Document:

Exhibit 10

Exhibit 10.5            Financial Covenants

 

EXHIBIT B

 

FINANCIAL COVENANTS

 

Borrower shall remain in

compliance with the following financial covenants:

 

1.                                       Senior

Debt to Capital shall not exceed 3.0. 

Except however, Lender agrees to forebear Borrower’s non-compliance with

this covenant during the first 5 months of Borrower’s operations.

2.                                       Senior

Debt shall consist of all of Borrower’s liabilities except debt which has been

specifically subordinated.  Capital

consists of Borrower’s equity plus subordinated debt.

3.                                       Borrower

shall not cause or allow any material disbursement or distribution of funds to

any party except in the normal course of business and as generally outlined in

Borrower’s Business Plan.

4.                                       Borrower

shall pay all costs associated with the administration of this line.

 

 

REPORTING OBLIGATIONS

 

Borrower shall provide to

Lender any and all financial and collateral information that Lender may

reasonably request, including:

 

a.                                       Monthly

Compliance Certificate.

b.                                      Monthly

internally prepared financial statements.

c.                                       Monthly

internally prepared collateral reports showing the amount of line advances and

the identification, status and eligibility of all real estate loans.

d.                                      Fiscal

year end financial statements, audited by an acceptable CPA.Exhibit 10

Exhibit 10.6            Security

Agreement

 

 

SECURITY AGREEMENT

 

DATED

AS OF:                    February 20,

2002

 

DEBTOR:                               Genesis

Financial, Inc.

                                                200

North Mullan Road, Suite 217

                                                Spokane,

WA 99206, and 

 

SECURED

PARTY:              Temporary Financial

Services, Inc.

                                                200

North Mullan Road, Suite 213

                                                Spokane,

Washington 99206

 

1.                                      GRANT OF SECURITY INTEREST. 

Debtor hereby grants

to Secured Party a continuing security interest in the following described

property of Debtor, and any additions, attachments and accessions thereto and

all products and proceeds thereof, together with all guarantees, liens and

securities in connection therewith (collectively, the “Collateral”): 

 

All assets, including: All

inventory, accounts, accounts receivable, chattel paper, documents,

instruments, contract rights, real estate loans held for resale, insurance

proceeds, trademarks, tradenames and other general intangibles, furniture,

fixtures, equipment, and all proceeds thereof, now owned and hereafter

acquired. 

 

2.                                      OBLIGATIONS SECURED

2.1                               The security interest granted hereby is to

secure payment of a Warehousing Line of Credit Promissory Note dated February

20, 2002 (the “Note”) and performance of all liabilities and obligations of

Debtor to Secured Party of every kind and description, direct or indirect,

absolute or contingent, due or to become due, now existing or hereafter

arising, including but not limited to indebtedness and obligations with respect

to LENDER agreements, notes, advances, letters of credit, acceptances, foreign

exchange contracts, suretyships, guaranties, endorsements, and checks drawn

with non-sufficient funds, together with any and all extensions, renewals and

modifications thereof (collectively, “Obligations”), and whether or not any

Obligation is related to any other Obligation by class or kind or is

contemplated 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 Debtor

to Secured Party under this Security Agreement and all amounts paid or

liabilities incurred by Secured Party in connection with protecting or

enforcing its rights under this Security Agreement, including but not limited

to amounts described in Sections 12, 13, 16 and 20.8, and interest on any such

amounts at the interest rate established in the Note.

 

3.                                      PURCHASE MONEY SECURITY INTEREST.  If

Debtor at any time acquires any Collateral with the proceeds of any advance

from Secured Party, Debtor authorizes Secured Party to disburse proceeds in the

amount of the purchase price of such Collateral directly to, or Debtor shall

remit such proceeds directly to, the seller of such Collateral. Secured Party

shall have both a purchase money security interest and a non-purchase money

security interest under the Uniform Commercial Code in such Collateral.

 

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4.                                      TITLE; ADVERSE LIENS. 

Debtor warrants that

Debtor is and shall be the lawful owner of the Collateral, free of all adverse

liens, encumbrances and security interests except as previously disclosed in

writing to Secured Party, with the right to sell, assign, pledge, transfer, and

grant a security interest therein. Except as expressly permitted hereunder, or

under the Agreement dated as of January 25, 2002, between Debtor and Secured

Party (hereinafter referred to as the “Investment Agreement”) Debtor shall not

sell, assign, pledge, transfer or grant a security interest in any of the

Collateral to any person other than Secured Party. Debtor shall defend all

Collateral against the claims and demands of all persons. 

 

5.                                      CORPORATE STATUS AND AUTHORITY.  (i) Debtor is

duly organized and existing under the laws of Washington and is duly qualified

and in good standing in every other state or jurisdiction in which it is doing

business; and (ii) the execution, delivery, and performance hereof are within

Debtor's corporate powers and have been duly authorized, and are not in

contravention of law or the terms of Debtor's charter, bylaws or other

incorporation papers, or of any indenture, agreement or undertaking to which

Debtor is a party or by which it is bound. 

 

6.                                      PERMITS AND LICENSES. 

Debtor has and shall

keep in force all licenses, permits and authorizations necessary to the proper

conduct of its business in any state or jurisdiction in which Debtor conducts

business, and shall promptly obtain all such additional licenses, permits and

authorizations 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 Debtor

manages the main part of its operation, keeps all Collateral, and all records

concerning accounts, contract rights, and chattel paper is shown above. If

Debtor (i) has one or more places of business at any location other than its

chief executive office or (ii) keeps Collateral or records concerning accounts,

contract rights and chattel paper at any location other than its chief

executive office, such other locations, including the address of the servicing

agent, will be provided to Secured Party by written notice within seven days of

the date use of such other location commences. 

 

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 Collateral

from the state(s) or jurisdiction(s) indicated in this Security Agreement.

Without limiting the foregoing, Debtor shall give Secured Party at least 30

days prior written notice of any change of Debtor's name, identity or corporate

structure and any addition to, change in or discontinuance of its mailing

address, its business locations, and any locations concerning the Collateral as

indicated in this Security Agreement. 

 

9.                                      IDENTIFICATION AND DELIVERY OF COLLATERAL; COLLATERAL

REPORTS.  Debtor shall mark and identify all Collateral

and all books and records pertaining to the Collateral as required by Secured

Party. Debtor shall deliver to Secured Party at Secured Party's request, all

original instruments, documents and title documents, leases, contracts,

securities, licenses, records, and other chattel paper (together with any

related certificates of title) included in the Collateral, each assigned or

endorsed as Secured Party may require, and all original and duplicate invoices

representing sales and delivery of goods or performance of services (each of

which shall bear and assignment stamp acceptable to Secured Party) together

with evidence of delivery as may be required by Secured Party. Debtor shall

deliver to Secured Party at Secured Party's request such reports concerning the

Collateral on such dates and in such detail as Secured Party from time to time

may require. The value of all inventory reflected on the reports shall be the

lesser of cost or market value.

 

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10.                               FINANCIAL AND OTHER INFORMATION.  Debtor shall

furnish to Secured Party from time to time such financial statements and other

financial data as Secured Party may require, each in form and detail acceptable

to Secured Party. Debtor warrants that all information concerning the

Collateral, all financial statements, balance sheets and other financial data,

and all other information furnished by Debtor to Secured Party are, or at the

time furnished shall be, accurate and correct in all material respects and as

complete as necessary to give Secured Party true and accurate knowledge of the

subject matter. All financial information furnished by Debtor to Secured Party

shall be prepared in accordance with generally accepted accounting principles

consistently applied.

 

11.                               INSPECTIONS.  Debtor shall at all reasonable times allow

Secured Party by or through its nominees (i) to examine and inspect the

Collateral; (ii) to verify the Collateral directly with applicable third

parties such as account debtors or by any other methods; and (iii) to examine,

inspect and take extracts from Debtor's books and records.

 

12.                               USE AND ADVERSE LIENS. 

Debtor shall not use

or 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 impair

the value of the Collateral. Debtor shall promptly pay when due all taxes and

assessments on the Collateral, or for its use or operation, and shall keep the

Collateral free from any adverse lien, security interest or encumbrance. At its

option, Secured Party may discharge taxes, liens, security interests or

encumbrances at any time levied or placed on the Collateral and may pay for the

maintenance and preservation of the Collateral, and Debtor shall pay to Secured

Party on demand all such amounts. 

 

13.                               INSURANCE.  Unless expressly waived by Secured Party,

Debtor shall provide, maintain and deliver to Secured Party policies insuring

the 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 and

such other endorsements as Secured Party may request. If Debtor fails to obtain

such insurance, Secured Party shall have the right, but not the obligation, to

obtain such insurance and Debtor shall pay to Secured Party on demand the cost

thereof. 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 of

insurance to the full extent of the amount of all Obligations secured

hereunder, 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 composed

of equipment and fixtures and may use them in any lawful manner not

inconsistent with the terms and conditions of this Security Agreement. Debtor

shall not sell, lease, transfer or otherwise dispose of any interest in any

such Collateral without the prior written consent of Secured Party. Until

default, Debtor may use any Collateral composed of inventory in any lawful

manner not inconsistent with the terms and conditions of this Security

Agreement and the Investment Agreement, and may consume any raw materials and

supplies comprising such Collateral as may be necessary to carry on Debtor's

business. Debtor may also sell such Collateral but only in the ordinary course

of business. A sale in the ordinary course of business does not include a

transfer in bulk or as security for or in total or partial satisfaction of a

money debt. 

 

15.                               COLLECTION OF ACCOUNTS. 

Subject to the

following sentence, Debtor shall make collections from the account debtors on

all Collateral composed of accounts, chattel paper and general intangibles as

directed by Secured Party. Secured Party may before or after any default 

 

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hereunder without prior

notice to Debtor, and Debtor shall at Secured Party's request and in such form

as Secured Party may require, notify the account debtors that the Collateral

has been assigned to and payment thereon shall be made directly to Secured

Party. 

 

16.                               FINANCING STATEMENTS; FURTHER ASSURANCE.  At Secured Party's request, Debtor shall execute and pay the costs of

filing one or more financing statements and any other documents required by the

Uniform Commercial Code or other applicable laws or regulations. A carbon,

photographic or other reproduction of this Security Agreement or of any related

financing statement shall be sufficient as a financing statement. At the

request of Secured Party, Debtor shall do, make, execute and deliver all such

additional and further acts, deeds, assurances and instruments as Secured Party

from time to time may require to more completely vest in and assure to Secured

Party its rights hereunder and in or to the Collateral, all at Debtor's

expense. Secured Party hereby is appointed Debtor's attorney-in-fact with power

to do all acts and things which Secured Party may deem necessary to perfect and

continue perfected its security interest in the Collateral, and to protect the

Collateral.  Without the prior written

consent of Secured Party, Debtor shall not grant a security interest in the

Collateral to any person other than Secured Party, and shall not allow any

financing statement or other security instrument covering Collateral or its

proceeds to be on file in any public office. 

 

17.                               EVENTS OF DEFAULT.  Time is of the essence of this Security Agreement. The occurrence of

any of the following shall, at the discretion of Secured Party, be an Event of

Default hereunder:

17.1                        Default in the payment or performance of any

Obligation, in any covenant or liability contained or referred to herein, in

the Agreement and/or Addenda thereto, in any note, or in any other agreement

between Debtor and Secured Party;

17.2                        Any warranty, representation or statement

(including but not limited to financial statements) made or furnished to

Secured Party by or on behalf of Debtor or any guarantor of any of the

Obligations (“Guarantor”) proves to have been false in any material respect

when 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 not

paid; 

17.4                        Default by Debtor under any lease or other

arrangement whereby Debtor occupies, or stores Collateral in, any premises

owned by any person other than Debtor;

17.5                        Any default under any security agreement or

other instrument executed by any person which secures any of the Obligations or

under any guaranty of any Guarantor;

17.6                        Any guaranty of any Guarantor shall cease to

be, 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 to

or of any of the Collateral, or the making of any levy, seizure or attachment

thereof or thereon;

17.8                        Death, dissolution, termination of existence,

insolvency, business failure, appointment of a receiver for any part of the

property of, assignment for the benefit of creditors by, entry of any judgment

against or the commencement of any proceeding under any bankruptcy or

insolvency 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 Party

with financial information promptly when requested; 

17.9                        Sale, transfer, or other disposition of all

or a substantial part of the assets of Debtor or any Guarantor other than in

the ordinary course of business;

17.10                 Interruption or cessation of a material

portion of Debtor's ordinary business operations;

 

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17.11                 Secured Party in good faith believes the

Collateral inadequate, unsafe, or in danger of misuse;

17.12                 Secured Party deems itself insecure with

respect to repayment of any of the Obligations.

 

18.                               RIGHTS AND REMEDIES.  Upon the occurrence of any

Event of Default and at any time thereafter, Secured Party at its option and

not withstanding any time or credit allowed by any instrument evidencing any

Obligation or related thereto, may without notice declare any and all

Obligations immediately due and payable and terminate any commitment to extend

credit to Debtor. In such event, Secured Party shall have all the rights and

remedies provided herein and in all other instruments or writings, executed by

Debtor or any other person in connection with the Obligations, and as otherwise

provided by law. Without limiting the foregoing, Secured Party may do any one

or more of the following: (i) enter upon any premises where the Collateral may

be located and remove therefrom the Collateral, and with respect to accounts,

may remove any records which Secured Party deems necessary for collection

thereof; (ii) require Debtor to assemble the Collateral and make it available

to Secured Party at a place designated by Secured Party; and (iii) establish a

field warehouse under the control of Secured Party on Debtor's premises and

place the Collateral therein. Secured Party in its sole discretion, without

notice and without bringing suit on the Obligations, may apply for and secure

appointment of a receiver, receiver-manager, or receiver and manager

(“receiver”) for the undersigned to take possession of Debtor's business and

the Collateral, and the incomes, rents and proceeds thereof. Debtor hereby

expressly waives any requirement that Secured Party or the receiver post a bond

upon such appointment. Any receiver appointed by Secured Party, so far as

concerns responsibility for its acts, shall be deemed the agent of the

undersigned and not of Secured Party. All Secured Party's rights and remedies,

whether evidenced hereby or by any other agreement, instrument or writing shall

be cumulative and may be exercised singularly or concurrently.

 

19.                               ADDITIONAL SECURITY AND COLLATERAL AGREEMENT.  As additional security and collateral for the Obligations, Debtor

hereby grants to Secured Party a security interest in all instruments,

documents, notes, bills of exchange, title or documents of title, policies and

certificates of insurance, securities, stock certificates, bonds, goods,

accounts receivable, deposits, choses in action, chattel paper, cash, property

and 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 are

at any time in the possession or control of Secured Party at any of its offices

or in transit by mail or carrier to or from Secured Party or in the possession

of any third party acting in Secured Party's behalf, without regard to whether

Secured Party received the same in pledge, for safekeeping, as agent for

collection or transmission or otherwise or whether Secured Party has

conditionally released the same, shall constitute additional security and

collateral for the Obligations and may at any time be collected, negotiated,

sold, assigned, set off or applied against any Obligations which are then due

whether by acceleration or otherwise. 

 

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20.          GENERAL

20.1                        Nothing contained in this Security Agreement

shall be construed to obligate Secured Party to extend credit to Debtor, or enter

into any foreign exchange contracts or other contracts of any nature with

Debtor.

20.2                        Without notice to Debtor and without

diminishing or affecting Secured Party's rights or Debtor's obligations

hereunder, Secured Party may deal in any manner with any person who at any time

is liable for, or provides any real or personal property collateral for (i) any

of the Obligations; or (ii) any obligations constituting Collateral. Without

limiting the foregoing, Secured Party may, in its sole discretion: (a) provide

secured or unsecured credit to Debtor; (b) agree to any number of waivers,

modifications, extensions and renewals of any length of any Obligations and of

any obligations constituting Collateral; (c) impair, release (with or without

substitution of new collateral) and fail to perfect a security interest in, any

collateral provided by any person, whether with respect to the Obligations or

any obligations constituting Collateral; (d) sue, fail to sue, agree not to

sue, release, and settle or compromise with, any person.

20.3                        This Security Agreement and all rights and

liabilities hereunder and in and to any and all Obligations and Collateral or

other security shall inure to the benefit of Secured Party and its successors

and assigns, and shall be binding upon Debtor and its successors and assigns.

20.4                        If at any time or times by assignment or

otherwise Secured Party transfers any Obligations and Collateral or other

security therefor, the transferee shall become vested with Secured Party's

rights and powers hereunder with respect to the Obligations, Collateral and

other security transferred, whether or not specifically referred to in the

transfer. To the extent that Secured Party retains any Obligations and

Collateral or other security therefor, Secured Party's rights and powers

hereunder shall continue with respect thereto. 

20.5                        Secured Party shall not be deemed to have

waived any of Secured Party's rights hereunder or under any other agreement,

instrument or writing signed by Debtor unless such waiver be in writing and

signed by Secured Party. No delay or omission on the part of Secured Party in

exercising any right shall operate as a waiver of such right or any other

right. A waiver on any one occasion shall not be construed as a bar or waiver

of any right or remedy on any future occasion. 

20.6                        Any demand upon or notice to Debtor that

Secured Party may give shall be effective when served personally or deposited

in 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 time

to time, or to any address at which Secured Party customarily communicates with

Debtor. 

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 is

commenced, Debtor shall pay to Secured Party on demand any and all costs and

expenses reasonably incurred or expended by Secured Party in the repossession,

protection, storage, maintenance, and liquidation of any Collateral and other

security, in the collection or attempted collection of the Collateral and in

protecting and enforcing the rights of Secured Party hereunder, including such

additional sums as any court or arbitrator(s) shall adjudge reasonable as

attorney fees, including but not limited to costs and attorney fees incurred in

any appellate proceeding, proceeding under the bankruptcy code or receivership.

20.9                        This Security Agreement shall be effective

when signed by Debtor and delivered to Secured Party.

20.10                 Whenever there is no outstanding Obligation

and no commitment on the part of Secured Party under any agreement which might

give rise to an Obligation, Debtor may terminate 

 

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this Security Agreement by

notice in writing delivered to Secured Party at the office of Secured Party to

which this Security Agreement was delivered. Prior to such termination, this

shall be a continuing agreement in every respect. 

20.11                 Even if this Security Agreement and any

security interest granted herein has been terminated in whole or in part

(pursuant to Section 20.9 or otherwise), if any payment or other transfer to

Secured Party on account of any Obligation(s) is avoided or set aside under any

applicable bankruptcy, insolvency or fraudulent conveyance law or law for the

relief of debtors or on any other basis, or if Secured Party in its sole

discretion consents in good faith to any such avoidance or set aside, such

Obligation(s) and the security interest granted herein shall be deemed to

continue or be reinstated to the extent of such payment or transfer. 

20.12                 Any disputes claims, counterclaims, and

defenses, including those based on or arising from any alleged tort (“Claims”)

relating in any way to this Security Agreement, or breach thereof, shall be

settled by arbitration in accordance with the rules of the American Arbitration

Association or any organization which is the successor thereto, and judgment

upon the award rendered pursuant to such arbitration may be rendered in any

court having jurisdiction thereof. The fees and expenses of any arbitration

shall be borne by the losing party. The prevailing party shall be entitled to

recover from the losing party the expenses of its witnesses and reasonable

attorney fees. If either party institutes any judicial proceeding relating to

this Security Agreement, such action shall not be a waiver of the right to

submit any Claim to arbitration. In addition, each has the right before,

during, and after any arbitration to exercise any number of the following

remedies, in any order or concurrently: (i) setoff; (ii) self-help

repossession; (iii) judicial or non-judicial foreclosure against real or

personal 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 by

and construed and enforced in accordance with the laws of the State of

Washington without regard to conflict of law principles.  Any legal action taken in connection with

this Security Agreement shall be commenced in Spokane, Washington, and the

parties agree that they will be subject to the jurisdictions of the Courts of

Spokane County, Washington.  

20.14                 If anything in this Security Agreement is

held to be illegal, then only that portion is void and not the entire Security

Agreement.

20.15                 Secured Party shall use ordinary reasonable

care in the physical preservation and custody of the Collateral in its

possession, but shall have no other obligation to protect the Collateral or its

value, and in particular, Secured Party shall have no responsibility for the

collection or protection of any income on the Collateral; preservation of

rights against parties thereto or against third persons; ascertaining any

maturities, calls, conversions, exchanges, offers, tenders, or similar matters

relating to any of the Collateral; nor for informing the undersigned with

respect to any of the above, whether or not Secured Party has or is deemed to

have 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, and

agrees that Secured Party shall have no obligations to commence litigation,

notify debtor or take any other action to prevent the running of any statute of

limitations. Further, the undersigned waives presentment, protest, demand, or

notice of non-payment to the undersigned of any portion of the indebtedness and

Secured Party may grant an extension of time to or renew any obligation of the

undersigned or any one or more of them, or exchange or release any Collateral

or other security without first obtaining the consent of the undersigned.

 

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21.                               AGREEMENT AND ADDENDA.  This Security Agreement

supports and backs the Warehousing Line of Credit Promissory Note dated as of

February 20, 2002. 

 

Signed and Delivered to

Secured 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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