THIRD AMENDED AND RESTATED

SENIOR SECURED CONVERTIBLE PROMISSORY NOTE

$4,050,000

Keego Harbor, Michigan

March 17, 2014

FOR VALUE RECEIVED, HEALTH ENHANCEMENT PRODUCTS, INC., a Nevada corporation
(“Borrower”), whose address is 2804 Orchard Lake Road, Suite 202, Keego Harbor,
Michigan 48320, promises to pay to the order of HEP INVESTMENTS LLC, a Michigan
limited liability company (“Lender”), whose address is 2804 Orchard Lake Road,
Suite 205, Keego Harbor, Michigan 48320, or at such other place as Lender may
designate in writing, in lawful money of the United States of America, the
principal sum of up to Four Million Fifty Thousand Dollars ($4,050,000.00), or
such lesser sum as shall have been advanced by Lender to Borrower under the loan
agreement hereinafter described, together with interest as provided herein, in
accordance with the terms of this Second Amended and Restated Senior Secured
Convertible Promissory Note (this “Note”).  

In accordance with the terms of that certain Loan Agreement, dated December 1,
2011, by and between Lender and Borrower, as amended in the First Amendment to
Loan Agreement dated April 15, 2013 and as s amended in the Second Amendment to
Loan Agreement dated December 13, 2013 (as amended, the “Loan Agreement”),
Lender has loaned Borrower Four Million Fifty Thousand Dollars ($4,050,000.00).
 All advances made hereunder shall be charged to a loan account in Borrower's
name on Lender's books, and Lender shall debit to such account the amount of
each advance made to, and credit to such account the amount of each repayment
made by Borrower.  From time to time but not less than quarterly, Lender shall
furnish Borrower a statement of Borrower's loan account, which statement shall
be deemed to be correct, accepted by, and binding upon Borrower, unless Lender
receives a written statement of exceptions from Borrower within ten (10) days
after such statement has been furnished. Terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the Loan
Agreement.   

1.

Payment.  The unpaid principal balance of this Note shall bear interest computed
upon the basis of a year of 360 days for the actual number of days elapsed in a
month at a rate of eleven percent (11%) per annum (the “Effective Rate”). Upon
the occurrence and during the continuance of an Event of Default (as defined
below), the unpaid principal balance of this Note shall bear interest, computed
upon the basis of a year of 360 days for the actual number of days elapsed in a
month, at a rate equal to the lesser of five percent (5%) over the Effective
Rate or the highest rate allowed by applicable law.  The indebtedness
represented by this Note shall be paid to Lender in an installment of interest
only on the first anniversary of the date of this Note, and, if not sooner
converted in accordance with the terms of this Note, the entire unpaid principal
balance of this Note, together with all accrued and unpaid interest, shall be
immediately due and payable in full (a) with respect to each tranche (a
“Tranche”) listed in Exhibit 1 on the Due Date specified in Exhibit 1 and (b)
with respect to any additional Tranche within 24 months of the full funding of
such Tranche (with respect to each Tranche, a  “Due Date”).  

2.

Pre-payment Premium.  Borrower may prepay the principal balance of this Note, in
whole or in part, plus all accrued interest then outstanding upon sixty (60)
days prior written notice to Lender; provided, however, there shall be a
pre-payment premium of five (5%) percent of each amount prepaid at any time
during the term of this Note.

3.

Use of Proceeds.  The funds advanced pursuant to this Note shall be used by
Borrower for working capital purposes in accordance with the operating budget of
Borrower attached to the Loan Agreement as Exhibit B.

4.

Conversion Right and Funding Provisions.  

(a)

At Lender’s option, at any time prior to the repayment in full of this Note,
each Tranche of the outstanding indebtedness of this Note, with the exception of
Tranche 1 as discussed below, (including all accrued and unpaid interest) may be
converted into shares of common stock of Borrower (“Shares”) at the lesser of
the conversion rate as listed in Exhibit 1 or a 25% discount to the then current
ten day average trading price of Shares on the Over the Counter Securities
Market (the “Conversion Price”); provided, however, that any Tranche funded
after the date hereof shall be convertible at a Conversion Price of $0.30 per
share.

(i)

Tranche 1 for $500,000 is extended until June 1, 2014.  Tranche 1 may be
converted into shares of common stock of Borrower (“Shares”) at the lesser of
the conversion rate as listed in Exhibit 1 or a 25% discount to the then current
ten day average trading price of Shares on the Over the Counter Securities
Market (the “Conversion Price”).

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(b)

Upon conversion of this Note as provided herein, (i) the portion of this Note so
converted shall be deemed cancelled and shall be converted into the Shares as
specified above; (ii) Lender, by acceptance of this Note, agrees to deliver the
executed original of this Note to Borrower within ten (10) days of the
conversion of the entire outstanding indebtedness of this Note and to execute
all governing documents of Borrower and such other agreements as are necessary
to document the issuance of the Shares and to comply with applicable securities
laws; and (iii) as soon as practicable after Borrower’s receipt of the documents
referenced above, Borrower shall issue and deliver to Lender stock certificates
evidencing the Shares.  

5.

Default.  Each of the following constitutes an “Event of Default” under this
Note:

(a)

Borrower’s failure to pay the outstanding indebtedness of this Note within ten
(10) days of the date on which such payment is due hereunder, whether at
maturity or otherwise;

(b)

Borrower’s breach of or failure to perform or observe any covenant, condition or
agreement contained in this Note, the Loan Agreement or the Security Agreement
(defined below), which breach or failure continues unremedied for a period of
thirty (30) calendar days after receipt by Borrower of written notice specifying
the nature of the default. Notwithstanding the foregoing, Borrower shall not be
in default under this subsection (b) with respect to any non-monetary breach
that can be cured by the performance of affirmative acts if Borrower promptly
commences the performance of said affirmative acts and diligently prosecutes the
same to completion within a period of forty-five (45) calendar days after
receipt by Borrower of written notice specifying the nature of the default;

(c)

Borrower files a voluntary petition in bankruptcy;

(d)

Borrower makes a general assignment for the benefit of its creditors or
Borrower’s creditors file against Borrower any involuntary petition under any
bankruptcy or insolvency law that is not dismissed within ninety (90) days after
it is filed; or

(e)

Any court appoints a receiver to take possession of substantially all of
Borrower’s assets and such receivership is not terminated within ninety (90)
days after its appointment.

Upon the occurrence and during the continuance of an Event of Default, at the
election of Lender, the entire unpaid principal balance of this Note, together
with all accrued and unpaid interest, shall be immediately due and payable in
full.

6.

Security.  This Note is secured by all of the assets of Borrower pursuant to
that certain Security Agreement, dated as of December 1, 2011 (the “Security
Agreement”).

7.

Waivers.  Borrower and all endorsees, sureties and guarantors hereof hereby
jointly and severally waive presentment for payment, demand, notice of
non-payment, notice of protest or protest of this Note, and Lender diligence in
collection or bringing suit, and do hereby consent to any and all extensions of
time, renewals, waivers or modifications as may be granted by Lender with
respect to payment or any other provisions of this Note.  The liability of
Borrower under this Note shall be absolute and unconditional, without regard to
the liability of any other party.  

8.

Usury. Notwithstanding anything herein to the contrary, in no event shall
Borrower be required to pay a rate of interest in excess of the Maximum Rate.
 The term “Maximum Rate” shall mean the maximum non-usurious rate of interest
that Lender is allowed to contract for, charge, take, reserve or receive under
the applicable laws of any applicable state or of the United States of America
(whichever from time to time permits the highest rate for the use, forbearance
or detention of money) after taking into account, to the extent required by
applicable law, any and all relevant payments or charges hereunder, or under any
other document or instrument executed and delivered in connection therewith and
the indebtedness evidenced hereby.  

In the event Lender ever receives, as interest, any amount in excess of the
Maximum Rate, such amount as would be excessive interest shall be deemed a
partial prepayment of principal, and, if the principal hereof is paid in full,
any remaining excess shall be returned to Borrower.  In determining whether or
not the interest paid or payable, under any specified contingency, exceeds the
Maximum Rate, Borrower and Lender shall, to the maximum extent permitted by law,
(a) characterize any non-principal payment as an expense, fee, or premium rather
than as interest; (b) exclude voluntary prepayments and the effects thereof; and
(c) amortize, prorate, allocate and spread the total amount of interest through
the entire contemplated term of such indebtedness until payment in full of the
principal (including the period of any extension or renewal thereof) so that the
interest on account of such indebtedness shall not exceed the Maximum Rate.

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9.

Miscellaneous.

(a)

All modifications, consents, amendments or waivers of any provision of any this
Note shall be effective only if in writing and signed by Lender and then shall
be effective only in the specific instance and for the limited purpose for which
given.

 

(b)

All communications provided in this Note shall be personally delivered or
mailed, postage prepaid, by registered or certified mail, return receipt
requested, to the addresses set forth at the beginning of this Note or such
other addresses as Borrower or Lender may indicate by written notice.

(c)

The headings used in this Note are for convenience of reference only and shall
not in any way affect the meaning or interpretation of this Note.

(d)

This Note shall be binding upon and inure to the benefit of Borrower and Lender
and their respective successors and assigns; provided, however, that neither
party may, without the prior written consent of the other party, assign any
rights, powers, duties or obligations under this Note.  

(e)

This Note shall be construed and enforced in accordance with the laws of the
State of Michigan. All actions arising out of or relating to this Note shall be
heard and determined exclusively by any state or federal court with jurisdiction
in the Eastern District of the State of Michigan. Consistent with the preceding
sentence, the parties hereto hereby irrevocably waive, and agree not to assert
by way of motion, defense, or otherwise, in any such action, any claim that it
is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that the action
is brought in an inconvenient forum, that the venue of the action is improper,
or that this Note or the transactions contemplated by this Note may not be
enforced in or by any of the above-named courts.

(f)

This Note is intended to amend and restate, and is not intended to be in
substitution for or a novation of, that certain Senior Secured Convertible
Promissory Note, dated December 1, 2011, executed and delivered by Borrower in
favor of Lender in the original principal amount of $2,000,000.00, as previously
amended and restated (the “Original Note”).   This Note shall continue to be
secured by the security instruments and UCC statements executed and filed with
the Original Note, and otherwise as set forth in the loan documentation executed
in connection with the Original Note.

[Signature on the following page]

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IN WITNESS WHEREOF, the undersigned has duly executed this Second Amended and
Restated Senior Secured Convertible Promissory Note as of the day and year first
written above.

BORROWER:

HEALTH ENHANCEMENT PRODUCTS, INC.

By:   /s/ Philip M. Rice
                                                              

Print Name:  Philip M. Rice
                                                      

Its:   Chief Financial Officer
                                                     

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EXHIBIT 1

 

 

 

 

 Conversion Rate

 Interest Rate

 Warrant Coverage ("cashless")

 

 

 

 

 Date Invested

 Tranche #

 Amount

 Due Date

December 1, 2011

1

 $     500,000

June 1, 2014

 $         0.12

11%

10%

April 4, 2012

2

        250,000

April 4, 2014

            0.12

11%

10%

May 8, 2012

3

        250,000

May 18, 2014

            0.12

11%

10%

March 18, 2013

4

        500,000

March 18, 2015

            0.12

11%

10%

April 10, 2013

5

        250,000

April 10, 2015

            0.12

11%

10%

April 16, 2013

6

        250,000

April 16, 2013

            0.12

11%

10%

April 29, 2013

7

        250,000

April 29, 2015

            0.12

11%

10%

May 7, 2013

8

        250,000

May 7, 2015

            0.12

11%

10%

July 15, 2013

9A

        160,000

July 15, 2013

            0.12

11%

10%

July 15, 2013

9B

          90,000

July 15, 2013

            0.22

11%

10%

July 25, 2013

10

        250,000

July 25, 2015

            0.22

11%

10%

September 30, 2013

11

        300,000

September 30, 2015

            0.22

11%

10%

October 28, 2013

12

        250,000

October 28, 2015

            0.30

11%

10%

December 30, 2013

13

        500,000

December 30, 2015

            0.30

11%

10%

Total

 

 $  4,050,000