EXHIBIT 10.4

 

SECURITY AGREEMENT

 

SECURITY AGREEMENT (this “Security Agreement”) is made and entered into as of
_____________________ by and among: VYSTAR CORPORATION, a Georgia corporation
(the “Grantor”) and _____________________________ a Purchaser (each a “Secured
Party” and together, the “Secured Parties”) as set forth on Schedule I to the
Note Subscription Agreement (the “Note Subscription Agreement”) dated as of the
date thereof.

 

WHEREAS, on or about July 1, 2013 and concurrent with this Agreement, Vystar
entered into an LLC Ownership Interest Purchase Agreement (the “Acquisition
Agreement,” a copy of which has been attached hereto as Exhibit A) whereby the
Grantor acquired 100% of the limited liability corporate membership and
ownership interest of Kiron Clinical Sleep Lab, LLC, a North Carolina limited
liability company (“Kiron”) such that following the Acquisition Agreement, Kiron
will continue its existence as a wholly owned subsidiary of the Grantor
(collectively the “Acquisition”)

 

WHEREAS, Vystar issued (and committed to issue, subject to certain conditions)
to the Secured Party a secured convertible promissory note in the principal
amount of _________________________________ ($________________), (the “Note”)
and additional secured convertible promissory notes to additional Secured
Parties set forth on Schedule I to the Note Subscription Agreement.

 

WHEREAS, as a condition to the closing of the Note Subscription Agreement and
the issuance of the Note, the Parties agree that the Grantor execute and deliver
to the Secured Party this Agreement with the intent to secure the Note with a
pro-rata percentage of the Kiron limited liability corporate membership and
ownership interest and provide for the grant to the Secured Party of a senior
security interest in the pro-rata percentage of the Kiron limited liability
corporate membership and ownership interest.

 

NOW, THEREFORE, in consideration of the premises, and in consideration of the
mutual representations, warranties, and covenants herein contained, and other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the Parties hereby agree as follows:

 

1.Grant of Security

 

The Grantor hereby assigns, conveys, mortgages, pledges, grants and transfers to
the Secured Party, a lien on and a security interest in the Kiron limited
liability corporate membership and ownership interest equal to the principal
amount of the Note divided by the total principal of the Notes issued pursuant
to the Note Subscription Agreements as set forth in the Schedule I to the Note
Subscription Agreements, the “Collateral”.

 

2.Security for Obligations

 

The security interest granted by the Grantor hereunder secures the prompt and
complete payment and performance when due (whether at stated maturity, upon
acceleration or otherwise) of all the Secured Obligations now or hereafter
existing, whether matured or unmatured, contingent or liquidated, under the
Notes including any extensions, modifications, substitutions, amendments and
renewals thereof, whether for principal, interest, premium, fees, expenses or
otherwise.

 

 

 

 

3.Grantor Remains Liable

 

Anything herein to the contrary notwithstanding, (i) the Grantor shall remain
liable under the contracts and agreements included in the Collateral to the
extent set forth therein to perform all of its duties and obligations thereunder
to the same extent as if this Security Agreement had not been executed, (ii) the
exercise by the Secured Party of any of the rights hereunder shall not release
the Grantor from any of its duties or obligations in connection with the general
intangibles and under the contracts and agreements included in the Collateral,
(iii) the Secured Party shall not have any obligation or liability under the
contracts and agreements included in the Collateral by reason of this Security
Agreement, nor shall it be obligated to perform any of the obligations or duties
of the Grantor thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder, and (iv) the Secured Party shall not assume any
liability or obligation whatsoever with respect to any membership or limited
liability company interest of any limited liability company or any partnership
interest of any partnership included in the Collateral, nor shall it become a
substituted member or partner of any such limited liability company or
partnership solely by virtue of this Security Agreement.

 

4.Representations and Warranties

 

The Grantor, as of the date hereof, represents and warrants as follows:

 

(a)            The chief place of business and chief executive office of the
Grantor and the office where it keeps its records concerning the Collateral, and
the original copies of the Contracts owned by it and in its possession and of
all Chattel Paper that evidences Collateral owned by it, are located at the
addresses set forth on Part I of Schedule 4(a) hereto. The federal tax
identification number of the Grantor is set forth in Part II of Schedule 4(a).
The trade names, if any, of the Grantor are set forth on Part III of Schedule
4(a).

 

(b)            The Grantor is the legal and beneficial owner of the Collateral
purported to be granted by it hereunder free and clear of any lien, except for
the security interest created by this Security Agreement and those listed on
Schedule 4(b) (the “Permitted Liens”). No effective financing statement or other
instrument similar in effect covering all or any part of such Collateral is on
file in any recording office, except such as may have been filed in favor of the
Secured Party relating to this Security Agreement or such as may have been filed
in connection with the Permitted Liens.

 

(c)            This Security Agreement, together with the filing of financing
statements with respect hereto creates a valid and perfected first priority lien
on and security interest in the Collateral owned by the Grantor (other than
Collateral which has a Permitted Lien attached, and for such Collateral, this
Security Agreement, together with the filing of financing statements with
respect hereto creates a valid and perfected lien and security interest in such
Collateral), securing the payment of the Secured Obligations.

 

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5.Further Assurances.

 

The Grantor agrees that from time to time, at Grantor’s expense, it will
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that the Secured Party
may request, in order to perfect and protect any security interest granted or
purported to be granted hereby or to enable the Secured Party to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, the Grantor will: (i) at the
request of the Secured Party, mark conspicuously each document pertaining to the
Collateral with a legend, in form and substance satisfactory to the Secured
Party, indicating that such document, chattel paper, Related Contract or
Collateral is subject to the security interest granted hereby; (ii) execute and
file such financing or continuation statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, or as the
Secured Party may request, in order to perfect and preserve the security
interests granted or purported to be granted hereby; provided that neither the
failure of the Secured Party to make such demand nor the failure of the Grantor
to comply with such demand will impair or affect the validity of the grant
effected by this Security Agreement.

 

The Grantor hereby authorizes the Secured Party to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral without the signature of the Grantor where permitted by law. A
carbon, photographic or other reproduction of this Security Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.

 

The Grantor will furnish to the Secured Party from time to time statements and
schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Secured Party may reasonably
request, all in reasonable detail.

 

6.Transfers and Other Liens

 

The Grantor shall not create or suffer to exist any Lien upon or with respect to
any of the Collateral, except for (a) the security interest created by this
Security Agreement and (b) existing Permitted Liens.

 

7.Remedies

 

If an Event of Default (as defined in the Notes) shall have occurred and be
continuing:

 

(a)            The Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the UCC
(whether or not the UCC applies to the affected Collateral) and also may (i)
require the Grantor to, and the Grantor hereby agrees that it will at its
expense and upon request of the Secured Party forthwith, assemble all or part of
the Collateral owned by it as directed by the Secured Party and make it
available to the Secured Party at a place to be designated by the Secured Party
which is reasonably convenient to each party and (ii) without notice except as
specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any of the Secured Party’s offices or elsewhere,
for cash, on credit or for future delivery, and upon such other terms as the
Secured Party may deem commercially reasonable. The Grantor agrees that, to the
extent notice of sale shall be required by law, at least thirty days’ notice to
the Grantor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. The Secured
Party shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. The Secured Party may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefore,
and such sale may, without further notice, be made at the time and place to
which it was so adjourned.

 

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(b)            The Secured Party may exercise any and all rights and remedies of
the Grantor under or in connection with respect of the Collateral, including,
without limitation, any and all rights of the Grantor to demand or otherwise
require payment of any amount under, or performance of any provision of the
Collateral.

 

(c)            All cash proceeds received by the Secured Party in respect of any
sale of, collection from, or other realization upon all or any part of the
Collateral of the Grantor may, in the discretion of the Secured Party, be held
by the Secured Party as collateral for, and/or then or at any time thereafter
applied in whole or in part by the Secured Party against, all or any part of the
Secured Obligations. Any surplus of such cash or cash proceeds held by the
Secured Party and remaining after payment in full of all such Secured
Obligations shall be paid over to the Grantor or to whomsoever may be lawfully
entitled to receive such surplus.

 

8.Indemnity

 

The Grantor agrees to indemnify the Secured Party from and against any and all
claims, losses and liabilities growing out of or resulting from this Security
Agreement (including, without limitation, enforcement of this Security
Agreement), except claims, losses or liabilities resulting from such indemnified
person’s gross negligence or willful misconduct.

 

9.Continuing Security Interest; Transfer of Rights and Obligations

 

This Security Agreement shall create a continuing security interest in the
Collateral and shall remain in full force and effect until the indefeasible
payment in full of the Secured Obligations. If permitted pursuant to the Note,
the Secured Party may assign or otherwise transfer, all or any portion of its
rights and obligations under the Note to any other person, and such other person
shall thereupon become vested with all the benefits in respect thereof granted
to the Secured Party herein or otherwise.

 

10.Security Interest Absolute

 

All rights of the Secured Party and security interests hereunder, and all
obligations of the Grantor hereunder, shall be absolute and unconditional
irrespective of:

 

(a)            any lack of validity or enforceability of any Transaction
Document or any other agreement or instrument relating thereto;

 

(b)            any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations, or any other amendment or
waiver of or any consent to any departure from any of the Transaction Documents;

 

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(c)            any taking and holding of Collateral or additional guarantees for
all or any of the Secured Obligations, or any amendment, alteration, exchange,
substitution, transfer, enforcement, waiver, subordination, termination or
release of any Collateral or such guarantees, or non-perfection of any
Collateral, or any consent to departure from any guaranty, for all or any of the
Secured Obligations;

 

(d)            any manner of application of Collateral, or proceeds thereof, to
all or any of the Secured Obligations, or the manner of sale of any Collateral;

 

(e)            any consent by the Secured Party or any other person to the
change, restructure or termination of the corporate structure or existence of
the Grantor and any corresponding restructure of the Secured Obligations, or any
other restructure or refinancing of the Secured Obligations or any portion
thereof;

 

(d)            any modification, compounding, compromise, settlement, release by
the Secured Party or any other person (or by operation of law or otherwise),
collection or other liquidation of the Secured Obligations or the liability of
the Grantor or any guarantor, or of the Collateral, in whole or in part, and any
refusal of payment by the Secured Party or any other Person, in whole or in
part, from any obligor or guarantor in connection with any of the Secured
Obligations, whether or not with notice to, or further assent by, or any
reservation of rights against, the Grantor; or

 

(e)            any other circumstance which might otherwise constitute a defense
available to, or a discharge of, the Grantor.

 

Without limiting the generality of the foregoing, the Grantor hereby consents
to, and hereby agrees, that the rights of the Secured Party hereunder, and the
liability of the Grantor hereunder, shall not be affected by any and all
releases of any Collateral from the liens created by any Transaction Document,
whether for purposes of sales or other dispositions of assets or for any other
purpose. This Security Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the Secured
Obligations is rescinded or must otherwise be returned by the Secured Party or
any other person upon the insolvency, bankruptcy or reorganization of the
Grantor, or otherwise, all as though such payment had not been made.

 

11.Waivers

 

The Grantor hereby waives any requirement that the Secured Party or any other
person protect, secure, protect or insure any lien or any property subject
thereto or exhaust any right or take any action against the Grantor or any other
person or any Collateral; and

 

12.Release of Collateral

 

Upon all of the principal and interest and other indebtedness evidenced by the
Note having been repaid, then the security interests created hereby shall
terminate and Secured Party shall release the Collateral. Upon any such
termination of the security interests created hereby and the release of the
Collateral, the Secured Party will execute and deliver to the Grantor such
documents as the Grantor shall reasonably request to evidence the termination of
the security interests created hereby and the release of the Collateral.

 

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13.No Waiver; Cumulative Remedies

 

The Secured Party shall not by any act, delay, omission or otherwise be deemed
to have waived any of its rights or remedies hereunder, and no waiver shall be
valid unless in writing, signed by the Secured Party, and then only to the
extent therein set forth. A waiver by the Secured Party of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Secured Party would otherwise have on any future occasion. No
failure to exercise nor any delay in exercising on the part of the Secured
Party, any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights or remedies provided
by law.

 

14.Incorporation by Reference of Note Subscription Agreement Provisions

 

Each of the provisions of Sections 8, 9, 10, 12, 13, 15, 16, 17, 18, and 19 of
the Note Subscription Agreement are hereby incorporated by reference and shall
be deemed to be a part of this Security Agreement as if fully set forth herein;
provided that references in such sections to “this Agreement” shall be replaced
for such purposes by references to “this Security Agreement”.

 

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SIGNATURE PAGE TO THE SECURITY AGREEMENT

 

IN WITNESS WHEREOF, the parties have executed this Security Agreement as of the
date first above written.

 

  COMPANY:         VYSTAR CORPORATION         By:           Name:          
Title:           SECURED PARTY                     By:           Name:          
Title:  

 

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