PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (the “ Agreement ”), dated as of February 19, 2016, is entered into by and between Innovus Pharmaceuticals, Inc., a Nevada corporation (the “ Company ”), and SBI Investments LLC, 2014-1 (as the “ Lender ”).  Capitalized terms used in this Agreement and not otherwise defined shall have the meanings ascribed to them in Section 1.

W I T N E S S E T H :

WHEREAS , the Company and the Lender are executing and delivering this Agreement in accordance with and in reliance upon the exemption from securities registration for offers and sales to accredited investors promulgated by the United States Securities and Exchange Commission (the “ SEC ”) under the Securities Act of 1933, as amended (the “ 1933 Act ”);

WHEREAS , the Lender wishes to lend funds to the Company, subject to and  upon  the terms and conditions of this Agreement and acceptance of this Agreement by the Company, the repayment of which will be represented by a 20% Secured Promissory Note of the Company (the “ Note ”), on the terms and conditions referred to herein; and

WHEREAS, the Company’s obligations to repay the Note will be secured by certain collateral pursuant to a Security Agreement (the “ Security Agreement ”) executed by the Company and the Lender.

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

1.           AGREEMENT TO PURCHASE; NOTE; DEFINITIONS.

a.           Purchase.

(i)           Subject to the terms and conditions of this Agreement and the other Transaction Documents, the Lender hereby agrees to loan to the Company $550,000.00 (the “ Loan Amount ”) upon execution of this Agreement.  The Note will mature twenty-four months from the date of issuance.

(ii)           The obligation to repay the loans from the Lender shall be evidenced by the Company’s issuance of the Note, which shall be in the form of Annex I, annexed hereto.  The Note will be secured by certain collateral pursuant to the terms of the Security Agreement, which Security Agreement shall be substantially in the form of Annex II hereto.

(iii)           The loan to be made by the Lender and the issuance of the Note to the Lender and the other transactions contemplated hereby are sometimes referred to herein and in the other Transaction Documents as the purchase and sale of the Securities (as defined below), and are referred to collectively as the “ Transactions .”

b.             Certain Definitions. As used herein, each of the following terms has the meaning set forth below, unless the context otherwise requires:

“Affiliate” means, with respect to a specific Person referred to in the relevant provision, another Person who or which controls or is controlled by or is under common control with such specified Person.

“Closing Date” means the date of the closing of the Transactions, as provided herein.

“Common Stock” means the Company’s common stock, par value $0.0001 per share.

 “Company Control Person” means each director, executive officer, promoter, and such other Persons as may be deemed in control of the Company pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act (as defined below).

“Holder” means the Person holding the relevant Securities at the relevant time.

“Last Audited Date” means December 31, 2014.

“Lender Control Person” means each director, executive officer, promoter, and such other Persons as may be deemed in control of the Lender pursuant to Rule 405 under the 1933 Act or Section 20 of the 1934 Act.

“Material Adverse Effect” means an event or combination of events, which individually or in the aggregate, would reasonably be expected to (w) adversely affect the legality, validity or enforceability of the Securities or any of the Transaction Documents, (x)  have or result in a material adverse effect on the results of operations, assets, prospects, or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole, (y) adversely impair the Company's ability to perform fully on a timely basis its obligations under any of the Transaction Documents or the transactions contemplated thereby, or (z) materially and adversely affect the value of the rights granted to the Lender in the Transaction Documents.

 

 

“Person” means any living person or any entity, such as, but not necessarily limited to, a corporation, partnership or trust.

“Principal Trading Market” means the Over the Counter Bulletin Board or such other market on which the Common Stock is principally traded at the relevant time, including the OTC Pink marketplace.

“SEC Documents” means all reports, schedules, forms, statements, prospectuses, registration statements and other documents, as such documents may be amended or supplemented, required to be filed by the Company with or furnished to the SEC.

“Securities” means the Note.

“State of Incorporation” means Nevada.

“Trading Day” means any day during which the Principal Trading Market shall be open for business.

“Transaction Documents” means this Purchase Agreement, the Note, the Escrow Agreement, the Security Agreement and the warrants to be issued pursuant to Section 1(b) hereof, and includes all ancillary documents referred to in those agreements.

c.             Form of Payment; Delivery of the Note.

(i)           The Lender shall pay the Loan Amount by delivering immediately available good funds in United States Dollars to the Company and to Beyond Human, LLC on behalf of the Company no later than the date required by the terms of each Note.

(ii)           No later than the Closing Date, the Company shall deliver the Note, duly executed on behalf of the Company and issued in the name of the Lender, to the Lender.

d.             Method of Payment.   Payment of the Loan Amount shall be made by wire transfer of funds from the Lender in accordance with the instructions of the Company, which instructions will include partial payment of the Loan Amount to be directed to Beyond Human, LLC.

2.  LENDER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION.

The Lender represents and warrants to, and covenants and agrees with, the Company as follows:

a.            The Lender is purchasing the Securities for its own account for investment only and not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof.

b.            The Lender is (i) an “accredited investor” as that term is defined in Rule 501 of the General Rules and Regulations under the 1933 Act by reason of Rule 501(a)(3), (ii) experienced in making investments of the kind described in this Agreement and the related documents, (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors (who are not affiliated with or compensated in any way by the Company or any of its Affiliates or selling agents), to protect its own interests in connection with the transactions described in this Agreement, and the related documents, and to evaluate the merits and risks of an investment in the Securities, and (iv) able to afford the entire loss of its investment in the Securities.

c.            The Lender understands that the Securities are being offered and sold to it in reliance on exemptions from the registration requirements of the 1933 Act and state securities laws and that the Company is relying upon the truth and accuracy of, and the Lender's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Lender set forth herein in order to determine the availability of such exemptions and the eligibility of the Lender to acquire the Securities.

d.            The Lender and its advisors, if any, have been furnished with or have been given access to all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Lender, including those set forth on in any annex attached hereto. The Lender and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management and have received complete and satisfactory answers to any such inquiries.  Without limiting the generality of the foregoing, the Lender has also had the opportunity to obtain and to review the SEC Documents.

e.            The Lender understands that its investment in the Securities involves a high degree of risk.

f.            The Lender hereby represents that, in connection with its purchase of the Securities, it has not relied on any statement or representation by the Company or any of its officers, directors, employees. attorneys or agents, except as specifically set forth herein.

g.            The Lender understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities.

h.            This Agreement and the other Transaction Documents to which the Lender is a party, and the transactions contemplated thereby, have been duly and validly authorized, executed and delivered on behalf of the Lender and are valid and binding agreements of the Lender enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally.

 

 

3.             COMPANY REPRESENTATIONS, ETC.   The Company represents and warrants to the Lender as of the date hereof and as of the Closing Date, except as set forth on Schedule 3 hereto, that:

a.             Rights of Others Affecting the Transactions.   There are no preemptive rights of any shareholder of the Company, as such, to acquire the Note.  No party other than the Lender has a currently exercisable right of first refusal applicable to or security interests which would be or in violation as a result of any or all of the transactions contemplated by the Transaction Documents.

b.             Status.   The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Incorporation and has the requisite corporate power to own its properties and to carry on its business as now being conducted.  The Company is duly qualified as a foreign corporation to do business and is in good standing in each jurisdiction where the nature of the business conducted or property owned by it makes such qualification necessary, other than those jurisdictions in which the failure to so qualify would not have or result in a Material Adverse Effect.  The Company has registered its stock and is obligated to file reports pursuant to Section 12 or Section 15(d) of the Securities and Exchange Act of 1934, as amended (the “ 1934 Act ”).  The Common Stock is quoted on the Principal Trading Market.  The Company has received no notice, either oral or written, with respect to the continued eligibility of the Common Stock for such quotation on the Principal Trading Market, and the Company has maintained all requirements on its part for the continuation of such quotation.

c.             Transaction Documents and Stock.   This Agreement and each of the other Transaction Documents, and the transactions contemplated thereby, have been duly and validly authorized by the Company, this Agreement has been duly executed and delivered by the Company and this Agreement is, and the Note, each of the other Transaction Documents, when executed and delivered by the Company, will be, valid and binding agreements of the Company enforceable in accordance with their respective terms, subject as to enforceability to general principles of equity and to bankruptcy, insolvency, moratorium, and other similar laws affecting the enforcement of creditors' rights generally.

d.             Non-contravention.   The execution and delivery of this Agreement and each of the other Transaction Documents by the Company, the issuance of the Securities, and the consummation by the Company of the other transactions contemplated by this Agreement, the Note, and the other Transaction Documents do not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under (i) the certificate of incorporation or by-laws of the Company, each as currently in effect, (ii) any indenture, mortgage, deed of trust, or other material agreement or instrument to which the Company is a party or by which it or any of its properties or assets are bound, including any listing agreement for the Common Stock except as herein set forth, or (iii) to its knowledge, any existing applicable law, rule, or regulation or any applicable decree, judgment, or order of any court, United States federal or state regulatory body, administrative agency, or other governmental body having jurisdiction over the Company or any of its properties or assets, except such conflict, breach or default which would not have or result in a Material Adverse Effect.

e.             Approvals.   No authorization, approval or consent of any court, governmental body, regulatory agency, self-regulatory organization, or stock exchange or market or the shareholders of the Company is required to be obtained by the Company for the issuance and sale of the Securities to the Lender as contemplated by this Agreement, except such authorizations, approvals and consents that have been obtained.

f.             Filings.   None of the Company’s SEC Documents contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements made therein in light of the circumstances under which they were made, not misleading.  The Company has timely filed all requisite forms, reports and exhibits thereto required to be filed by the Company with the SEC.

g.             Absence of Certain Changes.   Since the Last Audited Date, there has been no material adverse change and no Material Adverse Effect, except as disclosed in the Company’s SEC Documents. Since the Last Audited Date, except as provided in the Company’s SEC Documents, the Company has not (i) incurred or become subject to any material liabilities (absolute or contingent) except liabilities incurred in the ordinary course of business consistent with past practices; (ii) discharged or satisfied any material lien or encumbrance or paid any material obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business consistent with past practices; (iii) declared or made any payment or distribution of cash or other property to shareholders with respect to its capital stock, or purchased or redeemed, or made any agreements to purchase or redeem, any shares of its capital stock; (iv) sold, assigned or transferred any other tangible assets, or canceled any debts owed to the Company by any third party  or claims of the Company against any third party, except in the ordinary course of business consistent with past practices; (v) waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of existing business; (vi) made any increases in employee compensation, except in the ordinary course of business consistent with past practices; or (vii) experienced any material problems with labor or management in connection with the terms and conditions of their employment.

h.             Full Disclosure.   To the best of the Company’s knowledge, there is no fact known to the Company (other than general economic conditions known to the public generally or as disclosed in the Company’s SEC Documents) that has not been disclosed in writing to the Lender that would reasonably be expected to have or result in a Material Adverse Effect.

i.             Absence of Litigation.   Except as disclosed in the Company’s SEC Documents, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company, threatened against or affecting the Company before or by any governmental authority or nongovernmental department, commission, board, bureau, agency or instrumentality or any other person, wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, any of the Transaction Documents.  The Company is not aware of any valid basis for any such claim that (either individually or in the aggregate with all other such events and circumstances) could reasonably be expected to have a Material Adverse Effect. There are no outstanding or unsatisfied judgments, orders, decrees, writs, injunctions or stipulations to which the Company is a party or by which it or any of its properties is bound, that involve the transaction contemplated herein or that, alone or in the aggregate, could reasonably be expect to have a Material Adverse Effect.

 

 

j.             Absence of Events of Default.   Neither the Company nor any of its subsidiaries is in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any material indenture, mortgage, deed of trust or other material agreement to which it is a party or by which its property is bound, and no Event of Default (or its equivalent term), as defined in the respective agreement to which the Company or its subsidiary is a party, and no event which, with the giving of notice or the passage of time or both, would become an Event of Default (or its equivalent term) (as so defined in such agreement), has occurred and is continuing, which would have a Material Adverse Effect.

k.             Absence of Certain Company Control Person Actions or Events.   To the Company’s knowledge, none of the following has occurred during the past five (5) years with respect to a Company Control Person:

(1) A petition under the federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such Company Control Person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

(2) Such Company Control Person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

(3) Such Company Control Person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

(i) acting, as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, any other Person regulated by the Commodity Futures Trading Commission (" CFTC ") or engaging in or continuing any conduct or practice in connection with such activity;

(ii) engaging in any type of business practice; or

(iii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;

(4) Such Company Control Person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such Company Control Person to engage in any activity described in paragraph (3) of this item, or to be associated with Persons engaged in any such activity; or

(5) Such Company Control Person was found by a court of competent jurisdiction in a civil action or by the CFTC or SEC to have violated any federal or state securities law, and the judgment in such civil action or finding by the CFTC or SEC has not been subsequently reversed, suspended, or vacated.

l.             No Undisclosed Liabilities or Events.   To the best of the Company’s knowledge, the Company has no material liabilities or obligations other than those disclosed in the Transaction Documents or the Company's SEC Documents or those incurred in the ordinary course of the Company's business since the Last Audited Date, or which individually or in the aggregate, do not or would not have a Material Adverse Effect. No event or circumstances has occurred or exists with respect to the Company or its properties, business, operations, condition (financial or otherwise), or results of operations, which, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed.  There are no proposals currently under consideration or currently anticipated to be under consideration by the Board of Directors or the executive officers of the Company which proposal would (x) change the articles or certificate of incorporation or other charter document or by-laws of the Company, each as currently in effect, with or without shareholder approval, which change would reduce or otherwise adversely affect the rights and powers of the shareholders of the Common Stock or (y) materially or substantially change the business, assets or capital of the Company, including its interests in subsidiaries.

m.             Recognition of Security Agreement.   The Company acknowledges that the execution and delivery of the Security Agreement, and the fulfillment of the terms thereof, is a condition to the closing of the Transactions.

n.             Fees to Brokers and Others.   The Company has taken no action which would give rise to any claim by any Person for brokerage commission or similar payments by Lender relating to this Agreement or the transactions contemplated hereby.  The Company shall indemnify and hold harmless each of Lender, its employees, officers, directors, agents, and partners, and their respective Affiliates, from and against all claims, losses, damages, costs (including the costs of preparation and attorney's fees) and expenses suffered in respect of any such claimed or existing fees, as and when incurred.

o.             Confirmation.   The Company confirms that all statements of the Company contained herein shall survive acceptance of this Agreement by the Lender. The Company agrees that, if any events occur or circumstances exist prior to the Closing Date or the release of the Loan Amount to the Company which would make any of the Company’s representations, warranties, agreements or other information set forth herein materially untrue or materially inaccurate as of such date, the Company shall immediately notify the Lender (directly or through its counsel, if any) and the Escrow Agent in writing prior to such date of such fact, specifying which representation, warranty or covenant is affected and the reasons therefor.

 

 

4.           CERTAIN COVENANTS AND ACKNOWLEDGMENTS.

a.             Transfer Restrictions.   The Lender acknowledges that the Securities have not been and are not being registered under the provisions of the 1933 Act.

b.             Filings .  The Company undertakes and agrees to make all necessary filings in connection with the sale of the Securities to the Lender and the execution of the Transaction Documents under any United States laws and regulations applicable to the Company, or by any domestic securities exchange or trading market, and to provide a copy thereof to the Lender promptly after such filing.

c.             Reporting Status .  So long as the Lender owns the Securities and for at least twenty (20) Trading Days thereafter, the Company shall file all reports required to be filed  with the SEC pursuant to Section 13 or 15(d) of the 1934 Act,  shall take all reasonable action under its control to ensure that adequate current public information with respect to the Company, as required in accordance with Rule 144(c)(2) of the 1933 Act, is publicly available, and shall not terminate its status as an issuer required to file reports under the 1934 Act even if the 1934 Act or the rules and regulations thereunder would permit such termination.  The Company will take all reasonable action under its control to maintain the continued listing and quotation and trading of its Common Stock on the Principal Trading Market and, to the extent applicable to it, will comply in all material respects with the Company’s reporting, filing and other obligations under the by-laws or rules of the Principal Trading Market applicable to it at least through the date which is sixty (60) days after the later of the date on which the Note has been paid in full.

d.             Use of Proceeds .  The Company’s use the proceeds is described and set forth in the Note.

e.             Publicity, Filings, Releases, Etc.   Each of the parties hereby consents to the inclusion of the text of the Transaction Documents in filings made with the SEC as well as any descriptive text accompanying or part of such filing which is accurate and reasonably determined by the Company’s counsel to be legally required. Notwithstanding, but subject to, the foregoing provisions of this  Section 4(e), the Company will, if required, after the Closing Date, promptly file a Current Report on Form 8-K or, if appropriate, a quarterly or annual report on the appropriate form, referring to the transactions contemplated by the Transaction Documents.

5.           CLOSING DATE.

a.            The Closing Date shall occur on the date which is the first Trading Day after each of the conditions contemplated by Sections 6 and 7 hereof shall have either been satisfied or been waived by the party in whose favor such conditions run.

b.            The closing of the Transactions shall occur on the Closing Date at the offices of the Escrow Agent and shall take place no later than 1:00 P.M., New York time, on such day or such other time as is mutually agreed upon by the Company and the Lender.

c.            Notwithstanding anything to the contrary contained herein, the Escrow Agent will be authorized to release the Escrow Funds to the Company and to others and to release the other Escrow Property on the Closing Date upon satisfaction of the conditions set forth in Sections 6 and 7 hereof.

6.           CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

The Lender understands that the Company's obligation to sell the Note to the Lender pursuant to this Agreement on the Closing Date is conditioned upon:

a.

The execution and delivery of this Agreement by the Lender

b.            Delivery by the Lender good funds as payment in full of an amount equal to the Loan Amount in accordance with this Agreement;

c.            The accuracy on such Closing Date of the representations and warranties of the Lender contained in this Agreement, each as if made on such date, and the performance by the Lender on or before such date of all covenants and agreements of the Lender required to be performed on or before such date; and

d.            There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained.

 

 

7.           CONDITIONS TO THE LENDER'S OBLIGATION TO PURCHASE.

The Company understands that the Lender's obligation to purchase the Note on the Closing Date is conditioned upon:

a.            The execution and delivery of this Agreement and the other Transaction Documents by the Company;

b.            Delivery by the Company of the Security Agreement;

c.            The accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained in this Agreement, each as if made on such date, and the performance by the Company on or before such date of all covenants and agreements of the Company required to be performed on or before such date;

d.            There shall not be in effect any law, rule or regulation prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained; and

e.            From and after the date hereof to and including the Closing Date, each of the following conditions will remain in effect: (i) the trading of the Common Stock shall not have been suspended by the SEC or on the Principal Trading Market; (ii) trading in securities generally on the Principal Trading Market shall not have been suspended or limited; (iii) no minimum prices shall been established for securities traded on the Principal Trading Market; and (iv) there shall not have been any material adverse change in any financial market.

8.           INDEMNIFICATION AND REIMBURSEMENT.

a.            (i)  The Company agrees to indemnify and hold harmless the Lender and its officers, directors, employees, and agents, and each Lender Control Person from and against any losses, claims, damages, liabilities or expenses incurred (collectively, “ Damages ”), joint or several, and any action in respect thereof to which the Lender, its partners, Affiliates, officers, directors, employees, and duly authorized agents, and any such Lender Control Person becomes subject to, resulting from, arising out of or relating to any misrepresentation, breach of warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of Company contained in this Agreement, as such Damages are incurred, except to the extent such Damages result primarily from Lender's failure to perform any covenant or agreement contained in this Agreement or the Lender's or its officer ’ s, director ’ s, employee ’ s, agent ’ s or Lender Control Person ’ s gross negligence, recklessness or bad faith in performing its obligations under this Agreement.

(ii)           The Company hereby agrees that, if the Lender, other than by reason of its gross negligence, illegal or willful misconduct (in each case, as determined by a non-appealable judgment to such effect), (x) becomes involved in any capacity in any action, proceeding or investigation brought by any shareholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by this Agreement or the other Transaction Documents, or if the Lender is impleaded in any such action, proceeding or investigation by any Person, or (y) becomes involved in any capacity in any action, proceeding or investigation brought by the SEC, any self-regulatory organization or other body having jurisdiction, against or involving the Company or in connection with or as a result of the consummation of the transactions contemplated by this Agreement or the other Transaction Documents, or (z) is impleaded in any such action, proceeding or investigation by any Person, then in any such case, the Company shall indemnify, defend and hold harmless the Lender from and against and in respect of all losses, claims, liabilities, damages or expenses resulting from, imposed upon or incurred by the Lender, directly or indirectly, and reimburse such Lender for its reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith, as such expenses are incurred.  The indemnification and reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Lender who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and Lender Control Persons (if any), as the case may be, of the Lender and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Lender, any such Affiliate and any such Person.  The Company also agrees that neither the Lender nor any such Affiliate, partner, director, agent, employee or Lender Control Person shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company in connection with or as a result of the consummation of this Agreement or the other Transaction Documents, except as may be expressly and specifically provided in or contemplated by this Agreement.

b.            All claims for indemnification by any Indemnified Party (as defined below) under this Section shall be asserted and resolved as follows:

(i)            In the event any claim or demand in respect of which any Person claiming indemnification under any provision of this Section (an " Indemnified Party ") might seek indemnity under paragraph (a) of this Section is asserted against or sought to be collected from such Indemnified Party by a Person other than a party hereto or an Affiliate thereof (a "Third Party Claim"), the Indemnified Party shall deliver a written notification, enclosing a copy of all papers served, if any, and specifying the nature of and basis for such Third Party Claim and for the Indemnified Party's claim for indemnification that is being asserted under any provision of this Section against any Person (the " Indemnifying Party "), together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such Third Party Claim (a " Claim Notice ") with reasonable promptness to the Indemnifying Party. If the Indemnified Party fails to provide the Claim Notice with reasonable promptness after the Indemnified Party receives notice of such Third Party Claim, the Indemnifying Party shall not be obligated to indemnify the Indemnified Party with respect to such Third Party Claim to the extent that the Indemnifying Party's ability to defend has been prejudiced by such failure of the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party as soon as practicable within the period ending thirty (30) calendar days following receipt by the Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined below) (the " Dispute Period ") whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified Party under this Section and whether the Indemnifying Party desires, at its sole cost and expense, to defend the Indemnified Party against such Third Party Claim.  The following provisions shall also apply.

 

 

(x)           If the Indemnifying Party notifies the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Indemnified Party with respect to the Third Party Claim pursuant to this paragraph (b) of this Section, then the Indemnifying Party shall have the right to defend, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the Indemnifying Party, such Third Party Claim by all appropriate proceedings, which proceedings shall be vigorously and diligently prosecuted by the Indemnifying Party to a final conclusion or will be settled at the discretion of the Indemnifying Party (but only with the consent of the Indemnified Party in the case of any settlement that provides for any relief other than the payment of monetary damages or that provides for the payment of monetary damages as to which the Indemnified Party shall not be indemnified in full pursuant to paragraph (a) of this Section). The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that the Indemnified Party may, at the sole cost and expense of the Indemnified Party, at any time prior to the Indemnifying Party's delivery of the notice referred to in the first sentence of this subparagraph (x), file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate protect its interests; and provided further, that if requested by the Indemnifying Party, the Indemnified Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnifying Party in contesting any Third Party Claim that the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this subparagraph (x), and except as provided in the preceding sentence, the Indemnified Party shall bear its own costs and expenses with respect to such participation. Notwithstanding the foregoing, the Indemnified Party may take over the control of the defense or settlement of a Third Party Claim at any time if it irrevocably waives its right to indemnity under paragraph (a) of this Section with respect to such Third Party Claim.

 

(ii)           In the event any Indemnified Party should have a claim under paragraph (a) of this Section against the Indemnifying Party that does not involve a Third Party Claim, the Indemnified Party shall deliver a written notification of a claim for indemnity under paragraph (a) of this Section specifying the nature of and basis for such claim, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such claim (an " Indemnity Notice ") with reasonable promptness to the Indemnifying Party. The failure by any Indemnified Party to give the Indemnity Notice shall not impair such party's rights hereunder except to the extent that the Indemnifying Party demonstrates that it has been irreparably prejudiced thereby. If the Indemnifying Party notifies the Indemnified Party that it does not dispute the claim or the amount of the claim described in such Indemnity Notice or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes the claim or the amount of the claim described in such Indemnity Notice, the amount of Damages specified in the Indemnity Notice will be conclusively deemed a liability of the Indemnifying Party under paragraph (a) of this Section and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party on demand. If the Indemnifying Party has timely disputed its liability or the amount of its liability with respect to such claim, the Indemnifying Party and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute; provided, however, that it the dispute is not resolved within thirty (30) days after the Claim Notice, the Indemnifying Party shall be entitled to institute such legal action as it deems appropriate.

c.            The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar rights of the indemnified party against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to.

9.             JURY TRIAL WAIVER.   The Company and the Lender hereby waive a trial by jury in any action, proceeding or counterclaim brought by either of the Parties hereto against the other in respect of any matter arising out or in connection with the Transaction Documents.

 

 

10.           GOVERNING LAW:  MISCELLANEOUS.

a.            (i)  This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York for contracts to be wholly performed in such state and without giving effect to the principles thereof regarding the conflict of laws.  Each of the parties consents to the exclusive jurisdiction of the federal courts whose districts encompass any part of the County of New York or the state courts of the State of New York sitting in the County of New York in connection with any dispute arising under this Agreement or any of the other Transaction Documents and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens , to the bringing of any such proceeding in such jurisdictions or to any claim that such venue of the suit, action or proceeding is improper. To the extent determined by such court, the Company shall reimburse the Lender for any reasonable legal fees and disbursements incurred by the Lender in enforcement of or protection of any of its rights under any of the Transaction Documents.  Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law.

(ii)  The Company and the Lender acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement or the other Transaction Documents were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and the other Transaction Documents and to enforce specifically the terms and provisions hereof and thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity.

b.            Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

c.            This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto.

d.            All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require.

e.            A facsimile transmission of this signed Agreement shall be legal and binding on all parties hereto.

f.            This Agreement may be signed in one or more counterparts, each of which shall be deemed an original.

g.            The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

h.            If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction.

i.            This Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement thereof.

j.            This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

11 .            NOTICES.   Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be deemed effectively given on the earliest of

(a) the date delivered, if delivered by personal delivery as against written receipt therefor or by confirmed facsimile transmission,

(b) the fifth Trading Day after deposit, postage prepaid, in the United States Postal Service by registered or certified mail, or

(c) the third Trading Day after mailing by domestic or international express courier, with delivery costs and fees prepaid,

in each case, addressed to each of the other parties thereunto entitled at the following addresses (or at such other addresses as such party may designate by ten (10) day’s advance written notice similarly given to each of the other parties hereto):

 

 

COMPANY :                         Innovus Pharmaceuticals, Inc.

Attn:  CEO

9171 Towne Centre Drive, Suite 440

San Diego, CA 92122

T: (858) 964-5123

With a copy to:

Randy Berholtz, Esq.

Acting General Counsel and Secretary

Innovus Pharmaceuticals, Inc.

9171 Towne Centre Drive, Suite 440

San Diego, CA 92122

T: (858) 964-5123

LENDER:                               SBI Investments LLC, 2014-1

c/o Sea Otter Global Ventures L.L.C.

369 Lexington Ave, 2nd Floor

New York, NY 10017

with a copy to:

Darrin M. Ocasio, Esq.

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32 nd flr.

New York, NY 10006

T: (212) 930-9700

F: (212) 930-9725

12.             SURVIVAL OF REPRESENTATIONS AND WARRANTIES . The Company’s and the Lender’s representations and warranties herein shall survive the execution and delivery of this Agreement and the delivery of the Note and the payment of the Loan Amount, and shall inure to the benefit of the Lender and the Company and their respective successors and assigns.

[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]

IN WITNESS WHEREOF, with respect to the Loan Amount specified below, this Agreement has been duly executed by the Lender and the Company as of the date set first above written.

 

	LENDER:
	SBI INVESTMENTS LLC, 2014-1
	By:	/s/ PETER WISNIEWSKI
	(Signature of Authorized Person)
	Peter Wisniewski, Manager
	Printed Name and Title

 

 

 

COMPANY:
INNOVUS PHARMACEUTICALS, INC.
By:	/s/ BASSAM DAMAJ
(Signature of Authorized Person)
Bassam Damaj, President & CEO
Printed Name and Title

 

                                               

-10-

---

                                    

 

20% SECURED PROMISSORY NOTE

 

               February 19, 2016

Original Principal Amount: $550,000

               FOR VALUE RECEIVED, Innovus Pharmaceuticals, Inc., a Nevada corporation (the “ Maker ”), with its principal offices located at 9171 Towne Centre Drive, Suite 440, San Diego, CA 92122, promises to pay to the order of SBI Investments LLC, 2014-1, or its registered assigns (the “ Payee ”), upon the terms set forth below, the principal amount of Five Hundred Fifty Thousand Dollars ($550,000) (this “ Note ”).

1.            Payments .

(a)           All amounts payable hereunder shall be paid in lawful money of the United States in accordance with Section 1(d) below. Monthly payments of principal and interest shall be made on this Note beginning on March __, 2016 (the “ Payment Commencement Date ”) and continuing in amounts and in accordance with the amortization schedule set forth on Schedule 1(a) hereto and in accordance with the mandatory payment provisions set forth in Section 1(d) below.  The remaining unpaid principal, accrued interest and any other fees under this Note shall become all due and payable on February 19, 2018 (the “ Maturity Date ”).  This Note shall bear interest at the rate of 20% per annum (or such lower maximum amount of interest permitted to be charged under applicable law).  Interest shall be computed based on the amortization schedule set forth on Schedule 1(a) hereto.

(b)           All overdue unpaid principal and interest to be paid hereunder shall entail a late fee at the rate of 5% per annum (or such lower maximum amount of interest permitted to be charged under applicable law) which will accrue daily, from the date such payment is due hereunder through and including the date of payment.

(c)           Absent the occurrence of an Event of Default (unless such Event of Default is waived in writing by the Payee), the Maker may prepay this Note for all or part of the principal amount remaining on this Note at any time prior to the Maturity Date, plus any accrued but unpaid interest thereon, with no prepayment penalty.

(d)           Mandatory Payment.  Commencing on the Payment Commencement Date and on a monthly basis thereafter (each, a “ Collateral Sweep Date ”), the Maker shall make payment for cash in the principal amount and accrued interest equal to the mandatory payment amount set forth on Schedule 1(a) hereto (such amount, the “ Mandatory Payment Amount ” and such payment, the “ Mandatory Payment ”).  The Mandatory Payment Amount is payable in full on each Collateral Sweep Date. The Maker hereby agrees, if required, to publicly disclose any payments made hereunder in accordance with any and all obligations of the Maker, whether under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), or otherwise.  On or before the Payment Commencement Date, the Maker agrees to (i) establish a collection account (the “ Designated Account ”) with a reputable, third-party banking institution (the “ Institution ”) and (ii) deposit into the Designated Account any and all Revenues (as defined below) and, in the event the Revenues are insufficient to satisfy the Mandatory Payment Amount, any additional cash required to satisfy the Mandatory Payment Amount prior to each Collateral Sweep Date. In establishing the Designated Account, the Institution shall be instructed to irrevocably transfer, from the Designated Account, the Mandatory Payment Amount to the Payee on each Collateral Sweep Date.  The Maker’s right to withdraw collected balances standing to the credit of the Designated Account shall be governed by provisions set forth in the Security Agreement (as defined in Section 2 below).

2.            Secured Obligation . As security for the payment in full of principal and performance under this Note and of all other liabilities and obligations of the Maker to the Payee in respect of this Note, the assets set forth on Schedule 2 hereto (the “ Assets ”) and revenues derived from the Assets (“ Revenues ”) shall have been pledged to the Payee as security for this Note by the Maker pursuant to a Security Agreement entered into by and between the Maker and the Payee on even date herewith (the “ Security Agreement ”).

 

3.           Events of Default .

(a)           “ Event of Default ”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

(i)           any default in the payment of the principal and interest of this Note, as and when the same shall become due and payable;

(ii)           Maker or any of its subsidiaries shall fail to observe or perform any of their respective material obligations owed to Payee under this Note or any other covenant, agreement, representation or warranty directly relating thereto and contained in, or otherwise commit any breach hereunder or in any other agreement executed in connection herewith and such failure or breach shall not have been remedied within ten calendar days after the date on which notice of such failure or breach shall have been delivered;

(iii)           any material provision hereunder or in any other agreement executed in connection herewith (including, without limitation, the Security Agreement or agreement to be entered into with the Institution) shall at any time for any reason (other than pursuant to the express terms thereof or such provision has been performed in full or waived by the relevant party) cease to be valid and binding on or enforceable against the parties thereto, or a proceeding shall be commenced by the Maker or any of its subsidiaries or any governmental authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof, or the Maker or any of its subsidiaries shall deny in writing that it has any liability or obligation purported to be created hereunder or under any other agreement executed in connection herewith (including, without limitation, the Security Agreement or agreement to be entered into with the Institution);

(iv)           the Security Agreement shall for any reason fail or cease to create a separate valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on the Collateral (as defined in the Security Agreement);

(v)           any material damage to, or loss, theft or destruction of, any material portion of the Collateral, whether or not insured, which causes, for more than thirty (30) consecutive days, the cessation or substantial curtailment of revenue producing activities of the Maker or any of its subsidiaries;

(vi)           Maker or any of its subsidiaries shall commence, or there shall be commenced against Maker or any subsidiary, a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or Maker or any subsidiary commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to Maker or any subsidiary, or there is commenced against Maker or any subsidiary any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 60 days; or Maker or any subsidiary is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or Maker or any subsidiary suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 days; or Maker or any subsidiary makes a general assignment for the benefit of creditors; or Maker or any subsidiary shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or Maker or any subsidiary shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by Maker or any subsidiary for the purpose of effecting any of the foregoing;

(vii)           Maker or any subsidiary shall default in any of its respective obligations under any other note or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of Maker or any subsidiary, whether such indebtedness now exists or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; or

(viii)           Maker shall (a) be a party to any Change of Control Transaction (as defined below) and such third party with whom Maker engages in the Change of Control Transaction does not agree in writing to either (x) payoff in full of this Note or (y) assume all responsibilities of Maker under this Note and the Payee approves such assumption, (b) agree to sell or dispose all or any portion of the Assets in one or more transactions (whether or not such sale would constitute a Change of Control Transaction), (c) agree to sell or dispose all or in excess of 33% of its assets (exclusive of the Assets) in one or more transactions (whether or not such sale would constitute a Change of Control Transaction), (d) redeem or repurchase more than a de minimis number of shares of Common Stock or other equity securities of Maker or (e) make any distribution or declare or pay any dividends (in cash or other property, other than common stock) on, or purchase, acquire, redeem, or retire any of Maker's capital stock, of any class, whether now or hereafter outstanding. “ Change of Control Transaction ” means the occurrence of any of: (i) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of Maker, by contract or otherwise) of in excess of 49% of the voting securities of Maker, (ii) a replacement at one time or over time of more than one-half of the members of Maker's board of directors which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof), (iii) the merger of Maker with or into another entity that is not wholly-owned by Maker, consolidation or sale of 49% or more of the assets of Maker in one or a series of related transactions, or (iv) the execution by Maker of an agreement to which Maker is a party or by which it is bound, providing for any of the events set forth above in (i), (ii), (iii), (iv), (v), (vi) or (vii).

 

 

(b)   If any Event of Default occurs (unless such Event of Default is waived in writing by the Payee), 125% of the full principal amount remaining under this Note, and any accrued interest thereon, shall become, at the Payee's election, immediately due and payable in cash. Commencing 5 days after the occurrence of any Event of Default that results in the acceleration of this Note, the interest rate on this Note shall accrue at the rate of 22% per annum, or such lower maximum amount of interest permitted to be charged under applicable law.  The Payee need not provide and Maker hereby waives any presentment, demand, protest or other notice of any kind, and the Payee may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by Payee at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

4.            Negative Covenants .                                           So long as 33% or more of the principal amount of this Note is outstanding, the Maker will not and will not permit any of its subsidiaries to directly or indirectly, unless consented to in writing by the Payee:

a)            other than Permitted Indebtedness, or enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

 
 

b)             other than Permitted Liens, enter into, create, incur, assume or suffer to exist any liens of any kind, on or with respect to any of the Assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c)             amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the Payee;

d)           repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of securities;

e)             pay cash dividends or distributions on any equity securities of the Maker;

f)            prepay any indebtedness of the Maker other than this Note (for purposes of clarity, nothing herein shall restrict or limit the Maker’s scheduled payments of principal amount of, or interest on, any indebtedness of the Maker existing on the date of issuance of this Note in accordance with the terms of such indebtedness); or

g)            enter into any agreement with respect to any of the foregoing .

“ Permitted Indebtedness ” shall mean (a) the indebtedness of the Maker existing on the date of issuance of this Note, (b) lease obligations and purchase money indebtedness incurred in connection with the acquisition of capital assets and lease obligations with respect to newly acquired or leased assets, other than the Assets, and (c) indebtedness incurred by the Maker that does not mature or require payments of principal prior to the Maturity Date of this Note and is made expressly subordinate in right of payment to the indebtedness evidenced by this Note, as reflected in a written agreement acceptable to the Payee and approved by the Payee in writing.

“ Permitted Lien ” shall mean the individual and collective reference to the following: (a) liens for taxes, assessments and other governmental charges or levies not yet due or liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Maker) have been established in accordance with generally accepted accounting procedures; (b) liens imposed by law which were incurred in the ordinary course of business, such as carriers’, warehousemen’s and mechanics’ liens, statutory landlords’ liens, and other similar liens arising in the ordinary course of business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Maker and its consolidated subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or asset subject to such lien; and (c) liens of the Maker existing on the date of issuance of this Note.

6.            No Waiver of Payee’s Rights .    All payments of principal and interest shall be made without setoff, deduction or counterclaim. No delay or failure on the part of the Payee in exercising any of its options, powers or rights, nor any partial or single exercise of its options, powers or rights shall constitute a waiver thereof or of any other option, power or right, and no waiver on the part of the Payee of any of its options, powers or rights shall constitute a waiver of any other option, power or right. Maker hereby waives presentment of payment, protest, and all notices or demands in connection with the delivery, acceptance, performance, default or endorsement of this Note. Acceptance by the Payee of less than the full amount due and payable hereunder shall in no way limit the right of the Payee to require full payment of all sums due and payable hereunder in accordance with the terms hereof.

7.            Modifications .   No term or provision contained herein may be modified, amended or waived except by written agreement or consent signed by the party to be bound thereby.

8.            Cumulative Rights and Remedies; Usury .   The rights and remedies of Payee expressed herein are cumulative and not exclusive of any rights and remedies otherwise available under this Note, the Security Agreement, or applicable law (including at equity). The election of Payee to avail itself of any one or more remedies shall not be a bar to any other available remedies, which Maker agrees Payee may take from time to time. If it shall be found that any interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall be reduced to the maximum permitted rate of interest under such law.

9.            Use of Proceeds .  Maker shall use the proceeds from this Note hereunder to purchase the Assets identified on Schedule 2 hereto and, to the extent any portion of the proceeds from this Note remain after the purchase of the Assets, for working capital purposes but not for the satisfaction of any portion of Maker’s or any subsidiary’s debt, to redeem any of Maker’s or any subsidiary’s equity or equity-equivalent securities or to settle any outstanding litigation.

 

 

10.          Collection Expenses .   If Payee shall commence an action or proceeding to enforce this Note, then Maker shall reimburse Payee for its reasonable costs of collection and reasonable attorneys fees incurred with the investigation, preparation and prosecution of such action or proceeding.

11.          Severability .    If any provision of this Note is declared by a court of competent jurisdiction to be in any way invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder shall violate applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest.

12.          Successors and Assigns .   This Note shall be binding upon Maker and its successors and shall inure to the benefit of the Payee and its successors and assigns. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Payee surrendering the same. No service charge or other cost will be payable by the Payee for such registration of transfer or exchange. The term " Payee " as used herein, shall also include any endorsee, assignee or other holder of this Note.

13.          Lost or Stolen Promissory Note .   If this Note is lost, stolen, mutilated or otherwise destroyed, Maker shall execute and deliver to the Payee a new promissory note containing the same terms, and in the same form, as this Note. In such event, Maker may require the Payee to deliver to Maker an affidavit of lost instrument and customary indemnity in respect thereof as a condition to the delivery of any such new promissory note.

14.          Due Authorization .   This Note has been duly authorized, executed and delivered by Maker and is the legal obligation of Maker, enforceable against Maker in accordance with its terms except as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally.  No consent of any other party and no consent, license, approval or authorization of, or registration or declaration with, any governmental authority, bureau or agency is required in connection with the execution, delivery or performance by the Maker, or the validity or enforceability of this Note other than such as have been met or obtained. The execution, delivery and performance of this Note and all other agreements and instruments executed and delivered or to be executed and delivered pursuant hereto or thereto or the securities issuable upon conversion of this Note will not  violate any provision of any existing law or regulation or any order or decree of any court, regulatory body or administrative agency or the certificate of incorporation or by-laws of the Maker or any mortgage, indenture, contract or other agreement to which the Maker is a party or by which the Maker or any property or assets of the Maker may be bound.

15.          Governing Law .   All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of Maker and Payee agree that all legal proceedings concerning the interpretations, enforcement and defense of this Note shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “ New York Courts ”). Each of Maker and Payee hereby irrevocably submit to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder (including with respect to the enforcement of this Note), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each of Maker and Payee hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to the other at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each of Maker and Payee hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby.

16.          Notice .  Any and all notices or other communications or deliveries to be provided by the Payee hereunder, including, without limitation, any conversion notice, shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service or sent by certified or registered mail, postage prepaid, addressed to the Maker, or such other address or facsimile number as the Maker may specify for such purposes by notice to the Payee delivered in accordance with this paragraph.  Any and all notices or other communications or deliveries to be provided by the Maker hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service or sent by certified or registered mail, postage prepaid, addressed to the Payee at the address of the Payee appearing on the books of the Maker, or if no such address appears, at the principal place of business of the Payee.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission if delivered by hand or by telecopy that has been confirmed as received by 5:00 p.m. on a business day, (ii) one business day after being sent by nationally recognized overnight courier or received by telecopy after 5:00 p.m. on any day, or (iii) five business days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested.

17.          Public Disclosure .  The Maker shall, if required by the rules of the U.S. Securities Exchange Commission, on the business day following the date hereof, issue a Current Report on Form 8-K, reasonably acceptable to Maker and the Payee, disclosing the material terms of the transactions contemplated hereby, and shall attach this Note thereto and other agreements entered into in connection herewith as required by law.  The Maker shall consult with the Payee in issuing any other press releases with respect to this Note and transactions contemplated hereby.

16.          Next Business Day . Whenever any payment or other obligation hereunder shall be due on a day other than a business day, such payment shall be made or obligation fulfilled on the next succeeding business day.

     The undersigned signs this Note as a maker and not as a surety or guarantor or in any other capacity.

 

	INNOVUS PHARMACEUTICALS, INC.
	By:	/s/ BASSAM DAMAJ
	Name: Bassam Damaj
	Title: President & CEO

 

  

Agreed and Acknowledged:
SBI INVESTMENTS, 2014-1
By:	/s/ PETER WISNIEWSKI
Name: Peter Wisniewski
Title: Manager

 

 

-5-

 

SECURITY AGREEMENT

SECURITY AGREEMENT, dated as of February 19, 2016 (this “ Agreement ”), between Innovus Pharmaceuticals, Inc., a Nevada corporation (the “ Grantor ”), and SBI Investments LLC, 2014-1, or its registered assigns (the “ Secured Party ”).

The Grantor and the Secured Party are or will be parties to a certain Purchase Agreement (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Purchase Agreement ”), providing, subject to the terms and conditions thereof, for the purchase of the Note (as defined therein).

Accordingly, the parties hereto agree as follows:

 

Section 1.   Definitions, Terms Generally; Etc.

1.01             Definitions .   Capitalized terms used but not defined herein shall have the meanings given to them in the Purchase Agreements or the Note.

1.02             Certain Uniform Commercial Code Terms .   As or if used herein, the terms “ Accession ”, “ Account ”, “ Chattel Paper ”, “ Commodity Account ”, “ Commodity Contract ”, “ Deposit Account ”, “ Document ”, “ Electronic Chattel Paper ”, “ Equipment ”, “ Fixture ”, “ General Intangible ”, “ Goods ”, “ Instrument ”, “ Inventory ”, “ Investment Property ”, “ Letter-of-Credit Right ”, “ Payment Intangible ”, “ Proceeds ”, “ Promissory Note ”, “ Software ” and “ Tangible Chattel Paper ” have the respective meanings set forth in Article 9 of the NYUCC, and the terms “ Certificated Security ”, “ Entitlement Holder ”, “ Financial Asset ”, “ Instruction ”, “ Securities Account ”, “ Security ”, “ Security Certificate ”, “ Security Entitlement ” and “ Uncertificated Security ” have the respective meanings set forth in Article 8 of the NYUCC.

1.03             Additional Definitions .   In addition, as used herein:

“ Casualty Event ” means, with respect to any property of any Person, any loss of or damage to, or any condemnation or other taking of, such property for which such Person or any of its subsidiaries receives insurance proceeds, or proceeds of a condemnation award or other compensation.

“ Collateral ” has the meaning assigned to such term in Section 3.

 

“ Contingent Secured Obligations ” means obligations of the Grantor in respect of any claim that may be payable to the Secured Party by the Grantor under any Transaction Document that is not yet due and payable.

“ Copyright Collateral ” means all Copyrights of the Grantor, whether now owned or hereafter acquired by the Grantor, including each Copyright identified in Annex 3.

“ Copyrights ” means all copyrights, copyright registrations and applications for copyright registrations related to the Purchased Assets, including but not limited to those identified in Annex 3, including all renewals and extensions thereof, all rights to recover for past, present or future infringements thereof and all other rights whatsoever accruing thereunder or pertaining thereto.

“ Default ” means any of the following events: (a) any of the Secured Obligations shall have been declared, or shall become, due and payable prior to the stated maturity therefor, (b) the Grantor shall fail to pay when due any principal amount in respect of a Secured Obligation, (c) the Grantor shall fail to pay any interest, fees, commissions, indemnities, costs and other expenses in respect of any Secured Obligations for three or more business days after the date on which such amounts first become due or (d) any event of default or termination (however described) under any Transaction Document shall occur and be continuing.

“ Intellectual Property ” means, collectively, all Copyright Collateral, all Patent Collateral, all Trademark Collateral and all improvements, modifications, derivative works now known or later developed related thereto, together with the following as they relate to the Purchased Assets including: (a) all inventions, processes, production methods, proprietary information, know-how and trade secrets; (b) all licenses or user or other agreements granted to the Grantor with respect to any of the foregoing, in each case whether now or hereafter owned or used; (c) all information, customer lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, recorded knowledge, surveys, engineering reports, test reports, manuals, materials standards, processing standards, performance standards, catalogs, source code computer and automatic machinery software and programs; (d) all field repair data, sales data and other information relating to sales or service of products now or hereafter manufactured; (e) all accounting information and all media in which or on which any information or knowledge or data or records may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data; (f) all licenses, consents, permits, variances, certifications and approvals of governmental agencies now or hereafter held by the Grantor; and (g) all causes of action, claims and warranties now or hereafter owned or acquired by the Grantor in respect of any of the items listed above.

“ NYUCC ” means the Uniform Commercial Code as in effect from time to time in the State of New York.

“ Patent Collateral ” means all Patents of the Grantor, whether now owned or hereafter acquired by the Grantor, including each Patent identified in Annex 3, and all income, royalties, damages and payments now or hereafter due and/or payable under or with respect thereto.

 

 

                                “ Patents ” means all patents and patent applications related to the Purchased Assets, including the inventions and improvements described and claimed therein together with the reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, all income, royalties, damages and payments now or hereafter due and/or payable with respect thereto, all damages and payments for past or future infringements thereof and rights to sue therefor, and all rights corresponding thereto throughout the world.

 

“ Person ” means any individual, corporation, company, voluntary association, partnership, limited liability company, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof).

“ Purchased Assets ” means all assets identified in Annex 3 that are being purchased by the Grantor or any of its subsidiaries simultaneously with the consummation of the transactions contemplated by the Transaction Documents or to be acquired by the Grantor or any of its subsidiaries thereafter.

“ Revenues ” means income, interest, rents, receipts, proceeds, earnings, sales, profits, revenues, account receivables, royalties, damages, or payments from the Purchased Assets only.

“ Secured Obligations ” means, collectively, the obligations of the Grantor to the Secured Party in respect of the principal of and interest on any amounts owed to the Secured Party under the Transaction Documents, and all other amounts from time to time owing to the Secured Party by the Grantor under the Transaction Documents, together with in each case interest thereon and expenses relating thereto, including any interest or expenses accruing or arising after the commencement of any case with respect to the Grantor under the United States Bankruptcy Code or any other bankruptcy or insolvency law (whether or not such interest or expenses are allowed or allowable as a claim in whole or in part in such case).

“ Trademark Collateral ” means all Trademarks of the Grantor, whether now owned or hereafter acquired by the Grantor, including each Trademark identified in Annex 3, together, in each case, with the product lines and goodwill of the business connected with the use of, and symbolized by, each such trade name, trademark and service mark.  Notwithstanding the foregoing, the Trademark Collateral does not and shall not include any Trademark that would be rendered invalid, abandoned, void or unenforceable by reason of its being included as part of the Trademark Collateral.

“ Trademarks ” means all trade names, trademarks and service marks, logos, trademark and service mark registrations, and applications for trademark and service mark registrations related to the Purchased Assets, including all renewals of trademark and service mark registrations, all rights to recover for all past, present and future infringements thereof and all rights to sue therefor, and all rights corresponding thereto throughout the world.

“ Transaction Documents ” mean this Agreement, the Note, the Purchase Agreement and any other agreement executed in connection herewith or therewith, including, without limitation, the agreement to be entered into by and between the Grantor, the Secured Party and the Institution (as defined in the Note).

Section 2.  Representations and Warranties.   The Grantor represents, warrants and covenants to the Secured Party that:

2.01             Names, Etc.   The full and correct legal name, type of organization, jurisdiction of organization, and mailing address of the Grantor as of the date hereof are correctly set forth in Annex 1.  Said Annex 1 correctly specifies (a) the place of business of the Grantor or, if the Grantor has more than one place of business, the location of the chief executive office of the Grantor and (b) each location where any financing statement naming the Grantor as debtor is currently on file.

2.02             Changes in Circumstances.   The Grantor has not (a) within the period of four months prior to the date hereof, changed its location (as defined in Section 9 307 of the NYUCC), (b) except as specified in Annex 1, heretofore changed its name, or (c) except as specified in Annex 2, heretofore become a “new debtor” (as defined in Section 9 102(a)(56) of the NYUCC) with respect to a currently effective security agreement previously entered into by any other Person.

2.03             Authorization; Binding Effect.   The Grantor has all requisite company power and authority to execute and deliver this Agreement and each Transaction Document to which it is or will be a party and to effect the transactions contemplated hereby and thereby. The execution, delivery and performance by the Grantor of this Agreement and each Transaction Document to which it is or will be a party and the consummation by Grantor of the transactions contemplated hereby and thereby have been duly and validly approved by the Grantor’s Board of Directors, and no other company actions or proceedings on the part of the Grantor, the Grantor’s equity holders or any affiliate of the Grantor are necessary to authorize the execution, delivery and performance by the Grantor of this Agreement or the Transaction Documents to which any such Seller is or will be a party or the transactions contemplated hereby and thereby.  The Grantor has duly and validly executed and delivered this Agreement. When this Agreement and each of the Transaction Documents have been duly executed and delivered, this Agreement and each such Transaction Document will constitute valid and legally binding obligations of the Grantor, enforceable against the Grantor in accordance with their respective terms, except as such agreements may be subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws and equitable principles relating to or affecting or qualifying the rights of creditors generally and general principles of equity.

 

 

2.04             Non-Contravention; Third Party Consents.   The execution, delivery and performance of this Agreement and the Transaction Documents by Grantor, and the consummation of the transactions contemplated hereby and thereby do not and will not:

(a)            conflict with or result in a breach or violation of any provision of any organizational documents of the Grantor;

(b)            violate, or result in a breach of, or constitute an occurrence of default under any provision of, result in the acceleration or cancellation of, any obligation under, or give rise to a right by any third party to terminate or amend its obligations under, any contracts related to the Collateral, or result in the creation of any encumbrance upon any of the Collateral;

(c)            violate any applicable law of any governmental body having jurisdiction over the Grantor or over the Collateral; or

(d)            require the consent, authorization, order or approval of, filing or registration with, or waiver of any right of first refusal or first offer from, any governmental body, Person or third party, that has not been obtained, except any consents identified in Transaction Documents.

2.05             No Other Encumbrances .  The Grantor has not granted, nor will it grant, a security interest in the Collateral to any other individual or entity, and to the actual knowledge of the Grantor, such Collateral is free and clear of any mortgage, pledge, lease, trust, bailment, lien, security interest, encumbrance, charge or other arrangement.

2.06             Intellectual Property.

(a)           Annex 3, sets forth a complete and correct list of all copyright registrations, patents, patent applications, trademark registrations and trademark applications related to the Purchased Assets owned on the date hereof or to be acquired by the Grantor (or, in the case of any supplement to said Annexes 3, effecting a pledge thereof, as of the date of such supplement).

(b)           Except pursuant to licenses and other user agreements entered into by the Grantor in the ordinary course of business that are listed in said Annex 3 (including as supplemented by any supplement effecting a pledge thereof), the Grantor has done nothing to authorize or enable any other Person to use any Copyright, Patent or Trademark listed in said Annex 3 (as so supplemented), and all registrations listed in said Annex 3 (as so supplemented) are, except as noted therein, in full force and effect.

(c)           To the Grantor’s knowledge, (i) except as set forth in said Annex 3 (as supplemented by any supplement effecting a pledge thereof), there is no violation by others of any right of the Grantor with respect to any Copyright, Patent or Trademark listed in said Annex 3 (as so supplemented), respectively, and (ii) the Grantor is not infringing in any respect upon any Copyright, Patent or Trademark of any other Person; and no proceedings alleging such infringement have been instituted or are pending against the Grantor and no written claim against the Grantor has been received by the Grantor, alleging any such violation, except as may be set forth in said Annex 3 (as so supplemented).

(d)           The Grantor does not own any Trademarks registered in the United States of America to which the last sentence of the definition of Trademark Collateral applies.

2.07             Fair Labor Standards Act.   Any goods now or hereafter produced by the Grantor or any of its subsidiaries included in the Collateral have been and will be produced in compliance with the requirements of the Fair Labor Standards Act, as amended.

 

 

Section 3.   Collateral . As collateral security for the payment in full when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations in accordance with the terms of the Transaction Documents, the Grantor hereby pledges and grants to the Secured Party as hereinafter provided a first priority security interest in all of the Grantor’s right, title and interest in, to and under the following property, in each case whether tangible or intangible, wherever located, and whether now owned by the Grantor or hereafter acquired and whether now existing or hereafter coming into existence (all of the property described in this Section 3 being collectively referred to herein as “ Collateral ”):  all Purchased Assets

(a)

all Revenues derived from the Purchased Assets;

(b)

all Chattel Paper related to the Purchased Assets;

(c)

all Deposit Accounts related to the Purchased Assets;

(d)           all Documents related to the Purchased Assets;

(e)           all Equipment related to the Purchased Assets;

(f)           all Fixtures related to the Purchased Assets;

(g)           all General Intangibles related to the Purchased Assets;

(h)           all Goods related to the Purchased Assets not covered by the other clauses of this Section 3;

(i)           all Instruments, including all Promissory Notes, related to the Purchased Assets;

(j)            all Intellectual Property;

(k)           all Inventory related to the Purchased Assets;

(l)           all Investment Property not covered by other clauses of this Section 3, including all Securities, all Securities Accounts and all Security Entitlements with respect thereto and Financial Assets carried therein, and all Commodity Accounts and Commodity Contracts, related to the Purchased Assets;

(m)           all Letter-of-Credit Rights related to the Purchased Assets;

(n)           all commercial tort claims, as defined in Section 9-102(a)(13) of the NYUCC, arising out of claims benefiting the Grantor related to the Purchased Assets;

(o)           all other tangible and intangible personal property whatsoever of the Grantor related to the Purchased Assets; and

(p)           all Proceeds of any of the Collateral, all Accessions to and substitutions and replacements for, any of the Collateral, and all offspring, rents, profits and products of any of the Collateral, and, to the extent related to any Collateral, all books, correspondence, credit files, records, invoices and other papers (including all tapes, cards, computer runs and other papers and documents in the possession or under the control of the Grantor or any computer bureau or service company from time to time acting for the Grantor),

IT BEING UNDERSTOOD, HOWEVER, that (A) in the case of any of the foregoing that consists of general or limited partnership interests in a general or limited partnership, the security interest hereunder shall be deemed to be created only to the maximum extent permitted under the applicable organizational instrument pursuant to which such partnership is formed, and (B) in no event shall the security interest granted under this Section 3 attach to any lease, license, contract, property rights or agreement to which the Grantor is a party (or to any of its rights or interests thereunder) if the grant of such security interest would constitute or result in either (i) the abandonment, invalidation or unenforceability of any right, title or interest of the Grantor therein or (ii) in a breach or termination pursuant to the terms of, or a default under, any such lease, license, contract, property rights or agreement (other than to the extent that any such term would be rendered ineffective by Section 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code as in effect in the relevant jurisdiction).

 

 

Section 4.   Cash Proceeds of Collateral .

4.01             Collateral Account .   The Grantor and Secured Party will cause to be established, at a banking institution acceptable to the Secured Party, a cash collateral account (the “ Collateral Account ”) into which the Grantor agrees to direct any and all Revenues, and to deposit from time to time the cash proceeds of any of the Collateral (including proceeds of insurance thereon), and into which the Grantor shall from time to time deposit any additional amounts that shall be required to make any scheduled payments required by the Transaction Documents.  The Collateral Account, and any money or other property from time to time therein, shall constitute part of the Collateral hereunder and shall not constitute payment of or towards the Secured Obligations until applied as hereinafter provided.

4.02             Proceeds of Casualty Events .   Without limiting the generality of the provisions of the foregoing Section 4.01, promptly following the occurrence of any Casualty Event affecting the Collateral resulting in a loss in excess of $25,000, the Grantor shall give prompt notice thereof to the Secured Party and shall cause the proceeds of insurance, condemnation award or other compensation received as a result of such Casualty Event to be deposited into the Collateral Account, as additional collateral security for the payment of the Secured Obligations.  Distribution to the Grantor of such proceeds, or the remainder of such proceeds, shall not occur until the Secured Obligations have been fully satisfied or as mutually agreed upon by the Secured Party and Grantor.

4.03             Withdrawals .   The balance from time to time in the Collateral Account shall be subject to withdrawal in order to make scheduled payments required by the Transaction Documents and only as provided in this Section 4.03 and Section 4.04 below.  Except as otherwise provided in the last sentence of this Section 4.03 and except to the extent required to be retained in order to make scheduled payments required by the Transaction Documents, the collected balance standing to the credit of the Collateral Account may be withdrawn to or upon the order of the Grantor as the Grantor shall from time to time instruct, provided that (A) at no time shall such withdrawal leave the collected balance standing to the credit of the Collateral Account to equal less than $15,000; (B) deposits in the Collateral Account that constitute any proceeds of insurance, condemnation award or other compensation in respect of any Casualty Event affecting any Collateral of Grantor shall be subject to withdrawal only as provided in Section 4.04 below and (C) at any time following the occurrence and during the continuance of a Default, the Secured Party may in its discretion apply or cause to be applied (subject to collection) the balance from time to time standing to the credit of the Collateral Account (regardless of the origin thereof) to the prepayment of the principal and any accrued interest thereon of the Secured Obligations (and/or to provide cover for Contingent Secured Obligations).

4.04             Restoration or Replacement of Property .

(a)           With respect to any proceeds that are required to be paid into the Collateral Account pursuant to Section 4.02 above, the Grantor may, at its option, to be exercised by delivery of notice to the Secured Party within 60 days of the receipt of such proceeds, elect to apply any proceeds of insurance, condemnation award or other compensation received as a result of such Casualty Event either (A) to the rebuilding or replacement of the property affected by such Casualty Event (the “ Damaged Property ”) or (B) to the prepayment of such of the Secured Obligations as shall be selected by it.

(b)           If the Grantor elects to rebuild or replace the Damaged Property, any such proceeds (and any earnings thereon) held in the Collateral Account shall be applied by the Grantor to the rebuilding and replacement of the Damaged Property and such proceeds shall be advanced to the Grantor by the Secured Party in periodic installments upon compliance by the Grantor with such reasonable conditions to disbursement as may be imposed by the Secured Party, including, but not limited to, reasonable retention amounts and receipt of lien releases.

(c)           Following the occurrence and the continuation of any Default, the Grantor shall not withdraw and the Secured Party shall have no obligation to release any of such proceeds to the Grantor for rebuilding or replacement of Damaged Property.  All insurance proceeds remaining after the payment for rebuilding and replacement of Damaged Property pursuant to this Section 4.04 may, at the option of the Secured Party, be applied to the prepayment of the principal of the Secured Obligations (and/or to provide cover for Contingent Secured Obligations).

 

 

Section 5.   Further Assurances; Remedies .   In furtherance of the grant of the security interest pursuant to Section 3, the Grantor hereby agrees with the Secured Party as follows:

5.01             Delivery and Other Perfection .   The Grantor shall promptly from time to time give, execute, deliver, file, record, authorize or obtain all such reasonable financing statements, continuation statements, notices, instruments, documents, agreements or consents or other papers as may be necessary or desirable in the judgment of the Secured Party (including, without limitation, any filings that may be required by the United States Patent and Trademark Office (the “ USPTO ”) and the United States Copyright Office in order to perfect the security interest granted by the Grantor in and to the Intellectual Property) to create, preserve, perfect, maintain the perfection of or validate the first priority security interest granted pursuant hereto or to enable the Secured Party to exercise and enforce its rights hereunder with respect to such security interest, and without limiting the foregoing, shall:

(a)           if any of the Investment Property or Financial Assets constituting part of the Collateral are received by the Grantor, forthwith (x) deliver to the Secured Party the certificates or instruments representing or evidencing the same, duly endorsed in blank or accompanied by such instruments of assignment and transfer in such form and substance as the Secured Party may reasonably request, all of which thereafter shall be held by the Secured Party, pursuant to the terms of this Agreement, as part of the Collateral and (y) take such other action as the Secured Party may reasonably deem necessary or appropriate to duly record or otherwise perfect the security interest created hereunder in such Collateral;

(b)           promptly from time to time deliver to the Secured Party any and all Instruments constituting part of the Collateral, endorsed and/or accompanied by such instruments of assignment and transfer in such form and substance as the Secured Party may request; provided that so long as no Default shall have occurred and be continuing, the Grantor may retain for collection in the ordinary course any Instruments received by the Grantor in the ordinary course of business and the Secured Party shall, promptly upon request of the Grantor, make appropriate arrangements for making any Instrument delivered by the Grantor available to the Grantor for purposes of presentation, collection or renewal (any such arrangement to be effected, to the extent requested by the Secured Party, against trust receipt or like document);

(c)           promptly from time to time enter into such control agreements, each in form and substance reasonably acceptable to the Secured Party, as may be required to perfect the security interest created hereby in any and all Deposit Accounts, Investment Property, Electronic Chattel Paper and Letter-of-Credit Rights, and will promptly furnish to the Secured Party true copies thereof;

(d)           promptly from time to time upon the request of the Secured Party, execute and deliver such short-form security agreements as the Secured Party may reasonably deem necessary or desirable to protect the interests of the Secured Party in respect of that portion of the Collateral consisting of Intellectual Property;

(e)           keep full and accurate books and records relating to the Collateral, and stamp or otherwise mark such books and records in such manner as the Secured Party may reasonably require in order to reflect the security interests granted by this Agreement; and

(f)           permit representatives of the Secured Party, upon reasonable notice at any time during normal business hours to inspect at its own cost and make abstracts from its books and records pertaining to the Collateral, and permit representatives of the Secured Party to be present at the Grantor’s place of business to receive copies of communications and remittances relating to the Collateral, and forward copies of any notices or communications received by the Grantor with respect to the Collateral, all in such manner as the Secured Party may require.

5.02             Other Financing Statements or Control .   Except as otherwise permitted under the Transaction Documents, the Grantor shall not (a) file or suffer to be on file, or authorize or permit to be filed or to be on file, in any jurisdiction, any financing statement or like instrument with respect to any of the Collateral in which the Secured Party is not named as the sole secured party, or (b) cause or permit any Person other than the Secured Party or a Secured Party to have “control” (as defined in Section 9-104, 9-105, 9-106 or 9-107 of the NYUCC) of any Deposit Account, Electronic Chattel Paper, Investment Property or Letter-of-Credit Right constituting part of the Collateral.

5.03             Preservation of Rights .   The Secured Party shall not be required to take steps necessary to preserve any rights against prior parties to any of the Collateral.

 

 

(i)           For the purpose of enabling the Secured Party to exercise rights and remedies under Section 5.05 at such time as the Secured Party shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, the Grantor hereby grants to the Secured Party, to the extent assignable, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Grantor) to use, assign, license or sublicense any of the Intellectual Property now owned or hereafter acquired by the Grantor, wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof.

(ii)           Notwithstanding anything contained herein to the contrary, but subject to any provision of the Transaction Documents that limit the rights of the Grantor to dispose of its property, so long as no Default shall have occurred and be continuing, the Grantor will be permitted to exploit, use, enjoy, protect, license, sublicense, assign, sell, dispose of or take other actions with respect to the Intellectual Property in the ordinary course of the business of the Grantor.  In furtherance of the foregoing, so long as no Default shall have occurred and be continuing, the Secured Party shall from time to time, upon the request of the Grantor, execute and deliver any instruments, certificates or other documents, in the form so requested, that the Grantor shall have certified are appropriate in its judgment to allow it to take any action permitted above (including relinquishment of the license provided pursuant to clause (i) immediately above as to any specific Intellectual Property).  Further, upon the payment in full of all of the Secured Obligations and the expiration and termination of all obligations of the Secured Party to the Grantor, or earlier expiration of this Agreement or release of the Collateral, the Secured Party shall grant back to the Grantor the license granted pursuant to clause (i) immediately above.  The exercise of rights and remedies under Section 5.05 by the Secured Party shall not terminate the rights of the holders of any licenses or sublicenses theretofore granted by the Grantor in accordance with the first sentence of this clause (ii).

(b)            Chattel Paper .  The Grantor will (i) deliver to the Secured Party each original of each item of Chattel Paper at any time constituting part of the Collateral, and (ii) cause each such original and each copy thereof to bear a conspicuous legend, in form and substance reasonably satisfactory to the Secured Party, indicating that such Chattel Paper is subject to the security interest granted hereby and that purchase of such Chattel Paper by a Person other than the Secured Party without the consent of the Secured Party would violate the rights of the Secured Party.

5.05            Remedies .

(a)            Rights and Remedies Generally upon Default .  If a Default shall have occurred and is continuing, and any Purchaser or the Grantor shall have notified the Secured Party in writing thereof, the Secured Party shall have all of the rights and remedies with respect to the Collateral of a secured party under the NYUCC (whether or not the Uniform Commercial Code is in effect in the jurisdiction where the rights and remedies are asserted) and such additional rights and remedies to which a secured party is entitled under the laws in effect in any jurisdiction where any rights and remedies hereunder may be asserted, including the right, to the fullest extent permitted by law, to exercise all voting, consensual and other powers of ownership pertaining to the Collateral as if the Secured Party were the sole and absolute owner thereof (and the Grantor agrees to take all such action as may be appropriate to give effect to such right); and without limiting the foregoing, the Secured Party may:

 

(iii)           require the Grantor to notify (and the Grantor hereby authorizes the Secured Party to so notify) each account debtor in respect of any Account, Chattel Paper or General Intangible, and each obligor on any Instrument, constituting part of the Collateral that such Collateral has been assigned to the Secured Party hereunder, and to instruct that any payments due or to become due in respect of such Collateral shall be made directly to the Secured Party or as it may direct (and if any such payments, or any other Proceeds of Collateral, are received by the Grantor they shall be held in trust by the Grantor for the benefit of the Secured Party and as promptly as possible remitted or delivered to the Secured Party for application as provided herein);

(iv)           require the Grantor to assemble the Collateral at such place or places, reasonably convenient to the Secured Party and the Grantor, as the Secured Party may direct;

 

(v)           apply the Collateral Account and any money or other property therein to payment of the Secured Obligations; and

 

(vi)          sell, lease, assign or otherwise dispose of all or any part of the Collateral, at such place or places as the Secured Party deems best, and for cash or for credit or for future delivery (without thereby assuming any credit risk), at public or private sale, without demand of performance or notice of intention to effect any such disposition or of the time or place thereof (except such notice as is required by applicable statute and cannot be waived), and the Secured Party, or anyone else, may be the purchaser, lessee, assignee or recipient of any or all of the Collateral so disposed of at any public sale (or, to the extent permitted by law, at any private sale) and thereafter hold the same absolutely, free from any claim or right of whatsoever kind, including any right or equity of redemption (statutory or otherwise), of the Grantor, any such demand, notice and right or equity being hereby expressly waived and released. In the event of any sale, assignment, or other disposition of any of the Trademark Collateral, the goodwill connected with and symbolized by the Trademark Collateral subject to such disposition shall be included. The Secured Party may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for the sale, and such sale may be made at any time or place to which the sale may be so adjourned.

The Proceeds of each collection, sale or other disposition under this Section 5.05, including by virtue of the exercise of any license granted to the Secured Party in Section 5.04(b), shall be applied in accordance with Section 5.09.

 

 

(b)            Certain Securities Act Limitations .  The Grantor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, the Secured Party may be compelled, with respect to any sale of all or any part of the Collateral, to limit purchasers to those who will agree, among other things, to acquire the Collateral for their own account, for investment and not with a view to the distribution or resale thereof.  The Grantor acknowledges that any such private sales may be at prices and on terms less favorable to the Secured Party than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Secured Party shall have no obligation to engage in public sales and no obligation to delay the sale of any Collateral for the period of time necessary to permit the issuer thereof to register it for public sale.

(c)            Notice .  The Grantor agrees that to the extent the Secured Party is required by applicable law to give reasonable prior notice of any sale or other disposition of any Collateral, ten business days’ notice shall be deemed to constitute reasonable prior notice.

5.06             Deficiency .   If the proceeds of sale, collection or other realization of or upon the Collateral pursuant to Section 5.05 are insufficient to cover the costs and expenses of such realization and the payment in full of the Secured Obligations, the Grantor shall remain liable for any deficiency.

5.07             Locations; Names, Etc .   Without at least 30 days’ prior written notice to the Secured Party, the Grantor shall not (i) change its location (as defined in Section 9-307 of the NYUCC), (ii) change its name from the name shown as its current legal name on Annex 1, or (iii) agree to or authorize any modification of the terms of any item of Collateral that would result in a change thereof from one Uniform Commercial Code category to another such category (such as from a General Intangible to Investment Property), if the effect thereof would be to result in a loss of perfection of, or diminution of priority for, the security interests created hereunder in such item of Collateral, or the loss of control (within the meaning of Section 9-104, 9-105, 9-106 or 9-107 of the NYUCC) over such item of Collateral.

5.08             Private Sale . The Secured Party shall incur no liability as a result of the sale of the Collateral, or any part thereof, at any private sale pursuant to Section 5.05 conducted in a commercially reasonable manner.  The Grantor hereby waives any claims against the Secured Party arising by reason of the fact that the price at which the Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale or was less than the aggregate amount of the Secured Obligations, even if the Secured Party accepts the first offer received and does not offer the Collateral to more than one offeree.

5.09             Application of Proceeds .   Except as otherwise herein expressly provided and except as provided below in this Section 5.09, the Proceeds of any collection, sale or other realization of all or any part of the Collateral pursuant hereto, and any other cash at the time held by the Secured Party under Section 3 or this Section 5, shall be applied by the Secured Party:

First , to the payment of the costs and expenses of such collection, sale or other realization, including reasonable out-of-pocket costs and expenses of the Secured Party and the fees and expenses of its agents and counsel, and all expenses incurred and advances made by the Secured Party in connection therewith;

Next , to the payment in full of the Secured Obligations (or, in the case of any Contingent Secured Obligations, to the provision of cover as provided below), in such order as the Secured Party shall in its sole discretion determine; and

Finally , to the payment to the Grantor, or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining.

For purposes hereof, whenever this Agreement contemplates that cover shall be provided for Contingent Secured Obligations, such cover shall be effected by the payment to the Secured Party of any amount that will be deposited into a Collateral Account to be held by the Secured Party as collateral security for the payment of such Contingent Secured Obligations as and when they become due and payable.

5.10             Attorney-in-Fact .   Without limiting any rights or powers granted by this Agreement to the Secured Party while no Default has occurred and is continuing, upon the occurrence and during the continuance of any Default the Secured Party is hereby appointed the attorney-in-fact of the Grantor for the purpose of carrying out the provisions of this Section 5 and taking any action and executing any instruments that the Secured Party may deem necessary or advisable to accomplish the purposes hereof, which appointment as attorney-in-fact is irrevocable and coupled with an interest.  Without limiting the generality of the foregoing, so long as the Secured Party shall be entitled under this Section 5 to make collections in respect of the Collateral, the Secured Party shall have the right and power to receive, endorse and collect all checks made payable to the order of Grantor representing any dividend, payment or other distribution in respect of the Collateral or any part thereof and to give full discharge for the same.

5.11             Perfection and Recordation .   The Grantor hereby authorizes the Secured Party to (a) file Uniform Commercial Code financing statements describing the Collateral as “all assets” or “all personal property and fixtures” of the Grantor (provided that no such description shall be deemed to modify the description of Collateral set forth in Section 3), (b) file all necessary agreements, documents, applications and instruments with the USPTO and/or the United States Copyright Office necessary or desirable for the Secured Party to perfect, monitor and maintain the first priority security interest in the Intellectual Property granted by the Grantor under this Agreement, and (c) take possession of Collateral and/or take any other action necessary in order for the Secured Party to perfect its first priority security interest in the Collateral.

5.12             Termination .   When all Secured Obligations shall have been paid in full and all obligations of the Secured Party to the Grantor shall have expired or terminated, this Agreement shall terminate, and the Secured Party shall forthwith cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect thereof, to or on the order of the  Grantor and to be released and canceled all licenses and rights referred to in Section 5.04(a).  The Secured Party shall also, at the expense of the Grantor, execute and deliver to the Grantor upon such termination such Uniform Commercial Code termination statements, certificates for terminating the liens and such other documentation as shall be reasonably requested by the Grantor to effect the termination and release of the liens on the Collateral as required by this Section 5.12.  For avoidance of doubt, following a termination of this Agreement in accordance with this Section 5.12, there shall be no collateral securing the Note.

 

 

5.13             Further Assurances .   The Grantor agrees that, from time to time upon the written request of the Secured Party, the Grantor will execute and deliver such further documents and do such other acts and things as the Secured Party may reasonably request in order to fully effect the purposes of this Agreement.  The Secured Party shall release any lien covering any asset that has been disposed of in accordance with the provisions of the Transaction Documents.

Section 6.   Miscellaneous .

6.01             GOVERNING LAW .  ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THE TRANSACTION DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.  EACH PARTY AGREES THAT ALL LEGAL PROCEEDINGS CONCERNING THE INTERPRETATION, ENFORCEMENT AND DEFENSE OF THE TRANSACTIONS CONTEMPLATED BY ANY OF THE TRANSACTION DOCUMENTS (WHETHER BROUGHT AGAINST A PARTY HERETO OR ITS RESPECTIVE AFFILIATES, DIRECTORS, OFFICERS, SHAREHOLDERS, EMPLOYEES OR AGENTS) SHALL BE COMMENCED IN THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, COUNTY OF NEW YORK (THE “NEW YORK COURTS”).  EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE NEW YORK COURTS FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUITE, ACTION OR PROCEEDING, ANY CLAIM THAT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH NEW YORK COURTS, OR SUCH NEW YORK COURTS ARE IMPROPER OR INCONVENIENT VENUE FOR SUCH PROCEEDING.  EACH PARTY HEREBY IRREVOCABLY WAIVERS PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THE TRANSACTION DOCUMENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF.  NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.  IF EITHER PARTY SHALL COMMENCE A PROCEEDING TO ENFORCE ANY PROVISION OF THE TRANSACTION DOCUMENTS, THEN THE PREVAILING PARTY IN SUCH ACTION OR PROCEEDING SHALL BE REIMBURSED FOR ITS REASONABLE ATTORNEYS’ FEES AND OTHER REASONABLE COSTS AND EXPENSES INCURRED IN THE INVESTIGATION, PREPARATION AND PROSECUTION OF SUCH ACTION OR PROCEEDING.

6.02             WAIVER OF JURY TRIAL .   IN ANY ACTION, SUIT OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVERS FOREVER TRIAL BY JURY.

6.03             Amendments .   The terms of this Agreement may be waived, altered or amended only by an instrument in writing duly executed by the Grantor and the Secured Party.

6.04             Agents and Attorneys in Fact .   The Secured Party may employ agents and attorneys in fact in connection herewith and shall not be responsible for the negligence or misconduct of any such agents or attorneys in fact selected in good faith.

6.05             Expenses . Grantor shall pay on demand all reasonable fees and expenses, including reasonable attorneys’ fees and expenses, incurred by the Secured Party in connection with the custody, preservation or sale of, or other realization on, any of the Collateral or the enforcement or attempt to enforce any of the Secured Obligations which are not performed as and when required by this Agreement.

 

[Signatures on following page]

IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed and delivered as of the day and year first above written.

 

	INNOVUS PHARMACEUTICALS, INC.,
	as Grantor
	By:	/s/ BASSAM DAMAJ
	Name: Bassam Damaj
	Title: President & CEO

 

 

 

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