SECURITY AGREEMENT
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This Security Agreement is made and entered into and effective as of June
30, 2006, by and between Gateway Distributors, Ltd., a Nevada corporation
(Debtor), and Xxxxxxxx Distributing, L.L.C., a Utah limited liability company,
EMS Business Development, Inc., a California corporation and Xxxxx X. Xxxxxxx,
(Secured Party), as follows:
For value received, the Debtor grants to the Secured Party a security
interest in the assets described on Exhibits I and II attached hereto together
with all accessions to, replacements of, and proceeds therefrom (the Collateral)
to secure: (1) the Debtor's note of $5,230,000.00 to Xxxxxxxx distributing,
L.L.C., a Utah limited liability company and EMS Business Development, Inc., a
California corporation dated as of June 30, 2006; and (2) Debtors note of
$770,000.00 to Xxxxx X. Xxxxxxx dated as of June 30, 2006; (3) any future
advances by the Secured Party to the Debtor, to be evidenced by similar notes;
(4) any expenditures incurred by the Secured Party in the collection and
enforcement of the notes and/or other indebtedness of the Debtor; and (5) all
liabilities of the Debtor to the Secured Party now existing or incurred in the
future, matured or unmatured, direct or contingent, and any renewals,
extensions, and substitutions of those liabilities, specifically including, but
not limited to Debtor's obligations to Secured Party as provided in that certain
Contract for Sale of Business and Assets dated as of June 30, 2006 between
Debtor and Secured Party (the "Agreement").
The Debtor warrants, covenants, and agrees as follows:
Title
1. Except for the security interest granted by this agreement, the Debtor
has, or on acquisition will have, full title to the Collateral free from any
lien, security interest, encumbrance, or claim, and the Debtor will, at the
Debtor's cost and expense, defend any action that may affect the Secured Party's
security interest in, or the Debtor's title to, the Collateral.
Financing Statement
2. No financing statement covering the Collateral or any part of it or any
proceeds of it other than the financing statement to be executed in conjunction
with this Security Agreement is on file in any public office.
Sale or Disposition of Collateral
3. The Debtor will not, without the written consent of the Secured Party,
sell, contract to sell, encumber, or dispose of the Collateral or any interest
in the Collateral until this Security Agreement and all debts secured by it have
been fully satisfied.
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Protection of Collateral
4. The Debtor will keep the Collateral free and clear of all liens and
claims except as may be permitted herein. Debtor shall maintain any personal
property which constitutes part of the Collateral in good condition and shall
exercise due diligence in the repair and maintenance of such portion of the
Collateral. Debtor will provide Secured Party with such information as may be
reasonably requested by Secured Party from time to time regarding the condition
and location of such portion of the Collateral.
Taxes and Assessments
5. The Debtor will pay promptly when due all taxes, assessments and fees
or licenses attributable to the Collateral, or any part of the Collateral, or
for its use and operation.
Security Interest in Proceeds and Accessions
6. The Debtor grants to the Secured Party a security interest in and to
all proceeds, increases, substitutions, replacements, additions, and accessions
to the Collateral and to any part of the Collateral. This provision shall not be
construed to mean that the Debtor is authorized to sell, or dispose of the
Collateral except sales of inventory in the ordinary course of business, without
the prior written consent of the Secured Party.
Decrease in Value of Collateral
7. The Debtor shall, if in the Secured Party's judgment the Collateral has
materially decreased in value or if the Secured Party shall at any time deem
that the Secured Party is financially unstable, either provide enough additional
Collateral to satisfy the Secured Party or reduce the total indebtedness by an
amount sufficient to satisfy the Secured Party.
Reimbursement of Expenses
8. At the option of the Secured Party, the Secured Party may discharge
taxes, liens, interest, or perform or cause to be performed for and on behalf of
the Debtor any actions and conditions, obligations, or covenants that the Debtor
has failed or refused to perform as provided herein or as provided in the
Agreement and may enter the premises where the Collateral or any part of it is
located and cause to be performed as agent and on the account of the Debtor any
acts that the Secured Party may deem necessary for the protection, preservation
or proper maintenance of the Collateral or any part of it. Any and all sums
expended by the Secured Party under this paragraph, including but not limited
to, attorneys' fees, court costs, agent's fees, or commissions, or any other
costs or expenses, shall bear interest from the date of payment at the annual
rate of ten (10) percent and shall be payable at the place designated in the
Debtor's notes and shall be secured by this Security Agreement.
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Payment
9. The Debtor will pay the notes secured by this Security Agreement and
any renewal or extension of it and any other indebtedness secured by this
Security Agreement in accordance with the terms and provisions of the
indebtedness and/or the Agreement and will repay immediately all sums expended
by the Secured Party in accordance with the terms and provisions of this
Security Agreement. On full payment by the Debtor of all indebtedness secured by
this Security Agreement in accordance with this Security Agreement, this
Security Agreement shall expire, and the Secured Party's security interest in
the Collateral, as set forth in this Security Agreement, shall terminate.
Change of Place of Business
10. The Debtor will promptly notify the Secured Party of any change of the
Debtor's residence, chief place of business, or place where records concerning
the Collateral are kept.
Time of Performance and Waiver
11. In performing any act under this Security Agreement and the note
secured by it, time shall be of the essence. The Secured Party's acceptance of
partial or delinquent payments, or the failure of the Secured Party to exercise
any right or remedy, shall not constitute a waiver of any obligation of the
Debtor or right of the Secured Party and shall not constitute a waiver of any
other similar default that occurs later.
Default
12. The Debtor shall be in default under this Security Agreement on the
occurrence of any of the following events or conditions:
(1) Default in the payment or performance of the Agreement and/or any
note, obligation, covenant, or liability secured by this Security
Agreement;
(2) Any warranty, representation, or covenant made, furnished or to
be performed by or on behalf of the Debtor herein or in the Agreement
proves to have been false in any material respect or is not performed in a
timely manner;
(3) Any event that results in the acceleration of the maturity of the
indebtedness of the Debtor to others under any indenture, agreement, or
undertaking;
(4) Any sale or encumbrance (except as expressly permitted herein) to
or of any of the Collateral, or the making of any levy, seizure, or
attachment of or on the Collateral;
(5) Any time the Secured Party reasonably believes that the prospect
of payment or any indebtedness secured by this Security Agreement or the
performance of this Security Agreement is impaired; or
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(6) Dissolution, termination of existence, insolvency, business
failure, appointment of a receiver for any part of the Collateral,
assignment for the benefit of creditors, or the commencement of any
proceeding under any bankruptcy or insolvency law by or against the Debtor
or any guarantor or surety for the Debtor.
Remedies
13. On the occurrence of any event of default, and at any time thereafter,
the Secured Party may declare all obligations secured due and payable
immediately and may proceed to enforce payment and exercise any and all of the
rights and remedies provided either at law or in equity possessed by the Secured
Party.
The Secured Party may require the Debtor to assemble the Collateral and
make it available to the Secured Party at any place to be designated by the
Secured Party that is with the United States of America. Unless the Collateral
is perishable, threatens to decline speedily in value, or is of a type
customarily sold on a recognized market, the Secured Party will give the Debtor
reasonable notice of the time and place of any public sale or of the time after
which any private sale or any other intended disposition of the Collateral is to
be made. The requirements of reasonable notice shall be met if the notice is
mailed, postage prepaid, to the address of the Debtor shown at the beginning of
this Security Agreement at least five days before the time of the sale or
disposition. Expenses of retaking, holding, preparing for sale, selling, or the
like shall include the Secured Party's reasonable attorneys' fees and legal
expenses.
Miscellaneous Provisions
14. (a) This Security Agreement shall be construed under and in accordance
with Nevada.
(b) This Security Agreement shall be binding on and inure to the benefit of
the parties and their respective successors and assigns as permitted by this
Security Agreement.
(c) Should any litigation be commenced between the parties to this Security
Agreement concerning the Collateral, this Security Agreement, or the rights and
duties of either party in relation to them, the prevailing party shall be
entitled to a reasonable sum as reimbursement for attorneys' fees and legal
expenses.
(d) In case any one or more of the provisions contained in this Security
Agreement shall for any reason be held invalid, illegal, or unenforceable in any
respect, the invalidity, illegality, or unenforceability of that provision shall
not affect any other provision of this Security Agreement, and this Security
Agreement shall be construed as if the invalid, illegal, or unenforceable
provision had never been contained in it.
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(e) This Security Agreement the Debtor's notes and the Agreement,
collectively constitutes the agreement of the parties and collectively
supersedes any prior understandings or written or oral agreements between the
parties respecting the subject matter of this Security Agreement.
Executed and effective as of June 30, 2006.
DEBTOR:
Gateway Distributors, Ltd.
a Nevada corporation
By:
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Its:
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SECURED PARTY:
Xxxxxxxx Distributing, L.L.C.
a Utah limited liability company
By:
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Its:
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By:
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Its:
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EMS Business Development, Inc.
a California corporation
By:
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Its:
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By:
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Its:
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Xxxxx X. Xxxxxxx
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CONSENT
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Gateway Venture Holdings, Inc., a wholly owned subdivision of Gateway
Distributors, Ltd., hereby consents to the terms and conditions set forth in the
foregoing Security Agreement and hereby grants to Secured Party a security
interest in the CBAY Shares as provided above and shall deliver possession of
the CBAY Shares to Turn Key Financial Services, Inc. ("Escrow Holder") to be
held and/or liquidated as provided in the Agreement.
Gateway Venture Holdings, Inc.
By:
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Its:
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Exhibit I
Business Assets
Exhibit II - CBAY Shares
Twelve Million (12,000,000) shares of Cal-Bay International, Inc.,
preferred B stock, held in the name of Gateway Venture Holdings, Inc., wholly
owned subsidiary of Gateway Distributors, Ltd.) held in escrow by Turn-Key
Financial Services, Inc. ("Escrow Holder").
