UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------
DATE OF REPORT
(Date of Earliest Event Reported): March 1, 2000
NATURADE, INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE
(State or Other 33-7106-A 23-2442709
Jurisdiction of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
14370 Myford Rd.
Irvine, California 92606
(Address of Principal Executive Offices)
Registrant's Telephone Number,
Including Area Code: (714) 573-4800
Exhibit Index on page 4
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Item 5. OTHER EVENTS
See Naturade, Inc.'s press release dated March 2, 2000, attached
hereto as Exhibit 99.1 and Credit and Security Agreement dated as of January 27,
2000, between Naturade, Inc., and Wells Fargo Business Credit, Inc. attached
hereto as Exhibit 99.2.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
Exhibit No. Description of Exhibit
- ----------- ----------------------
99.1 Press Release dated March 2, 2000.
99.2 Credit and Security Agreement dated as of January 27, 2000,
between Naturade, Inc., and Wells Fargo Business Credit, Inc.
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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.
NATURADE, INC.
By:/s/ Lawrence J. Batina
_________________________
Lawrence J. Batina,
Chief Financial Officer
Dated: March 2, 2000
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Sequentially
Numbered
Exhibit Number Description of Exhibit Page
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99.1 Press Release dated March 2, 2000 5
99.2 Credit and Security Agreement dated as of 7
January 27, 2000, between Naturade, Inc.,
and Wells Fargo Business Credit, Inc.
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Exhibit 99.1
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FOR: Naturade (OTC BB:NRDC)
CONTACT: Mark Grody/Mark Grody Associates
(310) 230-7851
John Hazlin/Naturade, Inc.
(714) 734-2172
Naturade, Inc., Obtains $3 Million Line of Credit
From Wells Fargo
IRVINE, CA - 2 March 00 - Naturade, Inc. (OTC BB:NRDC), has entered into a
Credit and Security Agreement with Wells Fargo Business Credit that provides for
a $3 million secured line of credit to be used for working capital to support
anticipated growth in the mass market, it was announced today by Bill Stewart,
Naturade's CEO.
Stewart says, "The Company anticipates applying funds drawn under this
agreement to finance inventory and receivables." The line of credit has a
three-year term with an interest rate of Prime plus 1.5%; it replaces a $1
million line of credit with South Bay Bank.
The agreement contains certain financial and other covenants, as well as
restrictions on the payment of dividends and other distributions. It is secured
by a security interest in the equipment, inventory, receivables and other assets
of Naturade. As of March 1, there was $856,000 outstanding on the credit
agreement.
Much of the Company's current and anticipated growth comes from increased
distribution of Naturade Total Soy(TM) on the heels of last October's landmark
ruling by the Federal Food & Drug Administration (FDA) indicating that diets
high in soy protein are related to a reduced risk of coronary
(more)
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heart disease. Mass market distribution for Naturade Total Soy has tripled since
the FDA announcement, making this product available to consumers in more than
16,000 health food stores (e.g., Whole Foods Markets, Wild Oats), supermarkets
(e.g., Kroger), drug stores (e.g., Eckard Drug and Rite Aid), mass merchandisers
(e.g., Wal*Mart, Sam's Club, Target) and other retail and e-tail establishments
throughout the United States.
Founded in 1926, Naturade is committed to marketing innovative natural
products that actively nourish and improve the health and well-being of
consumers. The Company's brands include Naturade Total Soy(TM), Naturade
NRG(TM), Naturade Vegetable Protein(TM), Naturade 100% Soy(TM), Naturade Premium
Soy(TM) (all of which qualify for the FDA heart health claim), THE CHINESE
WAY(TM) herbs and Aloe Vera 80(R) natural beauty care products. For more
information visit the Naturade Web site at www.naturade.com or call toll-free
(877) 4 SoyNews.
# # #
NOTE: the full text of the credit agreement with Wells Fargo is included
in Naturade's Form 8-K, to be filed with the Securities and Exchange Commission.
NOTE: THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE
HARBOR" FOR CERTAIN FORWARD-LOOKING STATEMENTS. THE STATEMENTS CONTAINED IN THIS
NEWS RELEASE THAT ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS BASED
ON THE COMPANY'S CURRENT EXPECTATIONS AND BLIEFS CONCERNING FUTURE DEVELOPMENTS
AND THEIR POTENTIAL EFFECTS ON THE COMPANY. THERE CAN BE NO ASSURANCE THAT
FUTURE DEVELOPMENTS AFFECTING THE COMPANY WILL BE THOSE ANTICIPATED BY THE
COMPANY. ACTUAL RESULTS MAY DIFFER FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS. THESE FORWARD-LOOKING STATEMENTS INVOLVE SIGNIFICANT RISKS AND
UNCERTAINTIES (SOME OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY) AND ARE
SUBJECT TO CHANGE BASED UPON VARIOUS FACTORS. THESE FACTORS INCLUDE THE IMPACT
OF FEDERAL REGULATIONS GOVERNING THE SALE OF THE COMPANY'S PRODUCTS, LESS THAN
EXPECTED CONSUMER DEMAND FOR THE COMPANY'S PRODUCTS, PRICING PRESSURES AND OTHER
COMPETITIVE FACTORS. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR
REVIEW ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION,
FUTURE EVENTS OR OTHERWISE. FOR A MORE DETAILED DISCUSSION OF SOME OF THE
ONGOING RISKS AND UNCERTAINTIES OF THE COMPANY'S BUSINESS, SEE THE COMPANY'S
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
# # #
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Exhibit 99.2
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CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
NATURADE, INC.
AND
WELLS FARGO BUSINESS CREDIT, INC.
Dated as of: January 27, 2000
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS................................................1
Section 1.1 Definitions................................................1
Section 1.2 Cross References..........................................10
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY...................11
Section 2.1 Revolving Advances........................................11
Section 2.2 Interest; Minimum Interest Charge; Default
Interest; Participations; Usury...........................12
Section 2.3 Fees......................................................13
Section 2.4 Computation of Interest and Fees; When
Interest Due and Payable..................................13
Section 2.5 Capital Adequacy..........................................13
Section 2.6 Maturity Date.............................................14
Section 2.7 Voluntary Prepayment; Reduction of the
Maximum Line; Termination of the Credit
Facility by the Borrower..................................15
Section 2.8 Terminationand Line Reduction fees; Waiver
of Termination and Line Reduction Fees....................15
Section 2.9 Mandatory Prepayment......................................15
Section 2.10 Payment...................................................15
Section 2.11 Payment on Non-Baking Days................................16
Section 2.12 Use of Proceeds...........................................16
Section 2.13 Liability Records.........................................16
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF......................17
Section 3.1 Grant of Security Interest................................17
Section 3.2 Notification of Account Debtors and Other
Obligors..................................................17
Section 3.3 Assignment of Insurance...................................17
Section 3.4 Occupancy.................................................18
Section 3.5 License...................................................18
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TABLE OF CONTENTS
(continued)
Page
Section 3.6 Financing Statement.......................................18
Section 3.7 Setoff....................................................19
ARTICLE IV CONDITIONS OF LENDING.....................................19
Section 4.1 Conditions Precedent to the Initial
Revolving Advance.........................................19
Section 4.2 Conditions Precedent to All Advances......................22
ARTICLE V REPRESENTATIONS AND WARRANTIES............................23
Section 5.1 Corporate Existence and Power; Name; Chief
Executive Office; Inventory and Equipment
Locations; Tax Identification Number......................23
Section 5.2 Authorization of Borrowing; No Conflict as
to Law or Agreements......................................23
Section 5.3 Legal Agreements..........................................24
Section 5.4 Subsidiaries..............................................24
Section 5.5 Financial Condition; No Adverse Change....................24
Section 5.6 Litigation................................................24
Section 5.7 Regulation U..............................................24
Section 5.8 Taxes.....................................................24
Section 5.9 Titles and Liens..........................................25
Section 5.10 Plans.....................................................25
Section 5.11 Default...................................................25
Section 5.12 Environmental Matters.....................................25
Section 5.13 Submissions to Lender.....................................26
Section 5.14 Financing Statements......................................27
Section 5.15 Rights to Payment.........................................27
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TABLE OF CONTENTS
(continued)
Page
Section 5.16 Bank Accounts.............................................27
Section 5.17 Financial Solvency........................................27
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS..........................28
Section 6.1 Reporting Requirements....................................28
Section 6.2 Books and Records; Inspection and
Examination...............................................31
Section 6.3 Account Verification......................................31
Section 6.4 Compliance with Laws......................................31
Section 6.5 Payment of Taxes and Other Claims.........................32
Section 6.6 Maintenance of Properties.................................32
Section 6.7 Insurance.................................................32
Section 6.8 Preservation of Existence.................................33
Section 6.9 Delivery of Instruments, etc..............................33
Section 6.10 Collateral Account........................................33
Section 6.11 Performance by Lender.....................................33
Section 6.12 Minimum Book net Worth Plus Subordinated
Converitble Debt..........................................34
Section 6.13 Minimum Net income........................................34
Section 6.14 New Covenants Service Coverage Ratio......................35
ARTICLE VII NEGATIVE COVENANTS........................................35
Section 7.1 Liens.....................................................35
Section 7.2 Indebtedness..............................................36
Section 7.3 Guaranties................................................36
Section 7.4 Investments and Subsidiaries..............................36
Section 7.5 Dividends.................................................37
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TABLE OF CONTENTS
(continued)
Page
Section 7.6 Sale or Transfer of Assets; Suspension of
Business Operations.......................................37
Section 7.7 Consolidation and Merger; Asset Acquisitions..............37
Section 7.8 Sale and Leaseback........................................37
Section 7.9 Restrictions on Nature of Business........................37
Section 7.10 Capital Expenditures......................................37
Section 7.11 Accounting................................................38
Section 7.12 Discounts, etc............................................38
Section 7.13 Defined Benefit Pension Plans.............................38
Section 7.14 Other Defaults............................................38
Section 7.15 Place of Business; Name...................................38
Section 7.16 Organizational Documents; S Corporation
Status....................................................38
Section 7.17 Salaries..................................................38
Section 7.18 Change in Ownership.......................................39
Section 7.19 Transactions with Affiliates..............................39
Section 7.20 Additional Bank Accounts..................................39
ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES....................39
Section 8.1 Events of Default.........................................39
Section 8.2 Rights and Remedies.......................................42
Section 8.3 Certain Notices...........................................42
ARTICLE IX MISCELLANEOUS.............................................43
Section 9.1 No Waiver; Cumulative Remedies............................43
Section 9.2 Amendments, Etc...........................................43
Section 9.3 Addresses for Notices, Etc................................43
Section 9.4 Further Documents.........................................44
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TABLE OF CONTENTS
(continued)
Page
Section 9.5 Collateral................................................44
Section 9.6 Costs and Expenses........................................44
Section 9.7 Indemnity.................................................45
Section 9.8 Participants..............................................46
Section 9.9 Execution in Counterparts.................................46
Section 9.10 Binding Effect; Assignment; Complete
Agreement; Exchanging Information.........................46
Section 9.11 Severability of Provisions................................46
Section 9.12 Headings..................................................46
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver
of Jury Trial.............................................46
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CREDIT AND SECURITY AGREEMENT
Dated as of January 27, 2000
NATURADE, INC., a Delaware corporation (the
"Borrower"), and WELLS FARGO BUSINESS CREDIT, INC., a Minnesota
corporation (the "Lender"), hereby agree as follows:
ARTICLE I
Definitions
-----------
Section 1.1 Definitions. For all purposes of this
Agreement, except as otherwise expressly provided or unless the
context otherwise requires:
(a) the terms defined in this Article have the
meanings assigned to them in this Article, and include the
plural as well as the singular; and
(b) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as
such term is defined in the UCC, including without
limitation the aggregate unpaid obligations of customers and
other account debtors to the Borrower arising out of the
sale or lease of goods or rendition of services by the
Borrower on an open account or deferred payment basis.
"Adjusted Book Net Worth" means Minimum Book Net Worth
plus Subordinated Convertible Debt.
"Advance" means a Revolving Advance.
"Affiliate" or "Affiliates" means any Person controlled
by, controlling or under common control with the Borrower,
including (without limitation) any Subsidiary of the
Borrower. For purposes of this definition, "control," when
used with respect to any specified Person, means the power
to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement,
as amended, supplemented or restated from time to time.
"Availability" means the difference of (i) the
Borrowing Base and (ii) the then outstanding principal
balance of the Revolving Note.
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"Availability Reserve" means as of any date of
determination, such amount or amounts as Lender may from
time to time establish and revise in good faith reducing the
amount of Revolving Advances which would otherwise be
available to Borrower under the lending formula(s) provided
for herein: (a) to reflect events, conditions,
contingencies or risks which, as determined by Lender in
good faith, do or may affect either (i) the Collateral or
its value, (ii) the assets, business or prospects of
Borrower, or (iii) the security interests and other rights
of Lender in the Collateral (including the enforceability,
perfection and priority thereof), or (b) to reflect Lender's
good faith belief that any collateral report or financial
information furnished by or on behalf of Borrower to Lender
is or may have been incomplete, inaccurate or misleading in
any material respect, or (c) in respect of any state of
facts which Lender determines in good faith constitutes an
Event of Default or may, with notice or passage of time or
both, constitute an Event of Default.
"Banking Day" means a day other than a Saturday, Sunday
or other day on which banks are generally not open for
business in Pasadena, California.
"Base Rate" means the rate of interest publicly
announced from time to time by Wells Fargo Bank, N.A., San
Francisco, California, as its "prime rate" or, if such bank
ceases to announce a rate so designated, any similar
successor rate designated by the Lender.
"Book Net Worth" means the aggregate of the common and
preferred stockholders' equity in the Borrower, determined
in accordance with GAAP.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the
Lender's sole discretion, the sum of:
seventy five percent (75%) of Eligible Accounts
plus
the lesser of One Million Two Hundred Thousand
Dollars ($1,200,000) or fifty percent (50%)
of Eligible Inventory, and minus
any Availability Reserves.
"Capital Expenditures" for a period means any
expenditure of money for the purchase or construction of
assets, or for improvements or additions thereto, which are
capitalized on the Borrower's balance sheet or for the
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lease, purchase or other acquisition of any capital asset,
or for the lease of any other asset whether payable
currently or in the future.
"Collateral" means all current or hereafter acquired or
arising Equipment, General Intangibles, Inventory,
Receivables, Investment Property, deposit accounts, letters
of credit, proceeds of letters of credit, chattel paper and
all sums on deposit in any Collateral Account, and any items
in any Lockbox; together with (i) all substitutions and
replacements for and products of any of the foregoing;
(ii) proceeds of any and all of the foregoing; (iii) in the
case of all tangible goods, all accessions; (iv) all
accessories, attachments, parts, equipment and repairs now
or hereafter attached or affixed to or used in connection
with any tangible goods; (v) all warehouse receipts, bills
of lading and other documents of title now or hereafter
covering such goods; and (vi) the Life Insurance Policy.
"Collateral Account" means the "Lender Account" as
defined in the Lockbox Agreement.
"Commitment" means the Lender's commitment to make
Advances to or for the Borrower's account pursuant to
Article II.
"Credit Facility" means the credit facility being made
available to the Borrower by the Lender pursuant to Article
II.
"Current Maturities of Long Term Debt" as of a given
date means the amount of the Borrower's long-term debt and
capitalized leases which will become due during the period
ending on the designated date.
"Debt" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities
side of a balance sheet of that Person as at the date as of
which Debt is to be determined. For purposes of determining
a Person's aggregate Debt at any time, "Debt" shall also
include the aggregate payments required to be made by such
Person at any time under any lease that is considered a
capitalized lease under GAAP.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of
Default.
"Default Period" means any period of time beginning on
the first day of any month during which a Default or Event
of Default has occurred and ending on the date the Lender
notifies the Borrower in writing that such Default or Event
of Default has been waived.
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"Default Rate" means an annual rate equal to three
percent (3%) over the Floating Rate, which rate shall change
when and as the Floating Rate changes.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"Eligible Accounts" means all unpaid Accounts, net of
any credits, except the following shall not in any event be
deemed Eligible Accounts:
(i) That portion of Accounts unpaid 90 days or
more after the invoice date or, if the Lender in its
discretion has determined that a particular dated
Account may be eligible, that portion of such Account
which is unpaid more than sixty (60) days past the
stated due date or more than one hundred fifty (150)
days past the shipping date;
(ii) That portion of Accounts that is disputed or
subject to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned
by the final delivery of goods or rendition of
services, as applicable, by the Borrower to the
customer;
(iv) Accounts owed by any federal unit of
government, whether foreign or domestic (provided,
however, that there shall be included in Eligible
Accounts that portion of Accounts owed by such units of
government for which the Borrower has provided evidence
satisfactory to the Lender that (A) the Lender has a
first priority perfected security interest and (B) such
Accounts may be enforced by the Lender directly against
such unit of government under all applicable laws,
including, without limitation, the Federal Assignment
of Claims Act of 1940, as amended, or any similar law);
(v) Accounts owed by an account debtor located
outside the United States or Canada which are not
(A) backed by a bank letter of credit naming the Lender
as beneficiary or assigned to the Lender, in the
Lender's possession and acceptable to the Lender in all
respects, in its sole discretion, or (B) covered by a
foreign receivables insurance policy acceptable to the
Lender in its sole discretion;
(vi) Accounts owed by an account debtor that is
insolvent, the subject of bankruptcy proceedings or has
gone out of business;
(vii) Accounts owed by a shareholder,
Subsidiary, Affiliate, officer or employee of the
Borrower;
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(viii) Accounts not subject to a duly perfected
security interest in the Lender's favor or which are
subject to any lien, security interest or claim in
favor of any Person other than the Lender including
without limitation any payment or performance bond;
(ix) That portion of Accounts that has been
restructured, extended, amended or modified;
(x) That portion of Accounts that constitutes
advertising, finance charges, service charges or sales
or excise taxes;
(xi) Accounts owed by an account debtor,
regardless of whether otherwise eligible, if ten
percent (10%) or more of the total amount due under
Accounts from such debtor is ineligible under
clauses (i), (ii) or (ix) above, except such percentage
shall be fifteen percent (15%) as to Accounts owed by
Tree of Life, Inc.;
(xii) That portion of Accounts of a single
debtor or its affiliates which constitute more than
fifteen percent (15%) of all Accounts, except such
percentage shall be twenty five percent (25%) as to
Accounts owed by Tree of Life, Inc.; and
(xiii) Accounts, or portions thereof, otherwise
deemed ineligible by the Lender in its sole discretion.
"Eligible Inventory" means all Inventory of the
Borrower, at the lower of cost or market value as determined
in accordance with GAAP; provided, however, that the
following shall not in any event be deemed Eligible
Inventory:
(xiv) Inventory that is: in-transit; located
at any warehouse, job site or premises other than
Borrower's Premises located in Irvine, California;
located outside of the states, or localities, as
applicable, in which the Lender has filed financing
statements to perfect a first priority security
interest in such Inventory; covered by any negotiable
or non-negotiable warehouse receipt, bill of lading or
other document of title; on consignment from any
Person; on consignment to any Person or subject to any
bailment unless such consignee or bailee has executed
an agreement with the Lender;
(xv) Supplies, packaging, parts or sample
Inventory;
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(xvi) Work-in-process Inventory;
(xvii) Inventory that is damaged, obsolete,
slow moving or not currently saleable in the normal
course of the Borrower's operations;
(xviii) Inventory that the Borrower has
returned, has attempted to return, is in the process of
returning or intends to return to the vendor thereof;
(xix) Inventory that is perishable or live;
(xx) Inventory purchased or manufactured by the
Borrower pursuant to a license;
(xxi) Inventory that is subject to a security
interest in favor of any Person other than the Lender;
and
(xxii) Inventory otherwise deemed ineligible by
the Lender in its sole discretion.
"Environmental Laws" has the meaning specified in
Section 5.12.
"Equipment" means all of the Borrower's equipment, as
such term is defined in the UCC, whether now owned or
hereafter acquired, including but not limited to all present
and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and
recordkeeping equipment, parts, tools, supplies, and
including specifically (without limitation) the goods
described in any equipment schedule or list herewith or
hereafter furnished to the Lender by the Borrower.
"Event of Default" has the meaning specified in Section
8.1.
"Floating Rate" means an annual rate equal to the sum
of the Base Rate plus one and one-half percent (1.5%), which
annual rate shall change when and as the Base Rate changes;
provided however, if no Event of Default exists or has
occurred and is continuing, such Floating Rate shall be
reduced as follows: (a) if Borrower generates Net Income of
not less than Zero Dollars ($0) for a consecutive three (3)
month period, the Floating Rate shall be reduced to an
annual rate equal to the sum of the Base Rate plus one and
one-quarter percent (1.25%) and (b) if Borrower generates
Net Income of One Hundred Thousand Dollars ($100,000) or
more for a consecutive six (6) month period, the Floating
Rate shall be reduced to an annual rate equal to the sum of
the Base Rate plus one percent (1.0%). Each such reduction
in the Floating Rate shall be effective as of the first day
of the month following Lender's receipt of Borrower's
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monthly financial statements pursuant to Section 6.1(b)
hereof reflecting such minimum Net Income amounts for the
applicable periods.
"Funding Date" has the meaning specified in Section
2.1.
"GAAP" means generally accepted accounting principles,
applied on a basis consistent with the accounting practices
applied in the financial statements described in Section
5.5, except for any change in accounting practices to the
extent that, due to a promulgation of the Financial
Accounting Standards Board changing or implementing any new
accounting standard, the Borrower either (i) is required to
implement such change, or (ii) for future periods will be
required to and for the current period may in accordance
with generally accepted accounting principles implement such
change, for its financial statements to be in conformity
with generally accepted accounting principles (any such
change is herein referred to as a "Required GAAP Change"),
provided that (1) the Borrower shall fully disclose in such
financial statements any such Required GAAP Change and the
effects of the Required GAAP Change on the Borrower's
income, retained earnings or other accounts, as applicable,
and (2) the Borrower's financial covenants set forth in
Sections 6.12, 6.13, and 7.10 shall be adjusted as necessary
to reflect the effects of such Required GAAP Change.
"General Intangibles" means all of the Borrower's
general intangibles, as such term is defined in the UCC,
whether now owned or hereafter acquired, including (without
limitation) all present and future patents, patent
applications, copyrights, trademarks, trade names, trade
secrets, customer or supplier lists and contracts, manuals,
operating instructions, permits, franchises, the right to
use the Borrower's name, and the goodwill of the Borrower's
business.
"Hazardous Substance" has the meaning specified in
Section 5.12.
"Inventory" means all of the Borrower's inventory, as
such term is defined in the UCC, whether now owned or
hereafter acquired, whether consisting of whole goods, spare
parts or components, supplies or materials, whether
acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, and
wherever located.
"Investment Property" means all of the Borrower's
investment property, as such term is defined in the UCC,
whether now owned or hereafter acquired, including but not
limited to all securities, security entitlements, securities
accounts, commodity contracts, commodity accounts, stocks,
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bonds, mutual fund shares, money market shares and U.S.
Government securities.
"Loan Documents" means this Agreement, the Note, any
Subordination Agreement and the Security Documents.
"Lockbox" has the meaning given in the Lockbox
Agreement.
"Lockbox Agreement" means the Lockbox and Collection
Account Agreement by and among the Borrower, Wells Fargo
Bank, National Association, Regulus West LLC and the Lender,
of even date herewith.
"Maturity Date" has the meaning specified in Section
2.6.
"Maximum Line" means Three Million Dollars
($3,000,000), unless said amount is reduced pursuant to
Section 2.7, in which event it means the amount to which
said amount is reduced.
"Minimum Interest Charge" has the meaning specified in
Section 2.2(a).
"Net Income" means fiscal year-to-date after-tax net
income, decreased by the sum of any extraordinary,
non-operating or non-cash income recorded by the Borrower
and increased by any extraordinary, non-cash or non-
operating expense or loss recorded by the Borrower, as
determined in accordance with GAAP.
"Note" means the Revolving Note.
"Obligations" means the Note and each and every other
debt, liability and obligation of every type and description
which the Borrower may now or at any time hereafter owe to
the Lender, whether such debt, liability or obligation now
exists or is hereafter created or incurred, whether it
arises in a transaction involving the Lender alone or in a
transaction involving other creditors of the Borrower, and
whether it is direct or indirect, due or to become due,
absolute or contingent, primary or secondary, liquidated or
unliquidated, or sole, joint, several or joint and several,
and including specifically, but not limited to, all
indebtedness of the Borrower arising under this Agreement,
the Note or any other loan or credit agreement or guaranty
between the Borrower and the Lender, whether now in effect
or hereafter entered into.
"Permitted Lien" has the meaning specified in Section
7.1.
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<PAGE>
"Person" means any individual, corporation,
partnership, joint venture, limited liability company,
association, joint-stock company, trust, unincorporated
organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan
maintained for the Borrower's employees and covered by
Title IV of ERISA.
"Premises" means all premises where the Borrower
conducts its business and has any rights of possession,
including (without limitation) the premises legally
described in Exhibit C attached hereto.
"Receivables" means each and every right of the
Borrower to the payment of money, whether such right to
payment now exists or hereafter arises, whether such right
to payment arises out of a sale, lease or other disposition
of goods or other property, out of a rendering of services,
out of a loan, out of the overpayment of taxes or other
liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created,
generated or earned by the Borrower or by some other person
who subsequently transfers such person's interest to the
Borrower, whether such right to payment is or is not already
earned by performance, and howsoever such right to payment
may be evidenced, together with all other rights and
interests (including all liens and security interests) which
the Borrower may at any time have by law or agreement
against any account debtor or other obligor obligated to
make any such payment or against any property of such
account debtor or other obligor; all including but not
limited to all present and future accounts, contract rights,
loans and obligations receivable, chattel papers, bonds,
notes and other debt instruments, tax refunds and rights to
payment in the nature of general intangibles.
"Reportable Event" shall have the meaning assigned to
that term in Title IV of ERISA.
"Revolving Advance" has the meaning specified in
Section 2.1.
"Revolving Note" means the Borrower's revolving
promissory note, payable to the order of the Lender in
substantially the form of Exhibit A hereto, as the same may
hereafter be amended, supplemented or restated from time to
time, and any note or notes issued in substitution therefor,
as the same may hereafter be amended, supplemented or
restated from time to time and any note or notes issued in
substitution therefor.
"Security Documents" means this Agreement, the Lockbox
Agreement, Trademark Security Agreement, and any other
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<PAGE>
document delivered to the Lender from time to time to secure
the Obligations, as the same may hereafter be amended,
supplemented or restated from time to time.
"Security Interest" has the meaning specified in
Section 3.1.
"Subordination Agreements" means collectively the
Subordination Agreement of even date herewith, executed by
Performance Nutrition, Inc. and the Subordination Agreement
of even date herewith, executed by Health Holdings and
Botanicals, Inc., both in the Lender's favor and
acknowledged by the Borrower, and any other subordination
agreement accepted by the Lender from time to time, as the
same may hereafter be amended, supplemented or restated from
time to time.
"Subordinated Convertible Debt" means debt that is
convertible into common stock of Borrower and is
subordinated to indebtedness to financial institutions for
borrowed money including Obligations.
"Subordinated Creditors" means Performance Nutrition,
Inc. and Health Holdings and Botanicals, Inc.
"Subsidiary" means any corporation of which more than
fifty percent (50%) of the outstanding shares of capital
stock having general voting power under ordinary
circumstances to elect a majority of the board of directors
of such corporation, 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, is at the time directly or indirectly owned by
the Borrower, by the Borrower and one or more other
Subsidiaries, or by one or more other Subsidiaries.
"Termination Date" means the earliest of (i) the
Maturity Date, (ii) the date the Borrower terminates the
Credit Facility, or (iii) the date the Lender demands
payment of the Obligations after an Event of Default
pursuant to Section 8.2.
"Trademark Security Agreement" means the Trademark
Security Agreement by the Borrower in favor of the Lender of
even date herewith.
"UCC" means the Uniform Commercial Code as in effect
from time to time in the state designated in Section 9.13 as
the state whose laws shall govern this Agreement, or in any
other state whose laws are held to govern this Agreement or
any portion hereof.
Section 1.2 Cross References. All references in
this Agreement to Articles, Sections and subsections, shall be to
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<PAGE>
Articles, Sections and subsections of this Agreement unless
otherwise explicitly specified.
ARTICLE II
Amount and Terms of the Credit Facility
---------------------------------------
Section 2.1 Revolving Advances. The Lender agrees,
on the terms and subject to the conditions herein set forth, to
make advances to the Borrower from time to time from the date all
of the conditions set forth in Section 4.1 are satisfied (the
"Funding Date") to the Termination Date (the "Revolving
Advances"). The Lender shall have no obligation to make a
Revolving Advance if, after giving effect to such requested
Revolving Advance, the sum of the outstanding and unpaid
Revolving Advances would exceed the Borrowing Base. The
Borrower's obligation to pay the Revolving Advances shall be
evidenced by the Revolving Note and shall be secured by the
Collateral as provided in Article III. Within the limits set
forth in this Section 2.1, the Borrower may borrow, prepay
pursuant to Section 2.6 and reborrow. The Borrower agrees to
comply with the following procedures in requesting Revolving
Advances under this Section 2.1:
(a) The Borrower shall make each request for a
Revolving Advance to the Lender before 10:30 a.m. (Los
Angeles time) of the day of the requested Revolving Advance.
Requests may be made in writing or by telephone, specifying
the date of the requested Revolving Advance and the amount
thereof. Each request shall be by (i) any officer of the
Borrower; or (ii) any person designated as the Borrower's
agent by any officer of the Borrower in a writing delivered
to the Lender; or (iii) any person whom the Lender
reasonably believes to be an officer of the Borrower or such
a designated agent.
(b) Upon fulfillment of the applicable conditions set
forth in Article IV, the Lender shall disburse the proceeds
of the requested Revolving Advance by crediting the same to
the Borrower's demand deposit account maintained with Wells
Fargo Bank, National Association, unless the Lender and the
Borrower shall agree in writing to another manner of
disbursement. Upon the Lender's request, the Borrower shall
promptly confirm each telephonic request for an Advance by
executing and delivering an appropriate confirmation
certificate to the Lender. The Borrower shall repay all
Advances even if the Lender does not receive such
confirmation and even if the person requesting an Advance
was not in fact authorized to do so. Any request for an
Advance, whether written or telephonic, shall be deemed to
be a representation by the Borrower that the conditions set
forth in Section 4.2 have been satisfied as of the time of
the request.
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<PAGE>
Section 2.2 Interest; Minimum Interest Charge;
Default Interest; Participations; Usury.
(a) Revolving Note. Except as set forth in
Sections 2.2(c) and 2.2(e), the outstanding principal
balance of the Revolving Note shall bear interest at the
Floating Rate.
(b) Minimum Interest Charge. Notwithstanding the
interest payable pursuant to Section 2.2(a), the Borrower
shall pay to the Lender interest of not less than Twenty
Thousand Dollars ($20,000) per calendar quarter (the
"Minimum Interest Charge") during the term of this
Agreement, and the Borrower shall pay any deficiency between
the Minimum Interest Charge and the amount of interest
otherwise calculated under Sections 2.2(a) and 2.2(d)
quarterly in arrears on the first day of each calendar
quarter and on the Termination Date and on the date and in
the manner provided in Section 2.4.
(c) Default Interest Rate. At any time during any
Default Period, in the Lender's sole discretion and without
waiving any of its other rights and remedies, the
Obligations outstanding from time to time shall bear
interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that
Default Period.
(d) Participations. If any Person shall acquire a
participation in the Advances under this Agreement, the
Borrower shall be obligated to the Lender to pay the full
amount of all interest calculated under Section 2.2(a),
along with all other fees, charges and other amounts due
under this Agreement, regardless if such Person elects to
accept interest with respect to its participation at a lower
rate than the Floating Rate, or otherwise elects to accept
less than its prorata share of such fees, charges and other
amounts due under this Agreement.
(e) Usury. In any event no rate change shall be put
into effect which would result in a rate greater than the
highest rate permitted by law. Notwithstanding anything to
the contrary contained in any Loan Document, all agreements
which either now are or which shall become agreements
between the Borrower and the Lender are hereby limited so
that in no contingency or event whatsoever shall the total
liability for payments in the nature of interest, additional
interest and other charges exceed the applicable limits
imposed by any applicable usury laws. If any payments in
the nature of interest, additional interest and other
charges made under any Loan Document are held to be in
excess of the limits imposed by any applicable usury laws,
it is agreed that any such amount held to be in excess shall
be considered payment of principal hereunder, and the
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<PAGE>
indebtedness evidenced hereby shall be reduced by such
amount so that the total liability for payments in the
nature of interest, additional interest and other charges
shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the
Borrower and the Lender. This provision shall never be
superseded or waived and shall control every other provision
of the Loan Documents and all agreements between the
Borrower and the Lender, or their successors and assigns.
Section 2.3 Fees.
(a) Origination Fee. The Borrower hereby agrees to
pay the Lender a fully earned and non-refundable origination
fee of Thirty Thousand Dollars ($30,000) due and payable
upon the execution of this Agreement.
(b) Unused Line Fee. For the purposes of this Section
2.3(b), "Unused Amount" means the Maximum Line reduced by
outstanding Revolving Advances. The Borrower agrees to pay
to the Lender an unused line fee at the rate of one-quarter
of one percent (0.25%) per annum on the average daily Unused
Amount from the date of this Agreement to and including the
Termination Date, due and payable quarterly in arrears on
the first day of the calendar quarter and on the Termination
Date.
(c) Audit Fees. The Borrower hereby agrees to pay the
Lender, on demand, audit fees in connection with any audits
or inspections conducted by the Lender of any Collateral or
the Borrower's operations or business at the rates
established from time to time by the Lender as its audit
fees (which fees are currently Seventy Five Dollars ($75)
per hour per auditor), together with all actual out-of-
pocket costs and expenses incurred in conducting any such
audit or inspection.
Section 2.4 Computation of Interest and Fees; When
Interest Due and Payable. Interest accruing on the outstanding
principal balance of the Advances and fees hereunder outstanding
from time to time shall be computed on the basis of actual number
of days elapsed in a year of 360 days. Interest shall be due and
payable in arrears on the first day of each month and on the
Termination Date.
Section 2.5 Capital Adequacy. If any Related Lender
determines at any time that its Return has been reduced as a
result of any Rule Change, such Related Lender may require the
Borrower to pay it the amount necessary to restore its Return to
what it would have been had there been no Rule Change. For
purposes of this Section 2.5:
(a) "Capital Adequacy Rule" means any law, rule,
regulation, guideline, directive, requirement or request
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<PAGE>
regarding capital adequacy, or the interpretation or
administration thereof by any governmental or regulatory
authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender.
Such rules include rules requiring financial institutions to
maintain total capital in amounts based upon percentages of
outstanding loans, binding loan commitments and letters of
credit.
(b) "Return", for any period, means the return as
determined by such Related Lender on the Advances based upon
its total capital requirements and a reasonable attribution
formula that takes account of the Capital Adequacy Rules
then in effect. Return may be calculated for each calendar
quarter and for the shorter period between the end of a
calendar quarter and the date of termination in whole of
this Agreement.
(c) "Rule Change" means any change in any Capital
Adequacy Rule occurring after the date of this Agreement,
but the term does not include any changes in applicable
requirements that at the Closing Date are scheduled to take
place under the existing Capital Adequacy Rules or any
increases in the capital that any Related Lender is required
to maintain to the extent that the increases are required
due to a regulatory authority's assessment of the financial
condition of such Related Lender.
(d) "Related Lender" includes (but is not limited to)
the Lender, any parent corporation of the Lender and any
assignee of any interest of the Lender hereunder and any
participant in the loans made hereunder.
Certificates of any Related Lender sent to the Borrower from time
to time claiming compensation under this Section 2.5, stating the
reason therefor and setting forth in reasonable detail the
calculation of the additional amount or amounts to be paid to the
Related Lender hereunder to restore its Return shall be
conclusive absent manifest error. In determining such amounts,
the Related Lender may use any reasonable averaging and
attribution methods.
Section 2.6 Maturity Date. This Agreement and the
other Loan Documents shall become effective as of the date set
forth on the first page hereof and shall continue in full force
and effect for a term ending on January 27, 2003 (the "Maturity
Date"), unless earlier terminated by Lender or Borrower pursuant
to the terms hereof. Upon the Termination Date, Borrower shall
immediately pay to Lender, in full, all outstanding and unpaid
Obligations and shall furnish cash collateral to Lender in such
amounts as Lender determines are reasonably necessary to secure
Lender from loss, cost, damage or expense, including attorneys'
fees and legal expenses, in connection with any contingent
Obligations, including checks and other payments provisionally
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<PAGE>
credited to the Obligations and/or as to which Lender has not yet
received final and indefeasible payment.
Section 2.7 Voluntary Prepayment; Reduction of the
Maximum Line; Termination of the Credit Facility by the Borrower.
Except as otherwise provided herein, the Borrower may prepay the
Advances in whole at any time or from time to time in part. The
Borrower may terminate the Credit Facility or reduce the Maximum
Line at any time if it (i) gives the Lender at least thirty (30)
days' prior written notice and (ii) pays the Lender termination
or line reduction fees in accordance with Section 2.8. Any
reduction in the Maximum Line must be in an amount not less than
Two Hundred Fifty Thousand Dollars ($250,000) or an integral
multiple thereof. If the Borrower reduces the Maximum Line to
zero, all Obligations shall be immediately due and payable. Upon
termination of the Credit Facility and payment and performance of
all Obligations, the Lender shall release or terminate the
Security Interest and the Security Documents to which the
Borrower is entitled by law.
Section 2.8 Termination and Line Reduction Fees;
Waiver of Termination and Line Reduction Fees.
(a) Termination and Line Reduction Fees. If the
Credit Facility is terminated for any reason as of a date
other than the Maturity Date, or the Borrower reduces the
maximum Line, the Borrower shall pay to the Lender a fee in
an amount equal to a percentage of the Maximum Line or the
reduction, as the case may be as follows: (A) three percent
(3.0%) if the termination or reduction occurs on or before
the first anniversary of the Funding Date; (B) two percent
(2.0%) if the termination or reduction occurs after the
first anniversary of the Funding Date but on or before the
second anniversary of the Funding Date; and (C) one percent
(1.0%) if the termination or reduction occurs after the
second anniversary of the Funding Date.
(b) Waiver of Termination and Line Reduction Fees.
The Borrower will not be required to pay the termination or
line reduction fees otherwise due under this Section 2.8 if
such termination or line reduction is made because of
refinancing by an affiliate of the Lender.
Section 2.9 Mandatory Prepayment. Without notice or
demand, if the outstanding principal balance of the Revolving
Advances shall at any time exceed the Borrowing Base, the
Borrower shall immediately prepay the Revolving Advances to the
extent necessary to eliminate such excess. Any payment received
by the Lender under this Section 2.9 or under Section 2.6 may be
applied to the Obligations, in such order and in such amounts as
the Lender, in its discretion, may from time to time determine.
Section 2.10 Payment. For purposes of calculating
the amount of Revolving Advances available to Borrower, each
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<PAGE>
payment will be applied (conditional upon final collection) to
the outstanding principal balance of the Revolving Note on the
Banking Day of receipt by Lender of advices of deposit in the
Collateral Account, if such advices are received within
sufficient time (in accordance with Lender's usual and customary
practices as in effect from time to time) to credit Borrower's
loan account on such day, and if not, then on the next Banking
Day. Such payment shall be applied in any order or manner of
application satisfactory to Lender. For purposes of calculating
interest, Lender shall be entitled to charge Borrower for one (1)
Banking Day of clearance at the Floating Rate on all payments
deposited into the Collateral Account, whether or not such
payments are applied to reduce the outstanding principal balance
of the Revolving Note. This clearance charge is acknowledged to
constitute an integral part of the pricing of the loans and
financial accommodations contemplated herein, and shall apply
whether or not the amount of payments deposited exceeds the
obligations outstanding. Notwithstanding anything in Section
2.1, the Borrower hereby authorizes the Lender, in its discretion
at any time or from time to time without the Borrower's request
and even if the conditions set forth in Section 4.2 would not be
satisfied, to make a Revolving Advance in an amount equal to the
portion of the Obligations from time to time due and payable. At
Lender's option, all principal, interest, fees, costs, expenses
and other charges provided for in this Agreement or the other
Loan Documents may be charged directly to the loan account(s) of
Borrower.
Section 2.11 Payment on Non-Banking Days. Whenever
any payment to be made hereunder shall be stated to be due on a
day which is not a Banking Day, such payment may be made on the
next succeeding Banking Day, and such extension of time shall in
such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.12 Use of Proceeds. The Borrower shall use
the initial proceeds of Advances only for: (a) payment to each of
the Persons listed in the disbursement direction letter furnished
by Borrower to Lender on or about the date hereof and (b) costs,
expenses and fees in connection with the preparation,
negotiation, execution and delivery of this Agreement and the
other Loan Documents. All other Advances made to Borrower shall
be used by Borrower only for general operating, working capital
and other proper corporate purposes of Borrower not otherwise
prohibited by the terms hereof.
Section 2.13 Liability Records. The Lender may
maintain from time to time, at its discretion, liability records
as to the Obligations. All entries made on any such record shall
be presumed correct until the Borrower establishes the contrary.
Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the
Borrower then asserts to be outstanding. Any billing statement
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<PAGE>
or accounting rendered by the Lender shall be conclusive and
fully binding on the Borrower unless the Borrower gives the
Lender specific written notice of exception within thirty (30)
days after receipt.
ARTICLE III
Security Interest; Occupancy; Setoff
------------------------------------
Section 3.1 Grant of Security Interest. The
Borrower hereby pledges, assigns and grants to the Lender a
security interest (collectively referred to as the "Security
Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2 Notification of Account Debtors and
Other Obligors. The Lender may at any time (whether or not a
Default Period then exists) notify any account debtor or other
person obligated to pay the amount due that such right to payment
has been assigned or transferred to the Lender for security and
shall be paid directly to the Lender. The Borrower will join in
giving such notice if the Lender so requests. At any time after
the Borrower or the Lender gives such notice to an account debtor
or other obligor, the Lender may, but need not, in the Lender's
name or in the Borrower's name, (a) demand, sue for, collect or
receive any money or property at any time payable or receivable
on account of, or securing, any such right to payment, or grant
any extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the obligations
(including collateral obligations) of any such account debtor or
other obligor; and (b) as the Borrower's agent and attorney-in-
fact, notify the United States Postal Service to change the
address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's
mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and
holding all other mail for the Borrower's account or forwarding
such mail to the Borrower's last known address.
Section 3.3 Assignment of Insurance. As additional
security for the payment and performance of the Obligations, the
Borrower hereby assigns to the Lender any and all monies
(including, without limitation, proceeds of insurance and refunds
of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of
insurance now or at any time hereafter covering the Collateral or
any evidence thereof or any business records or valuable papers
pertaining thereto, and the Borrower hereby directs the issuer of
any such policy to pay all such monies directly to the Lender.
At any time, whether or not a Default Period then exists, the
Lender may (but need not), in the Lender's name or in the
Borrower's name, execute and deliver proof of claim, receive all
such monies, endorse checks and other instruments representing
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payment of such monies, and adjust, litigate, compromise or
release any claim against the issuer of any such policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the
Lender the right to take possession of the Premises at any
time during a Default Period.
(b) The Lender may use the Premises only to hold,
process, manufacture, sell, use, store, liquidate, realize
upon or otherwise dispose of goods that are Collateral and
for other purposes that the Lender may in good faith deem to
be related or incidental purposes.
(c) The Lender's right to hold the Premises shall
cease and terminate upon the earlier of (i) payment in full
and discharge of all Obligations and termination of the
Commitment, and (ii) final sale or disposition of all goods
constituting Collateral and delivery of all such goods to
purchasers.
(d) The Lender shall not be obligated to pay or
account for any rent or other compensation for the
possession, occupancy or use of any of the Premises;
provided, however, that if the Lender does pay or account
for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall
reimburse the Lender promptly for the full amount thereof.
In addition, the Borrower will pay, or reimburse the Lender
for, all taxes, fees, duties, imposts, charges and expenses
at any time incurred by or imposed upon the Lender by reason
of the execution, delivery, existence, recordation,
performance or enforcement of this Agreement or the
provisions of this Section 3.4.
Section 3.5 License. Without limiting the
generality of the Patent Security Agreement, Copyright Security
Agreement, Trademark Security Agreement, the Borrower hereby
grants to the Lender a non-exclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, franchises,
trade names, copyrights and patents of the Borrower for the
purpose of selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
Section 3.6 Financing Statement. A carbon,
photographic or other reproduction of this Agreement or of any
financing statements signed by the Borrower is sufficient as a
financing statement and may be filed as a financing statement in
any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
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<PAGE>
Name and address of Debtor:
Naturade, Inc.
14370 Myford Rd.
Irvine, California 92606
Federal Tax Identification No. 23-2442709
Name and address of Secured Party:
Wells Fargo Business Credit, Inc.
245 South Los Robles Avenue, Suite 600
Pasadena, California 91101
Section 3.7 Setoff. The Borrower agrees that the
Lender may at any time or from time to time, at its sole
discretion and without demand and without notice to anyone,
setoff any liability owed to the Borrower by the Lender, whether
or not due, against any Obligation, whether or not due.
ARTICLE IV
Conditions of Lending
---------------------
Section 4.1 Conditions Precedent to the Initial
Revolving Advance. The Lender's obligation to make the initial
Revolving Advance hereunder shall be subject to the condition
precedent that the Lender shall have received all of the
following, each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) A true and correct copy of any and all leases
pursuant to which the Borrower is leasing the Premises,
together with a landlord's disclaimer and consent with
respect to each such lease.
(d) A true and correct copy of any and all mortgages
pursuant to which the Borrower has mortgaged the Premises,
together with a mortgagee's disclaimer and consent with
respect to each such mortgage.
(e) A true and correct copy of any and all agreements
pursuant to which the Borrower's property is in the
possession of any Person other than the Borrower, together
with, in the case of any goods held by such Person for
resale, (i) a consignee's acknowledgment and waiver of
liens, (ii) UCC financing statements sufficient to protect
the Borrower's and the Lender's interests in such goods, and
(iii) UCC searches showing that no other secured party has
filed a financing statement against such Person and covering
property similar to the Borrower's other than the Borrower,
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or if there exists any such secured party, evidence that
each such secured party has received notice from the
Borrower and the Lender sufficient to protect the Borrower's
and the Lender's interests in the Borrower's goods from any
claim by such secured party.
(f) An acknowledgment and waiver of liens from each
warehouse in which the Borrower is storing Inventory.
(g) A true and correct copy of any and all agreements
pursuant to which the Borrower's property is in the
possession of any Person other than the Borrower, together
with, (i) an acknowledgment and waiver of liens from each
subcontractor who has possession of the Borrower's goods
from time to time, (ii) UCC financing statements sufficient
to protect the Borrower's and the Lender's interests in such
goods, and (iii) UCC searches showing that no other secured
party has filed a financing statement covering such Person's
property other than the Borrower, or if there exists any
such secured party, evidence that each such secured party
has received notice from the Borrower and the Lender
sufficient to protect the Borrower's and the Lender's
interests in the Borrower's goods from any claim by such
secured party.
(h) The Lockbox Agreement, properly executed by the
Borrower, Wells Fargo Bank, National Association and Regulus
West LLC.
(i) Trademark Security Agreement, properly executed by
the Borrower.
(j) The Subordination Agreements properly executed by
the Subordinated Creditors and acknowledged by Borrower.
(k) Current searches of appropriate filing offices
showing that (i) no state or federal tax liens have been
filed and remain in effect against the Borrower, (ii) no
financing statements or assignments of patents, trademarks
or copyrights have been filed and remain in effect against
the Borrower except those financing statements and
assignments of patents, trademarks or copyrights relating to
Permitted Liens or to liens held by Persons who have agreed
in writing that upon receipt of proceeds of the Advances,
they will deliver UCC releases and/or terminations and
releases of such assignments of patents, trademarks or
copyrights satisfactory to the Lender, and (iii) the Lender
has duly filed all financing statements necessary to perfect
the Security Interest, to the extent the Security Interest
is capable of being perfected by filing.
(l) A certificate of the Borrower's Secretary or
Assistant Secretary certifying as to (i) the resolutions of
the Borrower's directors and, if required, shareholders,
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authorizing the execution, delivery and performance of the
Loan Documents, (ii) the Borrower's articles of
incorporation and bylaws, and (iii) the signatures of the
Borrower's officers or agents authorized to execute and
deliver the Loan Documents and other instruments, agreements
and certificates, including Advance requests, on the
Borrower's behalf.
(m) A current certificate issued by the Secretary of
State of Delaware, certifying that the Borrower is in
compliance with all applicable organizational requirements
of the State of Delaware.
(n) Evidence that the Borrower is duly licensed or
qualified to transact business in all jurisdictions where
the character of the property owned or leased or the nature
of the business transacted by it makes such licensing or
qualification necessary (except in those jurisdictions where
the failure to so qualify will not have a materially adverse
effect on the Borrower, its financial condition, or ability
to repay the Obligations under this Agreement).
(o) A certificate of an officer of the Borrower
confirming, in his personal capacity, the representations
and warranties set forth in Article V.
(p) Receipt of background checks on Borrower's
principals satisfactory to Lender at its sole discretion.
(q) An opinion of counsel to the Borrower, addressed
to the Lender.
(r) Certificates of the insurance required hereunder,
with all hazard insurance containing a lender's loss payable
endorsement in the Lender's favor and with all liability
insurance naming the Lender as an additional insured.
(s) Evidence of the settlement of the action arising
under the Performance Nutrition, Inc. bankruptcy on terms
and conditions satisfactory to Lender, and completion of
payments according to the terms of such settlement.
(t) Payment of the fees and commissions due through
the date of the initial Advance under Section 2.3 and
expenses incurred by the Lender through such date and
required to be paid by the Borrower under Section 9.6,
including all legal expenses incurred through the date of
this Agreement.
(u) Evidence that Availability as of the Funding Date
is not less than One Million Two Hundred Fifty Thousand
Dollars ($1,250,000) after giving effect to the amount paid
or to be paid to Borrower's prior lender to retire
Borrower's line of credit with such prior lender and
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bringing all other obligations to a current status
satisfactory to Lender.
(v) At Borrower's cost, an appraisal of all Inventory,
issued by an appraiser acceptable to Lender and in form,
substance and reflecting values satisfactory to Lender in
its sole discretion.
(w) Completion of a field review of the books and
records of Borrower and such other information with respect
to the Collateral as Lender may require and a review of
Borrower's projections, budgets, business plans, cash flows
and such other financial information as Lender may require,
the results of all of which shall be satisfactory to Lender
in its sole discretion.
(x) Evidence that there has been no material adverse
change, as determined by Lender, in the financial condition
or business of Borrower, nor any material decline, as
determined by Lender, in the market value of any Collateral
or a substantial or material portion of the assets of
Borrower since the date of the latest financial statements
of Borrower delivered to Lender prior to the Funding Date.
(y) Evidence that Borrower has opened bank accounts of
a type mutually acceptable to Borrower and Lender,
including, without limitation, the Collateral Account and
any other account contemplated by the Lockbox Agreement.
(z) Such other documents as the Lender in its sole
discretion may require.
Section 4.2 Conditions Precedent to All Advances.
The Lender's obligation to make each Advance shall be subject to
the further conditions precedent that on such date:
(a) the representations and warranties contained in
Article V are correct on and as of the date of such Advance
as though made on and as of such date, except to the extent
that such representations and warranties relate solely to an
earlier date;
(b) no material adverse change, as determined by
Lender, shall have occurred in the financial condition or
business of Borrower nor any material decline, as determined
by Lender, in the market value of any Collateral or a
substantial or material portion of the assets of Borrower
since the date of the latest financial statements delivered
to Lender prior to the Funding Date; and
(c) no event has occurred and is continuing, or would
result from such Advance which constitutes a Default or an
Event of Default.
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ARTICLE V
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Lender as
follows:
Section 5.1 Corporate Existence and Power; Name;
Chief Executive Office; Inventory and Equipment Locations; Tax
Identification Number. The Borrower is a corporation, duly
organized, validly existing and in good standing under the laws
of the State of Delaware and is duly licensed or qualified to
transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted
by it makes such licensing or qualification necessary, except
where the failure to so qualify would not have a materially
adverse effect on the Borrower, its financial condition, or
ability to repay the Obligations under this Agreement. The
Borrower has all requisite power and authority, corporate or
otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under,
the Loan Documents. During its existence, the Borrower has done
business solely under the names set forth in Schedule 5.1 hereto.
The Borrower's chief executive office and principal place of
business is located at the address set forth in Schedule 5.1
hereto, and all of the Borrower's records relating to its
business or the Collateral are kept at that location. All
Inventory and Equipment is located at that location or at one of
the other locations set forth in Schedule 5.1 hereto. The
Borrower's tax identification number is correctly set forth in
Section 3.6 hereto.
Section 5.2 Authorization of Borrowing; No Conflict
as to Law or Agreements. The execution, delivery and performance
by the Borrower of the Loan Documents and the borrowings from
time to time hereunder have been duly authorized by all necessary
corporate action and do not and will not (i) require any consent
or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration,
declaration or filing with, or notice to, any governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration,
filing or notice as has been obtained, accomplished or given
prior to the date hereof; (iii) violate any provision of any law,
rule or regulation (including, without limitation, Regulation X
of the Board of Governors of the Federal Reserve System) or of
any order, writ, injunction or decree presently in effect having
applicability to the Borrower or of the Borrower's articles of
incorporation or bylaws; (iv) result in a breach of or constitute
a default under any indenture or loan or credit agreement or any
other material agreement, lease or instrument to which the
Borrower is a party or by which it or its properties may be bound
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or affected; or (v) result in, or require, the creation or
imposition of any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance of any nature (other than
the Security Interest) upon or with respect to any of the
properties now owned or hereafter acquired by the Borrower.
Section 5.3 Legal Agreements. This Agreement
constitutes and, upon due execution by the Borrower, the other
Loan Documents will constitute the legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms.
Section 5.4 Subsidiaries. Except as set forth in
Schedule 5.4, the Borrower has no Subsidiaries.
Section 5.5 Financial Condition; No Adverse Change.
The Borrower has heretofore furnished to the Lender audited
financial statements of the Borrower for its fiscal year ended
December 31, 1998 and unaudited financial statements of the
Borrower for the fiscal year-to-date period ended October 31,
1999, and those statements fairly present the Borrower's
financial condition on the dates thereof and the results of its
operations and cash flows for the periods then ended and were
prepared in accordance with GAAP. Since the date of the most
recent financial statements, there has been no material adverse
change in the Borrower's business, properties or condition
(financial or otherwise).
Section 5.6 Litigation. There are no actions, suits
or proceedings pending or, to the Borrower's knowledge,
threatened against or affecting the Borrower or the properties of
the Borrower before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, which, if determined adversely to the Borrower, would
have a material adverse effect on the financial condition,
properties or operations of the Borrower.
Section 5.7 Regulation U. The Borrower is not
engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve
System, as amended), and no part of the proceeds of any Advance
will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any
margin stock or to retire any indebtedness which was originally
incurred to purchase or carry any margin stock or for any other
purpose which might cause any of the Advances to be considered a
"purpose credit" within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System, as amended.
Section 5.8 Taxes. The Borrower has paid or caused
to be paid to the proper authorities when due all federal, state
and local taxes required to be withheld by each of them. The
Borrower has filed all federal, state and local tax returns which
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to the knowledge of the officers of the Borrower, are required to
be filed, and the Borrower has paid or caused to be paid to the
respective taxing authorities all taxes as shown on said returns
or on any assessment received by it to the extent such taxes have
become due.
Section 5.9 Titles and Liens. The Borrower has good
and absolute title to all Collateral described in the collateral
reports provided to the Lender and all other Collateral,
properties and assets reflected in the latest financial
statements referred to in Section 5.5 and all proceeds thereof,
free and clear of all mortgages, security interests, liens and
encumbrances, except for Permitted Liens. No financing statement
naming the Borrower as debtor is on file in any office except to
perfect only Permitted Liens.
Section 5.10 Plans. Except as disclosed to the
Lender in writing prior to the date hereof, the Borrower does not
maintain or has not maintained any Plan. The Borrower has not
received any notice and has no knowledge to the effect that it is
not in full compliance with any of the requirements of ERISA. No
Reportable Event or other fact or circumstance which may have an
adverse effect on the Plan's tax qualified status exists in
connection with any Plan. The Borrower does not have:
(a) Any accumulated funding deficiency within the
meaning of ERISA; or
(b) Any liability or knows of any fact or
circumstances which could result in any liability to the
Pension Benefit Guaranty Corporation, the Internal Revenue
Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which
or which may become payable to participants or beneficiaries
of any such Plan).
Section 5.11 Default. The Borrower is in compliance
with all provisions of all agreements, instruments, decrees and
orders to which it is a party or by which it or its property is
bound or affected, the breach or default of which could have a
material adverse effect on the Borrower's financial condition,
properties or operations.
Section 5.12 Environmental Matters.
(a) Definitions. As used in this Agreement, the
following terms shall have the following meanings:
(i) "Environmental Law" means any federal, state,
local or other governmental statute, regulation, law or
ordinance dealing with the protection of human health
and the environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes,
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petroleum and fractions thereof, and all other
chemicals, wastes, substances and materials listed in,
regulated by or identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not
present in, on or under the Premises any Hazardous
Substances in such form or quantity as to create any
liability or obligation for either the Borrower or the
Lender under common law of any jurisdiction or under any
Environmental Law, and no Hazardous Substances have ever
been stored, buried, spilled, leaked, discharged, emitted or
released in, on or under the Premises in such a way as to
create any such liability.
(c) To the Borrower's best knowledge, the Borrower has
not disposed of Hazardous Substances in such a manner as to
create any liability under any Environmental Law.
(d) There are not and there never have been any
requests, claims, notices, investigations, demands,
administrative proceedings, hearings or litigation, relating
in any way to the Premises or the Borrower, alleging
liability under, violation of, or noncompliance with any
Environmental Law or any license, permit or other
authorization issued pursuant thereto. To the Borrower's
best knowledge, no such matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in
accordance with all Environmental Laws and all licenses,
permits and other authorizations required pursuant to any
Environmental Law and necessary for the lawful and efficient
operation of such businesses are in the Borrower's
possession and are in full force and effect. No permit
required under any Environmental Law is scheduled to expire
within 12 months and there is no threat that any such permit
will be withdrawn, terminated, limited or materially
changed.
(f) To the Borrower's best knowledge, the Premises are
not and never have been listed on the National Priorities
List, the Comprehensive Environmental Response, Compensation
and Liability Information System or any similar federal,
state or local list, schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all
environmental assessments, audits, reports, permits,
licenses and other documents describing or relating in any
way to the Premises or Borrower's businesses.
Section 5.13 Submissions to Lender. All financial
and other information provided to the Lender by or on behalf of
the Borrower in connection with the Borrower's request for the
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credit facilities contemplated hereby is true and correct in all
material respects and, as to projections, valuations or pro forma
financial statements, present a good faith opinion as to such
projections, valuations and pro forma condition and results.
Section 5.14 Financing Statements. The Borrower has
provided to the Lender signed financing statements sufficient
when filed to perfect the Security Interest and the other
security interests created by the Security Documents. When such
financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all
Collateral and all other collateral described in the Security
Documents which is capable of being perfected by filing financing
statements. None of the Collateral or other collateral covered
by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with
respect thereto.
Section 5.15 Rights to Payment. Each right to
payment and each instrument, document, chattel paper and other
agreement constituting or evidencing Collateral or other
collateral covered by the Security Documents is (or, in the case
of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable
obligation, subject to no defense, setoff or counterclaim, of the
account debtor or other obligor named therein or in the
Borrower's records pertaining thereto as being obligated to pay
such obligation.
Section 5.16 Bank Accounts. All of the deposit
accounts, investment accounts or other accounts in the name of or
used by Borrower maintained at any bank or other financial
institution are set forth on Schedule 5.16 hereto.
Section 5.17 Financial Solvency. Both before and
after giving effect to all of the transactions contemplated in
the Loan Documents, Borrower will not:
(a) be or was not insolvent, as that term is used and
defined in Section 101(32) of the United States Bankruptcy
Code and Section 2 of the Uniform Fraudulent Transfer Act;
(b) have unreasonably small capital or is not engaged
or about to engage in a business or a transaction for which
any remaining assets of the Borrower are unreasonably small;
(c) by executing, delivering or performing its
obligations under the Loan Documents or other documents to
which it is a party or by taking any action with respect
thereto, intends to, nor believes that it will, incur debts
beyond its ability to pay them as they mature;
(d) by executing, delivering or performing its
obligations under the Loan Documents or other documents to
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which it is a party or by taking any action with respect
thereto, intends to hinder, delay or defraud either its
present or future creditors; and
(e) at this time contemplates filing a petition in
bankruptcy or for an arrangement or reorganization or
similar proceeding under any law any jurisdiction, nor, to
the best knowledge of the Borrower, is the subject of any
actual, pending or threatened bankruptcy, insolvency or
similar proceedings under any law of any jurisdiction.
ARTICLE VI
Borrower's Affirmative Covenants
--------------------------------
So long as the Obligations shall remain unpaid, or the
Credit Facility shall remain outstanding, the Borrower will
comply with the following requirements, unless the Lender shall
otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower
will deliver, or cause to be delivered, to the Lender each of the
following, which shall be in form and detail acceptable to the
Lender:
(a) as soon as available, and in any event within
ninety (90) days after the end of each fiscal year of the
Borrower, the Borrower's audited financial statements with
the unqualified opinion of independent certified public
accountants selected by the Borrower and acceptable to the
Lender, which annual financial statements shall include the
Borrower's balance sheet as at the end of such fiscal year
and the related statements of the Borrower's income,
retained earnings and cash flows for the fiscal year then
ended, all in reasonable detail and prepared in accordance
with GAAP, together with (i) copies of all management
letters prepared by such accountants; (ii) a report signed
by such accountants stating that in making the
investigations necessary for said opinion they obtained no
knowledge, except as specifically stated, of any Default or
Event of Default hereunder and all relevant facts in
reasonable detail to evidence, and the computations as to,
whether or not the Borrower is in compliance with the
requirements set forth in Sections 6.12, 6.13, and 7.10; and
(iii) a certificate of the Borrower's chief financial
officer stating that such financial statements have been
prepared in accordance with GAAP and whether or not such
officer has knowledge of the occurrence of any Default or
Event of Default hereunder and, if so, stating in reasonable
detail the facts with respect thereto;
(b) as soon as available and in any event within
twenty (20) days after the end of each month, an
unaudited/internal balance sheet and statements of income
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and retained earnings of the Borrower as at the end of and
for such month and for the year to date period then ended,
in reasonable detail and stating in comparative form the
figures for the corresponding date and periods in the
previous year, all prepared in accordance with GAAP, subject
to year-end audit adjustments; and accompanied by a
certificate of the Borrower's chief financial officer,
substantially in the form of Exhibit B hereto stating
(i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments,
(ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not
theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto, and
(iii) all relevant facts in reasonable detail to evidence,
and the computations as to, whether or not the Borrower is
in compliance with the requirements set forth in
Sections 6.12, 6.13, and 7.10;
(c) No later than Monday of each week, as of the end
of the prior calendar week, or more frequently if the Lender
so requires, reports of Borrower's sales, credit memos,
collections, and other accounts receivable activity;
(d) within fifteen (15) days after the end of each
month or more frequently if the Lender so requires, agings
of the Borrower's accounts receivable and its accounts
payable, an inventory certification report, reports of
inventory levels, and a calculation of the Borrower's
Accounts, Eligible Accounts, Inventory and Eligible
Inventory as at the end of such month or shorter time
period;
(e) at least thirty (30) days before the beginning of
each fiscal year of the Borrower, the projected balance
sheets and income statements for each month of such year,
each in reasonable detail, representing the Borrower's good
faith projections and certified by the Borrower's chief
financial officer as being the most accurate projections
available and identical to the projections used by the
Borrower for internal planning purposes, together with such
supporting schedules and information as the Lender may in
its discretion require;
(f) promptly upon knowledge thereof, notice in writing
of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of
the type described in Section 5.12 or which seek a monetary
recovery against the Borrower in excess of Twenty Five
Thousand Dollars ($25,000);
(g) as promptly as practicable (but in any event not
later than five business days) after an officer of the
Borrower obtains knowledge of the occurrence of any breach,
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default or event of default under any Security Document or
any event which constitutes a Default or Event of Default
hereunder, notice of such occurrence, together with a
detailed statement by a responsible officer of the Borrower
of the steps being taken by the Borrower to cure the effect
of such breach, default or event;
(h) as soon as possible and in any event within thirty
(30) days after the Borrower knows or has reason to know
that any Reportable Event with respect to any Plan has
occurred, the statement of the Borrower's chief financial
officer setting forth details as to such Reportable Event
and the action which the Borrower proposes to take with
respect thereto, together with a copy of the notice of such
Reportable Event to the Pension Benefit Guaranty
Corporation;
(i) as soon as possible, and in any event within ten
(10) days after the Borrower fails to make any quarterly
contribution required with respect to any Plan under Section
412(m) of the Internal Revenue Code of 1986, as amended, the
statement of the Borrower's chief financial officer setting
forth details as to such failure and the action which the
Borrower proposes to take with respect thereto, together
with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation;
(j) promptly upon knowledge thereof, notice of (i) any
disputes or claims by the Borrower's customers exceeding
Twenty Five Thousand Dollars ($25,000) individually or Fifty
Thousand Dollars ($50,000) in the aggregate during any
fiscal year; (ii) credit memos; (iii) any goods returned to
or recovered by the Borrower; and (iv) any change in the
persons constituting the Borrower's officers and directors;
(k) promptly upon knowledge thereof, notice of any
loss of or material damage to any Collateral or other
collateral covered by the Security Documents or of any
substantial adverse change in any Collateral or such other
collateral or the prospect of payment thereof;
(l) promptly upon their distribution, copies of all
financial statements, reports and proxy statements which the
Borrower shall have sent to its stockholders;
(m) promptly after the sending or filing thereof,
copies of all regular and periodic reports which the
Borrower shall file with the Securities and Exchange
Commission or any national securities exchange;
(n) promptly upon knowledge thereof, notice of the
Borrower's violation of any law, rule or regulation, the
non-compliance with which could materially and adversely
affect the Borrower's business or its financial condition;
and
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(o) from time to time, with reasonable promptness, any
and all receivables schedules, collection reports, deposit
records, equipment schedules, copies of invoices to account
debtors, shipment documents and delivery receipts for goods
sold, and such other material, reports, records or
information as the Lender may request, including, without
limitation, daily or weekly borrowing base certificates.
Section 6.2 Books and Records; Inspection and
Examination. The Borrower will keep accurate books of record and
account for itself pertaining to the Collateral and pertaining to
the Borrower's business and financial condition and such other
matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with GAAP and,
upon the Lender's request, will permit any officer, employee,
attorney or accountant for the Lender to audit, review, make
extracts from or copy any and all corporate and financial books
and records of the Borrower at all times during ordinary business
hours, to send and discuss with account debtors and other
obligors requests for verification of amounts owed to the
Borrower, and to discuss the Borrower's affairs with any of its
directors, officers, employees or agents. The Borrower will
permit the Lender, or its employees, accountants, attorneys or
agents, to examine and inspect any Collateral, other collateral
covered by the Security Documents or any other property of the
Borrower at any time during ordinary business hours.
Section 6.3 Account Verification. The Lender may at
any time and from time to time send or require the Borrower to
send requests for verification of accounts or notices of
assignment to account debtors and other obligors. The Lender may
also at any time and from time to time telephone account debtors
and other obligors to verify accounts.
Section 6.4 Compliance with Laws.
(a) The Borrower will (i) comply with the requirements
of applicable laws and regulations, the non-compliance with
which would materially and adversely affect its business or
its financial condition and (ii) use and keep the
Collateral, and require that others use and keep the
Collateral, only for lawful purposes, without violation of
any federal, state or local law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the
Borrower specifically agrees that it will comply with all
applicable Environmental Laws and obtain and comply with all
permits, licenses and similar approvals required by any
Environmental Laws, and will not generate, use, transport,
treat, store or dispose of any Hazardous Substances in such
a manner as to create any liability or obligation under the
common law of any jurisdiction or any Environmental Law.
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Section 6.5 Payment of Taxes and Other Claims. The
Borrower will pay or discharge, when due, (a) all taxes,
assessments and governmental charges levied or imposed upon it or
upon its income or profits, upon any properties belonging to it
(including, without limitation, the Collateral) or upon or
against the creation, perfection or continuance of the Security
Interest, prior to the date on which penalties attach thereto,
(b) all federal, state and local taxes required to be withheld by
it, and (c) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not
be required to pay any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in
good faith by appropriate proceedings and for which proper
reserves have been made.
Section 6.6 Maintenance of Properties.
(a) The Borrower will keep and maintain the
Collateral, the other collateral covered by the Security
Documents and all of its other properties necessary or
useful in its business in good condition, repair and working
order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.6 shall
prevent the Borrower from discontinuing the operation and
maintenance of any of its properties if such discontinuance
is, in the Lender's judgment, desirable in the conduct of
the Borrower's business and not disadvantageous in any
material respect to the Lender.
(b) The Borrower will defend the Collateral against
all claims or demands of all persons (other than the Lender)
claiming the Collateral or any interest therein.
(c) The Borrower will keep all Collateral and other
collateral covered by the Security Documents free and clear
of all security interests, liens and encumbrances except
Permitted Liens.
Section 6.7 Insurance. The Borrower will obtain and
at all times maintain insurance with insurers believed by the
Borrower to be responsible and reputable, in such amounts and
against such risks as may from time to time be required by the
Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business
and owning similar properties in the same general areas in which
the Borrower operates. Without limiting the generality of the
foregoing, the Borrower will at all times maintain business
interruption insurance including coverage for force majeure and
keep all tangible Collateral insured against risks of fire
(including so-called extended coverage), theft, collision (for
Collateral consisting of motor vehicles) and such other risks and
in such amounts as the Lender may reasonably request, with any
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loss payable to the Lender to the extent of its interest, and all
policies of such insurance shall contain a lender's loss payable
endorsement for the Lender's benefit acceptable to the Lender.
All policies of liability insurance required hereunder shall name
the Lender as an additional insured.
Section 6.8 Preservation of Existence. The Borrower
will preserve and maintain its existence and all of its rights,
privileges and franchises necessary or desirable in the normal
conduct of its business and shall conduct its business in an
orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments, etc. Upon
request by the Lender, the Borrower will promptly deliver to the
Lender in pledge all instruments, documents and chattel papers
constituting Collateral, duly endorsed or assigned by the
Borrower.
Section 6.10 Collateral Account.
(a) If, notwithstanding the instructions to debtors to
make payments to the Lockbox, the Borrower receives any
payments on Receivables, the Borrower shall deposit such
payments into the Collateral Account. Until so deposited,
the Borrower shall hold all such payments in trust for and
as the property of the Lender and shall not commingle such
payments with any of its other funds or property.
(b) Amounts deposited in the Collateral Account shall
not bear interest and shall not be subject to withdrawal by
the Borrower, except after full payment and discharge of all
Obligations. All deposits in the Collateral Account shall
constitute proceeds of Collateral and shall not constitute
payment of the Obligations.
(c) All items deposited in the Collateral Account
shall be subject to final payment. If any such item is
returned uncollected, the Borrower will immediately pay the
Lender, or, for items deposited in the Collateral Account,
the bank maintaining such account, the amount of that item,
or such bank at its discretion may charge any uncollected
item to the Borrower's commercial account or other account.
The Borrower shall be liable as an endorser on all items
deposited in the Collateral Account, whether or not in fact
endorsed by the Borrower.
Section 6.11 Performance by the Lender. If the
Borrower at any time fails to perform or observe any of the
foregoing covenants contained in this Article VI or elsewhere
herein, and if such failure shall continue for a period of ten
(10) calendar days after the Lender gives the Borrower written
notice thereof (or in the case of the agreements contained in
Sections 6.7 and 6.10, immediately upon the occurrence of such
failure, without notice or lapse of time), the Lender may, but
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<PAGE>
need not, perform or observe such covenant on behalf and in the
name, place and stead of the Borrower (or, at the Lender's
option, in the Lender's name) and may, but need not, take any and
all other actions which the Lender may reasonably deem necessary
to cure or correct such failure (including, without limitation,
the payment of taxes, the satisfaction of security interests,
liens or encumbrances, the performance of obligations owed to
account debtors or other obligors, the procurement and
maintenance of insurance, the execution of assignments, security
agreements and financing statements, and the endorsement of
instruments); and the Borrower shall thereupon pay to the Lender
on demand the amount of all monies expended and all costs and
expenses (including reasonable attorneys' fees and legal
expenses) incurred by the Lender in connection with or as a
result of the performance or observance of such agreements or the
taking of such action by the Lender, together with interest
thereon from the date expended or incurred at the Floating Rate.
To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably
appoints the Lender, or the Lender's delegate, acting alone, as
the Borrower's attorney in fact (which appointment is coupled
with an interest) with the right (but not the duty) from time to
time to create, prepare, complete, execute, deliver, endorse or
file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements,
financing statements, applications for insurance and other
agreements and writings required to be obtained, executed,
delivered or endorsed by the Borrower under this Section 6.11.
Section 6.12 Minimum Book Net Worth Plus Subordinated
Convertible Debt. The Borrower will maintain, during each period
described below, its Book Net Worth plus Subordinated Convertible
Debt ("Adjusted Book Net Worth"), determined as at the end of
each month, at an amount not less than the amount set forth
opposite such period:
Period Adjusted Book Net Worth
------ -----------------------
through 1/31/2000 $0
2/29/2000 through 3/31/2000 ($225,000)
4/30/2000 through 6/30/2000 ($450,000)
7/31/2000 through 9/30/2000 ($475,000)
10/31/2000 through 12/31/2000 ($500,000) and thereafter
Section 6.13 Minimum Net Income. The Borrower will
maintain during each period described below, Minimum Net Income
determined as at the end of each calendar quarter measured on a
year-to-date basis, of not less than the amount set forth
opposite such period:
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<PAGE>
Quarter Ending Minimum Net Income
-------------- ------------------
3/31/2000 ($675,000)
6/30/2000 ($900,000)
9/30/2000 ($925,000)
12/31/2000 ($950,000)
Section 6.14 New Covenants. On or before January 1
of each year Lender shall set new covenant levels for Sections
6.12, 6.13, and 7.10 for periods after such date. The new
covenant levels will be based on the Borrower's projections for
such periods received by Lender pursuant to Section 6.1(e) and
shall be no less stringent than the present levels.
ARTICLE VII
Negative Covenants
------------------
So long as the Obligations shall remain unpaid, or the
Credit Facility shall remain outstanding, the Borrower agrees
that, without the Lender's prior written consent:
Section 7.1 Liens. The Borrower will not create,
incur or suffer to exist any mortgage, deed of trust, pledge,
lien, security interest, assignment or transfer upon or of any of
its assets, now owned or hereafter acquired, to secure any
indebtedness; excluding, however, from the operation of the
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property
which is not Collateral or other collateral described in the
Security Documents, covenants, restrictions, rights,
easements and minor irregularities in title which do not
materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens,
security interests and assignments in existence on the date
hereof and listed in Schedule 7.1 hereto;
(c) the Security Interest and liens and security
interests created by the Security Documents; and
(d) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower not
exceeding the cost or fair market value thereof, not
exceeding Fifty Thousand Dollars ($50,000) for any one
purchase or One Hundred Thousand Dollars ($100,000) in the
aggregate during any fiscal year and so long as no Default
Period is then in existence and none would exist immediately
after such acquisition.
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Section 7.2 Indebtedness. The Borrower will not
incur, create, assume or permit to exist any indebtedness or
liability on account of deposits or advances or any indebtedness
for borrowed money or letters of credit issued on the Borrower's
behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the
date hereof and listed in Schedule 7.2 hereto; and
(c) indebtedness relating to liens permitted in
accordance with Section 7.1.
Section 7.3 Guaranties. The Borrower will not
assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any
other Person, except:
(a) the endorsement of negotiable instruments by the
Borrower for deposit or collection or similar transactions
in the ordinary course of business; and
(b) guaranties, endorsements and other direct or
contingent liabilities in connection with the obligations of
other Persons, in existence on the date hereof and listed in
Schedule 7.2 hereto.
Section 7.4 Investments and Subsidiaries.
(a) The Borrower will not purchase or hold
beneficially any stock or other securities or evidences of
indebtedness of, make or permit to exist any loans or
advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but
without limitation any partnership or joint venture, except:
(i) investments in direct obligations of the
United States of America or any agency or
instrumentality thereof whose obligations constitute
full faith and credit obligations of the United States
of America having a maturity of one year or less,
commercial paper issued by U.S. corporations rated
"A-1" or "A-2" by Standard & Poors Corporation or "P-1"
or "P-2" by Moody's Investors Service or certificates
of deposit or bankers' acceptances having a maturity of
one year or less issued by members of the Federal
Reserve System having deposits in excess of One Hundred
Million Dollars ($100,000,000) (which certificates of
deposit or bankers' acceptances are fully insured by
the Federal Deposit Insurance Corporation);
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<PAGE>
(ii) travel advances or loans to the Borrower's
officers and employees not exceeding at any one time an
aggregate of Ten Thousand Dollars ($10,000); and
(iii) advances in the form of progress
payments, prepaid rent not exceeding three (3) months
or security deposits.
(b) The Borrower will not create or permit to exist
any Subsidiary.
Section 7.5 Dividends. Except as set forth below,
the Borrower will not declare or pay any dividends (other than
dividends payable solely in stock of the Borrower) on any class
of its stock or make any payment on account of the purchase,
redemption or other retirement of any shares of such stock or
make any distribution in respect thereof, either directly or
indirectly.
Section 7.6 Sale or Transfer of Assets; Suspension
of Business Operations. The Borrower will not sell, lease,
assign, transfer or otherwise dispose of (i) the stock of any
Subsidiary, (ii) all or a substantial part of its assets, or
(iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person
other than the sale of Inventory in the ordinary course of
business and will not liquidate, dissolve or suspend business
operations. The Borrower will not in any manner transfer any
property without prior or present receipt of full and adequate
consideration.
Section 7.7 Consolidation and Merger; Asset
Acquisitions. The Borrower will not consolidate with or merge
into any Person, or permit any other Person to merge into it, or
acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all the assets of
any other Person.
Section 7.8 Sale and Leaseback. The Borrower will
not enter into any arrangement, directly or indirectly, with any
other Person whereby the Borrower shall sell or transfer any real
or personal property, whether now owned or hereafter acquired,
and then or thereafter rent or lease as lessee such property or
any part thereof or any other property which the Borrower intends
to use for substantially the same purpose or purposes as the
property being sold or transferred.
Section 7.9 Restrictions on Nature of Business. The
Borrower will not engage in any line of business materially
different from that presently engaged in by the Borrower and will
not purchase, lease or otherwise acquire assets not related to
its business.
Section 7.10 Capital Expenditures. The Borrower will
not incur or contract to incur Capital Expenditures of more than
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<PAGE>
One Hundred Thousand Dollars ($100,000) in the aggregate during
any fiscal year, or more than Fifty Thousand Dollars ($50,000) in
any one transaction.
Section 7.11 Accounting. The Borrower will not adopt
any material change in accounting principles other than as
required by GAAP. The Borrower will not adopt, permit or consent
to any change in its fiscal year.
Section 7.12 Discounts, etc. The Borrower will not,
after notice from the Lender, grant any discount, credit or
allowance to any customer of the Borrower or accept any return of
goods sold, or at any time (whether before or after notice from
the Lender) modify, amend, subordinate, cancel or terminate the
obligation of any account debtor or other obligor of the Borrower
(collectively referred to herein as "Discounts"); provided,
however, that Borrower may grant such Discounts in manner and
amount which are in accordance with Borrower's past practice.
Section 7.13 Defined Benefit Pension Plans. The
Borrower will not adopt, create, assume or become a party to any
defined benefit pension plan, unless disclosed to the Lender
pursuant to Section 5.10.
Section 7.14 Other Defaults. The Borrower will not
permit any breach, default or event of default to occur under any
note, loan agreement, indenture, lease, mortgage, contract for
deed, security agreement or other contractual obligation binding
upon the Borrower.
Section 7.15 Place of Business; Name. The Borrower
will not transfer its chief executive office or principal place
of business, or move, relocate, close or sell any business
location. The Borrower will not permit any tangible Collateral
or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a
financing statement covering such Collateral would be required to
be, but has not in fact been, filed in order to perfect the
Security Interest. The Borrower will not change its name.
Section 7.16 Organizational Documents; S Corporation
Status. The Borrower will not amend its certificate of
incorporation, articles of incorporation or bylaws. The Borrower
will not become an S Corporation.
Section 7.17 Salaries. The Borrower will not pay
excessive or unreasonable salaries, bonuses, commissions,
consultant fees or other compensation; or increase the salary,
bonus, commissions, consultant fees or other compensation of any
director, officer or consultant, or any member of their families,
by more than ten percent (10%) in any one year, either
individually or for all such persons in the aggregate, or pay any
such increase from any source other than profits earned in the
year of payment.
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<PAGE>
Section 7.18 Change in Ownership. The Borrower will
not issue or sell any stock of the Borrower in amounts so that
Health Holdings and Botanicals, Inc. ceases to own in excess of
fifty percent (50%) of the issued and outstanding shares of
common stock of the Borrower.
Section 7.19 Transactions with Affiliates. Borrower
shall not enter into any transaction for the purchase, sale or
exchange of property or the rendering of any service to or by any
Affiliate, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to Borrower than Borrower
would obtain in a comparable arms length transaction with an
unaffiliated Person.
Section 7.20 Additional Bank Accounts. Borrower
shall not, directly or indirectly, open, establish or maintain
any deposit account, investment account or any other account with
any bank or other financial institution, other than the
Collateral Account and the accounts set forth in Schedule 5.16
hereto.
ARTICLE VIII
Events of Default, Rights and Remedies
--------------------------------------
Section 8.1 Events of Default. "Event of Default",
wherever used herein, means any one of the following events,
which Event of Default shall exist or continue or be continuing
until such Event of Default is waived in accordance with Section
9.2 hereof:
(a) Default in the payment of the Obligations when
they become due and payable;
(b) Default in the payment of any fees, commissions,
costs or expenses required to be paid by the Borrower under
this Agreement;
(c) Borrower shall fail to comply with any covenant or
agreement of the Borrower contained in this Agreement and
such failure shall continue for five (5) days; provided,
that, such five (5) day period shall not apply in the case
of: (i) any failure to observe any such covenant or
agreement which is not capable of being cured at all or
within such five (5) day period or which has been the
subject of a prior failure within a twelve (12) month period
or (ii) an intentional breach of Borrower of any such
covenant or agreement;
(d) The Borrower or any Guarantor shall be or become
insolvent, or admit in writing its or his inability to pay
its or his debts as they mature, or make an assignment for
the benefit of creditors; or the Borrower or any Guarantor
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<PAGE>
shall apply for or consent to the appointment of any
receiver, trustee, or similar officer for it or him or for
all or any substantial part of its or his property; or such
receiver, trustee or similar officer shall be appointed
without the application or consent of the Borrower or such
Guarantor, as the case may be; or the Borrower or any
Guarantor shall institute (by petition, application, answer,
consent or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to
it or him under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or
otherwise) against the Borrower or any such Guarantor; or
any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against a
substantial part of the property of the Borrower or any
Guarantor;
(e) A petition shall be filed by or against the
Borrower or any Guarantor under the United States Bankruptcy
Code naming the Borrower or such Guarantor as debtor;
(f) The Life Insurance Policy shall be terminated, by
the Borrower or otherwise; or the Life Insurance Policy
shall be scheduled to terminate within thirty (30) days and
the Borrower shall not have delivered a satisfactory renewal
thereof to the Lender; or the Borrower shall fail to pay any
premium on the Life Insurance Policy when due; or the
Borrower shall take any other action that impairs the value
of the Life Insurance Policy.
(g) Any representation or warranty made by the
Borrower in this Agreement, by any Guarantor in any guaranty
delivered to the Lender, or by the Borrower (or any of its
officers) or any Guarantor in any agreement, certificate,
instrument or financial statement or other statement
contemplated by or made or delivered pursuant to or in
connection with this Agreement or any such guaranty shall
prove to have been incorrect in any material respect when
deemed to be effective;
(h) The rendering against the Borrower of a final
judgment, decree or order for the payment of money in excess
of Fifty Thousand Dollars ($50,000) (not covered by
insurance or for which an insurer has reserved its rights)
and, absent procurement of a stay of execution, such
judgment, decree or order unsatisfied and in effect for any
period of thirty (30) consecutive days without a stay of
execution;
(i) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person
other than the Lender, or under any indenture or other
instrument under which any such evidence of indebtedness has
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<PAGE>
been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable
period of grace, if any, specified in such evidence of
indebtedness, indenture, other instrument or lease;
(j) Any Reportable Event, which the Lender determines
in good faith might constitute grounds for the termination
of any Plan or for the appointment by the appropriate United
States District Court of a trustee to administer any Plan,
shall have occurred and be continuing thirty (30) days after
written notice to such effect shall have been given to the
Borrower by the Lender; or a trustee shall have been
appointed by an appropriate United States District Court to
administer any Plan; or the Pension Benefit Guaranty
Corporation shall have instituted proceedings to terminate
any Plan or to appoint a trustee to administer any Plan; or
the Borrower shall have filed for a distress termination of
any Plan under Title IV of ERISA; or the Borrower shall have
failed to make any quarterly contribution required with
respect to any Plan under Section 412(m) of the Internal
Revenue Code of 1986, as amended, which the Lender
determines in good faith may by itself, or in combination
with any such failures that the Lender may determine are
likely to occur in the future, result in the imposition of a
lien on the Borrower's assets in favor of the Plan;
(k) An event of default shall occur under any Security
Document or under any other security agreement, mortgage,
deed of trust, assignment or other instrument or agreement
securing any obligations of the Borrower hereunder or under
any note;
(l) The Borrower shall liquidate, dissolve, terminate
or suspend its business operations or otherwise fail to
operate its business in the ordinary course, or sell all or
substantially all of its assets, without the Lender's prior
written consent;
(m) The Borrower shall fail to pay, withhold, collect
or remit any tax or tax deficiency when assessed or due
(other than any tax deficiency which is being contested in
good faith and by proper proceedings and for which it shall
have set aside on its books adequate reserves therefor) or
notice of any state or federal tax liens shall be filed or
issued;
(n) Default in the payment of any amount owed by the
Borrower to the Lender other than any indebtedness arising
hereunder;
(o) Any Guarantor shall repudiate, purport to revoke
or fail to perform any such Guarantor's obligations under
such Guarantor's guaranty in favor of the Lender, any
individual Guarantor shall die or any other Guarantor shall
cease to exist;
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<PAGE>
(p) The Borrower shall take or participate in any
action which would be prohibited under the provisions of any
Subordination Agreement or make any payment on the
Subordinated Indebtedness (as defined in the Subordination
Agreement) that any Person was not entitled to receive under
the provisions of the Subordination Agreement;
Section 8.2 Rights and Remedies. During any Default
Period, the Lender may exercise any or all of the following
rights and remedies:
(a) the Lender may, by notice to the Borrower, declare
the Commitment to be terminated, whereupon the same shall
forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare
the Obligations to be forthwith due and payable, whereupon
all Obligations shall become and be forthwith due and
payable, without presentment, notice of dishonor, protest or
further notice of any kind, all of which the Borrower hereby
expressly waives;
(c) the Lender may, without notice to the Borrower and
without further action, apply any and all money owing by the
Lender to the Borrower to the payment of the Obligations;
(d) the Lender may exercise and enforce any and all
rights and remedies available upon default to a secured
party under the UCC, including, without limitation, the
right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial
process (without a prior hearing or notice thereof, which
the Borrower hereby expressly waives) and the right to sell,
lease or otherwise dispose of any or all of the Collateral,
and, in connection therewith, the Borrower will on demand
assemble the Collateral and make it available to the Lender
at a place to be designated by the Lender which is
reasonably convenient to both parties;
(e) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(f) the Lender may exercise any other rights and
remedies available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of
Default described in subsections (d) or (e) of Section 8.1, the
Obligations shall be immediately due and payable automatically
without presentment, demand, protest or notice of any kind.
Section 8.3 Certain Notices. If notice to the
Borrower of any intended disposition of Collateral or any other
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<PAGE>
intended action is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given (in the
manner specified in Section 9.3) at least ten (10) calendar days
before the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
-------------
Section 9.1 No Waiver; Cumulative Remedies. No
failure or delay by the Lender in exercising any right, power or
remedy under the Loan Documents 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 under
the Loan Documents. The remedies provided in the Loan Documents
are cumulative and not exclusive of any remedies provided by law.
Section 9.2 Amendments, Etc. No amendment,
modification, termination or waiver of any provision of any Loan
Document or consent to any departure by the Borrower therefrom or
any release of a Security Interest shall be effective unless the
same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No notice
to or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or
other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as
otherwise expressly provided herein, all notices, requests,
demands and other communications provided for under the Loan
Documents shall be in writing and shall be (a) personally
delivered, (b) sent by first class United States mail, (c) sent
by overnight courier of national reputation, or (d) transmitted
by telecopy, in each case addressed or telecopied to the party to
whom notice is being given at its address or telecopier number as
set forth below:
If to the Borrower:
Naturade, Inc.
14370 Myford Rd.
Irvine, California 92606
Telecopier: (714) 573-4816
Attention: Larry Batina
If to the Lender:
Wells Fargo Business Credit, Inc.
245 South Los Robles Avenue, Suite 600
Pasadena, California 91101
Telecopier: (626) 844-9063
Attention: Tom Makowski
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<PAGE>
or, as to each party, at such other address or telecopier number
as may hereafter be designated by such party in a written notice
to the other party complying as to delivery with the terms of
this Section. All such notices, requests, demands and other
communications shall be deemed to have been given on (a) the date
received if personally delivered, (b) when deposited in the mail
if delivered by mail, (c) the date sent if sent by overnight
courier, or (d) the date of transmission if delivered by
telecopy, except that notices or requests to the Lender pursuant
to any of the provisions of Article II shall not be effective
until received by the Lender.
Section 9.4 Further Documents. The Borrower will
from time to time execute and deliver or endorse any and all
instruments, documents, conveyances, assignments, security
agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to
secure, protect, perfect or enforce the Security Interest or the
Lender's rights under the Loan Documents (but any failure to
request or assure that the Borrower executes, delivers or
endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the
Security Interest, regardless of whether any such item was or was
not executed, delivered or endorsed in a similar context or on a
prior occasion).
Section 9.5 Collateral. This Agreement does not
contemplate a sale of accounts, contract rights or chattel paper,
and, as provided by law, the Borrower is entitled to any surplus
and shall remain liable for any deficiency. The Lender's duty of
care with respect to Collateral in its possession (as imposed by
law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral
in the custody or possession of a bailee or other third person,
exercises reasonable care in the selection of the bailee or other
third person, and the Lender need not otherwise preserve,
protect, insure or care for any Collateral. The Lender shall not
be obligated to preserve any rights the Borrower may have against
prior parties, to realize on the Collateral at all or in any
particular manner or order or to apply any cash proceeds of the
Collateral in any particular order of application.
Section 9.6 Costs and Expenses. The Borrower agrees
to pay on demand all costs and expenses, including (without
limitation) attorneys' fees, incurred by the Lender in connection
with the Obligations, this Agreement, the Loan Documents, and any
other document or agreement related hereto or thereto, and the
transactions contemplated hereby, including without limitation
all such costs, expenses and fees incurred in connection with the
negotiation, preparation, execution, amendment, administration,
performance, collection and enforcement of the Obligations and
all such documents and agreements and the creation, perfection,
protection, satisfaction, foreclosure or enforcement of the
Security Interest.
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Section 9.7 Indemnity. In addition to the payment
of expenses pursuant to Section 9.6, the Borrower agrees to
indemnify, defend and hold harmless the Lender, and any of its
participants, parent corporations, subsidiary corporations,
affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents
of the foregoing (the "Indemnitees") from and against any of the
following (collectively, "Indemnified Liabilities"):
(i) any and all transfer taxes, documentary
taxes, assessments or charges made by any governmental
authority by reason of the execution and delivery of
the Loan Documents or the making of the Advances;
(ii) any claims, loss or damage to which any
Indemnitee may be subjected if any representation or
warranty contained in Section 5.12 proves to be
incorrect in any respect or as a result of any
violation of the covenant contained in Section 6.4(b);
and
(iii) any and all other liabilities, losses,
damages, penalties, judgments, suits, claims, costs and
expenses of any kind or nature whatsoever (including,
without limitation, the reasonable fees and
disbursements of counsel) in connection with the
foregoing and any other investigative, administrative
or judicial proceedings, whether or not such Indemnitee
shall be designated a party thereto, which may be
imposed on, incurred by or asserted against any such
Indemnitee, in any manner related to or arising out of
or in connection with the making of the Advances and
the Loan Documents or the use or intended use of the
proceeds of the Advances.
If any investigative, judicial or administrative proceeding
arising from any of the foregoing is brought against any
Indemnitee, upon such Indemnitee's request, the Borrower, or
counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or
proceeding to the extent and in the manner directed by the
Indemnitee, at the Borrower's sole costs and expense. Each
Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing
undertaking to indemnify, defend and hold harmless may be held to
be unenforceable because it violates any law or public policy,
the Borrower shall nevertheless make the maximum contribution to
the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The
Borrower's obligation under this Section 9.7 shall survive the
termination of this Agreement and the discharge of the Borrower's
other obligations hereunder.
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Section 9.8 Participants. The Lender and its
participants, if any, are not partners or joint venturers, and
the Lender shall not have any liability or responsibility for any
obligation, act or omission of any of its participants. All
rights and powers specifically conferred upon the Lender may be
transferred or delegated to any of the Lender's participants,
successors or assigns.
Section 9.9 Execution in Counterparts. This
Agreement and other Loan Documents may be executed in any number
of counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same instrument.
Section 9.10 Binding Effect; Assignment; Complete
Agreement; Exchanging Information. The Loan Documents shall be
binding upon and inure to the benefit of the Borrower and the
Lender and their respective successors and assigns, except that
the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior
written consent. This Agreement, together with the Loan
Documents, comprises the complete and integrated agreement of the
parties on the subject matter hereof and supersedes all prior
agreements, written or oral, on the subject matter hereof.
Lender agrees to hold any confidential information that it may
receive from the Borrower in confidence, except for disclosure:
(1) to affiliates of lender; (b) to legal counsel and accountants
for the Lender; (c) to professional advisors to the Lender;
(d) to another financial institution in connection with a
disposition or proposed disposition to that financial institution
of all or part of Lender's interests hereunder or a participation
interest in the Revolving note, provided that the recipient has
accepted such information subject to a confidentiality agreement
substantially similar to this Section; (e) to regulatory
officials having jurisdiction over Lender; and (f) as required by
law or legal process.
Section 9.11 Severability of Provisions. Any
provision of this Agreement which is prohibited or unenforceable
shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof.
Section 9.12 Headings. Article and Section headings
in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement
for any other purpose.
Section 9.13 Governing Law; Jurisdiction, Venue;
Waiver of Jury Trial. This Agreement and the other Loan
Documents shall be governed by and construed in accordance with
the substantive laws (other than conflict laws) of the State of
California. The Guaranty shall be governed by and construed in
accordance with the substantive laws (other than conflict laws)
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<PAGE>
of the State of California. Each of the parties hereto hereby
(i) consents to the personal jurisdiction of the state and
federal courts located in the State of California in connection
with any controversy related to this Agreement or the other Loan
Documents; (ii) waives any argument that venue in any such forum
is not convenient, (iii) agrees that any litigation initiated by
the Lender or the Borrower in connection with this Agreement or
the other Loan Documents shall be venued in either the State
Courts of the County of Los Angeles, State of California, or the
United States District Court for the Central District of
California; and (iv) agrees that a final judgment in any such
suit, 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. THE PARTIES WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING
TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto
duly authorized as of the date first above written.
WELLS FARGO BUSINESS CREDIT, INC., NATURADE, INC.
a Delaware corporation
a Minnesota corporation
By /s/ Jeffrey A. Heisinger By /s/ Lawrence J. Batina
____________________________ ____________________________
Name: Jeffrey A. Heisinger Name: Lawrence J. Batina
Its AVP Its Chief Financial Officer
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