Exhibit 10.14

 

THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED AS OF
NOVEMBER 13, 2014 IN FAVOR OF FIFTH THIRD BANK, WHICH SUBORDINATION AGREEMENT
(AS AMENDED IN ACCORDANCE WITH ITS TERMS) IS INCORPORATED HEREIN BY REFERENCE.

 

NOTE AND WARRANT PURCHASE AGREEMENT

 

by and between

 

TWINLAB CONSOLIDATED HOLDINGS, INC., TWINLAB CONSOLIDATION CORPORATION, TWINLAB
HOLDINGS, INC., ISI BRANDS INC., TWINLAB CORPORATION and

 

PENTA MEZZANINE SBIC FUND I, L.P.

 

for

 

$10,000,000 Principal Amount

 

of

 

Secured Notes Due 2019

 

and

 

Warrant to Purchase Equity Interests

 

Dated: November 13, 2014

 

 

 

 

TABLE OF CONTENTS

 

    Page       Section 1. Definitions 1       Section 2. Purchase and Sale of
Securities 16       2.1 Purchase and Sale of Securities 16       2.2
Registration of Securities 19       2.3 Delivery Expenses 19       2.4 Issue
Taxes 19       2.5 General Provisions Regarding Payments 20       2.6 Use of
Proceeds 20       2.7 Margin Regulations 20       2.8 Maximum Interest 21      
Section 3. Collateral:  General Terms 21       3.1 Security Interest Created;
Obligations Secured 21       3.2 Financing Statements 21       Section 4.
Representations and Warranties 22       4.1 Companies’ Representations and
Warranties 22       4.2 Purchaser’s Representations and Warranties 30      
Section 5. Affirmative Covenants 30       5.1 Reports 31       5.2 Payment of
Taxes and Claims; Tax Consolidation; Filing of Tax Returns 35       5.3 Key
Person Insurance 35       5.4 Further Assurances 36       5.5 Reservation of
Equity Interests 36       5.6 No Impairment 36       5.7 Board Seat and Rights
to Meet with Directors. 37       5.8 Good Standing; Regular Course of Business
37       5.9 Maintenance of Property Insurance 37       5.10 Compliance with
Statutes, etc 39       5.11 Violations 39

 

ii

 

 

5.12 Financial Covenants 39       5.13 Performance of Transaction Documents 41  
    5.14 Maintenance of Books and Records; Inspection Rights 41       5.15 Audit
41       5.16 Keyman Litigation Proceeds. 42       5.17 Post-Closing
Obligations. 42       Section 6. Negative Covenants 42       6.1 Restrictions on
Fundamental Changes; Mergers; Consolidations; Asset Sales and Acquisitions; New
Subsidiaries 42       6.2 Creation of Liens 43       6.3 Investments 43      
6.4 Loans 43       6.5 Capital Expenditures 43       6.6 Dividends 43       6.7
Indebtedness 44       6.8 Nature of Business; Name Change 44       6.9
Transactions with Affiliates 44       6.10 Fiscal Year 44       6.11 Entering
Into or Modification of Certain Agreements 45       6.12 Inconsistent Agreements
45       6.13 Reserved 45       6.14 Stay, Extension and Usury Laws 45      
6.15 Purchaser’s Consent 46       6.16 Disposition of Assets 46       Section 7.
Conditions Precedent 46       7.1 Transaction Documents 46       7.2 Filings,
Registrations and Recordings 46       7.3 Corporate Proceedings of Companies 46
      7.4 Incumbency Certificates of Companies 47       7.5 Organization
Documents 47       7.6 Good Standing Certificates 47       7.7 Legal Opinion 47

 

iii

 

 

7.8 No Litigation 47       7.9 Fees 48       7.10 Financial Statements 48      
7.11 Insurance 48       7.12 Payment Instructions 48       7.13 Consents 48    
  7.14 Existing Indebtedness 49       7.15 Solvency Certificate 49       7.16
Officer’s Certificate 49       7.17 No Prohibition 49       Section 8.
Redemption 49       8.1 The Companies’ Right to Redeem 49       Section 9.
General Indemnity 50       9.1 Indemnity Obligations 50       9.2 Settlement;
Survival 51       Section 10. Actions by Purchaser; Lost Security 51       10.1
Actions by Purchaser 51       10.2 Lost Security 52       Section 11. Events of
Default and Remedies 52       11.1 Events of Default 52       11.2 Remedies 56  
    11.3 Retention of Collateral 57       Section 12. Miscellaneous 58      
12.1 Amendments and Waivers 58       12.2 Transfers 58       12.3 Notices 59    
  12.4 Independent of Covenants 59       12.5 Survival of Representations,
Warranties and Agreements 60       12.6 Failure or Indulgence Not Waiver;
Remedies Cumulative 60       12.7 Severability 60

 

iv

 

 

12.8 Headings 60       12.9 Governing Law; Submission to Jurisdiction; Service
of Process 61       12.10 Successors and Assigns 61       12.11 Waiver of Jury
Trial 61       12.12 Facsimile; Counterparts; Effectiveness 62       12.13
Entire Agreement 62       12.14 Waivers of Provisions 62       12.15 Termination
and Release 63       12.16 Guaranty; Joint and Several 63       12.17 Purchaser
as Subordinated Lender; Replacement of Senior Lender 63

 

Schedules:

 

3.1 Premises and Leases 4.1(a) Financial Information 4.1(e) Litigation 4.1(f)
Benefit Plans 4.1(i) Real Property 4.1(l) Federal Tax Identification Number
4.1(o) Patents, Trademarks, Copyrights and Licenses 4.1(q) Existing Indebtedness
4.1(r) Defaults 4.1(u) Owners of Equity Interests 4.1(aa) Trade Names 5.17
Post-Closing Obligations 6.2 Existing Liens 6.3 Investments

 

Exhibits:

 

2.1(a)(i) Form of Initial Note 2.1(a)(ii)(A) Form of Initial Warrant 2.1(b)
Company’s Wire Transfer Instruction 2.1(c)(i) Form of Deferred Draw Note
2.1(c)(ii) Form of Deferred Warrant 5.1 Form of Compliance Certificate 7.16 Form
of Certificate re:  Sections 7.15 and 7.16

 

v

 

 

NOTE AND WARRANT PURCHASE AGREEMENT

 

This NOTE AND WARRANT PURCHASE AGREEMENT (this “Agreement”), dated as of
November 13, 2014 (the “Effective Date”) is made by and between PENTA MEZZANINE
SBIC FUND I, L.P., a Delaware limited partnership (the “Purchaser”), TWINLAB
CONSOLIDATED HOLDINGS, INC., a Nevada corporation (“Parent”), TWINLAB
CONSOLIDATION CORPORATION, a Delaware corporation (“TCC”), TWINLAB HOLDINGS,
INC., a Michigan corporation (“Twinlab Holdings”), ISI BRANDS INC., a Michigan
corporation (“ISI Brands”), and TWINLAB CORPORATION, a Delaware corporation
(“Twinlab Corporation”; together with Parent, TCC, Twinlab Holdings and ISI
Brands, the “Companies”; and each individually, a “Company”).

 

RECITALS

 

WHEREAS, the Companies desire that the Purchaser purchase up to $10,000,000
principal amount of the Notes in accordance with the terms and conditions set
forth below; and

 

WHEREAS, the Parent desires to grant the Purchaser the Warrants for the
acquisition of 4,960,741 shares of common stock of the Parent.

 

NOW, THEREFORE, in consideration of the mutual conditions and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

 

Section 1.          Definitions

 

“Acquisition” means (a) the purchase or other acquisition by a Person of all or
substantially all of the assets of (or any division or business line of) any
other Person, or (b) the purchase or other acquisition (whether by means of a
merger, consolidation, or otherwise) by a Person of all or substantially all of
the Equity Interests of any other Person.

 

“Adjusted EBITDA” means EBITDA plus any expenses relating to Acquisitions
through the end of the first Fiscal Year following the Effective Date, plus
severance payments and other costs relating to permanent headcount reductions,
all as determined by GAAP.

 

“Affiliate” or “Affiliated” means, as applied to (i) any Person, directly or
indirectly, in which such Person holds, beneficially or of record, ten percent
(10%) or more of the equity of voting securities; (ii) any Person that holds, of
record or beneficially, ten percent (10%) or more of the equity or voting
securities of such Person; (iii) any director, officer, partner or individual
holding a similar position in respect of such Person; (iv) as to any natural
Person, any Person related by blood, marriage or adoption and any Person owned
by such Persons, including any spouse, parent, grandparent, aunt, uncle, child,
grandchild, sibling, cousin or in-law of such Person; or (v) any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person. For the purposes of this definition, “control” (including, with
correlative meanings, the terms “controlling”, “controlled by” and “under common
control with”), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise.

 

 

 

 

“Agreement” has the meaning set forth in the opening paragraph.

 

“Anti-Money Laundering Laws” means all applicable laws, regulations and
government guidance on the prevention and detection of money laundering,
including, without limitation, 18 U.S.C. §§ 1956 and 1957, and the BSA.

 

“Applicable Regulations” has the meaning set forth in Section 4.1(h).

 

“Bankruptcy Code” means Title 11 of the United States Code, 11 U.S.C. § 101 et
seq., as amended.

 

“BSA” means the Bank Secrecy Act (31 U.S.C. §§ 5311 et seq.), and its
implementing regulations, Title 31 Part 103 of the U.S. Code of Federal
Regulations.

 

“Business Day” means any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of Florida or is a day on which
banking institutions located in such state are authorized or required by law or
other governmental action to close.

 

“Capital Expenditures” means, as applied to any Person for any period, the
aggregate of all expenditures (whether paid in cash or other consideration or
accrued as a liability and including that portion of Capital Leases which is
capitalized on the balance sheet of such Person and its Subsidiaries) by such
Person and its Subsidiaries during that period that, in conformity with GAAP,
are included in “additions to property, plant or equipment” or comparable items
reflected in the consolidated statement of cash flows of such Person and its
Subsidiaries.

 

“Capital Lease” means, as applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee that, in conformity
with GAAP, is accounted for as a capital lease on the balance sheet of that
Person.

 

“CERCLA” shall mean the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. § 9601 et seq.

 

“Change in Control” means, at any time, that:

 

(a)          the Parent shall cease to (i) own, directly or indirectly, 100% of
the Equity Interests of TCC; (ii) own, directly or indirectly, and be able to
vote or direct the voting of, the voting securities of TCC representing 100% of
the combined ordinary voting power (as opposed to such power only by reason of
the happening of a contingency) of all Equity Interests of TCC, and (iii)
control and cause the direction of the management and policies of TCC by
contract or otherwise;

 

(b)          TCC shall cease to (i) own, directly or indirectly, 100% of the
Equity Interests of each other Company (other than Parent); (ii) own, directly
or indirectly, and be able to vote or direct the voting of, the voting
securities of each other Company (other than Parent) representing 100% of the
combined ordinary voting power (as opposed to such power only by reason of the
happening of a contingency) of all Equity Interests of such Companies, and (iii)
control and cause the direction of the management and policies of each other
Company (other than Parent) by contract or otherwise;

 

2

 

 

(c)          the closing of any merger, combination, joint venture,
consolidation, reorganization, recapitalization or similar business transaction
directly or indirectly involving any Company in which current owners of Equity
Interest in such Company are not the holder, directly or indirectly, of a
majority of the ordinary voting equity securities of the surviving Person in
such transaction immediately after such closing;

 

(d)          the closing of any sale or transfer by any Company of all or
substantially all of its assets to an acquiring Person in which the current
owners of Equity Interest in such Company are not the holder of a majority of
the ordinary voting equity securities of the acquiring Person immediately after
such closing;

 

(e)          the closing of any sale by the holders of the Equity Interests in
any Company of an amount of the Equity Interests in such Company that equals or
exceeds a majority of the Equity Interests in such Company immediately prior to
such closing to a Person in which the holders of the Equity Interests in the
Company immediately prior to such closing are not the holders of a majority of
the ordinary voting equity securities of such Person immediately after such
closing; or

 

(f)          any Person or any two or more Persons acting in concert acquiring
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of the Equity Interests of any Company
(or other securities convertible into such Equity Interests) representing more
than 35% (on a Fully-Diluted Basis) or more of the combined voting power of all
equity securities of such Company entitled to vote; provided, however, that
there shall be no Change in Control as a result of a Permitted Acquisition under
subsection (c) of the definition thereof.

 

“Closing” has the meaning set forth in Section 2.1(b).

 

“Collateral” has the meaning set forth in the Security Agreement.

 

“Companies” has the meaning set forth in the opening paragraph.

 

“Company Materials” has the meaning set forth in Section 5.1.

 

3

 

 

“Contingent Obligation” or “Contingent Obligations” means, as applied to any
Person, any direct or indirect liability, contingent or otherwise, of such
Person (i) with respect to any Indebtedness, lease, dividend or other obligation
of another if the primary purpose or intent thereof by the Person incurring such
obligation is to provide assurance to the obligee of such obligation of another
that such obligation of another will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected (in whole or in part) against loss in respect
thereof, (ii) with respect to any letter of credit issued for the account of
that Person or as to which that Person is otherwise liable for reimbursement of
drawings, or (iii) under any Interest Rate Agreement. Contingent Obligations
shall include (a) the direct or indirect guaranty, endorsement (other than for
collection or deposit in the Ordinary Course of Business), co-making,
discounting with recourse or sale with recourse by such Person of the obligation
of another, (b) the obligation to make take-or-pay or similar payments if
required regardless of non-performance by any other party or parties to an
agreement, and (c) any liability of such Person for the obligation of another
through any agreement (contingent or otherwise) (x) to purchase, repurchase or
otherwise acquire such obligation or any security thereof, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise) or (y) to
maintain the solvency or any balance sheet item, level of income or financial
condition of another if, in the case of any agreement describe under subclauses
(x) or (y) of this sentence, the primary purpose or intent thereof is as
described in the preceding sentence. The amount of any Contingent Obligation
shall be equal to the amount of the obligation so guaranteed or otherwise
supported or, if less, the amount to which such Contingent Obligation is
specifically limited.

 

“Controlled Group” shall mean, at any time, the Companies and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control and all other entities which, together with
the Companies, are treated as a single employer under Section 414 of the IRC.

 

“Cure Period” has the meaning set forth in Section 11.1(e)(i).

 

“Default” shall mean any event which is, or after notice or passage of time
would be, an Event of Default.

 

“Default Rate” has the meaning set forth in the Notes.

 

“Deferred Draw Closing Date” has the meaning set forth in Section 2.1(c).

 

“Deferred Draw Note” has the meaning set forth in Section 2.1(c).

 

“Deferred Warrant” has the meaning set forth in Section 2.1(c).

 

“EBITDA” shall mean Net Income, minus extraordinary gains, interest income,
non-operating income, non-cash income and income tax benefits and decreases in
any change in LIFO or any other inventory reserves, plus non-cash extraordinary
losses (including non-cash expenses with respect to stock option and stock based
employee compensation programs), Interest Expense (including expenses relating
to the Warrant), income taxes, depreciation and amortization and increases in
any change in LIFO reserves for such period, in each case, determined on a
consolidated basis in accordance with GAAP.

 

“Effective Date” has the meaning set forth in the recitals.

 

“Environmental Claim” means any accusation, allegation, notice of violation,
claim, demand, abatement order or other order or direction (conditional or
otherwise) by any Governmental Authority or any Person for any damage, including
personal injury (including sickness, disease or death), tangible or intangible
property damage, contribution, indemnity, indirect or consequential damages,
damage to the environment, nuisance, pollution, contamination or other adverse
effects on the environment, or for fines, penalties or restrictions, in each
case relating to, resulting from or in connection with Hazardous Materials and
relating to any Company, any of its respective Subsidiaries or any Premises or
assets of any Company.

 

4

 

 

“Environmental Laws” means all statutes, ordinances, orders, rules or
regulations relating to (i) environmental matters, including those relating to
fines, injunctions, penalties, damages, contribution, cost recovery
compensation, losses or injuries resulting from the Release or threatened
Release of Hazardous Materials, (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials, or (iii) occupational safety
and health, industrial hygiene, or the protection of human, plant or animal
health or welfare from injury as a result of exposure to Hazardous Materials or
loss of ecological resources, in any manner applicable to the Corporation or any
of its predecessors or any of its respective properties, including the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
§ 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. § 1801 et
seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.),
the Federal Water Pollution Control Act (33 U.S.C. § 1251 et seq.), the Clean
Air Act (42 U.S.C. § 7401 et seq.), the Toxic Substances Control Act (15 U.S.C.
§ 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act
(7 U.S.C. §136 et seq.), the Occupational Safety and Health Act (29 U.S.C. § 651
et seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. §
11001 et seq.), each as amended or supplemented, and any analogous future or
present local, state and Federal statutes and regulations promulgated pursuant
thereto, each as in effect as of the date of determination.

 

“Equipment” shall have the meaning set forth in the Uniform Commercial Code in
effect from time to time in the relevant jurisdiction.

 

“Equity Interest” shall mean the interest of (i) a shareholder in a corporation,
(ii) a partner (whether general or limited) in a partnership (whether general,
limited or limited liability), (iii) a member in a limited liability company, or
(iv) any other Person having any other form of equity security or ownership
interest in any Person.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and any successor statute.

 

5

 

 

“ERISA Event” means (i) a Reportable Event within the meaning of Section 4043 of
ERISA and the regulations issued thereunder with respect to any Pension Benefit
Plan (excluding those for which the provision for 30-day notice to the PBGC has
been waived by regulation) which could reasonably be expected to result in the
termination of such Pension Benefit Plan or in a material liability of any
Company; (ii) the failure to meet the minimum funding standard of Section 412 of
the IRC with respect to any Pension Benefit Plan (whether or not waived in
accordance with Section 412(d) of the IRC) or the failure to make by its due
date a required installment under Section 412(m) of the IRC with respect to any
Pension Benefit Plan or the failure to make any required contribution to a
Multiemployer Plan, where the missed contribution or installment is of a
material amount or could result in the imposition of a lien under ERISA or the
IRC; (iii) the provision by the administrator of any Pension Benefit Plan
pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such
plan in a distress termination described in Section 4041(c) of ERISA; (iv) the
withdrawal by any Company from any Pension Benefit Plan with two or more
contributing sponsors or the termination of any such Pension Benefit Plan
resulting in material liability pursuant to Sections 4063 or 4064 of ERISA;
(v) the institution by the PBGC of proceedings to terminate any Pension Benefit
Plan, or the occurrence of any event or condition which might constitute grounds
under ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Benefit Plan; (vi) the imposition of material liability
on any Company pursuant to Section 4062(e) or 4069 of ERISA or by reason of the
application of Section 4212(c) of ERISA; (vii) the withdrawal by any Company in
a complete or partial withdrawal (within the meaning of Sections 4203 and 4205
of ERISA) from any Multiemployer Plan if there is any potential material
liability therefor, or the receipt by any Company of notice from any
Multiemployer Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated
under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or
omission which could give rise to the imposition on any Company of material
fines, penalties, taxes or related charges under Chapter 43 of the IRC or under
Section 409 or 502(c), (i) or (1) or 4071 of ERISA in respect of any Employee
Benefit Plan; (ix) the assertion of a material claim (other than routine claims
for benefits) against any Employee Benefit Plan other than a Multiemployer Plan
or the assets thereof, or against any Company in connection with any such
Employee Benefit Plan; (x) receipt from the Internal Revenue Service of notice
of the failure of any Pension Benefit Plan (or any other Employee Benefit Plan
intended to be qualified under Section 401(a) of the IRC) to qualify under
Section 401(a) of the IRC, or the failure of any trust forming part of any
Pension Benefit Plan to qualify for exemption from taxation under Section 501(a)
of the IRC; or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or
412(n) of the IRC or pursuant to ERISA with respect to any Pension Benefit Plan.
For purposes of clauses (i), (ii), (iv), (vi), (vii), (viii) and (ix) of this
definition, a material liability, amount, fine or claim is an amount in excess
of $25,000.00 in the aggregate.

 

“Essex Debt” means Indebtedness pursuant to that certain Commercial Lease
Agreement, dated as of August 21, 2014, between Twinlab Corporation and Essex
Capital Corporation, and a lease agreement to be entered into between one or
more of the Companies and Essex Capital Corporation, together in an aggregate
principal amount not to exceed $5,800,000.

 

“Event of Default” has the meaning set forth in Section 11.1.

 

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

 

“Financial Information” has the meaning set forth in Section 4.1(a).

 

“Financial Statements” has the meaning set forth in Section 7.10.

 

“Fiscal Year” means the fiscal year of the Companies, ending December 31 of each
year.

 

“Fixed Charge Coverage Ratio” means, with respect to the Companies and their
Subsidiaries for any period, the ratio of i) Adjusted EBITDA for such period,
minus (a) Non-Financed Capital Expenditures made (to the extent not already
incurred in a prior period) or incurred during such period, (b) cash taxes paid
during such period, to the extent greater than zero, and (c) all Junior Payments
consisting of Tax Distributions to (ii) Fixed Charges for such period.

 

“Fixed Charges” means, with respect to any fiscal period and with respect to the
Companies and their Subsidiaries determined on a consolidated basis in
accordance with GAAP, the sum, without duplication, of (a) cash Interest Expense
paid during such period (other than interest paid-in-kind, amortization of
financing fees, and other non-cash Interest Expense), (b) principal payments
paid in cash in respect of Indebtedness paid during such period, including cash
payments with respect to Capital Leases, but excluding principal payments made
with respect to the Permitted Senior Debt, and (c) all Junior Payments (other
than Tax Distributions) and other distributions paid in cash during such period.

 

6

 

 

“Fully-Diluted Basis” means, as applied to the calculation of the number of
Equity Interests outstanding at any time, after giving effect to (a) all Equity
Interests outstanding at the time of determination, (b) all Equity Interests
issuable upon the exercise of any option, warrant or similar right to purchase
Equity Interests granted and outstanding at the time of determination and (c)
all Equity Interests issuable upon the conversion or exchange of any issued and
outstanding security convertible into or exchangeable for Equity Interests. Such
calculation will not be made in accordance with the “treasury method.”

 

“GAAP” shall mean generally accepted accounting principles in the United States
as of the relevant date in question, consistently applied.

 

“Governmental Authority” has the meaning set forth in Section 4.1(e).

 

“Guaranty” shall mean, collectively, (i) the guaranties by each Company of the
Obligations of each other Company hereunder as set forth in Section 12.17 and
(ii) each guaranty agreement delivered at any time by a Guarantor in favor of
the Purchaser.

 

“Guarantor” shall mean (i) each Company with respect to the Obligations of each
other Company hereunder and (ii) each Person that becomes a guarantor on or
after the Effective Date.

 

“Hazardous Substance” shall mean, without limitation, any flammable explosives,
radon, radioactive materials, asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, Hazardous Wastes, hazardous or Toxic Substances or related materials
as defined in CERCLA, the Hazardous Materials Transportation Act (49 U.S.C.
Sections 1801 et seq.), RCRA, or any other applicable Environmental Law and in
the regulations adopted pursuant thereto.

 

“Hazardous Wastes” shall mean all waste materials subject to regulation under
CERCLA, RCRA or applicable state law, and any other applicable federal and state
laws now in force or hereafter enacted relating to hazardous waste disposal.

 

“Holder” shall mean the Purchaser (so long as it holds any Securities).

 

7

 

 

“Indebtedness” as to any Person means, without duplication, (a) all obligations
of such Person for borrowed money, (b) all obligations of such Person evidenced
by bonds, debentures, notes, or other similar instruments and all reimbursement
or other obligations in respect of letters of credit, bankers acceptances, or
other financial products, (c) all obligations of such Person as a lessee under
Capital Leases, (d) all obligations or liabilities of others secured by a Lien
on any asset of such Person, irrespective of whether such obligation or
liability is assumed, (e) all obligations of such Person to pay the deferred
purchase price of assets (other than trade payables incurred in the ordinary
course of business and repayable in accordance with customary trade practices),
(f) all obligations of such Person owing under hedge agreements (which amount
shall be calculated based on the amount that would be payable by such Person if
the hedge agreement were terminated on the date of determination), (g) any
Prohibited Preferred Stock of such Person, and (h) any obligation of such Person
guaranteeing or intended to guarantee (whether directly or indirectly
guaranteed, endorsed, co-made, discounted, or sold with recourse) any obligation
of any other Person that constitutes Indebtedness under any of clauses (a)
through (g) above. For purposes of this definition, (i) the amount of any
Indebtedness represented by a guaranty or other similar instrument shall be the
lesser of the principal amount of the obligations guaranteed and still
outstanding and the maximum amount for which the guaranteeing Person may be
liable pursuant to the terms of the instrument embodying such Indebtedness, and
(ii) the amount of any Indebtedness described in clause (d) above shall be the
lower of the amount of the obligation and the fair market value of the assets of
such Person securing such obligation.

 

“Indemnified Party” has the meaning set forth in Section 9.

 

“Initial Note” has the meaning set forth in Section 2.1(a)(i).

 

“Initial Warrant” has the meaning set forth in Section 2.1(a)(ii).

 

“Insolvency Proceeding” shall mean any voluntary or involuntary insolvency,
bankruptcy, receivership, custodianship, liquidation, dissolution,
reorganization, assignment for the benefit of creditors, appointment of a
custodian, receiver, trustee or other officer with similar powers or any other
proceeding for the liquidation, dissolution or other winding up of a Person.

 

“Intellectual Property” has the meaning set forth in Section 4.1(o).

 

“Interest Expense” means, for any period, the aggregate of the interest expense
of Companies and their Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP.

 

“Interest Rate Agreement” means, with respect to any Person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in interest rates.

 

“Inventory” shall have the meaning set forth in the Uniform Commercial Code in
effect from time to time in the relevant jurisdiction.

 

“IRC” shall mean the Internal Revenue Code of 1986, as amended.

 

“Junior Payment” has the meaning given to such term in Section 6.6.

 

8

 

 

“Leases” has the meaning set forth in Section 4.1(i).

 

“Lessors” has the meaning set forth in Section 4.1(i).

 

“Lien” shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, security interest, lien (whether statutory or otherwise), charge,
claim, encumbrance or preference, priority or other security agreement or
preferential arrangement held or asserted in respect of any asset or property of
any kind or nature whatsoever, including any conditional sale or other title
retention agreement, any lease having substantially the same economic effect as
any of the foregoing, and the filing of, or agreement to give, any financing
statement under the UCC or comparable law of any jurisdiction.

 

“Litigation” has the meaning set forth in Section 5.1(b).

 

“Little Harbor Debt” means Indebtedness pursuant to that certain Debt Repayment
Agreement, dated as of July 31, 2014, between Twinlab Holdings and Little Harbor
LLC, a Nevada limited liability company.

 

“Little Harbor Subordination Agreement” means that certain subordination
agreement to be entered into between Little Harbor LLC, a Nevada limited
liability company, and the Purchaser, in form and substance reasonably
satisfactory to the Purchaser, and all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, joinders, and
supplements thereof, as applicable.

 

“Losses” has the meaning set forth in Section 9.

 

“Material Adverse Effect” shall mean any event, act, omission, condition or
circumstance which has or would reasonably be expected to have a material
adverse effect on (a) the business, operations, properties, assets or condition,
financial or otherwise, of any Company or the Companies and their Subsidiaries,
taken as a whole, (b) the ability of any Company or any Subsidiary to perform
any of its obligations under any of the Transaction Documents, or (c) the
validity or enforceability of, or the Purchaser’s rights and remedies under, any
of the Transaction Documents, other than due to the acts or omissions of the
Purchaser or one of its Affiliates.

 

“Maturity Date” means November 13, 2019.

 

“Multiemployer Plan” shall mean a “multiemployer plan” as defined in
Sections 3(37) and 4001(a)(3) of ERISA.

 

“Net Income” shall mean the consolidated net income (or loss) of the Companies
and their Subsidiaries for the period in question, after giving effect to
deduction of or provision for all operating expenses, all taxes and reserves
(including reserves for deferred taxes) and all other proper deductions, all
determined in accordance with GAAP; provided, however, that for purposes of
calculating Net Income, there shall be excluded and no effect shall be given to
(a) one-time extraordinary income items, as determined in accordance with GAAP,
and (b) any Net Income attributable to any Subsidiary to the extent that any
Company (or any Subsidiary through which such Company owns the subject
Subsidiary) is prohibited (by law, contract minority ownership rights or
otherwise) from receiving a distribution of such Net Income from such
Subsidiary.

 

9

 

 

“Non-Financed Capital Expenditures” means Capital Expenditures not financed by
the seller of the capital asset, by a third party lender (other than by means of
an advance under the Permitted Senior Debt) or by Purchaser.

 

“Note Register” has the meaning set forth in Section 2.2.

 

“Notes” shall mean the Secured Notes issued under this Agreement, including
without limitation the Initial Notes and Deferred Draw Notes, and all
replacements, renewals and any other note or notes of like tenor hereafter
issued by the Companies in substitution or exchange for any thereof.

 

“Obligations” shall mean and include any and all loans, advances, debts,
liabilities, obligations, covenants, agreements and duties owing by any Company
to the Purchaser under or pursuant to the Transaction Documents, of every kind
or nature, present or future (including any interest accruing thereon after
maturity, or after the filing of any petition in bankruptcy, or the commencement
of any insolvency, reorganization or like proceeding relating to any Company or
any of its Subsidiaries, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), whether or not evidenced by any note,
guaranty or other instrument, whether or not for the payment of money, whether
direct or indirect (including those acquired by assignment or participation),
absolute or contingent, joint or several, due or to become due, now existing or
hereafter arising, contractual or tortious, liquidated or unliquidated,
regardless of how such indebtedness or liabilities arise, including, but not
limited to, any and all of such Company’s Indebtedness, liabilities and/or
obligations under this Agreement, the Warrants and the “put” obligations
thereunder, the other Transaction Documents and any amendments, extensions,
renewals or increases, Contingent Obligations of such Company and all reasonable
costs and expenses of the Purchaser incurred in the documentation, negotiation,
modification, enforcement, collection or otherwise in connection with any of the
foregoing, including but not limited to reasonable attorneys’ fees and expenses
and all obligations and/or agreements of such Company to the Purchaser to
perform acts or refrain from taking any action.

 

“OFAC Laws and Regulations” means Executive Order 13224 issued by the President
of the United States of America, the Terrorism Sanctions Regulations (Title 31
Part 595 of the U.S. Code of Federal Regulations), the Terrorism List
Governments Sanctions Regulations (Title 31 Part 596 of the U.S. Code of Federal
Regulations), the Foreign Terrorist Organizations Sanctions Regulations
(Title 31 Part 597 of the U.S. Code of Federal Regulations), and the Cuban
Assets Control Regulations (Title 31 Part 515 of the U.S. Code of Federal
Regulations), and all other present and future federal, state and local laws,
ordinances, regulations, policies, lists (including, without limitation, the
Specially Designated Nationals and Blocked Persons List) and any other
requirements of any Governmental Authority (including, without limitation, the
United States Department of the Treasury Office of Foreign Assets Control)
addressing, relating to, or attempting to eliminate, terrorist acts and acts of
war, each as hereafter supplemented, amended or modified from time to time, and
the present and future rules, regulations and guidance documents promulgated
under any of the foregoing, or under similar laws, ordinances, regulations,
policies or requirements of other states or localities.

 

10

 

 

“Operating Lease” means, as applied to any Person, any lease (including leases
that may be terminated by the lessee at any time) of any property (whether real,
personal or mixed) under which the Person is the lessee and that is not a
Capital Lease.

 

“Ordinary Course of Business” shall mean the ordinary course of the Companies’
business as conducted at Closing and from time to time thereafter materially
consistent with past practice.

 

“PBGC” shall mean the Pension Benefit Guaranty Corporation.

 

“Pension Benefit Plan” shall mean at any time any employee pension benefit plan
(including a Multiple Employer Plan, but not a Multiemployer Plan) which is
covered by Title IV of ERISA or is subject to the minimum funding standards
under Section 412 of the IRC and either (i) is maintained by any member of the
Controlled Group for employees of any member of the Controlled Group; or (ii)
has at any time within the preceding five years been maintained by any entity
which was at such time a member of the Controlled Group for employees of any
entity which was at such time a member of the Controlled Group.

 

“Penta Director” has the meaning set forth in Section 5.7.

 

“Permitted Acquisition” means any of the following:

 

(a)          the Target 1 Acquisition so long as no Default or Event of Default
shall have occurred and be continuing or would result from the consummation of
the Target 1 Acquisition;

 

(b)          the Target 2 Acquisition so long as no Default or Event of Default
shall have occurred and be continuing or would result from the consummation of
the Target 2 Acquisition;

 

(c)          any Acquisition between Companies in which a Company is the
surviving entity; or

 

(d)          any other Acquisition so long as no Default or Event of Default
shall have occurred and be continuing or would result from the consummation of
the proposed Acquisition, the proposed Acquisition is consensual and the
Purchaser shall have consented in writing (such consent not to be unreasonably
withheld or delayed) to such Acquisition.

 

“Permitted Dispositions” means any of the following:

 

(a)          sales, abandonment, or other dispositions of Equipment that is
substantially worn, damaged, or obsolete in the Ordinary Course of Business;

 

(b)          sales of Inventory in the Ordinary Course of Business;

 

(c)          the granting of Permitted Encumbrances;

 

11

 

 

(e)          surrender of contractual rights in the Ordinary Course of Business
or (ii) the settlement, release or surrender of any contract, tort or other
litigation claims in the Ordinary Course of Business;

 

(f)          any sale of the real property designated on the tax map of the
Office of the Assessor of Miami County, Indiana as Tax Parcel No. 022-16410-00
and having an address at 51 Strawtown Pike, Peru, Indiana; and

 

(g)          any sale of the real property designated on the tax map of the
Office of the Assessor of Utah County, Utah as Lot 1, Plat “M”, Utah Valley
Business Park Subdivision, American Fork, Utah, according to the official plat
thereof on file and of record in the Office of the Utah County Recorder.

 

“Permitted Encumbrances” means the following types of Liens (other than any such
Lien imposed pursuant to the IRC or by ERISA):

 

(i)          Liens for taxes, assessments or governmental charges or claims the
payment of which is not, at the time, required by Section 5.2;

 

(ii)         statutory Liens of landlords, Liens of carriers, warehousemen,
mechanics and materialmen and other Liens imposed by law incurred in the
Ordinary Course of Business for sums not yet delinquent or being contested in
good faith, if such reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor;

 

(iii)        Liens incurred or deposits made in the Ordinary Course of Business
in connection with workers compensation, unemployment insurance and other types
of social security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts, trade
contracts, performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);

 

(iv)        leases or subleases granted to others not interfering in any
material respect with the Ordinary Course of Business of the Company or any of
its Subsidiaries;

 

(v)         easements, rights-of-way, restrictions (including zoning
restrictions), minor defects, encroachments or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
Ordinary Course of Business of any Company or any of its Subsidiaries;

 

(vi)        any (A) interest or title of a lessor or sublessor under any
Operating Lease or Capital Lease not prohibited by this Agreement,
(B) restriction or encumbrance that the interest or title of such lessor or
sublessor may be subject to, or (C) subordination of the interest of the lessee
or sublessee under such lease to any restriction or encumbrance referred to in
the preceding subclause (B);

 

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(vii)       Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;

 

(viii)      Liens securing the Obligations;

 

(ix)         Liens for purchase money security interests for equipment purchased
in the Ordinary Course of Business or Liens relating to Indebtedness permitted
under Section 6.7(e);

 

(x)          Liens existing on the Effective Date and set forth or described on
Schedule 6.2 hereof; provided, however, that to qualify as a Permitted
Encumbrance, any such Lien described on Schedule 6.2 shall only secure the
Indebtedness that it secures on the Effective Date;

 

(xi)         Liens (i) in favor of collecting banks arising under the applicable
UCC on items in the course of collection, (ii) in favor of a banking or other
depositary institution arising as a matter of law encumbering deposits
(including the right of set-off) and which are within the general parameters
customary to the banking industry, (iii) in favor of a financial institution
arising as a matter of law encumbering financial assets on deposit in securities
accounts (including the right of set-off) and which are within the general
parameters customary to the securities industry and (iv) that are contractual
rights of set-off relating to the establishment of depository and cash
management relations with banks not given in connection with the issuance of
Indebtedness for borrowed money and which are within the general parameters
customary to the banking industry;

 

(xii)        Liens (including the right of set-off) in favor of a bank or other
depository institution arising as a matter of law encumbering deposits;

 

(xiii)       Liens arising out of conditional sale, title retention, consignment
or similar arrangements for the sale of goods entered into by the Company or any
Subsidiary of the Company in the Ordinary Course of Business;

 

(xiv)      Liens on insurance policies and the proceeds thereof (whether accrued
or not) and rights or claims against an insured to secure liabilities for
premiums to insurance carriers; and

 

(xv)       Liens securing Permitted Senior Debt.

 

“Person” shall mean any individual, corporation, partnership, limited liability
company, trust, unincorporated organization, or any other form of entity.

 

“Permitted Senior Debt” means Indebtedness that is senior or superior or pari
passu in right of payment (to any extent) to the Notes (or any guaranty of the
Notes) in an amount equal to or less than $25,000,000 and is otherwise on terms
and conditions reasonably satisfactory to Purchaser.

 

13

 

 

“Plan” shall mean any employee benefit plan within the meaning of Section 3(3)
of ERISA (including a Pension Benefit Plan), maintained for employees of any
Company or any member of the Controlled Group or any such Plan to which any
Company or any member of the Controlled Group is required to contribute on
behalf of any of its employees.

 

“Premises” has the meaning set forth in Schedule 3.1.

 

“Prepayment Penalty” has the meaning set forth in the Notes.

 

“Prohibited Preferred Stock” means any preferred Equity Interest that by its
terms is mandatorily redeemable or subject to any other payment obligation
(including any obligation to pay dividends, other than dividends of shares of
preferred Equity Interest of the same class and series payable in kind or
dividends of shares of common stock) on or before a date that is less than 1
year after the Maturity Date, or, on or before the date that is less than 1 year
after the Maturity Date, is redeemable at the option of the holder thereof for
cash or assets or securities (other than distributions in kind of shares of
preferred Equity Interest of the same class and series or of shares of common
stock).

 

“Purchaser” has the meaning set forth in the opening paragraph.

 

“Put Price” has the meaning set forth in the Warrants.

 

“Put Rights” means the rights of the Holders set forth in Section 4.2 of the
Warrants.

 

“RCRA” shall mean the Resource Conservation and Recovery Act, 42 U.S.C. § 6901
et seq.

 

“Refinancing Indebtedness” shall mean refinancings, renewals, or extensions of
Indebtedness so long as such refinancings, renewals, or extensions do not result
in an increase in the principal amount of the Indebtedness so refinanced,
renewed, or extended, other than by the amount of premiums paid thereon and the
fees and expenses incurred in connection therewith and by the amount of unfunded
commitments with respect thereto.

 

“Releases” has the meaning set forth in Section 4.1(n)(iii).

 

“Reportable Event” shall mean a reportable event described in Section 4043(b) of
ERISA or the regulations promulgated thereunder.

 

“Restricted Payment” has the meaning given to such term in Section 6.6.

 

“Securities” shall mean the Notes, the Warrants and the Warrant Equity Interest.

 

“Securities Act” means the Securities Act of 1933, as amended from time to time,
and any successor statute.

 

14

 

 

“Security Agreement” shall mean each and every grant of a security interest,
pledge or lien on any property for the purpose of securing payment of the
Obligations or performance by the Security Agreement issued under this
Agreement, and all replacements, renewals and any other note or notes of like
tenor hereafter issued by the Company in substitution or exchange for any
thereof.

 

“Senior Lender” means the holder of Permitted Senior Debt and all successors and
assigns. On the Effective Date, the Senior Lender shall be Fifth Third Bank.

 

“Senior Loan Documents” means any credit agreement, loan agreement, note
agreement other primary debt agreement, note, guaranty, security agreement,
mortgage and any other instrument or agreement relating to the Permitted Senior
Debt entered into, now or in the future, by any Company and the Senior Lender or
given by any Company to the Senior Lender, and all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements thereof, as applicable.

 

“Solvent” means, with respect to any Person, that as of the date of
determination both (a) (i) the then fair saleable value of the property of such
Person is (A) greater than the total amount of liabilities (including contingent
liabilities) of such Person and (B) not less than the amount that will be
required to pay the probable liabilities of such Person’s then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales, reasonably available to such Person; (ii) such Person’s
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (b) such Person is
“solvent” within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.

 

“Subordination Agreement” shall mean, that certain Subordination Agreement,
dated as of the date hereof, between Purchaser and the Senior Lender as of the
Effective Date, any other subordination or intercreditor agreement with respect
to any Permitted Senior Debt which is in form and substance reasonably
satisfactory to Purchaser, and all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements
thereof, as applicable.

 

“Subsidiary” shall mean a corporation or other entity any of whose Equity
Interests having ordinary voting power (other than Equity Interests having such
power only by reason of the happening of a contingency) to elect a majority of
the directors of such corporation, or other Persons performing similar functions
for such entity, are owned, directly or indirectly, by such Person.

 

“Target 1” means Target No. 1 as defined on page 39 of the Parent’s 8-K dated
September 16, 2014.

 

“Target 2” means Target No. 2 as defined on page 40 of the Parent’s 8-K filed on
September 16, 2014.

 

15

 

 

“Target 1 Acquisition” means consummation of the acquisition contemplated by the
Option Agreement between Target 1 and TCC, dated September 2, 2014, described on
page 39 of the Parent’s 8-K dated September 16, 2014 and previously provided to
the Purchaser.

 

“Target 2 Acquisition” means consummation of the acquisition contemplated by the
Option Agreement between Target 2 and TCC, dated September 13, 2014, described
on page 40 of the Parent’s 8-K dated September 16, 2014 and previously provided
to the Purchaser.

 

“Tax Distributions” shall mean distributions to equity holders of any Company
for the purpose of paying required State and Federal income taxes on profits
generated by such Company.

 

“Total Funded Debt” shall mean, at any date of determination, all Indebtedness
of the Companies and their Subsidiaries for borrowed money, purchase money
Indebtedness, installment sale obligations, Capital Lease obligations,
Contingent Obligations of the Companies and their Subsidiaries, and all other
obligations evidenced by notes or bonds, all of the foregoing as determined on a
consolidated basis in accordance with GAAP.

 

“Transaction Documents” shall mean this Agreement, the Notes, the Warrants, the
Security Agreement, the Guaranty and all agreements, documents, certificates and
instruments delivered in connection with any of the foregoing.

 

“UCC” has the meaning set forth in Section 3.2.

 

“Utah Lease” shall mean that certain Lease, dated February 6, 2013, between
Twinlab and Utah Lab LLC, relating to the Companies’ facility located at 600 E.
Quality Dr., American Fork, UT 84003.

 

“Warrant” means the Initial Warrant to be issued by the Parent to the Purchaser
at the Closing and any the Deferred Warrants issued in connection with the
Deferred Draw Note.

 

“Warrant Equity Interest” means the Equity Interest of the Parent into which the
Warrant shall be exercisable, as provided in the Warrant.

 

“Warrant Register” has the meaning set forth in Section 2.2.

 

Section 2.            Purchase and Sale of Securities

 

2.1         Purchase and Sale of Securities.

 

(a)          Purchase and Sale. The Purchaser hereby agrees, subject to the
terms and conditions of this Agreement, to purchase from the Companies, and the
Companies hereby agree to sell to the Purchaser, at the Closing the following
Securities:

 

16

 

 

(i)          The Note in the stated principal amount of Eight Million Dollars
($8,000,000) (the “Initial Note”). The Initial Note shall be substantially in
the form attached hereto as Exhibit 2.1(a)(i) and shall include such notations,
legends or endorsements set forth therefor or required by law. The Initial Note
shall be dated the date of its issuance. The terms and provisions contained in
the Initial Note shall constitute, and are hereby expressly made, a part of this
Agreement and, to the extent applicable, the Company and the Purchaser, by their
execution and delivery of this Agreement, expressly agree to such terms and
provisions and to be bound thereby; and

 

(ii)         The Warrants. The Initial Warrant shall be substantially in the
form attached hereto as Exhibit 2.1(a)(ii)(A) and shall be exercisable into the
Equity Interest of the Company as provided therein. Warrants in an amount
4,091,122 shares of common stock of the Parent will be issued in connection with
the purchase of the Initial Note (the “Initial Warrant”). The terms and
provisions contained in the Warrants shall constitute, and are hereby expressly
made, a part of this Agreement and, to the extent applicable, the Parent and the
Purchaser, by their execution and delivery of this Agreement, expressly agree to
such terms and provisions and to be bound thereby.

 

(b)          Closing. The purchase and sale of the Initial Note and the Initial
Warrant shall take place on the Effective Date at a closing (the “Closing”) at a
mutually agreed upon location on the date of this Agreement. At the Closing, the
Companies will deliver to the Purchaser the Initial Note and the Parent will
deliver to the Purchaser the Initial Warrant, dated as of the Effective Date, to
be purchased by the Purchaser in accordance with Section 2.1(a) (in such
permitted denomination or denominations and registered in the Purchaser’s name
or the name of such nominee or nominees as the Purchaser may reasonably request)
against payment of Eight Million Dollars ($8,000,000) (less certain fees and
expenses as set forth in Section 2.1(c)(i) below) as the total consideration for
the Initial Note and the Initial Warrant by wire transfer to the bank account of
the Companies as set forth on Exhibit 2.1(b) or as otherwise acceptable to
Companies.

 

(c)          Deferred Draw Note. The Purchaser hereby agrees to purchase from
the Companies and the Companies hereby agree to sell to the Purchaser, on such
date (the “Deferred Draw Closing Date”) as is mutually agreed to by the
Companies and the Purchaser but in any event on or prior to the first
anniversary hereof, an additional Note in the stated principal amount of Two
Million dollars ($2,000,000) (the “Deferred Draw Note”), provided that (i) both
before and after the consummation of the purchase of the Deferred Draw Note and
the use of proceeds thereof, no Default or Event of Default shall have occurred
and be continuing and (ii) the proceeds of the Deferred Draw Note shall be used
as set forth in Section 2.6. The Deferred Draw Note shall be substantially in
the form attached hereto as Exhibit 2.1(c)(i) and shall include such notations,
legends or endorsements set forth therefor or required by law. The Deferred Draw
Note shall be dated the date of its issuance. The terms and provisions contained
in the Deferred Draw Note shall constitute, and are hereby expressly made, a
part of this Agreement and, to the extent applicable, the Companies and the
Purchaser, by their execution and delivery of this Agreement, expressly agree to
such terms and provisions and to be bound thereby. A Warrant in an amount equal
to 4,960,740 shares of common stock of the Parent (reduced by the number of
Equity Interests issued under the Initial Warrant) will be issued to the
Purchaser in connection with the purchase of the Deferred Draw Note (the
“Deferred Warrant”).  The Deferred Warrant shall be substantially in the form
attached hereto as Exhibit 2.1(c)(ii) and shall be exercisable into the Equity
Interest of the Company as provided therein; provided, further, that, upon the
issuance of the Deferred Warrant, the Initial Warrant shall be cancelled and
replaced in its entirety by such Deferred Warrant and the Purchaser, the Parent
and the Companies agree to take all reasonably necessary steps to effect the
foregoing upon the purchase of the Deferred Draw Note.

 

17

 

 

(d)          Other Fees and Expenses.

 

(i)          At the Closing, the Companies shall pay to the Purchaser or to such
other Persons as the Purchaser shall direct, by wire transfer payment (or, at
the Purchaser’s election, the Purchaser shall be entitled to deduct such amounts
from the purchase price for the Securities) all reasonable fees and expenses
relating to this Agreement and the other Transaction Documents, including: (A)
the Purchaser’s out-of-pocket expenses incurred in connection with the
transactions contemplated by this Agreement and the other Transaction Documents,
including expenses and all costs incurred in connection with such Purchaser’s
review of the Companies’ financial records and the Companies’ business and
operations; (B) the reasonable fees, expenses and other charges of the
Purchaser’s counsel; and (C) a fee to Purchaser of One Hundred Sixty Thousand
Dollars ($160,000) less any deposit previously paid by the Companies.

 

(ii)         Thereafter, upon demand by the Purchaser, the Companies shall pay
(A) any out-of-pocket fees and expenses (including the reasonable fees and
expenses of counsel) in connection with any registration or qualification of the
Securities required in connection with the offer and sale of the Securities
pursuant to this Agreement under the securities or “blue sky” laws of any
jurisdiction requiring such registration or qualification or in connection with
obtaining any exemptions from such requirements; and (B) the Purchaser’s
expenses (including the fees and expenses of counsel) relating to any amendment,
supplement or modification of, or any waiver, consent, enforcement or
preservation of rights under, this Agreement, the Securities or any other
Transaction Document, or any other documents contemplated hereby or thereby,
including any refinancing or restructuring of the Obligations in the nature of a
“work-out” or pursuant to bankruptcy or insolvency proceedings, or in any
litigation or other Proceeding.

 

18

 

 

(iii)        On the Deferred Draw Closing Date, the Companies shall pay to the
Purchaser or to such other Persons as the Purchaser shall direct, by wire
transfer payment (or, at the Purchaser’s election, the Purchaser shall be
entitled to deduct such amounts from the purchase price for the Securities) all
reasonable fees and expenses relating to this Agreement and the other
Transaction Documents, including: (A) the Purchaser’s out-of-pocket expenses
incurred in connection with the Deferred Draw Note contemplated by this
Agreement and the other Transaction Documents, including expenses and all costs
incurred in connection with such Purchaser’s review of the Companies’ financial
records and the Companies’ business and operations; (B) the reasonable fees,
expenses and other charges of the Purchaser’s counsel; and (C) a fee to
Purchaser of Forty Thousand Dollars ($40,000).

 

(e)          Issue Price. The Companies and the Purchaser agree that for
purposes of Section 1271 et seq. of the IRC, the aggregate issue price of each
Note is 100% of its principal amount and the price of each Warrant is the price
set forth in the agreement relating to the issuance thereof, and that this
agreement is intended to constitute agreement as to the issue price for all
federal and other income tax purposes.

 

2.2         Registration of Securities.

 

The Parent shall cause to be kept at its principal office a register for the
registration and transfer of the Notes (the “Note Register”) and a register for
the registration and transfer of the Warrants (the “Warrant Register”). The name
and address of the Holders of the Notes and the names and addresses of the
transferee or transferees of the Notes (if the Notes are transferred) shall be
registered in the Note Register. The name and address of the Holder of Warrants
and the names and addresses of the transferee or transferees of the Warrants (if
any Warrant is transferred) shall be registered in the Warrant Register. The
Person in whose name any registered Security shall be registered shall be deemed
and treated as the owner and holder thereof for all purposes of this Agreement
and the Companies shall not be affected by any notice to the contrary, until due
presentment of such Security for registration of transfer so provided in this
Section 2.2. Payment of or on account of the principal, premium, if any, and
interest on, or any other amount in respect of, any registered Securities shall
be made to or upon the written order of such registered holder.

 

2.3         Delivery Expenses.

 

If a Holder surrenders any Note or any Warrant to the Companies for any reason,
the Companies agrees to pay the cost of delivering to the Holder’s home office
the surrendered Security and each Security issued in substitution or replacement
for the surrendered Security.

 

2.4         Issue Taxes.

 

The Companies agree to pay all taxes, including the documentary stamp taxes,
(other than taxes in the nature of income, franchise or gift taxes) in
connection with the issuance, sale, delivery or transfer by the Companies to the
Purchaser of the Notes and the Warrants and the execution and delivery of the
agreements and instruments contemplated hereby and any modification of any of
such Securities, agreements and instruments and will hold the Purchaser harmless
without limitation as to time against any and all liabilities with respect to
any and all such taxes. The obligations of the Companies under this Section 2.4
shall survive the payment or prepayment of the Notes, the exercise of the
Warrants and the termination of this Agreement.

 

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2.5         General Provisions Regarding Payments.

 

(a)          Manner and Time of Payment. All payments by the Companies of
principal, premium, if any, interest and other amounts hereunder shall be made
in U.S. dollars in same day funds, without defense, setoff or counterclaim, free
of any restriction or condition, and delivered the Holder’s account not later
than 4:00 p.m. (New York time) on the date due unless such day is not a Business
Day, in which case the Companies shall make such payments on the next succeeding
Business Day, and interest shall accrue on the aggregate amount of such payments
until such amount is paid and payment of such accrued interest shall be made
concurrently with the payment of such amount. Funds received by the Holder after
4:00 p.m. (New York time) on the date due shall be deemed to have been paid by
the Companies on the next succeeding Business Day and interest shall accrue on
such amount paid until such next succeeding Business Day.

 

(b)          Application of Payments to Principal and Interest. All payments in
respect of the principal amount of the Note shall include payment of accrued
interest on the principal amount being paid, and all such payments shall be
applied to the payment of interest before application to principal; provided,
however, that from and after the occurrence of an Event of Default, in addition
to such payments of principal and interest, all payments hereunder shall include
fees, costs and expenses due to the Purchaser hereunder, and the Purchaser may
apply all payments made hereunder to such Obligations, including all fees, costs
and expenses, and in such order, as it may elect in its sole discretion.

 

The Companies shall repay the outstanding principal amount of each Note with
interest thereon in the manner and in accordance with the terms and conditions
of such Note and the other Transaction Documents.

 

2.6         Use of Proceeds.

 

The Companies shall use the proceeds of Notes and the Warrants solely to (a) pay
a portion of the consideration for the Target 2 Acquisition, (b) pay costs
relating to the Closing and the closing of the Deferred Draw Note and the Target
2 Acquisition ,(c) for working capital and general corporate purposes, or (d) to
pay down the revolving loan under the Senior Loan Documents which can be
re-drawn (subject to the limitations set forth in the Senior Loan Documents) for
any of the foregoing.

 

2.7         Margin Regulations.

 

No portion of the proceeds of any Securities under this Agreement shall be used
by the Companies in any manner that would reasonably be expected to cause the
issuance and sale of the Securities or the application of such proceeds to
violate Regulation U, Regulation T or Regulation X of the Board of Governors of
the Federal Reserve System or any other regulation of such Board or to violate
the Exchange Act, in each case as in effect on the date or dates of such
issuance and sale and such use of proceeds.

 

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2.8         Maximum Interest.

 

At no time shall the Companies be obligated or required to pay interest on the
principal balance due hereunder at a rate which could subject the Purchaser to
either civil or criminal liability as a result of being in excess of the maximum
interest rate which the Companies are permitted by applicable law to contract or
agree to pay. If by the terms of the Notes, this Agreement and/or the other
Transaction Documents, the Company is at any time required or obligated to pay
interest on the principal balance due hereunder at a rate in excess of such
maximum rate, the applicable interest rate or the Default Rate or other payments
pursuant to the Transaction Documents deemed to be interest, as the case may be,
shall be deemed to be immediately reduced to such maximum rate and all previous
payments in excess of the maximum rate shall be deemed to have been payments in
reduction of principal and not on account of the interest due hereunder. All
sums paid or agreed to be paid to the Purchaser on account of the Obligations,
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated, and spread throughout the full stated term of the applicable Note
until payment in full so that the rate or amount of interest on account of the
Obligations does not exceed the maximum lawful rate of interest from time to
time in effect and applicable to the Obligations for so long as the Obligations
are outstanding.

 

Section 3.            Collateral: General Terms

 

3.1         Security Interest Created; Obligations Secured.

 

To secure the prompt payment and performance to the Purchaser of the
Obligations, the Companies hereby assign, pledge and grant to the Purchaser a
continuing security interest in and Lien on the Collateral subject only to
Permitted Encumbrances. The Companies (other than Parent) shall cause each
present or future owner of any Equity Interest of any Company to assign, pledge
and grant to the Purchaser a continuing security interest in and Lien on their
Equity Interest in such Company and to execute deliver a security agreement
covering such Equity Interests in form and content satisfactory to the
Purchaser.

 

3.2         Financing Statements.

 

The Companies authorize the Purchaser to file financing statements with respect
to the security interest of the Purchaser, continuation statements with respect
thereto, and any amendments to such financing statements. The Companies agrees
that, notwithstanding any provision in the Uniform Commercial Code in the
applicable jurisdiction (the “UCC”) to the contrary, the Companies shall not
file a termination statement of any financing statement filed by the Purchaser
in connection with any security interest granted under this Agreement without
Purchaser’s written consent.

 

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Section 4.            Representations and Warranties

 

4.1         Companies’ Representations and Warranties.

 

Each Company represents and warrants to the Purchaser as of the Effective Date
as follows:

 

(a)          Financial Information. All financial statements and other
information concerning the Companies and their Subsidiaries delivered to
Purchaser by the Companies and their Subsidiaries in connection with the
transaction described in this Agreement (collectively, the “Financial
Information”) are true, correct and complete in all material respects; there
have been no restatements of or adjustments to the Financial Information since
the date such Financial Information was prepared or delivered to the Purchaser,
and the Companies and their Subsidiaries understand that the Purchaser is
relying upon the Financial Information and the Companies and their Subsidiaries
represent that such reliance is reasonable. All financial statements of the
Companies and their Subsidiaries included in the Financial Information were
prepared in accordance with customary accounting practices applied on a
consistent basis during the periods involved, and fairly present as of the date
of such financial statements the financial condition of each individual or
entity to which they pertain. No change has occurred with respect to the
financial condition of any of the Companies, the Companies’ Subsidiaries or the
Collateral as reflected in the Financial Information which has not been
disclosed in writing to the Purchaser or has had, or could reasonably be
expected to result in a Material Adverse Effect. Attached as Schedule 4.1(a) is
a true and correct copy of: (i) Twinlab Holdings’ and its Subsidiaries’
consolidated income statement for the Fiscal Year ending December 31, 2013, and
(ii) a copy of the unaudited consolidated balance sheet of TCC and its
Subsidiaries as of August 31, 2014 and the related consolidated statements of
income and retained earnings and the related statements of cash flows of the
Companies and its Subsidiaries for the period from January 1, 2014 through
August 31, 2014.

 

(b)          Formation and Qualification. Each of the Companies and their
Subsidiaries are duly organized or formed, validly existing and in good standing
under the laws of its state of incorporation or formation. Each of the Companies
and their Subsidiaries are qualified as a foreign corporation to do business in
the state(s) where the failure to be qualified would reasonably be expected to
result in a Material Adverse Effect. No Company is a “foreign corporation,”
“foreign partnership,” “foreign trust,” “foreign estate” or “foreign person” (as
those terms are defined by the IRC, as amended).

 

(c)          Authority. All necessary action has been taken to authorize the
execution, delivery and performance by each Company of this Agreement and the
other Transaction Documents. The person(s) who have executed this Agreement on
behalf of each Company are duly authorized so to do. Upon execution by each
Company, this Agreement and the other Transaction Documents shall constitute the
legal, valid and binding obligations of such Company enforceable against such
Company in accordance with their respective terms, except (a) as the same may be
limited by bankruptcy, insolvency, reorganization moratorium or similar laws now
or hereafter in effect relating to creditors rights generally and (b) that the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.

 

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(d)          Solvency. Each Company is and shall at all times remain Solvent.

 

(e)          Litigation. Except as set forth in Schedule 4.1(e), there are no
suits, actions, proceedings or investigations pending, or to its actual
knowledge, threatened against or involving a Company or any of its Subsidiaries,
the Collateral or the Premises (as defined on Schedule 3.1 hereto) before any
arbitrator or any governmental authority, agency, department, commission,
bureau, board, instrumentality, court or quasi-governmental authority having
jurisdiction or supervisory or regulatory authority over the Collateral or any
of the Companies or the Companies’ Subsidiaries (“Governmental Authority”),
except for such suits, actions, proceedings or investigations which,
individually or in the aggregate, have not had, and could not reasonably be
expected to result in, a Material Adverse Effect.

 

(f)          Employee Benefit Plan. Other than as set forth on Schedule 4.1(f)
hereto, the Companies and their Subsidiaries have no Plans and have never had
any Plans.

 

(g)          No Conflict. No Company is, and the authorization, execution,
delivery and performance of this Agreement and the other Transaction Documents
will not result, in any breach or default under any other document, instrument
or agreement to which a Company or any of its Subsidiaries is a party or to
which a Company or any of its Subsidiaries, the Premises, the Collateral or any
of the property of a Company or any of its Subsidiaries is subject or bound,
except for such breaches or defaults which, individually or in the aggregate,
have not had, and would not reasonably be expected to result in, a Material
Adverse Effect. The authorization, execution, delivery and performance of this
Agreement and the other Transaction Documents will not violate any applicable
law, statute, regulation, rule, ordinance, code, rule or order. The Collateral
is not subject to any right of first refusal, right of first offer or option to
purchase or lease granted to a third party.

 

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(h)          Location and Condition of Collateral. The Collateral is in
compliance with all applicable statutes, regulations, rules, ordinances, codes,
licenses, permits, orders and approvals of each Governmental Authority having
jurisdiction over the Collateral, and all policies or rules of common law, in
each case, as amended, and any judicial or administrative interpretation
thereof, including any judicial order, consent, decree or judgment applicable to
any Company or any of its Subsidiaries (collectively, the “Applicable
Regulations”), except for such noncompliance which has not had, and could not
reasonably be expected to result in, a Material Adverse Effect. All required
licenses and permits, both governmental and private, to use and operate the
Collateral and to use and operate each of the Premises are in full force and
effect, except for such licenses and permits the failure of which to obtain has
not had, and could not reasonably be expected to result in, a Material Adverse
Effect. Except for Collateral having an aggregate value of $200,000 or less, the
Collateral is located at the Premises and is in good and efficient order,
condition and repair and well-maintained, ordinary wear and tear excepted, and
is fully operational. The Companies own the Collateral, free and clear of all
liens, encumbrances, charges and security interests of any nature whatsoever
except for Permitted Encumbrances. The Collateral consists in part of all the
inventory, equipment (to the extent owned and not leased by a Company),
machinery (to the extent owned and not leased by a Company), furniture,
appliances, trade fixtures, and goods required to be maintained by the Companies
and necessary for the proper and prudent operation of the business of the
Companies. Purchaser shall have a perfected lien upon and continuing security
interest in the Collateral pursuant to this Agreement, the Security Agreement
and the UCC-1 Financing Statements filed by Purchaser with respect to the
security interest created by this Agreement and the Security Agreement subject
only to Permitted Encumbrances.

 

(i)          Leases. The Companies have delivered to Purchaser a true, correct
and complete copy of each lease, together with all amendments thereto, with
respect to each of the Premises set forth on Schedule 3.1 (the “Leases”). The
Leases are the only agreements between the lessors (“Lessors”) and Companies and
their Subsidiaries with respect to the Premises. The Leases are in full force
and effect. Except in favor of Senior Lender, no Company nor any of its
Subsidiaries has assigned, transferred, mortgaged, hypothecated or otherwise
encumbered any of its rights or interests in the Leases. Neither the Companies
nor any of their Subsidiaries nor, to each Company’s actual knowledge, Lessors
are currently in default (beyond applicable grace and cure periods) of any of
their obligations under the Leases. To each Company’s actual knowledge, no event
has occurred and no condition exists that, with the giving of notice or the
lapse of time or both, would constitute a default by a Company, any of its
Subsidiaries, or Lessors under the Leases. No Company nor any of its
Subsidiaries owns any real property except as set forth in Schedule 4.1(i).

 

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(j)          Patriot Act. As of the Effective Date and as of the date of
execution of any of the Transaction Documents: (i) none of the Companies,
Guarantor, any individual or entity owning directly or indirectly any interest
in the Companies or any of their Subsidiaries, is an individual or entity whose
property or interests are subject to being blocked under any of the OFAC Laws
and Regulations or is otherwise in violation of any of the OFAC Laws and
Regulations; (ii) the Companies and their Subsidiaries have taken all reasonable
measures, in accordance with all applicable Anti-Money Laundering Laws, with
respect to each holder of a direct or indirect interest in any Company or any of
its Subsidiaries, to assure that funds invested by such holders in any Company
or any of its Subsidiaries are derived from legal sources; (iii) to each
Company’s knowledge after making due inquiry, neither any Company nor any of its
Subsidiaries nor any holder of a direct or indirect interest in any Company or
any of its Subsidiaries (A) is under investigation by any Governmental Authority
for, or has been charged with, or convicted of, any violation of any Anti-Money
Laundering Laws, or drug trafficking, terrorist-related activities or other
money laundering predicated crimes or a violation of the BSA, (B) has been
assessed civil penalties under these or related laws, or (C) has had any of its
funds seized or forfeited in an action under these or related laws; and (iv) the
Companies and their Subsidiaries have taken reasonable steps, consistent with
industry practice for comparable organizations and in any event as required by
law, to ensure that each Company and each of the Companies’ Subsidiaries are and
shall be in compliance with all (A) Anti-Money Laundering Laws and (B) OFAC Laws
and Regulations.

 

(k)          Survival of Representations and Warranties. All representations and
warranties of each Company and each of its Subsidiaries contained in this
Agreement and the other Transaction Documents shall be true at the time of such
Company’s execution of this Agreement and the other Transaction Documents, and
shall survive the execution, delivery and acceptance thereof by the parties
thereto and the closing of the transactions described therein or related
thereto.

 

(l)          Tax Returns. Each Company’s and each of its Subsidiaries’ federal
tax identification number is set forth on Schedule 4.1(l). Each Company and each
of its Subsidiaries has filed (or is on extension granted by the applicable
taxing authority with respect to file) all federal, state and local tax returns
and other reports required by law to file and has paid all taxes, assessments,
fees and other governmental charges that are due and payable and that no tax
liens exist. Federal, state and local income tax returns of each Company and
each of its Subsidiaries have been filed with the appropriate taxing authority
or closed by applicable statute and satisfied for all Fiscal Years prior to and
including the Fiscal Year ending 2013. The provision for taxes, if applicable,
on the books of the Companies and their Subsidiaries is adequate for all years
not closed by applicable statutes, and for its current Fiscal Year, and no
Company nor any of its Subsidiaries has knowledge of any deficiency or
additional assessment in connection therewith not provided for on its books. No
Company nor any of its Subsidiaries has been the subject of any tax audit nor
has it been notified of any upcoming tax audits except as set forth on
Schedule 4.1(l).

 

(m)          Corporate Name. Except as disclosed in the Parent’s Securities and
Exchange Commission filings, no Company nor any of its Subsidiaries has been
known by any other corporate name and does not sell Inventory under any other
name except as disclosed on Schedule 4.1(aa) nor has Company nor any of its
Subsidiaries been the surviving corporation of a merger or consolidation or
acquired all or substantially all of the assets of any Person.

 

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(n)          O.S.H.A. and Environmental Compliance.

 

(i)          Each Company and each of its Subsidiaries has duly complied in all
material respects with, and its facilities, business, assets, property,
leaseholds and Equipment are in compliance in all material respects with, the
provisions of the Federal Occupational Safety and Health Act and all
Environmental Laws; there are no outstanding citations, notices or orders of
non-compliance issued to any Company or any of its Subsidiaries or relating to
their business, assets, property, leaseholds or Equipment under any such laws,
rules or regulations.

 

(ii)         Each Company and each of its Subsidiaries has been issued all
required federal, state and local licenses, certificates or permits relating to
all applicable Environmental Laws.

 

(iii)        There are no visible signs of releases, spills, discharges, leaks
or disposal (collectively referred to as “Releases”) of Hazardous Substances at,
upon, under or within any real property owned or leased by any Company or any of
its Subsidiaries except Releases handled in accordance with all applicable
government regulations; to each Company’s actual knowledge, there are no
underground storage tanks or polychlorinated biphenyls on any real property
leased by any Company or any of its Subsidiaries; to each Company’s actual
knowledge, no real property owned or leased by any Company or any of its
Subsidiaries has ever been used as a treatment, storage or disposal facility of
Hazardous Waste; and to each Company’s actual knowledge, no Hazardous Substances
are present on any Premises leased by any Company or any of its Subsidiaries,
excepting such quantities as are handled in accordance with all applicable
manufacturer’s instructions and governmental regulations and in proper storage
containers and as are necessary for the operation of the commercial business of
such Company, any of its Subsidiaries or of its tenants.

 

(o)          Patents, Trademarks, Copyrights and Licenses. All patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, copyrights, copyright applications, design rights, tradenames,
assumed names, trade secrets and licenses owned or utilized by any Company (the
“Intellectual Property”) are set forth on Schedule 4.1(o). To each Company’s
knowledge, all such Intellectual Property is valid and has been duly registered
or filed with all appropriate Governmental Authorities and constitutes all of
the intellectual property rights which are necessary for the operation of its
business. To each Company’s actual knowledge, there is no objection to or
pending challenge to the validity of any such Intellectual Property and no
Company is aware of any grounds for any challenge.

 

26

 

 

(p)          Licenses and Permits. Each Company and each of its Subsidiaries (i)
is in compliance with and (ii) has procured and is now in possession of, all
material licenses or permits required by any applicable law or regulation for
the operation of its business in each jurisdiction wherein it is now conducting
business and where the failure to procure such licenses or permits would have a
Material Adverse Effect on such Company or any of its Subsidiaries.

 

(q)          Default of Indebtedness. All Indebtedness of the Companies and
their Subsidiaries existing on the Effective Date is set forth on Schedule
4.1(q). No Company nor any of its Subsidiaries is in default in the payment of
the principal of or interest on any Indebtedness or under any instrument or
agreement under or subject to which any Indebtedness has been issued and no
event has occurred under the provisions of any such instrument or agreement
which with or without the lapse of time or the giving of notice, or both,
constitutes or would constitute an event of default thereunder.

 

(r)          No Default. Except for past due payments owed on trade payables
incurred in the ordinary course of business or as otherwise set forth on
Schedule 4.1(r), no Company nor any of its Subsidiaries is in default in the
payment or performance of any of its contractual obligations and no Event of
Default is existing and no event has occurred which with or without the lapse of
time or the giving of notice, or both, constitutes or would constitute an Event
of Default.

 

(s)          No Burdensome Restrictions. No Company nor any of its Subsidiaries
is party to any contract or agreement the performance of which would have a
Material Adverse Effect on such Company or any of its Subsidiaries. No Company
nor any of its Subsidiaries has agreed or consented to cause or permit in the
future (upon the happening of a contingency or otherwise) any of its property,
whether now owned or hereafter acquired, to be subject to a Lien which is not a
Permitted Encumbrance.

 

(t)          No Labor Disputes. No Company nor any of its Subsidiaries is
involved in any labor dispute; there are no strikes or walkouts or union
organization of any Company’s or any of its Subsidiaries’ employees threatened
or in existence and no labor contract is scheduled to expire prior to the
Maturity Date.

 

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(u)          Authorized Capital. The authorized Equity Interests of Parent
consist of (i) 5,000,000,000 shares of common stock, of which 220,000,000 common
shares are issued and outstanding as of the date hereof and (ii) 500,000,000
shares of preferred stock, of which no preferred shares are issued and
outstanding. All outstanding Equity Interests are duly and validly issued, fully
paid and nonassessable and are owned beneficially and of record by the Persons
specified in Schedule 4.1(u). The issuance and sale of such Equity Interests,
upon such issuance and sale, (A) has either been registered or qualified under
applicable Federal and state securities laws or (B) is exempt therefrom. There
are no outstanding subscriptions, options, warrants, rights (including
registration rights and preemptive rights) or any other agreements or
commitments of any nature relating to any Equity Interests of the Company,
except as disclosed in Schedule 4.1(u). The Purchaser has been furnished a true
and complete copy of each certificate, agreement and document disclosed in
Schedule 4.1(u). The Equity Interest into which the Initial Warrant is
exercisable on the Effective Date is equal to 4,091,122 shares of common stock
of the Parent and the Equity Interest into which the Deferred Warrant is
exercisable on the Deferred Draw Closing Date is equal to 869,618 shares of the
common stock of the Parent, each as specified in Schedule 4.1(u).

 

(v)         Swaps. No Company nor any of its Subsidiaries is a party to, nor
will it be a party to, any swap agreement whereby the Company has agreed or will
agree to swap interest rates or currencies unless same provides that damages
upon termination following an event of default thereunder are payable on an
unlimited “two way basis” without regard to fault on the part of either party.

 

(w)          Conflicting Agreements. Except as provided in the Senior Loan
Documents, no provision of any mortgage, indenture, contract, agreement,
judgment, decree or order binding on a Company or any of its Subsidiaries or
affecting the Collateral conflicts with, or requires any third party consent
which has not already been obtained to, or would in any way prevent the
execution, delivery or performance of, the terms of this Agreement or the other
Transaction Documents.

 

(x)          [Reserved].

 

(y)          Business and Property of Company. On the Effective Date, each
Company and each of its Subsidiaries owns or leases all the property and
possesses all of the rights and consents necessary for the conduct of the
business of such Company and its Subsidiaries.

 

(z)          Compliance with Laws. Neither the Companies nor any of the
Companies’ Subsidiaries is in violation of any applicable law in any respect
which would reasonably be expected to have a Material Adverse Effect on the
Companies or any of their Subsidiaries, nor is any Company or any of such
Company’s Subsidiaries in violation of any order of any Governmental Authority
or arbitration board or other tribunal.

 

(aa)         Trade Names. All trade names or styles under which a Company or any
of its Subsidiaries sells Inventory or Equipment, creates Receivables or
conducts a portion of its business, or to which instruments in payment of
Receivables are made payable, are listed in Schedule 4.1(aa).

 

(bb)         Not a Regulated Entity. Neither the Companies nor any of its
Subsidiaries is (i) an “investment company” registered or required to be
registered under the Investment Company Act of 1940, nor is it controlled by
such a company; (ii) a “holding company,” or a “subsidiary company” of a
“holding company,” or an “affiliate” of a “holding company” or of a “subsidiary
company” of a “holding company,” within the meaning of the Public Utility
Holding Company Act of 1935 or (iii) subject to regulation under the Federal
Power Act, the Interstate Commerce Act, any public utilities code or any other
Applicable law regarding its authority to incur the Indebtedness arising under
any Transaction Document.

 

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(cc)          Certain Fees. No brokers or finders fee or commission will be
payable with respect to this Agreement, any other Transaction Documents or any
of the transactions contemplated hereby.

 

(dd)         Private Offering. Based upon the representations and warranties for
the Purchaser set forth in Section 4.2 hereof, at Closing and at the closing of
the Deferred Draw Note, the sale of the Securities hereunder shall be exempt
from the registration and prospectus delivery requirements of the Securities
Act. In the case of each offer or sale of the Securities, no form of general
solicitation or general advertising was used by any Company or its respective
representatives, including advertisements, articles, notices or other
communication published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising. Except as
disclosed in the Parent’s Securities and Exchange Commission filings or
otherwise disclosed to the Purchaser in writing, no securities have been issued
and sold by any Company within the six-month period immediately prior to the
Effective Date. Each Company agrees that neither it, nor anyone acting on its
behalf, will offer or sell the Securities, or any portion of them, if such offer
or sale would bring the issuance and sale of the Securities to the Purchaser
hereunder within the provisions of Section 5 of the Securities Act nor offer any
similar securities for issuance or sale to, or solicit any offer to acquire any
of the same from, or otherwise approach or negotiate with respect thereto with,
anyone if the sale of the Securities and any such securities could be integrated
as a single offering for the purposes of the Securities Act, including
Regulation D thereunder.

 

(ee)         Disclosure. No representation or warranty made by any Company or
any of its Subsidiaries in this Agreement, in any other Transaction Document or
in any financial statement, report, certificate or any other document furnished
in connection herewith contains any untrue statement of a material fact or omits
to state any material fact necessary to make the statements herein or therein
not misleading. There is no fact known to any Company or any of its Subsidiaries
which reasonably should be known to such Company or any of its Subsidiary which
such Company has not disclosed to the Purchaser in writing which would
reasonably be expected to have a Material Adverse Effect on such Company or any
of its Subsidiaries.

 

29

 

 

4.2         Purchaser’s Representations and Warranties.

 

The Purchaser represents and warrants to the Companies as of the Effective Date
as follows:

 

(a)          Purchase for Own Account. The Purchaser is purchasing the
Securities to be purchased by it solely for its own account, for investment
purposes, and not as nominee or agent for any other Person and not with a view
to, or for offer or sale in connection with, any distribution thereof (within
the meaning of the Securities Act) that would be in violation of the securities
laws of the United States of America or any state thereof, without prejudice,
however, to its right at all times to sell or otherwise dispose of all or any
part of said Securities pursuant to a registration statement under the
Securities Act or pursuant to an exemption from the registration requirements of
the Securities Act, and subject, nevertheless, to the disposition of its
property being at all times within its control.

 

(b)          Accredited Investor. The Purchaser (i) is knowledgeable,
sophisticated and experienced in business and financial matters; (ii) previously
invested in securities similar to the Securities and it acknowledges that the
Securities have not been registered under the Securities Act and understands
that the Securities must be held indefinitely unless they are subsequently
registered under the Securities Act or such sale is permitted pursuant to an
available exemption from such registration requirement; (iii) is able to bear
the economic risk of its investment in the Securities and is presently able to
afford the complete loss of such investment; and (iv) is an “accredited
investor” as defined in Regulation D promulgated under the Securities Act.

 

(c)          Authorization, etc. The Purchaser has full power and authority, as
the case may be, to enter into this Agreement and to carry out the transactions
contemplated hereby. This Agreement is a valid and binding agreement of the
Purchaser, enforceable against it in accordance with its terms except (a) as the
same may be limited by bankruptcy, insolvency, reorganization moratorium or
similar laws now or hereafter in effect relating to creditors rights generally
and (b) that the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.

 

(d)          No Conflict. The execution, delivery and performance of this
Agreement and the related Transaction Documents by Purchaser does not conflict
with or result in a default under any other agreement, document or instrument to
which Purchaser is a party.

 

Section 5.            Affirmative Covenants

 

Each Company covenants and agrees that, until payment in full of all the
Obligations, unless the Purchaser shall otherwise give prior written consent, it
shall perform, or cause the performance of, all covenants in this Section 5.

 

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5.1         Reports.

 

Each Company will deliver to the Purchaser:

 

(a)          Events of Default, etc.. Promptly upon any officer, director (other
than any director designated by the Purchaser) or employee of such Company
obtaining actual knowledge (i) that any Person has given any written notice to
such Company or any of its Subsidiaries or taken any other material action with
respect to a claimed default or event or condition of the type referred to in
Section 11.1, (ii) of any condition or event that constitutes a default or event
of default with respect to or under the Indebtedness, or having actual knowledge
that any holder of Indebtedness has given any written notice or taken any other
material action with respect to a claimed default or event of default, with
respect to any portion of such Indebtedness, or (iii) of the occurrence of any
event or change that has caused or evidences, either in any case or in the
aggregate, a Material Adverse Effect, an officer’s certificate specifying the
nature and period of existence of such condition, event or change, or specifying
the notice given or action taken by any such Person and the nature of such
claimed Default, Event of Default, event or condition, and what action such
Company has taken, is taking and proposes to take with respect thereto;

 

(b)          Litigation or Other Proceedings. Promptly, but in no event later
than three (3) Business Days after, upon any officer, director (other than any
director designated by the Purchaser) or employee of such Company obtaining
actual knowledge of (A) the institution of any action, suit, proceeding (whether
administrative, judicial or otherwise), governmental investigation or
arbitration against or affecting such Company, any of its Subsidiaries or any
property of the Company (collectively, “Litigation”) not previously disclosed in
writing by the Company and its Subsidiaries to the Purchaser or (B) any material
development in any Insolvency Proceeding that, in the case of subclause (A) or
(B):

 

(i)          if adversely determined, has a reasonable possibility of exceeding
$250,000.00 in damages; or

 

(ii)         seeks to enjoin or otherwise prevent the consummation of, or to
recover any damages or obtain relief as a result of, the transactions
contemplated hereby;

 

written notice thereof describing material details of such matters together with
such other information as may be reasonably available to such Company to enable
Purchaser and their counsel to evaluate such matters; and (ii) within twenty
(20) days after the end of each fiscal quarter of such Company, a schedule of
all Litigation involving an alleged liability of, or claims against or
affecting, such Company equal to or greater than $250,000.00, and promptly after
written request by the Purchaser such other information as may be reasonably
requested by the Purchaser to enable the Purchaser and its counsel to evaluate
any of such Litigation;

 

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(c)          ERISA Events. Promptly upon obtaining actual knowledge of the
occurrence of or forthcoming occurrence of an ERISA Event, a written notice
specifying the nature thereof, what action such Company has taken, is taking or
proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, the Department of Labor or the PBGC
with respect thereto;

 

(d)          ERISA Notices. With reasonable promptness, copies of (i) each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed
by such Company or any of its Subsidiaries with the Internal Revenue Service
with respect to each Pension Benefit Plan; (ii) all written notices received by
such Company or any of its Subsidiaries from a Multiemployer Plan sponsor
concerning an ERISA Event; and (c) such other documents or governmental reports
or filings relating to any Employee Benefit Plan maintained or contributed to by
such Company or any of its Subsidiaries as the Purchaser shall reasonably
request;

 

(e)          Financial Plans. As soon as available and in any event no later
than 30 days before the beginning of each Fiscal Year, a plan and financial
forecast for such Fiscal Year, including (i) forecasted balance sheets and
forecasted statements of income and cash flows of such Company for each such
Fiscal Year and an explanation of all of the assumptions on which such forecasts
are based, (ii) forecasted statements of income and cash flows of such Company
for each month of each such Fiscal Year, together with an explanation of all of
the assumptions on which such forecasts are based, and (iii) such other
information and projections as the Purchaser may reasonably request in writing;

 

(f)          Environmental Audits and Reports of Events. As soon as practicable
following receipt thereof, copies of all environmental audits and reports,
whether prepared by personnel of such Company, any of its Subsidiaries or by
independent consultants, with respect to a significant environmental matter at
any Premises, or which relate to an Environmental Claim which would reasonably
be expected to result in a Material Adverse Effect. Each Company will also
promptly advise the Purchaser in writing and in reasonable detail of (i) such
Company’s actual knowledge of (a) any Release of any Hazardous Substance
required to be reported to any federal, state or local governmental or
regulatory agency under any applicable Environmental Laws or (b) any
Environmental Claims that have a reasonable possibility of giving rise to a
Material Adverse Effect, (iii) any remedial action taken by such Company or any
other Person in response to (x) any Hazardous Substance on, under or about any
Premises, the existence of which has a reasonable possibility of resulting in an
Environmental Claim having a Material Adverse Effect or (y) any Environmental
Claim that is reasonably likely to have a Material Adverse Effect, (iv) such
Company’s or any of its Subsidiaries’ discovery of any occurrence or condition
on any real property adjoining or in the vicinity of any Premises that is
reasonably likely to cause such Premises or any part thereof to be subject to
any restrictions on the ownership occupancy, transferability or use thereof
under any Environmental Laws which would have a Material Adverse Effect and (v)
any request for information from any governmental agency that suggests such
agency is investigating whether such Company or any of its Subsidiaries may be
potentially responsible for a Release of Hazardous Substance;

 

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(g)          Monthly Financial Statements. Within 30 days (or 60 days in the
case of the twelfth month of the Fiscal Year) after the close of each monthly
accounting period in each Fiscal Year of the Companies, (i) the unaudited
consolidated balance sheets of the Companies and their consolidated Subsidiaries
as of the end of such monthly period, (ii) the related unaudited consolidated
statements of income and retained earnings and consolidated statements of cash
flows for such monthly period and for the elapsed portion of the Fiscal Year
ended with the last day of such monthly period, in each case setting forth
comparative figures for the related periods in the prior Fiscal Year, and (iii)
statement and reconciliation of all cash of the Companies and their
Subsidiaries; all of such items (i), (ii) and (iii) of this Section shall be
certified by the chief financial officer of Parent, subject to normal year-end
audit adjustments and the absence of footnotes;

 

(h)          Annual Financial Statements. Within 120 days after the close of
each Fiscal Year of the Companies, the consolidated balance sheets of the
Companies and their consolidated Subsidiaries as of the end of such Fiscal Year
and the related consolidated statements of income and retained earnings and
consolidated statements of cash flows for such Fiscal Year, in each case setting
forth comparative figures for the preceding Fiscal Year and audited by
independent certified public accountants of recognized national or regional
standing reasonably acceptable to the Purchaser, in each case together with a
report of such accounting firm stating that in the course of its regular audit
of the financial statements of the Companies, which audit was conducted in
accordance with generally accepted auditing standards, such accounting firm
obtained no knowledge of any Event of Default which has occurred and is
continuing or, if in the opinion of such accounting firm such an Event of
Default has occurred and is continuing, a statement as to the nature thereof;

 

(i)          Compliance Certificates.

 

(i)          Concurrently with the financial statements furnished pursuant to
subsections (g) and (h) of this Section 5.1, an officer’s certificate signed by
an authorized officer of Parent which Compliance Certificate shall be
substantially in the form of Exhibit 5.1(i) attached hereto, certifying such
financial statements, each Company’s and each of its Subsidiaries’ compliance
with the terms of the Transaction Documents, certifying that no Event of Default
has occurred under the Transaction Documents, and setting forth computations in
reasonable detail showing whether or not as at the end of such fiscal period
there existed any breach or violation of any of the provisions of Section 5.12;

 

33

 

 

(ii)         With regard to any Permitted Senior Debt, all borrowing base
certificates, borrowing base reports and compliance certificates delivered to
any holders of Permitted Senior Debt.

 

(j)          Management Letters. Promptly after such Company’s receipt thereof,
a copy of any “management letter,” schedule of adjusting journal entries,
schedule of waived journal entries, governance communication letters and any
internal control communication received by such Company or any of its
Subsidiaries from its certified public accountants;

 

(k)          Filings with Governmental Agencies. Within thirty (30) days of
filing thereof, copies of all tax returns and other related tax documents filed
by such Company with federal, state or local governmental agencies;

 

(l)          Aging Reports. Furnish to the Purchaser within thirty (30) days
after the end of each month, aging summary reports of all of such Company’s
accounts receivable, aged by invoice date; and

 

(m)          Other Information: With reasonable promptness, (i) such other
material information and data with respect to such Company or any of its
Subsidiaries, as from time to time may be reasonably requested in writing by the
Purchaser, and (ii) a copy of all material reports and other documents delivered
from time to time to the Senior Lender.

 

The Purchaser acknowledges that US securities laws prohibit any Person who has
received from an issuer any material, non-public information from purchasing or
selling securities of such issuer or from communicating such information to any
other Person under circumstances in which it is reasonably foreseeable that such
Person is likely to purchase or sell such securities. As a result of the
Companies’ providing certain of the financial information required by this
Section 5.1 to the Purchaser, the Purchaser will be in possession of material,
non-public information pertaining to the Companies. Accordingly, the Purchaser
agrees not to (i) communicate any of such information to any other Person under
circumstances in which it is reasonably foreseeable that such Person is likely
to purchase or sell any of the Parent’s securities and (ii) purchase or sell any
of the Parent’s Securities unless and until such information has been publicly
disclosed by the Parent. Notwithstanding anything in this Section 5.1 or any
other provision in the Transaction Documents to the contrary, the Companies and
their Subsidiaries shall not be required to deliver to the Purchaser and/or any
of Purchaser’s Affiliates, originals or copies of any documents, instruments,
notices, communications or other information under or in connection with this
Agreement or any other Transaction Document (collectively, the “Company
Materials”) as specifically requested from time to time in writing by the
Purchaser and/or any of the Purchaser’s Affiliates with respect to a specific
document, instrument, notice or other written communication at the time of
receipt of such request and then only in accordance with such specific request.
The Companies hereby agree that if either they, any parent company or any
Subsidiary of the Companies has publicly traded equity or debt securities in the
United States, they shall (and shall cause such parent company or Subsidiary, as
the case may be, to) (i) identify in writing, and (ii) to the extent reasonably
practicable, clearly and conspicuously mark such Company Materials that contain
only information that is publicly available or that is not material for purposes
of United States federal and state securities laws as “PUBLIC”. The Companies
agree that by identifying such Company Materials as “PUBLIC” or publicly filing
such Company Materials with the Securities and Exchange Commission, then the
Purchaser and/or its Affiliates shall be entitled to treat such Company
Materials as not containing any material, non-public information for purposes of
United States federal and state securities laws.

 

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5.2         Payment of Taxes and Claims; Tax Consolidation; Filing of Tax
Returns.

 

Each Company and its Subsidiaries will pay, (a) all taxes, assessments and other
governmental and quasi-governmental charges and/or fees imposed upon it or any
of its properties or assets or in respect of any of its income, businesses or
franchises before any penalty accrues thereon, and (b) all claims (including
claims for labor, services, materials and supplies) for sums that have become
due and payable and that by law have or may become a Lien upon any of its
properties or assets, prior to the time when any penalty or fine shall be
incurred with respect thereto; provided, that no such charge or claim need be
paid if being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted, no penalty or fine is accruing thereon, and
if such reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor. No Company will file or
consent to the filing of any consolidated income tax return with any Person
other than its wholly-owned Subsidiaries or as otherwise required by law. Each
Company and its Subsidiaries shall file, or cause to be filed, all tax returns
(federal, state, local and foreign) required to be filed.

 

5.3         Key Person Insurance, Disability Insurance.

 

The Companies shall obtain and deliver to the Purchaser by December 1, 2014, and
shall thereafter at all times when the Obligations are outstanding maintain and
timely pay for, key-person life insurance on the life of Thomas Tolworthy (or
any successors to Thomas Tolworthy as chief executive officer and/or president
of the Companies) having a death benefit in the amount equal to the then
outstanding principal amount of the Obligations, payable to the benefit of the
Purchaser, with such insurance companies as shall be satisfactory to the
Purchaser, such insurance policy to provide that it cannot be cancelled or
terminated without a thirty (30) days prior written notice to the Purchaser. The
Companies shall deliver to the Purchaser, in form and substance satisfactory to
the Purchaser, certified copies of such insurance policies, together with loss
payable endorsements naming the Purchaser as loss payee.

 

35

 

 

In addition, the Companies shall deliver to Purchaser by December 1, 2014, and
shall thereafter at all times when the Obligations are outstanding maintain and
timely pay for a disability policy in favor of Purchaser relating to Thomas
Tolworthy (or any successors to Thomas Tolworthy as chief executive officer
and/or president of the Companies) in the amount of the then outstanding
principal amount of the Note and in form and content reasonably acceptable to
Purchaser. The Companies shall deliver to the Purchaser, in form and substance
satisfactory to the Purchaser, certified copies of such insurance policies.

 

5.4         Further Assurances.

 

At any time or from time to time upon the request of the Purchaser, each Company
will, at its expense, promptly and duly execute, acknowledge and deliver such
further agreements, documents and instruments and do or cause to be done such
other acts and things as (i) the Purchaser may reasonably request in order to
effect fully the purposes of the Transaction Documents and to provide for
payment of the Obligations in accordance with the terms of this Agreement, the
Notes and the other Transaction Documents and (ii) as may be necessary or proper
to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral.

 

5.5         Reservation of Equity Interests.

 

The Parent shall have reserved, and shall at all times keep reserved, out of its
authorized Equity Interests, a number of unissued Equity Interests sufficient to
allow the Parent to satisfy the terms of the Warrants at all times as if the
Warrants were exercised, free of any preemptive rights, Liens, claims or
encumbrances of any kind or nature whatsoever.

 

5.6         No Impairment.

 

No Company nor any of its Subsidiaries shall, by amendment of its Articles of
Incorporation, bylaws, any agreements among or between any of the holders of any
Equity Interests of such Company or any of its Subsidiaries or through any
consolidation, merger, reorganization, recapitalization, business combination or
other similar arrangement, joint venture, transfer of assets, dissolution, issue
or sale of securities or any other action of any kind, avoid or seek to avoid
the observance or performance of any of the terms of this Agreement or the
Transaction Documents.

 

36

 

 

5.7         Board Seat and Rights to Meet with Directors.

 

(a)          From the Closing until the Notes and other Obligations are repaid
in full, the Parent shall maintain a board of directors which shall schedule
meetings not less frequently than twice per year commencing with the Fiscal Year
beginning January 1, 2015. Until the earlier of (i) the date on which less than
$5,000,000 of principal remains outstanding under the Notes or (ii) the date on
which the Parent has a market cap of $400,000,000 or more and EBITDA for the
four fiscal quarters then ending of greater than or equal to $20,000,000, the
Purchaser shall be entitled to appoint one member to the board of directors of
Parent (which appointee may be an employee, officer or director of Purchaser)
(the "Penta Director"). At all times thereafter, the Purchaser will be notified
of time and place of meetings of the board of managers not less than seven (7)
days in advance and may have a representative attend all board meetings. The
Companies shall pay the reasonable costs and expenses incurred by such
representative in traveling to and attending such meetings.

 

(b)          While the Purchaser shall be entitled to appoint a Penta Director,
the Penta Director shall timely (i) comply with all Securities and Exchange
Commission reporting requirements applicable to a director, including, but not
limited, to filing Forms 3, 4, and 5, as applicable; (ii) promptly furnish the
Companies with any required information concerning the Penta Director for 8-K
filings, proxy statements and any other Securities and Exchange Commission
filings; (iii) complete standard director and officer questionnaires from time
to time as requested by the Companies to the extent such questionnaires are
usual and customary and are executed by each other director of the Parent and
(iv) deliver a resignation in blank to be held in escrow by the Parent.

 

(c) In the event that either event in Section 5.7(a)(i) or (a)(ii) occurs, the
Parent may give notice of its request for the Penta Director's resignation
delivered under Section 5.7(b)(iv), and the Penta Director will be deemed to
have resigned effective as of the date of such notice.

 

5.8         Good Standing; Regular Course of Business.

 

Each Company agrees to, and shall cause each of its Subsidiaries to, maintain
its existence and its good standing in its jurisdiction of organization and
maintain qualification in each jurisdiction in which the failure to so qualify
would reasonably be expected to have a Material Adverse Effect on the financial
condition, operations or business of such Company or any of its Subsidiaries.
Each Company and its Subsidiaries agrees that on and after the Effective Date it
will carry on its business diligently and in the ordinary course and
substantially in the same manner as heretofore carried on and will use
commercially reasonable efforts to preserve its present business organization
intact.

 

5.9         Maintenance of Property Insurance.

 

The Companies have delivered to the Purchaser a certificate from their insurance
broker which sets forth a true and complete listing of all insurance maintained
by the Companies and their Subsidiaries as of Closing, with the amounts insured
at Closing set forth therein. Such insurance shall be in such amounts and
against such risks as is customarily maintained in similar businesses operating
in the same vicinity with Purchaser named as an additional loss payee.

 

37

 

 

Each Company will, and will cause each of its Subsidiaries to:

 

(i)          keep all property useful and necessary in its business in good
working order and condition, ordinary wear and tear excepted,

 

(ii)         acquire and maintain at its sole cost and expense throughout the
term of this Agreement commercial general liability insurance on all its
property underwritten by an insurance company with a Best’s rating of at least
A-/XII and licensed to do business in the applicable state in at least such
amounts with such deductibles and against at least such risks as are consistent
and in accordance with industry practice, including (without limitation)
personal injury and bodily injury, product liability, products/completed
operations, and business interruption insurance, and

 

(iii)        maintain a bond or insurance in such amounts as is customary in the
case of companies engaged in businesses similar to such Company insuring against
larceny, embezzlement or other criminal misappropriation of insured’s officers
and employees who may either singly or jointly with others at any time have
access to the assets or funds of such Company or any of its Subsidiaries either
directly or through authority to draw upon such funds or to direct generally the
disposition of such assets.

 

Each Company shall cooperate with the Purchaser in obtaining for the Purchaser
the benefits of any insurance proceeds lawfully or equitably payable in
connection with such Company, its Subsidiaries or any of their assets subject to
the provisions of the Permitted Senior Debt; provided, so long as no Event of
Default exists and subject to the provisions of the Permitted Senior Debt, such
Company shall have the right to use such proceeds to repair or replace the
assets damaged by such casualty. Each Company shall not permit any such material
item of Collateral to become a fixture to real estate or an accession to other
personal property, without the prior written consent of the Purchaser. Each
Company shall not permit any such material item of Collateral to be operated or
maintained in violation of any applicable law, statute, rule or regulation. With
respect to items of leased equipment (to the extent the Purchaser has any
security interest in any residual Company’s interest in such equipment under the
lease), each Company shall keep, maintain, repair, replace and operate such
leased equipment in accordance with the terms of the applicable lease.

 

Prior to the Effective Date, certificates of insurance issued by the Companies’
insurance company evidencing the insurance required as set forth above shall
have been provided to the Purchaser by the Companies. Each certificate provided
at any time in accordance with this section shall set forth, minimally, that the
Purchaser is an additional insured party, the amount of insurance, the
additional insured endorsement (whether as part of the certificate or as a
separate document), the policy number, the date or expiration, an endorsement
that the Purchaser shall receive thirty (30) days (or 15 days in the case of
non-payment of premium) written notice prior to termination, reduction or
modification of the coverage. The certificates shall bear an inked or stamped
signature. Certificates shall be furnished to the Purchaser upon renewal of
insurance or upon request by the Purchaser. In the event a Company does not at
any time provide its certificate of insurance as required herein, the Purchaser
shall have the right to procure such coverage and charge the expense incurred to
such Company. In the event a Company’s insurance is canceled and replacement
insurance is not obtained prior to the effective date of such cancellation, the
Purchaser shall have the right to procure such coverage and charge the expenses
incurred to such Company. Upon request, each Company shall furnish a copy of the
insurance policy to the Purchaser.

 

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5.10       Compliance with Statutes, etc.

 

Each Company will, and will cause each of its Subsidiaries to, comply in all
material respects with all applicable statutes, regulations, rules and orders
of, and all applicable restrictions imposed by, all governmental and
quasi-governmental bodies, domestic or foreign, in respect of the conduct of its
business and operations and the ownership of its property (including, without
limitation, applicable statutes, regulations, orders and restrictions relating
to (i) environmental standards and controls and (ii) the Anti-Money Laundering
Laws, the OFAC Laws and Regulations). Notwithstanding the foregoing, each
Company will, and will cause each of its Subsidiaries to endeavor to
substantially comply with applicable laws, regulations, and regulatory oversight
from the Food and Drug Administration (“FDA”), The Federal Trade Commission
(“FTC”) and the United States Department of Agriculture (“USDA”).

 

5.11       Violations.

 

Promptly notify Purchaser in writing of any violation of any law, statute,
regulation or ordinance, as to which such Company or any of its Subsidiaries
have been notified or otherwise have knowledge of, of any Governmental
Authority, or of any agency thereof, applicable to such Company or any of its
Subsidiaries which could reasonably be expected to have a Material Adverse
Effect on such Company or any of its Subsidiaries.

 

5.12       Financial Covenants.

 

(a)          Minimum Adjusted EBITDA. Commencing with the fiscal quarter ending
March 31, 2015 and until such time as all Obligations are paid, satisfied and
discharged in full, the Companies shall not, as of the end of any measurement
period set forth below, permit the Adjusted EBITDA for such measurement period
to be less than the amount set forth in the table below opposite such
measurement period; provided that (i) commencing with the first fiscal quarter
ending 6 months after the earlier of the consummation of the Target 1
Acquisition or the Target 2 Acquisition, compliance shall no longer be required
with respect to the financial covenant in this clause (a) and (ii) if neither
the Target 1 Acquisition nor the Target 2 Acquisition have been consummated on
or prior to June 30, 2015, the Purchaser shall have the right to require the
Companies to continue to comply with the financial covenant in this clause (a)
for such future periods and at such covenant levels as the Purchaser may
reasonably require.

 

39

 

 

Measurement Period  Minimum Adjusted EBITDA  January 1, 2015 to March 31, 2015 
$-2,500,000 January 1, 2015 to June 30, 2015  $-1,750,000  July 1, 2015 to
September 30, 2015  $2,000,000  July 1, 2015 to December 31, 2015  $4,500,000 

  

(b)          Fixed Charge Coverage Ratio. Commencing with the first fiscal
quarter ending 6 months after earlier of the consummation of the Target 1
Acquisition or Target 2 Acquisition and until such time as all Obligations are
paid, satisfied and discharged in full, the Companies shall not, as of the end
of any fiscal quarter, permit the Fixed Charge Coverage Ratio for the period of
four consecutive fiscal quarters most recently ended on or prior to such date to
be less than 1.15x. Notwithstanding the foregoing, it is hereby agreed that (i)
the applicable measurement period for the fiscal quarter ending September 30,
2015 shall be from July 1, 2015 to September 30, 2015, (ii) the applicable
measurement period for the fiscal quarter ending December 31, 2015 shall be from
July 1, 2015 to December 31, 2015 and (iii) the applicable measurement period
for the fiscal quarter ending March 31, 2016 shall be from July 1, 2015 to March
31, 2016.

 

(c)          Total Funded Debt to Adjusted EBITDA Ratio. Commencing with the
fiscal quarter ending March 31, 2016 and until such time as all Obligations are
paid, satisfied and discharged in full, the Companies shall not, as of the end
of any fiscal quarter, permit the applicable ratio set forth in the table below
to exceed the amount set forth therein:

 

If as of the end of any fiscal quarter:   Both the Target 1 Acquisition and the
Target 2 Acquisition have been consummated   (x) the Target 1 Acquisition and
the Target 2 Acquisition have not been consummated or (y) only Target 2
Acquisition has been consummated           Applicable ratio:   (A) Total Funded
Debt (calculated without giving effect to any Indebtedness that is subordinate
to the Obligations) to (B) Adjusted EBITDA for the period of four consecutive
fiscal quarters most recently ended on or prior to such date to exceed 4.0x  
(A) Total Funded Debt (calculated without giving effect to the Little Harbor
Debt) to (B) Adjusted EBITDA for the period of four consecutive fiscal quarters
most recently ended on or prior to such date to exceed 4.0x

 

40

 

 

For the purposes of this clause (c), Adjusted EBITDA (1) for the measurement
period ending on March 31, 2016, shall equal the Adjusted EBITDA for the fiscal
quarter ending March 31, 2016 multiplied by 4, (2) for the measurement period
ending on June 30, 2016, shall equal the sum of Adjusted EBITDA for the fiscal
quarters ending March 31, 2016 and June 30, 2016, multiplied by 2 and (3) for
the measurement period ending on September 30, 2016, shall equal the sum of the
Adjusted EBITDA for the fiscal quarters ending March 31, 2016, June 30, 2016 and
September 30, 2016, multiplied by 4 and divided by 3.

 

5.13       Performance of Transaction Documents.

 

Each Company shall observe, perform and satisfy all the terms, provisions,
covenants and conditions required to be observed, performed or satisfied by it,
and shall pay when due all reasonable costs, fees and expenses required to be
paid by it under this Agreement, the Note and all other Transaction Documents,
subject to any applicable cure periods provided therein.

 

5.14       Maintenance of Books and Records; Inspection Rights.

 

Each Company and its Subsidiaries shall maintain, or cause to be maintained, at
the expense of such Company, in accordance with GAAP, a comprehensive system of
internal controls over financial reporting, office records, books and accounts
(which books, records and accounts shall be and remain the property of the
Company and its Subsidiaries) in which shall be entered fully and accurately
each and every financial transaction with respect to such Company and its
Subsidiaries and their operations and business. Each Company shall maintain the
books, records and accounts in a safe manner and separate from any records not
related to such Company, its operations and business. Upon three (3) days
written notice, the Purchaser shall have the right to inspect and copy during
normal business hours any and all of each Company’s books and records. The right
to examination provided by this Section 5.14 shall include the right to make
copies of the books of accounts and other books, documents and records of each
Company for any purpose, including, without limitation, conducting an evaluation
of each Company’s internal controls over financial reporting.

 

5.15       Audit.

 

The Purchaser shall have the right upon reasonable advance written notice during
normal business hours to audit the financial information provided by each
Company pursuant to the terms of this Agreement in accordance with the then
customary audit policies and procedures of the Purchaser. Unless an Event of
Default then exists, the Purchaser shall not perform more than one (1) such
audit per calendar year. The Purchaser shall pay for the costs of its auditors,
provided that if (a) such audit shall have been commenced when an Event of
Default exists or (b) such audit reveals a material discrepancy from the
information previously provided to the Purchaser, the Companies shall pay the
cost and expenses of such audit not to exceed $50,000.00 in the aggregate.

 

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5.16      Keyman Litigation Proceeds.

 

In the event that any Company recovers any proceeds from any claims or actions
initiated by such Company against Thomas Tolworthy asserting breach of the duty
of loyalty, breach of the duty of care, or embezzlement, such Company shall pay
over the net proceeds to the Purchaser for application against the Obligations.
For purposes of this Section 5.16, “net proceeds” shall include any payments
received in settlement of such claims or actions, but shall be net of any costs
incurred in asserting and/or prosecuting the claims or actions, including
attorney fees. The obligations of this Section 5.16, shall in no way obligate
any Company to assert or commence any action against Thomas Tolworthy and shall
not apply to any derivative actions.

 

5.17      Post-Closing Obligations.

 

Each Company agrees to deliver or to cause to be delivered to the Purchaser, in
form and substance reasonably satisfactory to the Purchaser, the items described
on Schedule 5.17 on or before the dates specified with respect to such items, or
such later dates as may be agreed to by the Purchaser, in its sole discretion.

 

Section 6.            Negative Covenants

 

Subject to Section 6.15 below, each Company and its Subsidiaries shall not,
until satisfaction in full of the Obligations and termination of this Agreement
or unless a prior written consent of the Purchaser is obtained (which consent
may be withheld by the Purchaser in its sole and absolute discretion):

 

6.1         Restrictions on Fundamental Changes; Mergers; Consolidations; Asset
Sales and Acquisitions; New Subsidiaries.

 

(a)          Other than Permitted Acquisitions, (i) enter into any merger,
consolidation, recapitalization, joint venture, business combination or other
reorganization or similar transaction with or into any other Person, (ii) file a
bankruptcy or insolvency petition or otherwise institute insolvency proceedings,
(iii) file or solicit the filing of an involuntary bankruptcy petition against
any Company, any of its Subsidiaries or the Guarantor, (iv) liquidate, wind-up
or dissolve itself (or suffer any liquidation or dissolution), (v) acquire all
or a material portion of the assets or Equity Interests of any Person, or (vi)
permit any other Person to consolidate or combine with or merge with it.

 

(b)          Other than Permitted Dispositions, sell, convey, lease, sublease,
transfer or otherwise dispose of, in one transaction or a series of
transactions, all or any part of its business, property or fixed assets, whether
now owned or hereafter acquired.

 

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(c)          Create or acquire any Subsidiaries other than pursuant to the
Target 1 Acquisition and the Target 2 Acquisition or any other Permitted
Acquisition.

 

6.2         Creation of Liens.

 

Create or suffer to exist any Lien or transfer upon or against any of its
property or assets now owned or hereafter acquired, except Permitted
Encumbrances.

 

6.3         Investments.

 

Without the Purchaser’s prior written consent, purchase or acquire any
obligations or Equity Interests of, or any other interest in, any Person, other
than those Equity Interests and investments listed on Schedule 6.3 or other than
pursuant to any Permitted Acquisition.

 

6.4         Loans.

 

Make advances, loans or extensions of credit to any Person, except for (i)
advances to employees of the Company for travel or other reasonable expenses in
the Ordinary Course of Business in an aggregate principal amount at any time
outstanding not to exceed $50,000, (ii) investments in customers acquired in
connection with accounts in the ordinary course of business (iii) prepaid
expenses in the ordinary course of business, (iv) advances made in connection
with purchases of goods or services in the ordinary course of business, (v)
advances, loans or extensions of credit from one Company to another; or (vi)
loans or extensions of credit to customers, vendors or other strategic business
partners in an aggregate principal amount at any time outstanding not to exceed
$100,000.        

 

6.5         Capital Expenditures.

 

Contract for, purchase or make any Capital Expenditures or commitment for
Capital Expenditures in the aggregate in any fiscal year in excess of
$2,500,000.

 

6.6         Dividends/Junior Payments.

 

Each Company may declare, pay or make any dividend or distribution on or with
respect to any of the Equity Interests of such Company, including Tax
Distributions, or apply any of its funds, property or assets to the purchase,
redemption or other retirement of any Equity Interests (each of the foregoing, a
"Junior Payment") at any time that no more than $5,000,000 of principal remains
outstanding under the Notes so long as, (i) immediately after making any such
dividend, distribution or application, the Companies shall be in pro forma
compliance with all of the financial covenants set forth in Section 5.12 and
(ii) no Event of Default shall exist. Notwithstanding the foregoing, each
Company may pay Tax Distributions without prior approval from Purchaser provided
that (a) such Company has retained sufficient cash to fund adequate operating
reserves; and (b) such Company has given Purchaser not less than ten (10) days
prior notice of intended distributions; and (c) no Event of Default exists and
such payment shall not cause such Company to be in default of its financial
covenants and such Company has provided a compliance certificate to so
demonstrate. Any distribution not referenced herein would be subject to
Purchaser’s prior written consent.

 

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6.7         Indebtedness.

 

Create, incur, assume or suffer to exist any Indebtedness (exclusive of trade
debt) except in respect of (a) the Indebtedness to Purchaser, (b) Permitted
Senior Debt, (c) the Essex Debt, (d) the Little Harbor Debt, (e) Indebtedness,
incurred at the time of, or within 20 days after, the acquisition of any fixed
assets for the purpose of financing all or any part of the acquisition cost
thereof, (f) the Utah Lease, and (g) Refinancing Indebtedness with respect to
any of the foregoing; provided that any Refinancing Indebtedness that (i) is a
renewal or extension of Permitted Senior Debt is renewed or extended in
accordance with Section 15 of the Subordination Agreement or (ii) is a
refinancing of Permitted Senior Debt is on terms reasonably satisfactory to the
Purchaser.

 

6.8         Nature of Business; Name Change.

 

(i) Materially change the nature of the business in which it is presently
engaged, (ii) except as specifically permitted in this Agreement, purchase or
invest, directly or indirectly, in any material assets or property not useful
in, necessary for or to be used in its business as presently conducted or
reasonably related to the conduct of such business activities, or (iii) change
the name or jurisdiction of incorporation or organization of any Company or any
of its Subsidiaries.

 

6.9         Transactions with Affiliates.

 

Directly or indirectly, purchase, acquire or lease any property from, or sell,
transfer or lease any property to, or make any type of loan or credit extension
to, or enter into any agreement or arrangement (oral or written) of any type or
otherwise deal with, any Affiliate, except (i) transactions disclosed in writing
to the Purchaser or (ii) transactions on an arm’s length basis on terms no less
favorable than terms which would have been obtainable from a Person other than
an Affiliate or (iii) so long as it has been approved by such Company’s Board of
Directors, the payment of reasonable compensation, severance, or employee
benefit arrangements to employees, officers, and directors of such Company.

 

6.10       Fiscal Year.

 

Change its Fiscal Year.

 

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6.11      Entering Into or Modification of Certain Agreements.

 

The Companies and their Subsidiaries shall not amend, restate, supplement or
otherwise modify (or permit or consent to any amendment, restatement, supplement
or modification of) the terms of (i) its articles or certificate of
incorporation, bylaws, any agreement between or among any of the holders of any
Company’s or any of its Subsidiaries’ Equity Interests, any other organizational
document, in each case which would be materially adverse to the Purchaser and
(ii) any of the Transaction Documents, the documents and/or instruments
evidencing the Permitted Senior Debt (unless permitted under the Subordination
Agreement), the documents and/or instruments evidencing the Little Harbor Debt
(unless permitted under the Little Harbor Subordination Agreement) or any of the
leases for the Premises, in each case which would result in a Material Adverse
Effect.

 

6.12      Inconsistent Agreements.

 

Each Company and its Subsidiaries shall not enter into an agreement or
arrangement which is or will be inconsistent with the obligations of such
Company and its Subsidiaries under this Agreement, the Securities or any other
Transaction Document, to the extent that it adversely affects, in any material
manner, the rights of the Purchaser.

 

6.13       Reserved.

 

6.14       Stay, Extension and Usury Laws.

 

Each Company covenants and agrees (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit of or advantage of, and will use commercially
reasonable efforts to resist any attempts to claim or take the benefit of, any
stay, extension or usury law wherever enacted, now or at any time hereafter in
force, which would affect the covenants or the performance of its obligations or
agreements under this Agreement or the Notes, and each Company (to the extent it
may lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Purchaser, but will
suffer and permit the execution of every such power as though no such law has
been enacted.

 

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6.15      Purchaser’s Consent.

 

In the event any Company desires to engage in any act, event or transaction
requiring the consent of the Purchaser, such Company shall notify the Purchaser
in writing of all information available to such Company or its Affiliates
relating to such act, event or transaction, in sufficient detail to permit the
Purchaser to evaluate whether to provide its consent. The Purchaser shall have
twenty (20) Business Days from receipt of the written notice from such Company
to determine whether to consent to such act, event or transaction. If the
Purchaser fails to notify such Company in writing during the twenty (20)
Business Day period that it is withholding its consent, then consent shall be
deemed given by the Purchaser, and such Company shall be free to engage in such
act, event or transaction without requiring any further action from the
Purchaser. If the Purchaser provides written notice to such Company that it is
withholding its consent to such act, event or transaction, then the
representatives of the Purchaser and such Company shall meet and confer to seek
to reach an amicable resolution to the matter. If, after twenty (20) Business
Days following the receipt of the written notice from the Purchaser that it has
not consented to such act, event or transaction, such Company and the Purchaser
are unable to reach an amicable resolution, then such Company shall have the
right to proceed with such act, event or transaction but only so long as, prior
to consummating such act, event or transaction, all Obligations are paid,
satisfied and discharged in full.

 

6.16       Disposition of Assets.

 

Other than Permitted Dispositions, allow the sale, conveyance, lease, sublease,
transfer or other disposition of, in one transaction or a series of
transactions, all or substantially all of any Company’s or any of its
Subsidiaries’ business, property or assets, whether now owned or hereafter
acquired or merger or consolidation of such Company or any of its Subsidiaries
not consented to by Purchaser.

 

Section 7.            Conditions Precedent

 

7.1         Transaction Documents.

 

The Purchaser shall have received from the Companies executed originals of this
Agreement, the Initial Note (duly executed in accordance with Section 2.1 and
drawn to the order of the Purchaser), the Initial Warrant and the other
Transaction Documents and documents and instruments to be delivered in
connection therewith.

 

7.2         Filings, Registrations and Recordings.

 

Each document (including any UCC financing statement) required by this
Agreement, or any other Transaction Document or under applicable law or
reasonably requested by the Purchaser to be filed, registered or recorded in
order to create, in favor of the Purchaser, a perfected security interest in or
Lien upon the Collateral shall have been properly filed, registered or recorded
in each jurisdiction in which the filing, registration or recordation thereof is
so required or requested, and the Purchaser shall have received an
acknowledgment copy, or other evidence satisfactory to it, of each such filing,
registration or recordation and satisfactory evidence of the payment of any
necessary fee, tax or expense relating thereto.

 

7.3         Corporate Proceedings of Companies.

 

The Purchaser shall have received a copy of the resolutions in form and
substance reasonably satisfactory to the Purchaser, of the managers or board of
directors, as applicable, of each Company authorizing (i) the execution,
delivery and performance of this Agreement, the Notes, any related agreements,
and each of the other Transaction Documents and (ii) the granting by each
Company of the security interest in and Liens upon the Collateral, in each case
certified by the officer of each Company as of the Effective Date; and, such
certificate shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded as of the date of such certificate.

 

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7.4         Incumbency Certificates of Companies.

 

The Purchaser shall have received a certificate of the officer of each Company,
dated the Effective Date, as to the incumbency and signature of the officers of
such Company executing this Agreement, other Transaction Documents, any
certificate or other documents to be delivered by it pursuant hereto, together
with evidence of the incumbency of such officer.

 

7.5         Organization Documents.

 

The Purchaser shall have received a copy of all organization documents of each
Company, and all amendments thereto, certified by the applicable Secretary of
State of the jurisdiction of organization and the officer of such Company and
the written certification of the officer of such Company that no amendment or
modification to the organization documents of such Company has become effective
since the date on which the organization documents of such Company were last
delivered to the Purchaser, and copies of all agreements of the holders of
Equity Interests in such Company certified as accurate and complete by the
officer of such Company.

 

7.6         Good Standing Certificates.

 

The Purchaser shall have received good standing certificates for each Company
dated not more than thirty (30) days prior to the Effective Date, issued by the
applicable Secretary of State of the jurisdiction of organization and each
jurisdiction where the conduct of such Company’s business activities or the
ownership of its properties necessitates qualification.

 

7.7         Legal Opinion.

 

The Purchaser shall have received favorable written legal opinions of each
Company’s counsel in form and substance satisfactory to the Purchaser, and each
Company hereby authorizes and directs such counsel to deliver such opinions to
the Purchaser.

 

7.8         No Litigation.

 

No litigation, investigation or proceeding before or by any arbitrator or
Governmental Authority shall be continuing or threatened against any Company,
any of the Companies’ Subsidiaries or against any officers or directors of any
Company (A) in connection with any of the Transaction Documents or any of the
transactions contemplated thereby and which, in the Purchaser’s sole and
absolute discretion, is deemed material or (B) which could, in the Purchaser’s
sole and absolute discretion, have a Material Adverse Effect; and no injunction,
writ, restraining order or other order of any nature materially adverse to any
Company or the conduct of its business or inconsistent with the due consummation
of the transactions contemplated hereby shall have been issued by any
Governmental Authority.

 

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7.9         Fees.

 

The Purchaser shall have received all fees and expenses payable to it on or
prior to the Effective Date pursuant to Section 2 hereof.

 

7.10       Financial Statements.

 

The Purchaser shall have received the following financial statements and
information (the “Financial Statements”): (i) Twinlab Holdings’ and its
Subsidiaries’ consolidated income statement for the Fiscal Year ending December
31, 2013, which income statement will be satisfactory to the Purchaser, and (ii)
a copy of the unaudited consolidated balance sheet of TCC and its Subsidiaries
as of August 31, 2014 and the related consolidated statements of income and
retained earnings and the related statements of cash flows of the Companies and
its Subsidiaries for the period from January 1, 2014 through August 31, 2014.
Since August 31, 2014, no Material Adverse Effect shall have occurred with
respect to the Companies in the sole and absolute discretion of the Purchaser.

 

7.11      Insurance.

 

The Purchaser shall have received in form and substance satisfactory to the
Purchaser, (i) certified copies of the Companies’ casualty insurance policies,
together with loss payable endorsements naming the Purchaser as loss payee, and
(ii) subject to Section 5.17, certified copies of the Companies’ liability
insurance policies, together with endorsements naming the Purchaser as a co
insured.

 

7.12       Payment Instructions.

 

The Purchaser shall have received written instructions from the Companies
directing the application of proceeds of the issuance of the Initial Note on the
Effective Date.

 

7.13       Consents.

 

The Purchaser shall have received any and all consents necessary to permit the
effectuation of the transactions contemplated by any of the Transaction
Documents. The Purchaser shall have received such third party consents and
waivers of such third parties as might assert claims with respect to the
Collateral, as the Purchaser and its counsel shall deem necessary.

 

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7.14      Existing Indebtedness.

 

The Purchaser shall have received, in form and substance reasonably satisfactory
to it, a schedule detailing the outstanding Permitted Senior Debt, the Essex
Debt and the Little Harbor Debt of the Company, with copies of any documentation
evidencing such Permitted Senior Debt, Essex Debt and Little Harbor Debt.

 

7.15      Solvency Certificate.

 

The Purchaser shall have received an officer’s Certificate of each Company,
dated as of the Effective Date, certifying that each Company is Solvent after
giving effect to the consummation of the transactions contemplated hereby, such
certificate to be in form and substance to the reasonable satisfaction of the
Purchaser.

 

7.16       Officer’s Certificate.

 

The Company shall have delivered to the Purchaser a Certificate of each Company,
substantially in the form of Exhibit 7.16, to the effect that (i) the
representations and warranties in Section 4 of this Agreement are true, correct
and complete on and as of the Effective Date, (ii) none of the Transaction
Documents contain any untrue statement of a material fact or omit a material
fact necessary to make the statements therein not misleading, (iii) each Company
shall have performed all agreements and satisfied all conditions which this
Agreement and the other Transaction Documents provide shall be performed or
satisfied by it on or before the Effective Date except as otherwise disclosed to
and agreed to in writing by the Company and the Purchaser, and (iv) no Default
or Event of Default shall have occurred and be continuing.

 

7.17      No Prohibition.

 

On the Effective Date, the Purchaser’s purchase of the Securities shall not be
prohibited by any applicable law or governmental regulation and shall not
subject it to any penalty or, in the Purchaser’s reasonable judgment, other
onerous conditions under or pursuant to any applicable law or governmental
regulation. The offering, issuance, and sale of the Securities shall have
complied with all applicable requirements of federal and state securities laws,
and the Purchaser shall have received evidence of such compliance in form and
substance satisfactory to the Purchaser.

 

Section 8.            Redemption

 

8.1         The Companies’ Right to Redeem.

 

(a)          The Companies may prepay the outstanding amounts of the Notes in
whole or in part at any time subject to the Prepayment Penalty.

 

(b)          The Companies may redeem the Warrants in full but not in part at
its election pursuant to the redemption provision in the Warrants.

 

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Section 9.            General Indemnity

 

9.1         Indemnity Obligations.

 

(a)          Except as provided in subsection (b) of this Section 9.1, each
Company shall, without limitation as to time, at its sole cost and expense,
protect, defend, indemnify, release and hold harmless the Purchaser and each
partner, member, manager, director, officer, shareholder, beneficial owner, any
partner, member, manager, director, officer, shareholder, trustee, beneficial
owner, partner, member of any shareholder, beneficial owner, partner or member
of the Purchaser, and all employees, agents, servants, representatives,
contractors, subcontractors, affiliates, subsidiaries, participants, successors
and assigns of any of the foregoing (each, an “Indemnified Party” and,
collectively, the “Indemnified Parties”) for, from and against any and all
claims, suits, liabilities (including, without limitation, strict liabilities),
actions, proceedings, obligations, debts, damages, losses, costs, expenses,
diminutions in value, fines, penalties, charges, fees, expenses, judgments,
awards, amounts paid in settlement and damages of whatever kind or nature
(including, without limitation, reasonable attorneys’ fees, court costs and
other costs of defense) (collectively, “Losses”) incurred by it or them and
arising out of or in connection with this Agreement, the Securities, or any
other Transaction Document, or the transactions contemplated hereby or thereby,
or caused by, incurred or resulting from any Company’s or any of its
Subsidiaries’ operations of or relating in any manner to the business of any
Company or any of its Subsidiaries, the Collateral or the Premises, or from any
breach of, default under, or failure to perform, any representation, warranty,
covenant, agreement or any other term or provision of this Agreement by any
Company or any of its Subsidiaries, the holders of any Company’s or any of its
Subsidiaries’ Equity Interests, the Company’s or any of its Subsidiaries’
directors, officers, employees, agents or other persons. Without limiting the
generality of the foregoing, this indemnity shall extend to any Losses arising
from (a) any accident, injury to or death of any person or loss of or damage to
property occurring in connection with any Company or any of its Subsidiaries,
their business or operations, the Collateral or the Premises or any portion
thereof, (b) any use, non-use or condition in, on or about, or possession,
alteration, repair, operation, maintenance or management of, the Collateral or
the Premises or any portion thereof or the sidewalks, curbs, parking areas,
streets or ways adjoining the Premises, (c) any representation or warranty made
herein by any Company or any of its Subsidiaries in any certificate delivered in
connection herewith or in any other agreement to which any Company is a party or
pursuant thereto being false or misleading in any material respect as of the
date such representation or warranty was made, (d) performance of any labor or
services or the furnishing of any materials or other property in respect to any
Company or any of its Subsidiaries, their business or operations, the Collateral
or the Premises or any portion thereof, (e) any taxes, assessments or other
charges which any Company or any of its Subsidiaries is required to pay under
Section 5.2, (f) any lien, encumbrance or claim arising on or against the
Collateral or the Premises or any portion thereof under any applicable
regulation or otherwise which any Company or any of its Subsidiaries is
obligated hereunder to remove and discharge, or the failure to comply with any
applicable regulation, (g) the claims of any licensees, tenants or other
occupants of all or any portion of the Collateral or the Premises or any Person
acting through or under any Company or any of its Subsidiaries or otherwise
acting under or as a consequence of this Agreement or any sublease, (h) any act
or omission of any Company or any of its Subsidiaries or their respective
agents, contractors, licensees, subtenants or invitees, (i) any disclosures of
information, financial or otherwise, obtained from any credit reporting agency
with respect to any Company, any Guarantor, any Affiliate of the Company, or any
operator or lessee of the Premises; (j) any Environmental Laws or similar laws
by reason of any Company’s or any other Person’s failure to comply with laws
applicable to solid or hazardous waste materials, including Hazardous Substances
and Hazardous Waste, or other Toxic Substances, (k) any taxes (excluding taxes
imposed upon or measured solely by the net income of the Purchaser, but
including any intangibles taxes, stamp tax, recording tax or franchise tax)
which shall be payable by the Purchaser or any Company on account of the
execution or delivery of this Agreement, or the execution, delivery, issuance or
recording of the Securities or any of the other Transaction Documents, or the
creation or repayment of any of the Obligations hereunder, by reason of any
applicable law now or hereafter in effect.

 

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(b)          Notwithstanding anything to the contrary in Section 9.1(a) above,
no Company shall be obligated to protect, defend, indemnify, release or hold
harmless any Indemnified Party from any Losses arising from an Indemnified
Party’s gross negligence or willful misconduct as finally determined by a court
of competent jurisdiction.

 

9.2         Settlement; Survival.

 

Each Company agrees that it will not, without the Indemnified Party’s prior
written consent (such consent not to be unreasonably withheld) settle or
compromise any pending or threatened claim, action or suit in respect of which
indemnification or contribution may be sought hereunder unless the foregoing
contains an unconditional release of the Indemnified Parties from all liability
and obligation arising therefrom. It is expressly understood and agreed that
each Company’s obligations under this Section shall survive the expiration or
earlier termination of this Agreement for any reason.

 

Section 10.          Actions by Purchaser; Lost Security

 

10.1       Actions by Purchaser.

 

The Company agrees that the Purchaser may, at its option, and without any
obligation to do so, upon a prior written notice to the Companies, pay, perform,
and discharge any and all amounts, costs, expenses and liabilities that are the
responsibility of any Company under the Transaction Documents if such Company
fails to timely pay, perform or discharge the same, and all amounts expended by
the Purchaser in so doing or in respect of or in connection with the Collateral
shall become part of the obligations secured by the Transaction Documents and
shall be immediately due and payable by the Companies to the Purchaser upon
demand therefor and shall bear interest at the Default Rate (as defined in the
Notes). Each Company agrees that the Transaction Documents shall remain in full
effect, without waiver or surrender of any of the Purchaser’s rights thereunder,
notwithstanding the occurrence of any one or more of the following:
(i) extension of the time of payment of the whole or any part of the Notes; (ii)
any change in the terms and conditions of the Notes; (iii) substitution of any
other evidence of indebtedness for the Notes; (iv) acceptance by the Purchaser
of any collateral or security of any kind for the payment of the Notes; (v)
surrender, release, exchange or alteration of any Collateral, collateral or
other security, either in whole or in part; or (vi) release, settlement,
discharge, compromise, change or amendment, in whole or in part, of any claim of
the Purchaser against any Company or of any claim against any Guarantor or other
party secondarily or additionally liable for the payment of the Notes, other
than payment in full of the Obligations.

 

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10.2      Lost Security.

 

Each Company shall, if a Security is mutilated, destroyed, lost or stolen (a
“Lost Security”), promptly deliver to the Purchaser, upon receipt from the
Purchaser of an affidavit stipulating that the Lost Security has been mutilated,
destroyed, lost or stolen and customary and reasonable indemnification with
respect thereto, in substitution therefor, a new Security containing the same
terms and conditions as the Lost Security with a notation thereon of the unpaid
principal and accrued and unpaid interest.

 

Section 11.          Events of Default and Remedies

 

11.1       Events of Default.

 

Each of the following conditions, occurrences or events described in this
Section 11.1 shall constitute an “Event of Default”:

 

(a)          Failure to Make Payments When Due.

 

(i)          Any Company shall fail to pay any principal or premium, if any, of
the Notes within five (5) Business Days of when due under this Agreement or any
other Transaction Documents, whether at stated maturity, by acceleration, by
notice of optional redemption or prepayment, by mandatory redemption or
prepayment or otherwise; or

 

(ii)         Any Company shall fail to pay any interest on the Notes or any
other amount (other than an amount referred to in the preceding clause (a))
within five (5) Business Days of when due under this Agreement or any other
Transaction Document.

 

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(b)          Default in Other Agreements.

 

(i)          (A) There shall have occurred one or more defaults by any Company
or any of its Subsidiaries in the payment of the principal of (or premium, if
any, on) any Indebtedness (excluding Indebtedness evidenced by the Notes)
aggregating $200,000 or more when the same becomes due and payable at its final
maturity and beyond the end of any grace period provided therefor or (B)
Indebtedness (excluding the Note) of any Company or any of its Subsidiaries
aggregating $200,000 or more shall have been accelerated or otherwise declared
due and payable prior to its maturity, or shall have been required to be prepaid
or repurchased (other than by regularly scheduled required prepayments or
repayments in respect of asset sales, excess cash flow, or new financings),
including any demand for cash collateralization or payment under guaranties, if
any, in an amount aggregating $200,000 or more of any letter or letters of
credit prior to their maturity.

 

(ii)         (A) Any Person entitled to take the actions described in this
Section 11.1(b)(ii), after the occurrence of an event of default under any
agreement or instrument evidencing any Indebtedness (other than Permitted Senior
Debt) or Contingent Obligations of any Company or any of its Subsidiaries in
excess of $200,000 in the aggregate, shall commence proceedings, or take any
action (including by way of set-off) to retain in satisfaction of any
Indebtedness, or to collect on, seize or dispose of, any assets of any Company
or any of its Subsidiaries that have been pledged to or for the benefit of such
Person to secure such Indebtedness (including funds on deposit or held pursuant
to lock-box and other similar arrangements), pursuant to the terms of an
agreement or instrument evidencing any such Indebtedness or in accordance with
applicable law or (B) the holders of the Permitted Senior Debt shall have
accelerated such Indebtedness or shall have commenced enforcement actions with
respect thereto.

 

(c)          Breach of Covenants. Any Company or any of its Subsidiaries shall
fail to perform or comply with any term, provision, condition, covenant or
agreement contained in Section 5 or Section 6 hereof and such failure shall
continue uncured until the expiration of the Cure Period (as defined in
Section 11.1(e)(i) below) provided no Cure Period is applicable for failure to
perform or comply with Section 5.17 or the Financial Covenants set forth in
paragraph 5.12.

 

(d)          Breach of Representation or Warranty. Any representation, warranty
or certification (i) made by any Company or any of its Subsidiaries in any
Transaction Document, or (ii) made by any Company or any of its Subsidiaries in
any statement or certificate at any time given by any Company in writing
pursuant hereto or in any Transaction Document or in connection herewith or
therewith, shall be false in any material respect on the date as of which it was
made.

 

53

 

 

(e)          Other Defaults Under Transaction Documents.

 

(i)          Any Company or any of its Subsidiaries shall fail to perform or
comply with any term or provision (other than those referred to in
Sections 11.1(a), 11.1(c) and 11.1(d)) contained in this Agreement or any of the
other Transaction Document and such failure shall continue uncured (1) until the
expiration of the applicable notice and cure period (if any) set forth in this
Agreement or the applicable Transaction Document or (2) if there is no
applicable notice and cure period set forth in this Agreement or the applicable
Transaction Document, for a period of thirty (30) days after the earlier to
occur of (x) the receipt of notice from the Purchaser to cure such default or
(y) the date on which such default first becomes known to the Company (either
such period described in clause (1) or (2), the “Cure Period”); provided that in
no event shall a Cure Period apply in the case of any failure to observe any
term, provision, condition, covenant or agreement which is not capable of being
completely cured within the relevant time period designated for such Cure
Period.

 

(ii)         Any Company or any of its Subsidiaries shall fail to perform or
comply with any term or provision the Articles of Incorporation, the bylaws of
such Company or such Subsidiary, any agreement between or among any of the
holders of such Company’s or such Subsidiary’s Equity Interests, any other
organizational document of such Company or such Subsidiary or any of the leases
for the Premises and any such failure or compliance results in a Material
Adverse Effect.

 

(f)          Involuntary Bankruptcy; Appointment of Receiver, etc.

 

(i)          A court having jurisdiction in the premises shall enter a decree or
order for relief in respect of any Company or any of its Subsidiaries in an
involuntary case under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect, which decree
or order is not stayed; or any other similar relief shall be granted under any
applicable federal or state law; or

 

(ii)         an involuntary case shall be commenced against any Company or any
of its Subsidiaries under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or
order of a court having jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee, custodian or other officer having
similar powers over any Company or any of its Subsidiaries, or over all or a
substantial part of their property, shall have been entered; or there shall have
occurred the involuntary appointment of an interim receiver, trustee or
custodian of any Company or any of its Subsidiaries for all or a substantial
part of their property; or a warrant of attachment, execution or similar process
shall have been issued against any substantial part of the property of any
Company or any of its Subsidiaries, and any such event described in this clause
(ii) shall continue for 60 days unless dismissed, bonded or discharged.

 

54

 

 

(g)          Voluntary Bankruptcy; Appointment of Receiver, etc.

 

(i)          Any Company or any of its Subsidiaries shall have an order for
relief entered with respect to it or shall commence a voluntary case under the
Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar
law now or hereafter in effect, or shall consent to the entry of an order for
relief in an involuntary case, or to the conversion of an involuntary case to a
voluntary case, under any such law, or shall consent to the appointment of or
taking possession by a receiver, trustee or other custodian for all or a
substantial part of its property; or any Company or any of its Subsidiaries
shall make any assignment for the benefit of creditors; or

 

(ii)         Any Company or any of its Subsidiaries shall be unable, or shall
fail generally, to pay its debts as such debts become due; or the Board of
Directors of any Company or any of its Subsidiaries (or any committee thereof)
shall adopt any resolution or otherwise authorize any action to approve any of
the actions referred to in clause (i) of this Section 11(g) or this clause (ii).

 

(h)          Guaranty. The Guaranty or any provision thereof shall cease to be
in full force or effect, or any Guarantor shall deny or disaffirm its
obligations under the Guaranty or shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to the Guaranty.

 

(i)          Judgments and Attachments. Any money judgment, writ or warrant of
attachment or similar process involving (i) in any individual case an amount in
excess of $250,000.00 or (ii) in the aggregate at any time an amount in excess
of $500,000.00 (in either case not adequately and fully covered by insurance as
to which a Solvent and unaffiliated insurance company has acknowledged coverage)
shall be entered or filed against any Company or any of its Subsidiaries or any
of their respective assets and shall remain undischarged, unvacated, unbonded or
unstayed for a period of sixty (60) days (or in any event later than five (5)
days prior to the date of any proposed sale thereunder).

 

(j)          Dissolution. Any order, judgment or decree shall be entered against
any Company or any of its Subsidiaries decreeing the dissolution or split up of
such Company or such Subsidiary and such order shall remain undischarged or
unstayed for a period in excess of thirty (30) days.

 

55

 

 

(k)          Employee Benefit Plans.

 

(i)          There shall occur one or more ERISA Events which individually or in
the aggregate results in, or would reasonably be expected to result in,
liability of any Company or any of its Subsidiaries in excess of $50,000 during
the term of this Agreement; or

 

(ii)         there shall exist, as of any valuation date for a Pension Benefit
Plan maintained or contributed to by any Company or any of its Subsidiaries, an
excess of the actuarial present value (determined on the basis of reasonable
assumptions employed by the independent actuary for such Pension Plan for
purposes of Section 412 of the IRC or Section 302 of ERISA) of benefit
liabilities (as defined in Section 4001(a)(16) of ERISA) over the fair market
value of the assets of such Pension Plan, individually or in the aggregate for
all Pension Benefit Plans maintained or contributed to by any Company or any of
its Subsidiaries (excluding for purposes of such computation any Pension Benefit
Plans with respect to which assets exceed benefit liabilities), which exceeds
$50,000.00.

 

(l)          Change in Control. A Change in Control shall have occurred.

 

(m)          Material Adverse Effect. There shall occur any condition or event
that has a Material Adverse Effect.

 

11.2      Remedies.

 

(a)          Upon the occurrence and during the continuance of an Event of
Default, subject to the limitations set forth in Section 11.1, subject to the
terms of the Subordination Agreement, the Purchaser shall have all rights and
remedies of a secured party in, to and against the Collateral granted by the UCC
and otherwise available at law or in equity, including, without limitation: (i)
the right to declare any or all payments due under the Notes, the other
Transaction Documents, and all other documents evidencing the Obligations
immediately due and payable without any presentment, demand, protest or notice
of any kind, except as otherwise expressly provided herein, and each Company
hereby waives notice of intent to accelerate the Obligations and notice of
acceleration; (ii) the right to recover all fees and expenses (including
reasonable attorney fees) in connection with the collection or enforcement of
the Obligations, which fees and expenses shall constitute additional Obligations
of the Companies hereunder; (iii) the right to act as, and each Company hereby
constitutes and appoints the Purchaser as, such Company’s true, lawful and
irrevocable attorney-in-fact (which appointment shall be deemed coupled with an
interest) to demand, receive and enforce payments and to give receipts,
releases, satisfaction for and to sue for moneys payable to such Company or any
of its Subsidiaries under or with respect to any of the Collateral, and actions
taken pursuant to this appointment may be taken either in the name of such
Company or in the name of the Purchaser with the same force and effect as if
this appointment had not been made; (iv) the right to take immediate and
exclusive possession of the Collateral, or any part thereof, and for that
purpose, with or without judicial process and notice to any Company, enter (if
this can be done without breach of the peace) upon any premises on which the
Collateral or any part thereof may be situated and remove the same there from
(provided that if the Collateral is affixed to real estate, such removal shall
be subject to the conditions stated in the UCC); (v) the right to hold,
maintain, preserve and prepare the Collateral for sale, until disposed of; (vi)
the right to require each Company to assemble and package the Collateral and
make it available to the Purchaser for its possession at a place to be
designated by the Purchaser which is reasonably convenient to the Purchaser; and
(vii) the right to sell, lease, hold or otherwise dispose of all or any part of
the Collateral.

 

56

 

 

The Purchaser shall be entitled to receive on demand, as additional Obligations
hereunder, interest accruing at the Default Rate on all amounts not paid when
due under the Notes or this Agreement until the date of actual payment. The
Purchaser shall have no duty to mitigate any loss to any Company occasioned by
enforcement of any remedy hereunder and shall have no duty of any kind to any
subordinated creditor of any Company. Neither the acceptance of this Agreement
nor its enforcement shall prejudice or in any manner affect the Purchaser’s
right to realize upon or enforce any other security now or hereafter held by the
Purchaser, it being agreed that the Purchaser shall be entitled to enforce this
Agreement and any other security now or hereafter held by Purchaser in such
order and manner as it may in its absolute discretion determine. No remedy
herein conferred upon or reserved to the Purchaser is intended to be exclusive
of any other remedy given hereunder or now or hereafter existing at law or in
equity or by statute. Every power or remedy given by any of the Transaction
Documents to the Purchaser, or to which the Purchaser may be otherwise entitled,
may be exercised, concurrently or independently, from time to time and as often
as may be deemed expedient by the Purchaser.

 

(b)          Should the Purchaser exercise the rights and remedies specified in
the preceding subsection (a), any proceeds received thereby shall be first
applied to pay the reasonable costs and expenses, including reasonable
attorneys’ fees, incurred by the Purchaser as a result of the Event of Default.
The remainder of any proceeds, after payment of the Purchaser’s costs and
expenses, shall be applied to the satisfaction of the Obligations and any excess
paid over to the Companies.

 

11.3      Retention of Collateral.

 

Until an Event of Default shall occur, the Companies may retain possession of
the Collateral and may use it in any lawful manner not inconsistent with this
Agreement, with the provisions of any policies of insurance thereon or the other
Transaction Documents.

 

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Section 12.         Miscellaneous

 

12.1      Amendments and Waivers.

 

No amendment, restatement, modification, termination or waiver of any provision
of this Agreement or the Notes, or consent to any departure by the Company
therefrom, shall in any event be effective without the written concurrence of
the Purchaser. Executed or true and complete copies of any amendment,
restatement, modification, termination or waiver effected pursuant to the
provisions of this Section 12.1 shall be delivered by the Companies to the
Purchaser of the Notes forthwith following the date on which the same shall have
been executed.

 

12.2      Transfers.

 

The Purchaser shall be permitted to transfer the Notes or any portion thereof
(and the rights relating thereto under this Agreement and the other Transaction
Documents) to any Person; provided that: (i) such transfer is made in connection
with any of the following: any change of control of the Purchaser or its general
partner; any liquidation, winding-up or dissolution of the Purchaser or any of
its partners or principals (or suffer any liquidation or dissolution);
Purchaser’s merger, consolidation, recapitalization, joint venture, business
combination or other reorganization or similar transaction with or into any
other Person; Purchaser’s filing of any bankruptcy or insolvency petition or
otherwise instituting insolvency proceedings, filing or soliciting the filing of
an involuntary bankruptcy petition against the Purchaser or any of its partners
or principals; any sale, transfer or any other disposition of, in one
transaction or a series of transactions, all or any part of Purchaser’s business
or assets, whether now owned or hereafter acquired; any acquisition of any
portion of the business, property or assets of, or any Equity Interests of, any
Person; (ii) such transfer is made pursuant to a registration statement under
the Securities Act (it being acknowledged that, the Companies shall not be
obligated to assist in any manner in any such registration) or pursuant to an
exemption from the registration requirements of the Securities Act; (iii) the
applicable transferee is an “accredited investor” as defined in Regulation D
promulgated under the Securities Act; and (iv) such transferee (A) represents to
the Companies in writing that it is acquiring the Notes solely for its own
account and not as nominee or agent for any other Person and not with a view to,
or for offer or sale in connection with, any distribution thereof (within the
meaning of the Securities Act) that would be in violation of the securities laws
of the United States of America or any state thereof, without prejudice,
however, to its right at all times to sell or otherwise dispose of all or any
part of the Notes pursuant to a registration statement under the Securities Act
or pursuant to an exemption from the registration requirements of the Securities
Act, and subject, nevertheless, to the disposition of its property being at all
times within its control.

 

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Within three (3) Business Days after its receipt of notice that a transfer is
being made pursuant to this Section 12.2, but not prior to the effective date of
such transfer, the Companies shall deliver to the applicable transferee a new
Note evidencing the aggregate principal amount transferred and, if the Purchaser
making such transfer is retaining an interest in the Note, a replacement Note in
the aggregate principal amount being retained by the Purchaser (such Note to be
in exchange for, but not in payment of the Note then held by the Purchaser).
Each such Note shall be dated the date of the predecessor Note. The Purchaser
making such transfer shall mark the predecessor Note “exchanged” and deliver it
to the Companies.

 

12.3      Notices.

 

Unless otherwise specifically provided herein, any notice or other communication
herein required or permitted to be given shall be in writing and shall be made
by electronic mail, personal service, facsimile or reputable courier service:

 

(a)          If to any Purchaser or subsequent Holder, to PENTA MEZZANINE SBIC
FUND I, L.P., 20 N. Orange Avenue, Suite 1550, Orlando, Florida 32801,
Attention: Seth Ellis, Principal, Facsimile:  (407) 641-9286,
e-mail:  sellis@pentamezz.com, or such other address as shall be designated in a
written notice delivered to the Companies, with copies to Katten Muchin Rosenman
LLP, 575 Madison Avenue, New York, New York 10022, Attention: Angela L.
Batterson, Facsimile:  (212) 940-8776, e-mail: angela.batterson@katten.com.

 

(b)          If to the Companies, to Twinlab Consolidation Corporation, 600 East
Quality Drive, American Fork, UT 84003, Attention: Mark Jaggi, Chief Financial
Officer, Facsimile: (801) 772-2903, e-mail: mjaggi@twinlab.com, and to Twinlab
Consolidation Corporation, 632 Broadway, Suite 201, New York, NY 10012,
Attention: Richard Neuwirth, Chief Legal Officer, Facsimile: (212) 260-1853,
e-mail: Rneuwirth@twinlab.com or such other address as shall be designated in a
written notice delivered to the other parties hereto, with copies to Varnum LLP,
Bridgewater Place, P.O. Box 352, Grand Rapids, MI 49501, Attention: Mary Kay
Shaver, Facsimile: (616) 336-7000, e-mail: mkshaver@varnumlaw.com

 

Unless otherwise specifically provided herein, any notice or other communication
shall be deemed to have been given when delivered in person or by courier
service, upon receipt of electronic mail or upon receipt of facsimile.

 

12.4      Independent of Covenants.

 

All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of a Default
or an Event of Default if such action is taken or condition exists.

 

59

 

 

12.5      Survival of Representations, Warranties and Agreements.

 

(a)          All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the issuance and sale
of the Securities hereunder.

 

(b)          Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of the Company set forth in Sections 2.1(c), 2.5, and
Section 9, shall survive the payment of the Notes, the exercise of the Warrants,
and the termination of this Agreement.

 

12.6      Failure or Indulgence Not Waiver; Remedies Cumulative.

 

No failure or delay on the part of the Purchaser in the exercise of any power,
right or privilege hereunder or under any other Transaction Document shall
impair such power, right or privilege or be construed to be a waiver of any
default or acquiescence therein, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other power, right or privilege. All rights and remedies existing under this
Agreement and the other Transaction Documents are cumulative to, and not
exclusive of, any rights or remedies otherwise available.

 

12.7       Severability.

 

In case any provision in or obligation under this Agreement or the Notes shall
be invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.

 

12.8       Headings.

 

Section and subsection 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 or be given any substantive effect.

 

60

 

 

12.9      Governing Law; Submission to Jurisdiction; Service of Process.

 

THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF
NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAWS RULES AND PRINCIPLES. THE
PARTIES HEREBY EXPRESSLY AND IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE STATE
AND FEDERAL COURTS LOCATED IN NEW YORK COUNTY, NEW YORK FOR THE PURPOSE OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT, AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH SUCH LITIGATION. THE PARTIES HEREBY EXPRESSLY AND IRREVOCABLY
WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY HAVE
OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN
ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT PERMITTED BY LAW AND TO THE
EXTENT THAT ANY PARTY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE PARTY HEREBY IRREVOCABLY
WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT. EACH
COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED
MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW
YORK.

 

12.10    Successors and Assigns.

 

This Agreement shall be binding upon the parties hereto and their respective
successors and assigns and shall inure to the benefit of the parties hereto and
the successors and assigns of the Purchaser.

 

12.11     Waiver of Jury Trial.

 

EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY
BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER
IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS
ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH
WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH
PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR TO
ANY OTHER DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
TRANSACTION DOCUMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS
A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

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12.12    Facsimile; Counterparts; Effectiveness.

 

A facsimile, telecopy or other reproduction of this Agreement may be executed by
the parties (in counterparts or otherwise) and shall be considered valid,
binding and effective for all purposes. At the request of any party, the parties
hereto agree to execute an original of this Agreement as well as any facsimile,
telecopy or other reproduction. This Agreement and any amendments, restatements,
waivers, consents or supplements hereto or in connection herewith may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Agreement shall become
effective upon the execution and delivery of a counterpart hereof by each of the
parties hereto.

 

12.13    Entire Agreement.

 

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

 

12.14    Waivers of Provisions.

 

All amendments of this Agreement and all waivers and suspensions by Purchaser of
any provision of this Agreement or of the Transaction Documents and all waivers
and suspensions by Purchaser of any default or Event of Default hereunder shall
be effective only if (i) in writing and signed by a duly authorized
representative of Purchaser. The Purchaser may charge out-of-pocket expenses
incurred by Purchaser in administration of this Agreement or in evaluation of
the proposed waiver, amendment or suspension, as well as additional facility
fees and administrative fees that may be required by Purchaser in connection
with the Companies’ request. The fees may include additional compensation to
Purchaser for the extension of the credit facilities represented by this
Agreement. Any such amendment, waiver, or suspension may be granted only in the
sole discretion of Purchaser.

 

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12.15    Termination and Release.

 

The Obligations of each Company hereunder (other than those that survive by
their terms) shall terminate when all the Obligations (other than any
Obligations with respect to the Warrants) have been fully and indefeasibly paid
and performed. Notwithstanding the foregoing, until exercise of the Warrants in
accordance with its terms the obligations of each Company under Section 5.1(g)
and (h) shall remain in effect. Upon a Permitted Disposition, Purchaser agrees
to release its any Lien any property which is subject to such Permitted
Disposition so long as to the extent requested by Purchaser, Purchaser receives
releases from the Companies each in form and substance acceptable to the
Purchaser.

 

12.16    Guaranty; Joint and Several.

 

To induce the Purchaser to purchase the Notes and to make credit available to or
for the benefit of the Companies, each Company hereby, jointly and severally,
absolutely, unconditionally and irrevocably guarantees, as primary obligor and
not merely as surety, the full and punctual payment when due, whether at stated
maturity or earlier, by reason of acceleration, mandatory prepayment or
otherwise in accordance with any Transaction Document, of all the Obligations of
each other Company whether existing on the date hereof or hereinafter incurred
or created. This Guaranty by each Company hereunder constitutes a guaranty of
payment and not of collection. The Companies and Guarantors agree that the
Obligations of the Companies and Guarantors hereunder and under the other
Transaction Documents are joint and several.

 

12.17    Purchaser as Subordinated Lender; Replacement of Senior Lender.

 

(a)          Purchaser acknowledges that it is a mezzanine lender subject to the
first-priority lien of the Senior Lender and agrees, notwithstanding anything to
contrary in this Agreement or any other Transaction Document, that the terms of,
and obligations of the Companies under, the Transaction Documents are subject to
the terms of the Subordination Agreement.

 

(b)          The Purchaser acknowledges that the Companies are seeking to
replace the existing Senior Lender, Fifth Third Bank, with a new Senior Lender.
In connection with this, the Purchaser agrees to negotiate, in good faith, the
terms of a new subordination agreement and such other amendments, agreements,
documents and instruments as the new Senior Lender may reasonably request in
order to replace Fifth Third Bank.

 

[Signature pages follow.]

 

63

 

 

 

  PURCHASER:       PENTA MEZZANINE SBIC FUND I, L.P., a Delaware limited
partnership         By: Penta Mezzanine SBIC Fund I GP, LLC, its General Partner
          By: /s/ Richard E. Mount     Name:  Richard E. Mount    
Title:  Authorized Member

 

 

 

 

  COMPANIES:       TWINLAB CONSOLIDATED HOLDINGS, INC., a Nevada corporation    
      By: /s/ Thomas A. Tolworthy     Name:  Thomas A. Tolworthy     Title:
Chief Executive Officer and President             TWINLAB CONSOLIDATION
CORPORATION, a Delaware corporation           By: /s/ Thomas A. Tolworthy    
Name: Thomas A. Tolworthy     Title: Chief Executive Officer and President      
      TWINLAB HOLDINGS, INC., a Michigan corporation           By: /s/ Thomas A.
Tolworthy     Name: Thomas A. Tolworthy     Title: Chief Executive Officer and
President         ISI BRANDS INC., a Michigan corporation           By: /s/
Thomas A. Tolworthy     Name: Thomas A. Tolworthy     Title: Chief Executive
Officer and President             TWINLAB CORPORATION, a Delaware corporation  
        By: /s/ Thomas A. Tolworthy     Name: Thomas A. Tolworthy     Title:
Chief Executive Officer and President