Exhibit 10.32

 

EXECUTION COPY

 

EXCLUSIVE LICENSE AGREEMENT

 

This EXCLUSIVE LICENSING AGREEMENT (“Agreement”) is entered into effective as of
August 23, 2005, between Natural Alternatives International, Inc., a Delaware
corporation (“NAI”), with its principal offices at 1185 Linda Vista Drive, San
Marcos, California 92078, and Richard Linchitz, M.D. (“Linchitz”) an individual
with a principal business address at 66 Highland Road, Glen Cove, New York
11542. The parties to this Agreement are sometimes referred to as “Party” or
“Parties.”

 

RECITALS

 

A. NAI desires to research, formulate, manufacture, package and market
nutritional supplements and related goods using the name, image, signature,
voice, likeness, style and persona of Linchitz (“Linchitz Name”) in all channels
of distribution worldwide.

 

B. Linchitz desires that NAI have an exclusive license to use the Linchitz Name
to market nutritional supplements, dietary supplements and related materials,
products and goods of any description in all channels of distribution worldwide
and that NAI have the right to file applications for registrations and obtain
registrations for, without limitation, patents, trademarks, logos, domain names
and copyrights (“NAI Registrations” and as further defined in Section 2.2 below)
in connection with NAI’s use of the Linchitz Name.

 

C. The success of NAI’s investment in the Linchitz Name, Linchitz Registrations
and the NAI Registrations relies heavily on the enthusiasm of Linchitz in
promoting the products as spokesperson in a variety of media, including NAI
developed communications, and through active article and book writing and
speaking engagements.

 

AGREEMENT

 

Incorporating the above recitals and in consideration of the covenants and
obligations contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Parties agree as
follows:

 

1. DEFINITIONS

 

1.1 “Channels of Distribution” shall mean all channels of distribution including
without limitation retail, Direct Response TV, Series TV, Direct Mail, Direct
Response Radio, Direct Response Print and the Internet or World Wide Web. For
purposes of this Agreement, “Internet” or “World Wide Web” or “Web” shall mean a
system for accessing and viewing text, graphics, sound and other media via the
collection of computer networks known as the Internet.

 

1.2 “Direct Competitor” shall refer to any person or business entity that
develops items and/or sells products or provides services relating to the
research, formulation, manufacture, packaging and marketing of nutritional
products or other Products or services contemplated by this Agreement, excluding
medical services and management provided by Linchitz (collectively, starting
with the phrase “or services”, “Services”).

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1.3 “Net Sales” shall mean the gross invoice amount billed by NAI to purchasers
of the Products, less customer shipping and handling charges, credit card charge
fees and returns actually credited.

 

1.4 “Product” or “Products” means all nutritional foods, nutritional and dietary
supplements and related materials or products of any description, including
without limitation capsules, tablets, powders, liquids, bars, creams, lotions,
gels and other forms, using the Linchitz Name, Linchitz Registrations and NAI
Registrations, packaged in any manner and promoted in any manner, both in
accordance with the terms of this Agreement, including without limitation in
newsletters, on the Internet, in workshops and at seminars, and all other
attributes of such products whether currently existing or to be developed during
the term as part of the Linchitz Name, Linchitz Registrations and NAI
Registrations. The definition of Product includes any modification, derivative,
alteration, improvement, enhancement or successor thereof (collectively
“Enhanced Product(s)”) developed or contemplated by the Parties during the term
of this Agreement; provided that, NAI demonstrates a bona fide good faith intent
to market and sell any such contemplated Enhanced Product(s) within a
commercially reasonable time of such contemplation. NAI shall have the right to
have the labeling and all promotional materials for all Products include a
representation that the Product has been manufactured by NAI.

 

1.5 “Territory” shall mean worldwide.

 

2. GRANT OF LICENSE

 

2.1 Subject to the terms and conditions of this Agreement, Linchitz grants to
NAI an exclusive, worldwide license to use the Linchitz Name and Linchitz
Registrations on or in connection with the development, marketing and sale of
any Products or services of NAI in all Channels of Distribution in the Territory
during the term of this Agreement.

 

2.2 Linchitz grants to NAI the worldwide right to develop, use and register
derivatives of the Linchitz Name for new NAI Registrations. NAI may combine any
designation with the Linchitz Name so as to form without limitation a new
trademark, service mark, trade name, patent, logo, domain name or copyright.
Such NAI Registrations shall include any names or marks used by NAI prior to the
Effective Date of this Agreement. Subject to the terms of this Agreement, NAI
shall be the owner of the NAI Registrations (but not of the Linchitz Name
incorporated therein or any registrations, applications, names or marks related
thereto, collectively starting with “the Linchitz Name . . ”, the “Linchitz
Registrations”). After Linchitz’s death or disability, NAI may use the Linchitz
Name and NAI Registrations for any additional use contemplated by this Agreement
provided that any such use is substantially consistent with the image, look and
goodwill of the Linchitz Name. Notwithstanding the foregoing, Linchitz shall not
have the right to use any mark or name which is identical to or likely to be
confused with any mark or name owned by NAI.

 

2.3 NAI acknowledges that it is not and will not become by virtue of this
Agreement the owner of any right, title or interest in and to the Linchitz Name
or Linchitz Registrations in any form or embodiment. NAI shall promptly take all
necessary actions to protect the Linchitz Name, Linchitz Registrations and the
goodwill related thereto consistent with the provisions of

 

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this Section. All goodwill generated under this Agreement in the Linchitz Name
and Linchitz Registrations shall inure to the benefit of Linchitz.

 

3. DUTIES, WARRANTS AND REPRESENTATIONS OF LINCHITZ

 

3.1 Duties of Linchitz. In connection with this License Agreement and the rights
granted hereunder, Linchitz warrants and represents to:

 

3.1.1 Use commercially reasonable best efforts to promote and develop the
Linchitz Name and Linchitz Registrations and educate the general public about
the benefits of using the Products through active writing of books, through
active writing of articles in magazines, journals and other publications,
through speaking engagements designed to teach about the benefits of the
Products and through a variety of media including without limitation personal
appearances on selected national and/or local network televisions and/or radio
shows such as the Oprah Winfrey Show, Dateline, Larry King Live and Regis. In
connection with such educational and promotional efforts, Linchitz shall
maintain his medical license in all currently active jurisdictions and use
commercially reasonable best efforts to maintain or expand the scope of
distribution and public awareness of the existing programs, workshops, seminars,
Web site, books and articles featuring the Linchitz Name and Linchitz
Registrations (hereafter, all of the above, collectively, the “Linchitz
Educational and Promotional Efforts”).

 

3.1.2 Devote such time, effort, attention and energies as commercially
reasonably required to create print, videotape and audiotape materials connected
to the development of custom produced Direct Response TV, Series TV, Direct
Mail, Direct Response Radio and Direct Response Print programs and the Internet
or World Wide Web and be responsible for participating in ongoing advertising
and marketing efforts relating to the Products (hereafter, all of the above,
collectively, the, “Linchitz’s Direct Marketing Efforts”).

 

3.1.2.1. Linchitz acknowledges the success of the Products and investment being
made in the Linchitz Name and Linchitz Registrations by NAI depends heavily on
Linchitz’s personality, persona, image and leadership and, that as the
spokesperson for the brand, Linchitz’s dedicated good faith pronouncements are
crucial to the successful marketing of all Products. Linchitz acknowledges and
accepts that NAI will develop and that Linchitz will promote Linchitz approved
communications that are highly personal, passionate and persuasive and that such
communications must be delivered by Linchitz’s good faith credible voice.

 

3.1.2.2. Linchitz acknowledges familiarity with the types of acquisition
marketing to be utilized by NAI under this Agreement and understands that
successful acquisition marketing of those types is educational, aggressive,
promises to solve a health problem, is outspoken and opinionated and showcases
the passion and personality of the spokesperson doctor, provided that, any such
marketing does not constitute a violation of any applicable law, rule or
regulation of any government or regulatory body.

 

3.1.3 Remain knowledgeable and up to date with new research regarding nutrition
and health and develop opinions based on new research and findings in the
nutritional

 

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supplements industry. Remain knowledgeable and up to date regarding new
ingredients, raw materials, studies and discoveries.

 

3.1.4 Regularly meet, confer and cooperate with NAI in connection with the
development of Products and marketing plans, the prioritizing of Product
development and marketing, the review of business ideas and issues facing
Products and other action items related to the marketing of Products.

 

3.1.5 Make available to NAI a monthly business schedule and public and media
appearance schedule and vacation schedule for use in scheduling meetings and
conferences with NAI and for coordinating review of NAI’s promotional copy
materials.

 

3.1.6 Subject to any known conflict with Linchitz’s vacation schedule, review,
edit and approve within six (6) business days of receipt all new promotional
copy with a focus on the technical accuracy of the information. Any failure to
approve or disapprove of such materials in writing within the time period
provided shall constitute approval. It is understood only new promotional copy
will be reviewed by Linchitz and that minor modifications of current packages
already tested do not require the further approval of Linchitz. For purposes of
this subsection only and without amending or modifying any other section of this
Agreement, the Parties agree notice or consent may be given via facsimile or
email. All notices under this subsection delivered either by facsimile or email
will be deemed to have been duly given one day after confirmation of receipt
provided that in either case a confirmation copy of the facsimile notice or
email notice shall also be subsequently delivered within one day either (i) by
hand (prepaid, with written confirmation of receipt by such receiving Party) or
(ii) via overnight delivery by a nationally recognized overnight delivery
service (prepaid, receipt requested along with such receiving Party’s manual
signature).

 

3.1.7 Cooperate to be available to NAI for up to ten (10) full business days
each calendar year for exclusive business meetings or product development
meetings with NAI. Linchitz shall be entitled to a per diem expense budget of
One Hundred Fifty Dollars ($150) per day, adjusted from time to time through the
term, plus reimbursement for reasonable travel related expenses and other
approved costs incurred exclusively on behalf of NAI. Travel related expenses
eligible for reimbursement include without limitation first class airfare, car
and driver and hotel and meals accommodations. NAI shall approve and promptly
reimburse Linchitz for travel related expenses incurred in connection with
promotion of Products on a non-exclusive basis in amounts mutually agreed upon
by the Parties.

 

3.1.8 Not knowingly permit, do or commit any act or thing that would degrade,
tarnish, deprecate or disparage Linchitz, the Products or NAI or the public
image of NAI in society or standing in the community and that Linchitz will
terminate such activities promptly upon notice.

 

3.2 Additional Representations of Linchitz.

 

3.2.1 Linchitz represents he is the exclusive owner of all right, title and
interest in and to (i) his image, signature, voice and likeness and goodwill
appurtenant thereto, (ii) all

 

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rights of publicity in and to his name, image, likeness, voice, signature and
other elements of his persona and identity, (iii) all rights in and to his name,
(iv) all common law and statutory rights in the foregoing and has complete
authority to grant this license to use the Linchitz Name in the manner and form
provided in this Agreement.

 

3.2.2 Linchitz further represents (i) he has not received notice of any claim
with respect to the Linchitz Name inconsistent with his exclusive ownership of
the Linchitz Name and has not received notice at any time of any unauthorized
use thereof; (ii) to the best of Linchitz’s knowledge and belief, the Linchitz
Name does not infringe upon or violate any rights of any third party, and
(iii) neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereunder will violate or constitute a default
under any agreement or instrument to which Linchitz is a party or by which he is
bound.

 

3.2.3 Linchitz grants permission to NAI to conduct any reasonable physical
examination, background test or drug test during the term of this Agreement. NAI
shall bear all costs of such testing.

 

3.3 Competitive Protection. Effective as of the date of this Agreement and
continuing throughout the term, Linchitz agrees:

 

3.3.1 to not render services in the form of advertising, publicizing, promoting,
sponsoring or endorsing any items, products or services that compete in the
marketplace with any Products or Services contemplated by this Agreement;

 

3.3.2 to neither permit nor authorize the use of the Linchitz Name or Linchitz
Registrations, including without limitation the name and/or likeness (photograph
and/or drawing), voice, signature and/or endorsement of Linchitz, by any Direct
Competitor or by any third party whose items, products or services compete in
the marketplace with any Products or services contemplated by this Agreement or
that are manufactured by NAI;

 

3.3.3 to not allow Bio Quest medical centers (to the extent Linchitz has such
restricted authority), an entity in which Linchitz has no formal relationship
but one with which Linchitz is in negotiations to potentially do business with
as an operator and manager of medical practices, or Metropolitan Medical Health
Care and Wellness, a New York based medical facility owned by Linchitz, to use
the Linchitz Name and Linchitz Registrations to promote items, products or
services of any Direct Competitor or any third party whose items, products or
services compete in the marketplace with any Products or services contemplated
by this Agreement.

 

3.3.4 notwithstanding the foregoing, Linchitz is entitled to (i) use the
Linchitz Name and Linchitz Registrations solely in connection with marketing,
selling and distribution of Products in the Medical Health Care and Wellness
channel of distribution or any other channel of distribution mutually agreed to
by the Parties in writing, and (ii) operate, service and manage the Medical
Health Care and Wellness medical practice in his sole discretion, provided all
such activities under (i) and (ii) are not related in any way to the promotion
of items, products or services of any Direct Competitor or any third party whose
items, products or services directly

 

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compete in the marketplace with any NAI Products or Services contemplated by
this Agreement; provided further that any such promotions, Products or Services
or any restrictions placed upon Linchitz related thereto shall not conflict with
Linchitz abiding by his sworn medical oath or professional ethical standards.

 

4. DUTIES, WARRANTS AND REPRESENTATIONS OF NAI

 

4.1 Exclusive Duties of NAI. In connection with this License Agreement and the
rights granted hereunder, NAI shall:

 

4.1.1 Have all responsibility for the funding and management of Product
development, Product research, Product formulations and specifications, brand
strategy, marketing, securing and maintaining registration of the Linchitz Name
and Linchitz Registrations in the Territory and all related business operations
including profit and loss management.

 

4.1.2 Have all responsibility for the funding and management of Linchitz
Educational and Promotional Efforts and Linchitz’s Direct Marketing Efforts when
such efforts are at the request of and managed by, through or on behalf of NAI.
When such efforts are at the request of Linchitz, Linchitz shall present to NAI
a budget and schedule for Linchitz Educational and Promotional Efforts and
Linchitz Direct Marketing Efforts and obtain NAI’s written approval in advance,
which approval shall be at NAI’s discretion, and NAI will then have all
responsibility for the funding and management of such agreed to efforts.

 

4.1.3 Develop, fund, produce, distribute and/or maintain all marketing materials
including all communications, Web site design and content, collateral, special
reports, e-letters, public relations support and Product marketing.

 

4.1.4 Manage and fund cross functional teams consisting of without limitation
research and development, packaging, legal, call center and fulfillment.

 

4.1.5 Take such actions as are commercially reasonable in an effort to
successfully develop, promote, advertise and market the Products.

 

4.2 Additional Duties of NAI.

 

4.2.1 Take such actions, in accordance with the terms of this Agreement, as are
commercially reasonable in an effort to design, develop, manufacture, promote,
advertise, market and sell the maximum number of Products while maintaining
quality and service to all customers.

 

4.2.2 Maintain a mutually agreed upon regular schedule of contact with Linchitz
to discuss ideas, priorities, action steps and issues.

 

4.2.3 Review and/or provide material, in accordance with the terms of this
Agreement, for inclusion in or use in connection with programs, workshops,
seminars, Web site, books, CDs and audiotapes featuring the Linchitz Name and
Linchitz Registrations.

 

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4.2.4 Use reasonable best efforts to commence production, promotion, marketing
and distribution of Products as soon as reasonably practical following the date
of this Agreement.

 

4.2.5 Not knowingly permit, do or commit any act or thing that would degrade,
tarnish or deprecate or disparage itself, the Products or Linchitz or the public
image of Linchitz in society or standing in the community and that it will
terminate such activities promptly upon notice.

 

4.3 Additional Representations of NAI.

 

4.3.1 NAI represents, warrants and covenants that: (i) it has the authority to
enter into this Agreement; (ii) neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereunder will
violate or constitute a default under any agreement, order, judgment, decree or
instrument to which NAI is a party or by which it is bound nor require NAI to
obtain any-permit, consent or approval of any government or regulatory body,
person, firm, corporation or other entity; (iii) it is the owner or valid
licensee of all Product formulations, specifications and technical information
about the Products, all packaging, designs and other intellectual property
associated with the Products, and any element or component proprietary to NAI
included in the Products or any part thereof, (iv) such Product formulations,
specifications and technical information about the Products, all packaging,
designs, materials and other intellectual property associated with the NAI
Registrations, Products and any element or component proprietary to NAI included
in the Products or any part thereof do not (a) infringe upon or violate any
rights of any third party, or (b) constitute a violation of any applicable law,
rule or regulation of any government or regulatory body, and (v) none of the
actions contemplated by this Agreement will violate or constitute a default
under any agreement, order, judgment, decree or instrument to which NAI is a
party or by which it is bound and (vi) agrees to obtain and maintain and keep in
full force and effect, at NAI’s expense, Commercial General Liability insurance
on an occurrence basis as mutually agreed between the Parties.

 

4.3.2 NAI acknowledges that (i) Linchitz exclusively owns all right, title and
interest in and to the Linchitz Name, which Linchitz Name has intrinsic value,
and (ii) Linchitz otherwise reserves all rights and licenses to the Linchitz
Name except those specifically granted to NAI herein.

 

5. ROYALTIES

 

5.1 Royalties. NAI shall pay Linchitz a royalty on annual Net Sales revenue from
Products.

 

5.1.1 Annual Net Sale Royalty. During the term of this Agreement and any
renewals, the royalty due on annual Net Sales shall be:

 

5% of annual Net Sales not exceeding $5,000,000;

 

6% of annual Net Sales in excess of $5,000,000 but not exceeding $10,000,000;

 

7% of annual Net Sales in excess of $10,000,000 but not exceeding $25,000,000;

 

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8% of annual Net Sales in excess of $25,000,000 but not exceeding $45,000,000;

 

9% of annual Net Sales in excess of $45,000,000 but not exceeding $75,000,000;

 

10% of annual Net Sales in excess of $75,000,000.

 

5.1.2 Royalty Payments. Royalty payments shall be made monthly, on or before the
30th day of the month succeeding the close of each calendar month. Each royalty
payment shall be supplemented by a report setting forth the information
described in Section 5.2. All payments shall be made in United States currency
and be drawn on a United States bank. NAI is not required to pay a royalty for
any Product purchased by or fulfilled for Linchitz pursuant to this Agreement.
There shall be applied to any amounts not subject to good faith dispute not paid
when due a delinquency charge, computed at the lesser of 1.5% per month or the
maximum rate permitted by law, with interest accrued from the date the payment
was originally due.

 

5.2 Reports and Inspection. NAI shall deliver a report to Linchitz within thirty
(30) days after the end of each calendar month, which shall consist of an
accurate statement of Net Sales of Products for such calendar month, along with
any royalty payments due. Such reports shall be provided regardless of whether
any Products were sold during the period covered by the report. The acceptance
by Linchitz of any of the statements furnished or royalties paid shall not
preclude Linchitz’s questioning the correctness at any time of any payments or
statements. In connection therewith, Linchitz shall be entitled to examine or
audit at his own expense the documents underlying the royalty statements
described in this Section not more often than annually. The audit shall be
conducted by an independent certified public accounting firm of Linchitz’s
choosing and reasonably acceptable to NAI. The independent certified public
accounting firm must enter into a confidentiality agreement reasonably
acceptable to NAI and may not disclose any information learned in the course of
such audit other than the existence and amount of underpayment, if any. Such
audit must be conducted during NAI’s normal business hours in a manner that does
not unduly interfere with NAI’s normal business activities. If any audit
discloses underpayment of royalties, NAI shall promptly pay Linchitz the
royalties, which in no event shall exceed thirty days from notification of any
such underpayment. Linchitz is responsible for all expenses it incurs in
connection with any audit unless the audit discloses an underpayment of
royalties in excess of ten percent (10%), in which case, NAI shall promptly
reimburse Linchitz for the reasonable and necessary cost of the audit. Any such
underpayment shall be immediately due and payable, with interest accrued from
the date the payment was originally due at the lesser of 1.5% per month or the
maximum rate permitted by law.

 

6. TERM OF AGREEMENT

 

6.1 Effective Date. The term “Effective Date” shall mean, and this Agreement is
effective as, of the date first written above.

 

6.2 Term and Termination.

 

6.2.1 Initial Term. This Agreement shall remain in effect for a period of ten
(10) years from the date hereof unless earlier terminated in accordance
herewith. Upon expiration of the initial term, the term of this Agreement shall
be automatically extended for

 

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successive one (1) year periods unless terminated by either Party by written
notice delivered at least 90 days prior to expiration of any such period.

 

6.2.2 Right to Terminate by NAI. NAI may terminate this Agreement at any time
for any reason upon giving Linchitz ninety (90) days notice.

 

6.3 Right to Terminate by Linchitz. Linchitz shall have the right to terminate
this Agreement if:

 

6.3.1 After notice from Linchitz, NAI materially fails to comply with any
covenant in this Agreement and such failure continues for more than thirty
(30) days following receipt of written notice unless such failure cannot
reasonably be cured within 30 days then only if NAI fails to commence such cure
within thirty (30) days and diligently thereafter prosecutes such cure to
completion within 90 days or other commercially reasonable time period;

 

6.3.2 Except as provided in Section 10.13, NAI assigns its rights to a party
without first receiving the prior written consent of Linchitz;

 

6.3.3 NAI fails to make the royalty payments as required by Section 5 or any
other payment within thirty (30) days following receipt of written notice from
Linchitz of the late payment;

 

6.3.4 Commencing on January 1, 2009, if annual Net Sales have not reached
$5,000,000 for the immediately preceding calendar year, NAI shall have the
option to retain all rights and an exclusive license under this Agreement by
paying to Linchitz the difference between the royalties actually paid to
Linchitz pursuant to Section 5.1.1 and the royalties that would have been due if
annual Net Sales reached $5,000,000 in the immediately preceding year. If annual
Net Sales have not reached $5,000,000 for the immediately proceeding calendar
year and NAI does not pay to Linchitz such difference, the Parties shall decide,
within sixty (60) days of such calendar year, (i.e., on or before March 1st of
such calendar year), through good faith negotiations, whether or not to continue
their relationship, amend the terms of this Agreement or terminate this
Agreement.

 

6.4 Termination on Specific Events. Either Party may terminate this Agreement
immediately only if:

 

6.4.1 The other Party suspends or discontinues its business operations, makes
any assignment for the benefit of its creditors, commences voluntary proceedings
for liquidation in bankruptcy, admits in writing its inability to pay its debts
generally as they become due or consents to the appointment of a receiver,
trustee or liquidator of the other Party or of all or any material part of its
property, or if there is an execution of a material portion of its assets.

 

6.4.2 The other Party shall commence any case, proceeding or other action under
any existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors seeking to have an
order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization,

 

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arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts.

 

6.4.3 (A) There shall be commenced against the other Party any case, proceeding
or other action of a nature referred to in Section 6.4.2 above which results in
the entry of an order for relief or any such adjudication or appointment or
remains undismissed, undischarged, unstayed or unbonded for period of ninety
(90) days; or (B) there shall be commenced against the other Party any case,
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets, which results in the entry of an order for any such relief which
shall not have been vacated, discharged or stayed or bonded pending appeal
within ninety (90) days from the entry thereof; or (C) the other Party shall
take any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (A) or (B) above.

 

6.4.4 A Party acts in a manner deemed by the other Party to be in breach of
either Section 3.1.8 or Section 4.2.5 of this Agreement whereupon the other
Party shall have the right to give written notice of termination of this
Agreement, providing complete information regarding the claimed breach and
providing a period of ten (10) calendar days in which to either completely
correct the conduct deemed in violation of either Section 3.1.8 or Section 4.2.5
to the reasonable satisfaction of the Party giving notice, or prove to the
reasonable satisfaction of the Party giving notice that no violation occurred.

 

6.5 Duties on Termination. Upon termination of this Agreement, copies of all
records related to Linchitz shall be kept by NAI for a minimum of three
(3) years. The Parties shall cooperate and utilize their good faith reasonable
best efforts to prepare such final reconciliations of accounts and amounts to be
provided as between them in connection with such termination. Notwithstanding
any of the foregoing, the termination or expiration of this Agreement shall not
release any Party of any obligation to pay any monies that became due or owing
or arose out of any transaction prior to the date of termination or expiration,
and all fees, charges and any balances owed to Linchitz shall become due and
payable in accordance with the terms of this Agreement.

 

7. INTELLECTUAL PROPERTY; QUALITY CONTROL

 

7.1 Protection of Proprietary Components. NAI may seek in its own name and at
its own expense, and if obtained, shall maintain appropriate patent, trademark,
copyright or registration protection and ownership for any element or component
proprietary to NAI that is included in the Products or any part thereof.

 

7.2 Ownership of Formulas, Specifications and Technical Information. All
non-public formulas, specifications and technical information related to the
Products, all NAI Confidential Information and all Products (collectively, “NAI
Intellectual Property”) shall remain the exclusive property of NAI during and
following the term of this Agreement and Linchitz disclaims all interest in such
NAI Intellectual Property including without limitation any modifications or
improvements made by Linchitz to NAI’s Intellectual Property during the term of
this Agreement. During the term of this Agreement and at anytime thereafter,
Linchitz shall

 

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not directly or indirectly develop, manufacture or market an “equivalent
product” for any form of distribution using NAI’s Intellectual Property. For the
purpose of this Agreement, “equivalent product” means any product formulated by
Linchitz that substantially replicates the Products as to the combination of
specific ingredients, nutrients, and functional features with Linchitz’s own
ingredients and/or formulations.

 

7.3 Assignment Upon Termination. Upon termination or expiration of this
Agreement and expiration of the Product Sell Off Period (if any), NAI shall
(i) cease and desist from all use of the Linchitz Name and any Linchitz
Registrations, and (ii) certify it has destroyed any remaining Products. For
purposes of this Agreement, “Product Sell Off Period” means that one hundred
eighty (180) day period following termination of the Agreement or expiration of
the term or any extensions of this Agreement granted by Linchitz in this
subsection to NAI to sell off finished Products on a non exclusive basis through
all Channels of Distribution in the Territory.

 

7.4 Quality Control, Inspection Rights, Samples. Linchitz is familiar with and
will rely upon NAI’s quality control measures for the production of Products.
NAI’s manufacturing facilities shall meet all requirements established by state,
local or federal regulations including without limitation Good Manufacturing
Practices. Linchitz and his agents shall have access to inspect NAI’s facilities
at all reasonable times while Products are in process for the purpose of
conducting and performing quality control audits and shall have access to the
results of any such test performed by NAI or at NAI’s direction. NAI shall be
notified in advance of the names of all visiting personnel or agents and their
intended dates of arrival. All such inspections must be conducted during NAI’s
normal business hours in a manner that does not unduly interfere with NAI’s
normal business activities. NAI grants Linchitz the right to request samples of
finished product in reasonable quantities from time to time. NAI is not required
to pay a royalty for any Product fulfilled to Linchitz in this manner. Breach of
this section shall settle in accordance with Section 6.3.1 above.

 

7.5 Enforcement of Intellectual Property Rights.

 

7.5.1 In the event any Party becomes aware of any claim or unauthorized use, or
infringement on the Linchitz Name, Linchitz Registrations or Products during the
term of this Agreement, that Party shall immediately notify the other Party of
such violation and shall consult with and cooperate in any way reasonably
requested by the other Party with respect to the enforcement of all intellectual
property rights.

 

7.5.2 NAI shall, at its own cost and expense, take all action necessary to
enforce its rights and license and cause any violation with respect to the
Linchitz Name and Linchitz Registrations to cease and be remedied. In the event
NAI fails to take all action necessary to remedy any such violation, Linchitz
shall have the right to promptly take such action at his own expense. In
connection with such action, the Parties shall execute all papers reasonably
necessary or appropriate in the discretion of the Party taking such action in
response to a violation or infringement of the Linchitz Name and Linchitz
Registrations, and shall testify in any legal action whenever reasonably
requested to do so by the prosecuting Party.

 

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7.5.3 In addition to their respective undertakings set forth in the preceding
Sections, the Parties agree to render to each other all assistance reasonably
requested of them in connection with the protection of the Linchitz Name and
Linchitz Registrations and to make promptly available to one another information
they possess or to which they have access that may be of use to the other in
such protection.

 

7.5.4 Linchitz undertakes and agrees to maintain his existing image and public
persona and will use commercially reasonable best efforts to further develop,
improve and otherwise enhance his image and public persona. In no event will
Linchitz knowingly take any action inconsistent with his public image or
denigrate any of the Products or the Linchitz Name and Linchitz Registrations or
in any way reflect negatively on the Products or the Linchitz Name and Linchitz
Registrations.

 

8. CONFIDENTIALITY

 

8.1 Duty to Protect Confidential Information. “Confidential Information”
includes, but shall not be limited to, the Products, trade secrets, policies,
procedures, techniques, designs, drawings, know-how, technical information,
specifications, computer software, intellectual property, information and data
relating to the development, research, testing, manufacturing, costs, marketing
and uses of the Products and Services developed, manufactured or sold by NAI,
its budgets and strategic plans, the identity and special needs of the
disclosing Party’s customers for the Products and the disclosing Party’s
databases and data, and all technology relating to disclosing Party’s business,
systems, methods of operation, customer lists, customer information, business
and financial information, solicitation leads, marketing and advertising
materials, methods and manuals and forms, all of which that are non-public and
pertain to the activities or operations of the disclosing Party. Confidential
Information may only be used if necessary in the fulfillment of obligations of
the recipient Party under this Agreement. Confidential Information shall not be
used in any way which is directly or indirectly detrimental to the disclosing
Party or its business.

 

8.1.1 Confidential Information shall be kept confidential by the receiving Party
except that such Party may disclose the Confidential Information or portions
thereof to those of his attorneys and agents (collectively, “Representatives”)
who (i) absolutely need to know such Confidential Information and (ii) have
previously agreed in writing to be bound by the terms and conditions as
protective of the Confidential Information as those in this Agreement. The
receiving Party agrees to be responsible for any breach of this Agreement by its
Representatives.

 

8.1.2 All Confidential Information shall be treated by the receiving Party as
secret and confidential and shall be held in trust for the disclosing Party. The
receiving Party shall treat such information and take such steps to assure its
continued confidentiality in like manner as it would use to protect its own
trade secrets or confidential information and will not, except as required by
law, disclose any such confidential information received from the disclosing
Party to any third party who is not bound under a confidentiality and
non-disclosure agreement.

 

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8.2 Means of Protecting Confidential Information. NAI and Linchitz agree to take
reasonable steps to ensure the proprietary and confidential nature of the
other’s confidential information and the Linchitz Name, NAI Registrations,
Linchitz Registrations and Products in which confidential information is
embodied or included and to protect the same from loss or theft and agree to
clearly mark such confidential information and properly indicate its proprietary
nature.

 

8.3 Terms of Agreement. Except as otherwise required by law including, but not
limited to, NAI’s disclosure obligations in connection with the U.S. Securities
Act of 1934, the Parties agree that the terms of this Agreement are proprietary
and confidential, as is the existence of this Agreement. Each Party agrees to
maintain the existence of this Agreement and the terms and information contained
herein strictly confidential and will not disclose any such information to any
person who is not a Party hereto without the prior written consent of all
Parties, which consent may be granted or withheld in the absolute discretion of
each Party.

 

8.4 Provisions Divisible. It is agreed by all Parties that the foregoing
covenants are appropriate and reasonable in light of the nature and extent of
the business conducted by the Parties and their respective relationships. It is
further agreed that the covenants set forth herein are divisible in the event
they are held to be invalid, unreasonable, arbitrary or against public policy.
Further, it is agreed by the Parties that if any court of competent jurisdiction
or authorized arbitrator makes such a determination, they may determine what
time period and geographical area are reasonably necessary to protect the
Parties’ legitimate business interests and which are enforceable.

 

8.5 Irreparable Injury. Each Party acknowledges that damages at law will be an
insufficient remedy for violation of the terms of this Section and that the
other Party would suffer irreparable injury as a result of such violation.
Accordingly, it is agreed upon application to a court of competent jurisdiction,
the Parties may obtain injunctive relief to enforce the provisions of this
Section of this Agreement, which injunctive relief shall be in addition to any
other rights or remedies available to it or them.

 

8.6 Extended Term of Confidentiality. It is recognized by all Parties that due
to their respective positions of confidence giving rise to access to
confidential, proprietary information during the term of this Agreement, that
the provisions of this Section 8 apply during the term of this Agreement and for
a period of three (3) years thereafter.

 

9. CLAIMS AND INDEMNIFICATION

 

9.1 Indemnification by NAI Against Third-Party Claims. NAI shall indemnify,
defend, and hold harmless Linchitz from and against any damage, loss, expense
(including reasonable attorneys’ fees and costs), award, settlement, or other
obligation or liability arising out of any claims, demands, actions, suits,
investigations or prosecutions that may be made or instituted against Linchitz,
(i) arising from any alleged or actual breach of NAI’s representations and
warranties contained herein, and (ii) any claims arising out of NAI’s, its
subsidiaries, affiliated and/or controlled companies and all sublicensees,
manufacturing, development, advertising, marketing, distribution, promotion,
sale or use of Products.

 

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9.2 Indemnification by Linchitz Against Third-Party Claims. Linchitz shall
indemnify, defend and hold harmless NAI, its subsidiaries, affiliated and/or
controlled companies as well as their respective officers, directors, agents,
and employees, from and against all damage, loss, expense (including reasonable
attorneys’ fees and costs), award, settlement, other obligation or liability,
demands, actions, suits, investigations or prosecutions that may be made or
instituted against them or any of them, arising out of (i) any alleged or actual
breach of Linchitz’s representations and warranties contained in Section 3.2
above.

 

9.3 No Consequential Damages. In no event shall either Party or any person or
entity that has been involved in the creation or production of the Products be
liable to the other Party for any indirect, incidental, special or consequential
damages, including without limitation loss of profits, loss of data or loss of
goodwill, regardless of the form of action, arising out of or in connection with
this Agreement, the furnishing of, performance or use of any Products, or any
portion of the Products, and any other material and/or services provided for, or
performed in connection with, this Agreement or either Party’s failure to
perform their respective obligations to third parties, even if such party has
been advised of the possibility of such damages.

 

9.4 Notwithstanding anything set forth in this Agreement, no limitation of
liability or exculpation or hold harmless provision apply to any liability
arising out of or in connection with acts or omissions that constitute bad
faith, willful misconduct, gross negligence, or intentional breach of this
Agreement.

 

9.5 Insurance. NAI shall carry products liability insurance with a combined
single limit of at least Ten Million Dollars ($10,000,000). All insurance
coverage required herein will provide primary coverage for all losses and
damages caused by the perils or causes of loss covered thereby and any valid and
collectible insurance available to Linchitz will be excess and non-contributory.
NAI shall submit policies and/or certificates of insurance evidencing the above
coverage upon Linchitz’s written request. NAI shall name Linchitz as an
additional insured under such policies. In case of NAI’s failure to carry said
coverage and/or furnish certificates of insurance or upon cancellation of any
required insurance, Linchitz may, at his option, terminate this Agreement on 10
days notice unless NAI has obtained substitute insurance coverage before such
insurance becomes canceled and provides Linchitz with satisfactory evidence
thereof.

 

MISCELLANEOUS PROVISIONS

 

10.1 Sublicense. NAI may sublicense the rights and licenses granted pursuant to
this Agreement and in any such sublicense agreement a provision shall be made so
that Linchitz receives such revenue or royalty payment as provided for herein.
Any sublicense granted in violation of this provision shall be void. Any
sublicense granted hereunder will not release or discharge NAI from any
liability or obligation hereunder and NAI is fully liable for any and all
sublicensees.

 

10.2 Entire Agreement; Amendment. This Agreement contains the entire
understanding between the Parties with respect to the subject matter hereof and
supersedes all prior or contemporaneous written or oral negotiations and
agreements between them regarding the subject matter hereof. Only a writing
manually signed by all Parties or by duly authorized

 

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corporate officers of a Party and clearly designated as an amendment to this
Agreement by an appropriate heading may amend this Agreement.

 

10.3 Severability. If any provision or portion thereof of this Agreement is
determined to be invalid or unenforceable, the provision or portion shall be
deemed to be severable from the remainder of this Agreement and shall not cause
the invalidity or unenforceability of the remainder of this Agreement.

 

10.4 No Implied Waivers. The failure of either Party at any time to require
performance by the other Party of any provision hereof shall not affect in any
way the right to require such performance at any later time, nor shall the
waiver by either Party of a breach of any provision hereof be taken or held to
be a waiver of such provision.

 

10.5 Arbitration. Any dispute, controversy or claim arising from, out of or in
connection with, or relating to, this Agreement or any breach or alleged breach
of this Agreement, except allegations of violations of Federal or State
securities laws, or where a party may suffer irreparable harm, will upon the
request of any Party involved be submitted to any private arbitration service
utilizing former judges as mediators and approved by the Parties. The dispute
once submitted shall be settled by binding arbitration conducted in San Diego,
California (or at any other place or under any other form of arbitration
mutually acceptable to Parties involved). The single arbitrator shall follow and
apply the federal rules of evidence and the applicable local federal rules of
governing discovery in the arbitration. Any award rendered shall be final,
binding and conclusive upon the Parties and shall be non-appealable, and a
judgment thereon may be entered in the highest State or Federal court of the
forum, having jurisdiction. The expenses of the arbitration shall be borne
equally by the Parties to the arbitration, provided that each Party shall pay
for and bear the cost of its own experts, evidence and attorneys’ fees, except
that in the discretion of the arbitrator, any award may include the costs, fees
and expenses of a Party’s attorneys.

 

10.6 Governing Law. This Agreement shall be construed and interpreted under the
laws of the State of California. All disputes or controversies or questions
arising under or relating to this Agreement between the Parties hereto in
relation to this Agreement shall be construed and resolved under the laws of the
State of California. Each Party acknowledges and waives any objection to venue
for such disputes in state or federal courts sitting in San Diego, California.
Any judgments upon the award entered by the arbitrator may be entered in the
State or Federal Courts situated in the State of California.

 

10.7 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

 

10.8 Captions. The captions of the sections and subsections of this Agreement
are included for reference purposes only and are not intended to be a part of
the Agreement or in any way to define, limited or describe the scope or intent
of the particular provision to which they refer.

 

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10.9 Relationship of the Parties. The terms and provisions of this agreement are
intended to be a license agreement and it shall not in any respect be construed
to constitute NAI or Linchitz as the agent, employee, partner or joint venturer
of the other. All persons employed by any Party in connection with the
manufacture, distribution, marketing, promotion and sale of the Products shall
be the employees or agents of that Party and under no circumstances shall a
Party’s employees or agents be deemed to be employees or agents of any other
Party.

 

10.10 Notices. All notices, consents, waivers and other communications under
this Agreement must be in writing and will be deemed to have been duly given
upon (i) delivery by hand (prepaid, with written confirmation of receipt),
(ii) one day after deposit with a nationally recognized overnight delivery
service (prepaid, receipt requested), or (iii) five days after deposit in the
United States mail by certified delivery, postage prepaid, return receipt
requested. Notices shall be sent in each case to the appropriate addresses
indicated for each Party below, or to such other addresses as a Party may
designate in writing by notice to the other Party:

 

If to NAI:    with a copy to:

Natural Alternatives International, Inc.

1185 Linda Vista Drive

San Marcos, California 92078

Attn: President

  

Fisher Thurber LLP

4225 Executive Square, Suite 1600

La Jolla, California 92037

Attention: David A. Fisher

If to Linchitz:    with a copy to:

Richard Linchitz, M.D.

66 Highland Road

Glen Cove, New York 11542

  

Collen IP

80 South Highland Avenue

Ossining, New York 10562

Attn: Douglas Pulitzer

 

10.10.1 Designated Contact. If a specific contact person is designated in a
provision, notice concerning the subject matter of such provision shall be
directed to such person. The address, facsimile number or the name of any Party
or contact person or other number may be changed by sending notice in the manner
set forth above.

 

10.11 Key Man Insurance. NAI shall have the right but no obligation to apply for
and purchase policies of life, health and accident insurance or disability
insurance upon Linchitz in such amounts as NAI deems appropriate which life
insurance as key man insurance shall designate NAI as the exclusive beneficiary.
Linchitz agrees to aid NAI in procuring such insurance, including submitting to
a physical examination, background test and drug test, and completing all forms
required for application for any insurance policy and any other reasonable
action requested by NAI in order to facilitate the issuance of such policies.
NAI shall bear all costs of premiums associated with such policies.

 

10.12 Incapacity or Death of Richard Linchitz. Unless otherwise provided herein,
the rights granted to NAI in this Agreement are intended to survive the
incapacity or death of

 

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Richard Linchitz. Upon the occurrence of any such event, all actions with
respect to Richard Linchitz hereunder shall be exercisable on behalf of Richard
Linchitz by another person (the “Linchitz Representative”) who, at the execution
date of this agreement, is hereby designated by Richard Linchitz to be his wife
Rita A. Linchitz.

 

10.12.1 If prior to the death of Linchitz, he is pronounced to be incapacitated
(i.e., as being incapable of managing or conducting his own business affairs due
to physical or mental infirmity) by the Linchitz Representative, then the
Linchitz Representative shall thereafter and for so long as Richard Linchitz is
incapacitated have full right to take all acts on behalf of Richard Linchitz
under this Agreement. Any Linchitz Representative appointed in accordance with
this Section shall have full right to take all acts on behalf of Richard
Linchitz under this Agreement and NAI may rely on such acts as the lawful and
duly authorized acts of Richard Linchitz.

 

10.13 Successors, Assignment. This Agreement shall inure to the benefit of and
be binding upon the successors and permitted assigns of the Parties. NAI may
only assign its rights and obligations under this Agreement to its Affiliate or
in connection with a merger, reorganization or sale of all or substantially all
of its assets. Any assignment in violation of this clause is void ab initio. Any
such assignment will not release or discharge NAI from any liability or
obligation hereunder. The rights and obligations of Linchitz are personal and
may not be assigned. As used herein, Affiliate shall refer to any person or
entity that is under direct or indirect control of NAI. The term “control”
includes without limitation, ownership of interest representing a majority of
the total voting power in an entity or the ability to manage or direct such
entity.

 

10.14 Further Assurances. The Parties agree (i) to furnish upon request to each
other such further information, (ii) to execute and deliver to each other such
other documents, and (iii) to do such other acts and things, all as the other
Party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.

 

10.15 Relief. Each Party acknowledges that damages at law will be an
insufficient remedy for violation of certain terms of this Agreement and that
the other Party would suffer irreparable injury as a result of such violation.
Accordingly, it is agreed the Parties may obtain injunctive relief to enforce
the provisions of this Agreement when a party may suffer irreparable harm, which
injunctive relief shall be in addition to any other rights or remedies available
to it or them.

 

10.16 Remedies. All remedies set forth in this Agreement are cumulative and in
addition to and not in lieu of any other remedy of the Parties at law or in
equity

 

[signature page follows]

 

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The Parties have executed this Exclusive License Agreement as of the Effective
Date.

 

NATURAL ALTERNATIVES INTERNATIONAL, INC.

a Delaware corporation

By:

 

/s/ Randell Weaver

   

Randell Weaver, President

RICHARD LINCHITZ, M.D. By:  

/s/ Richard Linchitz, M.D.

   

Richard Linchitz, M.D.

 

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