Document:

Exhibit 10.40

 

Loan Agreement

 

Dated as of April 14, 2003

 

NATURADE,
INC., a Delaware corporation (“Borrower”), on the one hand, and the lender
parties 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.                                       Amounts
and Terms of the Advances.

 

1.1                                 The Advances.

 

(a)                                  Lender Group agrees, on the terms and
conditions 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 not
required or authorized to close in San Francisco (a “Business Day”) during the
period from the date hereof until December 31, 2004 (the “Termination
Date”) in an aggregate principal amount not to exceed seven hundred fifty
thousand United States dollars (US$750,000) (the “Commitment”).  The aggregate amount advanced by each Lender
shall not exceed the amount set forth beside such Lender’s name on
Schedule I;

 

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

 

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

 

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

 

1.2                                 Making the Advances.

 

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

 

(b)                                 Each subsequent Advance shall be made on
notice, given not later than 
11:00 A.M. (San Francisco time) on the third Business Day prior to
the date of the proposed Advance, by Borrower to Lender Group in the manner set
forth 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 not
to make the requested Advance (and in the event Lender Group determines to make
the Advance, the amount of Advances by each Lender).  Lender Group shall notify Borrower whether Lender Group will make
the Advance within two Business Days of Lender Group’s receipt of the notice
requesting the Advance; provided, however, that if Lender Group
does not notify Borrower of Lender Group’s agreement to make the Advance within
that period, Lender Group shall be deemed to have notified Borrower that Lender
Group will not make the Advance, and no further notice of Lender Group shall be
required hereunder.  If Lender Group
notifies Borrower of Lender Group’s agreement to make the Advance requested by
Borrower, upon fulfillment of the applicable conditions set forth in Section 2,
Lender Group will pay the Advance to Borrower in same day funds by wire
transfer to Borrower’s account for wire transfers.

 

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

 

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

 

1.3                                 Repayment.  Borrower
shall repay the aggregate unpaid principal amount of all Advances, together
with all amounts of interest then accrued thereon, on or before the Termination
Date.

 

1.4                                 Interest.  On the last
Business Day of each calendar quarter beginning after the date hereof, Borrower
shall pay to Lender Group all amounts of interest then accrued and unpaid with
respect to the Advances as provided below. 
Borrower shall pay interest on the unpaid principal amount of each
Advance from the date of such Advance until such principal amount shall be paid
in full, at the rate of fifteen percent (15%) per annum; provided,  however
that any amount of principal which is not paid when due (whether at stated
maturity, by acceleration or otherwise) shall bear interest, from the date on
which 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%) per
annum.  Accrued and unpaid interest
shall compound quarterly at the rate of fifteen percent (15%) per annum from
the date first due.

 

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

 

1.6                                 Payments and Computations.

 

(a)                                  Borrower shall make each payment
hereunder not later than 11:00 a.m. (San Francisco time) on the day when
due in United States dollars to each Lender at its address provided in Schedule
I in same day funds.  All payments of
principal and interest shall be made in proportion to the Pro Rata Share of
each Lender.

 

(b)                                 All computations of interest shall be
made by Lender Group on the basis of a year of 365 or 366 days, as the case may
be, in each case for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest is
payable.  Each determination by Lender
Group of any amount of interest payable hereunder shall be conclusive and
binding for all purposes, absent manifest error.

 

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

 

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

 

(a)                                  all current or hereafter acquired or
arising Equipment, General Intangibles, Inventory, Receivables, Investment
Property, deposit accounts, letters of credit, proceeds of letters of credit,
chattel paper and all sums on deposit in any collateral account established for
the benefit of any lender,  and any items
in any lockbox established for the benefit of any lender, together with (i) all
substitutions and replacements for and products of any of the foregoing; (ii)
proceeds of any and all of the foregoing; (iii) in the case of all tangible
goods, all accessions; (iv) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection with any
tangible goods; (v) all warehouse receipts, bills of lading and other documents
of title now or hereafter covering such goods; and (vi) any life insurance
policy owned by Borrower.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

1.8                                 Collateral Agency and Intercreditor
Provisions.

 

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

 

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

 

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

 

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

 

(e)                                  HHB agrees that so long as it acts as
Collateral Agent hereunder it shall promptly provide a copy of all
communications received or made on behalf of Lending Group to each other
Lender.

 

(f)                                    Each Lender agrees that no Lender shall
have any independent right of action against the Collateral or any part thereof
under the Notes or this Agreement, but that all such actions shall be taken
through Collateral Agent, and that the rights and remedies of Collateral Agent
hereunder shall only be exercised at the direction of the Required Combined
Lenders (notwithstanding the occurrence of any Event of Default hereunder or
acceleration of the obligations hereunder or under any Note).  Collateral Agent hereby agrees (and each
Lender acknowledges such agreement) that it shall not enforce the security
interests of any individual Lender in the Collateral without the direction and
consent of the Required Combined Lenders.

 

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

 

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

 

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

 

(ii)                                  Second, to the Lenders ratably in
accordance with their Pro Rata Shares until the obligations under the Notes are
satisfied; and

 

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

 

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

 

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

 

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

 

1.9                                 Security for Obligations. 
This Agreement secures the repayment of all obligations of Borrower now
or hereafter existing under this Agreement and any other document or instrument
delivered in connection herewith, whether for principal, interest, fees,
expenses or otherwise (all such obligations being the “Secured
Obligations”).  Without limiting the
generality of the foregoing, this Agreement secures the payment of all amounts
that constitute part of the Secured Obligations and would be owed by Borrower
to Lender Group but for the fact that they are unenforceable or not allowable
due to the existence of a bankruptcy, reorganization or similar proceeding
involving Borrower.

 

1.10                           Borrower Remains Liable. 
Anything herein to the contrary notwithstanding, (a) Borrower shall
remain liable under the contracts and agreements included in the Collateral to
the extent set forth therein to perform all of its duties and obligations
thereunder 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 not
release Borrower from any of its duties or obligations under the contracts and
agreements included in the Collateral and (c) Lender Group shall have no 

 

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obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall
Lender Group be obligated to perform any of the obligations or duties of
Borrower thereunder or to take any action to collect or enforce any claim for
payment 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 further
instruments and documents, and take all further action, that may be necessary
or desirable, or that Collateral Agent, on behalf of Lender Group, may
reasonably request, in order to perfect and protect any pledge, assignment or
security interest granted or purported to be granted hereby or to enable
Collateral Agent on behalf of Lender Group to exercise and enforce its right
and remedies hereunder with respect to any Collateral.

 

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

 

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

 

1.12                           As To Equipment and Inventory.

 

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

 

(b)                                 Borrower shall cause the Equipment to be
maintained and preserved in the same condition, repair and working order as
when new, ordinary wear and tear excepted, and in accordance with any
manufacturer’s manual, and shall forthwith, or in the case of any material loss
or damage to any of the Equipment as quickly as practicable after the
occurrence thereof, make or cause to be made all repairs, replacements and
other improvements in connection therewith that are necessary or desirable to
such end.  Borrower shall promptly
furnish to Collateral Agent a statement respecting any material loss or damage
to any of the Equipment.

 

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

 

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1.13                           Insurance.  Borrower
shall, at its own expense, maintain insurance with respect to the Equipment and
Inventory in such amounts, against such risks, in such form and with such
insurers, as shall be reasonably satisfactory to Collateral Agent from time to
time.  Further, Borrower shall, at the
request of Collateral Agent, duly exercise and deliver instruments of
assignment of such insurance policies to comply with the requirements of this
Agreement 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 protect
its and Lender Group’s interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. 
Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Collateral Agent
shall have no duty as to any Collateral, or as to the taking of any necessary
steps to preserve rights against any parties or any other rights pertaining to
any Collateral.

 

1.15                           Continuing Security Interest. 
This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the later
of the indefeasible cash payment in full of the Secured Obligations and the
Termination Date, (b) be binding upon Borrower, its successors and assigns
and (c) inure, together with the rights and remedies of the Collateral
Agent on behalf of Lender Group hereunder, to the benefit of Collateral Agent
and 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 and
all rights to Collateral shall revert to Borrower.  Upon any such termination, Collateral Agent and Lender Group
will, at Borrower’s expense, execute and deliver to Borrower such documents as
Borrower shall reasonably request to evidence such termination.

 

1.17                           Indemnification of Collateral Agent. 
Borrower and each Lender agree to indemnify and hold harmless Collateral
Agent for all liability, 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 the actions of
Collateral Agent hereunder, except to the extent such liability, loss, damage,
cost, or expense resulted from gross negligence or willful misconduct of
Collateral Agent.

 

1.18                           Indemnification of Borrower. 
Each Lender agrees to indemnify and hold harmless Borrower for all
liability, 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 in
conformance with the terms and conditions of this Agreement that are made in
reasonable reliance on a communication by Collateral Agent as an instruction or
notice of Lender Group or any Lender.

 

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

 

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

 

2.                                       Conditions
of Lending.

 

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

 

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

 

3.                                       Events
of Default.

 

3.1                                 Events of Default. 
If any of the following events (each an “Event of Default”) shall occur
and 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 any
material term, covenant or agreement contained in this Agreement (other than
those specified in Section 3.1(a)) on its part to be performed or observed
and if such failure shall remain unremedied for 10 days after written notice
thereof shall have been given to Borrower by Collateral Agent;

 

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

 

9

 

it
or its debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for it
or for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either such
proceeding shall remain undismissed or unstayed for a period of 30 days, or any
of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver,
trustee, custodian or other similar official for, it or for any substantial part
of its property) shall occur; or if Borrower takes any corporate action to
authorize 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 any
person other than Wells Fargo Business Credit, Inc. (the “Bank”), or under any
indenture or other instrument under which any such evidence of indebtedness has
been issued or by which it is governed, or under any lease of any of the
premises where the Borrower conducts its business and has any rights of
possession, and the expiration of the applicable period of grace, if any,
specified in such evidence of indebtedness, indenture, other instrument or
lease; or

 

(e)                                  Borrower’s obligation to pay in full the
principal amount of any bond, debenture, note or other evidence of indebtedness
owed to any person shall be accelerated from its stated time of maturity and
become 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 written
approval of Required Combined Lenders, (i) may, by notice to Borrower,
declare its obligation to make Advances to be terminated, whereupon the same
shall forthwith terminate, and (ii) may, by notice to Borrower, declare
the Advances, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Advances, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest, or further notice of any kind, all of
which are hereby expressly waived by Borrower; provided, however,
that in the event of an actual or deemed entry of an order for relief with
respect to Borrower under the Federal Bankruptcy Code, (A) the obligation of
Lender Group to make Advances shall automatically be terminated and (B) the
Advances and all such interest and all such amounts shall automatically become
and be due and payable, without presentment, demand, protest or any notice of
any kind, all of which are hereby expressly waived by Borrower.

 

4.                                       Representations
by Lender Group.

 

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

 

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(b)                                 By accepting the Notes, each Lender
acknowledges that the Notes shall be acquired for investment and not for
distribution, as that term is used in the 1933 Act, unless in the opinion of
legal counsel to Borrower such distribution is in compliance with or exempt from
the registration requirements of the 1933 Act, and each Lender further
acknowledges and understands that the Notes may have to be held indefinitely
unless they have been or are subsequently registered under the 1933 Act or an
exemption from such registration is available; each Lender understands that the
certificates evidencing the Notes will be imprinted with a legend substantially
as follows:

 

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

 

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

 

5.                                       Certain
Corporate Transactions.  Nothing in
this Agreement shall in any way prohibit Borrower from merging with or
consolidating into another corporation, or from selling or transferring all or
substantially all of its assets, or from distributing all or substantially all
of its assets to its stockholders in liquidation, or from dissolving and
terminating its corporate existence.  In
the event Borrower merges or consolidates with another corporation, or all or substantially
all of Borrower’s capital stock or assets are acquired by or are subject to a
tender offer of another corporation, entity or person (collectively, together
with each event described in the immediately preceding sentence, “Control
Events”), and the surviving or acquiring corporation, person or entity issues
shares of stock or other consideration to Borrower’s stockholders in connection
with the merger, consolidation or acquisition, the surviving or acquiring
corporation shall adopt this Agreement.

 

6.                                       Miscellaneous.

 

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

 

11

 

6.2                                 Notices, Etc. 
All notices and other communications provided for hereunder between Borrower
on the one hand, and Lender Group, any Lender and Collateral Agent on the other
hand, 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 a
copy (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 if
to 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 a
copy (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, as
to each party, at such other address as shall be designated by such party in a
written notice to the other party.  All
such notices and communications shall effective when actually received by the
party notified.

 

6.3                                 No Waiver; Remedies. 
No failure on the part of Lender Group or any Lender to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right.  The remedies herein provided are cumulative
and not exclusive of any remedies provided by law.

 

12

 

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

 

6.5                                 Costs, Expenses and Taxes.

 

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

 

(b)                                 Borrower agrees to indemnify Collateral
Agent and Lender Group from and against any and all claims, losses and
liabilities growing out of or resulting from this Agreement (including, without
limitation, enforcement of this Agreement), except claims, losses or
liabilities resulting from gross negligence or willful misconduct of Collateral
Agent or Lender Group as determined by a final judgment of a court of competent
jurisdiction, and except to the extent arising from matters contemplated by
Section 1.18 above.

 

(c)                                  Borrower will upon demand pay to
Collateral Agent and Lender Group the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, that Collateral Agent and Lender Group may incur in
connection with (i) the administration of this Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from or
other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of Collateral Agent and Lender Group hereunder
or (iv) the failure by Borrower to perform or observe any of the
provisions 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, is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all amounts at any time held and
other indebtedness at any time owing by Lender Group to or for the credit or
the account of Borrower against any and all of the 

 

13

 

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

 

6.7                                 Binding Effect. 
This Agreement shall be binding upon and inure to the benefit of
Borrower and Collateral Agent and Lender Group and their respective successors
and assigns, except that Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Required 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 to
the contrary appearing in this Agreement notwithstanding, if any return,
interest payment, or other charge payable under this Agreement shall at any
time exceed the maximum amount chargeable by applicable law, then the
applicable rate of return or interest shall be the maximum rate permitted by
applicable law.

 

6.10                           Subordination. 
Borrower’s obligation under this Agreement shall in all respects be
subject and subordinate to Borrower’s obligations to the Bank as provided in
one or more Subordination Agreements to be delivered to Borrower by each Lender
substantially in the form of  Exhibit
C hereto.

 

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

 

The next page is the signature page.

 

14

 

IN
WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first 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

 

EXHIBIT A

 

FORM OF

JOINDER TO LOAN AGREEMENT OF NATURADE, INC.

 

The
undersigned is executing and delivering this Joinder to Loan Agreement
(“Joinder Agreement”) pursuant to that certain Loan Agreement dated as of
April 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”).

 

Any
capitalized terms used but not defined herein shall have the meanings ascribed
to them in the Loan Agreement.

 

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

 

Joining
Party represents to Corporation and Lender Group that he is an accredited investor
as defined in Rule 501 of Regulation D under the Securities Act of 1933, as
amended.

 

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

 

Contemporaneously
with the delivery of this Joinder Agreement, the Joining Party shall execute
and deliver to Borrower a Subordination Agreement in the form of Exhibit C to
the Loan Agreement.

 

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

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Fax:

  	
   

  	
   

  
				

 

IN
WITNESS WHEREOF, Joining Party has executed and delivered this Joinder to Loan
Agreement as of the       day of
                         ,
200  .

 

	
   

  	
   

  	
   

  
	
   

  	
  [type name]

  

 

ACKNOWLEDGED:

 

NATURADE, INC.

 

	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  
					

 

A

 

EXHIBIT B

 

Form of Secured Promissory Note

 

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

 

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

 

	
  $                      

  	
   

  	
  Irvine,
  California

  
	
   

  	
   

  	
                      ,
  200   

  

 

FOR
VALUE RECEIVED, NATURADE, INC., a Delaware corporation (“Obligor”), hereby
promises to pay to the order of
                                      
(“Payee”), in lawful money of the United States at the address of Payee set
forth below, the amount of
                                               ,
together with interest on the unpaid principal amount hereof.

 

Capitalized
terms not otherwise defined in this Note shall have the meanings assigned to
them in the Loan Agreement (as defined below).

 

Interest
shall be paid in arrears on the last Business Day of each calendar quarter
beginning after the date hereof, until the principal amount shall be paid in
full, at the rate of fifteen percent (15.00%) per annum, provided,  however
that any amount of principal which is not paid when due (whether at stated
maturity, by acceleration or otherwise) shall bear interest, from the date on
which 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%) per
annum.  Accrued and unpaid interest
shall compound quarterly at the rate of fifteen percent (15%) per annum from
the date first due.

 

The
principal amount and any accrued and unpaid interest shall be due and payable
in full on December 31, 2004, by electronic wire transfer of immediately
available funds or by mail to the address of the registered holder of this Note
in lawful money of the United States.

 

Borrower
shall make each payment hereunder not later than 11:00 a.m. (San Francisco
time) on the day when due in United States dollars to each Lender at its
address provided in Schedule I to the Loan Agreement in same day funds.

 

B-1

 

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

 

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

 

This
Note 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 first
to any and all accrued interest through the payment date and second to the
principal remaining due hereunder.  Upon
payment in full of all principal and interest payable hereunder, this Note
shall be surrendered to Obligor for cancellation.

 

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

 

Obligor
waives 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 shall
operate 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 respects
by the laws of the State of California as it applies to contracts between
California residents, which are made and to be performed in California.

 

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

 

The
Obligor and the Payee intend to comply at all times with applicable usury
laws.  If at any time such laws would
render usurious any amounts due under this Note, then it is the Obligor’s and
the Payee’s express intention that the Obligor not be required to pay interest
on this Note at a rate in excess of the maximum lawful rate, that the provisions
of this paragraph shall control over all other provisions of this Note which
may be in apparent conflict hereunder, that such excess amount shall be
immediately credited to the principal balance of this Note (or, if this Note
has been fully paid, refunded by the Payee to the Obligor), and the provisions
hereof shall be immediately reformed and the amounts thereafter collectible
under this Note reduced, without the necessity of the execution of any further
documents, so as to comply with the then applicable usury law, but so as to
permit the recovery of the fullest amount otherwise due under this Note.  Any such crediting or refund shall not cure
or waive any default by the Obligor under this Note.  The term “applicable law” as used in this Note shall mean the
laws of the State of California or the laws of the United States, whichever
laws allow the greater rate of interest, as such laws now exist or may be
changed or amended or come into effect in the future.

 

B-2

 

No
modification, amendment or waiver of any provision of this Note shall be
effective unless approved in a writing specifically referring to this Note and
signed by Borrower and by Collateral Agent on behalf of Payee.

 

Each
notice or other communication required or permitted hereunder (except payment)
shall be in writing and shall be deemed given or made (a) on the day
delivered if delivered in person to the party to whom it is directed, or by
overnight courier, (b) on the day delivery is confirmed by the recipient’s
signature if deposited in the United States Mail, certified, return receipt
requested, (c) on the day confirmed by the receiving facsimile machine if
sent by facsimile during regular business hours, in each case addressed to the
party to whom it is directed at the address set forth in the Loan
Agreement.  Either party may, by notice
given at any time or from time to time, require that subsequent notices be
given at a different address.  Any
payment shall be deemed made upon receipt by Payee.

 

The next page is the signature page.

 

B-3

 

IN
WITNESS WHEREOF, Obligor has caused this Secured Promissory Note to be executed
and delivered by its duly authorized officer as of the date and at the place
first written above.

 

	
   

  	
  OBLIGOR:

  	
  NATURADE,
  INC.,

  
	
   

  	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Bill
  D. Stewart

  
	
   

  	
   

  	
   

  	
  Chief
  Executive Officer

  

 

B-4

 

EXHIBIT C

 

Form of

Subordination
Agreement

([Name of
Subordinated Creditor])

 

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

 

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

 

The
Subordinated Creditor has made or may make loans or grant other financial
accommodations to Borrower.

 

As a
condition to making any loan or extension of credit to Borrower, Lender has
required that Subordinated Creditor subordinate the payment of Subordinated
Creditor’s loans and other financial accommodations to the payment of any and
all indebtedness of Borrower to Lender. 
Assisting Borrower in obtaining credit accommodations from Lender and
subordinating its interests pursuant to the terms of this Agreement are in
Subordinated Creditor’s best interest.

 

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

 

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

 

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

 

“Borrower
Default” means Borrower’s failure to repay Lender Indebtedness, when due,
or Borrower’s failure to perform any material covenant contained in any
agreement or instrument evidencing, governing, or issued in connection with
Lender Indebtedness, including, but not limited to, the Credit and Security
Agreement.

 

“Collateral
Agent” has the meaning set forth in the Loan Agreement.

 

“Credit
and Security Agreement” means the Credit and Security Agreement dated as of
January 27, 2000 by and between Borrower and Lender as the same may hereafter
be amended, supplemented or restated from time to time.

 

“Lender
Indebtedness” means each and every debt, liability and obligation of every
type and description which Borrower may now or at any time hereafter owe to
Lender, whether such debt, liability or obligation now exists or is hereafter
created or incurred, and whether it is or may be direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several, all interest thereon, 

 

C-1

 

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

 

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

 

“Subordinated
Creditor Group” means, collectively, the Lender Group as defined in the
Loan Agreement.

 

“Subordinated
Indebtedness” means all obligations arising under the Subordinated Note and
each and every other debt, liability and obligation of every type and
description which Borrower may now or at any time hereafter owe to Subordinated
Creditor, whether such debt, liability or obligation now exists or is hereafter
created or incurred, and whether it is or may be direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several or joint and several.

 

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

 

2.                                       Subordination.  The payment of all of the Subordinated
Indebtedness is hereby expressly subordinated to the extent and in the manner
hereinafter set forth to the payment in full of Lender Indebtedness; and
regardless of any priority otherwise available to Subordinated Creditor by law
or by agreement, Lender shall hold a first security interest in all collateral
securing payment of Lender Indebtedness (the “Collateral”), and any security
interest claimed therein (including any proceeds thereof) by Subordinated
Creditor shall be and remain fully subordinate for all purposes to the security
interest of Lender therein for all purposes whatsoever until payment in full of
the Lender Indebtedness.

 

3.                                       Payments.

 

(a)                                  Until all of the Lender Indebtedness has
been paid in full, Subordinated Creditor shall not, without Lender’s prior
written consent, demand, receive or accept any payment (whether of principal,
interest or otherwise) from Borrower in respect of the Subordinated
Indebtedness, or exercise any right of or permit any setoff in respect of the
Subordinated Indebtedness; provided, however, that so long as there is no
Borrower Default, and there is Availability in an amount equal to (1) $250,000
minus (2)  the aggregate amount of all
overdrafts by Borrower permitted by Lender, Subordinated Creditor shall be
entitled to receive all interest, when due, on the Subordinated Indebtedness.

 

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

 

C-2

 

Subordinated
Creditor shall be entitled to receive all interest payments due under any
document evidencing Subordinated Indebtedness, including past due interest, on
the next regularly scheduled interest payment date.

 

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

 

5.                                       Action
on Subordinated Debt.  Collateral
Agent, on behalf of Subordinated Creditor Group, will not commence any action
or proceeding against Borrower to recover all or any part of the Subordinated
Indebtedness, or join with any creditor (unless Lender shall so join) in
bringing any proceeding against Borrower under any bankruptcy, reorganization,
readjustment of debt, arrangement of debt receivership, liquidation or
insolvency law or statute of the federal or any state government, or take
possession of, sell, or dispose of any Collateral, or exercise or enforce any
right or remedy available to Subordinated Creditor with respect to any such
Collateral, unless and until all Lender Indebtedness has been paid in
full.  Subordinated Creditor shall not
commence any such action other than through Collateral Agent.

 

6.                                       Action
Concerning Collateral.

 

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

 

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

 

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

 

C-3

 

Collateral.  All proceeds received by Lender with respect
to any Collateral may be applied, first, to pay or reimburse Lender for all
costs and expenses (including reasonable attorneys’ fees) incurred by Lender in
connection with the collection of such proceeds, and, second, to any
indebtedness secured by Lender’s security interest in that Collateral in arty
order that it may choose.

 

7.                                       Bankruptcy
and Insolvency.  In the event of any
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization or arrangement with creditors, whether or not pursuant to
bankruptcy law, the sale of all or substantially all of the assets of Borrower,
dissolution, liquidation or any other marshalling of the assets or liabilities
of Borrower, Collateral Agent may, on behalf of Subordinated Creditor, file all
claims, proofs of claim or other instruments of similar character necessary to
enforce the obligations of Borrower in respect of the Subordinated Indebtedness
and will hold in trust for Lender and promptly pay over to Lender in the form
received (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 the
Subordinated Indebtedness, unless and until all Lender Indebtedness has been
paid in full. If Collateral Agent, on behalf of Subordinated Creditor, fails to
take any such action within 30 days of being entitled to do so, Lender, as
attorney-in-fact for Subordinated Creditor, may take such action on
Subordinated Creditor’s behalf. The Subordinated Creditor hereby irrevocably
appoints Lender, or any of its officers or employees on behalf of Lender, as
the attorney-in-fact for Subordinated Creditor (which appointment is coupled
with an interest) with the power but not the duty to demand, sue for, collect
and receive any and all such moneys, dividends or other assets received on
account of the Subordinated Indebtedness and give acquittance therefor and to
file any claim, proof of claim or other instrument of similar character
regarding the Subordinated Indebtedness, to vote claims comprising Subordinated
Indebtedness to accept or reject any plan of partial or complete liquidation,
reorganization, arrangement, composition or extension, and to take such other
action in Lender’s own name or in the name of Subordinated Creditor as Lender
may deem necessary or advisable for the enforcement of the agreements contained
herein; and Subordinated Creditor will execute and deliver to Lender such other
and further powers-of-attorney or instruments as Lender may request in order to
accomplish the foregoing.

 

8.                                       Restrictive
Legend; Transfer of Subordinated Indebtedness.

 

(a)                                  The Subordinated Creditor will cause the
Subordinated Note and all other notes, bonds, debentures or other instruments
evidencing the Subordinated Indebtedness or any part thereof to contain a
specific statement thereon to the effect that the indebtedness thereby evidenced
is subject to the provisions of this Agreement, and Subordinated Creditor will
mark its books conspicuously to evidence the subordination effected hereby.
Attached hereto is a true and correct copy of the Subordinated Note bearing
such legend.  At the request of Lender,
Subordinated Creditor shall deposit with Lender the Subordinated Note and all
of the other notes, bonds, debentures or other instruments evidencing the
Subordinated Indebtedness, which notes, bonds, debentures or other instruments
may be held by Lender so long as any Lender Indebtedness remains
outstanding.  The Subordinated Creditor
is the lawful holder of the Subordinated Note and has not transferred any
interest therein to any other person. 
Without the prior written consent of Lender, which consent shall not be
unreasonably withheld, Subordinated 

 

C-4

 

Creditor
will not assign, transfer or pledge to any other person any of the Subordinated
Indebtedness or agree to a discharge or forgiveness of the same so long as
there remains outstanding any of Lender Indebtedness.

 

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

 

9.                                       Continuing
Effect.  This Agreement shall
constitute a continuing agreement of subordination, and Lender may, without
notice to or consent by Subordinated Creditor, modify any term of Lender
Indebtedness in reliance upon this Agreement. 
Without limiting the generality of the foregoing, Lender may, at any
time and from time to time, either before or after receipt of any such notice
of revocation, without the consent of or notice to Subordinated Creditor and
without incurring responsibility to Subordinated Creditor or impairing or
releasing any of Lender’s rights or any of Subordinated Creditor’s obligations hereunder:

 

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

 

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

 

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

 

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

 

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

 

10.                                 No
Commitment.  None of the provisions
of this Agreement shall be deemed or construed to constitute or imply any
commitment or obligation on the part of Lender to make any future loans or
other 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 whom
notice is being given at its address as set forth below:

 

C-5

 

If to
Lender:

 

Wells Fargo Business Credit, Inc.

245 South Los Robles Avenue, Suite 600

Pasadena, California 91101

Attention:                      Account Executive

Facsimile:                         (626) 844-9063

 

If to
Subordinated Creditor:

 

330 Primrose Road, Suite 500

Burlingame, CA 
94104

Facsimile Number: (650) 685-8711

Attention: 
Lionel P. Boissiere, President

Facsimile:                     (626) 844-9063

 

with a
copy (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 at
such other address as may hereafter be designated in writing by that party. All
such notices or other communications shall be deemed to have been given on
(i) the date received if delivered personally, (ii) the date of
posting if delivered by mail, or (iii) the date of transmission if
delivered by facsimile.

 

12.                                 Conflict
in Agreements. If the subordination provisions of any instrument evidencing
Subordinated Indebtedness conflict with the terms of this Agreement, the terms
of this Agreement shall govern the relationship between Lender and Subordinated
Creditor.

 

13.                                 No
Waiver.  No waiver shall be deemed
to be made by Lender of any of its rights hereunder unless the same shall be in
writing signed on behalf of Lender, and each such waiver, if any, shall be a
waiver only with respect to the specific matter or matters to which the waiver
relates and shall in no way impair the rights of Lender or the obligations of
Subordinated Creditor to Lender in any other respect at any time.

 

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

 

C-6

 

15.                                 Miscellaneous.  The paragraph headings herein are included
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.  This
Agreement may be executed in any number of counterparts, each of which shall be
an 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 personal
jurisdiction of the state and federal courts located in the State of California
in connection with any controversy related to this Agreement, waives any
argument that venue in any such forum is not convenient, and agrees that any
litigation initiated by any of them in connection with this Agreement shall be
venued in either the Superior Court of California, Los Angeles County,
California, or the United States District Court, Central District,
Los Angeles Division.  THE PARTIES
WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR
PERTAINING TO THIS ACKNOWLEDGMENT.

 

The next page is the signature page.

 

C-7

 

IN
WITNESS WHEREOF, Subordinated Creditor has executed this Subordination
Agreement as of the date and year first above-written.

 

	
   

  	
  [NAME]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

C-8

 

Acknowledgment by Borrower

 

The
undersigned, being the Borrower referred to in the foregoing Subordination
Agreement, hereby (i) acknowledges receipt of a copy thereof,
(ii) agrees to all of the terms and provisions thereof, (iii) agrees
to and with Lender that it shall make no payment on the Subordinated
Indebtedness that Subordinated Creditor would not be entitled to receive under
the provisions of the Agreement, (iv) agrees that any such payment will
constitute a default under the Lender Indebtedness, and (v) agrees to mark
its books conspicuously to evidence the subordination of the Subordinated
Indebtedness effected hereby.

 

	
   

  	
  NATURADE,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						

 

C-9

 

SCHEDULE
I

 

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.

  	
   

  	
   

  	
   

  	
   

  

 

 

SCHEDULE II

 

Schedule
of 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

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  450,000Exhibit 10.41

 

Waiver Agreement

 

Westgate
Equity Partners, L.P., a limited partnership organized under the laws of
Delaware (the “Holder”) is the sole holder of the 13,540,723 outstanding shares
of Series B Convertible Preferred Stock (the “Series B Preferred Stock”) of
Naturade, Inc., a Delaware corporation (“Naturade”) and the sole holder of
rights to purchase Series B Preferred Stock, under a Warrant to purchase up to
33,641,548 shares of Series B Preferred Stock dated as of January 2, 2002
(the “Warrant”).

 

Section
D of the Certificate of Designation of Series B Convertible Preferred Stock of
Naturade, Inc. provides a right to accrue dividends (“Preferential Dividends”)
as follows:

 

“Preferential dividends
on each share of Series B Preferred Stock shall be cumulative and accrue
(whether or not there are profits or capital or surplus available therefor) at
the rate of ten percent (10%) per annum on the Accrued Value thereof (computed
on a semi-annual basis based upon a 360-day year of twelve 30-day months and
pro rated as necessary in the event that dividends shall be paid on other than
a semi-annual basis) from the Issuance Date of such share.  The term “Accrued Value” shall mean, with
respect to each share of Series B Preferred Stock, the sum of (i) $0.1477, plus
(ii) all cash dividends that have been accrued and that have not been paid (as
adjusted for any stock splits, stock dividends, recapitalizations or the
like).”

 

Naturade
has an immediate need for working capital. 
Health Holdings and Botanicals, LLC and David A. Weil, LLC (the
“Lenders”) have proposed to lend to Naturade up to $750,000, with an initial
advance of $450,000, to be used for working capital, in the form attached
hereto as Exhibit A (the “Loan”).  As a
condition to making the Loan, the Lenders require that the Holder agrees that
no dividends shall accrue with respect to the Series B Preferred Stock during
2003.

 

In
order to facilitate the making of the Loan, and in consideration of the benefit
received by the Holder as a stockholder of Naturade by the lending of new funds
to Naturade for working capital, the Holder agrees as follows:

 

1.                                       Subject to the conditions in Paragraph 3,
the Holder hereby permanently waives any right to accrue Preferential Dividends
with respect to the Series B Preferred Stock from January 1, 2003
through December 31, 2003, including any amounts that might otherwise accrue
with respect to previously accrued and unpaid dividends.  Accordingly, the “Accrued Value” for purposes
of the Certificate of Designation shall not at any time include any amounts
accrued for the period from January 1, 2003 through December 31,
2003.

 

1

 

2.                                       Holder agrees to make the waiver in
Paragraph 1 with respect to all outstanding shares of Series B Preferred
Stock and any shares of Series B Preferred Stock that might be purchased
on exercise of the Warrant.

 

3.                                       The waiver provided herein shall be
subject to the following conditions: 
(i) the execution and delivery of the Loan Agreement between Naturade
and the Lenders with respect to the Loan, and (ii) the making of the first
advance under the Loan, in an amount of $450,000.

 

IN
WITNESS WHEREOF, the Holder has caused its duly authorized representative to
execute this Waiver Agreement on this 14 day of April, 2003.

 

	
   

  	
  WESTGATE EQUITY
  PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert
  Vitale

  	
   

  
	
   

  	
   

  
	
   

  	
  Name: Robert
  Vitale

  
	
   

  	
   

  
	
   

  	
  Title:
  Manager

  

 

2

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