**Exhibit 10.56**
ELEVENTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND WAIVER
THIS ELEVENTH AMENDMENT TO CREDIT AND SECURITY AGREEMENT AND WAIVER (this “Amendment”),dated as of November 2, 2004, is entered into between WELLS FARGO BUSINESS CREDIT, INC., aMinnesota corporation (the “Lender”), and NATURADE, INC., a Delaware corporation (the“Borrower”).
**RECITALS**
A. The Borrower and the Lender have entered into a Credit and Security Agreement dated as ofJanuary 27, 2000, as amended by that certain First Amendment to Credit and Security Agreement datedas of November 16, 2000, by that certain Second Amendment to Credit and Security Agreement dated asof January 3, 2001, by that certain Third Amendment to Credit and Security Agreement dated as ofMay 14, 2001, that certain Fourth Amendment to Credit and Security Agreement dated as of December20, 2001, that certain Fifth Amendment to Credit and Security Agreement dated as of September 19,2002, that certain Sixth Amendment to Credit and Security Agreement and Waiver dated as of March24, 2003, that certain Seventh Amendment to Credit and Security Agreement and Waiver dated as ofApril 15, 2003, that certain Eighth Amendment to Credit and Security Agreement dated as of November6, 2003, that certain Ninth Amendment to Credit and Security Agreement dated as of March 29, 2004,and that certain Tenth Amendment to Credit and Security Agreement dated as of May 10, 2004 (asamended, the “Credit Agreement”). Capitalized terms used herein have the meanings given tothem in the Credit Agreement unless otherwise specified.
B. Certain Events of Default have occurred and are continuing under the Credit Agreement due to:(i) the Borrower’s failure to maintain, when measured for the months ending June 30, 2004, July 31,2004, August 31, 2004 and September 30, 2004, the minimum Book Net Worth required under Section6.12 of the Credit Agreement; and (ii) the Borrower’s failure to achieve, when measured for thefiscal year-to-date period ending September 30, 2004, the minimum Net Income required under Section6.13 of the Credit Agreement (collectively, the “Known Existing Defaults”).
C. The Borrower has requested that the Lender waive the Known Existing Defaults and amend theCredit Agreement on the terms and conditions set forth herein.
D. The Borrower is entering into this Amendment with the understanding and agreement that, exceptas specifically provided herein, none of the Lender’s rights or remedies as set forth in the CreditAgreement is being waived or modified by the terms of this Amendment.
**AGREEMENT**
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, andfor other good and valuable consideration, the receipt and sufficiency of which are herebyacknowledged, the parties hereby agree as follows:
     1. Amendments to Credit Agreement.
 (a)  Section (b)(ii) of the definition of “Borrowing Base” set forth in Section1.1 of the Credit Agreement is hereby amended and restated to read in its entiretyas follows:
“(ii) the lesser of (A) One Million Two Hundred Fifty Thousand Dollars ($1,250,000)or (B) thirty-five percent (35%) of Eligible Inventory, and minus”
 (b)  Section 6.12 of the Credit Agreement is hereby amended and restated to readin its entirety as follows:     “Section 6.12 Minimum Book Net Worth. The Borrower will maintain itsBook Net Worth, calculated without giving effect to any fees (but net of, andafter giving effect to, any provisions for taxes made in connection with suchfees) paid to the Lender under the terms of Section 2.3(g) hereof, whendetermined as of the dates set forth below, at an amount not less than theamount set forth opposite such date:    Date Minimum Book Net WorthOctober 31, 2004  ($4,225,000)November 30, 2004  ($3,260,000)December 31, 2004  ($2,925,000)January 31, 2005  ($3,115,000)February 28, 2005  ($3,300,000)March 31, 2005  ($3,550,000)”
 (c)  Section 6.13 of the Credit Agreement is hereby amended and restated in itsentirety to read as follows:     “Section 6.13 Minimum Net Income. The Borrower will achieve, whenmeasured as at the
 

 

    end of each fiscal quarter on a quarterly basis, Net Income of not less thanthe amount set forth opposite such quarter-ending date:     Quarter Ending Minimum Net Income December 31, 2004 $1,225,000 March 31, 2005  ($490,000)” 
 (d)  Section 6.14 of the Credit Agreement is hereby amended and restated in itsentirety to read as follows:     “Section 6.14 New Covenants. The Lender shall set new covenant levels forSection 6.12 and Section 6.13 for periods thereafter based upon revised projectionsdelivered to the Lender by the Borrower. The new covenant levels shall be no lessstringent than the present levels.”  (e)  Section 6.15 of the Credit Agreement is hereby amended and restated in itsentirety to read as follows:     “Section 6.15 Minimum Cash. The Borrower shall maintain a minimum of TwoHundred Thousand Dollars ($200,000) of unrestricted cash on hand at all times. Suchcash shall be held in a savings or CD blocked account opened for the benefit ofLender with terms satisfactory to Lender in its sole discretion.”
     2. Waiver of Known Existing Defaults. The Lender hereby waives enforcementof its rights against the Borrower arising from the Known Existing Defaults; provided,however, nothing herein shall be deemed a waiver with respect to any other failure of theBorrower to comply fully with Section 6.12 and Section 6.13 of the Credit Agreement (as amended ormodified by this Amendment). This waiver shall be effective only for the specific defaultscomprising the Known Existing Defaults, and in no event shall this waiver be deemed to be a waiverof enforcement of the Lender’s rights with respect to any other Events of Default now existing orhereafter arising. Nothing contained in this Amendment nor any communications between the Borrowerand the Lender shall be a waiver of any rights or remedies Lender has or may have against Borrower,except as specifically provided herein. Except as specifically provided herein, Lender herebyreserves and preserves all of its rights and remedies against Borrower under the Credit Agreementand the other Loan Documents.
     3. Release; Covenant Not to Sue.
 (a)  The Borrower hereby absolutely and unconditionally releases and foreverdischarges the Lender, and any and all participants, parent corporations, subsidiarycorporations, affiliated corporations, insurers, indemnitors, successors and assignsthereof, together with all of the present and former directors, officers, agents andemployees of any of the foregoing (each a “Released Party”), from any andall claims, demands or causes of action of any kind, nature or description, whetherarising in law or equity or upon contract or tort or under any state or federal lawor otherwise, which the Borrower has had, now has or has made claim to have againstany such person for or by reason of any act, omission, matter, cause or thingwhatsoever arising from the beginning of time to and including the date of thisAmendment, whether such claims, demands and causes of action are matured orunmatured or known or unknown. It is the intention of the Borrower in providingthis release that the same shall be effective as a bar to each and every claim,demand and cause of action specified, and in furtherance of this intention it waivesand relinquishes all rights and benefits under Section 1542 of the Civil Code of theState of California, which provides:     “A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW ORSUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BYHIM MIGHT HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”  (b)  The Borrower acknowledges that it may hereafter discover facts differentfrom or in addition to those now known or believed to be true with respect to suchclaims, demands, or causes of action and agree that this instrument shall be andremain effective in all respects notwithstanding any such differences or additionalfacts. The Borrower understands, acknowledges and agrees that the release set forthabove may be pleaded as a full and complete defense and may be used as a basis foran injunction against any action, suit or other proceeding which may be instituted,prosecuted or attempted in breach of the provisions of such release.  (c)  The Borrower, on behalf of itself and its successors, assigns, and otherlegal representatives, hereby absolutely, unconditionally and irrevocably, covenantsand agrees with and in favor of each Released Party above that it will not sue (atlaw, in equity, in any regulatory proceeding or otherwise) any Released Party
 

 

   on the basis of any claim released, remised and discharged by the Borrower pursuantto the above release. If the Borrower or any of its successors, assigns or otherlegal representations violates the foregoing covenant, the Borrower, for itself andits successors, assigns and legal representatives, agrees to pay, in addition to suchother damages as any Released Party may sustain as a result of such violation, allattorneys’ fees and costs incurred by such Released Party as a result of suchviolation.
     4. No Other Changes. Except as explicitly amended by this Amendment, all ofthe terms and conditions of the Credit Agreement shall remain in full force and effect and shallapply to any advance or letter of credit thereunder.
     5. Accommodation Fee. The Borrower shall pay the Lender an accommodationfee in the amount of Ten Thousand Dollars ($10,000) in consideration of Lender’s execution of thisAmendment (the “Accommodation Fee”). The Accommodation Fee shall be fully earned,non-refundable, and due and payable on the date hereof.
     6. Conditions Precedent. This Amendment shall be effective when each of thefollowing conditions is satisfied, as determined by the Lender in its sole discretion:
 (a)  The Lender has received this Amendment executed by the Borrower and theLender in a sufficient number or original counterparts for distribution to theparties hereto;  (b)  The Lender has received the Accommodation Fee.  (c)  The representations and warranties set forth herein and in the CreditAgreement are true and correct; and  (d)  All other documents and legal matters in connection with the transactioncontemplated by this Amendment have been delivered or executed or recorded and arein form and substance satisfactory to the Lender.
     7. Representations and Warranties. The Borrower hereby represents andwarrants to the Lender as follows:
 (a)  The Borrower has all requisite power and authority to execute thisAmendment and to perform all of its obligations hereunder, and this Amendment hasbeen duly executed and delivered by the Borrower and constitutes the legal, validand binding obligation of the Borrower, enforceable in accordance with its terms.
 (b)  The execution, delivery and performance by the Borrower of this Amendmenthave been duly authorized by all necessary corporate action and do not (i) requireany authorization, consent or approval by any governmental department, commission,board, bureau, agency or instrumentality, domestic or foreign, (ii) violate anyprovision of any law, rule or regulation or of any order, writ, injunction or decreepresently in effect, having applicability to the Borrower, or the articles ofincorporation or by-laws of the Borrower, or (iii) result in a breach of orconstitute a default under any indenture or loan or credit agreement or any otheragreement, lease or instrument to which the Borrower is a party or by which it orits properties may be bound or affected.  (c)  All of the representations and warranties contained in the Credit Agreementare correct on and as of the date hereof as though made on and as of such date,except to the extent that such representations and warranties relate solely to anearlier date.  (d)  This Amendment has been entered into without force or duress, of the freewill of the Borrower. The Borrower’s decision to enter into this Amendment is afully informed decision and the Borrower is aware of all legal and otherramifications of such decision. The Borrower has read and understands thisAmendment, has consulted with and been represented by legal counsel in connectionherewith, and has been advised by its counsel of its rights and obligationshereunder and thereunder.
     8. No Waiver. Other than as expressly set forth herein, the execution ofthis Amendment and acceptance of any other documents related hereto shall not be deemed to be awaiver of any Event of Default under the Credit Agreement or breach, default or event of defaultunder any other Financing Agreement, whether or not known to the Lender and whether or not existingon the date of this Amendment.
 

 

     9. Costs and Expenses. The Borrower hereby reaffirms its agreement underthe Credit Agreement to pay or reimburse the Lender on demand for all costs and expenses incurredby the Lender in connection with the Loan Documents, including without limitation all reasonablefees and disbursements of legal counsel. Without limiting the generality of the foregoing, theBorrower specifically agrees to pay all fees and disbursements of counsel to the Lender for theservices performed by such counsel in connection with the preparation of this Amendment and thedocuments and instruments incidental hereto. The Borrower hereby agrees that the Lender may, atany time or from time to time in its sole discretion and without further authorization by theBorrower, make a loan to the Borrower under the Credit Agreement, or apply the proceeds of anyloan, for the purpose of paying any such fees, disbursements, costs and expenses.
     10. Integration. This Amendment, together with the other Loan Documents,incorporates all negotiations of the parties hereto with respect to the subject matter hereof andis the final expression and agreement of the parties hereto with respect to the subject matterhereof.
     11. Choice of Law. The validity of this Amendment, its construction,interpretation and enforcement, the rights of the parties hereunder, shall be determined under,governed by, and construed in accordance with the internal laws of the State of Californiagoverning contracts only to be performed in that State.
     12. Reference to and Effect on the Loan Documents.
 (a)  Upon and after the effectiveness of this Amendment, each reference in theCredit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like importreferring to the Credit Agreement, and each reference in all other documents oragreements related thereto, including the other Loan Documents, to “the CreditAgreement”, “thereof” or words of like import referring to the Credit Agreement,shall mean and be a reference to the Credit Agreement as modified and amendedhereby.  (b)  To the extent that any terms and conditions in any of the Loan Documents orany documents or agreements related thereto shall contradict or be in conflict withany terms or conditions of the Credit Agreement, after giving effect to thisAmendment, such terms and conditions are hereby deemed modified or amendedaccordingly to reflect the terms and conditions of the Credit Agreement as modifiedor amended hereby.
     13. Miscellaneous. This Amendment and the acknowledgment attached heretomay be executed by facsimile and in any number of counterparts, each of which when so executed anddelivered shall be deemed an original and all of which counterparts, taken together, shallconstitute one and the same instrument.
[Signatures follow on next page.]
 

 

IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first abovewritten.    NATURADE, INC.,