Document:

Exhibit 10.15 Subordinated Convertible Note

Execution Copy

Exhibit 10.15

THIS SUBORDINATED CONVERTIBLE PROMISSORY NOTE (THIS “NOTE”) AND THE SECURITIES THAT MAY BE ACQUIRED PURSUANT TO THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THIS NOTE AND SUCH OTHER SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF A REGISTRATION STATEMENT AND LISTING APPLICATION IN EFFECT WITH RESPECT TO THIS NOTE OR SUCH OTHER SECURITIES UNDER THE SECURITIES ACT AND ANY OTHER APPLICABLE SECURITIES LAW, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION AND LISTING ARE NOT REQUIRED PURSUANT TO A VALID EXEMPTION THEREFROM UNDER THE SECURITIES ACT AND THE APPLICABLE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION.

SUBORDINATED CONVERTIBLE PROMISSORY NOTE

US $332,000

Janaury 27, 2012

FOR VALUE RECEIVED, Health Enhancement Products, Inc., a Nevada corporation (the “Company”), having an address of 7740 E. Evans Road, Scottsdale, Arizona 85260, hereby promises to pay, pursuant to the provisions of this Subordinated Convertible Promissory Note (the “Note”), to the order of The Venture Group, LLC (the “Holder”), at the offices of Holder at 1122 Kenilworth Drive, Suite 100, Towson, Maryland 21204 or such other place as may be designated by Holder to the Company in writing, the aggregate principal amount of FIVE HUNRED THOUSAND U.S. Dollars ($500,000) (the “Principal”) together with accrued and unpaid interest, upon the terms and conditions hereinafter set forth. 

1.

Payment Terms.  The Company promises to pay to Holder the Final Payment Amount (as hereinafter defined) on the date which occurs two (2) years from the date of execution and delivery of this Note (the “Maturity Date”) .  All accrued and unpaid interest shall be due and payable in accordance with Section 2 hereof.  All payments hereunder shall be made in lawful money of the United States of America. Payment shall be credited first to the accrued and unpaid interest then due and payable and the remainder to Principal.  “Final Payment Amount” means an amount equal to the sum of the total unpaid Principal plus any accrued and unpaid interest.

2.

Interest.  Interest on the outstanding portion of Principal of this Note shall accrue at a rate of eleven percent (11%) per annum.  All computations of interest shall be made on the basis of a 360-day year for actual days elapsed.  All accrued interest shall be due and payable on the first anniversary hereof and then on the Maturity Date or the Company Redemption Date (as hereinafter defined), as the case may be, in each case in accordance with the terms and conditions of this Note.  Interest may be paid, at the option of the Company, in cash or in shares of common stock at a rate equal to the Conversion Rate (as defined below).  If the Maturity Date or the Company Redemption Date is on a day that is not a business day, payment of any amounts due and payable on such date shall be effected on the immediately following business day.

3.

Conversion or Redemption of this Note.

(a)

Conversion at Option of Holder.  This Note may, at the sole option of Holder, at any time and from time to time this Note remains outstanding be, in whole or in part, (i) converted into shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), by written notice from Holder to the Company (the “Conversion Notice”).  The date of conversion is referred to as the “Conversion Date”. In the event Holder’s Conversion Notice to convert this Note, in whole or in part, into Common Stock, the number of shares of Common Stock to which Holder shall be entitled upon such conversion (the “Conversion Shares“) shall be equal to the amount of principal the Holder elects to convert divided by  twelve cents ($.12) (the “Conversion Price”)  . 

(b)

Redemption.

The Company may, at its sole option, effect a redemption of this Note at any time during the term hereof, but not before August 31, 2012 and subject to the terms of the Intercreditor Agreement among Holder and HEP Investments, LLC (the “Intercreditor Agreement”), upon 30 days prior written notice to Holder, by paying, in immediately available funds (and at the option of the Company shares of stock for accrued interest), an amount to Holder equal to the Final Payment Amount, plus an additional five (5%) percent of the outstanding principal amount. The date of any such redemption is referred to herein as the “Company Redemption Date.”

(c)

Automatic Conversion. This Note and the other Series A Notes shall automatically be converted into shares of Common Stock, at the applicable Conversion Price, upon the closing of a secondary offering by the Company of $25,000,000 or more.

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(d)

Adjustments. The number of Shares issuable upon the conversion of this Note is subject to adjustment from time to time upon the occurrence of any of the events enumerated in Section 6 of that certain Warrant issued to Holder in connection with this Note:

(e)

No Fractional Shares.  The number of Conversion Shares resulting from a conversion of this Note pursuant to Section 3(a) above shall be rounded up to the next higher integral share of Common Stock, and no fractional shares shall be issuable by the Company upon conversion of this Note.  Conversion of this Note shall be deemed payment in full of this Note and this Note shall thereupon be cancelled.

4.

Priority of Note.  The indebtedness evidenced hereby is subordinate to the Senior Secured Convertible Note issued to HEP Investments, LLC as more fully identified in the Intercreditor Agreement. The indebtedness evidenced hereby ranks senior in right of payment to any unsecured convertible debt securities issued by the Company and to all classes and series of the Company’s capital stock.

5.

Preference.    Except upon the prior written consent of Holder and as set forth in the Intercreditor Agreement, this Note must be converted in the Final Payment Amount or the Final Payment Amount must be paid in full before any other unsecured notes (excluding accounts payable) can be paid in cash by the Company.

 

6.

Representations and Warranties of the Company. The Company represents and warrants to Holder as follows:

(a)

The execution and delivery by the Company of this Note (i) are within the Company’s corporate power and authority, and (ii) have been duly authorized by all necessary corporate action.

(b)

This Note is a legally binding obligation of the Company, enforceable against the Company in accordance with the terms hereof, except to the extent that (i) such enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors’ rights, (ii) such enforceability is limited by the Interecreditor Agreement  and (iii) the availability of the remedy of specific performance or in injunctive or other equitable relief is subject to the discretion of the court before which any proceeding therefore may be brought.

7.

Use of Proceeds.  The proceeds received by the Company from the sale of this Note shall be used by the Company for working capital and other general corporate purposes.

8.

No Waiver in Certain Circumstances.  No course of dealing of Holder nor any failure or delay by Holder to exercise any right, power or privilege under this Note shall operate as a waiver hereunder and any single or partial exercise of any such right, power or privilege shall not preclude any later exercise thereof or any exercise of any other right, power or privilege hereunder.

9.

Certain Waivers by the Company.  Except as expressly provided otherwise in this Note, the Company and every endorser or guarantor, if any, of this Note waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note, and assent to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of collateral available to Holder, if any, and to the addition or release of any other party or person primarily or secondarily liable.

10.

No Unlawful Interest.  Notwithstanding anything herein to the contrary, payment of any interest or other amount hereunder shall not be required if such payment would be unlawful.  In any such event, this Note shall automatically be deemed amended so that interest charges and all other payments required hereunder, individually and in the aggregate, shall be equal to but not greater than the maximum permitted by law.

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11.

Security Interest.  The Company’s obligations under this Note are secured by a grant of a security interest to Holder in all tangible and intangible assets of Company, it being understood that the security interest is subordinate in all respects to the security interest granted to HEP Investments, LLC as set forth in the Intercreditor Agreement (the “Collateral”). In the event Company fails to perform any of its repayment obligations under this Note, and such default is continuing for a period of 10 business days after written notice from Holder to the Company (“Default”), subject to the Intercreditor Agreement, Holder may accelerate repayment of the Principal plus any accrued interest and exercise, without further notice, all rights and remedies under this Note or enforce any rights otherwise available.  In the case of such Default, Holder shall give the Company not less than 60 business days prior written notice of its intended disposition of the Collateral; provided, however, if Company cures such Default prior to expiration of such notice period, Default will be not deemed to have occurred and Holder shall have no rights to accelerate repayment or enforce the Collateral.  For the purpose of enforcing any and all rights and remedies under this Agreement, Holder may, to the extent permitted by applicable law, subject to the Interecreditor Agreement (i) require the Company to, upon Holder’s reasonable request, assemble all or any part of the Collateral as directed by the Holder and make it available to Holder during normal business hours at the Company’s headquarters, (ii) enter, without breach of the peace, any premises where any such Collateral is or may be located and, reasonably seize and remove such Collateral from such premises, (iii) direct the Company to reasonably provide relevant information from the Company’s books and records relating to the Collateral, and (iv) prior to the disposition of any of the Collateral, store or transfer the Collateral, process, repair or recondition such Collateral or otherwise prepare it for disposition in any manner and to the extent Holder deems reasonably appropriate.  Notwithstanding anything to the contrary herein, the security interest granted under the Security Agreement of even date is expressly limited to the Final Payment Amount outstanding under this Note and Holder shall exercise the foregoing rights in such a fashion so as to minimize disruption to Company and its business operations and only to the extent necessary to recover such unpaid Final Payment Amount.  Holder and the Company shall work in good faith to effectuate the intent of the previous sentence.  The security interest provided hereby shall expire upon the payment in full of the Final Payment Amount or the Conversion Date of all sums constituting the Final Payment Amount. Holder will execute any documents or instruments the Company may reasonably request to evidence such expiration.  By acceptance of this Note (i) Holder and any subsequent holder of this Note acknowledges and agrees that the Company may issue other convertible debt securities, and in connection therewith, grant security interests in the Collateral which may be subordinate to or pari passu with the security interest granted hereby, (ii) Holder hereby consents to the grant by the Company of such security interests, and (iii) Holder shall perform, from time to time, such acts, and shall execute, acknowledge and/or deliver such other instruments, documents and agreements as the Company reasonably may request in order to consummate the transactions provided for in this Note.

NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THE SECURED PARTY ACKNOWLEDGES AND AGREES THAT THE SECURITY INTEREST GRANTED TO IT HEREUNDER IS SUBORDINATE IN ALL RESPECTS TO THE SECURITY INTEREST GRANTED TO HEP IN THE SECURITY AGREEMENTS DELIVERED BY GRANTOR TO HEP (“HEP SECURITY AGREEMENTS”), AND THAT ALL RIGHTS GRANTED TO THE SECURED PARTY ARE SUBJECT TO THE SECURITY INTEREST GRANTED TO HEP AND TO THE INTERECREDITOR AGREEMENT.

12.

Lock-up.  In the event of a secondary offering of Common Stock by the Company, Holder agrees to sign a customary lock up agreement in connection therewith unless the Holder’s representative exempts the Holder’s shares of Common Stock from such lock up agreements. 

13.

Reserved.

14.

Legal Fees.   The Company has reimbursed Holder for the costs incurred by Holder’s legal counsel in preparing this Note and all documents executed in connection with this Note in the amount of $10,000.

15.

Miscellaneous.  No modification, rescission, waiver, forbearance, release or amendment of any provision of this Note shall be made, except by a written agreement duly executed by each of the Company and Holder.  This Note may not be conveyed, assigned or transferred by Holder without the prior written consent of the Company, subject to compliance with applicable securities laws.  All notices hereunder shall be in writing and be deemed given if personally delivered, sent by overnight courier (provided proof of delivery is received) or sent by telecopy (provided a confirmation of transmission is received) at the addresses of the respective parties set forth in the initial paragraph of this Note or such other address as either party shall notify the other of from time to time.  The Company hereby submits to personal jurisdiction in the State of Maryland, consent to the jurisdiction of any competent state or federal district court sitting in the County of Montgomery County, Maryland, and waives any and all rights to raise lack of personal jurisdiction as a defense in any action, suit or proceeding in connection with this Note or any related matter.  This Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of Maryland, without reference to conflicts of law provisions of such state.

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16.

Entire Agreement.

This Subordinated Convertible Note, together with the Subscription Agreement , the Security Agreement and the Termination Agreement and Mutual General Release, and the Intercreditor Agreement all of even date (collectively “Loan Documents”), as executed by the parties constitute the entire agreement between the parties thereto with respect to the transactions contemplated hereby and thereby. Without limiting the generality of the foregoing, the Loan Documents supersede any and all documents executed by the parties prior to the date hereof, including without limitation the Term Sheet dated January 11, 2012. 

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Execution Copy

IN WITNESS WHEREOF, the undersigned have caused this Note to be executed and delivered by a duly authorized officer as of the date first above written.

Health Enhancements Products, Inc.

/s/ Philip Rice                      

By: Philip M. Rice, II, CFO

Page | 5Exhibit 10.16 Warrant Agreement

Exhibit 10.16

Health Enhancement Products, Inc.,

a Nevada corporation

Not Transferable Or Exercisable Except

Upon Conditions Herein Specified

WARRANT

THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933 (THE "ACT") OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS") AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED, OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER EXCEPT UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF COUNSEL AND/OR SUBMISSION TO THE COMPANY OF SUCH EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL TO THE COMPANY, IN EACH SUCH CASE, TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT AND THE STATE ACTS.

WARRANT TO PURCHASE 833,333 SHARES

Health Enhancement Products, Inc., a Nevada corporation (the "Company") hereby certifies that, as of January 27, 2012, The Venture Group, LLC (the “Holder”), and the Holder’s registered successors and permitted assigns registered on the books of the Company maintained for such purposes as the registered holder hereof, for value received, is entitled to purchase from the Company FIVE HUNDRED FIFTY THREE THOUSAND THREE HUNDRED THIRTY THREE (553,333) fully paid and nonassessable shares (the “Shares”) of common stock of the Company, par value of one-tenth cent ($.001) per Share, (the "Common Stock") at the purchase price equal to twelve cents ($.12) per share (as adjusted as hereinafter set forth (the "Exercise Price") (the number of Shares and Exercise Price being subject to adjustment as hereinafter provided) upon the terms and conditions herein provided.

1.

Exercise of Warrants.

(a)

Cash Exercise.  Subject to Section 1 (d) hereof, upon presentation and surrender of this Warrant with the Purchase Form in the form of Exhibit A hereto duly executed, at the principal office of the Company at 7 West Square Lake Rd., Bloomfield Hills, MI 48302, or at such other place as the Company may designate by notice to the Holder hereof, together with a wire transfer or certified or bank cashier's check payable to the order of the Company in the amount of the Exercise Price times the number of  Shares being purchased, the Company shall promptly deliver to the Holder hereof, certificates representing the Shares being purchased. 

(c)

Installments.  Subject to Section 1 (d) hereof, this Warrant may be exercised in whole or in part in installments of not less than one thousand (1,000) Shares each; and, in case of exercise hereof in part only, the Company, upon surrender hereof, will deliver to the Holder a new Warrant of like tenor entitling the Holder to purchase the number of Shares as to which this Warrant has not been exercised.

(d)

Expiration. This Warrant may be exercised in whole or in part at any time prior to the third anniversary of the date of issuance of this Warrant (the "Expiration Date"), provided that at the time of each exercise the requirements of all applicable statutes regarding the exercise of this Warrant and the issuance of the Shares are met and satisfied.  After the Expiration Date or any exercise of this Warrant in whole, this Warrant shall terminate and be null, void and of no further force or effect.

2.

Exchange and Transfer of Warrant.  This Warrant (a) at any time prior to the exercise hereof, upon presentation and surrender to the Company, may be exchanged, alone or with other Warrants of like tenor registered in the name of the Holder, for another Warrant or other Warrants of like tenor in the name of such transferee Holder exercisable for the same aggregate number of Shares as the Warrant or Warrants surrendered, and (b) may be sold, transferred, hypothecated, or assigned, in whole or in part, but only upon compliance with applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if requested by the Company).

3.

Rights and Obligations of Warrant Holder.

(a)

The Holder of this Warrant shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or in equity; provided, however, in the event that any certificate representing the Shares is issued to the Holder hereof upon exercise of this Warrant, such Holder shall, for all purposes, be deemed to have become the holder of record of such Shares on the date on which this Warrant, together with a duly executed Purchase Form, was surrendered and payment of the Exercise Price, was made pursuant to the terms of this Warrant, irrespective of the date of delivery of such Share certificate. The rights of the Holder of this Warrant are limited to those expressed herein and the Holder of this Warrant, by its acceptance hereof, consents to and agrees to be bound by and to comply with all the provisions of this Warrant, including, without limitation, all the obligations imposed upon the Holder hereof by Sections 2 and 5 hereof.  In addition, the Holder of this Warrant, by accepting the same, agrees that the Company may deem and treat the person in whose name this Warrant is registered on the books of the Company maintained for such purpose as the absolute, true and lawful owner for all purposes whatsoever, notwithstanding any notation of ownership or other writing thereon, and the Company shall not be affected by any notice to the contrary.

              

(b)

No Holder of this Warrant, as such, shall be entitled to vote or receive dividends or to be deemed the holder of Shares for any purpose, nor shall anything contained in this Warrant be construed to confer upon any Holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any action by the Company, whether upon any recapitalization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise, receive notice of meetings or other action affecting stockholders (except for notices provided for herein), receive dividends, subscription rights, or otherwise, until this Warrant shall have been exercised and the Shares purchasable upon the exercise thereof shall have become deliverable as provided herein; provided, however, that any such exercise on any date when the stock transfer books of the Company shall be closed shall constitute the person or persons in whose name or names the certificate or certificates for those Shares are to be issued as the record holder or holders thereof for all purposes at the opening of business on the next succeeding day on which such stock transfer books are open, and the Warrant surrendered shall not be deemed to have been exercised, in whole or in part as the case may be, until the next succeeding day on which stock transfer books are open for the purpose of determining entitlement to dividends on the Company's common stock.

                          

4.

Shares Underlying Warrants.  The Company covenants and agrees that all Shares delivered upon exercise of this Warrant shall, upon delivery and payment therefor, be duly and validly authorized and issued, fully-paid and non-assessable, and free from all stamp taxes, liens, and charges with respect to the purchase thereof. The Company further covenants and agrees that, at all times prior to the Expiration Date, the Company shall reserve from its authorized and unissued Common Stock a sufficient number of shares of Common Stock as shall be sufficient to permit the exercise in full of this Warrant and, should the need in the future arise, the Company shall again take such actions as are necessary to authorize the requisite number of shares of Common Stock to permit the exercise in full of this Warrant.

5.

Disposition of Warrants or Shares.

                        

(a)

The Holder of this Warrant and any transferee hereof or of the Shares issuable upon the exercise of the Warrant, by their acceptance hereof, hereby understand and agree that this Warrant, and the Shares issuable upon the exercise hereof, have not been registered under either the Securities Act of 1933 (the "Act") or applicable state securities laws (the "State Acts") and shall not be sold, pledged, hypothecated, donated, or otherwise transferred (whether or not for consideration) except upon the issuance to the Company of a favorable opinion of counsel reasonably satisfactory to the Company and/or submission to the Company of such evidence as may be satisfactory to counsel to the Company, in each such case, to the effect that any such transfer shall not be in violation of the Act and the State Acts. It shall be a condition to the transfer of this Warrant that any transferee thereof deliver to the Company its written agreement to accept and be bound by all of the terms and conditions of this Warrant.

                          

(b)

The stock certificates of the Company that will evidence the shares of Common Stock with respect to which this Warrant may be exercisable will be imprinted with a conspicuous legend in substantially the following form:

 

“The securities represented hereby have not been registered under the Securities Act of 1933, as amended, or any applicable state securities laws (collectively referred to as the “Acts”) and are being offered and sold in reliance on exemptions from the registration requirements of the Acts.  The securities have been acquired for investment purposes only and without a view to distribution.  The securities may not be resold or transferred except (i) upon registration pursuant to the Acts, (ii) pursuant to an available exemption from the respective registration provisions of the Acts, or (iii) upon receipt by the issuer of an opinion of acceptable counsel that registration under the Acts, or any of them, is not required for such resale.”

2

Except as provided in Section 9 of this Warrant, the Company has not agreed to register any of the Shares with respect to which this Warrant may be exercisable for distribution in accordance with the provisions of the Act or the State Acts, and the Company has not agreed to comply with any exemption from registration under the Act or the State Acts for the resale of the Shares with respect to which this Warrant may be exercised. Hence, it is the understanding of the Holder of this Warrant that by virtue of the provisions of certain rules respecting "restricted securities" promulgated by the Securities and Exchange Commission (the "SEC"), the Shares may be required to be held indefinitely, unless and until registered under the Act and the State Acts, unless an exemption from such registration is available, in which case the Holder may still be limited as to the number of Shares with respect to which this Warrant may be exercised that may be sold.           

              

6.

Adjustments.  The number of Shares issuable upon the exercise of this Warrant is subject to adjustment from time to time upon the occurrence of any of the events enumerated below:

              

(a)

In case the Company shall: (i) pay a dividend in Common Stock, (ii) subdivide its outstanding Common Stock into a greater number of shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue, by reclassification of its shares of Common Stock, any shares of its capital stock, then, the number of Shares purchasable upon the exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive upon exercise of this Warrant that number of Shares which the Holder would have owned or would have been entitled to receive after the happening of such event had the Holder exercised the Warrant immediately prior to the record date, in the case of such dividend, or the effective date, in the case of any such subdivision, combination or reclassification. An adjustment made pursuant to this subsection (a) shall be made whenever any of such events shall occur, but shall become effective retroactively after such record date or such effective date, as the case may be, as to shares exercised between such record date or effective date and the date of  happening of any such event.

                        

(b)

Reserved. 

(c)

In case the Company shall pay a dividend or make a distribution of shares of its capital stock (other than Shares), evidences of its indebtedness, assets or rights, warrants or options (excluding (i) dividends or distributions payable in cash out of the current year's or retained earnings of the Company, (ii) distributions relating to subdivisions and combinations covered by Section 6(a), (iii) distributions relating to reclassifications, changes, consolidations, mergers, sales or conveyances covered by Section 6(d) and (iv) rights, warrants or options to purchase or subscribe for shares of Common Stock or Convertible Securities), then in each such case (A) the Exercise Price shall be adjusted so that the same shall equal the price determined by multiplying the Exercise Price in effect immediately prior to the record date mentioned below by a fraction, the numerator of which shall be (x) the total number of shares of Common Stock then outstanding multiplied by the Current Market Price per Share on the record date mentioned below, less (y) the fair market value (as determined by the Board of Directors of the Company or any duly authorized committee thereof) as of such record date of said shares of stock, evidences of indebtedness or assets so paid or distributed or of such rights, warrants or options, and the denominator of which shall be the total number of shares of Common Stock then outstanding multiplied by the Current Market Price per Share on the record date mentioned below. Such adjustment shall be made whenever any such dividend is paid or such distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution.

In the event of a distribution by the Company of stock of a subsidiary or securities convertible into or exercisable for such stock, then in lieu of an adjustment in the Exercise Price, the Holder of this Warrant, upon the exercise thereof at any time after such distribution, shall be entitled to receive from the Company, such subsidiary or both, as the Company shall determine, the stock or other securities to which such Holder would have been entitled if such Holder had exercised such Warrant immediately prior thereto, all subject to further adjustment as provided in this Section 6.

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(d)

If any capital reorganization, reclassification or similar transaction involving the capital stock of the Company (other than as provided in Section 6(a)), any consolidation, merger or business combination of the Company with another corporation, or the sale or conveyance of all or substantially all of its assets to another corporation, shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or assets with respect to or in exchange for Common Stock, then, prior to and as a condition of such reorganization, reclassification, consolidation, merger, business combination, sale or conveyance, lawful and adequate provision shall be made whereby the Holder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Warrant and in lieu of the Shares immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of Common Stock equal to the number of Shares immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby had such reorganization, reclassification, consolidation, merger, business combination, sale or conveyance not taken place.  In any such case, appropriate provision shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Exercise Price and of the number of Shares purchasable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any stock, securities or assets thereafter deliverable upon the exercise hereof.  The Company shall not effect any such consolidation, merger, business combination, sale or conveyance unless prior to or simultaneously with the consummation thereof the survivor or successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets shall (1) assume by written instrument executed and sent to each registered Holder, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to receive, and containing the express assumption by such successor corporation of the due and punctual performance and observance of every provision of this Warrant to be performed and observed by the Company and of all liabilities and obligations of the Company hereunder, and (2) deliver to the registered Holder an opinion of counsel, in form and substance reasonably satisfactory to such Holder, to the effect that such written instrument has been duly authorized, executed and delivered by such successor corporation and constitutes a legal, valid and binding instrument enforceable against such successor corporation in accordance with its terms (except as enforcement thereof may be subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally, and general principles or equity (regardless of whether such enforcement is sought in a proceeding in equity or at law)), and to such further effects as such Holder may reasonably request.

                        

(e)

For the purpose of any computation under this Warrant, the “Current Market Price” per Share at any date shall be: (i) if the Shares are listed on any national securities exchange, the average of the daily closing prices for the 60 consecutive business days commencing 2 business days before the day in question (the "Trading Period"); (ii) if the Shares are not listed on any national securities exchange but are quoted on the  Nasdaq Stock Market (“Nasdaq”) or on the Financial Industry Regulatory Authority’s OTC Bulletin Board (“OTCBB”), the average of the high and low bids as reported by NASDAQ or the OTCBB for the Trading Period; and (iii) if the Shares are neither listed on any national securities exchange nor quoted on Nasdaq or the OTCBB, the higher of (x) the exercise price then in effect, or (y) the greater of the tangible book value per share of Common Stock as of the end of the Company's immediately preceding fiscal year, or the price per share of Common Stock paid, determined or agreed upon in the most recent sale, disposition or transfer, or agreement therefor, of the Common Stock of the Company. 

(f)

No adjustment in the Exercise Price shall be required unless such adjustment would require an increase or decrease of at least $.01; provided, however, that any adjustments which by reason of this subsection (f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment.  All calculations under this Section 6 shall be made to the nearest cent or to the nearest one-hundredth of a Share, as the case may be.

              

(g)

Whenever the number of Shares purchasable hereunder is adjusted as herein provided, the Company shall cause to be mailed to the Holder in accordance with the provisions of this Section 6 a notice (i) stating that the number of Shares purchasable upon exercise of this Warrant have been adjusted, (ii) setting forth the adjusted number of Shares purchasable upon the exercise of a Warrant, and (iii) showing in reasonable detail the computations and the facts, including the amount of consideration received or deemed to have been received by the Company, upon which such adjustments are based.

                          

7.

Fractional Shares.  The Company shall not be required to issue any fraction of a Share upon the exercise of Warrants. If more than one Warrant shall be surrendered for exercise at one time by the same Holder, the number of full Shares which shall be issuable upon exercise thereof shall be computed on the basis of the aggregate number of Shares with respect to which this Warrant is exercised. If any fractional interest in a Share shall be deliverable upon the exercise of this Warrant, the Company shall make an adjustment therefor in cash equal to such fraction multiplied by the Current Market Price of the Shares on the business day next preceding the day of exercise.

                          

8.

Repurchase.  The Company shall have no right to repurchase this Warrant or the Shares which may be purchased under this Warrant.

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9.

Reserved. 

10.

Loss or Destruction.  Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement or bond satisfactory in form, substance and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.

11.

Survival.  The various rights and obligations of the Holder hereof as set forth herein shall survive the exercise of the Warrants represented hereby and the surrender of this Warrant.

12.

Representations of Holder.  The Holder represents and warrants to the Company as follows:

(a)

The Holder may receive this Warrant free and clear of any restriction, agreement, claim or other impediment and the Holder is free to exercise this Warrant in accordance with the terms and conditions set forth in this Warrant; and

(b)   The execution and delivery of this Warrant to the Holder by the Company does not constitute a breach or default under any other agreement, contract or arrangement which is binding upon the Holder.

13.

Notices.  Whenever any notice, payment of any purchase price, or other communication is required to be given or delivered under the terms of this Warrant, it shall be in writing and delivered by hand delivery or United States registered or certified mail, return receipt requested, postage prepaid, and will be deemed to have been given or delivered if personally delivered, sent by overnight courier (provided proof of delivery on the date such notice, purchase price or other communication is received) or sent by telecopy (provided a confirmation of transmission is received);; and, if to the Company, it will be addressed to the address specified in Section 1 hereof, and if to the Holder, it will be addressed to the registered Holder at his address as it appears on the books of the Company.

14. 

Successors.  This Warrant shall be binding upon any successors or assigns of the Company and upon any heirs, successors or assigns of the Holder.

15.

Governing Law.  This Warrant shall be governed by and construed in accordance with the laws of the State of Nevada.

16. 

Headings.  The headings used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant.

17.  

Saturdays, Sundays, Holidays.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal US Federal holiday , then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday.

18.  

Attorney's Fees.  In the event that any dispute among the parties to this Warrant should result in litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Warrant, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.

IN WITNESS WHEREOF, Health Enhancement Products, Inc. has caused this Warrant to be executed and attested under seal by its officers thereunto duly authorized as of the 27day of January, 2012.

WITNESS:

Health Enhancement Products, Inc.

_______________________

By: /s/ Philip Rice               

      Philip M. Rice, II, CFO

5

EXHIBIT A

PURCHASE FORM TO BE EXECUTED

UPON CASH EXERCISE OF WARRANT

Health Enhancement Products, Inc.

7 West Square Lake Rd.

Bloomfield Hills, MI 48302

The undersigned hereby irrevocably elects to exercise, on a cash exercise basis, the attached Warrant, according to the terms and conditions thereof, to the extent of ___________ shares of Common Stock, and hereby tenders $_________ in full payment of the purchase price in accordance with Section 1(a) of the Warrant.

Date: ________________________

 

______________________________

*  *  *  *  *

The Common Stock certificates are to be issued as indicated below:

Name

Address

  SSN/Tax ID

  No. Shares

6

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