Document:

Exhibit 10.25 Asset Purchase Agreement

Exhibit 10.25

ASSET PURCHASE AGREEMENT

THIS AGREEMENT is made and entered into this 15th day of April, 2013 by and between Health Enhancement Products, Inc. a Nevada corporation (“Purchaser"), and Essex Angel Capital, Inc., a corporation governed by the Canada Business Corporations Act ("Seller").

RECITALS

WHEREAS, on February 22, 2013, Seller and Purchaser executed a term sheet ("Term Sheet") pursuant to which Seller agreed to use its commercially reasonable efforts to foreclose upon and acquire all right, title and interest in and to the Assets (as defined below) from Wellness Indicators, Inc., a Michigan corporation (“Wellness”), pursuant to its 1st perfected security interest in the Assets (the “security interest”);

WHEREAS, the Term Sheet contemplated upon Seller obtaining title to the Assets, Seller would (subject to certain inter-creditor agreement) sell the Assets to Purchaser as set forth herein;

WHEREAS, the Term Sheet further provided the parties would enter into a definitive Asset Purchase Agreement which definitive agreement is set forth herein (the "Agreement"); 

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and in reliance upon the representations and warranties contained herein, the parties hereto agree as follows: 

ARTICLE I - ASSETS

“Assets” means all right, title and interest in and to the Wellness Trademarks, Copyrights and Patents, together with (i) all registrations of and applications therefor, as applicable; (ii) all reissues, divisions, continuations, continuations in part, substitutes, renewals, and extensions thereof, all improvements and developments thereon and all other rights of any kind whatsoever accruing thereunder or pertaining thereto; (iii) the goodwill of the business symbolized by and associated with such items and the registrations; (iv) all mask works and all applications, registration and renewals in connection therewith; (v) all prototypes, prototype inventories, software source codes, software executable codes, forms, chemistries, notebooks copies and tangible embodiments thereof (in whatever form or medium) of the foregoing items; and (vi) the right to sue and recover for, and the right to profits or damages due or accrued arising out of or in connection with, any and all past, present or future infringements or dilution of or damage or injury to the Trademarks, Copyrights, Patents or the registrations thereof or such associated goodwill that Seller may obtain, using its commercially reasonable efforts, after its foreclosure upon such assets pursuant to its 1st perfected security interest in  such assets. 

ARTICLE II - ACQUISITION OF THE ASSETS

2.1

Subscription for Shares.

Within five (5) days after Seller’s execution of this Agreement, the Seller shall receive, by wire transfer or certified cheque, $150,000.00CAN, from certain investors, to acquire units of the Seller (the “Units”) at a price of $0.05CAN per Unit or such other price as may be permissible under the policies of the TSX Venture Exchange. Each Unit shall consist of one common share in the capital of the Seller and one common share purchase warrant. The sale of the Units by the Seller is subject to receipt by Seller of all necessary regulatory approvals, including the approval of the TSX Venture Exchange. The Seller shall use the funds from the sale of the Units, in a commercially reasonable manner, to finance the foreclosure process with respect to the Assets as outlined herein inclusive of the discharge of all liens that are or may be asserted against the Assets. The closing of the sale of the Units shall be a condition precedent to the closing of the transactions contemplated hereby.    

2.2

Obtaining Title to Assets.

Seller agrees to use its commercially reasonable efforts to,  as expeditiously as possible in accordance with the procedures permitted under applicable law,  foreclose upon and acquire all right, title and interest in and to the Assets from Wellness pursuant to its 1st perfected security interest in the Assets. Seller further agrees to use its commercially reasonable efforts to insure that pursuant to certain inter-creditor agreement and other similar agreements to which Seller is a party, that the Assets acquisition shall be completed in a manner so as to allocate to Seller the maximum right, title and interest in the Assets.

2.3

Purchase & Delivery of Assets. In the event that the Seller obtains all right, title and interest in the Assets, Seller shall notify Purchaser that the Assets have been obtained by Seller pursuant to the foreclosure process free and clear of all claims by Wellness and other creditors who may have had an interest in the Assets. Within 10 days thereafter, upon election of Purchaser to purchase the Assets, a Closing (as hereinafter defined) shall be conducted whereby Seller shall endorse and deliver to Purchaser such assignments, bills of sale and other documents as may reasonably be required by Purchaser to transfer all right, title and interest in and to the Assets to Purchaser. Each of the Seller and the Purchaser agrees to execute such instruments, documents, certificates or assignments as may be necessary to effectuate the transfer of all right, title and interest in the individual patents, trademarks, copyrights and all applications thereof and other intellectual property comprising the Assets with the appropriate governmental authorities. Upon receipt of such documents, Purchaser shall become the beneficial and record holder of the Assets and entitled to all of the rights, benefits and privileges with respect thereto. The documents representing the Assets shall be delivered by Seller to Purchaser at the Closing and will be free of all encumbrances, liens, security interests or other claims. 

At the Closing, the Assets which will be transferred to Purchaser in exchange for the Consideration Shares (as hereinafter defined). Seller and Purchaser covenant that they shall not take a position on any income tax return or before any governmental agency or in any judicial proceeding that is inconsistent in any way with this paragraph.

2.4

Purchase Price for Assets. The aggregate purchase price for the Assets shall be One Million One Hundred Thousand and 00/100 Dollars ($1,100,000.00US) paid in the common stock of the Purchaser (the “Consideration Shares”) with each such share being issued at the lesser of (i) $0.31 per share; or (ii) a price equal to the weighted average price of said shares on the OTCBB (as hereinafter defined) for 20 consecutive trading days ending on the date of Closing (date of such closing being the “Closing Date”) plus a 20% premium amount. 

2.5

Best Offer. Notwithstanding anything set forth in this Agreement, in the event that the Seller receives an offer from a third-party to purchase the Assets, for a total consideration greater than $1,100,000US (the “Best Offer Consideration”), the Seller shall have the right to sell the Assets to such third-party (the “Best Offer Sale”). Forthwith after the closing of the transactions resulting in the Best Offer Sale, the Seller shall pay to the Purchaser 20% of the Best Offer Consideration received by the Seller, net of: (i) the Seller’s transaction expenses; and (ii) such portion of the Best Offer Consideration as shall be required to be paid to other creditors of Wellness. 

2.6 

No Assumption of Liabilities. The Purchaser does not and shall not assume, pay, perform or discharge any liability of Seller or Wellness.  Seller shall file all documents required by all applicable governmental entities to release all security interests and/or liens against the Assets prior to Closing and tender the Assets to the Purchaser free and clear of liens and encumbrances and will provide Purchaser at Closing with all recorded termination statements and releases to evidence such discharges as may be reasonably necessary.

ARTICLE III - REPRESENTATIONS AND WARRANTIES OF SELLER 

Contingent upon the Seller successfully foreclosing upon and obtaining all right, title and interest in the Assets (without any other similarly situated secured creditors of Wellness having any interest therein) and Purchaser agreeing to purchase the Assets to which Seller has obtained all right title and interest, Seller represents and warrants to Purchaser, and acknowledges that Seller is relying upon such representations and warranties in connection with the matters contemplated by this Agreement, that:

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3.1

Organization and Qualification of Seller. Seller is duly organized, validly existing and in good standing under the laws of Canada and is duly qualified and is in good standing in each jurisdiction, if any, in which the nature of the business conducted by it or the properties owned, leased or operated by it makes such qualification necessary or, if not, then such lack of authorization will not materially adversely affect the Purchaser's purchase and use of the Assets. The Seller has all requisite power and authority to own and sell the Assets. The requisite certified copies of the documents evidencing said fact shall be complete and correct and delivered to Purchaser at Closing. The Seller’s obligation herein shall not create a default under or in violation of any provision of its governing documents or laws.

3.2

Authorization. This Agreement has been duly and validly executed and delivered by Seller and the agreements, representations and warranties contained herein constitute valid and binding obligations, representations and warranties of Seller  enforceable in accordance with their terms. Seller is authorized to enter into the transactions contemplated herein by its governing board or other authority. This Agreement constitutes, and all other agreements contemplated hereby to be executed and delivered by the Seller will when executed and delivered constitute, the legal, valid and binding obligations of, and be enforceable in accordance with their respective terms against Seller.

3.3

No Conflicting Agreements. The execution and delivery of this Agreement by Seller does not, and consummation by Seller of the transactions contemplated hereby will not, (a) violate any existing term or provision of any law, regulation, order, writ, judgment, injunction or decree applicable to Seller or the Assets, (b) conflict with or result in a breach of any of the terms, conditions or provisions of the governing documents of Seller or of any agreement or instrument to which Seller is a party, or (c) result in the creation or imposition of any lien, charge, security interest, encumbrance, restriction or claim upon the Assets.

3.4

Compliance with Applicable Law. Seller has not received any notice or information of any violation, probable violation or default by Seller under any applicable law, regulation or order of any governmental department, commission, board or agency or instrumentality, domestic or foreign, having jurisdiction over Seller's operations which could materially adversely affect the Assets, or Seller’s ability to consummate the transaction contemplated herein. 

3.5

Material Misstatements or Omissions. Neither this Agreement nor any other document, certificate or statement furnished to Purchaser by or on behalf of Seller in connection with this Agreement contains any untrue statement of a material fact, or omits any material fact necessary to make the statements contained herein or therein not misleading in light of the context in which they were made.

3.6

No Known Adverse Effects. There is no fact known to Seller, or to its knowledge its officers, directors or employees, which materially adversely affects or will materially adversely affect the Assets which has not been set forth in writing in this Agreement or disclosed in the other documents, certificates or written statements furnished to Purchaser by or on behalf of Seller in connection herewith.

3.7

Consents and Approvals. The execution and delivery by Seller of this Agreement, and the performance by Seller of its obligations hereunder, does not require Seller to obtain any consent, approval, agreement, or action of, or make any filing with or give any notice to, any corporation, person, entity, or firm or any public, governmental or judicial authority except (i) such as have been duly obtained or made, as the case may be, and or will be duly obtained and made and in full force and effect as of the Closing, (ii) those as to which the failure to obtain would have no material adverse effect on the Assets or the transactions contemplated hereby, (iii) approval of the Seller's governing authority, which shall be obtained prior to the execution hereof; and (iv) the approval of the TSX Venture Exchange. 

3.8

Violations. There are no actions, proceedings or investigations pending or threatened against Seller or the Assets before any court or administrative agency which could result in any material adverse change in Seller transferring valid right, title and interest in the Assets to Purchaser.

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3.9

Brokers. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Seller directly with representatives of Purchaser, without the intervention of any person in such manner as to give rise to any valid claim by any person against Purchaser for a finder's fee, brokerage commission, or similar payment. All rights of indemnity hereunder shall apply to any claim relating to a Loss (hereinafter defined) arising out of this Agreement for any fee, commission or similar payment.

3.10

Taxes. Seller shall pay all taxes arising out of the transfer of the Assets and shall be responsible for all personal property taxes for the Assets through the time of the Closing. Purchaser shall not be responsible for any business, occupation, withholding or similar tax, or any taxes of any kind related to the Assets for any period prior to the Closing Date.

3.11

Ownership. Seller shall be as of the time of Closing the legal owner, beneficially and of record, of the Assets free and clear of all liens, encumbrances, security agreements, equities, options, claims, charges and restrictions.

3.12

Restricted Securities. Seller acknowledges that the Consideration Shares have not been registered under the United States Securities Act of 1933, as amended (the U.S. Securities Act”), or any state securities laws and are being sold pursuant to an exception from such registration requirements under Rule 903 of Regulation S of the U.S. Securities Act (“Regulation S”). The Consideration Shares are deemed “restricted securities” as that term is defined in Rule 144 of the U.S. Securities Act and will contain a restrictive legend (the “Restrictive Legend”) as required under Regulation S.

ARTICLE IV - REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER

Contingent upon the Seller successfully foreclosing upon and obtaining all right, title and interest in the  Assets (without any other similarly situated secured creditors of Wellness having any interest therein) and Purchaser agreeing to purchase the Assets to which Seller has obtained all right title and interest, Purchaser represents and warrants to Seller, and acknowledges that Seller is relying upon such representations, warranties and covenants in connection with the matters contemplated by this Agreement, that:

4.1 

Organization and Qualification of Purchaser. Each of the Purchaser and the Subsidiaries (as hereinafter defined) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it was incorporated, amalgamated or continued, as the case may be, and no steps or proceedings have been taken by any person, voluntary or otherwise, requiring or authorizing the dissolution or winding up of the Purchaser or the Subsidiaries and each of the Purchaser and the Subsidiaries has the full corporate power and authority to own and operate its respective properties and to carry on its respective business. The Purchaser and the Subsidiaries are each presently qualified to do business as a foreign corporation and are in good standing in each jurisdiction where the failure to be so qualified could reasonably be expected to have a material adverse effect on the Purchaser’s and the Subsidiaries’ financial condition, results of operations, assets (including intangible assets), liabilities, capitalization, ownership, prospects or business as currently conducted or currently proposed to be conducted, taken as a whole (a “Material Adverse Effect”).  

4.2   

Subsidiaries. The Purchaser has no subsidiaries or affiliated companies and does not otherwise own or control, directly or indirectly, any equity interest in any corporation, association, partnership, limited liability company or other business entity, other than HEPI Pharmaceuticals, Inc. and Health Enhancements Corporation (collectively, the “Subsidiaries”). The Purchaser owns all of the issued and outstanding shares of each of the Subsidiaries, all of the issued and outstanding shares of the Subsidiaries are issued as fully paid and non-assessable shares, free and clear of all liens whatsoever, and no person, firm or corporation has any agreement, option, right or privilege (whether pre-emptive or contractual) capable of becoming an agreement, for the purchase from the Purchaser or the Subsidiaries of any interest in any of the shares in the capital of the Subsidiaries.

4.3  

Authorization. This Agreement has been duly and validly executed by Purchaser and the agreements, representations, and warranties contained herein constitute valid and binding obligations, representations, and warranties of Purchaser enforceable in accordance with their terms. 

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4.3  

No Conflicting Agreements. The execution and delivery of this Agreement by Purchaser does not, and consummation by Purchaser of the transactions contemplated hereunder will not, (a) violate any existing term or provision of any law, regulation, order, writ, judgment, injunction or decree applicable to Purchaser, (b) conflict with or result in a breach of any of the terms, conditions or provisions of the Articles of Incorporation or Bylaws of Purchaser or of any agreement or instrument to which Purchaser or each of the Subsidiaries is a party, or (c) result in the creation or imposition of any lien, charge, security interest, encumbrance, restriction or claim upon Purchaser, the Subsidiaries or any of their assets.

4.4   

Compliance with Applicable Law. Purchaser has not received any notice or information of any violation, probable violation or default by Purchaser under any applicable law, regulation or order of any governmental department, commission, board or agency or instrumentality, domestic or foreign, having jurisdiction over Purchaser's operations which could materially adversely affect Purchaser’s ability to consummate the transaction contemplated herein.

4.5

Material Misstatements or Omissions. Neither this Agreement nor any other document, certificate or statement furnished to Seller by Purchaser in connection with this Agreement contains any untrue statement of a material fact, or omits any material fact necessary to make the statements contained herein and therein not misleading in light of the context in which they were made.

4.6

Consents' and Approvals. The execution and delivery by Purchaser of this Agreement, and the performance by Purchaser of its obligations hereunder, do not require Purchaser to obtain any consent, approval or action of, or make any filing with or give any notice to, any corporation, person or firm or any public, governmental or judicial authority except (i) such as have been duly obtained or made, as the case may be, and are in full force and effect on the date hereof and will continue to be in full force and effect on the Closing, and (ii) those which the failure to obtain would have no Material Adverse Effect on the transactions contemplated herein or the Purchaser.

4.7

Licenses. The Purchaser and each of the Subsidiaries hold all material requisite licences, registrations, qualifications, permits and consents necessary or appropriate for carrying on their respective business and all such licences, registrations, qualifications, permits and consents are valid and subsisting and in good standing;

4.8 

Title to Property and Assets. The Purchaser and each of the Subsidiaries is the absolute legal and beneficial owners of, and has good and marketable title to, all of the material property or assets thereof and no other property or assets are necessary for the conduct of the business of the Corporation or each of the Subsidiaries as currently conducted, (ii) none of the Corporation or the Subsidiaries knows of any claim or the basis for any claim that might or could materially and adversely affect the right thereof to use, transfer or otherwise exploit such property or assets, and (iii) other than in the ordinary course of business, none of the Corporation or the Subsidiaries has any responsibility or obligation to pay any material commission, royalty, licence fee or similar payment to any person with respect to the property and assets thereof;

4.9

No Default. The Purchaser’s shares of common stock (the “Common Shares”) are quoted on the Over-the-Counter Bulletin Board (the “OTCBB”). The Purchaser is not in default of any requirement of any applicable securities laws. The Purchaser is in compliance in all material respects with its timely disclosure obligations under applicable securities laws and the rules and regulations of the OTCBB.

4.10

No Cease Trading. No order, ruling or determination having the effect of suspending the sale or ceasing the trading in any securities of the Purchaser has been issued by any regulatory authority and is continuing in effect and no proceedings for that purpose have been instituted or, to the knowledge of the Purchaser, are pending, contemplated or threatened by any regulatory authority.

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4.11

No Legal Proceeding. There is no action, suit, judgment, proceeding or investigation outstanding or pending or threatened against or affecting the Purchaser or the Subsidiaries, or their respective directors or officers, by any foreign or domestic governmental authority, which is, or could reasonably be expected to, result in a Material Adverse Effect and to the knowledge of the Purchaser there is no reasonable basis therefor and none of the Purchaser or the Subsidiaries are subject to any judgment, order, writ, injunction, decree, award, rule, policy or regulation of any foreign or domestic governmental authority which, either separately or in the aggregate, may have a Material Adverse Effect or would adversely affect the ability of the Purchaser to perform its obligations under this Agreement.

4.12

No Disposition of Assets. Neither the Purchaser nor either of the Subsidiaries has approved or has entered into any binding agreement in respect of:

(i)

the purchase of any material property or assets or any interest therein or the sale, transfer or other disposition of any material property or assets or any interest therein currently owned, directly or indirectly, by the Purchaser or the Subsidiaries, whether by asset sale, transfer of shares or otherwise, other than in the ordinary course of business;

(ii)

the change of control (by sale or transfer of shares or sale of all or substantially all of the property and assets of the Purchaser or the Subsidiaries or otherwise) of the Purchaser or the Subsidiaries; or

(iii)

a proposed or planned disposition of shares by any shareholder who owns, directly or indirectly, 5% or more of the outstanding shares of the Purchaser or the Subsidiaries;

4.13

Taxes. All taxes (including, where applicable, income tax, capital tax, payroll taxes, employer health tax, workers’ compensation payments, property taxes, custom and land transfer taxes), duties, royalties, levies, imposts, assessments, deductions, charges or withholdings and all liabilities with respect thereto including any penalty and interest payable with respect thereto (collectively, “Taxes”) due and payable by the Purchaser and the Subsidiaries have been paid, except where the failure to pay such Taxes would not have a Material Adverse Effect. All tax returns, declarations, remittances and filings required to be filed by the Purchaser and the Subsidiaries have been filed with all appropriate governmental authorities and all such returns, declarations, remittances and filings are complete and accurate and no material fact or facts have been omitted therefrom which would make any of them misleading, except where the failure to file such documents or any incompletions, inaccuracies or omissions would have a Material Adverse Effect.  The Purchaser is not aware that any examination of any tax return of the Purchaser or the Subsidiaries is currently in progress and the Purchaser is not aware of issues or disputes outstanding with any governmental authority regarding claims by any foreign or domestic governmental authority that additional Taxes may be payable, by the Purchaser or the Subsidiaries, in any case except where such examinations, issues or disputes would not have a Material Adverse Effect;

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4.14

Intellectual Property. The Purchaser and each of the Subsidiaries owns or possesses sufficient legal rights in and to or has submitted an application for all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses (software or otherwise), information, processes, works of authorship, software code, inventions (whether or not patentable), improvements, technology, trade secrets, know-how and similar proprietary rights (collectively, “Intellectual Property”) necessary to conduct the respective business of the Purchaser and the Subsidiaries as presently conducted and as proposed to be conducted without any conflict with, or infringement of, the rights of others. Without limiting the foregoing: (i) all Intellectual Property used in or necessary to the conduct of the business of each of the Purchaser and the Subsidiaries as presently conducted and as presently proposed to be conducted was (x) written, created, or reduced to practice solely by the employees or consultants of the Purchaser or the Subsidiaries acting within the scope of their employment or consulting duties who have entered into a confidentiality agreement and invention assignment agreement or by third parties who have validly and irrevocably assigned such Intellectual Property and all of their rights thereto and therein to the Purchaser or to either of the Subsidiaries pursuant to a confidentiality agreement and invention assignment agreement or (y) licensed from a third party pursuant to a valid written agreement; (ii) all of the issued patents in the Intellectual Property  are currently in compliance with formal legal requirements (including payment of filing, examination and maintenance fees and proofs of working or use) and are valid and enforceable; (iii) no such patent has been or is now involved in any interference, reissue, re-examination, or opposition proceeding; (iv) to the knowledge of the Purchaser, there is no potentially interfering patent or patent application of any third party; (v) in all patents and patent applications in the Intellectual Property, all the relevant, material prior art known to the inventors and those involved in the prosecution has been brought to the attention of the relevant patent authorities; (vi) there are no options, licenses or agreements between the Purchaser or either of the Subsidiaries and any other person or entity with respect to Intellectual Property under which there is any dispute regarding the scope of such agreement, or performance under such agreement, including with respect to any payments to be made or received by the Purchaser thereunder; (vii) neither the Purchaser nor either of the Subsidiaries has  infringed upon or has otherwise violated any Intellectual Property of any other person or entity, and neither the Purchaser nor either of the Subsidiaries has received any communication alleging that the Purchaser or either of the Subsidiaries has infringed upon or has otherwise violated any Intellectual Property of any other person or entity; (viii) none of the Intellectual Property of the Purchaser or the Subsidiaries has been or is being infringed or otherwise used or available for use, by any other person; (ix) the Purchaser or either of the Subsidiaries is not obligated to make any payments by way of royalties, fees or otherwise to any owner or licensor of or claimant to any Intellectual Property with respect to the use thereof in connection with the conduct of its business as presently conducted; (x) there are no agreements, understandings, instruments, contracts, judgments, orders or decrees to which the Purchaser or either of the Subsidiaries is a party or by which it is bound that involve indemnification by the Purchaser or either of the Subsidiaries with respect to infringements of Intellectual Property; and (xi) all material technical information developed by and/or belonging to the Corporation or to the Subsidiaries which has not been copyrighted or protected has been kept confidential

4.15

Agreements and Constating Documents. Any and all of the agreements and other documents and instruments pursuant to which the Purchaser and the Subsidiaries hold the property and assets thereof (including any interest in, or right to earn an interest in, any Intellectual Property) are valid and subsisting agreements, documents or instruments in full force and effect, enforceable in accordance with terms thereof, neither the Purchaser or nor either of the Subsidiaries is in default of any of the material provisions of any such agreements, documents or instruments nor has any such default been alleged and such properties and assets are in good standing under the applicable statutes and regulations of the jurisdictions in which they are situated, all leases, licences and other agreements pursuant to which the Purchaser or either of the Subsidiaries derives the interests thereof in such property and assets are in good standing and there has been no material default under any such lease, licence or agreement.  None of the material properties (or any interest in, or right to earn an interest in, any property) of the Purchaser or either of the Subsidiaries is subject to any right of first refusal or purchase or acquisition right. Neither the Purchaser nor either of the Subsidiaries is in violation of its constating documents or in default of the performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, trust deed, joint venture, mortgage, loan agreement, note, lease or other agreement or instrument to which it is a party or by which it or its property may be bound.

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4.16 

Securities. The Purchaser’s authorized share capital consists of 200,000,000 Common Shares, $0.001 par value, of which 105,670,927 Common Shares are issued and outstanding. No person, firm or corporation has any agreement or option, or right or privilege (whether pre-emptive or contractual) capable of becoming an agreement or option, for the purchase from the Corporation of any unissued Common Shares or securities of the Purchaser other than: (i) options to purchase -0- Common Shares; (ii) warrants to purchase 18,288,363  Common Shares; and (iii) $2,649,159.00 principal amount of debentures convertible into Common Shares at a price of $.12 per share, which debentures expire at various dates through November 19, 2014. There is no agreement to which the Purchaser is a party in force or effect which in any manner affects or will affect the voting or control of any of the securities of the Purchaser.

4.17

Bankruptcy. None of the Purchaser or the Subsidiaries, or to the Purchaser’s knowledge any creditor of the Purchaser or the Subsidiaries or any other person has instituted any proceeding or taken any corporate action or executed any agreement in connection with the commencement of any proceeding seeking to adjudicate the Purchaser or either of the Subsidiaries as bankrupt or insolvent; seeking liquidation, dissolution, winding-up, reorganization, arrangement, protection, relief or composition of Purchaser or the Subsidiaries or any material part of their property or debt, or making a proposal with respect to the Purchaser or the Subsidiaries under any law relating to bankruptcy, insolvency, reorganization or compromise of debts or other similar laws; or seeking appointment of a receiver, trustee, agent, custodian or other similar official for the Purchaser or the Subsidiaries or for any material part of their properties and assets.  

4.18

Consideration Shares. The Purchaser has allotted and reserved sufficient number of Common Shares to be issued as Consideration Shares and the Consideration Shares shall be issued as fully paid and non-assessable common stock of the Purchaser.

4.19

Loans. Other than in accordance with the ordinary course of its respective business, neither the Purchaser nor either of the Subsidiaries have made any material loans to or guaranteed the material obligations of any person.

4.20

Leased Premises. With respect to each premise of the Purchaser or either of the Subsidiaries and which the Purchaser or either of the Subsidiaries occupies as tenant (the “Leased Premises”), the Purchaser or either of the Subsidiaries occupies the Leased Premises and has the exclusive right to occupy and use the Leased Premises and each of the leases pursuant to which the Purchaser and/or either of the Subsidiaries occupies the Leased Premises is in good standing and in full force and effect.

4.21

Insurance.  The assets of the Purchaser and the Subsidiaries and their respective business and operations are insured against loss or damage with responsible insurers with policies in such amounts and with such deductibles and covering such risks as are generally deemed adequate and customary for their business and such coverage is in full force and effect, and the Purchaser has not failed to promptly give any notice of any material claim thereunder to the Seller. 

4.22

Minute Books. The minute books and records of the Purchaser and the Subsidiaries made available to the Seller’s counsel in connection with its due diligence investigation of the Purchaser and the Subsidiaries are all of the minute books and records of Purchaser and the Subsidiaries and contain copies of all material proceedings (or certified copies thereof) of the shareholders, the board of directors and all standing committees of the board of directors of the Purchaser and the Subsidiaries and there have been no other meetings, resolutions or proceedings of the shareholders, board of directors or any committees of the boards of directors of the Purchaser and the Subsidiaries not reflected in such minute books and other records.

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4.23

Environment Law. The Purchaser and the Subsidiaries are not in violation of, in connection with the ownership, use, maintenance or operation of its property and assets, including the Leased Premises, any applicable federal, provincial, state, municipal or local laws, by-laws, regulations, orders, policies, permits, licences, certificates or approvals having the force of law, domestic or foreign, relating to environmental, health or safety matters (collectively, the “Environmental Laws”) which could reasonably be expected to have a Material Adverse Effect. Without limiting the generality of the foregoing the Purchaser does not have any knowledge of and has not received any notice of, any material claim, judicial or administrative proceeding, pending or threatened against, or which may affect, either the Purchaser or the Subsidiaries or any of the property, assets or operations thereof, relating to, or alleging any violation of any Environmental Laws, the Purchaser is not aware of any facts which could give rise to any such claim or judicial or administrative proceeding and none of the Purchaser or the Subsidiaries nor any of the property, assets or operations thereof is the subject of any investigation, evaluation, audit or review by any governmental authority to determine whether any violation of any Environmental Laws has occurred or is occurring or whether any remedial action is needed in connection with a release of any contaminant into the environment, in each case which could reasonably be expected to have a Material Adverse Effect.

4.24

Labour. There is not currently any labour disruption, grievance, arbitration proceeding or other conflict which could reasonably be expected to have a Material Adverse Effect and the Purchaser and the Subsidiaries are in compliance with all provisions of all federal, state, local and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours, except where non-compliance with any such provisions would not have a Material Adverse Effect. The Purchaser is not aware of any existing or imminent labour disruption, grievance, arbitration proceedings or other conflict directly involving the employees of any of its principal suppliers, manufacturers or customers which could reasonably be expected to have a Material Adverse Effect. No union has been accredited or otherwise designated to represent any employees of the Purchaser or the Subsidiaries and, to the Purchaser’s knowledge, no accreditation request or other representation question is pending with respect to the employees of the Purchaser or the Subsidiaries and no collective agreement or collective bargaining agreement or modification thereof has expired or is in effect in any of the facilities of the Purchaser or the Subsidiaries and none is currently being negotiated by Purchaser or the Subsidiaries.

4.25

Accounting Controls. The Purchaser maintains a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization, and (ii) transactions are recorded as necessary to permit the preparation of financial statements in conformity in all material respects with U.S. generally accepted accounting principles and to maintain accountability for assets.

4.26

Proposed Legislation. The Purchaser is not aware of any legislation, or proposed legislation (published by a legislative body), which it anticipates will have a Material Adverse Effect.

4.27

Brokers. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by representatives of Purchaser directly with Seller, without the intervention of any person on behalf of Purchaser in such manner as to give rise to any valid claim by any person against Seller for a finder's fee, brokerage commission or similar payment. All rights of indemnity under Article X hereof shall apply to any claim relating to a Loss (hereinafter defined) arising out of this Agreement for any fee, commission or similar payment.

4.28

SEC Registration. The Purchaser has a class of securities registered under Section 12 of the United States Exchange Act of 1934, as amended (the “U.S. Exchange Act”), and has filed all reports required to be filed under Section 13 of the U.S. Exchange Act. 

4.29

Shell Company Status.  The Purchaser is not a “shell company” as such term is defined in Rule 405 under the U.S. Securities Act. 

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4.30

U.S. Exchange Act Reports. As long as the Seller is the beneficial owner of any Consideration Shares, the Purchaser shall use comerically reasonable efforts to timely file all reports required to be filed with the United States Securities and Exchange Commission (the “SEC”) pursuant to Section 13 of the U.S. Exchange Act, and Purchaser shall not terminate its status as a reporting issuer required to file reports under the U.S. Exchange Act even if the U.S. Exchange Act or the rules and regulations thereunder would otherwise permit such termination.

4.31

Resale Registration Statement. The Purchaser shall use its commerically reasonable efforts to file a resale registration statement with the SEC for the Consideration Shares and each time that the Purchaser proposes for any reason to register any of its common stock or other securities under the U.S. Securities Act in connection with the proposed offer and sale of its common stock or other securities, for either its own account or on behalf of any other security holders (a “Proposed Registration”), the Purchaser shall promptly give written notice of such proposed registration to the Seller and shall offer the Seller the right to request inclusion of the Consideration Shares in the Proposed Registration.

4.32

Legal Opinion. At any time after six months following the Closing Date, upon request of the Seller, the Purchaser shall use commerically reasonable efforts to cause its legal counsel to provide the Seller with a legal opinion in order to remove the Restrictive Legend and to sell the Consideration Shares pursuant to Rule 144 of the U.S. Securities Act or any applicable available exemption.

4.33

Tax Consequences. The Purchaser acknowledges that there may be tax consequences as a result of the acqusition of the Assets and has been advised by independent legal, tax and other professional advisors.

ARTICLE V - CONDITIONS PRECEDENT TO CLOSING

5.1

Conditions Precedent to Closing. The obligations to consummate and effect this Agreement are subject to the satisfaction in all material respects, on or before Closing, of the following conditions (unless waived, in writing, in the manner provided in Section 5.1(d) hereof):

(a)

Representations and Warranties of Purchaser. (i) The representations and warranties of the parties shall be accurate in all material respects on and as of the Closing as though made on and as of the Closing, except for any changes resulting from activities or transactions which may have taken place after the date hereof which are expressly permitted by this Agreement; and (ii) the parties shall have performed all obligations and complied with all covenants required to be performed or to be complied with by such party under this Agreement prior to or at the Closing including the delivery of all documents required at the Closing.  

(b)

Action. All action necessary to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby shall have been duly and validly taken by the parties.

(c)

No Action or Proceeding. As of the Closing, no action or proceeding by any public authority or person shall be pending before any court or administrative body or overtly threatened to restrain, enjoin or otherwise prevent the consummation of this Agreement or the transactions contemplated herein. There shall not be threatened, instituted or pending any action or proceeding, before any court or governmental authority or agency, domestic or foreign, (i) challenging or seeking to make illegal, or to delay or otherwise directly or indirectly restrain or prohibit, the consummation of the transactions contemplated hereby or seeking to obtain material damages in connection with such transactions; (ii) seeking to prohibit direct or indirect ownership or operation by Purchaser of all or a material portion of the Assets as a result of the transactions contemplated hereby; (iii) seeking to require direct or indirect transfer or sale by Purchaser of any of the Assets; (iv) seeking to invalidate or render unenforceable any material provision of this Agreement or agreements otherwise contemplated hereby; or (v) otherwise relating to and materially adversely affecting the transactions contemplated hereby.

10

(d)

Waiver of Conditions Precedent. Either party may waive any or all of the conditions precedent set forth herein, either prospectively or retroactively, by giving written notice of such waiver to the other party. No waiver of any condition precedent pursuant to this paragraph 5.1(d) shall, unless otherwise expressly stated in such written notice of waiver, extend to any covenant or agreement contained herein or to any other condition precedent.

(e)

No Adverse Changes. There shall have been no event or change occurring between the execution of this Agreement and the Closing which in the aggregate may be deemed to have a material adverse effect on Seller’s sale or Purchaser’s purchase of all or substantially all of the Assets.

 (f)

Governmental Filings. All material governmental filings, authorizations  and approvals, including the approval of the TSX Venture Exchange, that are required for the consummation of the transactions contemplated herein shall have been duty made and obtained by Seller (except filings required by Purchaser pursuant to applicable securities laws).

(g)

Bring-Down Certificate. Each party shall deliver to the other, a certificate dated the Closing Date signed by the President and Chief Executive Officer of party or such other senior officer(s) of the party as may be acceptable to the other party, that

(i)

the party has complied with all the covenants and satisfied all the terms and conditions of this Agreement on its part to be complied with and satisfied at or prior to the time of Closing; and

(ii)

the representations and warranties of the party contained herein are true and correct as at the time of Closing, with the same force and effect as if made on and as at the time of Closing after giving effect to the transactions contemplated hereby.

5.2 

Conditions Precedent to Closing. The obligations of the Seller to consummate and effect this Agreement is subject to:

(a) 

The Seller’s satisfaction with its due diligence investigation of the Purchaser.

(b) 

The Seller receiving the items set forth in Section 9.3 hereof.

 

ARTICLE VI - SURVIVAL OF REPRESENTATIONS AND WARRANTIES

Except as otherwise stated below, the representations, warranties, covenants and agreements made by the respective parties in this Agreement or in a writing executed and delivered in connection with the transactions contemplated herein shall survive the Closing. All covenants, agreements, representations and warranties made herein or pursuant hereto shall be deemed to be material and to have been relied upon by the parties hereto, notwithstanding any investigation heretofore or hereinafter made by or on behalf of the parties prior to the Closing.

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ARTICLE VII - INDEMNIFICATION

7.1

Indemnification. Subject to the provisions of Article VII, each party agrees to indemnify and hold the other party harmless against, any and all damages, claims, deficiencies, losses, and expenses (collectively "Damages") resulting from (i) any misrepresentation, breach of warranty, or nonfulfillment or failure to perform any covenant or agreement made as a part of or contained in this Agreement or in any document executed and delivered pursuant to this Agreement or in connection with the transactions contemplated hereby, except for Damages resulting from: (i) any such misrepresentations, breach of warranty or nonfulfillment or failure to perform any such covenant or agreement known to each party and waived in writing as of the Closing; or (ii) fraud, negligence or willful misconduct on behalf of the Indemnified Party (as hereinafter define). .

The party claiming indemnification hereunder is hereinafter referred to as the "Indemnified Party" and the party against whom such claims are asserted hereunder is hereinafter referred to as the "Indemnifying Party". Damages for which a claim or action may be asserted hereunder are hereinafter referred to as a "Loss". All claims for indemnification by any Indemnified Party under this Article VII shall be asserted and resolved as follows:

(a)

In the event that any claim or demand for which an Indemnifying Party would be liable to an Indemnified Party hereunder is asserted against or sought to be collected from such Indemnified Party by a third party, said Indemnified Party shall, within twenty (20) days of such claim or demand being made, notify the Indemnifying Party of such claim or demand, specifying the nature of and specific basis for such claim or demand and the amount or the estimated amount thereof to the extent then feasible (the "Claim Notice"). The estimate of Loss contained in the Claim Notice shall not limit the amount of the Indemnifying Party's ultimate liability under the claim. The Indemnifying Party shall not be obligated to indemnify the Indemnified Party with respect to any such claim or demand if the Indemnified Party fails to notify the Indemnifying Party thereof in accordance with the provisions of this Agreement within said twenty (20) day period. The Indemnifying Party shall have 10 days from the personal delivery or mailing of the Claim Notice (the "Notice Period") to notify the Indemnified Party (i) whether or not the liability of the Indemnifying Party to the Indemnified Party hereunder with respect to such claim or demand is disputed, and (ii) whether or not the Indemnifying Party desires, at the sole cost and expense of the Indemnifying Party, to defend the Indemnified Party against such claim or demand; provided, however, that any Indemnified Party is hereby authorized prior to and during the Notice Period to file any motion, answer or other pleading which it shall deem necessary or appropriate to protect its interest or those of the Indemnifying Party and not unreasonably prejudicial to the Indemnifying Party. In the event that the Indemnifying Party notifies the Indemnified Party within the Notice Period that it desires to defend the Indemnified Party against such claim or demand, then, except as hereinafter provided, the Indemnifying Party shall have the right to defend by all appropriate proceedings, which proceedings shall be promptly settled or prosecuted by it to a final conclusion. If the Indemnified Party desires to participate in, but not control, any such defense or settlement it may do so at its sole cost and expense. If requested by the Indemnifying Party, the Indemnified Party agrees to cooperate with the Indemnifying Party and Its counsel in contesting any claim or demand which the Indemnifying Party elects to contest, or, if appropriate and related to the claim in question, in making any counterclaim against the person asserting the third party claim or demand, or any cross complaint against any person but in any such case at the sole cost and expense of the Indemnifying Party. No claim may be settled without the consent of the Indemnifying Party, unless such settlement includes the complete release of the Indemnifying Party.

(b)

In the event any Indemnified Party should have a claim against any Indemnifying Party hereunder which does not involve a claim or demand being asserted against or sought to be collected from it by a third party, the Indemnified Party shall send a Claim Notice with respect to such claim to the Indemnifying Party. If the Indemnifying Party disputes such claim, as provided above, such dispute shall be resolved by arbitration as provided in Section 10.11.

7.2

Payment of Claim. Upon the determination of the liability of a party under this Article VII, after payment by the Indemnified Party of, or upon entry of final judgment or reaching of a settlement in respect of an Indemnifiable Claim, or determination of a Loss to the Indemnified Party, and notice thereof to the Indemnifying Party, the Indemnifying Party shall within ten (10) days after receipt of such notice pay to the Indemnified Party the amount of the payment, judgment, settlement or loss, as the case may be.

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7.3

Other Rights and Remedies Not Affected. The indemnification rights of the parties under this Article VII are independent of and in addition to such rights and remedies as the parties may have at law or in equity or otherwise for any misrepresentation, breach of warranty or failure to fulfill any agreement or covenant hereunder on the part of any party hereto including without limitation the right to seek specific performance, rescission or restitution, none of which rights or remedies shall be affected or diminished hereby.

ARTICLE VIII - TERMINATION AND BREACH

8.1

Termination and Abandonment.  This Agreement may be terminated and the transactions provided for by this Agreement may be abandoned without liability on the part of any party to any other party at any time before the Closing Date, by (i) mutual consent of Purchaser and Seller; or (ii) by Purchaser due to Seller’s failure to obtain a sufficient number of the Assets in the foreclosure process and settlement of asset division with similarly situated creditors of Wellness.

8.2

Subscription for Units. This Agreement may be terminated and the transactions provided for by this Agreement may be abandoned without liability on the part of the Seller at any time before the Closing Date in the event that the Seller does not receive $150,000 in connection with the sale of the Units within the timeline set forth in Section 2.1 hereof. 

8.3

Subscription upon Termination. In the event that this Agreement is terminated, the Purchaser shall forthwith sell to the Seller up to 150,000 Common Shares at a price equal to a 20% discount to the weighted average price of said shares on the OTC for 45 consecutive trading days ending on the date of termination of this Agreement. The number of Common Shares to be purchased by the Seller, if any, shall be determined in the sole discretion of the Seller. 

ARTICLE IX - CLOSING

9.1

Closing. The closing of  the transaction resulting in the transfer of the Assets from the Seller to the Purchaser (the "Closing") shall be not later than ten (10) days after the date that the Seller obtains the Assets free and clear of any and all liens, claims, charges, taxes, encumbrances, pledges, security interests, options or other restrictions of any kind, unless a later date is mutually agreed upon by the parties.

9.2

Seller's Deliveries at Closing. At the Closing, Seller shall deliver the following documents to the Purchaser all of which shall be reasonably satisfactory in form and substance to the Purchaser and its counsel: 

(a)

Assignments/Bills of Sale. Assignments and/or Bills of Sale for the Assets  together with such instruments, conveyances, certificates of title, assurances and other documents as may be required to sell, convey and transfer all right, title and interest to the Assets from Seller to the Purchaser free and clear of any and all liens, claims, charges, taxes, encumbrances, pledges, security interests, options or other restrictions of any kind.

(b)

Consents and Approvals. All consents, approvals and authorizations, all notices and all registrations and filings required to be obtained, given or made under any law, statute, rule, regulation, judgment, order, injunction, contract, agreement or other instrument to which Seller is subject, bound or a party, or by which Seller or any of its properties is bound or subject, in each case which is required to permit the consummation of the transactions contemplated by the Agreement without contravention, violation or breach by the Seller of any of the terms thereof.

(c)

Certificates. Certificate of good standing for each party as of a date reasonably prior to the Closing. 

(d)

Resolutions. Certified copy of resolutions of Seller authorizing, inter alia, the execution and delivery of this Agreement, the sale of the Assets and the other transactions contemplated under this Agreement.

13

(e)

Other documents. Such other documents, instruments, certificates and agreements as Purchaser and its counsel may reasonably request.

9.3

Purchaser's Deliveries at Closing. At the Closing, Purchaser shall deliver the following documents to Seller all of which shall be in a form reasonably acceptable to Seller and their counsel:

(a)

Stock Certificates. The stock certificates of Purchaser representing the purchase price for the Assets referred to in Section 2.4 duly endorsed and issued.

(b)

Consents and Approval. All consents, approvals and authorizations, all notices and all registrations and filings required to be obtained, given or made under any law, statute, rule, regulation, judgment, order, injunction, contract, agreement or other instrument to which the Purchaser is a party, or by which it or any of its properties is bound or subject, in each case which is required to permit the consummation of the transactions contemplated by this Agreement without contravention, violation or breach by the Purchaser of any of the terms thereof.

(c)

Resolutions. Certified copy of resolutions of the Board of Directors of the Purchaser authorizing, inter alia, the execution and delivery of this Agreement, the Stock Certificates, the purchase of the Assets and the other transactions contemplated hereby.

(d) 

Officer’s Certificate. a certificate dated the Closing Date signed by the President and Chief Executive of the Purchaser or such other senior officer(s) of the Purchaser as may be acceptable to the Purchaser, in form and content satisfactory to the Seller, acting reasonably, with respect to:

(i)

the articles and by-laws of the Purchaser;

(ii)

the resolutions of the Purchaser’s board of directors relevant the authorization of this Agreement and the transactions contemplated herein; and

(iii)

the incumbency and signatures of signing officers of the Purchaser.

(e)

Other Documents. Such other documents, instruments, certificates and agreements including without limitation, if assumed, the assumption of the lease, as Seller and its counsel may reasonably request.

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ARTICLE X - MISCELLANEOUS

10.1

Notice. All notices and communications required or permitted to be given hereunder shall be in writing, signed by the sender, and delivered by personal delivery overnight courier service or by registered or certified mail to:

If to Purchaser:

Andrew Dahl

7 W. Square Lake Road

Bloomfield Hills, MI 

(248)339-9839 

adahl@health-enhancement-products.com

with a copy to:

Gary R. Trzaskos, Esq.

PO Box 113

Walled Lake, MI 48390

(248) 366-4011

gtrzaskos@comcast.net

If to Seller:

Richard Galdi

720 Ouellette Avenue - Suite 516

Windsor, Ontario

N9A 1C2

519-969-0129 

rgaldi@essexangelcapital.com

with a copy to:

Joseph Ahern

430 N. Old Woodward

Second Floor

Birmingham, Michigan 48009

(248) 723-6102

JAhern@ahernfleury.com

or such other address as shall have been furnished in writing. Receipt by, or filing with, the respective parties of any communications shall be deemed to have occurred for the purpose of this Agreement, when personally delivered or delivered by facsimile or e-mail transmission, or next business day if sent by overnight courier, or three days after deposit thereof, postage prepaid, properly addressed, in the United States mail.

10.2

Entire Agreement. This Agreement, including all Exhibits hereto constitute the entire agreement between the parties and as of Closing supersedes all agreements, representations, warranties, statements, promises and understandings, whether oral or written, with respect to the subject matter hereof. After Closing neither party shall be bound by or charged with any oral or written agreements, representations, warranties, statements, promises or understandings not specifically set forth in this Agreement or in the certificates or documents delivered in connection herewith.

10.3

Successors and Assigns. Except as otherwise provided in this Agreement, all covenants and agreements of the parties contained in this Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the parties hereto and the heirs, personal representatives, executors and assigns of the Seller and the Purchaser. This Agreement may not be assigned by any party hereto without the prior express written consent of the other parties hereto.

15

10.4

Expenses. Whether or not the transactions contemplated hereby shall be consummated, each party shall be solely responsible for payment of all expenses incurred by it in connection with the consummation of this Agreement and the transactions contemplated hereunder except as otherwise provided herein.

10.5

Severability. Should any one or more of the provisions of this Agreement be determined to be illegal or unenforceable, all other provisions of this Agreement shall be given effect separately from the provision or provisions determined to be illegal or unenforceable and shall not be affected thereby.

10.6

Governing Law. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Michigan without regard to conflicts of laws principles.

10.7

Counterparts. This Agreement may be executed simultaneously in two or more counterparts and by PDF or other electronic means, each of which shall be an original, but all of which together shall constitute one and the same Agreement.

10.8

Amendments. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated orally, all such amendment must be in writing signed by the parties

10.9

No Third Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit of the parties hereto, and it is not the intention of the parties to confer third-party beneficiary rights upon any other person or entity.

10.10

Headings. The headings in this Agreement are for purposes of convenience and easy reference only and shall not limit or otherwise affect the meaning hereof.

10.11 

Arbitration. In the event of any dispute which arises between the parties and which relates to the subject matter of this Agreement, the parties acknowledge and agree that any such dispute shall be submitted for binding arbitration in Southfield, Michigan in accordance with the Arbitration Commercial Rules procedures established by the American Arbitration Association or, if such association is not then in existence, an independent association of arbitrators which may be designated by agreement of the parties. In the event the parties are unable to agree on an independent association of arbitrators from which arbitrators may be drawn, either party may apply to a court of competent jurisdiction for appointment of an arbitrator, however, such application will only be made in the event the American Arbitration Association is not then in existence. 

The arbitrator(s) shall make detailed written findings to support their award. The prevailing party in any such arbitration proceeding shall be awarded such costs and expenses (including reasonable attorney's and expert witness' fees) as were incurred by the prevailing party as a result of the institution and prosecution of the arbitration proceeding including all costs and expenses (including reasonable attorney's and expert witness fees) to enter judgment upon or enforce any such award. Any award by arbitration pursuant to the terms of this Agreement, shall be final, non-appealable and binding upon the parties and may be entered as a judgment and enforced by any court of competent jurisdiction.  

16

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

“Purchaser”

Health Enhancement Products, Inc. a Nevada corporation

/s/ Debra Chase

By: /s/ Andrew Dahl

Debra Chase

Andrew Dahl

/s/ Jennifer M. Falor

Its: President

Jennifer M. Falor

“Seller”

Essex Angel Capital, Inc., a Canadian investment issuer

/s/ Reni George

By: /s/ Richard Galdi

Reni George

Richard Galdi

/s/ Philip M. Rice II

Its:  Chairman and CEO

Philip M. Rice II

17Exhibit 4.1 Convertible Debenture

Exhibit 4.1

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, AT THE SOLE EXPENSE OF THE COMPANY, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: April 30, 2013

Original Conversion Price (subject to adjustment herein): $0.0161

$60,000

18% SENIOR CONVERTIBLE DEBENTURE

DUE APRIL 30, 2014

THIS 18% SENIOR CONVERTIBLE DEBENTURE is a duly authorized and validly issued 18% Senior Convertible Debenture of Dethrone Royalty Holdings, Inc., a Nevada corporation, (the “Company”), having its principal place of business at 5137 E. Armor Street, Cave Creek, AZ 85331, designated as its 18% Senior Convertible Debenture due April 30, 2014 (the “Debenture”).

FOR VALUE RECEIVED, the Company promises to pay to Centaurian Fund, LP or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $60,000 on April 30, 2014 (the “Maturity Date”) or such earlier date as this Debenture is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

Section 1. Definitions.  For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, the following terms shall have the following meanings:

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.  

“Alternate Consideration” shall have the meaning set forth in Section 5(b).

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

“Base Conversion Price” shall have the meaning set forth in Section 5(a).

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d). 

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Buy-In” shall have the meaning set forth in Section 4(c)(v).

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) 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 the Company, by contract or otherwise) of in excess of 33% of the voting securities of the Company (other than by means of conversion or exercise of this Debenture and the Warrant), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 33% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 33% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a one year period prior to satisfaction in full of all of the obligations due and owing hereunder of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (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), or (e) the execution by the Company of an agreement to which the Company  is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Debenture in accordance with the terms hereof.

“Debenture Register” shall have the meaning set forth in Section 2(b).

“Dilutive Issuance” shall have the meaning set forth in Section 5(a).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(a).

“Equity Conditions” means, during the period in question,

(a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Debenture,

(c) the Common Stock is trading on a Trading Market and all of the Conversion Shares and Warrant Shares are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (d) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the Conversion Shares and Warrant Shares then issuable, (e) there is no existing Event of Default and no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (f) the issuance of the shares in question (or, in the case of an Optional Redemption, the shares issuable upon conversion in full of the Optional Redemption Amount) to the Holder would not violate the limitations set forth in Section 4(d) herein,

(g) there has been no public announcement of a pending or proposed Fundamental Transaction or Change of Control Transaction that has not been consummated and (h) the applicable Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information.

2

“

Event of Default

” shall have the meaning set forth in Section 8(a).

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted for such purpose, by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose at prices not below the fair market value of the Common Stock as the time of grant or below the exercise price of the Warrants or the Conversion Price of the Debenture, (b) the Conversion Share or the Warrant Shares and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise price, exchange price or conversion price of such securities and (c) securities issued to non-affiliated Persons pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equityholders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

“Fundamental Transaction” shall have the meaning set forth in Section 5(b).

 

“Interest Payment Date” shall have the meaning set forth in Section 2(a).

“Late Fees” shall have the meaning set forth in Section 2(d).

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Debenture, plus all accrued and unpaid interest hereon, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the average of the lowest three closing bid prices of the Common Stock for the ten Trading Days immediately prior to the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever is higher, or (ii) 125% of the outstanding principal amount of this Debenture, plus 100% of accrued and unpaid interest hereon, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Debenture.

“New York Courts” shall have the meaning set forth in Section 9(e).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Optional Redemption” shall have the meaning set forth in Section 6(a).

“Optional Redemption Amount” means the sum of (a) 120% of the then outstanding principal amount of the Debenture, (b) accrued but unpaid interest and (c) all liquidated damages and other amounts due in respect of the Debenture.

“Optional Redemption Date” shall have the meaning set forth in Section 6(a).

“Optional Redemption Notice” shall have the meaning set forth in Section 6(a).

“Optional Redemption Notice Date” shall have the meaning set forth in Section 6(a).

“

Optional Redemption Period

”

shall have the meaning set forth in Section 6(a).

“Original Issue Date” means the date of the first issuance of this Debenture, regardless of any transfers of this Debenture and regardless of the number of instruments which may be issued to evidence such Debenture.

“Permitted Indebtedness” means (a) the indebtedness evidenced by the Debenture, (b) the Indebtedness existing on the Original Issue Date and set forth on Schedule 2 attached hereto, (c) subordinated indebtedness incurred in the ordinary course of business of up to $500,000, (d) trade account payables and expenses incurred in the ordinary course of business, (e) wages and other compensation due to employees and agents for services performed, (f) liabilities for taxes not yet due and (g) indebtedness incurred in connection with an issuance or issuances contemplated by clause (d) under the definition of Exempt Issuance.

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“Permitted Lien” means 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 Company) have been established in accordance with GAAP, (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s 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 Company and its consolidated Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien, (c) Liens incurred in connection with Permitted Indebtedness under clauses (a), (b) and (d) thereunder, and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder, provided that such Liens are not secured by assets of the Company or its Subsidiaries other than the assets so acquired or leased.

“Registration Statement” means a registration statement covering the resale of the Conversion Shares and Warrant Shares by each Holder.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

“Subsidiary” means any existing subsidiary of the Company and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

“Successor Entity” shall have the meaning set forth in Section 5(b). 

 

“Trading Day” means a day on which the principal Trading Market is open for trading.

“Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board (or any successors to any of the foregoing).

“Transfer Agent” means  VStock Transfer, LLC, the current transfer agent of the Company, with a mailing address of 77 Spruce Street, Suite 201, Cedarhurst, NY 11516 and a facsimile number of 646 536-3179, and any successor transfer agent of the Company.

“Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder, on an as-converted basis, and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

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“Warrant” means the Common Stock purchase warrant delivered to the Holder in connection herewith, which Warrant shall be exercisable immediately and have a term of exercise equal to three (3) years, in the form of Exhibit A attached hereto.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrant.

Section 2. Interest.

a)

Payment of Interest in Cash or in Kind. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of 18% per annum, payable monthly beginning on the first day of each month following the Original Issue Date, on each Conversion Date (as to that principal amount then being converted) and on the Optional Redemption Date (as to that principal amount then being redeemed) and on the Maturity Date (each such date being referred to herein as an “Interest Payment Date”) (if any Interest Payment Date is not a Business Day, then the applicable payment shall be due on the next succeeding Business Day), in cash or, at the Company’s option, through an increase in the principal amount of this Debenture then outstanding by an amount equal to the interest then due and payable.

    

b)

Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made.  Interest shall cease to accrue with respect to any principal amount converted, provided that the Company actually delivers the Conversion Shares within the time period required by Section 4(c)(ii) herein. Interest hereunder will be paid to the Person in whose name this Debenture is registered on the records of the Company regarding registration and transfers of this Debenture (the “Debenture Register”). 

c)

Prepayment. Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder. 

d)

Late Fee.  All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 22% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.

Section 3. Registration of Transfers and Exchanges. 

 

a)

Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b)

Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

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Section 4. Conversion.

 

a)

Voluntary Conversion. At any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof).  The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Debenture to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion. The Holder and the Company shall maintain records showing the principal amount(s) converted and the date of such conversion(s).  The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

 

b)

Conversion Price.  The conversion price in effect on any Conversion Date from the date hereof shall be equal to 65% of the average of the lowest three closing bid prices of the Common Stock for the twenty (20) trading days immediately prior to the Conversion Date, as adjusted for any stock splits, dividends, distributions or the like (the “Conversion Price”).

c)

Mechanics of Conversion.

 

i.

Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the applicable Conversion Price.

ii.

Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date shall be free of restrictive legends and trading restrictions representing the number of Conversion Shares being acquired upon the conversion of this Debenture and (B) a bank check in the amount of accrued and unpaid interest (if the Company has elected or is required to pay accrued interest in cash). On or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the Effective Date, the Company shall use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.  

 

iii.

Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such conversion, in which event the Company shall promptly return to the Holder any original Debenture delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice. 

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iv.

Obligation Absolute; Partial Liquidated Damages.  The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Debenture, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5th) Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for the Company’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.  The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

v.

Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof.

7

 

vi.

Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Debenture and payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder, not less than 200% of such aggregate number of shares of the Common Stock as shall be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Debenture and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable and, if the Registration Statement is then effective under the Securities Act, shall be registered for public resale in accordance with such Registration Statement.

vii.

Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

viii.

Transfer Taxes and Expenses.  The issuance of certificates for shares of the Common Stock on conversion of this Debenture shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Debenture so converted and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion.

8

d)

Holder’s Conversion Limitations.  The Company shall not effect any conversion of this Debenture, and a Holder shall not have the right to convert any portion of this Debenture, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Debenture beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, the Warrant) beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent the limitation contained in this Section 4(d) applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Debenture is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Debenture may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Debenture is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. 

In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act

and the rules and regulations promulgated thereunder

..

 For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Debenture held by the Holder. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Debenture held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation.

 The limitations contained in this paragraph shall apply to a successor holder of

this Debenture

..

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Section 5. Certain Adjustments.

 

a)

Subsequent Equity Sales. If, at any time while this Debenture is outstanding,  the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the lower of the Base Conversion Price or Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(a) in respect of an Exempt Issuance. If the Company enters into a Variable Rate Transaction, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(a), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(a), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

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b)

Fundamental Transaction. If, at any time while this Debenture is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Debenture is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Debenture).  For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Debenture in accordance with the provisions of this Section 5(a) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Debenture, deliver to the Holder in exchange for this Debenture a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Debenture which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Debenture (without regard to any limitations on the conversion of this Debenture) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Debenture immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Debenture and the Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Debenture and the Warrant with the same effect as if such Successor Entity had been named as the Company herein.

11

c)

Pro Rata Distributions. If the Company, at any time while this Debenture is outstanding, shall distribute to all holders of Common Stock (and not to the Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 5(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness or rights or warrants so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above. During such time as this Debenture is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Debenture, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Debenture (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

d)

Calculations.  All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

e)

Notice to the Holder.

i.

Adjustment to Conversion Price.  Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

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ii.

Notice to Allow Conversion by Holder.  If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Debenture, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Debenture Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Debenture during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein. 

  

Section 6. Redemption.

a)

Optional Redemption at Election of Company.  

Subject to the provisions of this Section 6(a), the Company may, at any time while this Debenture is outstanding, deliver a notice to the Holder (an “

Optional Redemption Notice

” and the date such notice is deemed delivered hereunder, the “

Optional Redemption Notice Date

”) of its irrevocable election to redeem all of the then outstanding principal amount of this Debenture for cash in an amount equal to the Optional Redemption Amount on the 20th Trading Day following the Optional Redemption Notice Date (such date, the “

Optional Redemption Date

”, such 20 Trading Day period, the “

Optional Redemption Period

” and such redemption, the “

Optional Redemption

”). The Optional Redemption Amount is payable in full on the Optional Redemption Date less any portion of this Debenture which has been converted prior to the Optional Redemption Date. The Company may only effect an Optional Redemption if each of the Equity Conditions shall have been met (unless waived in writing by the Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date

and through and including the date payment of the Optional Redemption Amount is actually made in full

.. If any of the Equity Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company within 3 Trading Days after the first day on which any such Equity Condition has not been met, in which case the Optional Redemption Notice shall be null and void,

ab

initio

.. The Holder may elect to convert the outstanding principal amount of this Debenture pursuant to Section 4 prior to actual payment in cash for any Optional Redemption under this Section 6 a) by the delivery of a Notice of Conversion to the Company. The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full.

b)

Redemption Procedure.  The payment of cash pursuant to an Optional Redemption shall be payable on the Optional Redemption Date. If any portion of the payment pursuant to an Optional Redemption shall not be paid by the Company by the applicable due date, interest shall accrue thereon at an interest rate equal to the lesser of 22% per annum or the maximum rate permitted by applicable law until such amount is paid in full. Notwithstanding anything herein contained to the contrary, if any portion of the Optional Redemption Amount remains unpaid after such date, the Holder may elect, by written notice to the Company given at any time thereafter, to invalidate such Optional Redemption, ab initio, and, with respect to the Company’s failure to honor the Optional Redemption, the Company shall have no further right to exercise such Optional Redemption.  

 

Section 7. Intentionally Omitted.

13

Section 8. Events of Default.  

a)

“Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event 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 (A) the principal amount of this Debenture or (B) interest, liquidated damages and other amounts owing to Holder, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within 5 Trading Days;

 

ii.

the Company shall fail to observe or perform any other covenant or agreement contained in this Debenture (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (xi) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 10 Trading Days after notice of such failure sent by the Holder to the Company and (B) 15 Trading Days after the Company has become or should have become aware of such failure;

iii.

a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) this Debenture or (B) other than with respect to the Senior Secured Convertible Promissory Note issued to Pierce Csurgo and the Promissory Note issued to JMJ Financial (the “Notes”) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

iv.

any representation or warranty made in this Debenture, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.

the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X)  shall be subject to a Bankruptcy Event;

 

vi.

Other than with respect to the Notes, the Company or any Subsidiary shall default on any of its obligations under 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 that (a) involves an obligation greater than $100,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; 

vii.

the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days;

viii.

Other than securities issued with respect to the Notes, the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 50% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix.

the Company shall fail for any reason to deliver certificates to a Holder prior to the fifth Trading Day after a Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of this Debenture in accordance with the terms hereof; or

x.

any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

14

b)

Remedies Upon Event of Default. If any Event of Default occurs, the outstanding principal amount of this Debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser of 22% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Debenture to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder 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 acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 9. Miscellaneous.  

 

a)

Notices.  Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9(a).  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears on the books of the Company, at the principal place of business of such Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

b)

Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation of the Company. 

c)

Lost or Mutilated Debenture.  If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

d)

Fees. The Company and Holder acknowledge that on the Original Issue Date, the Company has paid to Legend Securities (“Legend”) a fee of $6,000 in connection with the placement of this Debenture. 

15

e)

Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture 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 this Debenture (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, Borough of Manhattan (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, 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 such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party 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 such party at the address in effect for notices to it under this Debenture 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 this Debenture or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

f)

Amendments; Waivers.  No provision of this Debenture may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Holder or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture on any other occasion. Any waiver by the Company or the Holder must be in writing. 

 

g)

Severability.  If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture 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 violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Debenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

h)

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 on the next succeeding Business Day.

i)

Headings.  The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

*********************

(Signature Pages Follow)

16

IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

	
	DETHRONE ROYALTY HOLDINGS, INC.

	 

	By: /s/ Toby McBride

Name: Toby McBride 

Title: Chief Executive Officer 

Facsimile No. for delivery of Notices: (646) 536-3179

17

ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 18% Convertible Debenture due [______, 2014 of Dethrone Royalty Holdings, Inc., a Nevada corporation (the “Company”), into shares of common stock (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below.  If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith.  No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Debenture, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.  

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debenture to be Converted:

Number of shares of Common Stock to be issued:

Signature:

Name:

Address for Delivery of Common Stock Certificates:

Or

DWAC Instructions:

Broker No:

Account No:

18

Schedule 1

CONVERSION SCHEDULE

The 18% Senior Convertible Debenture due on [________, 2014 in the aggregate principal amount of $____________ are issued by Dethrone Royalty Holdings, Inc., a Nevada corporation.  This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

				
	Date of Conversion

(or for first entry, 

Original Issue Date)

	Amount of Conversion

	Aggregate Principal 

Amount Remaining 

Subsequent to 

Conversion

(or original 

Principal Amount)

	Company Attest

	

	

	

	

	

	

	

	

	

 

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

	

19

Schedule 2

On November 15, 2012, the Company entered into a Senior Secured Promissory Note with an unaffiliated party under which the Company received a one-year loan with a principal balance of $100,000. The loan bears interest at 20% per annum with interest payments due quarterly. In addition, the Company issued 2,500,000 shares of restricted common stock to the lender and Mr. Holley and McBride pledged their 56,250,000 shares of the Company’s common stock as collateral and transferred 1,000,000 shares of free trading shares to the lender. If the Company goes into default of the provisions of the loan, it becomes convertible into the Company’s common stock at a price of $.001 per share (100 million shares). If an event of default occurs, the lender will have the ability of becoming the controlling shareholder of the Company.

On February 27, 2013, the Company entered into a $335,000 convertible loan agreement. The agreement provides for a $35,000 original issue discount. The lender, at its discretion, may provide funds up to $300,000 to the Company. It provided $60,000 at the closing of the agreement and $20,000 on April 24, 2013. All loans under the agreement are payable in full one year after the funds are issued together with a prorated portion of the original issue discount. All amounts outstanding under the agreement become convertible, at the lender’s discretion, into shares of the Company’s common stock starting 180 days from the execution date of the agreement. The conversion rate per share is the lower of (i) $0.044 or (ii) 60% of the lowest trade price during the 25 trading days prior to a conversion notice.  

20

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