Exhibit
10.2


 


	
  

  	
  REVOLVING NOTE

  



 


 


	
   

  	
   

  	
  Note
  No. 709818/00003

  
	
   

  	
   

  	
   

  
	
  $3,000,000.00

  	
   

  	
  San
  Fernando Valley CBS Office #048

  
	
   

  	
   

  	
  Sherman
  Oaks, California 

  
	
   

  	
   

  	
  November
  4, 2004

  



 


On December 1, 2005, Natrol,
Inc., a Delaware corporation (“Borrower”), promises to pay to the
order of City National Bank, a national banking
association (“CNB”), at its office in this city, in United States Dollars and
in immediately available funds, the principal sum of Three
Million and 00/100 Dollars ($3,000,000.00) (“Revolving Credit Commitment”),
or so much thereof as may be advanced and be outstanding, with interest thereon
to be computed on each advance from the date of its disbursement at a rate
computed on a basis of a 360-day year, actual days elapsed, equal to the “Prime
Rate” of CNB, as it exists from time to time, plus Three Quarters of One
percent (0.75%) per year. “Prime Rate” shall mean the rate most recently
announced by CNB at its principal office in Beverly Hills, California, as its “Prime
Rate.” Any change in the Prime Rate shall become effective on the same business
day on which the Prime Rate shall change, without prior notice to Borrower.


 


As provided herein, the principal of this Note
may be borrowed, repaid and reborrowed from time to time prior to maturity,
provided at the time of any borrowing no Event of Default (as hereinafter
defined) exists, and provided further that the total borrowings outstanding at
any one time shall not exceed the lesser of (i) the Revolving Credit Commitment
or (ii) sixty percent (60%) of the total Eligible Accounts Receivable owing to
Borrower from time to time (“Borrowing Base”). Each borrowing and repayment
hereunder shall be noted in the books and records of CNB. The excess of
borrowings over repayments shall evidence the principal balance due hereon from
time to time and at any time. Borrowings hereunder shall be presumed to have
been made to or for the benefit of Borrower when made as noted in such books
and records.


 


Notwithstanding anything to the contrary in
this Note, Borrower shall, immediately upon demand, repay the amount by which
the outstanding principal balance of this Note exceeds the Borrowing Base. The
portion of the outstanding principal balance exceeding the Borrowing Base will
bear additional interest of three percent (3.00%) per year over the rate set
forth in the first paragraph above.


 


Interest accruing on this Note shall be
payable on the 1st day of each month, commencing January 1, 2005.


 


Borrower shall pay to CNB a late charge of 5%
or $10.00, whichever is greater, of any payment not received by CNB on or
before the 10th
day after the payment is due.


 


Eligible
Accounts Receivable shall mean those accounts receivable owed to Borrower:


 


A.                               Upon
which Borrower’s right to receive payment is absolute and not contingent upon
the fulfillment of any condition whatsoever;


B.                                 Against
which is asserted no defense, counterclaim, discount or setoff, whether
well-founded or otherwise;


C.                                 That
is a true and correct statement of a bona fide indebtedness incurred in the
amount of the accounts receivable for goods sold or leased and delivered to, or
for services rendered to and accepted by, the account debtor;


D.                                That
is owned by Borrower free and clear of all liens, encumbrances, charges,
interests, and rights of others, except security interests granted to CNB;


E.                                  That
does not arise from a sale or lease to or for services rendered to any
employee, stockholder,  director,  Subsidiary or affiliate of Borrower or any entity
in which any employee, stockholder, director, Subsidiary or affiliate of
Borrower has any interest;


 


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F.                                  That
is not the obligation of an account debtor that is the federal government
unless perfected under the Assignment of Claims Act;


G.                                 That
is not the obligation of an account debtor located in a foreign country;


H.                                That
is due and payable not more than thirty (30) days from the date of the billing
therefor unless otherwise agreed to in writing by CNB;


I.                                     As
to which not more than ninety (90) days have elapsed since the original invoice
date;


J.                                    As
to which the account debtor has not:


 


(i)                                   died,
suspended business, made a general assignment for the benefit of creditors,
become the subject of a petition under the Bankruptcy Code or consented to or
applied for the appointment of a receiver, trustee, custodian or liquidator for
itself or any of its property;


 


(ii)                                become
more than sixty (60) days past due, under the original terms of sale, with
respect to twenty percent (20%) or more of the amounts owed by such account
debtor to Borrower;


 


(iii)                                had
its check in payment of an accounts receivable returned unpaid; or


 


(iv)                            become
or appear to have become unable, in the opinion of CNB, to pay the account
receivable in accordance with its terms; and


 


K.           That does
not, when added to all other accounts receivable that are obligations of the
account debtor to Borrower, at any time result in a total sum that exceeds
twenty percent (20%) of the total balance then due on all accounts receivable.


 


The occurrence of
any of the following with respect to any Borrower or guarantor of this Note or
any general partner of such Borrower or guarantor, shall constitute an “Event
of Default” hereunder:


 


1.             Failure to make any payment of
principal or interest when due under this Note;


 


2.             Filing of a
petition by or against any of such parties under any provision of the Bankruptcy Code;


 


3.             Appointment of a receiver or an
assignee for the benefit of creditors;


 


4.             Commencement of dissolution or
liquidation proceedings or the disqualification 
(under any applicable law or regulation) of any of such parties which is
a corporation, partnership, joint venture or any other type of entity;


 


5.             Death or incapacity of any of such
parties which is an individual;


 


6.             Revocation of any guaranty of this
Note, or any guaranty of this Note becomes unenforceable as to any future
advances under this Note;


 


7.             Any financial statement provided by
any of such parties to CNB is false or materially misleading;


 


8.             Any material default in the payment
or performance of any obligation, or any default under any provision of any
contract or instrument pursuant to which any of such parties has incurred any
obligation for borrowed money, any purchase obligation or any other liability
of any kind to any person or entity, including CNB;


 


9.             Any sale or transfer of all or a
substantial part of the assets of any of such parties other than in the ordinary
course of business; or


 


10.           Any violation, breach or default
under this Note, any letter agreement, guaranty, security agreement, deed of trust,
subordination agreement or any other contract or instrument executed in connection
with this Note or securing this Note.


 


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Upon the occurrence of any Event of Default, CNB, at its option, may
declare all sums of principal and interest outstanding hereunder to be
immediately due and payable without presentment, demand, protest or notice of
dishonor all of which are
expressly waived by Borrower, and CNB shall have no obligation to make any
further advances hereunder. Borrower agrees to pay all costs and expenses,
including reasonable attorneys’ fees (which counsel may be CNB employees),
expended or incurred by CNB (or allocable to CNB’s in-house counsel) in
connection with the enforcement of this Note or the collection of any sums due
hereunder and irrespective of whether suit is filed. Any principal or interest
not paid when due hereunder shall thereafter bear additional interest from its
due date at a rate of five percent (5.0%) per year higher than the interest
rate as determined and computed above, and continuing thereafter until paid.


 


Should more than one person or entity execute this Note as Borrower,
the liability and obligations of each Borrower shall be joint and several.


 


This Note and all matters relating thereto, shall be governed by the
laws of the State of California.


 


	
  “Borrower”

  	
  Natrol, Inc., a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Elliott Balbert

  	
   

  
	
   

  	
   

  	
  Elliott Balbert, President

  
	
   

  	
   

  	
   

  
	
  BANK USE ONLY

  	
   

  	
   

  



 


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SAN FERNANDO VALLEY
COMMERICAL BANKING CENTER


15260 VENTURA BLVD.,
SUITE 1600


SHERMAN OAKS, CALIFORNIA
91403


818-382-1567


Fax (818) 382-1535


 


November 4, 2004


 


Natrol, Inc.


21411 Prairie


Chatsworth, CA 91311


 


Attention: Elliott Balbert, President


 


Re:                           Revolving Note dated
November 4, 2004, in the Original Principal Sum of $3,000,000.00 (“Note I”) executed by Natrol,
Inc., a Delaware corporation (“Borrower”) in favor of City National Bank, a
national banking association (“CNB”) and Promissory Note dated November 4, 2004, in the Original Principal Sum of
$750,000.00 (“Note II”) executed by Borrower in favor of CNB and Agreement for
Equipment Line Facility dated November 4, 2004, in the Original Principal Sum
of $500,000.00 (“Agreement”) executed by Borrower in favor of CNB.


 


Dear Mr. Balbert:


 


Reference
is made to the above-mentioned Note. This letter is to confirm that the
following additional terms and conditions will apply to the Note. Capitalized
terms not defined in this letter have the meanings given them in the Note. This
letter is hereby incorporated into the Note. In the event of any inconsistency
between the terms of this letter and the terms of the Note, the terms of this
letter shall control.


 


A.
ADDITIONAL EVENTS OF DEFAULT.


 


The following shall constitute additional Events of Default under the
Note:


 


1.            Failure of Borrower to furnish CNB, within the times
specified, the following statements:


 


1.1                            Monthly
reports of agings of Borrower’s accounts payable and accounts receivable, in
form acceptable to CNB, as soon as available, but in no event later than
fifteen (15) days after the end of each month, and a current list of names and
addresses of all account debtors upon request; and


 


1.2                            Such
additional  information, reports and/or
statements  as  CNB may, from time to time, reasonably
request;


 


2.            Failure of Borrower to maintain the following:


 


2.1          Tangible Net Worth
plus Subordinated Debt of not less than $29,400,000.00 at all times;


 


2.2                             A
ratio of Total Senior Liabilities to Tangible Net Worth plus Subordinated Debt
of not more than 1.25 to 1 at all times; and


 





















 


2.3                            A ratio of Cash Flow from Operations to Debt Service of not less than
1.25 to 1 for each fiscal quarter on a rolling 12 month basis;


 


3.                                     Borrower or any guarantor of the Note
defaults in the payment or performance of any obligation, or defaults under any
provision of any contract or instrument pursuant to which any of such parties
has incurred any obligation for borrowed money, any purchase obligation or any
other liability of any kind to any person or entity, including CNB; and


 


4.                                     Borrower or any Subsidiary shall be in
violation any law, ordinance, rule or regulation to which it or any of its
properties is subject which violation would have a material adverse impact upon
the operations or finances of Borrower or its Subsidiary.


 


B. DEFINITIONS.


 


For purposes of this letter, the following
terms have the following meanings:


 


“Cash
Flow from Operations” shall be determined on a consolidated
basis for Borrower and the Subsidiaries and shall mean the sum of (a) net
income earned over the twelve-month period ending on the date of determination,
plus (b) amortization of intangible assets, plus (c) interest expense, plus (d)
depreciation expensed during the twelve-month period ending on the date of
determination.


 


“Debt Service” shall mean (a) the aggregate amount of
Current Maturity of Long-Term Debt plus (b) all interest incurred on borrowed
money during the twelve-month period ending on the date of determination.  “Current Maturity of Long-Term Debt” shall
mean that portion of Borrower’s consolidated long-term liabilities, determined
in accordance with generally accepted accounting principles consistently
applied, which shall, by the terms thereof, become due and payable within one (1)
year following me date of the balance sheet upon which such calculations are
based.


 


“Subordinated Debt” shall mean indebtedness of Borrower or any
Subsidiary, the repayment of principal and interest of which is subordinated to
CNB, on terms satisfactory to CNB.


 


“Subsidiary” shall mean any corporation, the majority of
whose voting shares are at any time owned, directly or indirectly by Borrower
and/or by one or more Subsidiaries.


 


“Tangible Net Worth” shall mean the total of all assets appearing
on a balance sheet prepared in accordance with generally accepted accounting
principles consistently applied for Borrower and the Subsidiaries on a
consolidated basis, minus (a) all intangible assets, including, without
limitation, any accounts receivable converted to notes receivable, unamortizcd
debt discount, affiliate, employee and officer receivables or advances,
goodwill, research and development costs, patents, trademarks, the excess of
purchase price over underlying values of acquired companies, any covenants not
to compete, deferred charges, copyrights, franchises and appraisal surplus;
minus (b) all obligations which are required by generally accepted accounting
principles consistently applied to be reflected as a liability on the
consolidated balance sheet of Borrower and the Subsidiaries; minus, (c) the
amount, if any, at which shares of stock of a non-wholly owned Subsidiary
appear on the asset side of Borrower’s consolidated balance sheet, as
determined in accordance with generally accepted accounting principles
consistently applied; minus (d) minority interests; and minus (e) deferred
income and reserves not otherwise reflected as a liability on the consolidated
balance sheet of Borrower and the Subsidiaries.


 


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“Total Senior Liabilities” shall mean, as of any date of determination,
the amount of all obligations that should be reflected as a liability on a
consolidated balance sheet of Borrower and the Subsidiaries prepared in
accordance with generally accepted accounting principles consistently applied,
less Subordinated Debt.


 


C. ADDITIONAL TERMS AND
CONDITIONS.


 


The
following additional terms and conditions shall also apply to the Note:


 


1.                                  One time interest reduction: The interest rate charged on the Note shall
be reduced by one half of one percent (1/2%), (a) if, upon receipt of a copy of
Borrower’s Form 10Q, which has been filed by Borrower with the Securities and
Exchange Commission for the period ending September 30, 2004, the financial
statements contained therin show both (i) net after tax profits of at least $100,000
for such period ending September 30, 2004, and (ii) net after tax profits of at
least $1,300,000 for the year to date period ending September 30, 2004; or (b)
if, upon, receipt of a copy of Borrower’s Form 10K, which has been filed by
Borrower with the Securities and Exchange Commission for the fiscal year ending
December 31, 2004, the financial statements contained therein show net after
tax profits of at least $1,900,000 for such fiscal year ending December 31,
2004. Provided, however, total interest rate reductions under this provision
shall not exceed one half of one percent (1/2%).


 


If you agree to accept the terms of this letter and the Note, please
sign the enclosed acknowledgement copy of this letter, as well as the enclosed
Note, and return them to me on or before December 3, 2004.


 


Sincerely,


 


 


David
Alterman


Vice
President


 


 


Accepted and Agreed To By:


 


Natrol, Inc., a


Delaware
corporation


 


 


	
  By:

  	
  /s/ Elliott Balbert

  	
   

  
	
   

  	
  Elliott Balbert, President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
  11/19/04

  	
   

  



 


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DISBURSEMENT REQUEST AND
AUTHORIZATION


 


	
  Principal

  	
   

  	
  Loan Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No

  	
   

  	
  Call / Coll

  	
   

  	
  Account

  	
   

  	
  Officer

  	
   

  	
  Initials

  	
   

  
	
  $

  	
  3,000,000.00

  	
   

  	
  11-04-2004

  	
   

  	
  12-01-2005

  	
   

  	
  00003

  	
   

  	
   

  	
   

  	
  709818

  	
   

  	
  DA

  	
   

  	
   

  	
   

  
																	



 


References in the shaded area are for Lender’s use only and do not limit the applicability
of this document to any particular loan or item.


Any item above containing “*
* *” has been omitted due to text length limitations.


 


	
  Borrower:

  	
  NATROL,
  INC., A DELAWARE CORPORATION

  	
  Lender:

  	
  City
  National Bank, NA

  
	
   

  	
  21411
  PRAIRIE

  CHATSWORTH, CA 91311

  	
   

  	
  San
  Fernando Valley Commercial Banking Services

  
	
   

  	
   

  	
   

  	
  #048000

  
	
   

  	
   

  	
   

  	
  15260
  Ventura Boulevard, Suite 1600

  
	
   

  	
   

  	
   

  	
  Sherman
  Oaks, CA 91403

  



 


LOAN TYPE. This
is a Variable Rate Nondisclosable Revolving Line of Credit Loan to a Corporation
for $3,000,000.00 due on December 1, 2005. The reference rate (City National
Bank Prime Rate, currently 4.750%) is added to the margin of 0.750%, resulting
in an initial rate of 5.500.


 


PRIMARY PURPOSE OF LOAN.  The primary purpose of this loan is for:


 


o Personal, Family, or Household Purposes or Personal
Investment.


 


ý Business (Including Real Estate Investment).


 


SPECIFIC PURPOSE.  The specific purpose of this
loan is:  TEMPORARY WORKING CAPITAL.


 


DISBURSEMENT INSTRUCTIONS. Borrower understands
that no loan proceeds will be disbursed until all of Lender’s conditions for
making the loan have been satisfied. Please disburse the loan proceeds of
$3,000,000.00 as follows:


 




	
  Undisbursed Funds:

  	
   

  	
  $

  	
  3,000,000.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Note Principal:

  	
   

  	
  $

  	
  3,000,000.00

  	
   

  






 


 


LOAN PROCEEDS. Loan proceeds are to be credited to Account Number 412-913256 at City
National Bank.


 


FINANCIAL CONDITION.  BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS
AND WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT
AND THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER’S FINANCIAL
CONDITION AS DISCLOSED IN BORROWER’S MOST RECENT FINANCIAL STATEMENT TO
LENDER.  THIS AUTHORIZATION IS DATED
NOVEMBER 4, 2004.


 


BORROWER:


 


 


	
  NATROL,
  INC., A DELAWARE CORPORATION

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Elliott Balbert

  	
   

  
	
   

  	
  ELLIOTT
  BALBERT, President of NATROL, INC., A

  
	
   

  	
  DELAWARE
  CORPORATION

  



 


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