate the allocation ofshares in accordance with the above provisions, GENESIS may round the number ofshares allocated to any Holder or other shareholder to the nearest 100 shares.

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### 8.4.2.2.2.                           If any Holder or othershareholder disapproves of the terms of any such underwriting, he may elect towithdraw therefrom by written notice to GENESIS and the managing underwriter.Any securities excluded or withdrawn from such underwriting shall be withdrawnfrom such registration, and shall not be transferred in a public distributionprior to 90 days after the effective date of the registration statementrelating thereto, or such other shorter period of time as the underwriters mayrequire. GENESIS may include shares of Common Stock held by shareholders otherthan Holders in a registration statement pursuant to this Section 8.6 to theextent that the amount of Registrable Securities otherwise includible in suchregistration statement would not thereby be diminished.

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### 8.4.3.                     Right to Terminate Registration.GENESIS shall have the right to terminate or withdraw any registrationinitiated by it under this Section 8.4 prior to the effectiveness of suchregistration whether or not any Holder has elected to include securities insuch registration.

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## 8.5.                              Limitations on SubsequentRegistration Rights. From and after the Closing Date, GENESIS shall not enterinto any agreement granting any holder or prospective holder of any securitiesof GENESIS registration rights with respect to such securities unless (i) suchnew registration rights, including standoff obligations, are on a pari passubasis with those rights of the Holders hereunder; or (ii) such new registrationrights, including standoff obligations, are subordinate to the registrationrights granted Holders hereunder.

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## 8.6.                              Expenses of Registration.  All Registration Expenses incurred inconnection with registrations pursuant to Section 8.4, shall be borne byGENESIS. Unless otherwise stated, all Selling Expenses relating to securitiesregistered on behalf of the Holders and all other Registration Expenses shallbe borne by the Holders of such securities pro rata on the basis of the numberof shares so registered.

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## 8.7.                              Information by Holder. TheHolder or Holders of Registrable Securities included in any registration shallfurnish GENESIS such information regarding such Holder or Holders, theRegistrable Securities held by them and the distribution proposed by suchHolder or Holders as GENESIS may request in writing and as shall be required inconnection with any registration, qualification or compliance referred to inthis Section 8.

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## 8.8.                              Indemnification.  If a registration is effected pursuant toSection 8.4, GENESIS will indemnify Purchasers, and Purchasers will indemnifyGENESIS for any expenses, claims, losses, damages, or liabilities, which resultto the party seeking indemnification as a result of the misrepresentation orfailure to disclose one or more

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## material facts by the party from whomindemnification is sought.  Appropriateindemnification language will be included in the registration documents at thetime the registration is undertaken.

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# 9.                                       Purchasers’Right of First Refusal

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## 9.1.                              If a Founder (Kirk, Durham orTFS are the Founders) elects to offer any of the Common Stock or the ConversionStock for sale, the selling Founder must first offer to sell the offered CommonStock or Conversion Stock to the other Founders on the same terms that theselling Founder plans to offer the shares for sale to other parties.  The non-selling Founders shall then havethirty days to elect to purchase the Common Stock or Conversion Stock offeredby the Selling Founder on a pro rata basis. If any non-selling Founder does not wish to purchase the offered shares,the other non-selling Founders shall have an additional ten days to elect topurchase the non-electing shareholders share of the offered Common Stock orConversion Stock.  If any of the offeredCommon Stock or Conversion Stock is not purchased under this right of first refusal,for a period of six months thereafter, the selling Founder may offer the CommonStock or the Conversion Stock to others on the same terms proposed to the otherFounders.  If the selling Founder doesnot sell the offered Common Stock or Conversion Stock within six months, theoffer must be withdrawn and the selling Founder may thereafter reoffer to theother Founders in accordance with these rights of first refusal.

##  

## 9.2.                              These rights of first refusalshall expire upon the first to occur of the following: (i) the closing of thefirst public offering of the Common Stock of GENESIS to the general publicwhich is effected pursuant to a registration statement filed with, and declaredeffective by, the Commission under the Securities Act; (ii) January 1, 2004, or(iii) as to a Purchaser if such Purchaser no longer holds at least 25% ofshares of Common Stock and/or Conversion Stock (appropriately adjusted forRecapitalizations) purchased in accordance with the terms of this StockInvestment Agreement.

#  

# 10.                                 Co-SaleRights.

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## 10.1.                        If any Founder receives an offerfrom a third party to purchase some or all of that Founder’s Common Stock orConversion Stock whether purchased in this transaction or acquired in someother transaction, the other Founders shall have the right to participate inthe sale of the Common Stock or Conversion Stock on the same terms as theselling Founder.  The selling Foundermust notify the other Founders of the offer, and the other Founders will havethirty days after notice in which to elect to participate in the sale (or topurchase the shares offered under the rights of first refusal described inParagraph 9).  If a Founder does notelect to participate in the sale, the remaining Founders shall allocate thetotal number of shares to be offered to the purchasing party among them prorata based on the number of shares each holds immediately prior to the sale.

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## 10.2.                        These co-sale rights shallexpire upon the first to occur of the following: (i) the closing of the firstpublic offering of the Common Stock of GENESIS to the general

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## public which is effected pursuant to aregistration statement filed with, and declared effective by, the Commissionunder the Securities Act; (ii) January 1, 2004, or (iii) if such sellingFounder no longer holds at least 25% of shares of Common Stock and/orConversion Stock (appropriately adjusted for Recapitalizations) purchased inaccordance with the terms of this Stock Investment Agreement.

 

# 11.                                 Miscellaneous

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## 11.1.                        Governing Law. This Agreementshall be governed in all respects by the internal laws of the State ofWashington.

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## 11.2.                        Survival. The representations,warranties, covenants and agreements made herein shall survive anyinvestigation made by any Purchaser and the closing of the transactions contemplatedhereby.

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## 11.3.                        Successors and Assigns. Exceptas otherwise provided herein, the provisions hereof shall inure to the benefitof, and be binding upon, the successors, assigns, heirs, executors andadministrators of the parties hereto, provided, however, that the rights of aPurchaser to purchase the Shares shall not be assignable without the consent ofGENESIS.

##  

## 11.4.                        Entire Agreement: Amendment.This Agreement and the other documents delivered pursuant hereto at the Closingconstitute the full and entire understanding and agreement between the partieswith regard to the subjects hereof and thereof, and no party shall be liable orbound to any other party in any manner by any warranties, representations orcovenants except as specifically set forth herein or therein. Except asexpressly provided herein, neither this Agreement nor any term hereof may beamended, waived, discharged or terminated other than by a written instrumentsigned by the party against whom enforcement of any such amendment, waiver,discharge or termination is sought.

##  

## 11.5.                        Notices.

#  

# 11.5.1.               All noticesand other communications required or permitted hereunder shall be in writingand shall be mailed by registered or certified mail, postage prepaid, sent byfacsimile, or otherwise delivered by hand or by a nationally-recognizedovernight courier, addressed to the last designated address of the party toreceive the notification.  Initialaddresses are set forth on the signature page of this Stock InvestmentAgreement.  Addresses may be changedfrom time to time by written notice to the other parties in accordance withthis provision.

#  

# 11.5.2.               Each suchnotice or other communication shall for all purposes of this Agreement betreated as effective or having been given (a) in the case of personal deliveryor delivery by facsimile copy, on the date of such delivery, (b) in the case ofa nationally-recognized overnight courier, on the next business day after thedate when sent and (c) in the case of mailing, on the third business day followingthat on which the piece of mail containing such communication has beendeposited in

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# a regularlymaintained receptacle for the deposit of the United States mail, addressed andmailed as aforesaid.

##  

## 11.6.                        Delays or Omissions. Except asexpressly provided herein, no delay or omission to exercise any right, power orremedy accruing to any holder of any Shares, upon any breach or default ofGENESIS under this Agreement, shall impair any such right, power or remedy, norshall it be construed to be a waiver of any such breach or default, or anacquiescence therein, or of or in any similar breach or default thereafteroccurring

##  

## 11.7.                        Expenses. GENESIS and eachPurchaser shall bear its own expenses incurred on its behalf with respect tothis Agreement and the transactions contemplated hereby.

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## 11.8.                        Counterparts. This Agreement maybe executed in any number of counterparts, each of which may be executed byless than all of the Purchasers, each of which shall be enforceable against theparties actually executing such counterparts, and all of which together shallconstitute one instrument.

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## 11.9.                        Severability. In the event thatany provision of this Agreement becomes or is declared by a court of competentjurisdiction to be illegal, unenforceable or void, this Agreement shallcontinue in full force and effect without said provision.

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## 11.10.                  Titles and Subtitles. The titlesand subtitles used in this Agreement are used for convenience only and are notconsidered in construing or interpreting this Agreement.

 

The foregoing Agreement is hereby executed asof the date first above written.

##  

## GENESIS FINANCIAL,INC., aWashington corporation.

 
| By:                                    | /s/Michael A. Kirk         |                              |   |
|----------------------------------------|----------------------------|-----------------------------------|--------|
|                                   | Michael A. Kirk, President |                              |   |
|                                   |                       |
| By:                                    | /s/Brad E. Herr            |                              |   |
|                                   | Brad E. Herr, Secretary    |                              |   |
|                                   |                       |
| PURCHASERS                             |                       |
|                                   |                       |
| /s/Michael A. Kirk                     |                       | /s/Douglas A. Durham              |   |
| Michael A. Kirk (25,000 Shares)        |                       | Douglas A. Durham (25,000 Shares) |   |
|                                   |                       |
|                                   |                       |
| /s/John R. Coghlan                     |                       |                              |
| John R. Coghlan, President             |                       |                              |
| Temporary Financial Services, Inc.     |                       |
| (200,000 shares for cash)              |                       |
| (250,000 shares for 50,000 TFS shares) |                       |
| ($200,000 Convertible Note)            |                       |
|                                        |                            |                                   |        |  |  |  |

 

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