UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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EMA FINANCIAL, LLC, a Delaware Limited Liability
Company,
Plaintiff,
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VYSTAR CORP., a Georgia Corporation,
Defendant.
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Case No.:
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PLAINTIFF FINANCIAL LLC’S RULE 56.1 STATEMENT
Plaintiff EMA Financial, LLC (“Plaintiff” or “EMA”), respectfully submits this the
following statement of material, undisputed facts in connection with its motion for partial summary
judgment against Vystar Corp. (“Vystar”).
1. This action was filed on or about February 18, 2018. Preston Dec. Ex. E; Docket
entry no. 1.
2. On or about January 29, 2018, after arm’s-length negotiations, Vystar executed a
Securities Purchase Agreement (the “SPA”) and issued a Convertible Note to EMA (the “Note”)
in the amount of $80,000. On this same date, Vystar issued irrevocable instructions to its transfer
agent (the “TA Letter”, together with the Note, SPA, and other related transaction documents, the
“Agreements”) whereby it reserved certain shares to allow conversions of its stock, as described
in further detail below. Preston Dec. ¶7; Ex., Ex.B, Ex. H.
3. The Note provides that EMA has the right to convert all or part of the Note into
shares of Vystar common stock (the “Common Stock”). Specifically, §1.1 of the Note provides
in pertinent part:
Case 1:19-cv-01545-ALC Document 8 Filed 02/19/19 Page 1 of 8
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The Holder shall have the right, in its sole and absolute discretion, as of the date
which is 180 days from the Issue Date, to convert all or any part of the outstanding
amount due under this Note into fully paid and non-assessable shares of Common
Stock.
Ex. A at 1.1. Preston Dec., ¶8.
4. Likewise, 1.4(a) of the Note provides that: “Subject to Section 1.1, this Note may
be converted by the Holder in whole or in part as of the date which is 180 days from the Issue
Date, by submitting to the Borrower a Notice of Conversion…” Preston Dec., ¶9, Ex. A.
5. As §1.2(a) of the Note dictates: “The conversion price hereunder (the "Conversion
Price") shall equal the lower of: (i) the closing sale price of the Common Stock on the Principal
Market on the Trading Day immediately preceding the Closing Date, and (ii) 65% of the average
of the two (2) lowest bid prices for the Common Stock of the Principal Market during the twenty
(20) consecutive Trading Days including and immediately preceding the Conversion Date, or the
closing bid price, whichever is lower…” Preston Dec., ¶10, Ex.A.
6. Further, under §1.4(d) of the Note: “Upon receipt by the Borrower from the Holder
of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of
Conversion meeting the requirements for conversion as provided in this Section 1.4 or upon an
event triggering the calculation of an Adjusted Conversion Price, the Borrower shall issue and
deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the
Common Stock issuable upon such conversion within three (3) business days after such receipt or
such an event (the "Deadline")…” Preston Dec., ¶11, Ex.A.
7. In order to ensure that sufficient shares are available for conversion, §1.3 of the
Note provides that:
The Borrower covenants that the Borrower will at all times while this Note is
outstanding reserve from its authorized and unissued Common Stock a sufficient
number of shares, free from preemptive rights, to provide for the issuance of
Case 1:19-cv-01545-ALC Document 8 Filed 02/19/19 Page 2 of 8
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Common Stock upon the full conversion of this Note. The Borrower is required at
all times to have authorized and reserved five (5) times the number of shares that is
actually issuable upon full conversion of this Note (based on the Conversion Price
of the Notes in effect from time to time)(the "Reserved Amount"). Initially, the
Company will instruct the Transfer Agent to reserve thirty million eight hundred
thousand (30,800,000) shares of common stock in the name of the Holder for
issuance upon conversion hereof. The Borrower represents that upon issuance, such
shares will be duly and validly issued, fully paid and non-assessable.
Preston Dec., ¶12, Ex.A.
8. In order to ensure that EMA at all times has shares reserved in connection with the
outstanding Note, §5 of the SPA states that:
In the event that the Company proposes to replace its transfer agent, the Company
shall provide, prior to the effective date of such replacement a fully executed
Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to
this Agreement and the Securities (including but not limited to the provision to
irrevocably reserve shares of Common Stock in the Reserved Amount (as defined
in the Note) signed by the successor transfer agent to Company and the Company.
Preston Dec., ¶13, Ex. B. .
9. Page 1 of the Note provides that the Company must repay the unpaid interest and
principal balance of the Note by January 29, 2019 which may be extended by EMA until January
29, 2020. On or about December 20, 2018, EMA exercised its option to extend the maturity date
of the Note until January 29, 2020.
Preston Dec., ¶14, Ex. A.
VYSTAR BREACHES THE AGREEMENTS
10. On September 18, 2018 Vystar breached the Note, SPA, and TA Letter by failing
to maintain adequate reserves if its stock with its transfer agent and by failing to honor EMA’s
request that the share reserve be increased. Preston Dec., ¶15, Ex. I.
11. On or about October 23, 2018 Vystar switched transfer agents without notice to
EMA, did not re-establish the share reserve with the new transfer agent, and did not execute
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Irrevocable Transfer Agent Instructions with the new transfer agent in the same form and substance
as required under the Agreements, in violation of Sections 3.2, 3.3, 3.4 of the Note and Section 5
of the SPA. Preston Dec., ¶16, Ex.A, Ex. B.
12. On or about December 20, 2019, plaintiff provided Vystar with notice that it was
extending the maturity date of the Note until January 29, 2020 in accordance with the terms set
forth on page 1 of the Note. Preston Dec., ¶17, Ex. F.
13. On or about January 15, 2019, EMA submitted a Notice of Conversion, seeking to
convert a portion of the Note into 20,545,511 Vystar shares in accordance with Sections 1.1, and
Section 1.2(a) of the Note. Preston Dec., ¶18, Ex. C.
14. Vystar failed to honor the January 15, 2019 Notice of Conversion, in breach of the
Agreements. Preston Dec., ¶19.
15. Likewise, on February 5, 2019, EMA submitted a second Notice of Conversion,
seeking to convert a portion of the Note into 6,202,508 Vystar shares in accordance with Sections
1.1 and 1.2(a) of the Note. Preston Dec., ¶20, Ex. C.
16. Vystar failed to honor the February 5, 2019 Notice of Conversion, in breach of the
Agreements. Preston Dec., ¶21.
17. Among other things, Vystar claimed it was not going to honor EMA’s Notices of
Conversion because doing so would provide EMA with “too great a profit.” Instead of honoring
the Notice of Conversion, Vystar attempted to wire what it claimed were the amounts due to
plaintiff. In fact, under the terms of the Note, as more than six months since issuance had elapsed,
Vystar was required to honor the Notices of Conversion and convert the Note into shares of stock.
See Section 1.8 of the Note. The amounts sent by Vystar are currently being held in escrow.
Preston Dec., ¶23, Ex. A.
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18. Section 3.2 of the Note provides for a breach in the event that:
The Borrower fails to issue shares of Common Stock to the Holder (or announces
or threatens in writing that it will not honor its obligation to do so at any time
following the execution hereof or) upon exercise by the Holder of the conversion
rights of the Holder in accordance with the terms of this Note, fails to transfer or
cause its transfer agent to transfer (issue) (electronically or in certificated form) any
certificate for shares of Common Stock issued to the Holder upon conversion of or
otherwise pursuant to this Note as and when required by this Note, the Borrower
directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer
agent in transferring (or issuing) (electronically or in certificated form) any
certificate for shares of Common Stock to be issued to the Holder upon conversion
of or otherwise pursuant to this Note as and when required by this Note, or fails to
remove (or directs its transfer agent not to remove or impairs, delays, and/or
hinders its transfer agent from removing) any restrictive legend (or to withdraw
any stop transfer instructions in respect thereof) on any certificate for any shares of
Common Stock issued to the Holder upon conversion of or otherwise pursuant to
this Note as and when required by this Note (or makes any written announcement,
statement or threat that it does not intend to honor the obligations described in this
paragraph)… It is an obligation of the Borrower to remain current in its obligations
to its transfer agent. It shall be an event of default of this Note, if a conversion of
this Note is delayed, hindered or frustrated due to a balance owed by the Borrower
to its transfer agent…
Preston Dec., ¶24, Ex. A.
19. Likewise, Section 5 of the SPA provides that
Upon receipt of a duly executed Notice of Conversion, the Company shall issue
irrevocable instructions to its transfer agent to issue certificates, registered in the
name of the Purchaser or its nominee, for the Conversion Shares in such
amounts as specified from time to time by the Purchaser to the Company upon
conversion of the Note, or any part thereof, in accordance with the terms thereof
(the "Irrevocable Transfer Agent Instructions"). In the event that the Company
proposes to replace its transfer agent, the Company shall provide, prior to the
effective date of such replacement, a fully executed irrevocable Transfer Agent
Instructions in a form as initially delivered pursuant to this Agreement and the
Securities (including but not limited to the provision to irrevocably reserve
shares of Common Stock in the Reserved Amount (as defined in the Note))
signed by the successor transfer agent to Company and the Company.
Preston Dec., ¶25, Ex B.
20. Similarly, 3.15 of the Note provides that:
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In the event that the Borrower proposes to replace its transfer agent, the Borrower
fails to provide, prior to the effective date of such replacement, a fully executed
Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to
the Purchase Agreement (including but not limited to the provision to irrevocably
reserve shares of Common Stock in the Reserved Amount) signed by the successor
transfer agent to Borrower and the Borrower.
Preston Dec., ¶26, Ex. C.
21. Based on the foregoing events, Vystar’s failure to honor EMA’s Notices of
Conversion and other actions and omissions has given rise to one or more “Event of Default”
pursuant to the terms the Note. In addition thereto, Vystar’s conduct has caused multiple “Events
of Default” to occur. Preston Dec., ¶27; Ex. A.
22. Section 3 of the Note outlines the negotiated-for and agreed-upon remedies for the
various Events of Default. Among other things, EMA is permitted to enforce any and all of
plaintiff’s rights under the Note and SPA, or otherwise as permitted by law. Preston Dec., ¶28, Ex.
A.
23. Page 1 of the Note provides that: “Any amount of principal or interest on this Note
which is not paid when due shall bear interest at the rate of twenty-four (24%) per annum from the
due date thereof until the same is paid ("Default Interest").” Preston Dec., ¶29, Ex. A.
24. Due to Vystar’s persistent and willful failure to remedy its various breaches, default
interest has been accruing at a rate of 24%. Preston Dec., ¶30, Ex. A.
25. Section 3.16 of the Note provides that, in the Event of Default, “all other amounts
payable hereunder shall immediately become due and payable, all without demand, presentment
or notice, all of which hereby are expressly waived, together with all costs, including, without
limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all
other rights and remedies available at law or in equity.” Preston Dec., ¶31, Ex. A.
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26. EMA has been, and continues to be, irreparably harmed by Vystar’s failure to honor
the Notices of Conversion, failure to maintain a reserve, and failure to remain current in its required
SEC filings. Preston Dec. ¶32.
27. Damages from Vystar’s failure to deliver the shares are inherently uncertain and
difficult to calculate. Since the parties entered in the Note on January 29, 2018, Vystar’s Stock
price has ranged from a low of $0.0005 on December 24, 2018 to a high of $0.158 on February
12, 2019. Preston Dec. ¶33; Ex. G.
28. Thus, the timing of conversions and sale of stock would be essential to the
determination of damages. Because it is difficult to discern with any accuracy precisely when
EMA would have sold the converted shares, and how many it would sell had the conversions been
honored, calculating its losses is extremely difficult. Preston Dec. ¶34.
29. Additionally, Vystar’s most recent Form 10-Q filed with the United States
Securities and Exchange Commission demonstrates that Vystar is legally insolvent, leaving
plaintiff’s ability to collect any potential judgment in substantial doubt. Preston Dec., ¶35, Ex. D.
30. In a recent filing with the SEC, Vystar admitted that it is likely insolvent, noted “an
accumulated deficit of $31 million” and “doubt about the Company’s ability to continue as a going
concern”, and stated as follows:
The Company will need to significantly reorient its operations during 2018, which
could have a material adverse effect on the company’s ability to achieve its business
objectives and as a result may require the Company to file for bankruptcy or cease
operations…
Preston Dec., ¶36, Ex. E.
31. In the same Form 10-Q, Vystar admits that it had only $191,192.00 total cash. See
Exhibit D at p.1. Preston Dec., ¶38, Ex, D.
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32. Current liabilities, according the Generally Accepted Accounting Principles
required for publicly traded companies, are those coming due within 12 months. According to
Vystar’s own statements, it has $3,948,501.00 in current liabilities. Thus, Vystar’s assets are
sufficient to satisfy only a fraction of its outstanding debt. Exhibit D at 21. Preston Dec., ¶39, Ex.
D.
Respectfully Submitted,
Dated: February 19, 2019
New York, New York
LAW OFFICE OF JEFFREY FLEISCHMANN PC
By: /s/_______________________
Jeffrey Fleischmann, Esq.
Attorneys for EMA Financial, LLC
150 Broadway, Suite 900
New York, N.Y. 10004
Tel. (646) 657-9623
Fax (646) 351-0694
jf@lawjf.com
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