KonaRed Corp (Form: 8-K, Received: 02/03/2014 16:16:02)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) January 28, 2014

(Exact name of registrant as specified in its charter)

Nevada	333-176429	99-0366971
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

2829 Ala Kalani Kaumaka St., Suite F-133, Koloa, HI 96756

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code 808.212.1553

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))

Item 1.01 Entry into a Material Definitive Agreement.

Settlement Agreement

On January 28, 2014, our company entered into a settlement agreement with VDF FutureCeuticals, Inc. and Sandwich Isles Trading Co. Inc., d/b/a Kona Red, Inc., the company from which we acquired the KonaRed business on October 4, 2013, to: (i) settle claims asserted by and against the parties with respect to an action filed by VDF against Sandwich Isles; and (ii) resolve a petition for cancellation of certain trademark registrations filed by Sandwich Isles. Pursuant to the settlement agreement, the parties are required to cause their respective attorneys to jointly file voluntary dismissals with respect to the foregoing claim and petition for cancelation. VDF on the one hand, and Sandwich Isles and Kona Red Corporation on the other, released each other from liability arising or accruing prior to January 28, 2014 for past monetary damages for any patent infringements and all other claims that the parties brought or could have brought prior to January 28, 2014. In addition, Sandwich Isles and our company agreed that both parties will take all steps necessary to formally abandon all currently pending patent applications directed to coffee cherries or coffee cherry technology and cancel with prejudice all trademark proceedings.

In connection with the settlement agreement and other agreements disclosed in this current report on Form 8-K, we entered into a coffee fruit patent license, coffeeberry trademark license and raw materials supply agreement on January 28, 2014 with VDF and Sandwich Isles.

Patents and Trademark License

Pursuant to the license agreement, in exchange for our ongoing compliance with certainalternative minimum payments and royalties (and the terms and conditions related to raw materials discussed below), VDF granted us a non-exclusive, non-transferrable, non-sublicenseable license to use and practice certain VDF patent rights and a non-exclusive license to use certain VDF trademarks and trademark rights.

Pursuant to the license agreement, VDF will supply our company with raw materials starting in 2017. We have agreed to negotiate in good faith regarding the terms and pricing of the raw materials to be supplied by VDF. We are permitted to have raw materials manufactured by a third party (subject to some limitations) solely for the use in the products that we sell. In addition, we must share with VDF all details of certain input raw materials.

Senior Convertible Note

In connection with the license agreement and other agreements disclosed in this current report on Form 8-K, on January 28, 2014, we issued a senior convertible note to VDF, whereby we promised to pay VDF, or its registered and permitted assigns, the principal, being an amount equal to the sum of (i) the aggregate amount of accrued and unpaid designated alternative minimum payments (as set out in the license agreement) at such time, plus (ii) the aggregate amount of payment in kind interest allowable pursuant to the convertible note. Pursuant to the convertible note, the maturity is December 31, 2018 unless (i) the senior convertible note is accelerated pursuant to an event

of default or (ii) the license agreement is terminated and all accrued and unpaid obligations under the senior convertible note have been paid. Interest on the convertible note is 7% per annum, subject to adjustment for events of default. On the maturity date, we must pay VDF all principal, unpaid interest and late charges, if any, and we have the right, subject to certain limitations, to prepay principal at any time and from time to time.

At any time and at the option of VDF, any principal outstanding under the convertible note shall be convertible in shares of our common stock at a conversion price of $0.65 per share. In the event there is an event of default, including but not limited to: (i) our failure to make a payment when due; (ii) any representation or warranty made by our company in connection with any agreement summarized in this current report on Form 8-K being untrue in any material respect; (iii) default by our company of any covenant of the convertible note; and (iv) a change in control. Among other rights upon an event of default, if an event of default has occurred, the unpaid principal will bear interest at 12%, VDF may accelerate the maturity of the convertible note and VDF is entitled to set-off rights.

Pursuant to the convertible note: (i) VDF is also granted an adjustment to the conversion price right upon the issuance of shares of our common stock, stock options or other convertible securities; (ii) no indebtedness of our company shall rank senior to the payments due under the convertible note unless prior written consent of VDF is obtained; and (iii) payments under the note is secured by the security agreement as described in this current report on Form 8-K.

A copy of the senior convertible note is attached as exhibit 10.1 to this current report on Form 8-K.

Pledge and Security Agreement

In connection with the convertible note and other agreements disclosed in this current report on Form 8-K, on January 28, 2014, we entered into a pledge and security agreement with VDF, whereby we pledged, collaterally assigned and granted to VDF, a security interest in all of our right, title and interest, whether now owned or hereafter acquired, in and to our company’s property to secure the prompt and complete payment and performance of obligations existing under any of the agreements described in this current report on Form 8-K.

A copy of the pledge and security agreement is attached as exhibit 10.2 to this current report on Form 8-K.

On January 28, 2014, we issued VDF a warrant entitling VDF, from any time after the occurrence of a warrant exercise event until the fifteenth anniversary of the issuance of the warrant, to purchase from our company, shares of our common stock representing ten percent (10%) of our fully diluted outstanding shares of common stock at a purchase price of $0.001 per share. A warrant exercise event occurs if any of the following events occur:

(i)

our company reports $25,000,000 or more of gross sales in any fiscal year in our audited financial statements for such fiscal year;

(ii)

our company has a class of securities listed for trading on the New York Stock Exchange, the American Stock Exchange or NASDAQ;

(iii)

our company maintains an aggregate market capitalization of our company’s outstanding capital stock of at least $125,000,000 for twenty (20) consecutive trading days based on the closing prices for the shares of our common stock as reported on the OTC Bulletin Board; or

(iv)

our company has a change of control as defined in the warrant.

A copy of the warrant is attached as exhibit 10.3 to this current report on Form 8-K.

Registration Rights Agreement

On January 28, 2014, we entered into a registration rights agreement with VDF, whereby we granted VDF or an assignee (permitted under the agreement) demand registration rights and incidental registration rights with respect to: (i) any shares of our common stock issued upon conversion of the convertible note; (ii) any shares of our common stock issued upon exercise of the warrant; and (iii) any shares of our common stock acquired by VDF or an assignee from our company after the date of the registration rights agreement upon exercise or conversion of other convertible securities that are acquired by VDF or an assignee from our company after the date of the registration rights agreement.

Pursuant to VDF’s demand registration right, at any time or from time to time, a holder or holders holding a majority of registrable securities then outstanding may require our company to use our best efforts to effect the registration under the Securities Act of 1933, as amended, of all or part of their respective registrable securities (subject to any limits that may be imposed by the Securities and Exchange Commission pursuant to Rule 415 under the Securities Act), by delivering a written request to our company.

In addition to the registration rights granted to VDF, there are restrictions on our granting of registration rights to other parties.

A copy of the registration rights agreement is attached as exhibit 10.4 to this current report on Form 8-K.

Investor Rights Agreement

On January 28, 2014, we entered into an investor rights agreement with VDF, whereby VDF has the right to designate that number of nominees to our board of directors such that the total number of directors designated by VDF is in proportion to its percentage ownership of the outstanding voting power of the company. From and after the date of the investor rights agreement and until such time as: (i) the convertible note has terminated; (ii) the warrant has terminated or been exercised; and (iii) VDF’s percentage interest is less than 1%, if VDF does not have a designee on our board of directors, VDF shall have the right to appoint one individual as a non-voting observer entitled to attend meetings of our board of directors.

Also pursuant to the investor rights agreement, for so long as (i) the convertible note remains outstanding, (ii) the warrant remains outstanding or (iii) VDF owns a percentage interest equal or greater to 10%, we require VDF’s consent before taking certain corporate actions, including, among others; (i) amending our constating documents; (ii) making any material change to the nature of our business; (iii) incurring indebtedness exceeding $7,500,000 at any one time outstanding; or (iv) declaring or paying dividends.

A copy of the investor rights agreement is attached as exhibit 10.5 to this current report on Form 8-K.

Item 3.02. Unregistered Sales of Equity Securities.

The disclosure under this item is included under item 1.01 and is incorporated by reference.

We issued the securities to VDF relying on exemptions from registration provided by Rule 506 of Regulation D of the Securities Act of 1933, as amended.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

“ Shaun Roberts ”

President, Chief Executive Officer and Director

EXECUTION COPY

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.

KONARED CORPORATION

Senior Convertible Note

Issuance Date: January 28, 2014

FOR VALUE RECEIVED , KonaRed Corporation, a Nevada corporation (the “ Company ”), hereby promises to pay to the order of VDF FutureCeuticals, Inc., an Illinois corporation, or registered and permitted assigns (“ Holder ”), the Principal (as defined below) when due, whether on the Maturity Date (as defined below) or otherwise (in each case in accordance with the terms hereof), and to pay interest (“ Interest ”) on any outstanding Principal at a rate per annum equal to the Interest Rate (as defined below), from the date set forth above as the Issuance Date (the “ Issuance Date ”) until the same becomes due and payable, whether on the Maturity Date or otherwise (in each case in accordance with the terms hereof). To the extent not defined in the relevant provisions of this Senior Convertible Note (including all Senior Convertible Notes issued in exchange, transfer or replacement hereof, this “ Note ”), certain capitalized terms used in this Note are defined in Section 25 .

(1) MATURITY; VOLUNTARY PREPAYMENTS .

(a) Maturity Date . On the Maturity Date, the Company shall pay to the Holder (the “ Maturity Date Payment ”) (i) an amount payable in cash representing all outstanding Principal at such time, (ii) an amount payable in cash representing accrued and unpaid Interest and (iii) an amount payable in cash representing all accrued and unpaid Late Charges, if any. The “ Maturity Date ” shall be the earlier to occur of (x) December 31, 2018, (y) the acceleration of this Note pursuant to Section 4 and (z) the Termination Date.

(b) Voluntary Prepayments . Subject to the limitations set forth in Section 3(a) , the Company shall have the right at any time and from time to time to prepay in cash by wire transfer any outstanding Principal in whole or in part, subject to prior notice in accordance with the provisions of this Section 1(b) . The Company shall notify the Holder by written notice of any prepayment hereunder not later than three (3) Business Days before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the amount of Principal to be prepaid. Prepayments of any Principal shall be accompanied by any accrued and unpaid Interest and Late Charges in respect of such Principal at such time.

(2) INTEREST; INTEREST RATE . Interest on this Note shall commence accruing on the Issuance Date and shall be computed on the basis of a 365-day year based on actual days elapsed and shall be payable in arrears on each December 31 during the period beginning on the Issuance Date and ending on, and including, the Termination Date and on the Termination Date (each, an “ Interest Date ”) with the first Interest Date being December 31, 2014. Interest shall be payable on each Interest Date in cash by wire transfer; provided that, at the election of the Company and upon three (3) Business Days’ prior written notice by the Company to the Holder, any Interest may be added to the principal balance of this Note (any such Interest, “ PIK Interest ”) on the applicable Interest Date (each such date, a “ PIK Date ”) and such PIK Interest shall bear Interest from and after the relevant PIK Date at the Interest Rate and shall be payable on each Interest Date. All amounts of accrued PIK Interest as of each PIK Date shall no longer be deemed to be accrued and unpaid Interest on the outstanding Principal, but shall be considered Principal until paid. From and after the occurrence of an Event of Default, the Interest Rate shall be increased to twelve percent (12.00%) per annum. In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the date of such cure; provided that the Interest as calculated at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of cure of such Event of Default.

(3) CONVERSION OF NOTE . At any time and at the option of the Holder, any Principal outstanding under this Note shall be convertible into shares of Common Stock of the Company, par value $0.001 per share (the “ Common Stock ”), on the terms and conditions set forth in this Section 3 .

(a) Conversion Right; Conversion Prepayment Right . At any time, the Holder shall be entitled to convert all or any portion of the outstanding and unpaid Conversion Amount into fully paid and nonassessable shares of Common Stock (a “ Share Conversion ”) in accordance with Sections 3(b) and 3(c) . The Company shall not issue any fraction of a share of Common Stock upon any Share Conversion. If any Share Conversion would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer, stamp and similar taxes that may be payable with respect to the issuance and delivery of shares of Common Stock upon conversion of any Conversion Amount; provided , that the Company shall not be responsible for the payment of any income taxes that may be incurred by the Holder as a result of such conversion. Notwithstanding anything herein to the contrary, upon receipt by the Company of a Share Conversion Notice, the Company shall have the right (the “ Conversion Prepayment Right ”) to pay in cash the Conversion Amount specified in such Share Conversion Notice and, upon receipt by the Holder of such cash payment, such Share Conversion Notice shall automatically terminate and no Share Conversion shall result therefrom; provided that, unless the Company exercises the Conversion Prepayment Right in respect of any Share Conversion Notice within five (5) Business Days following receipt of such Share Conversion Notice, the Company shall be deemed to have waived the Conversion Prepayment Right in respect of such Share Conversion Notice and the relevant Share Conversion shall be consummated pursuant to this Section 3 .

(b) Conversion Rate For Share Conversion . The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be the amount determined by dividing (x) such Conversion Amount by (y) the Conversion Price.

(i) “ Conversion Amount ” means, at any time, the sum of (A) the outstanding Principal at such time, (B) accrued and unpaid Interest with respect to such Principal at such time and (C) accrued and unpaid Late Charges at such time with respect to such amount being converted.

(ii) “ Conversion Price ” means, as of any Conversion Date or other date of determination, and subject to adjustment as provided herein, U.S.$0.65.

(i) Share Conversion Notice . To convert any Conversion Amount into shares of Common Stock on any Conversion Date, the Holder shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., Chicago Time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit A (the “ Share Conversion Notice ”) to the Company’s chief executive officer and chief financial officer, with a copy by facsimile or email to:

KonaRed Corporation

2829 Ala Kalani Kaumaka St., Suite F-133

Koloa, HI 96756

Facsimile: (808) 442-9922

Attention: Shaun Roberts

With a copy to (which shall not constitute notice):

Clark Wilson LLP

900-885 West Georgia Street

Vancouver, BC V6C 3H1

Canada

Facsimile: (604) 687-6314

Attention: Bernard Pinsky

and (B) physically surrender the Note to the Company for cancellation in connection with such Share Conversion; provided that the Holder shall not be required to surrender the Note pursuant to this clause (c)(i)(B) if (x) such Share Conversion occurs prior to the Termination Date or (y) the Conversion Amount in respect of such Share Conversion does not include all outstanding Principal and accrued and unpaid Interest and Late Charges.

(ii) Share Delivery . On or before the first Business Day following the date of receipt of a Share Conversion Notice in connection with a Share Conversion, the Company shall transmit by facsimile a confirmation of receipt of such Share Conversion Notice to the Holder and the Transfer Agent. On or before the third Business Day following the later of (A) the date of receipt of a Share Conversion Notice and, if required pursuant to Section 3(c)(i)(B) , the Company’s receipt of the Note from the Holder and (B) the expiration of any applicable waiting period under the HSR Act (the “ Share Delivery Date ”), the Company shall issue and deliver to such address of the Holder as is set forth in Section 20 or such other address as specified in the Share Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder shall be entitled. The Person entitled to receive the shares of Common Stock issuable upon any Share Conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

(d) If the expiration of any applicable waiting period under the HSR Act with respect to any Share Conversion shall not have occurred within sixty (60) days following the delivery of the Share Conversion Notice in respect of such Share Conversion, the Holder shall have the right to withdraw such Share Conversion Notice by delivery of written notice to the Company within five (5) Business Days after the expiration of such sixty (60) day period and, without waiving or limiting any other rights of the Holder hereunder (including the right to convert the Note pursuant to the terms hereof), such Share Conversion shall be deemed not to have occurred and the Note and the relevant Conversion Amount shall be deemed to remain outstanding.

(4) RIGHTS UPON EVENT OF DEFAULT .

(a) Event of Default . Each of the following events shall constitute an “ Event of Default ”:

(i) the Company’s failure to pay to the Holder any amount of Principal, Interest, Late Charges or other amounts when and as due under this Note, except, in the case of a failure to pay Interest and Late Charges when and as due, in which case only if such failure continues for a period of at least three (3) Business Days;

(ii) (x) the Company or any of its Subsidiaries shall fail to make any payment due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) on any Material Indebtedness and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Material Indebtedness; or (y) any other default or event under any agreement or instrument relating to any Material Indebtedness shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Material Indebtedness or (z) any Material Indebtedness shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof;

(iii) any representation or warranty made by the Company in or in connection with any Transaction Agreement shall prove to have been untrue in any material respect when made or deemed to be made;

(iv) (x) default by the Company in the due observance or performance of any covenant or agreement contained in this Note and such default shall continue for twenty (20) Business Days after written notice thereof to the Company by the Holder or (y) default by the Company in the due observance or performance of any covenant or agreement contained in any Transaction Agreement (other than this Note) after giving effect to any applicable grace periods;

(v) the Company or any of its Subsidiaries shall (i) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official (a “ Custodian ”) for itself or for a substantial part of its property, (ii) make a general assignment for the benefit of creditors, (iii) become unable, or admit in writing its inability, to pay its debts as they become due, (iv) voluntarily or involuntarily dissolve, liquidate or wind up its affairs, or (v) take action for the purpose of effecting any of the foregoing;

(vi) a proceeding under any bankruptcy, reorganization, arrangement of debts, insolvency or receivership law (collectively, “ Bankruptcy Law ”) is filed by or against the Company or any of its Subsidiaries, or the Company or any of its Subsidiaries takes any action to authorize any of the foregoing matters, and in the case of any such proceeding instituted against the Company or any of its Subsidiaries (but not instituted by the Company or any of its Subsidiaries), either such proceeding shall remain undismissed or unstayed for a period of 30 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee or other similar official for the Company or any of its Subsidiaries or any substantial part of its property) shall be granted or shall occur;

(vii) a final, non-appealable judgment or series of judgments for the payment of money aggregating in excess of $100,000 is rendered against the Company or any of its Subsidiaries and which judgments are not, within thirty (30) days after the entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within thirty (30) days after the expiration of such stay;

(viii) any breach or failure in any respect to comply with Section 7 of this Note;

(ix) any of the Governmental Approvals or any other consent or approval necessary for the continuing operation of the Company or any of its Subsidiaries shall cease to be in full force and effect;

(x) for any reason any Transaction Agreement shall not be in full force and effect or shall not be enforceable in accordance with its terms, or any security interest or lien granted pursuant thereto shall fail to be perfected or to have its intended priority, or any party thereto other than the Holder shall contest the validity of any Lien granted under, or shall disaffirm its obligations under any Transaction Agreement;

(xi) an ERISA Event described in clause (b) of the definition thereof shall have occurred or any other ERISA Event shall have occurred that, when taken together with all other such ERISA Events, could reasonably be expected to result in liability of the Company and its ERISA Affiliates in an aggregate amount exceeding $100,000;

(xii) any portion of the Collateral (as defined in the Security Agreement) shall be transferred or otherwise disposed of, either voluntarily or involuntarily, in any manner not permitted by the Security Agreement or shall be lost, stolen, damaged or destroyed and such loss, theft, damage or destruction is not covered materially by insurance;

(xiii) for any reason, the Company or any of its Subsidiaries ceases to operate its business or ceases to own any of its Governmental Approvals necessary for the continuing conduct of its business; or

(xiv) a Change in Control shall occur.

(b) Rights Upon an Event of Default .

(i) If an Event of Default has occurred and the Holder has provided written notice to the Company of such Event of Default, the unpaid principal of this Note shall bear interest at a rate of twelve percent (12.00%) per annum from the occurrence and during the continuance of such Event of Default. Upon the occurrence of an Event of Default, except in the case of the events described in paragraphs (v) and (vi) above: (X) the Holder may, by written notice to the Company, accelerate the maturity of this Note whereupon the entire amount of Principal, together with all accrued and unpaid Interest and Late Charges thereon and all other obligations of the Company hereunder, shall become due and payable immediately; provided , however, that with respect to an Event of Default described in paragraph (v) or (vi) above, this Note, and all such Principal, Interest, Late Charges and other obligations of the Company hereunder shall automatically become due and payable without presentment, demand, notice of nonperformance, protest, notice of protest or notice of dishonor, all of which are expressly waived by the Company and (Y) the Holder may exercise all or any other remedies provided in the Security Agreement or any other Transaction Agreement or available at law or equity.

(ii) Demand, presentment, protest and notices of nonpayment, protest, dishonor and acceptance are hereby waived by the Company. The Company also waives the benefit of all valuation, appraisal and exemption laws and the posting of any bond required of the Holder in connection with any judicial process to realize on the Collateral, to enforce any judgment or other court order entered in favor of the Holder or to enforce by specific performance, temporary restraining order, or preliminary or permanent injunction, this Note or any other Transaction Agreement. The Company waives the right, if any, to the benefit of, or to direct the application of, any Collateral. The Company hereby acknowledges that the Holder has no obligation to resort to any Collateral or make claim against any other Person before seeking payment or performance from the Company.

(iii) In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, the Holder is hereby authorized at any time or from time to time, without notice to the Company or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all balances held by it at

any of its offices for the account of the Company (regardless of whether such balances are then due to the Company) and any other properties or assets any time held or owing by the Company to or for the credit or for the account of the Company against and on account of any of the Secured Obligations (as defined in the Security Agreement) then due. The Company hereby agrees that the foregoing provisions are intended to be construed so as to satisfy the requirements of Section 553 of the Federal Bankruptcy Code or amendments thereto (including any requirement of mutuality of obligations therein).

(5) RIGHTS UPON CORPORATE EVENTS . In addition to and not in substitution for any other rights hereunder (but not in duplication of any adjustment made pursuant to Section 6 ), prior to the consummation of any transaction pursuant to which all holders of outstanding shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “ Corporate Event ”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon any Share Conversion, (i) in addition to the shares of Common Stock receivable upon such Share Conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of this Note) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the terms of conversion set forth in Section 3 . Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the Holder. The provisions of this Section 5 shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion of this Note.

(6) RIGHTS UPON ISSUANCE OF OTHER SECURITIES .

(a) Adjustment of Conversion Price upon Issuance of shares of Common Stock . If at any time after the Issuance Date the Company issues or sells, or in accordance with this Section 6(a) is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company) for a consideration per share less than a price (the “ Applicable Price ”) equal to the Conversion Price in effect immediately prior to such issue or sale (the foregoing, a “ Dilutive Issuance ”), then immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the product of (A) the Applicable Price and (B) the quotient determined by dividing (1) the sum of (I) the product derived by multiplying the Applicable Price times the number of shares of Common Stock Deemed Outstanding immediately prior to such Dilutive Issuance plus (II) the consideration, if any, received (or deemed to be received) by the Company upon such Dilutive Issuance, by (2) the product derived by multiplying (I) the Applicable Price by (II) the number of shares of Common Stock Deemed Outstanding immediately after such Dilutive Issuance. For purposes of determining the adjusted Conversion Price under this Section 6(a) , the following shall be applicable:

(i) Issuance of Options . If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 6(a)(i) , the “lowest price per share for which one share of Common Stock is issuable upon the exercise

of any such Option or upon conversion or exchange or exercise of any Convertible Securities issuable upon exercise of such Option” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon granting or sale of the Option, upon exercise of the Option and upon conversion or exchange or exercise of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such share of Common Stock upon conversion or exchange or exercise of such Convertible Securities.

(ii) Issuance of Convertible Securities . If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange or exercise thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance of sale of such Convertible Securities for such price per share. For the purposes of this Section 6(a)(ii) , the “lowest price per share for which one share of Common Stock is issuable upon such conversion or exchange or exercise” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon the conversion or exchange or exercise of such Convertible Security. No further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock upon conversion or exchange or exercise of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price had been or are to be made pursuant to other provisions of this Section 6(a) , no further adjustment of the Conversion Price shall be made by reason of such issue or sale.

(iii) Change in Option Price or Rate of Conversion . If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exchange or exercise of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable or exercisable for shares of Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this Section 6(a)(iii) , if the terms of any Option or Convertible Security that was outstanding as of the Issuance Date are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change. No adjustment shall be made if such adjustment would result in an increase of the Conversion Price then in effect.

(iv) Calculation of Consideration Received . In case any Option or Convertible Securities are issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options or Convertible Securities by the parties thereto, the Options or Convertible Securities will be deemed to have been issued for a consideration of $.01. If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the closing sale price of such securities (if then traded on a national securities exchange or over-the-counter market) on the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “ Valuation Event ”), the fair value of such consideration will be determined within five (5) Business Days after the tenth day following the Valuation Event by an independent, nationally recognized appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be deemed binding upon all parties absent manifest error. The fees and expenses of such appraiser shall be borne by the party whose determination or fair value most differs from such appraiser’s determination.

(v) Record Date . If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

(b) Adjustment of Conversion Price upon Subdivision or Combination of shares of Common Stock . If the Company at any time on or after the Issuance Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time on or after the Issuance Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased.

(c) Other Events . If any event occurs of the type contemplated by the provisions of this Section 6 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder under this Note; provided that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 6 .

(7) RESERVATION OF AUTHORIZED SHARES .

(a) Reservation . The Company initially shall reserve out of its authorized and unissued shares of Common Stock a number of shares of Common Stock for the Note equal to the maximum number of shares of Common Stock into which the Conversion Amount of the Note would be convertible as of the first Interest Date if the Company failed to pay all Alternative Minimum Payments payable under the License Agreement during the period beginning on the Issuance Date and ending on such first Interest Date. So long as the Note is outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Note, the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all amounts owing under this Note pursuant to Section 3 (the “ Required Reserve Amount ”).

(b) Insufficient Authorized Shares . If at any time while the Note remains outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of all amounts owing under this Note at least a number of shares of Common Stock equal to the Required Reserve Amount (an “ Authorized Share Failure ”), then the Company shall immediately take all action necessary to increase the Company’s authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Note. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall take all necessary actions to obtain stockholder approval of an increase in the number of authorized shares of Common Stock. In connection with a meeting of stockholders, the Company shall provide each stockholder with a proxy statement and shall use its reasonable best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common Stock and to cause its Board of Directors to recommend to the stockholders that they approve such proposal.

(8) VOTING RIGHTS . The Holder shall have no voting rights as the holder of this Note, except as required by law, including but not limited to applicable laws of the State of Nevada, and as expressly provided in this Note.

(9) RANK; ADDITIONAL INDEBTEDNESS; LIENS .

(a) Rank . No Indebtedness of the Company or its Subsidiaries shall rank senior to the payments due under this Note without the prior written consent of the Holder.

(b) Incurrence of Indebtedness . So long as this Note is outstanding, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, incur or guarantee, assume or suffer to exist any Indebtedness, other than (i) the Indebtedness evidenced by this Note and (ii) Permitted Indebtedness.

(c) Existence of Liens . So long as this Note is outstanding, the Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including intellectual property, accounts and contract rights) owned by the Company or any of its Subsidiaries (collectively, “ Liens ”) other than Permitted Liens.

(d) Restricted Payments . The Company shall not, and the Company shall not permit any of its Subsidiaries to, directly or indirectly, redeem, defease, repurchase, repay or make any payments in respect of, by the payment of cash or cash equivalents (in whole or in part, whether by way of open market purchases, tender offers, private transactions or otherwise), all or any portion of any Permitted Indebtedness except for payments of principal or interest required pursuant to Permitted Indebtedness described under clause (i) or (ii) of the definition of Permitted Indebtedness, whether by way of payment in respect of principal of (or premium, if any) or interest on, such Indebtedness if at the time such payment is due or is otherwise made or, after giving effect to such payment, an Event of Default has occurred and is continuing.

(10) COMPANY REPRESENTATIONS. The Company represents and warrants to the Holder that:

(a) Organization; Power; Subsidiaries. The Company is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a material adverse effect on the business, assets, operations, condition (financial or otherwise) or prospects of the Company, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. Except as set forth on Schedule 10 attached hereto, there are no outstanding commitments or other obligations of the Company to issue, and no Options, warrants or other rights of any Person to acquire, any shares of any class of capital stock or other equity interests of the Company. As of the Issuance Date, the Company has no Subsidiaries.

(b) Authorization; Enforceability. This Note and the transactions contemplated hereby are within the Company’s organizational powers and have been duly authorized by all necessary organizational actions and, if required, actions by equity holders. This Note has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

(c) Governmental Approvals; No Conflicts. This Note and the transactions contemplated hereby (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except for filings necessary to perfect Liens created pursuant to the Transaction Agreements, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Company or any of its Subsidiaries or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the Company or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Company or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries, other than Liens created under the Transaction Agreements.

(d) Investment Company Status . Neither the Company nor any of its Subsidiaries is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.

(11) [INTENTIONALLY OMITTED] .

(12) CHANGE TO TERMS OF THE NOTE . Any amendment, supplement or modification of or to any of the provisions of this Note shall be effective only if it is made in writing and signed by the Company and the Holder.

(13) TRANSFER . This Note may be offered, sold, assigned or transferred, in whole or in part, by the Holder without the consent of the Company.

(14) REISSUANCE OF THIS NOTE .

(a) Transfer . If this Note is to be transferred in accordance with Section 13 , the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 14(c) ), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less then the entire outstanding Principal is being transferred, a new Note (in accordance with Section 14(c) ) to the Holder representing the outstanding Principal not being transferred.

(b) Lost, Stolen or Mutilated Note . Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 14(c) ) representing the outstanding Principal.

(c) Issuance of New Notes . If the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Principal outstanding at such time (or in the case of a new Note being issued pursuant to Section 14(a) , the Principal designated by the Holder, which shall not exceed the Principal outstanding under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note and (v) shall represent accrued Interest and Late Charges (if any) on the Principal and Interest of this Note, from the Issuance Date.

(15) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF . The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and the other Transaction Agreements at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to seek an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

(16) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS; EXPENSES .

(a) If (i) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note or (ii) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Note, then the Company shall pay the documented costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, but not limited to, attorneys’ fees and disbursements.

(b) The Company shall pay all out-of-pocket expenses incurred by the Holder, including the fees, charges and disbursements of any counsel for the Holder, in connection with the enforcement or protection of its rights in connection with this Note and any other Transaction Agreement, including its rights under this Section, or in connection with the Principal evidenced hereby, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Principal and any other obligations in respect hereof.

(17) SECURITY AGREEMENT . The payment of Principal, Interest, Late Charges and all other obligations of the Company hereunder is secured by a security interest in certain collateral of the Company as described in the Security Agreement.

(18) CONSTRUCTION; HEADINGS . This Note shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note.

(19) FAILURE OR INDULGENCE NOT WAIVER . No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

(20) NOTICES; PAYMENTS .

(a) Notices . Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given as follows:

(i) if to the Company, to it at KonaRed Corporation, P.O. Box 701, Kalaheo, Hawai’i 96741, Attention of Shaun Roberts (Telecopy No. (808) 442-9922; Email: shaun@konared.com); and

(ii) if to the Holder, to it at VDF FutureCeuticals, Inc., 300 West Sixth Street, Momence, Illinois 60954, Attention of John M. Hunter (Telecopy No. (815) 352-1598).

The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least twenty (20) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any pro rata subscription offer to holders of shares of Common Stock or (C) for determining rights to vote with respect to any transaction described in Section 5 , dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

(b) Payments . Whenever any payment of cash is to be made by the Company to the Holder pursuant to this Note, such payment shall be made in lawful money of the United States of America by wire transfer of immediately available funds to the bank account specified by the Holder to the Company in writing prior to such payment. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day. Any amount of Principal which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of twelve percent (12.00%) per annum from the date such amount was due until the same is paid in full (“ Late Charge ”).

(21) CANCELLATION . After all Principal, accrued Interest, Late Charges and other amounts at any time owed on this Note has been paid in full on the Termination Date, whether by payment of cash or upon the conversion of all such amounts outstanding under the Note as set forth in Section 3 , this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.

(22) WAIVER OF NOTICE . To the extent permitted by law, the Company hereby waives demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and any other Transaction Agreement.

(23) GOVERNING LAW . This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York.

(24) INTEREST RATE LIMITATION. Notwithstanding anything herein to the contrary, if at any time the Interest applicable to any Principal, together with all Late Charges and other amounts which are treated as Interest on such Principal under applicable law (collectively the “ Charges ”), shall exceed the maximum lawful rate (the “ Maximum Rate ”) which may be contracted for, charged, taken, received or reserved by the Holder in accordance with applicable law, the rate of interest payable in respect of such Principal hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the Interest and Charges that would have been payable in respect of such Principal but were not payable as a result of the operation of this Section shall be cumulated and the Interest and Charges payable to the Holder in respect of other Principal or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with Interest thereon, shall have been received by the Holder.

(25) CERTAIN DEFINITIONS . For purposes of this Note, the following terms shall have the following meanings:

(a) “ Average Closing Price ” means the average closing price of the Common Stock on any national securities exchange or trading system or over-the-counter market on which the Common Stock is then principally traded during the ten (10) trading day period immediately prior to the date in question.

(b) “ Benefit Plan ” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Tax Code or Section 307 of ERISA, and in respect of which the Company or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

(c) “ Business Day ” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York and Carson City, Nevada are authorized or required by law to remain closed.

(d) “ Change in Control ” means (a) any sale, transfer, lease or license of all or substantially all of the assets of the Company in a transaction or series of related transactions, (b) any merger, consolidation or reorganization that results in any Person or group (within the meaning of the Securities Exchange Act of 1934, as amended, and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) (other than Shaun Roberts and Dana Roberts or any trust set up solely for the benefit of Shaun Roberts or Dana Roberts and/or their descendents) owning in excess of 50% of the outstanding voting power of the Company, (c) any issuance or sale or series of issuances or sales of capital stock of the Company by the Company or any holder of such capital stock that results in any Person or group (within the meaning of the Securities Exchange Act of 1934, as amended, and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof) (other than Shaun Roberts and Dana Roberts or any trust set up solely for the benefit of Shaun Roberts or Dana Roberts and/or their descendents) owning in excess of 50% of the outstanding voting power of the Company or (d) the voluntarily or involuntarily dissolution or liquidation of the Company or winding up of the Company’s affairs, or the taking by the Company of any action to effect any of the foregoing.

(e) “ Common Stock ” has the meaning given such term in Section 3 .

(f) “ Common Stock Deemed Outstanding ” means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock issuable upon the exercise or conversion of all outstanding Options or Convertible Securities, such number to be determined in the manner set forth in Section 6(a)(i) and 6(a)(ii) , regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding (i) any shares of Common Stock owned or held by or for the account of the Company and (ii) solely for purposes of Section 6 and not for purposes of Section 3 , shares of Common Stock issuable upon conversion of this Note.

(g) “ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. The terms “Controlling” and “Controlled” have meanings correlative thereto.

(h) “ Conversion Amount ” has the meaning given such term in Section 3(b) .

(i) “ Conversion Date ” means any date on which all or any portion of this Note is converted in accordance with Section 3(a) .

(j) “ Conversion Price ” has the meaning given such term in Section 3(b) .

(k) “ Convertible Securities ” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.

(l) “ ERISA ” mean the Employee Retirement Income Security Act of 1974, as amended from time to time, regulations promulgated thereunder and any successor thereto.

(m) “ ERISA Affiliate ” means any entity (whether or not incorporated) that, together with the Company is treated as a single employer under Section 414(b) or (c) of the Tax Code, or solely for purposes of Section 302 of ERISA and Section 412 of the Tax Code, is treated as a single employer under Section 414 of the Tax Code.

(n) “ ERISA Event ” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Benefit Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Benefit Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Tax Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Tax Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Benefit Plan; (d) the incurrence by the Company or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Benefit Plan or the withdrawal or partial withdrawal of the Company or any of its ERISA Affiliates from any Benefit Plan or Multiemployer Plan; (e) the receipt by the Company or any of its ERISA Affiliates from the PBGC or a plan administrator of any notice relating to the intention to terminate any Benefit Plan or Plans or to appoint a trustee to administer any Benefit Plan; (f) the adoption of any amendment to a Benefit Plan that would require the provision of security pursuant to Section 401(a)(29) of the Tax Code or Section 307 of ERISA; (g) the receipt by the Company or any of its ERISA Affiliates of any notice, or the receipt by any Multiemployer Plan from the Company or any of its ERISA Affiliates of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (h) the occurrence of a “prohibited transaction” involving a Benefit Plan with respect to which the Company or any of the Subsidiaries is a “disqualified person” (within the meaning of Section 4975 of the Tax Code) or with respect to which the Company or any such Subsidiary could otherwise be liable; or (i) any other event or condition with respect to a Benefit Plan or Multiemployer Plan that could result in liability of the Company or any Subsidiary of the Company.

(o) “ Event of Default ” has the meaning given such term in Section 4(a) .

(p) “ Governmental Approval ” means any license, permit or certificate of public convenience and necessity issued or required to be issued to the Company or any of its Subsidiaries by any Governmental Authority.

(q) “ Governmental Authority ” means any United States federal, state, local or other political subdivision thereof and any United States or foreign entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

(r) “ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

(s) “ Indebtedness ” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the

Indebtedness secured thereby has been assumed, (g) all guarantees by such Person of Indebtedness of others, (h) all capital lease obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances and (k) all obligations of such Person under sale and leaseback transactions. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

(t) “ Interest Rate ” means seven percent (7.00%) per annum, subject to adjustment pursuant to Section 2 .

(u) “ Investor Rights Agreement ” means the Investor Rights Agreement dated as of January 28, 2014 by and between the Company and the Holder.

(v) “ Late Charges ” has the meaning given such term in Section 20(b) .

(w) “ License Agreement ” means the License Agreement dated as of January 28, 2014 by and between the Company and the Holder, pursuant to which the Company grants to the Holder the right to use the trademarked name “Coffeeberry”, provides use of the Holder’s human clinical science on Coffeeberry and grants a license to the Company to use the Holder’s patented process to extract any portion of the Coffeeberry for any use.

(x) “ Lien ” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.

(y) “ Material Indebtedness ” means Indebtedness (other than this Note) of any one or more of the Company and its Subsidiaries in an aggregate principal amount exceeding $50,000.

(z) “ Multiemployer Plan ” means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

(aa) “ Options ” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

(bb) “ Permitted Indebtedness ” means (i) the Indebtedness set forth in Schedule 9(b) attached hereto, (ii) trade payables incurred in the ordinary course of business, (iii) other Indebtedness not exceeding $500,000 in the aggregate at any one time outstanding and (iv) any other Indebtedness consented in writing by the Holder.

(cc) “ Permitted Liens ” means the following:

(i) any Lien for taxes, fees, assessments or other governmental charges or levies not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with generally accepted accounting principals in the United States (“ GAAP ”);

(ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, other than any Lien imposed by ERISA;

(iii) any Lien created by operation of law, such as materialmen’s liens, mechanics’ liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent and for which adequate reserves have been established in accordance with GAAP;

(iv) Liens (A) upon or in any equipment acquired or held by the Company or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B) existing on such equipment at the time of its acquisition; provided that (x) such Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment, (y) such security interests and the Indebtedness secured thereby are incurred prior to or within ninety (90) days after such acquisition or the completion of such construction or improvement and (z) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets;

(v) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clause (iv) above; provided , that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase;

(vi) leases or subleases and licenses and sublicenses granted to others in the ordinary course of the Company’s business, not interfering in any material respect with the business of the Company and its Subsidiaries taken as a whole;

(vii) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default;

(viii) Liens securing the Company’s obligations under this Note;

(ix) Liens arising out of pledges or deposits under workmen’s compensation laws, unemployment insurance, old age pensions, or other social security benefits or other like benefits incurred in the ordinary course of business other than any Lien imposed by ERISA;

(x) Liens incurred or deposits made in the ordinary course of business to secure surety bonds provided that such Liens shall extend only to cash collateral for such surety bonds;

(xi) statutory and common law rights of setoff and other Liens, similar rights and remedies arising as a matter of law encumbering deposits of cash, securities, commodities and other funds in favor of banks, financial institutions, other depository institutions, securities or commodities intermediaries or brokerage, and Liens of a collecting bank arising under Section 4-208 or 4-210 of the UCC in effect in the relevant jurisdiction or any similar law of any foreign jurisdiction on items in the course of collection; and

(xii) Liens listed on Schedule 9(c) attached hereto.

(dd) “ Person ” means an individual, a limited liability company, a partnership, a joint venture, a corporation (including a not-for-profit), a trust, an estate, an unincorporated organization, an association, any other entity and a government or any department or agency thereof.

(ee) “ PIK Date ” has the meaning given such term in Section 2 .

(ff) “ PIK Interest ” has the meaning given such term in Section 2 .

(gg) “ Principal ” means, at any time, an amount equal to the sum of (i) the aggregate amount of accrued and unpaid Designated Alternative Minimum Payments (as defined in the License Agreement) at such time, plus (ii) the aggregate amount of PIK Interest at such time.

(hh) “ Registration Rights Agreement ” means the Registration Rights Agreement dated January 28, 2014 by and between the Company and the Holder.

(ii) “ Security Agreement ” means the Security Agreement dated as of the date hereto by and between the Company and the Holder.

(jj) “ Settlement Agreement ” means the Settlement Agreement dated January 28, 2014 by and between the Company and the Holder.

(kk) “ Subsidiary ” means, with respect to any Person (the “ parent ”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, Controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.

(ll) “ Tax Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time.

(mm) “ Termination Date ” means the date (1) the License Agreement is terminated pursuant to its terms and (2) all accrued and unpaid Principal, Interest, Late Charges and other obligations arising hereunder are paid in cash and/or converted into Common Stock of the Company pursuant to the terms hereof.

(nn) “ Transaction Agreements ” means this Note, the Security Agreement, the Settlement Agreement, the License Agreement, the Investor Rights Agreement and the Registration Rights Agreement and all other agreements, documents and instruments delivered in connection therewith. Any reference in this Note or any other Transaction Agreement to a Transaction Agreement shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to this Note or such Transaction Agreement as the same may be in effect at any and all times such reference becomes operative.

(oo) “ Transfer Agent ” means American Stock Transfer & Trust Company.

(pp) “ UCC ” means the Uniform Commercial Code as in effect from time to time in the State of New York or any other state the laws of which are required to be applied in connection with the issue of perfection of security interests.

(qq) “ Withdrawal Liability ” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

[Signature Page Follows]

IN WITNESS WHEREOF , the Company has caused this Note to be duly executed as of the Issuance Date set out above.

	KONARED CORPORATION

	By:	“Shaun Roberts”
		Name:
		Title:

Signature Page to Senior Convertible Note

EXHIBIT A

KONARED CORPORATION

CONVERSION NOTICE

Reference is made to the Senior Convertible Note (the “ Note ”) issued to the undersigned by KonaRed Corporation (the “ Company ”). In accordance with and pursuant to the Note, the undersigned hereby elects to convert the Conversion Amount (as defined in the Note) of the Note indicated below into shares of Common Stock of the Company, par value $.001 per share (the “ Common Stock ”), as of the date specified below.

	Date of Conversion: ________________________________________________

	Aggregate Conversion Amount to be converted:__________________________

Please confirm the following information:

Conversion Price:	_______________________________________________

Number of shares of Common Stock to be issued:		________________________

Please issue the shares of Common Stock into which the Note is being converted in the following name and to the following address:

Issue to:		_______________________________________________________

		_______________________________________________________

		_______________________________________________________

Facsimile Number:

_______________________________________________

Authorization:

____________________________________________________

	By:	______________________________________________________

		Title:	________________________________________________

Dated:	______________________________________________________________

Account Number:

_____________________________________________

	(if electronic book entry transfer)

	Transaction Code Number:					______________________________________

	(if electronic book entry transfer)

ACKNOWLEDGMENT

The Company hereby acknowledges this Conversion Notice and hereby directs _________ to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated ___________ from the Company acknowledged and agreed to by _______________.

	KONARED CORPORATION

	By:
		Name:
		Title:

SCHEDULE 9(b)

INDEBTEDNESS

Nil

SCHEDULE 9(c)

LIENS

Nil

SCHEDULE 10

OPTIONS, WARRANTS, ETC.

Warrants

2,888,888 Warrants to an offshore entity at a price of US$0.65 on October 4, 2013 exercisable for a period of 5 years from the date of issuance

77,778 Warrants to an offshore entity at a price of US$0.65 on October 17, 2013 exercisable for a period of 5 years from the date of issuance

1,000,000 Warrants to an offshore entity at a price of US$0.65 on November 22, 2013 exercisable for a period of 5 years from the date of issuance

1,136,364 Warrants to US entity at a price of US$0.65 on January 28, 2014 exercisable for a period of 5 years from the date of issuance

681,818 Warrants to an offshore entity at a price of US$0.65 on January 28, 2013 exercisable for a period of 5 years from the date of issuance

Options

1,000,000 three-year options to purchase shares of our common stock, exercisable at a price of $0.45 per share, if the common stock of our company is trading above a strike price point of $1.00 per share, in whole or in part, after one year from the date of the employment agreement entered into on October 4, 2013

Bonus shares issuable to Mr. Roberts pursuant to an Executive Annual Compensation Plan attached as Exhibit A to the employment agreement entered into on October 4, 2013 (attached to current report on Form 8-K filed October 10, 2013).

1,000,000 five-year options to purchase shares of our common stock, exercisable at a price of $0.45 per share, if the common stock of our company is trading above a strike price point of $1.00 per share, in whole or in part, after one year from the date of the consulting agreement dated October 4, 2013

250,000 ten-year options to purchase shares of our common stock, exercisable at a price of $0.70 per share issued to a consultant on November 25, 2013

1,000,000 ten-year options to purchase shares of our common stock, exercisable at a price of $0.74 per share issued to a director and officer on December 12, 2013

750,000 ten-year options to purchase shares of our common stock, exercisable at a price of $0.81 per share issued to a director on January 7, 2014

PLEDGE AND SECURITY AGREEMENT

THIS PLEDGE AND SECURITY AGREEMENT (as the same may be amended, restated, supplemented or otherwise modified from time to time, this “ Security Agreement ”) is entered into as of January 28, 2014 by and between KONARED CORPORATION, a Nevada corporation (the “ Grantor ”), and VDF FUTURECEUTICALS, INC., an Illinois corporation (the “ Secured Party ”).

PRELIMINARY STATEMENT

The Grantor has executed a Senior Convertible Note dated as of the date hereof (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “ Note ”) in favor of the Secured Party to secure the Secured Obligations defined below, including, without limitation, payments due under the License Agreement and the Note. The Grantor is entering into this Security Agreement in order to induce the Secured Party to extend credit to the Grantor under the Note.

ACCORDINGLY, the Grantor and Secured Party hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1. Terms Defined in the Note . All capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Note.

1.2. Terms Defined in UCC . Terms defined in the UCC which are not otherwise defined in this Security Agreement are used herein as defined in the UCC.

1.3. Definitions of Certain Terms Used Herein . As used in this Security Agreement, in addition to the terms defined in the Preliminary Statement, the following terms shall have the following meanings:

“ Accounts ” shall have the meaning set forth in Article 9 of the UCC.

“ Article ” means a numbered article of this Security Agreement, unless another document is specifically referenced.

“ Chattel Paper ” shall have the meaning set forth in Article 9 of the UCC.

“ Collateral ” means all Accounts, Chattel Paper, Commercial Tort Claims, Copyrights, Deposit Accounts, Documents, Equipment, Farm Products, Fixtures, General Intangibles, Goods, Instruments, Inventory, Investment Property, letters of credit, Letter-of-Credit Rights, Licenses, Patents, Pledged Deposits, Supporting Obligations, Trademarks and Other Collateral, wherever located, in which the Grantor now has or hereafter acquires any right or interest, and the proceeds (including Stock Rights), insurance proceeds and products thereof, together with all books and records, customer lists, credit files, computer files, programs, printouts and other computer materials and records related thereto.

“ Commercial Tort Claims ” means commercial tort claims, as defined in the UCC of the Grantor, including each commercial tort claim specifically described in Exhibit “F” .

“ Control ” shall have the meaning set forth in Article 8 or, if applicable, in Section 9-104, 9-105, 9-106 or 9-107 of Article 9 of the UCC.

“ Copyrights ” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following: (a) all copyrights, rights and interests in copyrights, works protectable by copyright, copyright registrations, and copyright applications; (b) all renewals of any of the foregoing; (c) all income, royalties, damages, and payments now or hereafter due and/or payable under any of the foregoing, including, without limitation, damages or payments for past or future infringements for any of the foregoing; (d) the right to sue for past, present, and future infringements of any of the foregoing; and (e) all rights corresponding to any of the foregoing throughout the world.

“ Deposit Account Control Agreement ” means an agreement, in form and substance satisfactory to the Secured Party, among the Grantor, a banking institution holding the Grantor’s funds, and the Secured Party with respect to collection and Control of all deposits and balances held in a deposit account maintained by the Grantor with such banking institution.

“ Deposit Accounts ” shall have the meaning set forth in Article 9 of the UCC.

“ Documents ” shall have the meaning set forth in Article 9 of the UCC.

“ Equipment ” shall have the meaning set forth in Article 9 of the UCC.

“ Exhibit ” refers to a specific exhibit to this Security Agreement, unless another document is specifically referenced.

“ Farm Products ” shall have the meaning set forth in Article 9 of the UCC.

“ Fixtures ” shall have the meaning set forth in Article 9 of the UCC.

“ GAAP ” means generally accepted accounting principles in the United States and applied on a consistent basis

“ General Intangibles ” shall have the meaning set forth in Article 9 of the UCC and, in any event, includes payment intangibles, contract rights, rights to payment, rights arising under common law, statutes, or regulations, choses or things in action, goodwill (including the goodwill associated with any Trademark), Patents, Trademarks, Copyrights, URLs and domain names, Industrial Designs, other industrial or Intellectual Property or rights therein or

applications therefor, whether under license or otherwise, programs, programming materials, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, including Intellectual Property Licenses, infringement claims, computer programs, information contained on computer disks or tapes, software, literature, reports, catalogs, pension plan refunds, pension plan refund claims, insurance premium rebates, tax refunds, and tax refund claims, interests in a partnership or limited liability company which do not constitute a security under Article 8 of the UCC, and any other personal property other than Commercial Tort Claims, money, Accounts, Chattel Paper, Deposit Accounts, Goods, Investment Property, negotiable Collateral, and oil, gas, or other minerals before extraction.

“ Goods ” shall have the meaning set forth in Article 9 of the UCC.

“ Industrial Designs ” means (i) registered industrial designs and industrial design applications, and also includes registered industrial designs and industrial design applications listed in Exhibit “B” , (ii) all renewals, divisions and any industrial design registrations issuing thereon and any and all foreign applications corresponding thereto, (iii) all income, royalties, damages and payments now and hereafter due or payable under and with respect thereto, including payments under all licenses entered into in connection therewith and damages and payments for past or future infringements thereof, (iv) the right to sue for past, present and future infringements thereof, and (v) all of the Grantor’s rights corresponding thereto throughout the world.

“ Instruments ” shall have the meaning set forth in Article 9 of the UCC.

“ Intellectual Property ” means all Patents, Trademarks, Copyrights and any other intellectual property.

“ Inventory ” shall have the meaning set forth in Article 9 of the UCC.

“ Investment Property ” shall have the meaning set forth in Article 9 of the UCC.

“ Letter of Credit Rights ” shall have the meaning set forth in Article 9 of the UCC.

“ Licenses ” means, with respect to any Person, all of such Person’s right, title, and interest in and to (a) any and all licensing agreements or similar arrangements in and to its Patents, Copyrights, or Trademarks, (b) all income, royalties, damages, claims, and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past and future breaches thereof, and (c) all rights to sue for past, present, and future breaches thereof.

“ Material Adverse Effect ” means with respect to the Grantor, a material adverse change in or affecting the business, properties, assets, liabilities, operations, results of operations (financial or otherwise), conditions or prospects of the Grantor and its Subsidiaries taken as a whole, or upon the ability of the Grantor to perform its obligations under this Security Agreement or the Note.

“ Other Collateral ” means any property of the Grantor, not included within the defined terms Accounts, Chattel Paper, Commercial Tort Claims, Copyrights, Deposit Accounts, Documents, Equipment, Fixtures, Farm Products, General Intangibles, Goods, Instruments, Inventory, Investment Property, Letter-of-Credit Rights, Licenses, Patents, Pledged Deposits, Supporting Obligations and Trademarks, including, without limitation, all cash on hand, letters of credit, Stock Rights or any other deposits (general or special, time or demand, provisional or final) with any bank or other financial institution, it being intended that the Collateral include all real and personal property of the Grantor.

“ Patents ” means, with respect to any Person, all of such Person’s right, title, and interest in and to: (a) any and all patents and patent applications; (b) all inventions and improvements described and claimed therein; (c) all reissues, divisions, continuations, renewals, extensions, and continuations-in-part thereof; (d) all licenses of the foregoing whether as licensee or licensor; (e) all income, royalties, damages, claims, and payments now or hereafter due or payable under and with respect thereto, including, without limitation, damages and payments for past and future infringements thereof; (f) all rights to sue for past, present, and future infringements thereof; and (g) all rights corresponding to any of the foregoing throughout the world.

“ Pledged Deposits ” means all time deposits of money (other than Deposit Accounts and Instruments), whether or not evidenced by certificates, which the Grantor may from time to time designate as pledged to Secured Party as security for any Secured Obligations, and all rights to receive interest on said deposits.

“ Receivables ” means the Accounts, Chattel Paper, Documents, Investment Property, Instruments or Pledged Deposits, and any other rights or claims to receive money which are General Intangibles or which are otherwise included as Collateral.

“ Section ” means a numbered section of this Security Agreement, unless another document is specifically referenced.

“ Secured Obligations ” means all the payment, performance and indemnification obligations, covenants and duties of the Grantor now or hereafter existing under this Security Agreement, the Note or any other Transaction Agreement, whether for principal, interest, fees, expenses, reimbursement, indemnification, performance or otherwise. Secured Obligations shall include all interest which accrues after the commencement of any case or proceeding in bankruptcy after the insolvency of, or for the reorganization of the Grantor, whether or not allowed in such proceeding.

“ Security ” shall have the meaning set forth in Article 8 of the UCC.

“ Stock Rights ” means any securities, dividends, instruments or other distributions and any other right or property which the Grantor shall receive or shall become entitled to receive for any reason whatsoever with respect to, in substitution for or in exchange for any securities or other ownership interests in a corporation, partnership, joint venture or limited liability company constituting Collateral and any securities, any right to receive securities and any right to receive earnings, in which the Grantor now has or hereafter acquires any right, issued by an issuer of such securities.

“ Supporting Obligation ” shall have the meaning set forth in Article 9 of the UCC.

“ Trademarks ” means, with respect to any Person, all of such Person’s right, title, and interest in and to the following: (a) all trademarks (including service marks), trade names, trade dress, and trade styles and the registrations and applications for registration thereof and the goodwill of the business symbolized by the foregoing; (b) all licenses of the foregoing, whether as licensee or licensor; (c) all renewals of the foregoing; (d) all income, royalties, damages, and payments now or hereafter due or payable with respect thereto, including, without limitation, damages, claims, and payments for past and future infringements thereof; (e) all rights to sue for past, present, and future infringements of the foregoing, including the right to settle suits involving claims and demands for royalties owing; and (f) all rights corresponding to any of the foregoing throughout the world.

“ UCC ” means the Uniform Commercial Code as in effect from time to time in the State of New York or any other state the laws of which are required to be applied in connection with the issue of perfection of security interests.

The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms.

ARTICLE II

GRANT OF SECURITY INTEREST

The Grantor hereby pledges, collaterally assigns and grants to Secured Party, a security interest in all of the Grantor’s right, title and interest, whether now owned or hereafter acquired, in and to the Collateral to secure the prompt and complete payment and performance of the Secured Obligations. For the avoidance of doubt, the grant of a security interest herein shall not be deemed to be an assignment of any intellectual property rights owned by the Grantor.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

The Grantor represents and warrants to Secured Party as of the date hereof, that:

3.1. Title, Authorization, Validity and Enforceability . The Grantor has good and valid rights in or the power to transfer the Collateral owned by it and title to the Collateral with respect to which it has purported to grant a security interest hereunder, free and clear of all Liens except for Permitted Liens, and has full corporate power and authority to grant to Secured Party the security interest in such Collateral pursuant hereto. The execution and delivery by the Grantor of this Security Agreement have been duly authorized by proper corporate proceedings, and this Security Agreement constitutes a legal, valid and binding obligation of the Grantor and creates a security interest which is enforceable against the Grantor in all Collateral it now owns or hereafter acquires, except as enforceability may be limited by (i) bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws relating to or affecting the enforcement of creditors’ rights generally, (ii) general equitable principles (whether considered in a proceeding in equity or at law), and (iii) requirements of reasonableness, good faith and fair dealing. When

financing statements have been filed in the appropriate offices against the Grantor in the locations listed in Exhibit “E” , the Secured Party will have a fully perfected first priority security interest in the Collateral owned by the Grantor in which a security interest may be perfected by filing of a financing statement under the UCC, subject only to Permitted Liens.

3.2. Conflicting Laws and Contracts . Neither the execution and delivery by the Grantor of this Security Agreement, the creation and perfection of the security interest in the Collateral granted hereunder, nor compliance by the Grantor with the terms and provisions hereof will violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Grantor, or (ii) the Grantor’s certificate of incorporation or by-laws, or (iii) the provisions of any indenture, instrument or agreement to which the Grantor is a party or is subject, or by which it, or its property may be bound or affected, or conflict with or constitute a default thereunder, or result in or require the creation or imposition of any Lien in, of or on the property of the Grantor pursuant to the terms of any such indenture, instrument or agreement (other than any Lien of Secured Party).

3.3. Principal Location . The Grantor’s mailing address and the location of its place of business (if it has only one) or its chief executive office (if it has more than one place of business), is disclosed in Exhibit “A” ; the Grantor has no other places of business except those set forth in Exhibit “A” .

3.4. Property Locations . The Inventory, Equipment and Fixtures of the Grantor are located solely at the locations of the Grantor described in Exhibit “A” . All of said locations are owned by the Grantor except for locations (i) which are leased by the Grantor as lessee and designated in Part B of Exhibit “A” and (ii) at which Inventory is held in a public warehouse or is otherwise held by a bailee or on consignment by the Grantor as designated in Part C of Exhibit “A” , with respect to which Inventory the Grantor has delivered bailment agreements, warehouse receipts, financing statements or other documents satisfactory to Secured Party to protect Secured Party’s security interest in such Inventory.

3.5. No Other Names; Etc. . Within the five-year period preceding the date hereof, the Grantor has not conducted business under any name, changed its jurisdiction of formation, merged with or into or consolidated with any other Person, except as disclosed in Exhibit “A” . The name in which the Grantor has executed this Security Agreement is the exact name as it appears in the Grantor’s organizational documents, as amended, as filed with the Grantor’s jurisdiction of organization as of the date hereof.

3.6. No Default . No Event of Default or event which with the passage of time or giving of notice, or both, would constitute an Event of Default, exists.

3.7. Accounts and Chattel Paper . The names of the obligors, amounts owing, due dates and other information with respect to the Accounts and Chattel Paper owned by the Grantor are and will be correctly stated in all records of the Grantor relating thereto and in all invoices and reports with respect thereto furnished to Secured Party by the Grantor from time to time. As of the time when each Account or each item of Chattel Paper arises, the Grantor shall be deemed to have represented and warranted that such Account or Chattel Paper, as the case may be, and all records relating thereto, are genuine and in all respects what they purport to be.

3.8. Filing Requirements . None of the Equipment owned by the Grantor and constituting part of the Collateral is covered by any certificate of title, except for the vehicles described in Part A of Exhibit “B” . None of the Collateral owned by the Grantor is of a type for which security interests or liens may be perfected by filing under any federal statute except for (i) the vehicles described in Part B of Exhibit “B” and (ii) Patents, Trademarks and Copyrights held by the Grantor and described in Part C of Exhibit “B” . The legal description, county and street address of the property on which any Fixtures owned by the Grantor are located is set forth in Exhibit “C” together with the name and address of the record owner of each such property.

3.9. No Financing Statements; Security Agreements . No financing statement or security agreement describing all or any portion of the Collateral which has not lapsed or been terminated naming the Grantor as debtor has been filed or is of record in any jurisdiction except financing statements (i) naming Secured Party as Secured Party and (ii) in respect of Permitted Liens; provided , that nothing herein shall be deemed to constitute an agreement to subordinate any of the Liens of the Secured Party under this Security Agreement to any Permitted Liens.

3.10. Federal Employer Identification Number; State Organization Number; Jurisdiction of Organization . The Grantor’s federal employer identification number is, and if the Grantor is a registered organization, the Grantor’s State of organization, type of organization and State of organization identification number are, listed in Exhibit “G” .

3.11. Pledged Securities and Other Investment Property . Exhibit “D ” sets forth a complete and accurate list of the Instruments, Securities and other Investment Property delivered to Secured Party. The Grantor is the direct and beneficial owner of each Instrument, Security and other type of Investment Property listed in Exhibit “D” as being owned by it, free and clear of any Liens, except for the security interest granted to the Secured Party hereunder and except for Permitted Liens. The Grantor further represents and warrants that (i) all such Instruments, Securities or other types of Investment Property which are shares of stock in a corporation or ownership interests in a partnership or limited liability company have been (to the extent such concepts are relevant with respect to such Instrument, Security or other type of Investment Property) duly authorized and validly issued, are fully paid and non-assessable and constitute the percentage of the issued and outstanding shares of stock (or other equity interests) of the respective issuers thereof indicated in Exhibit “D” hereto and (ii) with respect to any certificates delivered to the Secured Party representing an ownership interest in a partnership or limited liability company, either such certificates are Securities as defined in Article 8 of the UCC of the applicable jurisdiction as a result of actions by the issuer or otherwise, or, if such certificates are not Securities, the Grantor has so informed the Secured Party so that the Secured Party may take steps to perfect its security interest therein as a General Intangible.

3.12. Intellectual Property .

3.12.1 Exhibit “B” contains a complete and accurate listing as of the date hereof of all Intellectual Property, including, but not limited to the following: (i) state, U.S. and foreign trademark registrations, applications for trademark registration and common law trademarks, (ii) U.S. and foreign patents and patents applications, together with all reissuances, continuations, continuations in part, revisions, extensions, and reexaminations

thereof, (iii) U.S. and foreign copyright registrations and applications for registration, (iv) foreign industrial design registrations and industrial design applications, (v) domain names, (vi) material trade secrets, (vii) proprietary computer software, (viii) all forms of Intellectual Property described in clauses (i)-(iii) above that are owned by a third party and licensed to the Grantor or otherwise used by the Grantor under contract, and (ix) the names of any Person who has been granted rights in respect thereof outside of the ordinary course of business. All of the U.S. registrations, applications for registration or applications for issuance of the Intellectual Property are valid and subsisting, in good standing and are recorded or is in the process of being recorded in the name of the Grantor.

3.12.2 Such Intellectual Property is valid, subsisting, unexpired (where registered) and enforceable and has not been abandoned or adjudged invalid or unenforceable, in whole or in part except as could not be reasonably expected to result in a Material Adverse Effect.

3.12.3 Except as set forth on Exhibit I , no Person other than the Grantor has any right or interest of any kind or nature in or to the Intellectual Property, including any right to sell, license, lease, transfer, distribute, use or otherwise exploit the Intellectual Property or any portion thereof outside of the ordinary course of the Grantor’s business. Except as set forth on Exhibit I , the Grantor has good, marketable and exclusive title to, and the valid and enforceable power and right to sell, license, transfer, distribute, use and otherwise exploit, its Intellectual Property.

3.12.4 The Grantor has taken or caused to be taken steps so that none of its Intellectual Property, the value of which to the Grantor is contingent upon maintenance of the confidentiality thereof, have been disclosed by the Grantor to any Person other than employees, contractors, customers, representatives and agents of the Grantor who are parties to customary confidentiality and nondisclosure agreements with the Grantor or are otherwise bound to maintain the confidentiality of such Intellectual Property.

3.12.5 To the Grantor’s knowledge, no Person has violated, infringed upon or breached, or is currently violating, infringing upon or breaching, any of the rights of the Grantor to the Intellectual Property or has breached or is breaching any duty or obligation owed to the Grantor in respect of the Intellectual Property except where those breaches, individually or in the aggregate, could not be reasonably expected to result in a Material Adverse Effect.

3.12.6 Except as set forth on Exhibit I , no settlement or consents, covenants not to sue, nonassertion assurances, or releases have been entered into by the Grantor or to which the Grantor is bound that adversely affects its rights to own or use any Intellectual Property except as could not be reasonably expected to result in a Material Adverse Effect, in each case individually or in the aggregate.

3.12.7 Except as otherwise asserted by the Secured Party, the Grantor has not received any written notice that remains outstanding challenging the validity, enforceability, or ownership of any Intellectual Property except where those challenges could not reasonably be expected to result in a Material Adverse Effect, and to the Grantor’s knowledge at the date hereof there are no facts upon which such a challenge could validly be made.

3.12.8 The Grantor owns directly or is entitled to use, by license or otherwise (including, without limitation, the License Agreement), all Intellectual Property necessary for the conduct of the Grantor’s business as conducted as of the date of this Security Agreement.

3.12.9 The Grantor uses adequate standards of quality in the manufacture, distribution, and sale of all products sold and in the provision of all services rendered under or in connection with all trademarks and has taken all commercially reasonable action necessary to insure that all licensees of the trademarks owned or licensed by the Grantor use such adequate standards of quality, except where the failure to use adequate standards of quality could not reasonably be expected to result in a Material Adverse Effect.

3.12.10 The consummation of the transactions contemplated by the Note and this Security Agreement will not result in the termination or material impairment of any of the Intellectual Property.

3.13. Insurance . Exhibit “H” contains a description of all insurance which the Grantor maintains or has maintained on its behalf. All of such insurance is in full force and effect.

ARTICLE IV

COVENANTS

From the date of this Security Agreement and thereafter until this Security Agreement is terminated, the Grantor agrees:

4.1. General .

4.1.1 Inspection . The Grantor will permit the Secured Party, by its representatives and agents (i) to inspect the Collateral, (ii) to examine and make copies of the records of the Grantor relating to the Collateral and (iii) to discuss the Collateral and the related records of the Grantor with, and to be advised as to the same by, the Grantor’s officers and employees (and, in the case of any Receivable after the occurrence and during the continuance of an Event of Default, with any person or entity which is or may be obligated thereon), all at such reasonable times and intervals during Grantor’s regular business hours as the Secured Party may determine, upon reasonable prior notice and all at the Grantor’s expense.

4.1.2 Taxes . The Grantor will pay when due all taxes, assessments and governmental charges and levies upon the Collateral owned by the Grantor, except (i) those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside in accordance with GAAP and with respect to which no Lien exists, and (ii) those which by reason of the amount involved or the remedies available to the taxing authority could not reasonably be expected to have a Material Adverse Effect.

4.1.3 Records and Reports; Notification of Event of Default . The Grantor shall keep and maintain complete, accurate and proper books and records with respect to the Collateral owned by the Grantor, and furnish to the Secured Party such reports relating to the Collateral as the Secured Party shall from time to time reasonably request. The Grantor will give prompt notice in writing to the Secured Party of the occurrence of any Event of Default or event which with the giving of notice or passage of time or both would constitute an Event of Default.

4.1.4 Financing Statements and Other Actions; Defense of Title . The Grantor hereby authorizes the Secured Party to file, and if requested will execute and deliver to the Secured Party, all financing statements describing the Collateral owned by the Grantor and other documents and take such other actions as may from time to time reasonably be requested by the Secured Party in order to maintain a first priority, perfected security interest in and, if applicable, Control of, the Collateral owned by the Grantor, subject to Permitted Liens, provided that nothing herein shall be deemed to constitute an agreement to subordinate any of the Liens of the Secured Party under this Security Agreement to any Permitted Liens. Such financing statements may describe the Collateral in the same manner as described herein or may contain an indication or description of collateral that describes such property in any other manner as the Secured Party may determine, in its sole discretion, is necessary, advisable or prudent to ensure that the perfection of the security interest in the Collateral granted to the Secured Party herein, including, without limitation, describing such property as “all assets” or “all personal property, whether now owned or hereafter acquired and wheresoever located, including all accessions thereto and proceeds thereof.” The Grantor will take any and all actions necessary to defend title to the Collateral owned by the Grantor against all persons and to defend the security interest of the Secured Party in such Collateral and the priority thereof against any Lien not expressly permitted hereunder.

4.1.5 Disposition of Collateral . The Grantor will not sell, lease or otherwise dispose of the Collateral owned by the Grantor except for (i) sales of inventory in the ordinary course of business, (ii) the disposition of obsolete, worn-out or surplus Collateral in the ordinary course of business, (iii) the license in the ordinary course of the Grantor’s business of its Intellectual Property and (iv) the abandonment or disposition by the Grantor of Intellectual Property that is not used or useful in the conduct of the Grantor’s business, in each case until such time following the occurrence of an Event of Default as the Grantor receives a notice from the Secured Party instructing the Grantor to cease such transactions.

4.1.6 Liens . The Grantor will not, incur, or suffer to exist any Lien on the Collateral owned by the Grantor except Permitted Liens, provided , that nothing herein shall be deemed to constitute an agreement to subordinate any of the Liens of the Secured Party under this Security Agreement to any Permitted Liens.

4.1.7 Change in Corporate Existence, Type or Jurisdiction of Organization, Location, Name . The Grantor will:

(i)

preserve its existence and corporate structure as in effect on the date hereof;

(ii)

not change its name or jurisdiction of organization;

(iii)

not maintain its place of business (if it has only one) or its chief executive office (if it has more than one place of business) at a location other than a location specified in Exhibit “A” ; and

(iv)

not (i) have any Inventory, Equipment or Fixtures or proceeds or products thereof (other than Inventory and proceeds thereof disposed of as permitted by Section 4.1.5 ) at a location other than a location specified in Exhibit “A” , (ii) change its name or taxpayer identification number or (iii) change its mailing address,

unless, in each such case, the Grantor shall have given the Secured Party not less than thirty (30) days’ prior written notice of such event or occurrence and the Secured Party shall have either (x) determined that such event or occurrence will not adversely affect the validity, perfection or priority of the Secured Party’s security interest in the Collateral, or (y) taken such steps (with the cooperation of the Grantor to the extent necessary or advisable) as are necessary or advisable to properly maintain the validity, perfection and priority of the Secured Party’s security interest in the Collateral owned by the Grantor.

4.1.8 Other Financing Statements . The Grantor will not suffer to exist or authorize the filing of any financing statement naming it as debtor covering all or any portion of the Collateral owned by the Grantor, except Permitted Liens and any financing statement authorized under Section 4.1.4 hereof. The Grantor acknowledges that it is not authorized to file any financing statement or amendment or termination statement with respect to any financing statement filed in connection herewith without the prior written consent of the Secured Party, subject to the Grantor’s rights under Section 9-509(d)(2) of the UCC.

4.2. Receivables .

4.2.1 Certain Agreements on Receivables . During the occurrence and continuation of an Event of Default, the Grantor will not make or agree to make any discount, credit, rebate or other reduction in the original amount owing on a Receivable or accept in satisfaction of a Receivable less than the original amount thereof. Prior to the occurrence and continuation of an Event of Default, the Grantor may reduce the amount of Accounts arising from the sale of Inventory or the rendering of services in accordance with its present policies and in the ordinary course of business.

4.2.2 Collection of Receivables . Except as otherwise provided in this Security Agreement, the Grantor will collect and enforce, at the Grantor’s sole expense, all amounts due or hereafter due to the Grantor under the Receivables owned by the Grantor in the ordinary course of business.

4.2.3 Delivery of Invoices . The Grantor will deliver to the Secured Party immediately upon its request after the occurrence and during the continuance of an Event of Default duplicate invoices with respect to each Account owned by the Grantor bearing such language of assignment as the Secured Party shall specify.

4.2.4 Disclosure of Counterclaims on Receivables . If (i) any discount, credit or agreement to make a rebate or to otherwise reduce the amount owing on a Receivable owned by the Grantor exists or (ii) if, to the knowledge of the Grantor, any dispute, setoff, claim, counterclaim or defense exists or has been asserted or threatened in writing with respect to a Receivable, in either case, in excess of $25,000, the Grantor will disclose such fact to the Secured Party in writing in connection with the inspection by the Secured Party of any record of the Grantor relating to such Receivable and in connection with any invoice or report furnished by the Grantor to the Secured Party relating to such Receivable.

4.2.5 Electronic Chattel Paper . The Grantor shall take all steps necessary to grant the Secured Party Control of all electronic chattel paper in accordance with the UCC and all “transferable records” as defined in each of the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act.

4.3. Maintenance of Goods . The Grantor will do all things necessary to maintain, preserve, protect and keep the Inventory and the Equipment owned by the Grantor in good repair, working order and saleable condition (ordinary wear and tear excepted) and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

4.4. Instruments, Securities, Chattel Paper, Documents and Pledged Deposits . The Grantor will (i) deliver to the Secured Party immediately upon execution of this Security Agreement the originals of all Chattel Paper, Securities (to the extent certificated) and Instruments constituting Collateral (if any then exist), (ii) hold in trust for the Secured Party upon receipt and immediately thereafter deliver to the Secured Party any Chattel Paper, Securities and Instruments constituting Collateral, (iii) upon the designation of any Pledged Deposits (as set forth in the definition thereof), deliver to the Secured Party such Pledged Deposits which are evidenced by certificates included in the Collateral endorsed in blank, marked with such legends and assigned as the Secured Party shall specify, and (iv) upon the Secured Party’s request, after the occurrence and during the continuance of an Event of Default, deliver to the Secured Party (and thereafter hold in trust for the Secured Party upon receipt and immediately deliver to the Secured Party) any Document evidencing or constituting Collateral.

4.5. Uncertificated Securities and Certain Other Investment Property . The Grantor will permit the Secured Party from time to time to cause the appropriate issuers (and, if held with a securities intermediary, such securities intermediary) of uncertificated securities or other types of Investment Property not represented by certificates which are Collateral owned by the Grantor to mark their books and records with the numbers and face amounts

of all such uncertificated securities or other types of Investment Property not represented by certificates and all rollovers and replacements therefor to reflect the Lien of the Secured Party granted pursuant to this Security Agreement. The Grantor will use all commercially reasonable efforts, with respect to Investment Property constituting Collateral owned by the Grantor and held with a financial intermediary, to cause such financial intermediary to enter into a control agreement with the Secured Party in form and substance reasonably satisfactory to the Secured Party.

4.6. Stock and Other Ownership Interests .

4.6.1 Changes in Capital Structure of Issuers . The Grantor will neither (i) permit or suffer any issuers of privately held corporate securities or other ownership interests in a corporation, partnership, joint venture or limited liability company constituting Collateral owned by the Grantor to dissolve, liquidate, retire any of its capital stock or other Instruments or Securities evidencing ownership, reduce its capital or merge or consolidate with any other entity other than the Grantor, nor (ii) vote any of the Instruments, Securities or other Investment Property in favor of any of the foregoing.

4.6.2 Issuance of Additional Securities . The Grantor will not permit or suffer any issuers of privately held corporate securities or other ownership interests in a corporation, partnership, joint venture or limited liability company constituting Collateral to issue any such securities or other ownership interests, any right to receive the same or any right to receive earnings, except to the Grantor.

4.6.3 Registration of Pledged Securities and other Investment Property . The Grantor will permit any registrable Investment Property Collateral owned by the Grantor to be registered in the name of the Secured Party or its nominee at any time at the option of the Secured Party following the occurrence and during the continuance of an Event of Default and without any further consent of the Grantor.

4.6.4 Exercise of Rights in Pledged Securities and other Investment Property . The Grantor will permit the Secured Party or its nominee at any time during the continuance of an Event of Default, without notice, to exercise or refrain from exercising any and all voting and other consensual rights pertaining to the Collateral owned by the Grantor or any part thereof, and to receive all dividends and interest in respect of such Collateral.

4.7. Deposit Accounts . The Grantor will (i) upon the Secured Party’s request, cause each bank or other financial institution in which it maintains (a) a Deposit Account to enter into a Deposit Account Control Agreement in order to give the Secured Party Control of the Deposit Account or (b) other deposits (general or special, time or demand, provisional or final) to be notified of the security interest granted to the Secured Party hereunder and cause each such bank or other financial institution to acknowledge such notification in writing and (ii) upon the Secured Party’s request after the occurrence and during the continuance of an Event of Default, deliver to each such bank or other financial institution a letter, in form and substance acceptable to the Secured Party, transferring ownership of the Deposit Account to the Secured Party or transferring dominion and control over each such other deposit to the Secured Party until such time as no Event of Default exists.

4.8. Letter-of-Credit Rights . The Grantor will, upon the Secured Party’s request, cause each issuer of a letter of credit, to consent to the assignment of proceeds of the letter of credit in order to give the Secured Party Control of the letter-of-credit rights to such letter of credit.

4.9. Federal, State or Municipal Claims . The Grantor will notify the Secured Party of any Collateral owned by the Grantor which constitutes a claim against the United States government or any state or local government or any instrumentality or agency thereof, the assignment of which claim is restricted by federal, state or municipal law. Furthermore, the Grantor will execute and deliver to the Secured Party such documents, agreements and instruments, and will take such further actions (including, without limitation, the taking of necessary actions under the Federal Assignment of Claims Act of 1940, as amended (31 U.S.C. § 3727 et seq. and 41 U.S.C. § 15 et seq.)), which the Secured Party may, from time to time, reasonably request, to ensure perfection and priority of the Liens hereunder in respect of Accounts and General Intangibles owing by any government or instrumentality or agency thereof, all at the expense of the Grantor.

4.10. Intellectual Property .

4.10.1 If, after the date hereof, the Grantor obtains rights to, including, but not limited to filing and acceptance of a statement of use or an amendment to allege use with the U.S. Patent and Trademark Office, or applies for or seeks registration of, any new patentable invention, Trademark or Copyright in addition to the Patents, Trademarks and Copyrights described in Part C of Exhibit “B” , which are all of the Grantor’s Patents, Trademarks and Copyrights as of the date hereof, then the Grantor shall give the Secured Party prompt notice thereof. The Grantor agrees promptly upon request by the Secured Party to execute and deliver to the Secured Party any supplement to this Security Agreement or any other document reasonably requested by the Secured Party to evidence such security interest in a form appropriate for recording in the applicable federal office. The Grantor also hereby authorizes the Secured Party to modify this Security Agreement unilaterally (i) by amending Part C of Exhibit “B” to include any future Patents, Trademarks and/or Copyrights of which the Secured Party receives notification from the Grantor pursuant hereto and (ii) by recording, in addition to and not in substitution for this Security Agreement, a duplicate original of this Security Agreement containing in Part C of Exhibit “B” a description of such future Patents, Trademarks and/or Copyrights.

4.10.2 As of the date hereof, the Grantor has no interest in, or title to, any Intellectual Property Licenses, Patents, Trademarks, Industrial Design or Copyrights except as set forth in Exhibit “B” . This Security Agreement is effective to create a valid and continuing Lien on such Copyrights, Intellectual Property Licenses, Patents, Trademarks and Industrial Designs and, upon filing of the Confirmatory Grant of Security Interest in Copyrights with the United States Copyright Office and filing of the Confirmatory Grant of Security Interest in Patents and the Confirmatory Grant of Security Interest in Trademarks with the United States Patent and Trademark Office, and the filing of appropriate financing statements in the jurisdictions listed in Exhibit “E” hereto, all action necessary or desirable to protect and perfect the security interest in, to and on the Grantor’s

Patents, Trademarks, Copyrights or Industrial Designs has been taken and such perfected security interest is enforceable as such as against any and all creditors of and purchasers from the Grantor. The Grantor has no interest in any Copyright that is necessary in connection with the operation of the Grantor’s business, except for those Copyrights identified in Exhibit “B” attached hereto which have been registered with the United States Copyright Office.

4.11. Commercial Tort Claims . If, after the date hereof, the Grantor identifies the existence of a commercial tort claim belonging to the Grantor that has arisen in the course of the Grantor’s business in addition to the commercial tort claims described in Exhibit “F” , which are all of the Grantor’s commercial tort claims as of the date hereof, then the Grantor shall give the Secured Party prompt notice thereof, but in any event not less frequently than quarterly. The Grantor agrees promptly upon request by the Secured Party to execute and deliver to the Secured Party any supplement to this Security Agreement or any other document reasonably requested by the Secured Party to evidence the grant of a security interest therein in favor of the Secured Party.

4.12. Insurance . The Grantor shall (i) maintain in full force and effect with respect to its insurable properties, insurance policies in such amounts and covering such risks as would be consistent with prudent industry practice, (ii) cause each insurance policy pertaining to the Collateral to (A) name the Secured Party as an “additional insured” if such policy is a liability policy, (B) name the Secured Party as a “mortgagee” and “loss payee” as to claims in excess of $50,000 and include a standard agent’s loss payable endorsement in favor of the Secured Party satisfactory to the Secured Party if such policy is a property insurance policy, (C) provide that, the Secured Party shall be notified in writing of any proposed cancellation or modification of such policy initiated by the Grantor’s insurer at least thirty (30) days in advance prior to any proposed cancellation or modification, (D) provide that all insurance proceeds for losses shall be payable to the Secured Party after the occurrence and during the continuance of an Event of Default, (E) waive any right of subrogation of the insurers against the Secured Party and waive any right of the insurers to any setoff or counterclaim or any other deduction, whether by attachment or otherwise, in respect of any liability of the Grantor, and (E) provide that such insurance shall be primary insurance, that the insurers under such insurance policies shall be liable under such policies without right of contribution from any other insurance coverage and expressly provide that liability for premiums shall be solely a liability of the Grantor.

4.13. Real Property . In the event that, at any time that the Secured Obligations (other than inchoate indemnity obligations) are outstanding, the Grantor becomes the owner of any real property, the Grantor shall enter into a mortgage of such real property, in form and substance reasonably satisfactory to the Secured Party, to secure the payment and performance of the Secured Obligations.

4.14. No Interference . The Grantor agrees that it will not interfere with any right, power and remedy of the Secured Party provided for in this Security Agreement or now or hereafter existing at law or in equity or by statute or otherwise, or the exercise or beginning of the exercise by the Secured Party of any one or more of such rights, powers or remedies.

4.15. Updating of Exhibits to Security Agreement . The Grantor will provide to the Secured Party, on the last day of each March, June, September and December of each year, updated versions of the Exhibits to this Security Agreement (provided that if there have been no changes to any such Exhibits since the previous updating thereof required hereby, the Grantor shall indicate that there has been “no change” to the applicable Exhibit(s)).

ARTICLE V

EVENTS OF DEFAULT REMEDIES

5.1. Acceleration and Remedies . Upon the occurrence of an Event of Default or the acceleration by the Secured Party of the Grantor’s obligations under the Note, the Secured Party may exercise in accordance with applicable law any or all of the following rights and remedies in addition to the rights and remedies provided for in the Note:

5.1.1 Those rights and remedies provided in this Security Agreement, provided that this Section 5.1.1 shall not be understood to limit any rights or remedies available to the Secured Party prior to an Event of Default.

5.1.2 Those rights and remedies available to a secured party under the UCC (whether or not the UCC applies to the affected Collateral) or under any other applicable law (including, without limitation, any law governing the exercise of a bank’s right of setoff or bankers’ lien) when a debtor is in default under a security agreement.

5.1.3 Give notice of sole control or any other instruction under any Deposit Account Control Agreement or other control agreement with any securities intermediary and take any action therein with respect to such Collateral.

5.1.4 Without notice except as specifically provided in Section 8.1 hereof or elsewhere herein, the right to sell, lease, assign, grant an option or options to purchase or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, for cash, on credit or for future delivery, and upon such other terms as the Secured Party may deem commercially reasonable. The Secured Party may purchase all or any part of the Collateral at public or, if permitted by law, private sale, and in lieu of actual payment of such purchase price, may set off the amount of such purchase price against the Secured Obligations then owing. Any sales of the Collateral may be adjourned from time to time with or without notice. Subject to the rights of lessors, mortgagees or other third parties, the Secured Party shall have the right to conduct such sales on the premises of the Grantor, at the expense of the Grantor, or elsewhere, on such occasion or occasions as they may see fit. The net proceeds realized by the Secured Party upon any such sale or other disposition, after deduction for the expense of retaking, holding, preparing for sale, selling or the like and the reasonable attorneys’ fees and legal expenses incurred by the Secured Party in connection therewith, shall be applied as provided herein toward satisfaction of the Secured Obligations. The Secured Party shall account for and pay to the Grantor any surplus realized upon such sale or other disposition, and the Grantor shall remain liable for any deficiency. The commencement of any action, legal or equitable, or the rendering of any judgment or decree for any deficiency shall not affect the Secured Party’s security interest in the Collateral. The Grantor agrees that the Secured Party has no obligation to preserve rights to the Collateral against any other parties.

5.2. Grantor’s Obligations Upon Event of Default . Upon the request of the Secured Party after the occurrence and during the continuance of an Event of Default, the Grantor will:

5.2.1 Assembly of Collateral . Assemble and make available to the Secured Party the Collateral and all records relating thereto at any place or places specified by the Secured Party that is reasonably convenient to the Secured Party and the Grantor.

5.2.2 Secured Party Access .

(i)

Permit the Secured Party, by the Secured Party’s representatives and agents, to enter any premises where all or any part of the Collateral, or the books and records relating thereto, or both, are located, to take possession of all or any part of the Collateral and to render the Collateral unusable or remove the Collateral therefrom to the premises of the Secured Party or any agent thereof, for such time as the Secured Party may desire, in order effectively to collect or liquidate the Collateral.

(ii)

Provide the Secured Party with access to the Grantor’s data processing equipment, computer hardware and software relating to the Collateral and permit the Secured Party to use all of the foregoing and the information contained therein in any manner the Secured Party deems appropriate.

5.3. License . The Secured Party is hereby granted a license or other right to use, following the occurrence and during the continuance of an Event of Default, without charge, the Grantor’s labels, patents, copyrights, rights of use of any name, material trade secrets, trade names, trademarks, service marks, customer lists and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral, and, following the occurrence and during the continuance of an Event of Default, the Grantor’s rights under all licenses and all franchise agreements shall inure to the Secured Party’s benefit. In addition, the Grantor hereby irrevocably agrees that the Secured Party may, following the occurrence and during the continuance of an Event of Default, sell any of the Grantor’s Inventory directly to any Person, including without limitation Persons who have previously purchased the Grantor’s Inventory from the Grantor and in connection with any such sale or other enforcement of the Secured Party’s rights under this Security Agreement, may sell Inventory which bears any trademark owned by or licensed to the Grantor and any Inventory that is covered by any copyright owned by or licensed to the Grantor and the Secured Party may finish any work in process and affix any trademark owned by or licensed to the Grantor and sell such Inventory as provided herein.

ARTICLE VI

WAIVERS, AMENDMENTS AND REMEDIES

No delay or omission of the Secured Party to exercise any right or remedy granted under this Security Agreement shall impair such right or remedy or be construed to be a waiver of any Event of Default or an acquiescence therein, and any single or partial exercise of any such right or remedy shall not preclude any other or further exercise thereof or the exercise of any other right or remedy. No waiver, amendment or other variation of the terms,

conditions or provisions of this Security Agreement whatsoever shall be valid unless in writing signed by the Secured Party with the concurrence or at the direction of the Grantor, and then only to the extent in such writing specifically set forth. All rights and remedies contained in this Security Agreement or by law afforded shall be cumulative and all shall be available to the Secured Party until the Secured Obligations have been paid in full.

ARTICLE VII

PROCEEDS; COLLECTION OF RECEIVABLES

7.1. Lockboxes . Upon request of the Secured Party after the occurrence and during the continuance of an Event of Default, the Grantor shall execute and deliver to the Secured Party irrevocable lockbox agreements in the form provided by or otherwise acceptable to the Secured Party, which agreements shall be accompanied by an acknowledgment by the bank where the lockbox is located of the Lien of the Secured Party granted hereunder and of irrevocable instructions to wire all amounts collected therein to a special collateral account of the Secured Party.

7.2. Collection of Receivables . The Secured Party may at any time after the occurrence and during the continuance of an Event of Default, by giving the Grantor written notice, elect to require that the Receivables be paid directly to the Secured Party. In such event, the Grantor shall, and shall permit the Secured Party to, promptly notify the account debtors or obligors under the Receivables owned by the Grantor of the Secured Party’s interest therein and direct such account debtors or obligors to make payment of all amounts then or thereafter due under such Receivables directly to the Secured Party. Upon receipt of any such notice from the Secured Party, the Grantor shall thereafter hold in trust for the Secured Party, all amounts and proceeds received by it with respect to the Receivables and Other Collateral and immediately and at all times thereafter deliver to the Secured Party all such amounts and proceeds in the same form as so received, whether by cash, check, draft or otherwise, with any necessary endorsements. The Secured Party shall hold and apply funds so received as provided by the terms of Section 7.3 hereof. In addition the Secured Party may thereupon (i) enforce payment of the Receivables by legal proceedings or otherwise; (ii) exercise all of the Grantor’s rights and remedies with respect to proceedings brought to collect any Receivables; (iii) sell or assign any Receivable upon such terms, for such amount and at such time or times as the Secured Party deems advisable; (iv) settle, adjust, compromise, extend or renew a Receivable; (v) discharge and release any Receivable; and (vii) prepare, file and sign the Grantor’s name on any proof of claim in bankruptcy or other similar document against an account debtor with respect to a Receivable of the Grantor.

7.3. Application of Proceeds . Upon the occurrence and during the continuance of any Event of Default, the Grantor irrevocably waives the right to direct the application of any and all payments at any time or times hereafter received by the Secured Party from the Grantor or with respect to any of the Collateral, and the Grantor does hereby irrevocably agree that the Secured Party shall have the continuing exclusive right to apply and reapply any and all payments received at any time or times with respect to the Collateral against the Secured Obligations in such manner as the Secured Party may deem advisable, notwithstanding any entry by the Secured Party upon any of its books and records.

ARTICLE VIII

GENERAL PROVISIONS

8.1. Notice of Disposition of Collateral; Condition of Collateral . The Grantor hereby waives notice of the time and place of any public sale or the time after which any private sale or other disposition of all or any part of the Collateral may be made. To the extent such notice may not be waived under applicable law, any notice made shall be deemed reasonable if sent to the Grantor, addressed as set forth in Article IX , at least ten (10) days prior to (i) the date of any such public sale or (ii) the time after which any such private sale or other disposition may be made. The Secured Party shall have no obligation to clean-up or otherwise prepare the Collateral for sale. To the maximum extent permitted by applicable law, the Grantor waives all claims, damages, and demands against the Secured Party arising out of the repossession, retention or sale of the Collateral, except such as arise solely out of the gross negligence or willful misconduct of the Secured Party as finally determined by a court of competent jurisdiction. To the extent it may lawfully do so, the Grantor absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against the Secured Party, any valuation, stay, appraisal, extension, moratorium, redemption or similar laws and any and all rights or defenses it may have as a surety now or hereafter existing which, but for this provision, might be applicable to the sale of any Collateral made under the judgment, order or decree of any court, or privately under the power of sale conferred by this Security Agreement, or otherwise. Except as otherwise specifically provided herein, the Grantor hereby waives presentment, demand, protest or any notice (to the maximum extent permitted by applicable law) of any kind in connection with this Security Agreement or any Collateral.

8.2. Compromises and Collection of Collateral . The Grantor and the Secured Party recognize that setoffs, counterclaims, defenses and other claims may be asserted by obligors with respect to certain of the Receivables, that certain of the Receivables may be or become uncollectible in whole or in part and that the expense and probability of success in litigating a disputed Receivable may exceed the amount that reasonably may be expected to be recovered with respect to a Receivable. In view of the foregoing, the Grantor agrees that the Secured Party may at any time and from time to time, if an Event of Default has occurred and is continuing, compromise with the obligor on any Receivable, accept in full payment of any Receivable such amount as the Secured Party in its sole discretion shall determine or abandon any Receivable, and any such action by the Secured Party shall be commercially reasonable so long as the Secured Party acts in good faith based on information known to it at the time it takes any such action.

8.3. Secured Party Performance of Grantor’s Obligations . Without having any obligation to do so, the Secured Party may perform or pay any obligation which the Grantor has agreed to perform or pay in this Security Agreement and the Grantor shall reimburse the Secured Party for any reasonable amounts paid by the Secured Party pursuant to this Section 8.3 . The Grantor’s obligation to reimburse the Secured Party pursuant to the preceding sentence shall be a Secured Obligation payable on demand.

8.4. Authorization for Secured Party to Take Certain Action . The Grantor irrevocably authorizes the Secured Party at any time and from time to time in the sole discretion of the Secured Party and appoints the Secured Party as its attorney in fact (i) to file financing statements necessary or desirable in the Secured Party’s sole discretion to perfect and to maintain the perfection and priority of the Secured Party’s security interest in the Collateral, (ii) to indorse and collect any cash proceeds of the Collateral, (iii) to file a carbon, photographic or other reproduction of this Security Agreement or any financing statement with respect to the Collateral as a financing statement and to file any other financing statement or amendment of a financing statement (which does not add new collateral or add a debtor) in such offices as the Secured Party in its sole discretion deems necessary or desirable to perfect and to maintain the perfection and priority of the Secured Party’s security interest in the Collateral, (iv) to contact and enter into one or more agreements with the issuers of uncertificated securities which are Collateral owned by the Grantor and which are Securities or with financial intermediaries holding other Investment Property as may be necessary or advisable to give the Secured Party Control over such Securities or other Investment Property, (v) after the occurrence and during the continuance of an Event of Default, to enforce payment of the Instruments, Accounts and Receivables in the name of the Secured Party or the Grantor, (vi) to apply the proceeds of any Collateral received by the Secured Party after the occurrence and during the continuance of an Event of Default to the Secured Obligations as provided in Article VII and (vii) to discharge past due taxes, assessments, charges, fees or Liens on the Collateral (except for such Liens as are specifically permitted hereunder), and the Grantor agrees to reimburse the Secured Party on demand for any reasonable payment made or any reasonable expense incurred by the Secured Party in connection therewith, provided that this authorization shall not relieve the Grantor of any of its obligations under this Security Agreement.

8.5. Specific Performance of Certain Covenants . The Grantor acknowledges and agrees that a breach of any of the covenants contained in Sections 4.1.5 , 4.1.6 , 4.4 , 5.2 , or 8.7 or in Article VII hereof will cause irreparable injury to the Secured Party, that the Secured Party has no adequate remedy at law in respect of such breaches and therefore agrees, without limiting the right of the Secured Party to seek and obtain specific performance of other obligations of the Grantor contained in this Security Agreement, that the covenants of the Grantor contained in the Sections referred to in this Section 8.5 shall be specifically enforceable against the Grantor.

8.6. Use and Possession of Certain Premises . Subject to the rights of lessors, mortgagees or other third parties, upon the occurrence and during the continuance of an Event of Default, the Secured Party shall be entitled to occupy and use any premises owned or leased by the Grantor where any of the Collateral or any records relating to the Collateral are located until the Secured Obligations are paid or the Collateral is removed therefrom, whichever first occurs, without any obligation to pay the Grantor for such use and occupancy.

8.7. Dispositions Not Authorized . The Grantor is not authorized to sell or otherwise dispose of the Collateral except as set forth in Section 4.1.5 hereof and notwithstanding any course of dealing between the Grantor and the Secured Party or other conduct of the Secured Party, no authorization to sell or otherwise dispose of the Collateral (except as set forth in Section 4.1.5 hereof) shall be binding upon the Secured Party unless such authorization is in writing signed by the Secured Party.

8.8. Benefit of Agreement . The terms and provisions of this Security Agreement shall be binding upon and inure to the benefit of the Grantor and the Secured Party and their respective successors and assigns (including all persons who become bound as a debtor to this Security Agreement), except that the Grantor shall not have the right to assign its rights or delegate its obligations under this Security Agreement or any interest herein, without the prior written consent of the Secured Party. No sales of participations, assignments, transfers, or other dispositions of any agreement governing the Secured Obligations or any portion thereof or interest therein shall in any manner impair the Lien granted to the Secured Party hereunder.

8.9. Survival of Representations . All representations and warranties of the Grantor contained in this Security Agreement shall survive the execution and delivery of this Security Agreement.

8.10. Taxes and Expenses . Any taxes (including income taxes) payable or ruled payable by a Federal or State authority in respect of this Security Agreement shall be paid by the Grantor, together with interest and penalties, if any. The Grantor shall reimburse the Secured Party for any and all reasonable documented out-of-pocket expenses and internal charges (including reasonable documented attorneys’, auditors’ and accountants’ fees and reasonable time charges of attorneys, paralegals, auditors and accountants who may be employees of the Secured Party) paid or incurred by the Secured Party in connection with the preparation, execution, delivery, administration, collection and enforcement of this Security Agreement and in the audit, analysis, administration, collection, preservation or sale of the Collateral (including the expenses and charges associated with any periodic or special audit of the Collateral). Any and all costs and expenses incurred by the Grantor in the performance of actions required pursuant to the terms hereof shall be borne solely by the Grantor.

8.11. Headings . The title of and section headings in this Security Agreement are for convenience of reference only, and shall not govern the interpretation of any of the terms and provisions of this Security Agreement.

8.12. Termination . This Security Agreement shall continue in effect until the later of (i) the Maturity Date and (ii) the date all of the Secured Obligations (other than inchoate indemnity obligations) have been indefeasibly paid in cash and performed in full or the Note has been converted into shares of Common Stock of the Grantor in accordance with the provisions of Section 3 of the Note, and shall thereupon terminate.

8.13. Entire Agreement . This Security Agreement embodies the entire agreement and understanding between the Grantor and the Secured Party relating to the Collateral and supersedes all prior agreements and understandings between the Grantor and the Secured Party relating to the Collateral.

8.14. Governing Law; Jurisdiction; Waiver of Jury Trial .

8.14.1 THIS SECURITY AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS AND DECISIONS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF THE STATE OF NEW YORK.

8.14.2 The Grantor hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any New York state court sitting in New York County, Borough of Manhattan and of the United States District Court for the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Security Agreement or the Note, or for recognition or enforcement of any judgment, and the Grantor hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York state court or, to the extent permitted by law, in such Federal court. The Grantor agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Security Agreement or the Note shall affect any right that the Secured Party may otherwise have to bring any action or proceeding relating to this Security Agreement or the Note against the Grantor or its properties in the courts of any jurisdiction.

8.14.3 The Grantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Security Agreement or the Note in any court referred to in Section 8.14.2 . The Grantor hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

8.14.4 Each party to this Security Agreement irrevocably consents to service of process in the manner provided for notices in Article IX of this Security Agreement. Nothing in this Security Agreement or the Note will affect the right of any party to this Security Agreement to serve process in any other manner permitted by law.

8.14.5 WAIVER OF JURY TRIAL . THE GRANTOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR THE NOTE (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).

8.15. Indemnity . The Grantor hereby agrees to indemnify the Secured Party, and its successors, assigns, agents and employees, from and against any and all liabilities, damages, penalties, suits, costs, and expenses of any kind and nature (including, without limitation, all expenses of litigation or preparation therefor whether or not the Secured Party is a party thereto) imposed on, incurred by or asserted against the Secured Party, or its successors, assigns, agents and employees, in any way relating to or arising out of this Security Agreement or the Note, or the manufacture, purchase, acceptance, rejection, ownership, delivery, lease, possession, use, operation, condition, sale, return or other disposition of any Collateral (including, without limitation, latent and other defects, whether or not discoverable by the Secured Party or the Grantor, and any claim for patent, trademark or copyright infringement), other than any such liabilities, damages, penalties, suits, costs, or expenses determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of the Secured Party.

8.16. Intentionally Omitted .

8.17. Severability . Any provision in this Security Agreement that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of this Security Agreement are declared to be severable.

8.18. Counterparts . This Security Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Security Agreement by telecopy, e-mailed .pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Security Agreement.

8.19. Limitation on the Secured Party’s Duty with Respect to the Collateral . The Secured Party shall have no obligation to clean-up or otherwise prepare the Collateral for sale. The Secured Party shall use reasonable care with respect to the Collateral in its possession or under its control. The Secured Party shall not have any other duty as to any Collateral in its possession or control or in the possession or control of any agent or nominee of the Secured Party, or any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto. To the extent that applicable law imposes duties on the Secured Party to exercise remedies in a commercially reasonable manner, the Grantor acknowledges and agrees that it is commercially reasonable for the Secured Party (i) to fail to incur expenses deemed significant by the Secured Party to prepare Collateral for disposition or otherwise to transform raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection remedies against account debtors or other Persons obligated on Collateral or to remove Liens on or any adverse claims against Collateral, (iv) to exercise collection remedies against account debtors and other Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other Persons, whether or not in the same business as the Grantor, for expressions of interest in acquiring all or any portion of such Collateral, (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi) to purchase insurance or credit enhancements to

insure the Secured Party against risks of loss, collection or disposition of Collateral or to provide to the Secured Party a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by the Secured Party, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Secured Party in the collection or disposition of any of the Collateral. The Grantor acknowledges that the purpose of this Section 8.19 is to provide non-exhaustive indications of what actions or omissions by the Secured Party would be commercially reasonable in the Secured Party’s exercise of remedies against the Collateral and that other actions or omissions by the Secured Party shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 8.19. Without limitation upon the foregoing, nothing contained in this Section 8.19 shall be construed to grant any rights to the Grantor or to impose any duties on the Secured Party that would not have been granted or imposed by this Security Agreement or by applicable law in the absence of this Section 8.19.

8.20. Reinstatement . This Security Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against the Grantor for liquidation or reorganization, should the Grantor become insolvent or make an assignment for the benefit of any creditor or creditors or should a receiver or trustee be appointed for all or any significant part of the Grantor’s assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Secured Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Secured Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Secured Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

ARTICLE IX

NOTICES

9.1. Sending Notices . Any notice required or permitted to be given under this Security Agreement shall be sent (and deemed received) in the manner and to the addresses set forth in Section 20 of the Note.

9.2. Change in Address for Notices . Each of the Grantor and the Secured Party may change the address for service of notice upon it by a notice in writing to the other parties.

[Signature Pages Follow]

IN WITNESS WHEREOF, each of the Grantor and the Secured Party have executed this Security Agreement as of the date first above written.

KONARED CORPORATION, as the Grantor

By: “Shaun Roberts”

Name:

Title:

Signature Page to Pledge and Secuirty Agreement

VDF FUTURECEUTICALS, INC., as the Secured Party

By: “John Hunter”

Name:

Title:

Signature Page to Pledge and Secuirty Agreement

EXHIBIT “A”

(See Sections 3.3 , 3.4 , 3.5 and 4.1.7 of Security Agreement)

Prior names, jurisdiction of formation, place of business (if Grantor has only one place of business), chief executive office (if Grantor has more than one place of business), mergers and mailing address:

KonaRed Corporation
Coroporate Head Office	Warehouse and Distribution Center
2829 Ala Kalani Kaumaka Street, Suite F-133	1101 Via Callejon - #200
Koloa, HI 96756	San Clemente, California 92673

Attention: Shaun Roberts	Attention: Shaun Roberts

Jurisdiction of Formation: Nevada

Reverse Merger and Prior Names: On October 4, 2013, KonaRed Corporation (formerly TeamUpSport Inc.) completed a reverse merger with Sandwich Isles Trading Co. Inc., a Hawaii corporation.

Locations of Real Property, Inventory, Equipment and Fixtures:

A.	Real Properties Owned by the Grantor :

	Nil

B.	Properties Leased by the Grantor (Include Landlord’s Name):

	Warehouse and Distribution Center: Lease dated March 9, 2012 with Callejon Properties, LLC with respect to approximately 10,902 sq. ft. single-story office/warehouse unit comprised of 2,558 sq. ft. of office area and 8,344 sq. ft. of warehouse area. Base rent is $9,811.80 per month with the term ending May 31, 2014. Company pays a total of $7537.25 per month with the remainder paid by Malie, Inc. (a company controlled by the spouse of a principal of the Company.

C.	Public Warehouses or other Locations pursuant to Bailment or Consignment Arrangements (include name of warehouse operator or other bailee or consignee):

	Nil

EXHIBIT “B”

(See Sections 3.8 and 3.12 of Security Agreement)

A. Vehicles subject to certificates of title:

	Description	Title Number & State Where Issued

Nil




B. Aircraft/engines, ships, railcars and other vehicles governed by federal statute:

	Description	Registration Number

Nil




C. Patents, copyrights, trademarks protected under federal law * and industrial designs:

US Patent Application No. 61784486 (BIOLOGICAL ACTIVITY OF PULP AND SKIN COLD REDUCED EXTRACT AND CONCENTRATE) (filing date: March 14, 2013) US Patent Application No. 61782576 (COLD REDUCTION OF FRUIT PULP AND SKIN EXTRACTS) (filing date: March 14, 2013) US Trademark Registration Number 4229767 for KonaRed US Trademark Application Serial Number 85578923 for KonaRed (filing date: March 23, 2012) US Trademark Application Serial Number 85578997 for KonaRed (filing date: March 23, 2012)

* For (i) trademarks, show the trademark itself, the registration date and the registration number; (ii) trademark applications, show the trademark applied for, the application filing date and the serial number of the application; (iii) patents, show the patent number, issue date and a brief description of the subject matter of the patent; and (iv) patent applications, show the serial number of the application, the application filing date and a brief description of the subject matter of the patent applied for. Any licensing agreements for patents or trademarks should be described on a separate schedule.

EXHIBIT “C”

(See Section 3.8 of Security Agreement)

Legal description, county and street address of property on which

Fixtures are located:

Nil

	Name and Address of Record Owner:

EXHIBIT “D”

List of Pledged Securities

(See Section 3.11 of Security Agreement)

A. STOCKS:

Issuer		Certificate Number						Number of Shares

Nil



B. BONDS:

Issuer	Number			Face Amount		Coupon Rate			Maturity

Nil




C. GOVERNMENT SECURITIES:

Issuer	Number	Type			Face Amount			Coupon Rate		Maturity

Nil




D. OTHER SECURITIES OR OTHER INVESTMENT PROPERTY
(CERTIFICATED AND UNCERTIFICATED):

Issuer			Description of Collateral				Percentage Ownership Interest

Nil

EXHIBIT “E”

(See Section 3.1 of Security Agreement)

OFFICES IN WHICH FINANCING STATEMENTS HAVE BEEN FILED

Secretary of State of the State of Nevada

EXHIBIT “F”

(See Definition of “Commercial Tort Claims”)

COMMERCIAL TORT CLAIMS

[Describe parties, case number (if applicable), nature of dispute]

Nil

EXHIBIT “G”

(See Section 3.10 of Security Agreement”)

FEDERAL EMPLOYER IDENTIFICATION NUMBER;

STATE ORGANIZATION NUMBER; JURISDICTION OF INCORPORATION

GRANTOR	Federal Employer Identification Number	Type of Organization	State of Organization or Incorporation	State Organization Number
KonaRed Corporation	99-0366971	Corporation	Nevada	E0477612010-4

EXHIBIT “H”

(See Section 3.13 of Security Agreement”)

INSURANCE POLICIES

Fairmont Specialty: Fire Insurance

Policy Number 5437181808.

Effective Date 04-27-2013 – Expiry Date 04-27-2014

Torus National Insurance Company: Excess Liability Insurance Policy.

Policy No.:77604G130ALI.

Policy Period: From: 06/04/2013 To: 04/27/2014

Limits of Liability: $4million Per Occurrence

$4million Per Aggregate

$4million Per Products/Completed Operations Aggregate

Premium: $3,182 + $300 Broker Fee

Minimum Earned Premium: $796

EXHIBIT “I”

(See Section 3.12.3 of Security Agreement”)

Nil

EXECUTION COPY

KONARED CORPORATION

Warrant

Original Issue Date: January 28, 2014

Warrant No. VDF1-01-28-14

THIS IS TO CERTIFY THAT VDF FutureCeuticals, Inc., or registered assigns, is entitled, at any time prior to the Expiration Date (such term, and certain other capitalized terms used herein being hereinafter defined), to purchase from KonaRed Corporation, a Nevada corporation (the “ Company ”), shares of Common Stock representing ten percent (10%) of the Fully Diluted Outstanding shares of Common Stock of the Company (subject to adjustment as provided herein), at a purchase price of $0.001 per share (the “ Exercise Price ”), all on the terms and conditions and pursuant to the provisions hereinafter set forth.

1. DEFINITIONS

As used in this Warrant, the following terms have the respective meanings set forth below:

“ After-Tax Basis ” when referring to a payment that is required hereunder (the “ target amount ”), shall mean a total payment (the “ total amount ”) that, after deduction of all federal, state and local taxes that are required to be paid by the recipient in respect of the receipt or accrual of such total amount, is equal to the target amount.

“ Appraised Value ” per share of Common Stock as of a date specified herein shall mean the value of such a share as of such date as determined by an investment bank of nationally recognized standing selected by the Holder and reasonably acceptable to the Company. If the investment bank selected by the Holder is not reasonably acceptable to the Company, and the Company and the Holder cannot agree on a mutually acceptable investment bank, then the Company and the Holder shall each choose one such investment bank and the respective chosen firms shall jointly select a third investment bank, which shall make the determination. The Company shall pay the

costs and fees of each such investment bank (including any such investment bank selected by the Holder), and the decision of the investment bank making such determination of Appraised Value shall be final and binding on the Company and all affected holders of Warrants or Warrant Stock. Such Appraised Value shall be determined as a pro rata portion of the value of the Company taken as a whole, based on the higher of (A) the value derived from a hypothetical sale of the entire Company as a going concern by a willing seller to a willing buyer (neither acting under any compulsion) and (B) the liquidation value of the entire Company. No discount shall be applied on account of (i) any Warrants or Warrant Stock representing a minority interest, (ii) any lack of liquidity of the Common Stock or the Warrants, (iii) the fact that the Warrants or Warrant Stock may constitute “ restricted securities ” for securities law purposes or (iv) any other grounds.

“ Articles of Incorporation ” shall mean the articles of incorporation of the Company, as amended.

“ Book Value ” per share of Common Stock as of a date specified herein shall mean the consolidated book value of the Company and its Subsidiaries as of such date divided by the number of shares of Common Stock Outstanding on such date. Such book value shall be determined in accordance with GAAP, except that there shall be no reduction in such book value by reason of any amount that may be required either as an offset to or reserve against retained earnings or as a deduction from book value as a result of the issuance, existence, anticipated exercise of, or anticipated cost to the Company of the repurchase of, any of the Warrants.

“ Business Day ” shall mean any day that is not a Saturday or Sunday or a day on which banks are required or permitted to be closed in the State of New York.

“ Bylaws ” shall mean the bylaws of the Company, as amended.

“ Change of Control ” shall mean (a) any sale, transfer, lease or license of all or substantially all of the assets of the Company in a transaction or series of related transactions, (b) any merger, consolidation or reorganization that results in any Person or group of Persons acting in concert (other than Shaun Roberts, Dana Roberts and/or any trust set up solely for the benefit of Shaun Roberts or Dana Roberts and/or their descendents) owning in excess of 50% of the outstanding voting power of the Company, (c) any issuance or sale or series of issuances or sales of capital stock of the Company by the Company or any holder of such capital stock that results in any Person or group of Persons acting in concert (other than Shaun Roberts, Dana Roberts and/or any trust set up solely for the benefit of Shaun Roberts or Dana Roberts and/or their descendents) owning in excess of 50% of the outstanding voting power of the Company or (d) the voluntarily or involuntarily dissolution or liquidation of the Company or winding up of the Company’s affairs, or the taking by the Company of any action to effect any of the foregoing.

“ Commission ” shall mean the Securities and Exchange Commission or any other federal agency then administering the Securities Act and other federal securities laws.

“ Common Stock ” shall mean (except where the context otherwise indicates) the Common Stock of the Company, par value $ 0.001 per share, as constituted on the Original Issue Date, and any capital stock into which such Common Stock may thereafter be changed, and shall also include (i) capital stock of the Company of any other class (regardless of how denominated) issued to the holders of shares of any Common Stock upon any reclassification

thereof which is also not preferred as to dividends or liquidation over any other class of stock of the Company and which is not subject to redemption and (ii) shares of common stock of any successor or acquiring Person (as defined in Section 4.5 hereof) received by or distributed to the holders of Common Stock of the Company in the circumstances contemplated by Section 4.5 hereof.

“ Company ” means KonaRed Corporation, a Nevada corporation, and any successor corporation, including any successor by virtue of a transaction described in Section 4.1 .

“ Company Default ” means (a) the breach of any warranty or the inaccuracy at the time when made of any representation made by the Company herein or (b) the failure by the Company to comply with any covenant of the Company contained herein.

“ Convertible Securities ” shall mean evidences of indebtedness, shares of stock or other securities that are convertible into or exchangeable for, with or without payment of additional consideration in cash or property, shares of Common Stock, either immediately or upon the occurrence of a specified date or a specified event.

“ Current Market Price ” shall mean as of any specified date the average of the daily market prices of the Common Stock of the Company for the shorter of (x) the twenty (20) consecutive Business Days immediately preceding such date or (y) the period commencing on the Business Day next following the first public announcement of any event giving rise to an adjustment of the Exercise Price pursuant to Section 4 below and ending on such date. The “daily market price” for each such Business Day shall be: (i) if the Common Stock is then listed on a national securities exchange, the last sale price, regular way, on such day on the principal stock exchange or market system on which such Common Stock is then listed or admitted to trading, or, if no such sale takes place on such day, the average of the closing bid and asked prices for the Common Stock on such day as reported on such stock exchange or market system or (ii) if the Common Stock is not then listed or admitted to trading on any national securities exchange but is traded over-the-counter, the average of the closing bid and asked prices for the Common Stock as reported on the OTC Bulletin Board.

“ Designated Office ” shall have the meaning set forth in Section 11 hereof.

“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

“ Exercise Date ” shall have the meaning set forth in Section 2.2(a) hereof.

“ Exercise Notice ” shall have the meaning set forth in Section 2.2(a) hereof.

“ Exercise Period ” shall mean the period during which this Warrant is exercisable pursuant to Section 2.1 hereof.

“ Exercise Price ” shall mean, in respect of a share of Common Stock at any date herein specified, the initial Exercise Price set forth in the preamble of this Warrant.

“ Expiration Date ” shall mean the fifteen anniversary of the Original Issue Date.

“ Fair Value ” per share of Common Stock as of any specified date shall mean the higher of (i) the Book Value per share of Common Stock as of such date and (ii) (A) if the Common Stock is publicly traded on such date, the Current Market Price per share or (B) if the

Common Stock is not publicly traded on such date, (1) the fair market value per share of Common Stock as determined in good faith by the Board of Directors of the Company and set forth in a written notice to each Holder or (2) if any such Holder objects in writing to such price as determined by the Board of Directors within thirty (30) days after receiving notice of same, the Appraised Value per share as of such date.

“ Fully Diluted Outstanding ” shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all shares of Common Stock Outstanding on such date and all shares of Common Stock issuable in respect of (x) the Warrants outstanding on such date, (y) any Convertible Securities outstanding on such date and (z) any other Stock Purchase Rights outstanding on such date, in each case regardless of whether or not the conversion, exchange, subscription or purchase rights associated with such Convertible Securities or Stock Purchase Rights are presently exercisable.

“ GAAP ” shall mean generally accepted accounting principles in the United States of America as from time to time in effect.

“ Holder ” shall mean the Person in whose name the Warrant set forth herein is registered on the books of the Company maintained for such purpose.

“ Lien ” shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Uniform Commercial Code or comparable law of any jurisdiction).

“ NASDAQ ” shall mean the NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market or any successor reporting system.

“ Opinion of Counsel ” means a written opinion of counsel (who may be an employee of a Holder) experienced in Securities Act matters chosen by the holder of this Warrant or Warrant Stock issued upon the exercise hereof and reasonably acceptable to the Company.

“ Original Issue Date ” shall mean the date on which the Original Warrant was issued, as set forth on the cover page of this Warrant.

“ Original Warrant ” shall mean the Warrants originally issued by the Company on the Original Issue Date to VDF FutureCeuticals, Inc.

“ Other Property ” shall have the meaning set forth in Section 4.1 hereof.

“ Outstanding ” shall mean, when used with reference to Common Stock, at any date as of which the number of shares thereof is to be determined, all issued shares of Common Stock, except shares then owned or held by or for the account of the Company or any Subsidiary thereof, and shall include all shares issuable in respect of outstanding scrip or any certificates representing fractional interests in shares of Common Stock.

“ Person ” shall mean any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof).

“ Restricted Common Stock ” shall mean shares of Common Stock which are, or which upon their issuance on the exercise of this Warrant would be, evidenced by a certificate bearing the restrictive legend set forth in Section 8.1(a) hereof.

“ Securities Act ” shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.

“ Share Withholding Option ” has the meaning set forth in Section 2.2(c) hereof.

“ Subsidiary ” means any corporation or association (a) more than 50% (by number of votes) of the voting stock of which is at the time owned by the Company or by one or more Subsidiaries or by the Company and one or more Subsidiaries, or any other business entity in which the Company or one or more Subsidiaries or the Company and one or more Subsidiaries own more than a 50% interest either in the profits or capital of such business entity or (b) whose net earnings, or portions thereof, are consolidated with the net earnings of the Company and are recorded on the books of the Company for financial reporting purposes in accordance with GAAP.

“ Transfer ” shall mean any disposition of any Warrant or Warrant Stock or of any interest in either thereof, which would constitute a “sale” thereof within the meaning of the Securities Act.

“ Warrant Exercise Event ” shall mean (i) the Company reports $25,000,000 or more of gross sales in any fiscal year in its audited financial statements for such fiscal year, (ii) the Company has a class of securities listed for trading on the New York Stock Exchange, the American Stock Exchange or NASDAQ, (iii) the Company maintains an aggregate market capitalization of the Company’s outstanding capital stock of at least $125,000,000 for twenty (20) consecutive trading days based on the closing prices for the Common Stock as reported on the OTC Bulletin Board or (iv) a Change of Control (provided, that with respect to a Warrant Exercise Event resulting from a Change of Control, the Warrant Exercise Event shall be deemed to occur immediately prior to the occurrence of the Change of Control).

“ Warrants ” shall mean the Original Warrant and all warrants issued upon transfer of, or in substitution for, such Original Warrant or any other such Warrant.

“ Warrant Price ” shall mean an amount equal to (i) the number of shares of Common Stock being purchased upon exercise of this Warrant pursuant to Section 2.1 hereof, multiplied by (ii) the Exercise Price.

“ Warrant Stock ” generally shall mean the shares of Common Stock issued, issuable or both (as the context may require) upon the exercise or Warrants until such time as such shares of Common Stock have either been (i) Transferred in a public offering pursuant to a

registration statement filed under the Securities Act or (ii) Transferred in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof with all transfer restrictions and restrictive legends with respect to such Common Stock being removed in connection with such transaction.

2. EXERCISE OF WARRANT

2.1. Term .

(a) From and after the occurrence of any Warrant Exercise Event and until 5:00 P.M., New York time, on the Expiration Date, the Holder may at its option exercise this Warrant, on any Business Day, for all of the number of shares of Common Stock purchasable hereunder (as determined pursuant to Section 2.2 below).

(b) The Company shall give the Holder written notice of a Warrant Exercise Event and the expiration of the Exercise Period not less than thirty (30) days but not more than ninety (90) days prior to such Warrant Exercise Event or the end of the Exercise Period, as applicable.

2.2. Manner of Exercise .

(a) In order to exercise this Warrant, the Holder shall (i) deliver to the Company at the Designated Office a written notice of the Holder’s election to exercise this Warrant (an “ Exercise Notice ”), which Exercise Notice shall be irrevocable, together with this Warrant and (ii) pay to the Company the Warrant Price (the date on which both such delivery and payment shall have first taken place being hereinafter sometimes referred to as the “ Exercise Date ”). Such Exercise Notice shall be in the form of the subscription form appearing at the end of this Warrant as Annex A , duly executed by the Holder or its duly authorized agent or attorney. This Warrant may be exercised only in whole and not in part.

(b) Upon receipt of such Exercise Notice, Warrant and payment, the Company shall, as promptly as practicable, and in any event within five (5) Business Days thereafter, execute (or cause to be executed) and deliver (or cause to be delivered) to the Holder a certificate or certificates representing the aggregate number of full shares of Common Stock issuable upon such exercise, together with cash in lieu of any fraction of a share, as hereafter provided. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the exercising Holder shall reasonably request in the Exercise Notice and shall be registered in the name of the Holder or such other name as shall be designated in the Exercise Notice. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the Exercise Date.

(c) Payment of the Warrant Price shall be made at the option of the Holder by one or more of the following methods: (i) by delivery of a certified or official bank check in the amount of such Warrant Price or by wire transfer of immediately available funds to an account designated in writing to the Company, (ii) by instructing the Company to withhold a number of shares of Warrant Stock then issuable upon exercise of this Warrant with an aggregate Fair

Value equal to such Warrant Price (the “ Share Withholding Option ”), (iii) by surrendering to the Company shares of Common Stock previously acquired by the Holder with an aggregate Fair Value equal to such Warrant Price or (iv) any combination of the foregoing. In the event of any withholding of Warrant Stock or surrender of Common Stock pursuant to clause (ii) or (iii) above where the number of shares whose Fair Value is equal to the Warrant Price is not a whole number, the number of shares withheld by or surrendered to the Company shall be rounded up to the nearest whole share, and the Company shall make a cash payment to the Holder based on the incremental fraction of a share being so withheld by or surrendered to the Company in an amount determined in accordance with Section 2.3 hereof.

2.3. Payment of Taxes . All shares of Common Stock issuable upon the exercise of this Warrant pursuant to the terms hereof shall be validly issued, fully paid and nonassessable, issued without violation of any preemptive or similar rights of any stockholder of the Company and free and clear of all Liens (other than any created by actions of the Holder). The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery thereof, except for taxes on income or gains imposed by law upon the Holder.

2.4. Fractional Shares . The Company shall not issue any fractional shares of Common Stock upon exercise of the Warrant. If exercise of this Warrant would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share up to the nearest whole share.

2.5. The Company shall cause the shares of Warrant Stock, immediately upon such exercise, to be listed on any domestic securities exchange upon which shares of Common Stock or other securities constituting shares of Warrant Stock are listed at the time of such exercise.

2.6. Conditional Exercise . Notwithstanding any other provision hereof, if an exercise of any portion of this Warrant is to be made in connection with a public offering or a sale of the Company (pursuant to a merger, sale of stock, or otherwise), such exercise may at the election of the Holder be conditioned upon the consummation of such transaction, in which case such exercise shall not be deemed to be effective until immediately prior to the consummation of such transaction.

3. TRANSFER, DIVISION AND COMBINATION

3.1. Transfer . Subject to compliance with Section 8 hereof, each transfer of this Warrant and all rights hereunder shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the Designated Office, together with a written assignment of this Warrant in the form of Annex B hereto duly executed by the Holder or its agent or attorney. Upon such surrender and delivery, the Company shall, subject to Section 8 , execute and deliver a new Warrant in the name of the assignee specified in such instrument of assignment, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned in compliance with Section 8 , may be exercised by the new Holder for the purchase of shares of Common Stock without having a new Warrant issued.

3.2. Expenses . The Company shall prepare, issue and deliver at its own expense any new Warrant required to be issued under this Section 3 .

3.3. Maintenance of Books . The Company agrees to maintain, at the Designated Office, books for the registration and transfer of this Warrant.

4. ADJUSTMENT PROVISIONS

The number of shares of Common Stock for which this Warrant is exercisable and the Exercise Price shall be subject to adjustment from time to time as set forth in this Section 4 .

4.1. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets . In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another Person (where the Company is not the surviving Person or where there is any change whatsoever in, or distribution with respect to, the Outstanding Common Stock of the Company), sell, transfer or otherwise dispose of all or substantially all of its property, assets or business to another Person or enter into any other similar transaction and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, (i) shares of common stock of the successor or acquiring Person or of the Company (if it is the surviving Person) or (ii) any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring Person (“ Other Property ”) are to be received by or distributed to the holders of Common Stock of the Company who are holders immediately prior to such transaction, then the Holder of this Warrant shall have the right thereafter to receive, upon exercise of this Warrant, the number of shares of common stock of the successor or acquiring Person or of the Company, if it is the surviving Person, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In such event, the aggregate Exercise Price otherwise payable for the shares of Common Stock issuable upon exercise of this Warrant shall be allocated among the shares of common stock and Other Property receivable as a result of such reorganization, reclassification, merger, consolidation or disposition of assets in proportion to the respective fair market values of such shares of common stock and Other Property as determined in good faith by the Board of Directors of the Company. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be reasonably deemed appropriate (as determined by resolution of the Board of Directors of the Company) in order to provide for adjustments of any shares of the common stock of such successor or acquiring corporation for which this Warrant thus becomes exercisable, which modifications shall be as equivalent as practicable to the adjustments provided for in this Section 4 . For purposes of this Section 4.1 , “common stock of the successor or acquiring corporation” shall include stock of such corporation of any class that is not preferred as to dividends or assets over any other class of stock of such corporation and that is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities that are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 4.1 shall similarly apply to successive reorganizations, reclassification, mergers, consolidations or disposition of assets.

Notwithstanding anything to the contrary contained herein, with respect to any corporate event or other transaction contemplated by the provisions of this Section 4.1 , the Holder shall have the right to elect prior to the consummation of such event or transaction, to give effect to the exercise rights contained in Section 2 , if applicable, instead of giving effect to the provisions contained in this Section 4.1 with respect to this Warrant.

4.2. Other Dilutive Events . In case any event shall occur as to which the other provisions of this Section 4 are not strictly applicable but as to which the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles hereof, then, in each such case, the Holder may select an independent banking firm of nationally recognized standing and reasonably acceptable to the Company to make a determination as to the adjustment, if any, required to be made on a basis consistent with the essential intent and principles established herein as a result of such event in order to preserve the purchase rights represented by the Warrants. If the investment bank selected by the Holder is not reasonably acceptable to the Company, and the Company and the Holder cannot agree on a mutually acceptable investment bank, then the Company and the Holder shall each choose one such investment bank and the respective chosen firms shall jointly select a third investment bank, which shall make the determination. The Company shall pay the costs and fees of each such investment bank (including any such investment bank selected by the Holders), and the decision of the investment bank making such determination shall be final and binding on the Company and all affected holders of Warrants or Warrant Stock. Promptly after receipt of the opinion of such investment bank as to any such required adjustments, the Company shall take any actions necessary to implement same.

4.3. Other Provisions Applicable to Adjustments Under this Section . The following provisions shall be applicable to the adjustments provided for pursuant to this Section 4 :

(a) When Adjustments To Be Made . The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring such an adjustment shall occur. For the purpose of any such adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.

(b) Maximum Exercise Price . At no time shall the Exercise Price per share of Common Stock exceed the amount set forth in the first paragraph of the preamble of this Warrant.

(c) Notice of Adjustments . Whenever any adjustment pursuant to this Section 4 shall be made, the Company shall forthwith prepare a certificate to be executed by the chief financial officer of the Company setting forth, in reasonable detail, the event requiring the adjustment and the method by which such adjustment was calculated, describing the number and kind of any other shares of stock or Other Property for which this Warrant is exercisable, after giving effect to such adjustment or change. The Company shall promptly cause a signed copy of such certificate to be delivered to each Holder in accordance with Section 13.2 . The Company shall keep at its principal office or at the Designated Office, if different, copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by any Holder or any prospective transferee of a Warrant designated by a Holder thereof.

(d) Independent Application . Except as otherwise provided herein, all subsections of this Section 4 are intended to operate independently of one another (but without duplication). If an event occurs that requires the application of more than one subsection, all applicable subsections shall be given independent effect without duplication.

5. NO IMPAIRMENT

The Company shall not by any action, including, without limitation, amending its charter documents or through any reorganization, reclassification, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other similar voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder against impairment. Without limiting the generality of the foregoing, the Company shall take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, free and clear of all Liens, and shall use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction over it as may be necessary to enable the Company to perform its obligations under this Warrant.

6. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY

From and after the Original Issue Date, the Company shall at all times reserve and keep available for issuance upon the exercise of the Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants. All shares of Common Stock issuable pursuant to the terms hereof, when issued upon exercise of this Warrant with payment therefor in accordance with the terms hereof, shall be duly and validly issued and fully paid and nonassessable, not subject to preemptive rights and shall be free and clear of all Liens. If any shares of Common Stock required to be reserved for issuance upon exercise of Warrants require registration or qualification with any governmental authority under any federal or state law (other than under the Securities Act or any state securities law) before such shares may be so issued, the Company will in good faith and as expeditiously as possible and at its expense endeavor to cause such shares to be duly registered.

7. NOTICE OF CORPORATE ACTIONS; TAKING OF RECORD; TRANSFER BOOKS

7.1. Notices of Corporate Actions . In the event of: (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or distribution, or any right to subscribe for, purchase or otherwise acquire any shares of capital stock of any class or any other securities, (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger involving the Company and any other Person or any transfer or other disposition of all or substantially all the assets of the Company to another Person, (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, (d) any amendment of the Articles of Incorporation or (e) any registration or public offering of Common Stock, the Company shall mail to each Holder of a Warrant in accordance with the provisions of Section 13.2 hereof a notice specifying (i) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right,

and the amount and character of such dividend, distribution or right and (ii) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, transfer, disposition, dissolution, liquidation or winding-up is to take place, the time, if any such time is to be fixed, as of which the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for the securities or Other Property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, transfer, disposition, dissolution, liquidation or winding-up and a description in reasonable detail of the transaction. Such notice shall be mailed to the extent practicable at least thirty (30), but not more than ninety (90) days prior to the date therein specified. In the event that the Company at any time sends any other notice to the holders of its Common Stock, it shall concurrently send a copy of such notice to each Holder of a Warrant.

7.2. Closing of Transfer Books . The Company shall not at any time, except upon dissolution, liquidation or winding up of the Company, close its stock transfer books or Warrant transfer books so as to result in preventing or delaying the exercise or transfer of any Warrant.

8. TRANSFER

The Holder, by acceptance of this Warrant, agrees to be bound by the provisions of this Section 8 .

8.1. Restrictive Legends .

(a) Except as otherwise provided in this Section 8 , each certificate for Warrant Stock initially issued upon the exercise of this Warrant, and each certificate for Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with two legends in substantially the following forms:

“THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.”

(b) Except as otherwise provided in this Section 8 , each Warrant shall be stamped or otherwise imprinted with a legend in substantially the following form:

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN

THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.”

8.2. Termination of Securities Law Restrictions . Notwithstanding the foregoing provisions of Section 8 and the legend requirements of Section 8.1 shall terminate as to any particular Warrant or shares of Restricted Common Stock when the Company shall have received from the holder thereof an Opinion of Counsel to the effect that such legend is not required in order to ensure compliance with the Securities Act. Whenever the restrictions imposed by Section 8.1 shall terminate as to this Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive from the Company, at the expense of the Company, a new Warrant not bearing such restrictive legend set forth in Section 8.1(b) .

Wherever the restrictions imposed by this Section shall terminate as to any share of Restricted Common Stock, as hereinabove provided, the holder thereof shall be entitled to receive from the Company, at the Company’s expense, a new certificate representing such Common Stock not bearing the restrictive legend set forth in Section 8.1(a) .

8.3. Listing on Securities Exchange . If the Company shall list any shares of Common Stock on any securities exchange, it shall at its expense, to the extent permitted by the rules of such securities exchange, list thereon, maintain and, when necessary, increase such listing of, all shares of Warrant Stock issued or, to the extent permissible under the applicable securities exchange rules, issuable upon the exercise of this Warrant.

9. SUPPLYING INFORMATION; RULE 144

The Company shall cooperate with each holder of a Warrant and each holder of Warrant Stock in supplying such information as may be reasonably necessary for such holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Warrant or shares of Warrant Stock. The Company shall use its best efforts to at all times make public information available so as to afford the holders of the Warrants and the Warrant Stock the benefits of Rule 144 of the Commission in connection with resales, and upon request of any Holder shall provide such Holder with such financial statements, reports and other information as may be required to permit such Holder to sell Warrants or shares of Warrant Stock to one or more “ Qualified Institutional Buyers ” under Rule 144A of the Commission, in each case as such Rule may be amended from time to time or replaced or supplemented by any similar rule or regulation hereafter adopted by the Commission.

10. LOSS OR MUTILATION

Upon receipt by the Company from any Holder of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of this Warrant and an indemnity reasonably satisfactory to it (it being understood that the written indemnification agreement or affidavit of loss of the Holder shall be a sufficient indemnity) and, in case of mutilation, upon surrender and cancellation hereof, the Company will execute and deliver in lieu hereof a new Warrant of like tenor to such Holder; provided , however , in the case of mutilation, no indemnity shall be required if this Warrant in identifiable form is surrendered to the Company for cancellation.

11. OFFICE OF THE COMPANY

As long as any of the Warrants remain outstanding, the Company shall maintain an office or agency, which may be the principal executive offices of the Company (the “ Designated Office ”), where the Warrants may be presented for exercise, registration of transfer, division or combination as provided in this Warrant. Such Designated Office shall initially be the office of the Company at 2829 Ala Kalani Kaumaka St., Suite F-133 Koloa, HI 96756. The Company may from time to time change the Designated Office to another office of the Company or its agent within the United States by notice given to all registered holders of Warrants at least ten (10) Business Days prior to the effective date of such change.

12. FINANCIAL AND BUSINESS INFORMATION

Until the Expiration Date, the Company shall deliver to each holder of Warrants or of Warrant Stock one copy of each of the following items:

(i) as soon as available, and in any event within forty-five (45) days after the end of each of the first three quarters of each fiscal year, unaudited interim consolidated balance sheets of the Company and its Subsidiaries as at the end of such quarter and the related consolidated statements of income, cash flow, stockholders equity and changes in financial position of the Company and its Subsidiaries as at the end of and for such quarter, setting forth in each case in comparative form the corresponding figures for and as at the end of the corresponding quarter of the preceding fiscal year, all in reasonable detail and certified by a principal financial officer of the Company, as prepared in accordance with GAAP consistently applied (subject to year end adjustments and the absence of footnotes), and fairly presenting the consolidated financial position and results of operations of the Company and its Subsidiaries for such periods;

(ii) within ninety (90) days after the end of each fiscal year of the Company, consolidated balance sheets of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of income, stockholders’ equity and changes in financial position of the Company and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the consolidated figures for the previous fiscal year, all in reasonable detail and accompanied by a report thereon of independent public accountants of recognized national standing selected by the Company, which report shall state that such consolidated financial statements present fairly the financial position of the Company and its Subsidiaries as at the dates indicated and the results of their operations and changes in their financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise specified in such report) and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards;

(iii) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available by the Company to the holders of any class of its securities generally or by any Subsidiary of the Company to the holders of any class of its securities generally; and

(iv) with reasonable promptness, such other information relating to the Company and its Subsidiaries as the Holder may, from time to time, reasonably request.

13. MISCELLANEOUS

13.1. Nonwaiver . No course of dealing or any delay or failure to exercise any right hereunder on the part of the Company or the Holder shall operate as a waiver of such right or otherwise prejudice the rights, powers or remedies of such Person.

13.2. Notice Generally . Any notice, demand, request, consent, approval, declaration, delivery or communication hereunder to be made pursuant to the provisions of this Warrant shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

(a) if to any Holder of this Warrant or holder of Warrant Stock issued upon the exercise hereof, at its last known address appearing on the books of the Company maintained for such purpose;

(b) if to the Company, at its Designated Office;

or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, or three (3) Business Days after the same shall have been deposited in the United States mail, or one (1) Business Day after the same shall have been delivered to Federal Express or another overnight courier service.

13.3. Indemnification . The Company shall indemnify, save and hold harmless the Holder hereof and the holders of any Warrant Stock issued upon the exercise hereof from and against any and all liability, loss, cost, damage, reasonable attorneys’ and accountants’ fees and expenses, court costs and all other out-of-pocket expenses incurred in connection with or arising from a Company Default. This indemnification provision shall be in addition to the rights of such Holder or holders to bring an action against the Company for breach of contract based on such Company Default.

13.4. Limitation of Liability . No provision hereof, in the absence of affirmative action by the Holder to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder hereof, shall give rise to any liability of such Holder to pay the Exercise Price for any Warrant Stock other than pursuant to an exercise of this Warrant or any liability as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

13.5. Remedies . Each holder of Warrants and/or Warrant Stock, in addition to being entitled to exercise its rights granted by law, including recovery of damages, shall be entitled to specific performance of its rights provided under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees, in an action for specific performance, to waive the defense that a remedy at law would be adequate.

13.6. Successors and Assigns . Subject to the provisions of Sections 3.1 and 8.1 , this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the permitted successors and assigns of the Holder hereof. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and to the extent applicable, all holders of shares of Warrant Stock issued upon the exercise hereof (including transferees), and shall be enforceable by any such holder.

13.7. Amendment . This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

13.8. Severability . Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Warrant.

13.9. Headings . The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

13.10. GOVERNING LAW; JURISDICTION . IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS WARRANT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEVADA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, EXCEPT WITH RESPECT TO THE VALIDITY OF THIS WARRANT, THE ISSUANCE OF WARRANT STOCK UPON EXERCISE HEREOF AND THE RIGHTS AND DUTIES OF THE COMPANY WITH RESPECT TO REGISTRATION OF TRANSFER, WHICH SHALL BE GOVERNED BY THE LAWS OF NEVADA. THE COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEVADA, SHALL HAVE, EXCEPT AS SET FORTH BELOW, EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN THE COMPANY AND THE HOLDER OF THIS WARRANT PERTAINING TO THIS WARRANT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT.

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and its corporate seal to be impressed hereon and attested by its Secretary or an Assistant Secretary.

	KONARED CORPORATION


	By:	“Shaun Roberts”
		Name:
		Title:

ANNEX A

SUBSCRIPTION FORM

[To be executed only upon exercise of Warrant]

The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of ______ shares Common Stock of KonaRed Corporation and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant and requests that certificates for the shares of Common Stock hereby purchased (and any securities or other property issuable upon such exercise) be issued in the name of and delivered to _________________ whose address is ___________________________________________________ and, if such shares of Common Stock shall not include all of the shares of Common Stock issuable as provided in this Warrant, that a new Warrant of like tenor and date for the balance of the shares of Common Stock issuable hereunder be delivered to the undersigned.


		(Name of Registered Owner)


		(Signature of Registered Owner)


		(Street Address)


		(City) (State) (Zip Code)

NOTICE:

The signature on this subscription must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever.

ANNEX B

ASSIGNMENT FORM

FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Common Stock set forth below:

Name and Address of Assignee

and does hereby irrevocably constitute and appoint ________ _____________ attorney-in-fact to register such transfer onto the books of KonaRed Corporation maintained for the purpose, with full power of substitution in the premises.

Dated:			Print Name:

			Signature:

			Witness:

NOTICE:

The signature on this assignment must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatsoever.

REGISTRATION RIGHTS AGREEMENT, dated as of January 28, 2014 (this “ Agreement ”), by and between KonaRed Corporation, a Nevada corporation (the “ Company ”), and VDF FutureCeuticals, Inc., an Illinois corporation (the “ Investor ”).

WHEREAS, pursuant to the Settlement Agreement, dated as of January 28, 2014, by and between the Company and the Investor (the “ Settlement Agreement ”), and the License Agreement, dated as of January 28, 2014, by and between the Company and the Investor (the “ License Agreement ”), upon the terms and subject to the conditions contained therein, the Company is issuing to the Investor a Senior Secured Convertible Note of the Company, dated as of January 28, 2014 (the “ Convertible Note ”), and a Warrant to purchase shares of Common Stock (the “ Warrant ”).

WHEREAS, as a condition to the Investor consummating the transactions contemplated by the Settlement Agreement and the License Agreement, the Company has agreed to provide the Investor with the rights set forth in this Agreement.

Accordingly, the parties hereto agree as follows:

SECTION 1. Definitions . As used herein, unless the context otherwise requires, the following terms have the following respective meanings:

1.1. “ Affiliate ” means with respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person.

1.2. “ Agreement ” has the meaning set forth in the introduction.

1.3. “ Assignee ” has the meaning set forth in Section 4.2 .

1.4. “ Board of Directors ” means the board of directors of the Company.

1.5. “ Common Stock ” means any shares of common stock, par value $0.001 per share, of the Company, now or hereafter authorized to be issued, and any and all securities of any kind whatsoever of the Company or any successor thereof which may be issued on or after the date hereof in respect of, in exchange for, or upon conversion of shares of Common Stock pursuant to a merger, consolidation, stock split, reverse split, stock dividend, recapitalization of the Company or otherwise.

1.6. “ Company ” has the meaning set forth in the introduction and includes any successor thereto by merger, consolidation or otherwise.

1.7. “ Convertible Note ” has the meaning set forth in the recitals.

1.8. “ Convertible Securities ” shall mean (i) any options or warrants to purchase or other rights to acquire Common Stock, (ii) any securities by their terms convertible into or exchangeable for Common Stock, and (iii) any options or warrants to purchase or other rights to acquire any such convertible or exchangeable securities.

1.9. “ Demand Exercise Notice ” has the meaning set forth in Section 2.1(a) .

1.10. “ Demand Registration ” has the meaning set forth in Section 2.1(g) .

1.11. “ Exchange Act ” means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Exchange Act, shall include a reference to the comparable section, if any, of any such similar federal statute.

1.12. “ FINRA ” means Financial Industry Regulatory Authority.

1.13. “ Holder ” means the Investor and any Assignee.

1.14. “ Holder Demand ” has the meaning set forth in Section 2.1(a) .

1.15. “ Indemnified Party ” means any Person seeking indemnification pursuant to Section 2.6 .

1.16. “ Indemnifying Party ” means any Person from whom indemnification is sought pursuant to Section 2.6 .

1.17. “ Indemnitees ” has the meaning set forth in Section 2.6(a) .

1.18. “ Initiating Holder ” means the party or parties delivering a Holder Demand as provided for under Section 2.1(a) .

1.19. “ Investor ” has the meaning set forth in the introduction and includes any successor thereto by merger, consolidation or otherwise.

1.20. “ License Agreement ” has the meaning set forth in the recitals.

1.21. “ Lincoln Park ” means Lincoln Park Capital Fund, LLC, a Illinois limited liability company or an Affiliate thereof.

1.22. “ Losses ” has the meaning set forth in Section 2.6(a) .

1.23. “ Majority Participating Holders ” means, at any time, Participating Holders holding more than 50% of the Registrable Securities proposed to be included in any offering of Registrable Securities by such Participating Holders pursuant to Section 2.1 or Section 2.2 .

1.24. “ Participating Holders ” means any Holder participating in any offering of Registrable Securities pursuant to Section 2.1 or Section 2.2 .

1.25. “ Person ” means an individual, a corporation, a partnership, a limited liability company, a business, an association, a trust, an individual, or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

1.26. “ Postponement Period ” has the meaning set forth in Section 2.1(i) .

1.27. “ Settlement Agreement ” has the meaning set forth in the recitals.

1.28. “ Qualified Independent Underwriter ” has the meaning set forth in FINRA Rule 5121(f)(12).

1.29. “ Registrable Securities ” means any of the following when held by a Holder: (i) any shares of Common Stock issued upon the conversion of the Convertible Note, (ii) any shares of Common Stock issued upon exercise of the Warrant, and (iii) any shares of Common Stock acquired by the Holders from the Company after the date hereof upon exercise or conversion of Convertible Securities that are acquired by the Holders from the Company after the date hereof. For purposes of this Agreement, a Person will be deemed to be a Holder of Registrable Securities whenever such Person has the right to acquire, directly or indirectly, such Registrable Securities (upon conversion, exercise or exchange of the Convertible Note, the Warrant or any other Convertible Securities but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected, and such Person shall not be required to convert, exercise or exchange the Convertible Note, the Warrant or any such Convertible Security (or otherwise acquire such Registrable Security) to participate in any registered offering hereunder until the closing of such offering. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement or (b) when such securities shall have been sold pursuant to Rule 144 under the Securities Act or similar rule then in effect.

1.30. “ Registration Expenses ” means all fees and expenses incurred in connection with the Company’s performance of or compliance with Section 2 hereof, including, without limitation, (i) all registration, filing and applicable SEC fees, FINRA fees, national securities exchange or inter-dealer quotation system fees, and fees and expenses of complying with state securities or “blue sky” laws (including fees and disbursements of counsel to the underwriters and the Participating Holders in connection with “blue sky” qualification of the Registrable Securities and determination of their eligibility for investment under the laws of the various jurisdictions), (ii) all printing (including, if applicable, printing certificates for the Registrable Securities in a form eligible for deposit with The Depository Trust Company and printing preliminary and final prospectuses), word processing, duplicating, telephone and facsimile expenses, and messenger and delivery expenses, (iii) all fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of “cold comfort” letters or any special audits required by, or incident to, such registration, (iv) all reasonable fees and expenses of any special experts or other Persons retained by the Company in connection with any registration, (v) Securities Act liability insurance or similar insurance if the Company so desires or the underwriters so require in accordance with then-customary underwriting practices, (vi) all applicable rating agency fees with respect to the Registrable Securities, (vii) reasonable fees and expenses of a Qualified Independent Underwriter and its counsel, (viii) all fees and disbursements of the underwriters (other than underwriting discounts and commissions but, including reasonable fees and disbursements of one counsel for such underwriters), (ix) all transfer taxes, and (x) all expenses incurred in connection with promotional efforts or “roadshows” (as negotiated by the Company with the underwriters); provided , however , that Registration Expenses shall exclude, and the Participating Holders shall pay ratably, underwriting discounts and commissions in respect of the Registrable Securities being registered for such Participating Holders.

1.31. “ SEC ” means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.

1.32. “ Section 2.2 Sale Amount ” has the meaning set forth in Section 2.2(c) .

1.33. “ Securities Act ” means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time. References to a particular section of the Securities Act shall include a reference to the comparable section, if any, of any such similar federal statute.

1.34. “ Warrant ” has the meaning set forth in the recitals.

SECTION 2. Registration Under the Securities Act .

2.1. Registration on Demand .

(a) Demand . At any time or from time to time, a Holder or Holders holding a majority of Registrable Securities then outstanding may require the Company to use its best efforts to effect the registration under the Securities Act of all or part of their respective Registrable Securities (subject to any limits that may be imposed by the SEC pursuant to Rule 415 under the Securities Act), by delivering a written request (a “ Holder Demand ”) therefor to the Company specifying the number of shares of Registrable Securities to be registered and the intended method of distribution thereof. As promptly as practicable, but no later than 10 days after receipt of a Holder Demand, the Company shall give written notice (the “ Demand Exercise Notice ”) of the Holder Demand to all Holders of Registrable Securities. Such Holders shall have the option, within 10 days after the receipt of the Demand Exercise Notice, to request, in writing, that the Company include in such registration any Registrable Securities held by such Holder (which request shall specify the maximum number of Registrable Securities intended to be disposed of by such Holder). The Company shall as expeditiously as possible use its best efforts to effect the registration under the Securities Act of the Registrable Securities which the Company has been so requested to register by the Initiating Holder and any other Holders which have made such written request (subject to any limits that may be imposed by the SEC pursuant to Rule 415 under the Securities Act). The Company shall use its best efforts (i) to effect as soon as practicable (but, in any event, within 45 days of the receipt of the Holder Demand or, in the event the SEC reviews and has written comments to the registration statement, within 120 days of the receipt of the Holder Demand) the registration of Registrable Securities for distribution in accordance with the intended method of distribution set forth in a written request delivered by the Majority Participating Holders and (ii) if requested by the Majority Participating Holders, obtain acceleration of the effective date of the registration statement relating to such registration.

(b) Registration Statement Form . Registrations under this Section 2.1 shall be on such appropriate form of the SEC, which the Company is then eligible to use for such purpose (i) as shall be selected by the Company and as shall be reasonably acceptable to the Majority Participating Holders and (ii) as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition

specified in such Participating Holders’ requests for such registration, including, without limitation, a continuous or delayed basis offering pursuant to Rule 415 under the Securities Act to the extent available to the Company. The Company agrees to include in any such registration statement all information which, in the opinion of counsel to the Participating Holders and counsel to the Company, is necessary or desirable to be included therein.

(c) Expenses . The Company shall pay, and shall be responsible for, all Registration Expenses in connection with any registration requested pursuant to this Section 2.1 .

(d) Effective Registration Statement . A registration requested pursuant to this Section 2.1 shall not be deemed a Demand Registration (including for purposes of Section 2.1(g) ) unless a registration statement with respect thereto has become effective and unless the Participating Holders are able to sell at least 80% of the Registrable Securities requested to be included in such registration; provided , that a registration which is withdrawn at the sole request of the Majority Participating Holders pursuant to Section 2.1(f) will count as a Demand Registration unless (i) the Demand Registration does not become effective because a material adverse change has occurred, or is reasonably likely to occur, in the condition (financial or otherwise), prospects, business, assets or results of operations of the Company and its subsidiaries taken as a whole subsequent to the date of the delivery of the Demand Exercise Notice, (ii) after the Demand Registration has become effective, such registration is interfered with by any stop order, injunction, or other order or requirement of the SEC or other governmental agency or court, (iii) the Demand Registration is withdrawn at the request of the Majority Participating Holders due to the advice of the managing underwriter(s) that the Registrable Securities covered by the registration statement could not be sold in such offering within a price range acceptable to the Majority Participating Holders, (iv) the Demand Registration is withdrawn for any reason at any time during a Postponement Period or within 10 days thereafter or (v) the Participating Holders reimburse the Company for any and all Registration Expenses incurred by the Company in connection with such request for a Demand Registration that was withdrawn or not pursued, in which case the Demand Registration shall not be deemed to have been effected and will not count as a Demand Registration.

(e) Selection of Underwriters . The underwriters of each underwritten offering of the Registrable Securities pursuant to this Section 2.1 shall be selected by the Majority Participating Holders, which underwriters shall be reasonably acceptable to the Company.

(f) Right to Withdraw . Any Participating Holder shall have the right to withdraw its request for inclusion of Registrable Securities in any registration statement pursuant to this Section 2.1 at any time prior to the effective date of such registration statement by giving written notice to the Company of its request to withdraw. Upon receipt of notices from the Majority Participating Holders to such effect, the Company shall cease all efforts to obtain effectiveness of the applicable registration statement, and whether the Initiating Holder’s request for registration pursuant to this Section 2.1 shall be counted as a Demand Registration for purposes of Section 2.1(g) shall be determined in accordance with Section 2.1(d) above.

(g) Limitations on Registration on Demand . The Holders shall be entitled to require the Company to effect, and the Company shall be required to effect, three (3) registrations in the aggregate pursuant to this Section 2.1 (each, a “ Demand Registration ”): provided , however , that the Company shall not be required to have a registration statement declared effective pursuant to a Demand Registration until at least 90 days after the effective date of any other registration statement filed by the Company pursuant to a previous Demand Registration.

(h) Priority in Registrations on Demand . If any registration pursuant to a Holder Demand involves an underwritten offering and the managing underwriter(s) of such offering shall inform the Company in writing of its belief that the number of Registrable Securities requested to be included in such registration pursuant to this Section 2.1 , when added to the number of any other securities to be offered in such registration, would materially adversely affect such offering, then the Participating Holders shall be entitled to participate on a pro rata basis based on the number of shares of Registrable Securities requested to be included in the offering by each such Participating Holder prior to the inclusion of any securities other than Registrable Securities.

(i) Postponement . The Company shall be entitled once in any twelve month period to postpone for a reasonable period of time (but not exceeding 60 days) (the “ Postponement Period ”) the filing of any registration statement required to be prepared and filed by it pursuant to this Section 2.1 if the Company determines, in its reasonable judgment, upon advice of counsel, as authorized by a resolution of the Board of Directors, that such registration and offering would require premature disclosure of any material financing, material corporate reorganization or other material transaction involving the Company, and promptly gives the Participating Holders written notice of such determination, containing, to the extent each such Participating Holder agrees to keep such information confidential in accordance with Regulation FD, a specific statement of the reasons for such postponement and an approximation of the anticipated delay.

2.2. Incidental Registration .

(a) Right to Include Registrable Securities . If the Company at any time proposes to register any of its equity securities under the Securities Act by registration on Form S-l, S-2 or S-3, or any successor or similar form(s) (except registrations (i) pursuant to Section 2.1 , (ii) solely for registration of equity securities in connection with an employee benefit plan (as defined in Rule 405 under the Securities Act) or dividend reinvestment plan or stock option or stock incentive plan on Form S-8 or any successor form thereto, (iii) in connection with any acquisition or merger on Form S-4 or any successor form thereto, or (iv) of the Common Stock issuable to Lincoln Park pursuant to the equity line of credit to be entered into by the Company with Lincoln Park pursuant to the Term Sheet dated as of January 20, 2014 between the Company and Lincoln Park and the Common Stock to be issued to Lincoln Park and no more than one other investor in connection therewith in a bridge financing at $.55 per share for gross proceeds of up to $1 million (the “ Lincoln Equity Line ”)), whether or not for sale for its own account, it will at each such time give prompt written notice (but in no event less than 30 days prior to the initial filing of a registration statement with respect thereto) to each of the Holders of its intention to do so and such notice shall offer the Holders of such Registrable Securities the opportunity to register under such registration statement such number of Registrable Securities as each such Holder may request in writing. Upon the written request of any

of the Holders (which request shall specify the maximum number of Registrable Securities intended to be disposed of by such Holder), made as promptly as practicable and in any event within 20 days after the receipt of any such notice, the Company shall include in such registration under the Securities Act all Registrable Securities which the Company has been so requested to register by each Holder; provided , however , that if, at any time after giving written notice of its intention to register any equity securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such equity securities, the Company shall give written notice of such determination and its reasons therefor to the Holders and (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from any obligation of the Company to pay the Registration Expenses in connection therewith as provided for in Section 2.2(d) ), without prejudice, however, to the rights of the Holders to request that such registration be effected as a registration under Section 2.1 and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. No registration effected under this Section 2.2 shall relieve the Company of its obligation to effect any registration upon request under Section 2.1 .

(b) Right to Withdraw; Option to Participate in Shelf Takedowns . Any Holder shall have the right to withdraw its request for inclusion of Registrable Securities in any registration statement pursuant to this Section 2.2 at any time prior to the effective date of such registration statement by giving written notice to the Company of its request to withdraw. In the event that the Holder has requested inclusion of Registrable Securities in a shelf registration, the Holder shall have the right, but not the obligation, to participate in any offering of the Company’s equity securities under such shelf registration.

(c) Priority in Incidental Registrations . If any registration pursuant to this Section 2.2 involves an underwritten offering and the managing underwriter(s) of such offering shall inform the Company in writing of its belief that the number of Registrable Securities requested to be included in such registration or offering, when added to the number of other equity securities to be offered in such registration or offering, would materially adversely affect such offering, then the Company shall include in such registration or offering, to the extent of the number and type which the Company is so advised can be sold in (or during the time of) such registration or offering without so materially adversely affecting such registration or offering (the “ Section 2.2 Sale Amount ”), (i) all of the securities proposed by the Company to be sold for its own account; (ii) thereafter, to the extent the Section 2.2 Sale Amount is not exceeded, the Registrable Securities requested by the Participating Holders (provided that if all of the Registrable Securities requested by the Participating Holders may not be included, the Participating Holders shall be entitled to participate on a pro rata basis based on the aggregate number of shares of Registrable Securities requested by the Participating Holders to be registered); and (iii) thereafter, to the extent the Section 2.2 Sale Amount is not exceeded, any other securities of the Company requested to be included by Company stockholders holding other such registration rights on a pro rata basis based on the aggregate number of shares requested by the Participating Holders and the other Company stockholders to be registered; provided , that in any event the Participating Holders of Registrable Securities shall be entitled to register at least 30% of the securities to be included in any such registration.

(d) Expenses . The Company shall pay, and shall be responsible for, all Registration Expenses in connection with any registration requested pursuant to this Section 2.2 .

(e) Selection of Underwriters . The underwriters of each underwritten offering of the Registrable Securities pursuant to this Section 2.2 shall be selected by the Company provided that the Majority Participating Holders shall have the right to select a co-managing underwriter.

(f) Right to Terminate Registration . The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 prior to the effectiveness of such registration, whether or not any Holder has elected to include Registrable Securities in such registration.

2.3. Registration Procedures .

(a) If and whenever the Company is required to effect the registration of any Registrable Securities under the Securities Act pursuant to either Section 2.1 or Section 2.2 hereof, the Company shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall act as expeditiously as possible:

(i) use its best efforts to prepare and file with the SEC as soon as practicable (and in the case of a demand pursuant to Section 2.1 , within 30 days after receipt by the Company of a Demand Exercise Notice) a registration statement on an appropriate registration form of the SEC for the disposition of such Registrable Securities in accordance with the intended method of disposition thereof which registration statement shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the SEC to be filed therewith, and thereafter use its best efforts to cause such registration statement to become and remain effective (A) with respect to an underwritten offering, for a period of at least 90 days or until all shares subject to such registration statement have been sold and (B) with respect to any other registration, until the earlier of (1) the sale of all Registrable Securities thereunder and (2) the 18 month anniversary of the effective date of such shelf registration;

(ii) use its best efforts to prepare and file with the SEC any amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement in accordance with the intended methods of disposition by the Participating Holders set forth in such registration statement for such period as provided for in Section 2.3(a)(i) above;

(iii) furnish, without charge, to each Participating Holder and each underwriter such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as the Majority Participating Holders and such underwriters may request (it being understood that the Company consents to the use of such prospectus or any amendment or supplement thereto by each Participating Holder and the underwriters in connection with the offering and sale of the Registrable Securities covered by such prospectus or any amendment or supplement thereto); provided , that the Company shall have no obligation to provide any document pursuant to this clause that is available on the SEC’s EDGAR system;

(iv) use its best efforts (A) to register or qualify all Registrable Securities and other securities covered by such registration statement under such state securities or “blue sky” laws where an exemption is not available and as the Majority Participating Holders or any managing underwriter shall reasonably request, (B) to keep such registration or qualification in effect for so long as such registration statement remains in effect, and (C) to take any and all other actions which may be necessary or advisable to enable the Participating Holders or underwriters to consummate the disposition in such U.S. jurisdictions of the securities to be sold by the Participating Holders or underwriters, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not, but for the requirements of this Section 2.3(a)(iv) , be obligated to be so qualified or file a general consent to service of process in any such jurisdiction;

(v) without limiting Section 2.3(a)(iv) above, use its best efforts to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary in the opinion of counsel to the Company and counsel to the Participating Holders to consummate the disposition of such Registrable Securities;

(vi) to the extent any Participating Holder could be deemed to be an “underwriter” for purposes of Section 11 of the Securities Act in connection with such registration of Registrable Securities, furnish to each Participating Holder and each underwriter a signed counterpart of (A) an opinion of counsel for the Company and (B) a “comfort” letter signed by the independent public accountants who have certified the Company’s financial statements included or incorporated by reference in such registration statement, in each case, addressed to each Participating Holder and each underwriter covering matters with respect to such registration statement (and the prospectus included therein) as such Majority Participating Holders and managing underwriter(s) shall request;

(vii) promptly notify each Participating Holder and each managing underwriter (A) when such registration statement, any pre-effective amendment, the prospectus or any prospectus supplement related thereto or post-effective amendment to such registration statement has been filed, and, with respect to such registration statement or any post-effective amendment, when the same has become effective; (B) of

the receipt by the Company of any comments from the SEC or receipt of any request by the SEC for additional information with respect to any registration statement or the prospectus related thereto or any request by the SEC for amending or supplementing the registration statement and the prospectus used in connection therewith; (C) of the issuance by the SEC of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings for that purpose; (D) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction or the initiation of any proceeding for such purpose; (E) at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made, and in the case of this clause (E), promptly prepare and furnish, at the Company’s expense, to each Participating Holder and each managing underwriter a number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and (F) at any time when the representations and warranties of the Company contemplated by Section 2.4(a) or (b) hereof cease to be true and correct;

(viii) otherwise comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as practicable, an earnings statement covering the period of at least 12 consecutive months beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 1l(a) of the Securities Act and Rule 158 promulgated thereunder;

(ix) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement;

(x) use its best efforts to cause all Registrable Securities covered by such registration statement to be listed on the principal securities exchange on which similar securities issued by the Company are then listed (if any), if the listing of such Registrable Securities is then permitted under the rules of such exchange;

(xi) deliver promptly to counsel to the Participating Holders and each, underwriter, if any, participating in the offering of the Registrable Securities, copies of all correspondence between the SEC and the Company, its counsel or auditors and all memoranda relating to discussions with the SEC or its staff with respect to such registration statement;

(xii) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement;

(xiii) provide a CUSIP number for all Registrable Securities, no later than the effective date of the registration statement and, to the extent required, provide the applicable transfer agents with printed certificates for the Registrable Securities which are in a form eligible for deposit with The Depository Trust Company;

(xiv) cause its officers and employees to participate in, and to otherwise facilitate and cooperate with the preparation of the registration statement and prospectus and any amendments or supplements thereto (including participating in meetings, drafting sessions, due diligence sessions and the marketing of the Registrable Securities covered by the registration statement (including, without limitation, participation in “road shows”) taking into account the Company’s business needs;

(xv) enter into and perform its obligations under such customary agreements (including, without limitation, if applicable, an underwriting agreement as provided for in Section 2.4 herein) and take such other actions as the Majority Participating Holders or managing underwriter(s) shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities;

(xvi) promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter(s) or Majority Participating Holders reasonably request to be included therein relating to the plan of distribution with respect to such Registrable Securities; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment;

(xvii) cooperate with each Participating Holder and each underwriter, and their respective counsel in connection with any filings required to be made with FINRA or any securities exchange on which such Registrable Securities are traded or will be traded;

(xviii) cooperate with the Participating Holders and the managing underwriter(s) to facilitate the timely preparation and delivery of certificates not bearing any restrictive legends representing the Registrable Securities to be sold, and cause such Registrable Securities to be issued in such denominations and registered in such names in accordance with the underwriting agreement prior to any sale of Registrable Securities to the underwriters or, if not an underwritten offering, in accordance with the instructions of the Participating Holders at least five business days prior to any sale of Registrable Securities and instruct any transfer agent or registrar of Registrable Securities to release any stop transfer orders in respect thereof;

(xix) to the extent required by the rules and regulations of FINRA, retain a Qualified Independent Underwriter, which shall be reasonably acceptable to the Majority Participating Holders; and

(xx) take no direct or indirect action prohibited by Regulation M under the Exchange Act; provided , however , that to the extent that any prohibition is applicable to the Company, the Company will take such action as is necessary to make any such prohibition inapplicable.

(b) If the disposition by a Participating Holder of its securities is discontinued because of the happening of any event of the kind described in Section 2.3(a)(vii)(C) or (E) , the Company shall extend the period of effectiveness of the registration statement by the number of days during the period from and including the date of the giving of such notice to and including the date when the Participating Holder shall have received

copies of the supplemented or amended prospectus contemplated by Section 2.3(a)(vii)(E) ; and, if the Company shall not so extend such period, the Participating Holder’s request pursuant to which such registration statement was filed shall not be counted for purposes of the requests for registration to which the Participating Holder is entitled pursuant to Section 2.1 hereof. If for any other reason the effectiveness of any registration statement filed pursuant to Section 2.1 or Section 2.2 is suspended or interrupted prior to the expiration of the time period regarding the maintenance of the effectiveness of such registration statement required by Section 2.3(a)(i) so that Registrable Securities may not be sold pursuant thereto, the applicable time period shall be extended by the number of days equal to the number of days during the period beginning with the date of such suspension or interruption to and ending with the date when the sale of Registrable Securities pursuant to such registration statement may be resumed.

(c) If any such registration statement or comparable statement under “blue sky” laws refers to any Holder by name or otherwise as the Holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder and the Company, and subject to any comments made by the SEC staff, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company’s securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not in the judgment of the Company, as advised by counsel, required by the Securities Act or any similar federal statute or any state “blue sky” or securities law then in force, the deletion of the reference to such Holder.

(d) Holders may seek to register different types of Registrable Securities simultaneously and the Company shall use its reasonable best efforts to effect such registration and sale in accordance with the intended method or methods of disposition specified by such holders.

2.4. Underwritten Offerings .

(a) Demanded Underwritten Offerings . If requested by the underwriters for any underwritten offering by the Participating Holders pursuant to a registration requested under Section 2.1 , the Company shall enter into a customary underwriting agreement with the managing underwriter(s) selected by the Majority Participating Holders (in accordance with Section 2.1(e) hereto). Such underwriting agreement shall be reasonably satisfactory in form and substance to the Majority Participating Holders and the Company and shall contain such representations and warranties by, and such other agreements on the part of, the Company and such other terms as are generally prevailing in agreements of that type, including, without limitation, customary provisions relating to indemnification and contribution which are no less favorable to the recipient than those provided in Section 2.6 hereof. Each Participating Holder shall be a party to such underwriting agreement; provided , that no Participating Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Participating Holder, its ownership of and title to the Registrable Securities and its intended method of distribution; and any liability of any Participating Holder to any underwriter or other person under such underwriting agreement shall be limited to liability arising from breach of its representations and warranties and shall be limited to an amount equal to the proceeds (net of expenses and underwriting discounts and commissions) that it derives from such registration.

(b) Incidental Underwritten Offerings . In the case of a registration pursuant to Section 2.2 hereof, if the Company shall have determined to enter into an underwriting agreement in connection therewith, all of the Registrable Securities to be included in such registration shall be subject to such underwriting agreement. Each Participating Holder shall be a party to such underwriting agreement; provided , that no Participating Holder shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Participating Holder, its ownership of and title to the Registrable Securities and its intended method of distribution; and any liability of any Participating Holder to any underwriter or other Person under such underwriting agreement shall be limited to liability arising from breach of its representations and warranties and shall be limited to an amount equal to the proceeds (net of expenses and underwriting discounts and commissions) that it derives from such registration.

2.5. Preparation; Reasonable Investigation . In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the Participating Holders, the managing underwriter(s), and their respective counsel, accountants and other representatives and agents the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the SEC, and each amendment thereof or supplement thereto or comparable statements under securities or “blue sky” laws of any jurisdiction, and give each of the foregoing parties access to its books and records, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and such opportunities to discuss the business of the Company and its subsidiaries with their respective directors, officers and employees and the independent public accountants who have certified the Company and its subsidiaries’ financial statements, and supply all other information and respond to all inquiries requested by such Participating Holders, managing underwriter(s), or their respective counsel, accountants or other representatives or agents in connection with such registration statement, as shall be necessary or appropriate, in the opinion of counsel to such Participating Holder or managing underwriter(s), to conduct a reasonable investigation within the meaning of the Securities Act, and the Company shall not file any registration statement or amendment thereto or any prospectus or supplement thereto to which the Majority Participating Holders or the managing underwriter(s) shall object.

2.6. Indemnification .

(a) Indemnification by the Company . The Company agrees that in the event of any registration of any Registrable Securities under the Securities Act, the Company shall, and hereby does, indemnify and hold harmless, to the fullest extent permitted by law, (i) each of the Holders and their Affiliates, (ii) each of the Holders’ and their Affiliates’ respective Affiliates, officers, directors, successors, assigns, members, partners, shareholders, employees, advisors, representatives, and agents, (iii) each other Person who participates as an underwriter or Qualified Independent Underwriter in the offering or sale of such securities, (iv) each Person who controls (within the meaning of the Securities Act or the Exchange Act) any of the Persons listed in clauses (i), (ii) or (iii) and (v) any representative (legal or otherwise) of any of the

Persons listed in clauses (i), (ii), (iii) or (iv) (collectively, the “ Indemnitees ”) from and against any losses, penalties, fines, liens, judgments, suits, claims, damages, liabilities, costs and expenses (including reasonable attorney’s fees and any amounts paid in any settlement effected in compliance with Section 2.6(e) ) or liabilities, joint or several (or actions or proceedings, whether commenced or threatened, in respect thereof, and whether or not such Indemnitee is a party thereto) (“ Losses ”), to which such Indemnitee has become or may become subject under the Securities Act or otherwise, insofar as such Losses arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, or any preliminary prospectus, final prospectus or summary prospectus contained therein, any amendment or supplement thereto, or any documents incorporated by reference therein, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with any such registration, and the Company shall reimburse such Indemnitee for any reasonable legal or any other fees or expenses incurred by it in connection with investigating or defending any such Loss; provided that the Company shall not be liable to an Indemnitee to the extent that any such Loss arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement, or document incorporated by reference, in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Indemnitee, which specifically states that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement.

(b) Indemnification by Participating Holders . As a condition to including any Registrable Securities in any registration statement, the Company shall have received an undertaking reasonably satisfactory to it from each Participating Holder so including any Registrable Securities to, severally and not jointly, to the fullest extent permitted by law, indemnify and hold harmless (i) the Company, each director and officer of the Company (including each officer of the Company that signed the registration statement), employees and agents and each other Person, if any, who controls the Company within the meaning of the Securities Act or Exchange Act and (ii) any underwriters of the Registrable Securities, their officers and directors and each person who controls such underwriters (within the meaning of the Securities Act or the Exchange Act), with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, but only to the extent such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished by such Participating Holder to the Company specifically for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement and such Participating Holder shall reimburse such Indemnified Party for any reasonable legal or

any other fees or expenses reasonably incurred by them in connection with investigating or defending any such Loss; provided , however , that the liability of such Indemnifying Party under this Section 2.6(b) shall be limited to the amount of proceeds (net of expenses and underwriting discounts and commissions) received by such Indemnifying Party in the offering giving rise to such liability. Each Participating Holder shall also indemnify and hold harmless all other prospective sellers and Participating Holders, their respective Affiliates, officers, directors, successors, assigns, members, partners, shareholders, employees, advisors, representatives, and agents, and each Person who controls (within the meaning of the Securities Act or the Exchange Act) any such seller or Participating Holder to the same extent as provided above with respect to indemnification of the Company and underwriters.

(c) Notices of Claims . Promptly after receipt by an Indemnified Party of notice of the commencement of any action or proceeding involving a claim referred to in Section 2.6(a) or Section 2.6(b) , such Indemnified Party shall, if a claim in respect thereof is to be made against an Indemnifying Party, give written notice to such Indemnifying Party of the commencement of such action or proceeding; provided , however , that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under Section 2.6(a) or Section 2.6(b) , except to the extent that the Indemnifying Party is actually and materially prejudiced by such failure to give notice, and shall not relieve the Indemnifying Party from any liability which it may have to the Indemnified Party otherwise than under this Section 2.6 .

(d) Defense of Claims . In case any such action or proceeding is brought against an Indemnified Party, except as provided for in the next sentence, the Indemnifying Party shall be entitled to participate therein and assume the defense thereof, jointly with any other Indemnifying Party, with counsel reasonably satisfactory to such Indemnified Party, and after notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof and approval by the Indemnified Party of such counsel, the Indemnifying Party shall not be liable to such Indemnified Party for any legal expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than costs of investigation and the Indemnified Party shall be entitled to participate in such defense at its own expense. If (i) the Indemnifying Party fails to notify the Indemnified Party in writing, within 15 days after the Indemnified Party has given notice of the action or proceeding, that the Indemnifying Party will indemnify the Indemnified Party from and against all Losses the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the claim, (ii) the Indemnifying Party fails to provide the Indemnified Party with evidence acceptable to the Indemnified Party that the Indemnifying Party will have the financial resources to defend against the claim or proceeding and fulfill its indemnification obligations hereunder, (iii) the Indemnifying Party fails to defend diligently the action or proceeding within 15 days after receiving notice of such failure from such Indemnified Party; (iv) such Indemnified Party reasonably shall have concluded (upon advice of its counsel) that there may be one or more legal defenses available to such Indemnified Party or other indemnified parties which are not available to the Indemnifying Party; or (v) if such Indemnified Party reasonably shall have concluded (upon advice of its counsel) that, with respect to such claims, the Indemnified Party and the Indemnifying Party may have different, conflicting, or adverse legal positions or interests then, in any such case, the Indemnified Party shall have the right to assume or continue its own defense and the Indemnifying Party shall be liable for any fees and expenses therefor; provided , that the Indemnifying Party shall not be liable for the fees and expenses of more than one counsel (and such other local counsel as the Indemnified Parties shall determine to be reasonably necessary) at any time for all Indemnified Parties.

(e) Consent to Entry of Judgment and Settlements . No Indemnifying Party shall be liable for any settlement of any action or proceeding effected without its written consent, which consent shall not be unreasonably withheld, provided , that, in the case where the Indemnifying Party shall have failed to take any of the actions listed in clauses (i) , (ii) or (iii) of the last sentence of Section 2.6(d) , the Indemnified Party shall have the right to compromise or settle such action on behalf of and for the account, expense, and risk of the Indemnifying Party and the Indemnifying Party will remain responsible for any Losses the Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or caused by the action or proceeding to the fullest extent provided in this Section 2.6 . No Indemnifying Party shall, without the written consent of the Indemnified Party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the Indemnified Party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (A) includes an unconditional release of the Indemnified Party from all liability arising out of such action or claim, (B) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any Indemnified Party and (C) does not require any inaction or action other than the payment of money by the Indemnifying Party.

(f) Contribution . If for any reason the indemnification provided for in Sections 2.6(a) , (b) or (g) is unavailable to an Indemnified Party or insufficient in respect of any Losses referred to therein, then, in lieu of the amount paid or payable under Sections 2.6(a) , (b) or (g) , the Indemnifying Party shall contribute to the amount paid or payable by the Indemnified Party as a result of such Loss (i) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand, and the Indemnified Party on the other, with respect to the statements or omissions which resulted in such Loss, as well as any other relevant equitable considerations, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law or if the allocation provided in this clause (ii) provides a greater amount to the Indemnified Party than clause (i) above, in such proportion as shall be appropriate to reflect not only the relative fault but also the relative benefits received by the Indemnifying Party and the Indemnified Party from the offering of the securities covered by such registration statement as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or the Indemnified Party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 2.6(f) were to be determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in the preceding sentence of this Section 2.6(f) . No Person guilty of fraudulent misrepresentation (within the meaning of Section 1l(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The amount paid or payable by an Indemnified Party as a result of the Losses referred to in Sections 2.6(a) , (b) or (g) shall be deemed to include, subject to the limitations set forth in Sections 2.6(a) , (b) and (g) , any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding anything in this Section 2.6(f) to the contrary, no Participating Holder shall be required to contribute any amount in excess of the proceeds (net of expenses and underwriting discounts and commissions) received by such Participating Holder from the sale of the Registrable Securities in the offering to which the Losses of the indemnified parties relate.

(g) Other Indemnification . Indemnification and contribution similar to that specified in the preceding subsections of this Section 2.6 (with appropriate modifications) shall be given by the Company and the Participating Holders with respect to any required registration or other qualification of securities under state or “blue sky” law or regulation. The indemnification agreements contained in this Section 2.6 shall be in addition to any other rights to indemnification or contribution which any Indemnified Party may have pursuant to law or contract and shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Indemnitee or other Indemnified Party and shall survive the transfer of any of the Registrable Securities by any such party.

(h) Indemnification Payments . The indemnification and contribution required by this Section 2.6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or a Loss is incurred.

2.7. Limitation on Sale of Securities .

(a) For the Company and Others . If the Company receives a request for registration pursuant to an underwritten offering of Registrable Securities pursuant to Section 2.1 or 2.2 hereof, and if such a request is being implemented or has not been withdrawn or abandoned, the Company agrees that (i) the Company shall not effect any public or private offer, sale, distribution or other disposition of any of its equity securities or of any security convertible into or exchangeable or exercisable for any equity security of the Company or effect any registration of any of such securities under the Securities Act (in each case, other than (x) option grants to employees pursuant to the Company’s option plan, (y) as part of such registration and (z) as a registration using Form S-8 or any successor or similar form which is then in effect), whether or not for sale for its own account, during the period beginning on the date the Company receives such request until 90 days after the effective date of such registration (or such shorter period as the managing underwriter(s) may require) and (ii) the Company shall use its commercially reasonable efforts to obtain from each of its officers, directors and beneficial owners of 5% or more of Common Stock, an agreement not to effect any public or private offer, sale, distribution or other disposition of Common Stock, or any securities that are convertible or exchangeable or exercisable for Common Stock, during the period referred to in clause (i) of this paragraph, including, without limitation, a sale pursuant to Rule 144 under the Securities Act.

(b) For the Holders . If the Company receives a request for registration pursuant to an underwritten offering of Registrable Securities pursuant to Section 2.1 or 2.2 hereof, and if such a request is being implemented or has not been withdrawn or abandoned, each Holder agrees that, to the extent requested in writing by the managing underwriter(s); it will not effect any public or private offer, sale, distribution or other disposition of any Registrable Securities, or any securities convertible into or exchangeable or exercisable for such Registrable Securities (other than the conversion of shares of the Convertible Note), including, without limitation,

any sale pursuant to Rule 144 under the Securities Act, during the 90-day period beginning on the effective date of such registration statement (or such shorter period as the managing underwriter(s) may require), provided , that each Holder has received the written notice required by Sections 2.1(a) and 2.2(a) ; and further , provided , that in connection with such underwritten offering each officer and director of the Company and all stockholders owning more than 5% of the Company’s Common Stock are subject to restrictions substantially equivalent to those imposed on the Holders.

2.8. No Required Sale . Nothing in this Agreement shall be deemed to create an independent obligation on the part of any of the Holders to sell any Registrable Securities pursuant to any effective registration statement.

2.9. Rule 144; Rule 144A; Regulation S . The Company covenants that, at its own expense, it will file the reports required to be filed by it under the Securities Act and the Exchange Act, and it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rules 144, 144A or Regulation S under the Securities Act or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the request of a Holder, the Company, at its own expense, will promptly deliver to such Holder (i) a written statement as to whether it has complied with such requirements (and such Holder shall be entitled to rely upon the accuracy of such written statement), (ii) a copy of the most recent annual or quarterly report of the Company and (iii) such other reports and documents as such Holder may reasonably request in order to avail itself of any rule or regulation of the SEC allowing it to sell any Registrable Securities without registration.

2.10. Adjustments . At the request of any Holder, in the event of any change in the capitalization of the Company as a result of any stock split, stock dividend, reverse split, combination, recapitalization, merger, consolidation, or otherwise, the provisions of this Section 2 shall be appropriately adjusted. The Company agrees that it shall not effect or permit to occur any combination or subdivision of shares which would adversely affect the ability of the Holders to include any Registrable Securities in any registration contemplated by this Agreement.

SECTION 3. Subsequent Registration Rights; No Inconsistent Agreements .

3.1. Limitations on Subsequent Registration Rights . Except with respect to the registration of the Common Stock to be issued pursuant to Lincoln Equity Line, from and after the date of this Agreement and for so long as the (x) the Convertible Note remains outstanding, (y) the Warrant remains outstanding or (z) the Investor Percentage Interest (as defined in the Investor Right Agreement between Investor and the Company dated January 28, 2014) is 0.5% or greater, without the prior written consent of the Investor, the Company shall not enter into an agreement that grants a holder or prospective holder of any securities of the Company demand or incidental registration rights that by their terms are not subordinate to the registration rights granted to the Holders in this Agreement. Except with respect to the registration of the shares of Common Stock to be issued pursuant to the Lincoln Equity Line, so long as the Holders hold Registrable Securities, the Company shall not enter into any agreement granting a holder or prospective holder of securities of the Company registration rights that are senior to the

rights of the Holders hereunder and if, after the date of this Agreement, the Company enters into any other agreement with respect to the registration of any of its equity securities, and the terms contained therein are more favorable to, or less restrictive on, the other party thereto than the terms and conditions contained in this Agreement (insofar as they are applicable) with respect to the Holders, then the terms of this Agreement shall immediately be deemed to have been amended without further action by the Company or the Holders so that the Holders shall be entitled to the benefit of any such more favorable or less restrictive terms or conditions.

3.2. No Inconsistent Agreements . The Company will not, on or after the date of this Agreement, enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in Section 2 or otherwise conflicts with the provisions of Section 2 , other than any customary lock-up agreement with the underwriters in connection with any offering effected hereunder, pursuant to which the Company shall agree not to register for sale, and the Company shall agree not to sell or otherwise dispose of, Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, for a specified period (not to exceed 180 days) following such offering. The Company warrants that the rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with any other agreements to which the Company is a party or by which it is bound. The Company has not previously entered into any agreement with respect to its securities granting any registration rights to any Person that is in force or effect as of the date hereof or will become effective after the date hereof.

SECTION 4. Miscellaneous .

4.1. Amendments and Waivers . This Agreement and any of the provisions hereof may be amended, waived (either generally or in a particular instance and either retroactively or prospectively), modified or supplemented, in whole or in part, only by written agreement of the Company and the Investor; provided , however , that any amendment, waiver, modification or supplement of Section 2.6 shall require the written agreement of the Company and Holders holding at least a majority of the Registrable Securities; and provided , further , that the observance of any provision of this Agreement may be waived in writing by the party that will lose the benefit of such provision as a result of such waiver. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach, except as otherwise explicitly provided for in such waiver. Except as otherwise expressly provided herein, no failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder, or otherwise available in respect hereof at law or in equity, shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The execution of a counterpart signature page to this Agreement after the date hereof by any Person as provided for herein shall not require consent of any party hereto and shall not be deemed an amendment to this Agreement.

4.2. Assignment . This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and any of their respective successors, personal representatives and permitted assigns who agree in writing to be bound by the terms hereof. The Company may not assign any of its rights or delegate any of its duties under this Agreement without the prior written consent of the Holders. Any Holder may, at its election and at any time or from time to time, assign its rights and delegate its duties under this Agreement, in whole or in part, to an Affiliate or to any Person to whom the Holder sells, assigns or otherwise transfers any of its Registrable Securities (an “ Assignee ”); provided that, no such assignment shall be binding upon or obligate the Company to any such Assignee unless and until the Assignee delivers to the Company (i) a written notice stating the

name and address of the Assignee and identifying the securities with respect to which such rights are being assigned, if any, and (ii) a written instrument by which such Assignee agrees to be bound by the obligations imposed upon Holders under this Agreement to the same extent as if such Assignee were a party hereto (or executes and delivers to the Company a counterpart to this Agreement and agrees to be treated as a “Holder” for all purposes of this Agreement).

4.3. Third Party Beneficiaries . This Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Agreement, other than Persons entitled to indemnification under Section 2.6 .

4.4. Notice . Unless otherwise provided herein, all notices, requests, demands, claims and other communications provided for under the terms of this Agreement shall be in writing and shall be delivered personally, by facsimile (with receipt confirmed telephonically) or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given if delivered personally or facsimile, on the date of such delivery or such confirmation is received, or if sent by reputable overnight courier, on the first business day following the date of such mailing, as follows:

(a) If to any Holder, to:

VDF FutureCeuticals, Inc.

2692 N. State Rt. 1-17

Momence, IL 60954

Facsimile: 815-472-3529

Attention: John Hunter

With a copy to (which shall not constitute notice):

Sidley Austin LLP

One South Dearborn Street

Chicago, Illinois 60603

Facsimile: (312) 853-7036

Attention: Pran Jha

(b) If to the Company, to:

KonaRed Corporation

2829 Ala Kalani Kaumaka St., Suite F-133

Koloa, HI 96756

Facsimile: (808) 442-9922

Attention: Shaun Roberts

With a copy to (which shall not constitute notice):

Clark Wilson LLP

900-885 West Georgia Street

Vancouver, BC V6C 3H1

Canada

Facsimile: (604) 687-6314

Attention: Bernard Pinsky

Any party may by notice given in accordance with this Section 4.4 designate another address or person for receipt of notices hereunder.

4.5. Governing Law; Waiver of Jury Trial .

(a) Governing Law . This Agreement shall be construed and enforced in accordance with, and the rights and obligations of the parties hereto shall be governed by, the laws of the State of New York, without giving effect to principles of conflicts of laws.

(b) Waiver of Jury Trial . With respect to any action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby, each of the parties hereby irrevocably, to the extent not prohibited by applicable law that cannot be waived, waives, and covenants that it will not assert (whether as plaintiff, defendant or otherwise), any right to trial by jury in any action arising in whole or in part under or in connection with this Agreement or the transactions contemplated hereby, whether now existing or hereafter arising, and whether sounding in contract, tort or otherwise, and agrees that any of them may file a copy of this paragraph with any court as written evidence of the knowing, voluntary and bargained-for agreement among the parties irrevocably to waive its right to trial by jury in any action or proceeding whatsoever between them relating to this Agreement or the transactions contemplated hereby. Such action or proceeding shall instead be tried by a judge sitting without a jury.

4.6. Remedies . The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or was otherwise breached and further agree that money damages or other remedy at law would not be a sufficient or adequate remedy for any breach or violation of, or a default under, this Agreement by them and that, in addition to all other remedies available to them, each of them shall be entitled to an injunction restraining such breach, violation or default or threatened breach, violation or default and to any other equitable relief, including, without limitation, specific performance of the terms and provisions of this Agreement. Any requirements for the securing or posting of any bond with respect to such remedy are hereby waived by each of the parties hereto. Each party further agrees that, in the event of any action for an injunction or other equitable remedy in respect of such breach or enforcement of specific performance, it will not assert the defense that a remedy at law would be adequate. In any action or proceeding brought to enforce any provision of this Agreement (including the indemnification provisions thereof), or where any provision hereof is validly asserted as a defense, the successful party to such action or proceeding shall be entitled to recover, to the extent permitted by applicable law, attorneys’ fees in addition to its costs and expenses and any other available remedy.

4.7. Further Assurances . Each party hereto shall cooperate with each other party, shall do and perform or cause to be done and performed all further acts and things, and shall execute and deliver all other agreements, certificates, instruments, and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

4.8. Severability . If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

4.9. Entire Agreement . This Agreement, the Settlement Agreement, the Convertible Note, the Warrant and the documents referred to herein or therein or delivered pursuant hereto or thereto, are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein. This Agreement, the Settlement Agreement, the Convertible Note, the Warrant and the documents referred to herein or therein or delivered pursuant hereto or thereto, supersede all prior agreements and understandings between the parties with respect to such subject matter.

4.10. Counterparts . This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, all of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

4.11. Defaults . A default by any party to this Agreement in such party’s compliance with any of the conditions or covenants hereof or performance of any of the obligations of such party hereunder shall not constitute a default by any other party.

4.12. General Interpretive Principles . Whenever used in this Agreement, except as otherwise expressly provided or unless the context otherwise requires, any noun or pronoun shall be deemed to include the plural as well as the singular and to cover all genders. The headings of the sections, paragraphs, subparagraphs, clauses and subclauses of this Agreement are for convenience of reference only and shall not in any way affect the meaning or interpretation of any of the provisions hereof. Unless otherwise specified, the terms “hereof,” “herein” and similar terms refer to this Agreement as a whole, and references herein to Sections refer to Sections of this Agreement. Words of inclusion shall not be construed as terms of limitation herein, so that references to “include,” “includes” and “including” shall not be limiting and shall be regarded as references to non-exclusive and non-characterizing illustrations.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their respective officers hereunto duly authorized as of the date first above written.

	KONARED CORPORATION

	By:	“Shaun Roberts”
		Name:
		Title:


	VDF FUTURECEUTICALS, INC.

	By:	“John Hunter”
		Name: John Hunter
		Title: Executive Vice President

INVESTOR RIGHTS AGREEMENT

INVESTOR RIGHTS AGREEMENT, dated as of January 28, 2014 (this “ Agreement ” ), by and between KonaRed Corporation, a Nevada corporation (the “ Company ” ) and VDF FutureCeuticals, Inc., an Illinois corporation ( “ Investor” ).

WHEREAS, Investor and the Company are entering into that certain Settlement Agreement dated as of January 28, 2014 (the “ Settlement Agreement ”) to settle certain outstanding litigation between the parties; and

WHEREAS, in connection with the execution of the Settlement Agreement, the Company is issuing to Investor a Senior Secured Convertible Note of the Company dated as of the date hereof (the “ Note ”) and a Warrant to purchase shares of Common Stock of the Company dated as of the date hereof (the “ Warrant ”); and

WHEREAS, as a condition to entering into the Settlement Agreement, the Note and the Warrant, Investor and the Company have agreed to enter into this Agreement.

Accordingly, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

1.1 Definitions . As used in this Agreement, and unless the context requires a different meaning, the following terms shall have the meanings set forth below:

“ Agreement ” has the meaning assigned to such term in the preamble.

“ Articles of Incorporation ” means the certificate of incorporation of the Company, as the same may have been amended.

“ Beneficially own ” with respect to any securities means having “beneficial ownership” of such securities as determined pursuant to Rule 13d-3 under the Exchange Act, as in effect on the date hereof.

“ Board of Directors ” means either the board of directors of the Company or any duly authorized committee thereof.

“ Board Observer ” has the meaning assigned to such term in Section 2.2.

“ Business Day ” means any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions in New York City are authorized or obligated by law or executive order to remain closed.

“ Bylaws ” means the bylaws of the Company, as the same may have been amended.

“ Change of Control ” means (a) any sale, transfer, lease or license of all or substantially all of the assets of the Company in a transaction or series of related transactions, (b) any merger, consolidation or reorganization that results in any Person or group of Persons acting in concert (other than Shaun Roberts, Dana Roberts and/or or any trust set up solely for the benefit of Shaun Roberts or Dana Roberts and/or their descendents) owning in excess of 50% of the outstanding voting power of the Company, (c) any issuance or sale or series of issuances or sales of capital stock of the Company by the Company or any holder of such capital stock that results in any Person or group of Persons acting in concert (other than Shaun Roberts, Dana Roberts and/or any trust set up solely for the benefit of Shaun Roberts or Dana Roberts and/or their descendents) owning in excess of 50% of the outstanding voting power of the Company or (d) the voluntarily or involuntarily dissolution or liquidation of the Company or winding up of the Company’s affairs, or the taking by the Company of any action to effect any of the foregoing.

“ Commission ” means the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Securities Act.

“ Common Stock ” means any shares of common stock, par value $0.001 per share, of the Company, now or hereafter authorized to be issued, and any and all securities of any kind whatsoever of the Company or any successor thereof which may be issued on or after the date hereof in respect of, in exchange for, or upon conversion of shares of Common Stock pursuant to a merger, consolidation, stock split, reverse split, stock dividend, recapitalization of the Company or otherwise.

“ Company ” has the meaning assigned to such term in the preamble.

“ Conversion Shares ” means the shares of Common Stock issuable upon conversion of the Note or the exercise of the Warrant.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder by the Commission from time to time.

“ GAAP ” means United States generally accepted accounting principles consistently applied.

“ Governmental Authority ” means any court, tribunal, arbitrator, arbitrational panel or authority, agency, commission, official or other instrumentality of the United States or any other country, or any supra-national organization, state, county, city or other political subdivision or any self-regulatory organization.

“ Investor ” has the meaning assigned to such term in the recitals.

“ Investor Percentage Interest ” means the percentage of the aggregate voting power of the Company, determined on the basis of the number of Voting Securities actually outstanding, that is controlled directly or indirectly by Investor, including as beneficially owned.

“ License Agreement ” means the license agreement among the Company and the Investor dated January 28, 2014 whereby the Investor grants to the Company the right to use the trademarked name “Coffeeberry”, provides use of the Investor’s human clinical science on Coffeeberry and grants a license to the Company to use the Investor’s patented process to extract any portion of the Coffeeberry for any use.

“ Lien ” means any mortgage, deed of trust, pledge, hypothecation, assignment, encumbrance, lien (statutory or other), voting or other restriction, preemptive right or other security interest of any kind or nature whatsoever.

“ Note ” has the meaning assigned to such term in the recitals.

“ Order ” means any writ, judgment, decree, injunction, award or similar order of any Governmental Authority, including any award in an arbitration proceeding (in each case, whether preliminary or final).

“ Permitted Lien ” has the meaning specified in the Note.

“ Person ” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company, company, limited liability company, trust, unincorporated association, Governmental Authority, or any other entity of whatever nature.

“ Pledge and Security Agreement ” means that certain Pledge and Security Agreement between the Company and Investor, dated January 28, 2014.

“ Qualifying Investor Interest ” means an Investor Percentage Interest equal to or greater than 10%.

“ Registration Rights Agreement ” means the Registration Rights Agreement between the Company and Investor dated January 28, 2014.

“ Related Party Agreement " means any agreement, arrangement or understanding between the Company and any stockholder or any affiliate of a stockholder or any director, officer or employee of the Company, as such agreement may be amended, modified, supplemented or restated in accordance with the terms of this Agreement.

“ Requirement of Law ” means any law, statute, code, treaty, Order, ordinance, rule, regulation or other requirement promulgated or enacted by any Governmental Authority.

“ Restricted Period ” has the meaning assigned to such term in Section 3.1 .

“ Rule 144 ” means Rule 144 promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission.

“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder by the Commission from time to time.

“ Settlement Agreement ” has the meaning assigned to such term in the recitals.

“ Subsidiary ” of any specified Person means any other Person more than 50% of the outstanding voting securities of which is owned or controlled, directly or indirectly, by such specified Person or by one or more other Subsidiaries of such specified Person, or by such specified Person and one or more other Subsidiaries of such specified Person. For the purposes of this definition, “ voting securities ” means securities which ordinarily have voting power for the election of directors (or other Persons having similar functions), whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency, or other ownership interests ordinarily constituting a majority voting interest.

“ Transaction Agreements ” means this Agreement, the Note, the Pledge and Security Agreement, the Registration Rights Agreement, the Warrant and the License Agreement.

“ Voting Securities ” mean any class or classes of stock of the Company pursuant to which the holders thereof have the general power under ordinary circumstances to vote with respect to the election of the Board of Directors, irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency.

“ Warrant ” has the meaning assigned to such term in the recitals.

ARTICLE 2

BOARD OF DIRECTORS

2.1 Board of Directors . (a) From and after the date that Investor acquires shares of Common Stock and for so long as Investor has a Qualifying Investor Interest, Investor shall have the right to designate that number of nominees to the Board of Directors such that the total number of directors designated by Investor is at least proportional to (and not less than) Investor Percentage Interest; provided , that, to the extent that the proportional number of designees to the Board of Directors that Investor is entitled to designate based on Investor Percentage Interest shall not be a whole number (because of the size of the Board of Directors), the number of nominees to the Board of Directors that Investor shall be entitled to designate shall be rounded up to the next higher whole number. Investor’s nominees to the Board of Directors shall satisfy all applicable Requirements of Law relating to service as a director of the Company. The Board of Directors may elect to (a) increase the size of the Board of Directors, (b) fill any vacancies resulting from resignations, or (c) a combination of (a) and (b) to accomplish the proportional representation of Investor on the Board of Directors pursuant to this Section 2.1(a) ; provided , that, to the extent necessary to comply with applicable Requirements of Law or applicable stock exchange rules, the Board of Directors shall increase the size of the Board of Directors to accomplish proportional representation of Investor’s nominees on the Board of Directors pursuant to this Section 2.1.(a) . The Company shall be required to recommend to its

stockholders the election of such designees of Investor to the Board of Directors at the Company’s stockholder meetings and shall solicit proxies for them to the same extent as it does for any of its other nominees to the Board of Directors. So long as Investor’s designated nominees are members of the Board of Directors, any transactions between Investor and the Company shall be approved by a special committee of the Board of Directors consisting entirely of directors that are independent of Investor.

(b) Within five (5) Business Days of the acquisition of shares of Common Stock by Investor (by conversion of the Note, exercise of the Warrant or otherwise), the Board of Directors and the Company shall take or cause to be taken all necessary action not previously taken (including any necessary Bylaw amendments to cause the numbers of directors constituting the Board of Directors to be increased) to the extent necessary to accomplish the proportional representation of Investor’s nominees to the Board of Directors pursuant to Section 2.1(a) .

(c) Each committee of the Board of Directors (other than any special committee or committee of independent directors that may be constituted for purposes of making any determination with respect to any agreement or transaction between the Company and Investor) shall at all times include a number of directors designated by Investor that is at least proportional to the Investor Percentage Interest; provided , that, to the extent having Investor designate a number of members proportional to the Investor Percentage Interest would not comply with applicable Requirements of Law or applicable stock exchange rules, each of the audit committee, the compensation committee and the nominating committee of the Board of Directors shall instead of having a number of members designated by Investor proportional to the Investor Percentage Interest have one member designated by Investor. Any director designated by Investor to serve on any committee may designate as his or her alternate another director designated by Investor.

2.2 Board Observer Rights . From and after the date hereof and until such time as (i) the Note has terminated, (ii) the Warrant has terminated or been exercised and (iii) the Investor Percentage Interest is less than 1%, if Investor does not have a designee on the Board of Directors pursuant to Section 2.1 , Investor shall have the right to appoint one individual (the “ Board Observer ”) selected by Investor as a non-voting observer entitled to attend meetings of the Board of Directors, and such Board Observer shall be entitled to be delivered all notices and information provided to the members of such Board of Directors (within the same time frames provided to such members) and attend all meetings of such Board of Directors; provided , however , that the Board Observer may be excluded from receiving such information and materials (or the relevant portions thereof) or from attending such meetings (or the relevant portions thereof) if the Company reasonably determines that such exclusion is necessary to avoid a conflict of interest or to protect attorney-client privilege.

ARTICLE 3

COVENANTS OF THE COMPANY

3.1 Conduct of Business . Except as agreed in writing by Investor, from and after the date hereof for so long as (x) the Note remains outstanding, (y) the Warrant remains outstanding or (z) Investor owns a Qualifying Investor Interest (collectively, the “ Restricted Period ”), the Company shall not, and will cause its Subsidiaries not to:

(i) amend the Articles of Incorporation or Bylaws or the organizational documents of the Company or any of its Subsidiaries, or increase or decrease its authorized capital unless the rights of the Investor under the Transaction Agreements would not be adversely affected thereby;

(ii) recapitalize or otherwise change its capital structure in a manner that would result in, or affect any transaction constituting, a Change of Control;

(iii) make any material change to the nature of the business conducted by the Company or its primary line of business;

(iv) incur, create, assume, become or be liable in any manner with respect to, or permit to exist, any indebtedness other than (a) the Note, (b) trade payables incurred in the ordinary course of business or (c) other indebtedness not to exceed $7,500,000 in the aggregate at any one time outstanding;

(v) purchase, redeem, retire or otherwise acquire, split, combine or reclassify, directly or indirectly, any of the Common Stock or other equity securities of the Company or give notice of any intention to exercise any right to purchase, redeem or otherwise acquire, split, combine or reclassify, any of the Common Stock or other equity securities of the Company (including any such purchase, redemption or acquisition in accordance with the terms of the Articles of Incorporation or Bylaws or any stockholders agreement), other than redemptions in accordance with any employee or consultant agreement approved by the Board of Directors in connection with a separation of service, unless the rights of the Investor under the Transaction Agreements would not be adversely affected thereby;

(vi) prior to the termination of the Note, declare or pay any dividends on or make other distributions of any kind (whether in cash, stock or property or any combination thereof), directly or indirectly, in respect of the Common Stock or other equity securities;

(vii) enter into or permit to exist any agreement or undertaking (other than this Agreement) which prohibits, restricts or limits the ability of any Subsidiary of the Company to pay dividends or distributions to the Company, or otherwise to transfer any material assets or engage in transactions with the Company;

(viii) voluntarily dissolve, wind up or liquidate;

(ix) sell, lease, license, surrender, relinquish, transfer, assign, amend, convey or otherwise dispose of outside of the ordinary course of business in one or more transactions any business, property or assets (whether tangible or intangible) having an aggregate market value of in excess of $250,000 individually or $1,000,000 in the aggregate, or allow any Lien to be placed on any of its assets other than a Permitted Lien;

(x) enter into, amend in any material respect, waive or terminate any Related Party Agreement other than the entry into a Related Party Agreement that is on an arm's length basis and on terms no less favorable to the Company than those that could be obtained from an unaffiliated third party;

(xi) discontinue, permit to lapse or otherwise fail to keep in full force and effect any material policies of insurance or knowingly take any action that would cause any such policy to terminate or be terminable prior to the expiration of its stated term;

(xii) change any method of accounting or accounting practice used by the Company or any of its Subsidiaries, except for any change required by GAAP, by any Governmental Authority or by a change in Requirements of Law;

(xiii) file a voluntary petition in bankruptcy or commence a voluntary legal procedure for reorganization, arrangement, adjustment, release or composition of indebtedness in bankruptcy or other similar Requirements of Law now or hereafter in effect, consent of the entry of an order for relief in an involuntary case under any such Requirements of Law or apply for or consent to the appointment of a rescuer, liquidator, assignee, custodian or trustee (or similar office) of the Company or any of its Subsidiaries;

(xiv) grant any put or similar rights to any Person that would reasonably be expected to affect adversely the rights of Investor under this Agreement, the Note or the other Transaction Agreements; or

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

3.2 Access; Information Rights . (a) Except as otherwise expressly contemplated by the terms of this Agreement or agreed in writing by Investor, during the Restricted Period, upon reasonable notice, the Company shall (and shall cause its Subsidiaries to) permit the officers, employees, accountants, counsel, financial advisors and other representatives of Investor reasonable access during normal business hours to all of its books, records, properties and personnel (including the ability to discuss the Company’s affairs, finances and accounts with its officers).

(b) During the Restricted Period, the Company shall deliver to Investor:

(i) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholders’ equity as of the end of such year, and a schedule as to the sources and applications of funds for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with GAAP, and audited and certified by independent public accountants of nationally recognized standing selected by the Company;

(ii) as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited income statement for such fiscal quarter and a balance sheet of the Company and a statement of stockholders’ equity as of the end of such fiscal quarter;

(iii) with respect to the financial statements called for in subsections (i), (ii) and (iii) of this Section 3.2(b ) at a time when the Company is not required to file reports under Section 13 or Section 15(d) of the Exchange Act, an instrument executed by the chief financial officer or chief executive officer of the Company and certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment; and

(iv) such other information relating to the financial condition, business, properties, personnel, prospects or corporate affairs of the Company as Investor may from time to time request.

ARTICLE 4

OTHER AGREEMENTS

4.1 Registration Rights . Except with respect to the registration of the shares of Common Stock to be issued pursuant to the Lincoln Equity Line (as defined in the Registration Rights Agreement), the Company shall not grant any right of registration under the Securities Act relating to any of its securities to any Person other than Investor if such rights would or could reasonably be expected to frustrate, impede or limit Investor’s rights pursuant to the Registration Rights Agreement (it being understood that inclusion of securities of the Company in any registration statement filed by the Company that is not a Demand Registration (as defined in the Registration Rights Agreement) that, by reason of the restrictions on the amount of securities that may be included in a registration statement under Rule 415 promulgated under the Securities Act, results in a limitation on the amount of securities that may be registered on behalf of the Investor in a Demand Registration shall not be deemed to frustrate, impede or limit Investor’s rights under the Registration Rights Agreement).

4.2 Rule 144 . The Company shall file all reports required to be filed by it under the Securities Act and the Exchange Act and shall take such further action as Investor may reasonably request, all to the extent required to enable Investor to sell the Common Stock into which the Note may be converted pursuant to and in accordance with Rule 144. Such action shall include, but not be limited to, making available adequate current public information meeting the requirements of paragraph (c) of Rule 144.

4.3 Availability of Common Stock . The Company shall at all times reserve and keep available out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of the Note and the exercise of the Warrant, at least the full number of shares of Common Stock then issuable upon the conversion of the Note and exercise of the Warrant. The Company will, from time to time, take the actions specified in Section 7 of the Note and Section 6 of the Warrant to increase the authorized amount of Common Stock if at any time the number of shares of Common Stock remaining unissued and available for issuance shall be insufficient to permit conversion of the Note and/or exercise of the Warrant.

4.4 No Rights Plan . From the date hereof through the Restricted Period, without the prior written consent of Investor, the Company shall not adopt or enter into any “poison pill” rights plan or any similar plan or agreement or declare or pay any dividend of any rights to purchase stock of the Company in connection with such a plan or agreement, unless the Investor and its affiliates are specifically excluded from being subject to any restrictions, limitations or other triggering events that are otherwise applicable to holders of capital stock of the Company pursuant to such plan (including any restrictions on, or provisions triggered by, transactions between an “acquiring person” under such rights plan (or any holder who owns greater than an identified amount of the outstanding capital stock of the Company as described in such rights plan) and the Company).

4.5 Legends . Any legends placed on the Warrant or the Conversion Shares, pursuant to the transactions contemplated by the Transaction Agreements shall be removed by the Company upon delivery of an opinion of counsel reasonably acceptable to the Company stating that such legend is no longer necessary.

4.6 Takeover Statutes

. If any “fair price,” “moratorium,” “control share acquisition” or other form of antitakeover statute or regulation shall become applicable to the transactions contemplated by the Transaction Agreements, the Board of Directors of the Company shall grant such approvals and take such actions as are reasonably necessary so that the transactions contemplated by the Transaction Agreements may be consummated as promptly as practicable on the terms contemplated hereby and otherwise act to eliminate or minimize the effects of such statute or regulation on the transactions contemplated by the Transaction Agreements.

ARTICLE 5

TERMINATION

5.1 Term . This Agreement shall be in effect until such time as: (i) the Note no longer remains outstanding; (ii) the Warrant no longer remains outstanding; and (iii) Investor fails to own shares of Common Stock or other Voting Securities in the Company. Notwithstanding the foregoing, in the event the Investor transfers the Note (in whole) and the Warrant and does not hold Conversion Shares, Sections 2.1, 2.2, 3.1, 4.1 and 4.4 shall terminate and be of no force and effect.

ARTICLE 6

MISCELLANEOUS

6.1 Survival

. All covenants and agreements of the Company and Investor contained in this Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of Investor or any controlling Person thereof or by or on behalf of the Company, any of its officers and directors or any controlling Person thereof. The covenants and agreements contained herein shall survive in accordance with their terms.

6.2 Notices

. All notices or other communications required or permitted hereunder shall be in writing and shall be delivered personally, by facsimile (with receipt confirmed telephonically) or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given if delivered personally or facsimile, on the date of such delivery or such confirmation is received, or if sent by reputable overnight courier, on the first Business Day following the date of such mailing, as follows:

(a) if to the Company:

	KonaRed Corporation 2829 Ala Kalani Kaumaka St., Suite F-133 Koloa, HI 96756 Facsimile: (808) 442-9922 Attention: Shaun Roberts
	with a copy to (which shall not constitute notice):

	Clark Wilson LLP
	900-885 West Georgia Street
	Vancouver, BC V6C 3H1 Canada
	Attn: Bernard Pinsky
	Facsimile: (604) 687-6314

(b) if to Investor:

	VDF FutureCeuticals, Inc. 2692 N. State Rt. 1-17 Momence, IL 60954 Facsimile: (815)472-3529 Attention: John Hunter

	with a copy to (which shall not constitute notice):

	Sidley Austin LLP
	One South Dearborn
	Chicago, Illinois 60603
	Attn: Pran Jha
	Facsimile: (312) 853-7036

Any party may by notice given in accordance with this Section 6.2 designate another address or Person for receipt of notices hereunder.

6.3 Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. Other than the parties hereto and their successors and permitted assigns, and no Person is intended to be a beneficiary of this Agreement. No party hereto may assign its rights under this Agreement without the prior written consent of the other party hereto; provided , however , that, without the prior written consent of the Company, Investor may assign its rights hereunder (along with the corresponding obligations) to any purchaser or transferee of the Note or the Warrant. Any assignee of Investor pursuant to the proviso of the foregoing sentence shall be deemed to be “Investor” for all purposes of this Agreement.

6.4 Amendment and Waiver . (a) No failure or delay on the part of the Company or Investor in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy.

(b) Any amendment, supplement or modification of or to any provision of this Agreement and any waiver of any provision of this Agreement shall be effective only if it is made or given in writing and signed by the Company and Investor.

6.5 Counterparts . This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, all of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

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

6.7 Governing Law; Waiver of Jury Trial .

6.8 Severability . If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

6.9 Entire Agreement . This Agreement, together with the schedules and exhibits hereto, and the other Transaction Agreements referred to herein or delivered pursuant hereto, are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein. This Agreement, together with the schedules and exhibits hereto, and the other Transaction Agreements referred to herein or delivered pursuant hereto, supersede all prior agreements and understandings between the parties with respect to such subject matter.

6.10 Further Assurances . Subject to the terms and conditions of this Agreement, as of the date hereof, the Company and Investor agree to cooperate with each other, and at the request of the other party, to execute and deliver any further instruments or documents and take all such further action as the other party may reasonably request in order to evidence or effectuate the consummation of the transactions contemplated by the Transaction Agreements and to otherwise carry out the intent of the parties hereunder.

6.11 Public Announcements . Except as required by any Requirement of Law or the rules of any securities exchange, none of the parties hereto will issue or make any reports, statements or releases to the public with respect to this Agreement or the transactions contemplated by the Transaction Agreements without the approval of the other party (such approval not to be unreasonably withheld or delayed). The Investor acknowledges that the Transaction Agreements will be publicly filed on EDGAR and disclosed in the Company’s periodic filings.

6.12 Specific Performance . The parties acknowledge that money damages are not an adequate remedy for violations of this Agreement and that any party may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief or any requirement for a bond.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their respective officers hereunto duly authorized as of the date first above written.

	KONARED CORPORATION

	By:	“Shaun Roberts”
		Name:
		Title:



	VDF FUTURECEUTICALS, INC.

	By:	“John Hunter”
		Name: John Hunter
		Title: Executive Vice President

Item 9.01	Financial Statements and Exhibits.

10.1	Senior Convertible Note
10.2	Pledge and Security Agreement
10.3	Warrant
10.4	Registration Rights Agreement
10.5	Investor Rights Agreement