Exhibit 10.4
SECURITY AGREEMENT
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DATED AS OF: February 20, 2002
DEBTOR: Genesis Financial, Inc.
000 Xxxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxx, XX 00000, and
SECURED PARTY: Temporary Financial Services, Inc.
000 Xxxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
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,
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 xxxx 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
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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.
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
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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 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
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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;
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) xxx, fail to xxx, agree not to
xxx, 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.
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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 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
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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.
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/ XXXXXXX X. XXXX
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XXXXXXX X. XXXX, PRESIDENT
ATTEST:
/S/ XXXXXXX X. XXXXXX
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XXXXXXX X. XXXXXX, CHAIRMAN
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