SECURITY AGREEMENT

 

SECURITY AGREEMENT (this “Agreement”), dated as of September 23, 2019 (this
“Agreement”) between DIGIPATH, INC., a Nevada corporation (the “Parent”),
DIGIPATH, LABS, INC., a Nevada corporation (“Digi Labs” and together with the
Parent, collectively, the “Company”), and CSW Ventures, LP, (the “Secured
Party”).

 

WHEREAS, the Secured Party has agreed to make one or more loans to the Company
up to an aggregate amount of $400,000 which will be evidenced by an 8% Secured
Convertible Promissory Note of the Parent dated as of the date hereof (the
“Note”);

 

WHEREAS, Digi Labs is a wholly-owned subsidiary of the Parent; and

 

WHEREAS, in order to induce the Secured Party to purchase the Note, the Company
has agreed to grant the Secured Party a security interest in the Company’s
assets to secure the Parent’s obligations under the Note.

 

NOW, THEREFORE, in consideration of the promises contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

1. Definitions. The term “State”, as used herein, means the State of Nevada. All
terms defined in the Uniform Commercial Code of the State and used herein shall
have the same definitions herein as specified therein. However, if a term is
defined in Article 9 of the Uniform Commercial Code of the State differently
than in another Article of the Uniform Commercial Code of the State, the term
has the meaning specified in Article 9. The term “Obligations”, as used herein,
means all of the indebtedness, obligations and liabilities of the Company to the
Secured Party, whether direct or indirect, joint or several, absolute or
contingent, due or to become due, now existing or hereafter arising under or in
respect of the Note, or other instruments or agreements executed and delivered
pursuant thereto or in connection therewith or this Agreement. The term “Event
of Default,” as used in this Agreement, shall mean an Event of Default under the
Note, the failure of the company to pay any of the Obligations when due, or such
other default or breach by the Company of any of the Obligations.

 

2. Grant of Security Interest. The Company hereby grants to the Secured Party,
to secure the payment and performance in full of all of the Obligations, a
security interest in and so pledges and assigns to the Secured Party, the
following properties, assets and rights of the Company, wherever located,
whether now owned or hereafter acquired or arising, and all proceeds and
products thereof (all of the same being hereinafter called the “Collateral”):
all personal and fixture property of every kind and nature including without
limitation all goods (including inventory, equipment and any accessions
thereto), instruments (including promissory notes), documents, accounts
(including health-care-insurance receivables), chattel paper (whether tangible
or electronic), deposit accounts, letter-of-credit rights (whether or not the
letter of credit is evidenced by a writing), commercial tort claims, securities
and all other investment property, supporting obligations, any other contract
rights or rights to the payment of money, insurance claims and proceeds, and all
general intangibles (including all payment intangibles).

 

   

 

 

3. Authorization to File Financing Statements. The Company hereby irrevocably
authorizes the Secured Party at any time and from time to time to file in any
Uniform Commercial Code jurisdiction any initial financing statements and
amendments thereto that (a) indicate the Collateral (i) as all assets of the
Company or words of similar effect, regardless of whether any particular asset
comprised in the Collateral falls within the scope of Article 9 of the Uniform
Commercial Code of the State or such jurisdiction, or (ii) as being of an equal
or lesser scope or with greater detail, and (b) contain any other information
required by part 5 of Article 9 of the Uniform Commercial Code of the State for
the sufficiency or filing office acceptance of any financing statement or
amendment, including whether the Company is an organization, the type of
organization and any organization identification number issued to the Company.
The Company agrees to furnish any such information to the Secured Party promptly
upon request.

 

4. Other Actions. Further to ensure the attachment, perfection and priority of,
and the ability of the Secured Party to enforce, its security interest in the
Collateral, the Company agrees, in each case at the Company’s own expense, to
take the following actions with respect to the following Collateral:

 

4.1. Commercial Tort Claims. If the Company shall at any time hold or acquire a
commercial tort claim, the Company shall immediately notify the Secured Party in
a writing signed by the Company of the brief details thereof and grant to the
Secured Party, in such writing a security interest therein and in the proceeds
thereof, all upon the terms of this Agreement, with such writing to be in form
and substance satisfactory to the Secured Party.

 

4.2. Other Actions as to any and all Collateral. The Company further agrees to
take any other action reasonably requested by the Secured Party to ensure the
attachment, and perfection of, and the ability of the Secured Party to enforce,
the Secured Party’s security interest in any and all of the Collateral.

 

5. Representations and Warranties Concerning Company’s Legal Status. The Company
represents and warrants to the Secured Party as follows: (a) the Company’s exact
legal name is that indicated on the signature page hereof, (b) the Company is a
corporation incorporated in the jurisdiction of the State of Nevada, and (c) the
Company’s chief executive office and mailing address is located at 6450 Cameron
Blvd., Suite 113, Las Vegas, Nevada 89118.

 

6. Covenants Concerning Company’s Legal Status. The Company covenants with the
Secured Party as follows: (a) without providing at least 30 days prior written
notice to the Secured Party, the Company will not change its name, its place of
business or, if more than one, chief executive office, or its mailing address or
organizational identification number if it has one, and (b) the Company will not
change its type of organization, jurisdiction of organization or other legal
structure.

 

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7. Representations and Warranties Concerning Collateral, Etc. The Company
further represents and warrants to the Secured Party that the Company is the
owner of the Collateral, free from any adverse lien, security interest or other
encumbrance, except for liens incurred in the ordinary course of business which
arise by operation of law and which liens secure amounts not yet due, and liens
in favor of the collateral agent for the benefit of the holders of the Company’s
8% Senior Secured Convertible Notes in the aggregate principal amount of
$500,000 issued in November 2018.

 

8. Insurance. The Company will maintain with financially sound and reputable
insurers insurance with respect to its properties and business against such
casualties and contingencies as shall be in accordance with general practices of
businesses engaged in similar activities in similar geographic areas. Such
insurance shall be in such minimum amounts that the Company will not be deemed a
co-insurer under applicable insurance laws, regulations and policies and
otherwise shall be in such amounts, contain such terms, be in such forms and be
for such periods as may be reasonably satisfactory to the Secured Party.

 

9. Collateral Protection Expenses; Preservation of Collateral.

 

9.1. Expenses incurred by Secured Party. In its discretion, the Secured Party
may discharge taxes and other encumbrances at any time levied or placed on any
of the Collateral, make repairs thereto and pay any necessary filing fees or, if
the Company fails to do so, insurance premiums. The Company agrees to reimburse
the Secured Party on demand for any and all expenditures so made. The Secured
Party shall have no obligation to the Company to make any such expenditures, nor
shall the making thereof relieve the Company of any default.

 

9.2. Secured Party’s Obligations and Duties. Anything herein to the contrary
notwithstanding, the Company shall remain liable under each contract or
agreement comprised in the Collateral to be observed or performed by the Company
thereunder. The Secured Party shall not have any obligation or liability under
any such contract or agreement by reason of or arising out of this Agreement or
the receipt by the Secured Party of any payment relating to any of the
Collateral, nor shall the Secured Party be obligated in any manner to perform
any of the obligations of the Company under or pursuant to any such contract or
agreement, to make inquiry as to the nature or sufficiency of any payment
received by the Secured Party in respect of the Collateral or as to the
sufficiency of any performance by any party under any such contract or
agreement, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to the Secured Party or to which the Secured Party may be entitled at
any time or times. The Secured Party’s sole duty with respect to the custody,
safe keeping and physical preservation of the Collateral in its possession,
under Section 9-207 of the Uniform Commercial Code of the State or otherwise,
shall be to deal with such Collateral in the same manner as the Secured Party
deals with similar property for its own account.

 

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10. Remedies. If an Event of Default shall have occurred and be continuing, the
Secured Party may, without notice to or demand upon the Company, declare this
Agreement to be in default, and the Secured Party shall thereafter have in any
jurisdiction in which enforcement hereof is sought, in addition to all other
rights and remedies, the rights and remedies of a secured party under the
Uniform Commercial Code of the State or of any jurisdiction in which Collateral
is located.

 

11. Standards for Exercising Remedies. To the extent that applicable law imposes
duties on the Secured Party to exercise remedies in a commercially reasonable
manner, the Company acknowledges and agrees that it is not commercially
unreasonable for the Secured Party (a) to fail to incur expenses reasonably
deemed significant by the Secured Party to prepare Collateral for disposition or
otherwise to complete raw material or work in process into finished goods or
other finished products for disposition, (b) to fail to obtain third party
consents for access to Collateral to be disposed of, or to obtain or, if not
required by other law, to fail to obtain governmental or third party consents
for the collection or disposition of Collateral to be collected or disposed of,
(c) to fail to exercise collection remedies against account debtors or other
persons obligated on Collateral or to remove liens or encumbrances on or any
adverse claims against Collateral, (d) to exercise collection remedies against
account debtors and other persons obligated on Collateral directly or through
the use of collection agencies and other collection specialists, (e) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (f) to
contact other persons, whether or not in the same business as the Company, for
expressions of interest in acquiring all or any portion of the Collateral, (g)
to hire one or more professional auctioneers to assist in the disposition of
Collateral, whether or not the collateral is of a specialized nature, (h) to
dispose of Collateral by utilizing Internet sites that provide for the auction
of assets of the types included in the Collateral or that have the reasonable
capability of doing so, or that match buyers and sellers of assets, (i) to
dispose of assets in wholesale rather than retail markets, (j) to disclaim
disposition warranties, (k) to purchase insurance or credit enhancements to
insure the Secured Party against risks of loss, collection or disposition of
Collateral or to provide to the Secured Party a guaranteed return from the
collection or disposition of Collateral, or (l) to the extent deemed appropriate
by the Secured Party, to obtain the services of other brokers, investment
bankers, consultants and other professionals to assist the Secured Party in the
collection or disposition of any of the Collateral. The Company acknowledges
that the purpose of this Section 11 is to provide non-exhaustive indications of
what actions or omissions by the Secured Party would not be commercially
unreasonable in the Secured Party’s exercise of remedies against the Collateral
and that other actions or omissions by the Secured Party shall not be deemed
commercially unreasonable solely on account of not being indicated in this
Section 11. Without limitation upon the foregoing, nothing contained in this
Section 11 shall be construed to grant any rights to the Company or to impose
any duties on the Secured Party that would not have been granted or imposed by
this Agreement or by applicable law in the absence of this Section 11.

 

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12. No Waiver. The Secured Party shall not be deemed to have waived any of its
rights upon or under the Obligations or the Collateral unless such waiver shall
be in writing and signed by the Secured Party. No delay or omission on the part
of the 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 to or waiver of any right on any future occasion. All rights and remedies
of the Secured Party with respect to the Obligations or the Collateral, whether
evidenced hereby or by any other instrument or papers, shall be cumulative and
may be exercised singularly, alternatively, successively or concurrently at such
time or at such times as the Secured Party deems expedient.

 

13. Waivers by Company. The Company waives demand, notice, protest, notice of
acceptance of this Agreement, notice of loans made, credit extended, Collateral
received or delivered or other action taken in reliance hereon and all other
demands and notices of any description. With respect to both the Obligations and
the Collateral, the Company assents to any extension or postponement of the time
of payment or any other indulgence, to any substitution, exchange or release of
or failure to perfect any security interest in any Collateral, to the addition
or release of any party or person primarily or secondarily liable, to the
acceptance of partial payment thereon and the settlement, compromising or
adjusting of any thereof, all in such manner and at such time or times as the
Secured Party may deem advisable. The Secured Party shall have no duty as to the
collection or protection of the Collateral or any income thereon, nor as to the
preservation of rights against prior parties, nor as to the preservation of any
rights pertaining thereto beyond the safe custody thereof as set forth in
Section 9.2. The Company further waives any and all other suretyship defenses.

 

14. Marshalling. The Secured Party shall not be required to marshal any present
or future collateral security (including but not limited to this Agreement and
the Collateral) for, or other assurances of payment of, the Obligations or any
of them or to resort to such collateral security or other assurances of payment
in any particular order, and all of its rights hereunder and in respect of such
collateral security and other assurances of payment shall be cumulative and in
addition to all other rights, however existing or arising. To the extent that it
lawfully may, the Company hereby agrees that it will not invoke any law relating
to the marshaling of collateral which might cause delay in or impede the
enforcement of the Secured Party’s rights under this Agreement or under any
other instrument creating or evidencing any of the Obligations or under which
any of the Obligations is outstanding or by which any of the Obligations is
secured or payment thereof is otherwise assured, and, to the extent that it
lawfully may, the Company hereby irrevocably waives the benefits of all such
laws.

 

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15. Proceeds of Dispositions; Expenses. The Company shall pay to the Secured
Party on demand any and all expenses, including reasonable attorneys’ fees and
disbursements, incurred or paid by the Secured Party in protecting, preserving
or enforcing the Secured Party’s rights under or in respect of any of the
Obligations or any of the Collateral. After deducting all of said expenses, the
residue of any proceeds of collection or sale of the Obligations or Collateral
shall, to the extent actually received in cash, be applied to the payment of the
Obligations in such order or preference as the Secured Party may determine,
proper allowance and provision being made for any Obligations not then due. Upon
the final payment and satisfaction in full of all of the Obligations and after
making any payments required by Sections 9-608(a)(1)(C) or 9-615(a)(3) of the
Uniform Commercial Code of the State, any excess shall be returned to the
Company, and the Company shall remain liable for any deficiency in the payment
of the Obligations.

 

16. Overdue Amounts. Until paid, all amounts due and payable by the Company
hereunder shall be a debt secured by the Collateral.

 

17. Governing Law; Consent to Jurisdiction. THIS AGREEMENT IS INTENDED TO TAKE
EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEVADA. The Company agrees that any
suit for the enforcement of this Agreement may be brought in the courts of the
State or any federal court sitting therein and consents to the non-exclusive
jurisdiction of such court and to service of process in any such suit being made
upon the Company by mail at the address specified in Section 5. The Company
hereby waives any objection that it may now or hereafter have to the venue of
any such suit or any such court or that such suit is brought in an inconvenient
court.

 

18. Miscellaneous. The headings of each section of this Agreement are for
convenience only and shall not define or limit the provisions thereof. This
Agreement and all rights and obligations hereunder shall be binding upon the
Company and its respective successors and assigns, and shall inure to the
benefit of the Secured Party and its successors and assigns. If any term of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity of
all other terms hereof shall in no way be affected thereby, and this Agreement
shall be construed and be enforceable as if such invalid, illegal or
unenforceable term had not been included herein.

 

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IN WITNESS WHEREOF, intending to be legally bound, the Company has caused this
Agreement to be duly executed as of the date first above written.

 

  DIGIPATH, INC.       By: /s/ Todd Peterson   Name: Todd Peterson   Title:
Chief Financial Officer         DIGIPATH LABS, INC.         By: /s/ Todd
Peterson   Name: Todd Peterson   Title: Chief Financial Officer         CSW
Ventures, LP         By: /s/ David Weiner   Name: David Weiner   Title: General
Partner of L.P.

 

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