**Exhibit 10.40**

 

**Loan Agreement**

 

Dated as of April 14, 2003

 

NATURADE,INC., a Delaware corporation (“Borrower”), on the one hand, and the lenderparties set forth on Schedule I hereto (each a “Lender” and collectively the“Lender Group”) on the other hand, hereby agree as of the Effective Date(defined in Section 6.11 below) as follows:

 

1.                                       Amountsand Terms of the Advances.

 

1.1                                 The Advances.

 

(a)                                  Lender Group agrees, on the terms andconditions hereinafter set forth, to consider making advances (the “Advances”)to Borrower from time to time on any day of the year on which banks are notrequired or authorized to close in San Francisco (a “Business Day”) during theperiod from the date hereof until December 31, 2004 (the “TerminationDate”) in an aggregate principal amount not to exceed seven hundred fiftythousand United States dollars (US$750,000) (the “Commitment”).  The aggregate amount advanced by each Lendershall not exceed the amount set forth beside such Lender’s name onSchedule I;

 

(b)                                 The aggregate amount of each Advance, andthe amount advanced by each Lender, shall be set forth on the Schedule ofAdvances attached as Schedule II;

 

(c)                                  Schedule I may be amended from time totime by written notice by Collateral Agent (as defined below) to Borrower, toadd additional Lenders pursuant to Section 1.1(d), or to reallocate the maximumamount of the Commitment to be advanced by specified Lenders;

 

(d)                                 Additional persons may from time to timebe added as Lenders hereunder by the execution and delivery to Borrower andLender Group of a Joinder to Loan Agreement substantially in the form of ExhibitA hereto and delivery to Borrower of a Subordination Agreement in the formof Exhibit C.

 

1.2                                 Making the Advances.

 

(a)                                  The initial advance in the amount of fourhundred fifty United States dollars (US$450,000) shall be made on or as soon aspracticable after the Effective date.

 

(b)                                 Each subsequent Advance shall be made onnotice, given not later than 11:00 A.M. (San Francisco time) on the third Business Day prior tothe date of the proposed Advance, by Borrower to Lender Group in the manner setforth in 

 

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Sections 1.8(d)and 6.2 below, specifying the date and amount of the Advance requested.  Upon Lender Group’s receipt of such notice,Lender Group may determine in its sole and complete discretion to make or notto make the requested Advance (and in the event Lender Group determines to makethe Advance, the amount of Advances by each Lender).  Lender Group shall notify Borrower whether Lender Group will makethe Advance within two Business Days of Lender Group’s receipt of the noticerequesting the Advance; provided, however, that if Lender Groupdoes not notify Borrower of Lender Group’s agreement to make the Advance withinthat period, Lender Group shall be deemed to have notified Borrower that LenderGroup will not make the Advance, and no further notice of Lender Group shall berequired hereunder.  If Lender Groupnotifies Borrower of Lender Group’s agreement to make the Advance requested byBorrower, upon fulfillment of the applicable conditions set forth in Section 2,Lender Group will pay the Advance to Borrower in same day funds by wiretransfer to Borrower’s account for wire transfers.

 

(c)                                  Each Advance made by a Lender shall bedeemed to be made by such Lender severally (and not jointly with other membersof Lender Group) and shall be evidenced by a promissory note in favor of eachsuch member substantially in the form of Exhibit B hereto (each, a“Note”).  All other rights andobligations of “Lender Group” hereunder shall be deemed to apply to each Lenderseverally (and not jointly) and all references to “Lender Group” in thisAgreement shall be so interpreted and construed, provided, however,that the rights of any Lender hereunder may only be exercised through theCollateral Agent as provided herein.

 

(d)                                 Each notice from Borrower to Lender Grouprequesting an Advance shall be irrevocable and binding on Borrower.  Borrower shall indemnify Lender Group againstany loss, cost or expense incurred by Lender Group as a result of any failureto fulfill on or before the date specified in such notice for the Advance theapplicable conditions set forth in Section 2, including, without limitation,any loss, cost or expense incurred by reason of the liquidation or reemploymentof funds acquired by Lender Group to fund the Advance when the Advance, as aresult of such failure, is not made on such date.

 

1.3                                 Repayment.  Borrowershall repay the aggregate unpaid principal amount of all Advances, togetherwith all amounts of interest then accrued thereon, on or before the TerminationDate.

 

1.4                                 Interest.  On the lastBusiness Day of each calendar quarter beginning after the date hereof, Borrowershall pay to Lender Group all amounts of interest then accrued and unpaid withrespect to the Advances as provided below. Borrower shall pay interest on the unpaid principal amount of eachAdvance from the date of such Advance until such principal amount shall be paidin full, at the rate of fifteen percent (15%) per annum; provided,howeverthat any amount of principal which is not paid when due (whether at statedmaturity, by acceleration or otherwise) shall bear interest, from the date onwhich such amount is due until such amount is paid in full, payable on demand,at a rate per annum equal at all times to seventeen percent (17%) perannum.  Accrued and unpaid interestshall compound quarterly at the rate of fifteen percent (15%) per annum fromthe date first due.

 

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1.5                                 Prepayments. Borrower may, upon at least thirty (30) calendar days’ notice to LenderGroup stating the proposed date and principal amount of the prepayment, prepaythe outstanding principal amounts of the Advances in whole or in part, togetherwith accrued interest to the date of such prepayment on the principal amountprepaid to each Lender in proportion to the Lender’s Pro Rata Share; provided,however, that each partial prepayment shall be in an aggregate principalamount not less than one hundred thousand United States dollars (US$100,000);and providedfurther that upon giving such notice Borrower willbe obligated to make prepayment described therein.

 

1.6                                 Payments and Computations.

 

(a)                                  Borrower shall make each paymenthereunder not later than 11:00 a.m. (San Francisco time) on the day whendue in United States dollars to each Lender at its address provided in ScheduleI in same day funds.  All payments ofprincipal and interest shall be made in proportion to the Pro Rata Share ofeach Lender.

 

(b)                                 All computations of interest shall bemade by Lender Group on the basis of a year of 365 or 366 days, as the case maybe, in each case for the actual number of days (including the first day butexcluding the last day) occurring in the period for which such interest ispayable.  Each determination by LenderGroup of any amount of interest payable hereunder shall be conclusive andbinding for all purposes, absent manifest error.

 

(c)                                  Whenever any payment hereunder shall bestated to be due on a day other than a Business Day, such payment shall be madeon the next succeeding Business Day, and such extension of time shall in suchcase be included in the computation of payment of interest.

 

1.7                                 Grant of Security. Borrower hereby assigns and pledges to Lender Group, and hereby grantsto HHB, as collateral agent for Lender Group (the “Collateral Agent”), asecurity interest in the following (collectively, the “Collateral”):

 

(a)                                  all current or hereafter acquired orarising Equipment, General Intangibles, Inventory, Receivables, InvestmentProperty, deposit accounts, letters of credit, proceeds of letters of credit,chattel paper and all sums on deposit in any collateral account established forthe benefit of any lender,  and any itemsin any lockbox established for the benefit of any lender, together with (i) allsubstitutions and replacements for and products of any of the foregoing; (ii)proceeds of any and all of the foregoing; (iii) in the case of all tangiblegoods, all accessions; (iv) all accessories, attachments, parts, equipment andrepairs now or hereafter attached or affixed to or used in connection with anytangible goods; (v) all warehouse receipts, bills of lading and other documentsof title now or hereafter covering such goods; and (vi) any life insurancepolicy owned by Borrower.

 

(b)                                 “Equipment” means all of Borrower’sequipment, as such term is defined in the UCC, whether now owned or hereafteracquired, including but not limited to all present and future machinery,vehicles, furniture, fixtures, manufacturing 

 

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equipment,shop equipment, office and recordkeeping equipment, parts, tools and supplies;

 

(c)                                  “General Intangibles” means all ofBorrower’s general intangibles, as such term is defined in the UCC, whether nowowned or hereafter acquired, including (without limitation) all present andfuture patents, patent applications, copyrights, trademarks, trade names, tradesecrets, customer or supplier lists and contracts, manuals, operatinginstructions, permits, franchises, the right to use Borrower’s name, and thegoodwill of Borrower’s business;

 

(d)                                 “Inventory” means all of Borrower’sinventory, as such term is defined in the UCC, whether now owned or hereafter acquired,whether consisting of whole goods, spare parts or components, supplies ormaterials, whether acquired, held or furnished for sale, for lease or underservice contracts or for manufacture or processing, and wherever located;

 

(e)                                  “Receivables” means each and every rightof Borrower to the payment of money, whether such right to payment now existsor hereafter arises, whether such right to payment arises out of a sale, leaseor other disposition of goods or other property, out of a rendering of services,out of a loan, out of the overpayment of taxes or other liabilities, orotherwise arises under any contract or agreement, whether such right to paymentis created, generated or earned by Borrower or by some other person whosubsequently transfers such person’s interest to Borrower, whether such rightto payment is or is not already earned by performance, and howsoever such rightto payment may be evidenced, together with all other rights and interests(including all liens and security interests) which Borrower may at any timehave by law or agreement against any account debtor or other obligor obligatedto make any such payment or against any property of such account debtor orother obligor; all including but not limited to all present and future accounts,contract rights, loans and obligations receivable, chattel papers, bonds, notesand other debt instruments, tax refunds and rights to payment in the nature ofgeneral intangibles;

 

(f)                                    “Investment Property” means all ofBorrower’s investment property, as such term is defined in the UCC, whether nowowned or hereafter acquired, including but not limited to all securities,security entitlements, securities accounts, commodity contracts, commodityaccounts, stocks, bonds, mutual fund shares, money market shares and U.S.Government securities; and

 

(g)                                 “UCC” means the Uniform Commercial Codeas in effect from time to time in California, or in any other state whose lawsare held to govern this Agreement or any portion hereof.

 

1.8                                 Collateral Agency and IntercreditorProvisions.

 

(a)                                  “Required Combined Lenders” means, fromtime to time, Lenders whose Pro Rata Shares aggregate more than fifty percent(50%), as such percentage is determined under the definition of Pro Rata Shareset forth below.

 

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(b)                                 “Pro Rata Share” means at any time, withrespect to a Lender, a fraction (expressed as a percentage), the numerator ofwhich is the aggregate outstanding principal amount of Advances then owing tosuch Lender and the denominator of which is the aggregate outstanding principalamount of all Advances then owing to Lender Group.

 

(c)                                  Each Lender hereby irrevocably appointsand authorizes HHB to act as its collateral agent (“Collateral Agent”), and HHBagrees to act as Collateral Agent for such Lenders, pursuant to the terms ofthis Agreement.

 

(d)                                 All notices and other communications toLender Group from Borrower shall be made to Collateral Agent, and all noticesand other communications from Lender Group to Borrower shall be made byCollateral Agent on behalf of Lender Group. Borrower shall be entitled to treat notice delivered to Collateral Agentas notice delivered to each Lender at the time of delivery to Collateral Agent.  Borrower shall be entitled to rely on all communicationsof Collateral Agent as communications of Lender Group and of each Lender,irrespective of any conflicting communication or instruction received from anyLender, and to rely on representations of actions by any Lender or of theRequired Combined Lenders contained in a communication of the Collateral Agentas complete and accurate without further inquiry.

 

(e)                                  HHB agrees that so long as it acts asCollateral Agent hereunder it shall promptly provide a copy of allcommunications received or made on behalf of Lending Group to each otherLender.

 

(f)                                    Each Lender agrees that no Lender shallhave any independent right of action against the Collateral or any part thereofunder the Notes or this Agreement, but that all such actions shall be takenthrough Collateral Agent, and that the rights and remedies of Collateral Agenthereunder shall only be exercised at the direction of the Required CombinedLenders (notwithstanding the occurrence of any Event of Default hereunder oracceleration of the obligations hereunder or under any Note).  Collateral Agent hereby agrees (and eachLender acknowledges such agreement) that it shall not enforce the securityinterests of any individual Lender in the Collateral without the direction andconsent of the Required Combined Lenders.

 

(g)                                 Each Lender agrees that no Lender shallbring any action against, or make any demand upon, Borrower under any Note orthis Agreement, and that the Collateral Agent may bring any such action ordemand on behalf of Lender Group or any Lender, with the prior written consentof the Required Combined Lenders.

 

(h)                                 Upon its receipt of any proceeds of theCollateral, Collateral Agent shall disburse such proceeds as follows:

 

(i)                                     First, to the costs and expenses ofCollateral Agent incurred in connection with the enforcement of this Agreement;

 

(ii)                                  Second, to the Lenders ratably inaccordance with their Pro Rata Shares until the obligations under the Notes aresatisfied; and

 

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(iii)                               Finally, to the person or persons otherwise legallyentitled thereto.

 

(i)                                     Each Lender shall promptly put in thecustody, possession or control of the Collateral Agent for disposition ordistribution in accordance with the provisions of this Section any Collateral,or proceeds therefrom, over which such Lender obtains custody, control orpossession.  Until such time as eachLender shall have complied with the provisions of the immediately precedingsentence, such Lender shall be deemed to hold such Collateral or proceeds intrust for Lender Group.

 

(j)                                     No Lender shall have an independent rightto initiate an action or actions in any proceeding under the Bankruptcy Code ofthe United States of America, as amended from time to time, and all otherapplicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement,receivership, insolvency, reorganization, or similar debtor relief laws fromtime to time in effect affecting the rights of creditors generally (“DebtorRelief Laws”), and to appear or be heard on any matter before the bankruptcy orother applicable court in any such proceeding. Collateral Agent shall exclusively be entitled to initiate such actionson behalf of Lender Group or any Lender, or to appear and be heard on anymatter before the bankruptcy or other applicable court in any such proceedingas the representative of Lender Group or any Lender, in each case with theauthorization or consent of the Required Combined Lenders.  Collateral Agent is authorized in any suchproceeding to enter into any agreement for, or give any authorization orconsent with respect to, the postpetition usage of Collateral, provided suchagreement, authorization or consent has been approved in writing by theRequired Combined Lenders.  ThisAgreement shall survive the commencement of any proceeding under a DebtorRelief Law.

 

(k)                                  Each Lender waives any right it may nowor hereafter have to require Collateral Agent to marshal assets, to exerciserights or remedies in a particular manner, or to forbear exercising such rightsand remedies in any particular manner or order.

 

1.9                                 Security for Obligations. This Agreement secures the repayment of all obligations of Borrower nowor hereafter existing under this Agreement and any other document or instrumentdelivered in connection herewith, whether for principal, interest, fees,expenses or otherwise (all such obligations being the “SecuredObligations”).  Without limiting thegenerality of the foregoing, this Agreement secures the payment of all amountsthat constitute part of the Secured Obligations and would be owed by Borrowerto Lender Group but for the fact that they are unenforceable or not allowabledue to the existence of a bankruptcy, reorganization or similar proceedinginvolving Borrower.

 

1.10                           Borrower Remains Liable. Anything herein to the contrary notwithstanding, (a) Borrower shallremain liable under the contracts and agreements included in the Collateral tothe extent set forth therein to perform all of its duties and obligationsthereunder to the same extent as if this Agreement had not been executed,(b) the exercise by Lender Group of any of the rights hereunder shall notrelease Borrower from any of its duties or obligations under the contracts andagreements included in the Collateral and (c) Lender Group shall have no 

 

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obligation or liability under the contracts andagreements included in the Collateral by reason of this Agreement, nor shallLender Group be obligated to perform any of the obligations or duties ofBorrower thereunder or to take any action to collect or enforce any claim forpayment assigned hereunder.

 

1.11                           Further Assurances.

 

(a)                                  Borrower agrees that from time to time,at the expense of Borrower, Borrower will promptly execute and deliver all furtherinstruments and documents, and take all further action, that may be necessaryor desirable, or that Collateral Agent, on behalf of Lender Group, mayreasonably request, in order to perfect and protect any pledge, assignment orsecurity interest granted or purported to be granted hereby or to enableCollateral Agent on behalf of Lender Group to exercise and enforce its rightand remedies hereunder with respect to any Collateral.

 

(b)                                 Borrower hereby authorizes CollateralAgent, on behalf of Lender Group, to file one or more financing or continuationstatements, and amendments thereto, relating to all or any part of theCollateral without the signature of Borrower where permitted by law.  Photocopy or other reproduction of thisAgreement or any financing statement covering the Collateral or any partthereof shall be sufficient as a financing statement where permitted by law.

 

(c)                                  Borrower will furnish to the CollateralAgent from time to time statements and schedules further identifying anddescribing the Collateral and such other reports in connection with theCollateral as the Collateral Agent may reasonably request, all in reasonabledetail.

 

1.12                           As To Equipment and Inventory.

 

(a)                                  Borrower shall keep the Equipment andInventory (other than Inventory sold in the ordinary course of business) atBorrower’s property at 14370 Myford Road, Irvine, California.

 

(b)                                 Borrower shall cause the Equipment to bemaintained and preserved in the same condition, repair and working order aswhen new, ordinary wear and tear excepted, and in accordance with anymanufacturer’s manual, and shall forthwith, or in the case of any material lossor damage to any of the Equipment as quickly as practicable after theoccurrence thereof, make or cause to be made all repairs, replacements andother improvements in connection therewith that are necessary or desirable tosuch end.  Borrower shall promptlyfurnish to Collateral Agent a statement respecting any material loss or damageto any of the Equipment.

 

(c)                                  Borrower shall pay promptly when due allproperty and other taxes, assessments and governmental charges or leviesimposed upon, and all claims (including claims for labor, materials andsupplies) against, the Equipment and Inventory.  In producing the Inventory, Borrower shall comply with allrequirements of the Fair Labor Standards Act.

 

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1.13                           Insurance.  Borrowershall, at its own expense, maintain insurance with respect to the Equipment andInventory in such amounts, against such risks, in such form and with suchinsurers, as shall be reasonably satisfactory to Collateral Agent from time totime.  Further, Borrower shall, at therequest of Collateral Agent, duly exercise and deliver instruments ofassignment of such insurance policies to comply with the requirements of thisAgreement and cause the insurers to acknowledge notice of such assignment.

 

1.14                           Collateral Agent’s Duties. The powers conferred on Collateral Agent hereunder are solely to protectits and Lender Group’s interest in the Collateral and shall not impose any dutyupon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and theaccounting for moneys actually received by it hereunder, the Collateral Agentshall have no duty as to any Collateral, or as to the taking of any necessarysteps to preserve rights against any parties or any other rights pertaining toany Collateral.

 

1.15                           Continuing Security Interest. This Agreement shall create a continuing security interest in theCollateral and shall (a) remain in full force and effect until the laterof the indefeasible cash payment in full of the Secured Obligations and theTermination Date, (b) be binding upon Borrower, its successors and assignsand (c) inure, together with the rights and remedies of the CollateralAgent on behalf of Lender Group hereunder, to the benefit of Collateral Agentand Lender Group, and their respective successors, transferees and assigns.

 

1.16                           Release and Termination. Upon the indefeasible cash payment in full of the Secured Obligations,the pledge, assignment and security interest granted hereby shall terminate andall rights to Collateral shall revert to Borrower.  Upon any such termination, Collateral Agent and Lender Groupwill, at Borrower’s expense, execute and deliver to Borrower such documents asBorrower shall reasonably request to evidence such termination.

 

1.17                           Indemnification of Collateral Agent. Borrower and each Lender agree to indemnify and hold harmless CollateralAgent for all liability, loss, damage, cost, or expense (including, withoutlimitation, reasonable attorneys’ fees and expenses, whether incurred at thetrial, pretrial, or appellate level) arising from or relating to the actions ofCollateral Agent hereunder, except to the extent such liability, loss, damage,cost, or expense resulted from gross negligence or willful misconduct ofCollateral Agent.

 

1.18                           Indemnification of Borrower. Each Lender agrees to indemnify and hold harmless Borrower for allliability, loss, damage, cost, or expense (including, without limitation,reasonable attorneys’ fees and expenses, whether incurred at the trial,pretrial, or appellate level) arising from or relating to actions inconformance with the terms and conditions of this Agreement that are made inreasonable reliance on a communication by Collateral Agent as an instruction ornotice of Lender Group or any Lender.

 

1.19                           Resignation and Substitution ofCollateral Agent.  Collateral Agent may resign at any time bythe giving of 30 days’ advance written notice to each Lender.  In the event of resignation or incapacity ofCollateral Agent, a replacement therefor shall be elected by the RequiredCombined Lenders.

 

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1.20                           Notices by Collateral Agent to Lenders. All notices and other communications between Collateral Agent and anyLender shall be made in writing (including facsimile communication) and mailed,telecopied or delivered, in the case of a Lender to the address provided bysuch Lender in Schedule I, or at such other address as shall be designated bysuch Lender in a written notice to Collateral Agent, and in the case ofCollateral Agent to the address provided in Section 6.2, or at such otheraddress as shall be designated by Collateral Agent in a written notice to eachLender.  

 

2.                                       Conditionsof Lending.

 

2.1                                 Condition Precedent to Initial Advance. Lender Group shall have no obligation to make any Advance hereunderuntil such time (if any) as Lender Group has notified Borrower of LenderGroup’s agreement, in Lender Group’s sole and complete discretion, to make arequested Advance as provided in Section 1 above.  Upon Lender Group’s agreement (if any) to make the initialAdvance, unless waived by Lender Group, the obligation of Lender Group to makesuch initial Advance is subject to the further condition precedent that LenderGroup shall have received on or before the day of such Advance such documentsas Lender Group shall reasonably request.

 

2.2                                 Conditions Precedent to All Advances. Lender Group shall have no obligation to make any Advance hereunderuntil such time (if any) as Lender Group has notified Borrower of LenderGroup’s agreement, in Lender Group’s sole and complete discretion, to make arequested Advance as provided in Section 1 above.  Upon Lender Group’s agreement (if any) to make an Advance(including the initial Advance), Lender Group’s obligation to make such Advanceshall be subject to the further condition precedent that on the date of suchAdvance no event has occurred and is continuing, or would result from suchAdvance or from the use of the proceeds thereof, which constitutes an Event ofDefault (as defined in Section 3.1 hereof) or would constitute an Event ofDefault but for the requirement that notice be given or time elapse or both.

 

3.                                       Eventsof Default.

 

3.1                                 Events of Default. If any of the following events (each an “Event of Default”) shall occurand be continuing:

 

(a)                                  Borrower fails to pay any principal of,or interest on, any Advance when the same becomes due and payable; or

 

(b)                                 Borrower fails to perform or observe anymaterial term, covenant or agreement contained in this Agreement (other thanthose specified in Section 3.1(a)) on its part to be performed or observedand if such failure shall remain unremedied for 10 days after written noticethereof shall have been given to Borrower by Collateral Agent;

 

(c)                                  Borrower shall generally not pay itsdebts as such debts become due, or shall admit in writing its inability to payits debts generally, or shall make a general assignment for the benefit ofcreditors; or any proceeding shall be instituted by or against Borrower seekingto adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,reorganization, arrangement, adjustment, protection, relief, or composition of 

 

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itor its debts under any law relating to bankruptcy, insolvency or reorganizationor relief of debtors, or seeking the entry of an order for relief or theappointment of a receiver, trustee, custodian or other similar official for itor for any substantial part of its property and, in the case of any suchproceeding instituted against it (but not instituted by it), either suchproceeding shall remain undismissed or unstayed for a period of 30 days, or anyof the actions sought in such proceeding (including, without limitation, theentry of an order for relief against, or the appointment of a receiver,trustee, custodian or other similar official for, it or for any substantial partof its property) shall occur; or if Borrower takes any corporate action toauthorize any of the actions set forth above in this subsection (c);

 

(d)                                 Borrower shall default on any bond,debenture, note or other evidence of indebtedness of Borrower owed to anyperson other than Wells Fargo Business Credit, Inc. (the “Bank”), or under anyindenture or other instrument under which any such evidence of indebtedness hasbeen issued or by which it is governed, or under any lease of any of thepremises where the Borrower conducts its business and has any rights ofpossession, and the expiration of the applicable period of grace, if any,specified in such evidence of indebtedness, indenture, other instrument orlease; or

 

(e)                                  Borrower’s obligation to pay in full theprincipal amount of any bond, debenture, note or other evidence of indebtednessowed to any person shall be accelerated from its stated time of maturity andbecome immediately due and payable, and such acceleration shall not be waived,reversed or rescinded for a period of 30 days form the date of acceleration;

 

then, in any such event, Lender Group, upon writtenapproval of Required Combined Lenders, (i) may, by notice to Borrower,declare its obligation to make Advances to be terminated, whereupon the sameshall forthwith terminate, and (ii) may, by notice to Borrower, declarethe Advances, all interest thereon and all other amounts payable under thisAgreement to be forthwith due and payable, whereupon the Advances, all suchinterest and all such amounts shall become and be forthwith due and payable,without presentment, demand, protest, or further notice of any kind, all ofwhich are hereby expressly waived by Borrower; provided, however,that in the event of an actual or deemed entry of an order for relief withrespect to Borrower under the Federal Bankruptcy Code, (A) the obligation ofLender Group to make Advances shall automatically be terminated and (B) theAdvances and all such interest and all such amounts shall automatically becomeand be due and payable, without presentment, demand, protest or any notice ofany kind, all of which are hereby expressly waived by Borrower.

 

4.                                       Representationsby Lender Group.

 

(a)                                  Each Lender (i) is a sophisticatedinvestor with knowledge and experience in business and financial matters,(ii) has received certain information concerning Borrower and has had theopportunity to obtain additional information as desired in order to evaluatethe merits and risks inherent in the Notes, (iii) is able to bear theeconomic risk of investment in the Notes, and (iv) is an accreditedinvestor as defined under Rule 501(a) of Regulation D promulgated underthe Securities Act of 1933, as amended (the “1933 Act”).

 

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(b)                                 By accepting the Notes, each Lenderacknowledges that the Notes shall be acquired for investment and not fordistribution, as that term is used in the 1933 Act, unless in the opinion oflegal counsel to Borrower such distribution is in compliance with or exempt fromthe registration requirements of the 1933 Act, and each Lender furtheracknowledges and understands that the Notes may have to be held indefinitelyunless they have been or are subsequently registered under the 1933 Act or anexemption from such registration is available; each Lender understands that thecertificates evidencing the Notes will be imprinted with a legend substantiallyas follows:

 

“The securitiesrepresented by this certificate have not been registered under the SecuritiesAct of 1933, as amended (the “Act”). These securities have been acquired for investment and not with a viewto distribution or resale, and may not be sold, mortgaged, pledged,hypothecated or otherwise transferred without an effective registrationstatement for such securities under the Act, or unless an exemption fromregistration is available with respect to any proposed sale or transfer.”

 

(c)                                  Each Lender acknowledges and understandsthat such Lender may have to bear the economic risk associated with theinvestment in the Notes for an indefinite period of time because the Notes havenot been registered under the 1933 Act and, therefore, cannot be sold unlessthey are so registered or an exemption from registration is available withrespect to any proposed sale or transfer.

 

5.                                       CertainCorporate Transactions.  Nothing inthis Agreement shall in any way prohibit Borrower from merging with orconsolidating into another corporation, or from selling or transferring all orsubstantially all of its assets, or from distributing all or substantially allof its assets to its stockholders in liquidation, or from dissolving andterminating its corporate existence.  Inthe event Borrower merges or consolidates with another corporation, or all or substantiallyall of Borrower’s capital stock or assets are acquired by or are subject to atender offer of another corporation, entity or person (collectively, togetherwith each event described in the immediately preceding sentence, “ControlEvents”), and the surviving or acquiring corporation, person or entity issuesshares of stock or other consideration to Borrower’s stockholders in connectionwith the merger, consolidation or acquisition, the surviving or acquiringcorporation shall adopt this Agreement.

 

6.                                       Miscellaneous.

 

6.1                                 Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor consentto any departure by Borrower therefrom, shall in any event be effective unlessthe same shall be in writing and signed by Collateral Agent on behalf of LenderGroup, and then such waiver or consent shall be effective only in the specificinstance and for the specific purpose for which given.

 

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6.2                                 Notices, Etc. All notices and other communications provided for hereunder between Borroweron the one hand, and Lender Group, any Lender and Collateral Agent on the otherhand, shall be in writing (including facsimile communication) and mailed,telecopied or delivered, if to Borrower, at its address at

 

Naturade, Inc...

14370 Myford Road, Suite 100

Irvine, California 92606

Attention: Chief Financial Officer

Facsimile: (714) 573-4816

 

with acopy (which shall not comprise notice) to

 

Sheppard, Mullin, Richter & Hampton LLP

333 South Hope Street, 48th Floor

Los Angeles, California 90071

Facsimile: 213-620-1398

Attention: Charles S. Kaufman, Esq.

 

and ifto Collateral Agent, at its address at:

 

Health Holdings and Botanicals, LLC

c/o Doyle & Boissiere LLC

330 Primrose Road, Suite 500

Burlingame, California 94010

Facsimile: (650) 685-8711

 

with acopy (which shall not comprise notice) to:

 

Heller Ehrman White & McAuliffe LLP

601 South Figueroa Street 

Los Angeles, CA 

90017-5758 

Facsimile: (213) 614-1868

Attention: G. Thomas Stromberg Jr., Esq.

 

or, asto each party, at such other address as shall be designated by such party in awritten notice to the other party.  Allsuch notices and communications shall effective when actually received by theparty notified.

 

6.3                                 No Waiver; Remedies. No failure on the part of Lender Group or any Lender to exercise, and nodelay in exercising, any right hereunder shall operate as a waiver thereof; norshall any single or partial exercise of any such right preclude any other orfurther exercise thereof or the exercise of any other right.  The remedies herein provided are cumulativeand not exclusive of any remedies provided by law.

 

12

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6.4                                 Certain Terms. All accounting terms not specifically defined herein shall be construedin accordance with generally accepted accounting principles consistent withthose applied in the preparation of Borrower’s financial statements.  As used herein the term “including” shall beconstrued to mean “including, without limitation,” unless expressly stated tothe contrary.

 

6.5                                 Costs, Expenses and Taxes.

 

(a)                                  Borrower agrees to pay on demand allcosts and expenses in connection with the preparation, execution, delivery,administration, modification and amendment of this Agreement and the otherdocuments to be delivered hereunder, including, without limitation, thereasonable fees and out-of-pocket expenses of counsel for Collateral Agent andLender Group with respect thereto and with respect to advising Lender Group asto its rights and responsibilities under this Agreement.  Borrower further agrees to pay on demand allcosts and expenses, if any (including reasonable counsel fees and expenses), inconnection with the enforcement (whether through negotiations, legalproceedings or otherwise) of this Agreement and the other documents to bedelivered hereunder, including, without limitation, reasonable counsel fees andexpenses in connection with the enforcement of rights under thisSection 6.5(a).  In addition,Borrower shall pay any and all stamp and other taxes payable or determined tobe payable in connection with the execution and delivery of this Agreement andthe other documents to be delivered hereunder, and agrees to save CollateralAgent and Lender Group harmless from and against any and all liabilities withrespect to or resulting from any delay in paying or omission to pay such taxes.

 

(b)                                 Borrower agrees to indemnify CollateralAgent and Lender Group from and against any and all claims, losses andliabilities growing out of or resulting from this Agreement (including, withoutlimitation, enforcement of this Agreement), except claims, losses orliabilities resulting from gross negligence or willful misconduct of CollateralAgent or Lender Group as determined by a final judgment of a court of competentjurisdiction, and except to the extent arising from matters contemplated bySection 1.18 above.

 

(c)                                  Borrower will upon demand pay toCollateral Agent and Lender Group the amount of any and all reasonableexpenses, including the reasonable fees and expenses of its counsel and of anyexperts and agents, that Collateral Agent and Lender Group may incur inconnection with (i) the administration of this Agreement, (ii) thecustody, preservation, use or operation of, or the sale of, collection from orother realization upon, any of the Collateral, (iii) the exercise orenforcement of any of the rights of Collateral Agent and Lender Group hereunderor (iv) the failure by Borrower to perform or observe any of theprovisions hereof.

 

6.6                                 Right of Set-off. Upon the occurrence and during the continuance of any Event of Default,Lender Group, upon prior written consent of the Required Combined Lenders, ishereby authorized at any time and from time to time, to the fullest extentpermitted by law, to set off and apply any and all amounts at any time held andother indebtedness at any time owing by Lender Group to or for the credit orthe account of Borrower against any and all of the 

 

13

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obligations of Borrower now or hereafter existingunder this Agreement, whether or not Lender Group shall have made any demandunder this Agreement and although such obligations may be unmatured.  Lender Group agrees promptly to notifyBorrower after any such set-off and application, provided, however, thatthe failure to give such notice shall not affect the validity of such set-offand application.  The rights of LenderGroup under this Section are in addition to other rights and remedies(including, without limitation, other rights of set-off) which Lender Group mayhave.

 

6.7                                 Binding Effect. This Agreement shall be binding upon and inure to the benefit ofBorrower and Collateral Agent and Lender Group and their respective successorsand assigns, except that Borrower shall not have the right to assign its rightshereunder or any interest herein without the prior written consent of theRequired Combined Lenders.

 

6.8                                 Governing Law. This Agreement shall be governed by, and construed in accordance with,the laws of the State of California.

 

6.9                                 Usury.  Anything tothe contrary appearing in this Agreement notwithstanding, if any return,interest payment, or other charge payable under this Agreement shall at anytime exceed the maximum amount chargeable by applicable law, then theapplicable rate of return or interest shall be the maximum rate permitted byapplicable law.

 

6.10                           Subordination. Borrower’s obligation under this Agreement shall in all respects besubject and subordinate to Borrower’s obligations to the Bank as provided inone or more Subordination Agreements to be delivered to Borrower by each Lendersubstantially in the form of  ExhibitC hereto.

 

6.11                           Effective Date. This Agreement shall become effective and binding on the parties heretoupon the later to occur of (i) execution and delivery hereof by the partieshereto and (ii) the receipt of any necessary consents to this Agreement and thetransactions contemplated hereby (such date of effectiveness is referred toherein as the “Effective Date”).

 

*The next page is the signature page.*

 

14

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INWITNESS WHEREOF, the parties hereto have caused this Loan Agreement to beexecuted by their respective officers thereunto duly authorized, as of the datefirst above written.

 
|   | NATURADE, INC.                        |
|--------|---------------------------------------|
|   |                                  |
|   | /s/ Bill D. Stewart              |   |
|   | Bill D. Stewart                       |
|   | Chief Executive Officer               |
|   |                                  |
|   |                                  |
|   | HEALTH HOLDINGS AND  BOTANICALS, LLC, |
|   | as a Lender and as  Collateral Agent  |
|   |                                  |
|   | /s/ William B.  Doyle, Jr.       |   |
|   | William B. Doyle, Jr.                 |
|   | Managing Member                       |
|   |                                  |
|   |                                  |
|   | DAVID A. WEIL                         |
|   |                                  |
|   | /s/ David A. Weil                |   |

 

15

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**EXHIBIT A**

 

FORM OF

JOINDER TO LOAN AGREEMENT OF NATURADE, INC.

 

Theundersigned is executing and delivering this Joinder to Loan Agreement(“Joinder Agreement”) pursuant to that certain Loan Agreement dated as ofApril 14, 2003 (the “Loan Agreement”) by and among Naturade, Inc.(“Borrower”) and the lender parties listed on Schedule I thereto (each a“Lender” and collectively the “Lender Group”).

 

Anycapitalized terms used but not defined herein shall have the meanings ascribedto them in the Loan Agreement.

 

Byexecuting and delivering this Joinder Agreement to Borrower and Lender Group,the undersigned (“Joining Party”) hereby agrees to become a party to, to bebound by, and to comply with the provisions of the Loan Agreement in the samemanner as if he were an original signatory to such agreement.  Joining Party further acknowledges andagrees that he shall be a “Lender,” as such term is defined in the LoanAgreement, and that all notices and communications between Joining Party andBorrower and all actions concerning collateral under the Loan Agreement shallbe made by Collateral Agent, as provided in the Loan Agreement.

 

JoiningParty represents to Corporation and Lender Group that he is an accredited investoras defined in Rule 501 of Regulation D under the Securities Act of 1933, asamended.

 

Themaximum amount of advances under the Loan Agreement, to be entered beside thename and address of Joining Party on Schedule I to the Loan Agreement, is$                 .

 

Contemporaneouslywith the delivery of this Joinder Agreement, the Joining Party shall executeand deliver to Borrower a Subordination Agreement in the form of Exhibit C tothe Loan Agreement.

 

All notices and other communications provided for underthe Loan Agreement to Joining Party shall be as follows:

 
|   |   |   |
|--------|--------|--------|
|   |   |   |
|   |   |   |
|   | Fax:   |   |   |
|        |        |        |  |

 

INWITNESS WHEREOF, Joining Party has executed and delivered this Joinder to LoanAgreement as of the       day of                         ,200  .

 
|   |        |   |
|--------|-------------|--------|
|   | [type name] |

 

ACKNOWLEDGED:

 

NATURADE, INC.

 
| By:    |   |   |
|--------|--------|--------|
| Name:  |   |   |
| Title: |   |   |
| Date:  |   |   |
|        |        |        |  |  |

 

A

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**EXHIBIT B**

 

Form of Secured Promissory Note

 

THE NOTE REPRESENTED BY THIS CERTIFICATE HAS NOT BEENREGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENTAND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED,PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVEREGISTRATION STATEMENT FOR THIS NOTE UNDER THE ACT, OR UNLESS AN EXEMPTION FROMREGISTRATION IS AVAILABLE WITH RESPECT TO ANY PROPOSED SALE OR TRANSFER.

 

PAYMENT WITH RESPECT TO THIS NOTE IS SUBJECT TO ASUBORDINATION AGREEMENT FOR THE BENEFIT OF WELLS FARGO BUSINESS CREDIT, INC.,DATED AS OF APRIL     , 2003 (THE “SUBORDINATIONAGREEMENT”).  THE OBLIGOR WILL PROVIDE ACOPY OF THE SUBORDINATION AGREEMENT ON THE REQUEST OF THE HOLDER OF THIS NOTE.

 
| $                       |   | Irvine,  California                                                                                                                              |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                  |   |                     ,  200    |

 

FORVALUE RECEIVED, NATURADE, INC., a Delaware corporation (“Obligor”), herebypromises to pay to the order of                                      (“Payee”), in lawful money of the United States at the address of Payee setforth below, the amount of                                               ,together with interest on the unpaid principal amount hereof.

 

Capitalizedterms not otherwise defined in this Note shall have the meanings assigned tothem in the Loan Agreement (as defined below).

 

Interestshall be paid in arrears on the last Business Day of each calendar quarterbeginning after the date hereof, until the principal amount shall be paid infull, at the rate of fifteen percent (15.00%) per annum, provided,howeverthat any amount of principal which is not paid when due (whether at statedmaturity, by acceleration or otherwise) shall bear interest, from the date onwhich such amount is due until such amount is paid in full, payable on demand,at a rate per annum equal at all times to seventeen percent (17%) perannum.  Accrued and unpaid interestshall compound quarterly at the rate of fifteen percent (15%) per annum fromthe date first due.

 

Theprincipal amount and any accrued and unpaid interest shall be due and payablein full on December 31, 2004, by electronic wire transfer of immediatelyavailable funds or by mail to the address of the registered holder of this Notein lawful money of the United States.

 

Borrowershall make each payment hereunder not later than 11:00 a.m. (San Franciscotime) on the day when due in United States dollars to each Lender at itsaddress provided in Schedule I to the Loan Agreement in same day funds.

 

B-1

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Allcomputations of interest shall be made on the basis of a year of 365 or 366days, as the case may be, in each case for the actual number of days (includingthe first day but excluding the last day) occurring in the period for whichsuch interest is payable.

 

Wheneverany payment hereunder shall be stated to be due on a day other than a BusinessDay, such payment shall be made on the next succeeding Business Day, and suchextension of time shall in such case be included in the computation of paymentof interest.

 

ThisNote may be prepaid, in whole or in part, upon at least thirty calendar days’notice to Payee, as further provided in the Loan Agreement.  Payments by Obligor shall be applied firstto any and all accrued interest through the payment date and second to theprincipal remaining due hereunder.  Uponpayment in full of all principal and interest payable hereunder, this Noteshall be surrendered to Obligor for cancellation.

 

ThisNote is issued pursuant to and entitled to the benefits of the Loan Agreementand related agreements by and between Obligor and Payee datedApril     , 2003 (“Loan Agreement”), and referencethereto is hereby made for a more complete statement of the terms under whichthe loan evidenced hereby is to be repaid, including the fact that theobligations under this Note are subject to acceleration.  This Note is secured by certain collateral,more specifically described in the Loan Agreement.

 

Obligorwaives presentment, demand for performance, notice of nonperformance, protest,notice of protest, and notice of dishonor. No delay on the part of Payee in exercising any right hereunder shalloperate as a waiver of such right under this Note.  This Note is being delivered in the State of California.  This Note shall be governed in all respectsby the laws of the State of California as it applies to contracts betweenCalifornia residents, which are made and to be performed in California.

 

If theindebtedness represented by this Note or any part thereof is collected at lawor in equity or in bankruptcy, receivership or other judicial proceedings or ifthis Note is placed in the hands of attorneys for collection after default,Obligor agrees to pay, in addition to the principal and interest payableherein, reasonable attorneys’ fees and costs incurred by Payee.

 

TheObligor and the Payee intend to comply at all times with applicable usurylaws.  If at any time such laws wouldrender usurious any amounts due under this Note, then it is the Obligor’s andthe Payee’s express intention that the Obligor not be required to pay intereston this Note at a rate in excess of the maximum lawful rate, that the provisionsof this paragraph shall control over all other provisions of this Note whichmay be in apparent conflict hereunder, that such excess amount shall beimmediately credited to the principal balance of this Note (or, if this Notehas been fully paid, refunded by the Payee to the Obligor), and the provisionshereof shall be immediately reformed and the amounts thereafter collectibleunder this Note reduced, without the necessity of the execution of any furtherdocuments, so as to comply with the then applicable usury law, but so as topermit the recovery of the fullest amount otherwise due under this Note.  Any such crediting or refund shall not cureor waive any default by the Obligor under this Note.  The term “applicable law” as used in this Note shall mean thelaws of the State of California or the laws of the United States, whicheverlaws allow the greater rate of interest, as such laws now exist or may bechanged or amended or come into effect in the future.

 

B-2

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Nomodification, amendment or waiver of any provision of this Note shall beeffective unless approved in a writing specifically referring to this Note andsigned by Borrower and by Collateral Agent on behalf of Payee.

 

Eachnotice or other communication required or permitted hereunder (except payment)shall be in writing and shall be deemed given or made (a) on the daydelivered if delivered in person to the party to whom it is directed, or byovernight courier, (b) on the day delivery is confirmed by the recipient’ssignature if deposited in the United States Mail, certified, return receiptrequested, (c) on the day confirmed by the receiving facsimile machine ifsent by facsimile during regular business hours, in each case addressed to theparty to whom it is directed at the address set forth in the LoanAgreement.  Either party may, by noticegiven at any time or from time to time, require that subsequent notices begiven at a different address.  Anypayment shall be deemed made upon receipt by Payee.

 

*The next page is the signature page.*

 

B-3

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INWITNESS WHEREOF, Obligor has caused this Secured Promissory Note to be executedand delivered by its duly authorized officer as of the date and at the placefirst written above.

 
|   | OBLIGOR: | NATURADE,  INC.,        |
|--------|----------|-------------------------|
|   |     | a  Delaware corporation |
|   |     |                    |
|   |     |                    |   |   |
|   |     |                    | Bill  D. Stewart |
|   |     |                    | Chief  Executive Officer |

 

B-4

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**EXHIBIT C**

 

**Form of**

**SubordinationAgreement**

**([Name ofSubordinated Creditor])**

** **

ThisAgreement, dated as of                      ,200  , is made by                              ,a                              [corporation/limited liability company] (“Subordinated Creditor”), for thebenefit of Wells Fargo Business Credit, Inc., a Minnesota corporation(“Lender”).

 

Naturade,Inc., a Delaware corporation (“Borrower”), is now or hereafter may be indebtedto Lender on account of loans or the other extensions of credit or financialaccommodations from Lender to Borrower, or to any other person under theguaranty or endorsement of Borrower.

 

TheSubordinated Creditor has made or may make loans or grant other financialaccommodations to Borrower.

 

As acondition to making any loan or extension of credit to Borrower, Lender hasrequired that Subordinated Creditor subordinate the payment of SubordinatedCreditor’s loans and other financial accommodations to the payment of any andall indebtedness of Borrower to Lender. Assisting Borrower in obtaining credit accommodations from Lender andsubordinating its interests pursuant to the terms of this Agreement are inSubordinated Creditor’s best interest.

 

ACCORDINGLY,in consideration of the loans and other financial accommodations that have beenmade and may hereafter be made by Lender for the benefit of Borrower, and forother good and valuable consideration, the receipt and sufficiency of which arehereby acknowledged, Subordinated Creditor hereby agrees as follows:

 

1.                                       Definitions.  As used herein, the following terms have themeanings set forth below:

 

“Availability”has the meaning provided in the Credit and Security Agreement.

 

“BorrowerDefault” means Borrower’s failure to repay Lender Indebtedness, when due,or Borrower’s failure to perform any material covenant contained in anyagreement or instrument evidencing, governing, or issued in connection withLender Indebtedness, including, but not limited to, the Credit and SecurityAgreement.

 

“CollateralAgent” has the meaning set forth in the Loan Agreement.

 

“Creditand Security Agreement” means the Credit and Security Agreement dated as ofJanuary 27, 2000 by and between Borrower and Lender as the same may hereafterbe amended, supplemented or restated from time to time.

 

“LenderIndebtedness” means each and every debt, liability and obligation of everytype and description which Borrower may now or at any time hereafter owe toLender, whether such debt, liability or obligation now exists or is hereaftercreated or incurred, and whether it is or may be direct or indirect, due or tobecome due, absolute or contingent, primary or secondary, liquidated orunliquidated, or joint, several or joint and several, all interest thereon, 

 

C-1

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all renewals, extensions and modifications thereof andany notes issued in whole or partial substitution therefor.

 

“LoanAgreement” means that certain Loan Agreement between Borrower, SubordinatedCreditor and certain other parties, dated as of April    ,2003.

 

“SubordinatedCreditor Group” means, collectively, the Lender Group as defined in theLoan Agreement.

 

“SubordinatedIndebtedness” means all obligations arising under the Subordinated Note andeach and every other debt, liability and obligation of every type anddescription which Borrower may now or at any time hereafter owe to SubordinatedCreditor, whether such debt, liability or obligation now exists or is hereaftercreated or incurred, and whether it is or may be direct or indirect, due or tobecome due, absolute or contingent, primary or secondary, liquidated orunliquidated, or joint, several or joint and several.

 

“SubordinatedNote” means, collectively: (i) Borrower’s Secured Promissory Note,dated as of                 ,200  , payable to the order of Subordinated Creditor in the originalprincipal amount of up to [$450,000], together with all renewals, extensionsand modifications thereof and any note or notes issued in substitutiontherefor; and (ii) such additional notes of Borrower as may be made payable toSubordinated Creditor pursuant to the Loan Agreement in aggregate principalamount up to [$750,000].

 

2.                                       Subordination.  The payment of all of the SubordinatedIndebtedness is hereby expressly subordinated to the extent and in the mannerhereinafter set forth to the payment in full of Lender Indebtedness; andregardless of any priority otherwise available to Subordinated Creditor by lawor by agreement, Lender shall hold a first security interest in all collateralsecuring payment of Lender Indebtedness (the “Collateral”), and any securityinterest claimed therein (including any proceeds thereof) by SubordinatedCreditor shall be and remain fully subordinate for all purposes to the securityinterest of Lender therein for all purposes whatsoever until payment in full ofthe Lender Indebtedness.

 

3.                                       Payments.

 

(a)                                  Until all of the Lender Indebtedness hasbeen paid in full, Subordinated Creditor shall not, without Lender’s priorwritten consent, demand, receive or accept any payment (whether of principal,interest or otherwise) from Borrower in respect of the SubordinatedIndebtedness, or exercise any right of or permit any setoff in respect of theSubordinated Indebtedness; provided, however, that so long as there is noBorrower Default, and there is Availability in an amount equal to (1) $250,000minus (2)  the aggregate amount of alloverdrafts by Borrower permitted by Lender, Subordinated Creditor shall beentitled to receive all interest, when due, on the Subordinated Indebtedness.

 

(b)                                 In the event that a Borrower Default hasoccurred, which Borrower Default has been cured and remains cured for a periodof ninety (90) consecutive days and Availability is equal to an amount greaterthan in an amount equal to (1) $250,000 minus (2)  the aggregate amount of all overdrafts by Borrower permitted byLender,  then 

 

C-2

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SubordinatedCreditor shall be entitled to receive all interest payments due under anydocument evidencing Subordinated Indebtedness, including past due interest, onthe next regularly scheduled interest payment date.

 

4.                                       Receiptof Prohibited Payments.  IfSubordinated Creditor receives any payment on the Subordinated Indebtednessthat Subordinated Creditor is not entitled to receive under the provisions ofthis Agreement, Subordinated Creditor will hold the amount so received in trustfor Lender and will forthwith turn over such payment to Lender in the formreceived (except for the endorsement of Subordinated Creditor where necessary)for application to then-existing Lender Indebtedness (whether or not due), insuch manner of application as Lender may deem appropriate.  If Subordinated Creditor exercises any rightof setoff which Subordinated Creditor is not permitted to exercise under theprovisions of this Agreement, Subordinated Creditor will promptly pay over toLender, in immediately available funds, an amount equal to the amount of theclaims or obligations offset.  IfSubordinated Creditor fails to make any endorsement required under thisAgreement, Lender, or any of its officers or employees or agents on behalf ofLender, is hereby irrevocably appointed as the attorney-in-fact (whichappointment is coupled with an interest) for Subordinated Creditor to make suchendorsement in Subordinated Creditor’s name.

 

5.                                       Actionon Subordinated Debt.  CollateralAgent, on behalf of Subordinated Creditor Group, will not commence any actionor proceeding against Borrower to recover all or any part of the SubordinatedIndebtedness, or join with any creditor (unless Lender shall so join) inbringing any proceeding against Borrower under any bankruptcy, reorganization,readjustment of debt, arrangement of debt receivership, liquidation orinsolvency law or statute of the federal or any state government, or takepossession of, sell, or dispose of any Collateral, or exercise or enforce anyright or remedy available to Subordinated Creditor with respect to any suchCollateral, unless and until all Lender Indebtedness has been paid infull.  Subordinated Creditor shall notcommence any such action other than through Collateral Agent.

 

6.                                       ActionConcerning Collateral.

 

(a)                                  Notwithstanding any security interest nowheld or hereafter acquired by Subordinated Creditor, Lender may take possessionof, sell, dispose of, and otherwise deal with all or any part of theCollateral, and may enforce any right or remedy available to it with respect tothe Collateral, all without notice to or consent of Subordinated Creditorexcept as specifically required by applicable law.

 

(b)                                 In addition, and without limiting thegenerality of the foregoing, if a Borrower Default has occurred and iscontinuing and Borrower intends to sell any Collateral to an unrelated thirdparty outside the ordinary course of business, Collateral Agent shall onSubordinated Creditor’s behalf, upon Lender’s request, execute and deliver tosuch purchaser such instruments as may reasonably be necessary to terminate andrelease any security interest or lien Subordinated Creditor has in theCollateral to be sold.

 

(c)                                  Lender shall have no duty to preserve,protect, care for, insure, take possession of, collect, dispose of, orotherwise realize upon any of the Collateral, and in no event shall Lender bedeemed Subordinated Creditor’s agent with respect to the 

 

C-3

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Collateral.  All proceeds received by Lender with respectto any Collateral may be applied, first, to pay or reimburse Lender for allcosts and expenses (including reasonable attorneys’ fees) incurred by Lender inconnection with the collection of such proceeds, and, second, to anyindebtedness secured by Lender’s security interest in that Collateral in artyorder that it may choose.

 

7.                                       Bankruptcyand Insolvency.  In the event of anyreceivership, insolvency, bankruptcy, assignment for the benefit of creditors,reorganization or arrangement with creditors, whether or not pursuant tobankruptcy law, the sale of all or substantially all of the assets of Borrower,dissolution, liquidation or any other marshalling of the assets or liabilitiesof Borrower, Collateral Agent may, on behalf of Subordinated Creditor, file allclaims, proofs of claim or other instruments of similar character necessary toenforce the obligations of Borrower in respect of the Subordinated Indebtednessand will hold in trust for Lender and promptly pay over to Lender in the formreceived (except for the endorsement of Subordinated Creditor where necessary)for application to the then-existing Lender Indebtedness, any and all moneys,dividends or other assets received in any such proceedings on account of theSubordinated Indebtedness, unless and until all Lender Indebtedness has beenpaid in full. If Collateral Agent, on behalf of Subordinated Creditor, fails totake any such action within 30 days of being entitled to do so, Lender, asattorney-in-fact for Subordinated Creditor, may take such action onSubordinated Creditor’s behalf. The Subordinated Creditor hereby irrevocablyappoints Lender, or any of its officers or employees on behalf of Lender, asthe attorney-in-fact for Subordinated Creditor (which appointment is coupledwith an interest) with the power but not the duty to demand, sue for, collectand receive any and all such moneys, dividends or other assets received onaccount of the Subordinated Indebtedness and give acquittance therefor and tofile any claim, proof of claim or other instrument of similar characterregarding the Subordinated Indebtedness, to vote claims comprising SubordinatedIndebtedness to accept or reject any plan of partial or complete liquidation,reorganization, arrangement, composition or extension, and to take such otheraction in Lender’s own name or in the name of Subordinated Creditor as Lendermay deem necessary or advisable for the enforcement of the agreements containedherein; and Subordinated Creditor will execute and deliver to Lender such otherand further powers-of-attorney or instruments as Lender may request in order toaccomplish the foregoing.

 

8.                                       RestrictiveLegend; Transfer of Subordinated Indebtedness.

 

(a)                                  The Subordinated Creditor will cause theSubordinated Note and all other notes, bonds, debentures or other instrumentsevidencing the Subordinated Indebtedness or any part thereof to contain aspecific statement thereon to the effect that the indebtedness thereby evidencedis subject to the provisions of this Agreement, and Subordinated Creditor willmark its books conspicuously to evidence the subordination effected hereby.Attached hereto is a true and correct copy of the Subordinated Note bearingsuch legend.  At the request of Lender,Subordinated Creditor shall deposit with Lender the Subordinated Note and allof the other notes, bonds, debentures or other instruments evidencing theSubordinated Indebtedness, which notes, bonds, debentures or other instrumentsmay be held by Lender so long as any Lender Indebtedness remainsoutstanding.  The Subordinated Creditoris the lawful holder of the Subordinated Note and has not transferred anyinterest therein to any other person. Without the prior written consent of Lender, which consent shall not beunreasonably withheld, Subordinated 

 

C-4

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Creditorwill not assign, transfer or pledge to any other person any of the SubordinatedIndebtedness or agree to a discharge or forgiveness of the same so long asthere remains outstanding any of Lender Indebtedness.

 

(b)                                 Notwithstanding any other provision ofthis Agreement, Subordinated Creditor may, without the consent of Lender:(i) change its form of business entity; and (ii) assign, transfer orpledge the Subordinated Indebtedness to one of its affiliates, providedassignee assumes all obligations under this Subornation Agreement.

 

9.                                       ContinuingEffect.  This Agreement shallconstitute a continuing agreement of subordination, and Lender may, withoutnotice to or consent by Subordinated Creditor, modify any term of LenderIndebtedness in reliance upon this Agreement. Without limiting the generality of the foregoing, Lender may, at anytime and from time to time, either before or after receipt of any such noticeof revocation, without the consent of or notice to Subordinated Creditor andwithout incurring responsibility to Subordinated Creditor or impairing orreleasing any of Lender’s rights or any of Subordinated Creditor’s obligations hereunder:

 

(a)                                  change the interest rate or change theamount of payment or extend the time for payment or renew or otherwise alterthe terms of any Lender Indebtedness or any instrument evidencing the same inany manner;

 

(b)                                 sell, exchange, release or otherwise dealwith any property at any time securing payment of Lender Indebtedness or anypart thereof;

 

(c)                                  release anyone liable in any manner forthe payment or collection of the Lender Indebtedness or any part thereof;

 

(d)                                 exercise or refrain from exercising anyright against Borrower or any other person (including Subordinated Creditor);and

 

(e)                                  apply any sums received by Lender, bywhomsoever paid and however realized, to Lender Indebtedness in such manner asLender shall deem appropriate.

 

10.                                 NoCommitment.  None of the provisionsof this Agreement shall be deemed or construed to constitute or imply anycommitment or obligation on the part of Lender to make any future loans orother extensions of credit or financial accommodations to Borrower.

 

11.                                 Notice.All notices and other communications hereunder shall be in writing and shall be(i) personally delivered, (ii) transmitted by registered mail, postage prepaid,or (iii) transmitted by facsimile, in each case addressed to the party to whomnotice is being given at its address as set forth below:

 

C-5

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If toLender:

 

Wells Fargo Business Credit, Inc.

245 South Los Robles Avenue, Suite 600

Pasadena, California 91101

Attention:                      Account Executive

Facsimile:                         (626) 844-9063

 

If toSubordinated Creditor:

 

330 Primrose Road, Suite 500

Burlingame, CA 94104

Facsimile Number: (650) 685-8711

Attention: Lionel P. Boissiere, President

Facsimile:                     (626) 844-9063

 

with acopy (which shall not comprise notice) to:

 

Heller Ehrman White & McAuliffe LLP

601 South Figueroa Street 

Los Angeles, CA 

90017-5758 

Facsimile: (213) 614-1868

Attention: G. Thomas Stromberg Jr., Esq.

 

or atsuch other address as may hereafter be designated in writing by that party. Allsuch notices or other communications shall be deemed to have been given on(i) the date received if delivered personally, (ii) the date ofposting if delivered by mail, or (iii) the date of transmission ifdelivered by facsimile.

 

12.                                 Conflictin Agreements. If the subordination provisions of any instrument evidencingSubordinated Indebtedness conflict with the terms of this Agreement, the termsof this Agreement shall govern the relationship between Lender and SubordinatedCreditor.

 

13.                                 NoWaiver.  No waiver shall be deemedto be made by Lender of any of its rights hereunder unless the same shall be inwriting signed on behalf of Lender, and each such waiver, if any, shall be awaiver only with respect to the specific matter or matters to which the waiverrelates and shall in no way impair the rights of Lender or the obligations ofSubordinated Creditor to Lender in any other respect at any time.

 

14.                                 BindingEffect: Acceptance.  This Agreementshall be binding upon Subordinated Creditor and Subordinated Creditor’s heirs,legal representatives, successors and assigns and shall inure to the benefit ofLender and its participants, successors and assigns irrespective of whetherthis or any similar agreement is executed by any other Subordinated Creditor ofBorrower. Notice of acceptance by Lender of this Agreement or of reliance byLender upon this Agreement is hereby waived by Subordinated Creditor.

 

C-6

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15.                                 Miscellaneous.  The paragraph headings herein are includedfor convenience of reference only and shall not constitute a part of thisAgreement for any other purpose.  ThisAgreement may be executed in any number of counterparts, each of which shall bean original, but all of which together shall constitute one instrument.  This Agreement shall be governed by the laws(other than conflict laws) of the State of California.  Each party consents to the personaljurisdiction of the state and federal courts located in the State of Californiain connection with any controversy related to this Agreement, waives anyargument that venue in any such forum is not convenient, and agrees that anylitigation initiated by any of them in connection with this Agreement shall bevenued in either the Superior Court of California, Los Angeles County,California, or the United States District Court, Central District,Los Angeles Division.  THE PARTIESWAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON ORPERTAINING TO THIS ACKNOWLEDGMENT.

 

*The next page is the signature page.*

 

C-7

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INWITNESS WHEREOF, Subordinated Creditor has executed this SubordinationAgreement as of the date and year first above-written.

 
|   | [NAME] |
|--------|--------|
|   |   |
|   | By:    |   |   |
|   | Name:  |   |   |
|   | Title: |   |   |
|        |        |  |  |  |  |

 

C-8

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Acknowledgment by Borrower

 

Theundersigned, being the Borrower referred to in the foregoing SubordinationAgreement, hereby (i) acknowledges receipt of a copy thereof,(ii) agrees to all of the terms and provisions thereof, (iii) agreesto and with Lender that it shall make no payment on the SubordinatedIndebtedness that Subordinated Creditor would not be entitled to receive underthe provisions of the Agreement, (iv) agrees that any such payment willconstitute a default under the Lender Indebtedness, and (v) agrees to markits books conspicuously to evidence the subordination of the SubordinatedIndebtedness effected hereby.

 
|   | NATURADE,  INC. |
|--------|-----------------|
|   |            |
|   |            |
|   | By:             |   |   |
|   | Name:           |   |   |
|   | Title:          |   |   |
|        |                 |  |  |  |  |

 

C-9

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**SCHEDULEI**

 

**Lenders**

 
| **Lender** |                                                                         | **Commitment** |   |
|------------|------------------------------------------------------------------------------|----------------|--------|
| 1.         | Health  Holdings and Botanicals, LLC, a California limited liability company |           | $      | 700,000.00 |   |
|       |                                                                         |           |   |   |
|       | c/o  Doyle & Boissiere LLC                                               |           |   |   |
|       | 330  Primrose Road, Suite 500                                                |           |   |   |
|       | Burlingame,  California 94010                                                |           |   |   |
|       | Facsimile:  (650) 685-8711                                              |           |   |   |
|       |                                                                         |           |   |   |
|       | With  a copy of all notices to:                                              |           |   |   |
|       |                                                                         |           |   |   |
|       | Heller  Ehrman White & McAuliffe LLP                                     |           |   |   |
|       | 601  South Figueroa Street                                                   |           |   |   |
|       | Los  Angeles, CA                                                             |           |   |   |
|       | 90017-5758                                                                   |           |   |   |
|       | Facsimile:  (213) 614-1868                                              |           |   |   |
|       | Attention:  G. Thomas Stromberg Jr., Esq.                                    |           |   |   |
|       |                                                                         |           |   |   |
| 2.         | David  a. Weil                                                               |           | $      | 50,000.00 |   |
|       |                                                                         |           |   |   |
|       | 7730  Carondelet Ave                                                         |           |   |   |
|       | Suite  135                                                                   |           |   |   |
|       | St.  Louis, Missouri  63105                                             |           |   |   |
|       | Facsimile:  314-721-3043                                                     |           |   |   |
|       |                                                                         |           |   |   |
|       | With  a copy of all notices to:                                              |           |   |   |
|       |                                                                         |           |   |   |
|       | David  Weil                                                                  |           |   |   |
|       | 2338  Immokalee Road                                                         |           |   |   |
|       | Unit  103                                                                    |           |   |   |
|       | Naples,  Florida 34110                                                       |           |   |   |
|       |                                                                         |           |   |   |
| 3.         |                                                                         |           |   |   |
|       |                                                                         |           |   |   |
| 4.         |                                                                         |           |   |   |
|       |                                                                         |           |   |   |
| 5.         |                                                                         |           |   |   |

 

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**SCHEDULE II**

 

**Scheduleof Advances**

 
| **Date**                |   | **Lender**                            |   | **Amount  Advanced   by Lender** |    | **Total  Amount  of Advance** |    | **Notation  Made  By** |   |
|-------------------------|--------|---------------------------------------|--------|----------------------------------|---------|-------------------------------|---------|------------------------|--------|
| 4/   /03 |   | Health  Holdings & Botanicals LLC |   | $                                | 400,000 |                          |    |                   |   |   |
|                    |   | David A. Weil                         |   | $                                | 50,000  |                          |    |                   |   |   |
|                    |   |                                  |   |                             |    | $                             | 450,000 |                   |   |   |
|                    |   |                                  |   |                             |    |                          |    |                   |   |
|                    |   |                                  |   |                             |    |                          |    |                   |   |
|                    |   |                                  |   |                             |    |                          |    |                   |   |
|                    |   |                                  |   |                             |    |                          |    |                   |   |
|                    |   |                                  |   |                             |    |                          |    |                   |   |
|                    |   |                                  |   |                             |    |                          |    |                   |   |
|                    |   |                                  |   |                             |    |                          |    |                   |   |
|                         |        |                                       |        |                                  |         |                               |         |                        |        |  |  |

 

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