Exhibit 10.5

 

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Wells Fargo Equipment Finance, Inc.

733 Marquette Avenue, Suite 700

MAC N9306-070

Minneapolis, MN 55402

   Promissory Note

 

Contract Number 0120423-702 dated as of November 9, 2005

 

For Value Received, the undersigned hereby promises to pay to the order of Wells
Fargo Equipment Finance, Inc. (the “Lender”) at its main office in Minneapolis,
MN, in lawful money of the United States of America, the principal sum of
$3,800,000.00 together with interest on the unpaid balance hereof from the date
the loan proceeds are disbursed hereunder at an annual rate (computed on the
basis of actual number of days elapsed in a 360-day year) determined as set
forth below.

 

The interest rate in effect on the date the loan proceeds are disbursed
hereunder shall be the Index (as hereinafter defined) on the first business day
of the month in which the loan proceeds are disbursed plus 2.10% and shall
remain in effect through the last day of the calendar quarter in which the loan
proceeds are disbursed hereunder. The interest rate in effect for each calendar
quarter thereafter during the term of this Note shall be the same percentage
over the Index as in effect on the first day of such calendar quarter; provided,
however, that notwithstanding any change in the Index after the maturity of this
Note, this Note shall bear the same rate of interest after maturity as it bore
at maturity.

 

For purposes of this Note, the terms “Index” or “the Index” mean, as of the date
of determination, the London interbank offered rate for deposits in United
States dollars having a maturity of three months which appears in the “Money
Rates” section of the Wall Street Journal, published on the business day on, or
immediately preceding, the first day of each calendar quarter. If the Index is
no longer available, Lender will choose an index that is based upon comparable
information and will give the undersigned notice of such new “Index”.

 

The First Payment Due Date shall be the date that is one month after the date
loan proceeds are disbursed hereunder. The undersigned agrees that the dates of
the First Payment Due Date and the Final Installment Due Date may be left blank
when this Note is executed and hereby authorizes Lender to insert such dates
based upon a 48-month term from the date the loan proceeds are disbursed.

 

Principal and interest shall be payable in 47 consecutive equal monthly
installments of $89,871.66 each commencing on the First Payment Due Date and
continuing on the same day of each month thereafter, and in a final installment
of the entire unpaid principal balance of this Note plus accrued but unpaid
interest on the Final Installment Due Date, provided; however, that annual
adjustment payments shall be made as set forth below.

 

The amount of each monthly installment hereunder other than the final
installment is the amount necessary to fully amortize this Note in equal monthly
installments from the First Payment Due Date through the Final Installment Due
Date at an interest rate of 6.36% per annum. On each annual anniversary of the
First Payment Due Date, the undersigned shall pay Lender or Lender shall credit
to the next installment or installments in the order of maturity, as the case
may be, an amount necessary to make the unpaid principal balance of this Note on
such anniversary date equal to what it would have been on such anniversary date
had the interest rate hereon been the rate set forth in this paragraph
throughout the previous 12 months. Payments shall be applied first to interest
and then to principal.

 

This Note may be prepaid in whole at any time by paying to Lender the unpaid
principal balance of this Note but only if accompanied by a prepayment premium
of 2% of the unpaid principal balance, together with accrued but unpaid
interest.

 

This Note may be prepaid in part but only as a result of a disposition of an
item of collateral which secures this Note. The amount of such prepayment shall
be the product of the unpaid principal balance of this Note times a fraction,
the numerator of which is the original advance made by the Lender with respect
to the item of collateral in question and the denominator of which is the
original principal balance of this Note with respect to the existing collateral
securing this Note, together with accrued but unpaid interest multiplied by the
same fraction, plus a prepayment premium equal to the percentage set forth in
the preceding paragraph times the principal amount prepaid. Nothing contained in
this paragraph shall be construed as an authorization by Lender to the
undersigned to sell or otherwise dispose of an item of collateral which secures
this Note. Such sale or disposition of an item of collateral by the undersigned
shall be made solely in accordance with the terms of the security agreement or
other agreement pursuant to which the undersigned pledged such item of
collateral to Lender.

 

The undersigned may remit to Lender amounts in excess of an installment that is
due hereunder and Lender shall apply such amount to the next maturing
installment or installments. Payment of amounts in excess of the installment
that is due or installments prior to the due date thereof shall not be treated
as a prepayment or result in a change to either the total number of installments
or the total sum of all installments payable under this Note.

 

Each of the following shall constitute an Event of Default hereunder:
(a) failure to pay any installment or other payment hereunder when due; (b) the
occurrence of an Event of Default as defined in any security agreement or
mortgage securing this Note; (c) the commencement of any bankruptcy or
insolvency proceedings by or against the undersigned or any guarantor of this
Note; and (d) any indebtedness the undersigned may now or hereafter owe to any
affiliate of Lender shall be accelerated following a default thereunder or, if
any such indebtedness is payable on demand, payment thereof shall be demanded,
upon the occurrence of an Event of Default, Lender may do any one or more of the
following as it may elect, provided, however, that upon the occurrence of an
Event of Default specified in (c) above, the entire unpaid balance of this Note
shall automatically become and be due and payable without

 

THIS AGREEMENT INCLUDES THE TERMS ON THE ATTACHED PAGE(S).

 

IN WITNESS WHEREOF the Debtor has signed this Agreement as of the date first
above written.

 

Natural Alternatives International, Inc. Debtor /s/ John Reaves By CFO Title

 

PROMLIBOR: ACOSB01:11092005:1535:120423-702:164808:18997

 

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notice or demand of any kind: (i) upon written notice to the undersigned,
declare the entire unpaid balance of this Note to be immediately due and payable
and the same shall thereupon become and be immediately due and payable;
(ii) exercise any one or more of the rights and remedies available to it under
any security agreement or mortgage securing this Note or under any other
agreement or by law.

 

The undersigned hereby waives presentment, notice of dishonor, and protest. The
undersigned agrees to pay all costs of collection of this Note, including
reasonable attorney’s fees. The holder hereof may change the terms of payment of
this Note by extension, renewal or otherwise, and release any security for, or
party to, this Note and such action shall not release any accommodation maker,
endorser, or guarantor from liability on this Note.

 

Notwithstanding anything to the contrary contained herein, if the rate of
interest, late payment fee, prepayment premium or any other charges or fees due
hereunder are determined by a court of competent jurisdiction to be usurious,
then said interest rate, fees and/or charges shall be reduced to the maximum
amount permissible under applicable law and any such excess amounts shall be
applied towards the reduction of the principal balance of this Note.

 

This Note shall be construed and enforced in accordance with, and the rights of
the parties shall be governed by, the laws of the state of Minnesota without
regard to conflicts of law rules.

 

ARBITRATION:

 

(a) Arbitration. The parties hereto agree, upon demand by any party, to submit
to binding arbitration all claims, disputes and controversies between or among
them (and their respective employees, officers, directors, attorneys, and other
agents), whether in tort, contract or otherwise arising out of or relating to in
any way (i) the loan and related loan and security documents which are the
subject of this Note and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (ii) requests for additional
credit.

 

(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location
selected by the American Arbitration Association (“AAA”); (ii) be governed by
the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding
any conflicting choice of law provision in any of the documents between the
parties; and (iii) be conducted by the AAA, or such other administrator as the
parties shall mutually agree upon, in accordance with the AAA’s commercial
dispute resolution procedures, unless the claim or counterclaim is at least
$1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which
case the arbitration shall be conducted in accordance with the AAA’s optional
procedures for large, complex commercial disputes (the commercial dispute
resolution procedures or the optional procedures for large, complex commercial
disputes to be referred to, as applicable, as the “Rules”). If there is any
inconsistency between the terms hereof and the Rules, the terms and procedures
set forth herein shall control. Any party who fails or refuses to submit to
arbitration following a demand by any other party shall bear all costs and
expenses incurred by such other party in compelling arbitration of any dispute.
Nothing contained herein shall be deemed to be a waiver by any party that is a
bank of the protections afforded to it under 12 U.S.C. §91 or any similar
applicable state law.

 

(c) No Waiver of Provisional Remedies. Self-Help and Foreclosure. The
arbitration requirement does not limit the right of any party to (i) foreclose
against real or personal property collateral; (ii) exercise self-help remedies
relating to collateral or proceeds of collateral such as setoff or repossession;
or (iii) obtain provisional or ancillary remedies such as replevin, injunctive
relief, attachment or the appointment of a receiver, before during or after the
pendency of any arbitration proceeding. This exclusion does not constitute a
waiver of the right or obligation of any party to submit any dispute to
arbitration or reference hereunder, including those arising from the exercise of
the actions detailed in sections (i), (ii) and (iii) of this paragraph.

 

(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which
the amount in controversy is $5,000,000.00 or less will be decided by a single
arbitrator selected according to the Rules, and who shall not render an award of
greater than $5,000,000.00. Any dispute in which the amount in controversy
exceeds $5,000,000.00 shall be decided by majority vote of a panel of three
arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations. The arbitrator will be a neutral
attorney licensed in, or a neutral retired judge of the state or federal
judiciary of the state in which the arbitration proceeding takes place, in
either case with a minimum of ten years experience in the substantive law
applicable to the subject matter of the dispute to be arbitrated. The arbitrator
will determine whether or not an issue is arbitratable and will give effect to
the statutes of limitation in determining any claim. In any arbitration
proceeding the arbitrator will decide (by documents only or with a hearing at
the arbitrator’s discretion) any pre-hearing motions which are similar to
motions to dismiss for failure to state a claim or motions for summary
adjudication. The arbitrator shall resolve all disputes in accordance with the
substantive law of Minnesota and may grant any remedy or relief that a court of
such state could order or grant within the scope hereof and such ancillary
relief as is necessary to make effective any award. The arbitrator shall also
have the power to award recovery of all costs and fees, to impose sanctions and
to take such other action as the arbitrator deems necessary to the same extent a
judge could pursuant to the Federal Rules of Civil Procedure, the Minnesota
Rules of Civil Procedure or other applicable law, Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
“arbitration if any other party contests such action for judicial relief.

 

(e) Discovery. In any arbitration proceeding discovery will be permitted in
accordance with the Rules. All discovery shall be expressly limited to matters
directly relevant to the dispute being arbitrated and must be completed no later
than 20 days before the hearing date and within 180 days of the filing of the
dispute with the AAA. Any requests for an extension of the discovery periods, or
any discovery disputes, will be subject to final determination by the arbitrator
upon a showing that the request for discovery is essential for the party’s
presentation and that no alternative means for obtaining information is
available.

 

(f) Class Proceedings and Consolidations. The resolution of any dispute arising
pursuant to the terms of this Note shall be determined by a separate arbitration
proceeding and such dispute shall not be consolidated with other disputes or
included in any class proceeding.

 

(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs
and expenses of the arbitration proceeding.

 

(h) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators
and the parties shall take all action required to conclude any arbitration
proceeding within 180 days of the filing of the dispute with the AAA. No
arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business or by applicable law or
regulation. If more than one agreement for arbitration by or between the parties
potentially applies to a dispute, the arbitration provision most directly
related to the documents between the parties or the subject matter of the
dispute shall control. This arbitration provision shall survive termination,
amendment or expiration of any of the documents or any relationship between the
parties.

 

If Debtor is not an individual, (i) the execution, delivery and performance of
this Note has been duly authorized by all necessary action on the part of Debtor
and will not violate any provision of Debtor’s governing documents; (ii) the
person signing on behalf of Debtor is duly authorized; and (iii) this Note
constitutes a legal, valid and binding obligation of Debtor.

 

If this Note is signed by more than one person as Debtor, then the term “Debtor”
shall refer to each of them separately and to all of them jointly, and each such
person shall be liable hereunder individually in full and jointly with the
others.

 

First Payment Due Date:           Final Installment Due Date:    

 

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Wells Fargo Equipment Finance, Inc.

733 Marquette Avenue, Suite 700

MAC N9306-070

Minneapolis, MN 55402

   Security Agreement

 

Dated as of November 9, 2005

Contract Number 0120423-702

 

Name and Address of Debtor:

Natural Alternatives International, Inc.

1185 Linda Vista Drive

San Marcos, CA 92069

 

1. Security Interest and Collateral. To secure the payment and performance of
each and every debt, liability and obligation of every type and description
which Debtor may now or at any time hereafter owe to Wells Fargo Equipment
Finance, Inc. (“Secured Party”) (whether such debt, liability or obligation now
exists or is hereafter created or incurred, whether it is currently contemplated
by the Debtor and Secured Party, whether any documents evidencing it refer to
the Security Agreement, 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 such debts,
liabilities and obligations being herein collectively referred to as the
“Obligations”), Debtor hereby grants Secured Party a security interest (herein
called the “Security Interest”) in the following property (herein called the
“Collateral”):

 

The Equipment described on Schedule A attached hereto and made a part hereof.

together with all substitutions and replacements for and products of the
Collateral, all proceeds, accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with the
Collateral.

 

2. Representations, Warranties and Agreements. Debtor represents, warrants and
agrees that:

 

  (a) Authorization. If Debtor is not an individual, (i) the execution, delivery
and performance of this Agreement has been duly authorized by all necessary
action on the part of the Debtor and will not violate any provision of the
Debtor’s governing documents; and (ii) the person signing this Agreement on
behalf of the Debtor is duly authorized.

 

  (b) Office Location and Organization. Debtor’s chief executive office (if
Debtor is a corporation, a partnership or a limited liability company) is
located at the address for Debtor shown above. Debtor will not change the
location of its chief executive office or his/her residence, as the case may be,
or its state of organization or form of organization (if Debtor is a
corporation, a partnership or a limited liability company) without first giving
Secured Party at least 10 days prior written notice of the proposed change,

 

  (c) Business Purpose; Lawful Use. The Equipment will be used primarily for
business purposes as opposed to personal, family or household purposes. Debtor
will comply with all laws and regulations applicable to the Equipment and its
use.

 

3. Additional Representations, Warranties and Agreements. Debtor represents,
warrants and agrees that:

 

  (a) Debtor has (or will have at the time Debtor acquires rights in Collateral
hereafter arising) absolute title to each item of Collateral free and clear of
all security interests, liens and encumbrances, except the Security Interest and
will defend the Collateral against all claims or demands of all persons other
than Secured Party. Debtor will not sell or otherwise dispose of the Collateral
or any interest therein without the prior written consent of Secured Party.

 

  (b) Debtor will not permit any Collateral to be located in any state (and, if
county filing is required, in any county) in which the financing statement
covering such Collateral is required to be, but has not in fact been, filed in
order to perfect the Security Interest.

 

  (c) Debtor will (i) keep all Collateral in good repair, working order and
condition, normal depreciation excepted, and will, from time to time, replace
any worn, broken or defective parts thereof; (ii) promptly pay all taxes and
other governmental charges levied or assessed upon or against any Collateral or
upon or against the creation, perfection or continuance of the Security
Interest; (iii) keep all Collateral free and clear of all security interests,
liens and encumbrances except the Security Interest: (iv) at all reasonable
times, permit Secured Party or its representatives to examine or inspect any
Collateral, wherever located, and to examine, inspect and copy Debtor’s books
and records pertaining to the Collateral and its business and financial
condition; (v) keep accurate and complete records pertaining to Debtor’s
business and financial condition and submit to Secured Party such periodic
reports concerning Debtor’s business and financial condition as Secured Party
may from time to time reasonably request; (vi) promptly notify Secured Party of
any loss of or material damage to any Collateral; (vii) at all times keep all
Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (in case of Collateral consisting of motor vehicles)
and such other risks and in such amounts as Secured Party may reasonably
request, with any loss payable to Secured Party to the extent of its interest
and with a provision requiring the insurer to notify Secured Party in writing at
least 10 days prior to cancellation or modification of any such policy,
(viii) from time to time execute such financing statements as Secured Party may
reasonably require in order to perfect the Security Interest and, if any
Collateral consists of a motor vehicle, execute such documents as may be
required to have the Security Interest property noted on a certificate of title;
(ix) pay when due or reimburse Secured Party on demand for all costs of
collection of any of the Obligations and all other out-of-pocket expenses
(including in each case all reasonable attorneys’ fees) incurred by Secured
Party in connection with the creation, perfection, satisfaction, protection,
defense or enforcement of the Security Interest or the creation, continuance,
protection, defense or enforcement of this Agreement or any or all of the
Obligations, including expenses incurred in any litigation or bankruptcy or
insolvency proceedings; (x) execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other agreements and writings
which Secured Party may at any time reasonably request in order to secure,
protect, perfect or enforce the Security Interest and Secured Party’s rights
under this Agreement; (xi) not use or keep any Collateral, or permit it to be
used or kept, for any unlawful purpose or in violation of any federal, state or
local law, statute or ordinance; and (xii) not permit any Collateral to become
part of or to be affixed to any real property without first assuring to the
reasonable satisfaction of Secured Party that the Security Interest will be
prior and senior to any interest or lien then held or thereafter acquired by any
mortgagee of such real property or the owner or purchaser of any interest
therein. If Debtor at any time fails to perform or observe any agreement
contained in this Section 3(c), and if such failure shall continue for a period
of ten calendar days after Secured Party gives Debtor written notice thereof
(or, in the case of the agreements contained in clauses (vii) and (viii) of this
Section 3(c), immediately upon the occurrence of such failure, without notice or
lapse of time), Secured Party may (but need not) perform or observe such
agreement on behalf and in the name, place and stead of Debtor (or, at Secured
Party’s option, in Secured Party’s own name) and may (but need not) take any and
all other actions which Secured Party may reasonably deem necessary to cure or
correct such failure (including, without limitation, the payment of taxes, the
satisfaction of security interests, liens, or encumbrances, the procurement and
maintenance

 

THIS AGREEMENT INCLUDES THE TERMS ON THE ATTACHED PAGE(S).

 

Natural Alternatives International, Inc. Debtor /s/ John Reaves By CFO Title

 

SECAGREQ: ACOSB01:11092005:1535:120423-702:164806:16997

 

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of insurance, the execution of financing statements, the endorsement of
instruments, and the procurement of repairs, transportation or insurance); and,
except to the extent that the effect of such payment would be to render any loan
or forbearance of money usurious or otherwise illegal under any applicable law
Debtor shall thereupon pay Secured Party on demand the amount of all moneys
expended and all costs and expenses (including reasonable attorneys’ fees)
incurred by Secured Party in connection with or as a result of Secured Party’s
performing or observing such agreement or taking such actions, together with
interest thereon from the date expended or incurred by Secured Party at the
highest rate then applicable to any of the Obligations. To facilitate the
performance or observance by Secured Party of such agreements of Debtor, Debtor
hereby irrevocably appoints (which appointment is coupled with an interest)
Secured Party, or its delegate, as the attorney-in-fact of Debtor with the right
(but not the duty) from time to time to create, prepare, complete, execute,
deliver, endorse or file, in the name and on behalf of Debtor, any and all
instruments, documents, financing statements, applications for insurance and
other agreements and writings required to be obtained, executed, delivered or
endorsed by Debtor under this Section 3.

 

4. Assignment of Insurance. Debtor hereby assigns to Secured Party, as
additional security for the payment of the Obligations, any and all moneys
(including but not limited to proceeds of insurance and refunds of unearned
premiums) due or to become due under, and all other rights of Debtor under or
with respect to, any and all policies of insurance covering the Collateral, and
Debtor hereby directs the issuer of any such policy to pay any such moneys
directly to Secured Party. Both before and after the occurrence of an Event of
default, Secured Party may (but need not), in its own name or in Debtor’s name,
execute and deliver proofs of claim, receive all such moneys, endorse checks and
other instruments representing payment of such moneys, and adjust, litigate,
compromise or release any claim against the issuer of any such policy,

 

5. Events of Default. Each of the following occurrences shall constitute an
event of default under this Agreement (herein called “Event of Default”):
(i) Debtor shall fail to pay any or all of the Obligations when due or (if
payable on demand) on demand, or shall fail to observe or perform any covenant
or agreement herein binding on it; (ii) any representation or warranty by Debtor
set forth in the Agreement or made to Secured Party in any financial statements
or reports submitted to Secured Party by or on behalf of Debtor shall prove
materially false or misleading; (iii) a garnishment, summons or a writ of
attachment shall be issued against or served upon the Secured Party for the
attachment of any property of Debtor or any indebtedness owing to Debtor:
(iv) Debtor or any guarantor of any Obligation shall (A) be or become insolvent
(however defined); or (B) voluntarily file, or have filed against it
involuntarily, a petition under the United States Bankruptcy Code; or (C) if a
corporation, partnership, or organization, be dissolved or liquidated or, if a
partnership, suffer the death of a partner or, if an individual, die; or (D) go
out of business; (v) an event of default shall occur under any indebtedness
Debtor may now or hereafter owe to any affiliate of Secured Party; (vi) if
Debtor is a corporation, more than 50% of the shares of voting stock of Debtor
shall become owned by a shareholder or shareholders who were not owners of
voting stock of Debtor on the date of this Agreement or, if Debtor is a
partnership, more than 50% of the partnership interests in the Debtor shall
become owned by a partner or partners who were not partners of Debtor on the
date of this Agreement; or (vii) Debtor shall consolidate with or merge into, or
sell all or substantially all of its assets to, any individual, corporation, or
other entity.

 

6. Remedies upon Event of Default. Upon the occurrence of an Event of Default
under Section 5 and at any time thereafter, Secured Party may exercise any one
or more of the following rights and remedies: (i) declare all unmatured
Obligations to be immediately due and payable, and the same shall thereupon be
immediately due and payable, without presentment or other notice or demand;
(ii) exercise and enforce any or all rights and remedies available upon default
to a secured party under the Uniform Commercial Code, including but not limited
to the right to take possession of any Collateral, proceeding without judicial
process or by judicial process (without a prior hearing or notice thereof, which
Debtor hereby expressly waives), and the right to sell, lease or otherwise
dispose of any or all of the Collateral, and in connection therewith, Secured
Party may require Debtor to make the Collateral available to Secured Party at a
place to be designated by Secured Party which is reasonably convenient to both
parties, and if notice to Debtor of any intended disposition of Collateral or
any other intended action is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given (in the manner specified
in Section 7) at least 10 calendar days prior to the date of intended
disposition or other action; (iii) exercise or enforce any or all other rights
or remedies available to Secured Party by law or agreement against the
Collateral, against Debtor or against any other person or property. Upon the
occurrence of the Event of Default described in Section 5(iv)(B), all
Obligations shall be immediately due and payable without demand or notice
thereof.

 

7. Miscellaneous. This Agreement can be waived, modified, amended, terminated or
discharged, and the Security Interest can be released, only explicitly in a
writing signed by Secured Party. A waiver signed by Secured Party shall be
effective only in the specific instance and for the specific purpose given. Mere
delay or failure to act shall not preclude the exercise or enforcement of any of
Secured Party’s rights or remedies. All rights and remedies of Secured Party
shall be cumulative and may be exercised singularly or concurrently, at Secured
Party’s option, and the exercise or enforcement of any one such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any
other. All notices to be given to Debtor shall be deemed sufficiently given if
delivered or mailed by registered or certified mail, postage prepaid, to Debtor
at its address set forth above or at the most recent address shown on Secured
Party’s records. Secured Party’s duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if Secured Party
exercises reasonable care in physically safekeeping such Collateral or, in the
case of Collateral in the custody or possession of a bailee or other third
person, exercises reasonable care in the selection of the bailee or other third
person, and Secured Party need not otherwise preserve, protect, insure or care
for any Collateral. Secured Party shall not be obligated to reserve any rights
Debtor may have against prior parties, to realize on the Collateral at all or in
any particular manner or order, or to apply any cash proceeds of Collateral in
any particular order of application. This Agreement shall be binding upon and
inure to the benefit of Debtor and Secured Party and their respective heirs,
representatives, successors and assigns and shall take effect when signed by
Debtor and delivered to Secured Party, and Debtor waves notice of Secured
Party’s acceptance hereof. Secured Party may execute this Agreement if
appropriate for the purpose of filing, but the failure of Secured Party to
execute this Agreement shall not affect or impair the validity or effectiveness
of this Agreement. A carbon, photographic or other reproduction of this
Agreement or of any financing statement signed by the Debtor shall have the same
force and effects as the original for all purposes of a financing statement.
Except to the extent otherwise required by law, this Agreement shall be governed
by the internal laws of the state of Minnesota. If any provision or application
of this Agreement is held unlawful or unenforceable in any respect, such
illegality or unenforceability shall not affect other provisions or applications
which can be given effect, and this Agreement shall be construed as if the
unlawful or unenforceable provision or application had never been contained
herein or prescribed hereby. All representations and warranties contained in
this Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations. If this Agreement is
signed by more than one person as Debtor, the term “Debtor” shall refer to each
of them separately and to both or all of them jointly; all such persons shall be
bound both severally and jointly with the other(s); and the Obligations shall
include all debts, liabilities and obligations owed to Secured Party by any
Debtor solely or by both or several or all Debtors jointly or jointly and
severally, and all property described in Section 1 shall be included as part of
the Collateral, whether it is owned jointly by both or all Debtors or is owned
in whole or in part by one (or more) of them. There shall be (1) counterpart of
this Agreement and it will be marked “Original.” To the extent that this
Agreement constitutes chattel paper (as that term is defined by the Uniform
Commercial Code), a security interest only may be created in the Agreement
marked “Original.”

 

ARBITRATION:

 

(a) Arbitration. The parties hereto agree, upon demand by any party, to submit
to binding arbitration all claims, disputes and controversies between or among
them (and their respective employees, officers, directors, attorneys, and other
agents), whether in tort, contract or otherwise arising out of or relating to in
any way (i) the loan and related loan and security documents which are the
subject of this Agreement and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (ii) requests for additional
credit.

 

(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location
selected by the American Arbitration Association (“AAA”); (ii) be governed by
the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding
any conflicting choice of law provision in any of the documents between the
parties; and (iii) be conducted by the AAA, or such other administrator as the
parties shall mutually agree upon, in accordance with the AAA’s commercial
dispute resolution procedures, unless the claim or counterclaim is at least
$1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which
case the arbitration shall be conducted in accordance with the AAA’s optional
procedures for large, complex commercial disputes (the commercial dispute
resolution procedures or the optional procedures for large, complex commercial
disputes to be referred to, as applicable, as the “Rules”). If there is any
inconsistency between the terms hereof and the Rules, the terms and procedures
set forth herein shall control. Any party who fails or refuses to submit to
arbitration following a demand by any other party shall bear all costs and
expenses incurred by such other party in compelling arbitration of any dispute.
Nothing contained herein shall be deemed to be a waiver by any party that is a
bank of the protections afforded to it under 12 U.S.C. §91 or any similar
applicable state law.

 

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The
arbitration requirement does not limit the right of any party to (i) foreclose
against real or personal property collateral; (ii) exercise self-help remedies
relating to collateral or proceeds of collateral such as setoff or repossession;
or (iii) obtain provisional or ancillary remedies such as replevin, injunctive
relief, attachment or the appointment of a receiver, before during or after the
pendency of any arbitration proceeding. This exclusion does not constitute a
waiver of the right or obligation of any party to submit any dispute to
arbitration or reference hereunder, including those arising from the exercise of
the actions detailed in sections (i), (ii) and (iii) of this paragraph.

 

(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which
the amount in controversy is $5,000,000.00 or less will be decided by a single
arbitrator selected according to the Rules, and who shall not render an award of
greater than $5,000,000.00. Any dispute in which the amount in controversy
exceeds $5,000,000.00 shall be decided by majority vote of a panel of three
arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations. The arbitrator will be a neutral
attorney licensed in, or a neutral retired judge of the state or federal
judiciary of the state in which the arbitration proceeding takes place, in
either case with a minimum of ten years experience in the substantive law
applicable to the subject matter of the dispute to be arbitrated. The arbitrator
will determine whether or not an issue is arbitratable and will give effect to
the statutes of limitation in determining any claim. In any arbitration
proceeding the arbitrator will decide (by documents

 

Page 2 of 3 : SECAGREQ

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only or with a hearing at the arbitrator’s discretion) any pre-hearing motions
which are similar to motions to dismiss for failure to state a claim or motions
for summary adjudication. The arbitrator shall resolve all disputes in
accordance with the substantive law of Minnesota and may grant any remedy or
relief that a court of such state could order or grant within the scope hereof
and such ancillary relief as is necessary to make effective any award. The
arbitrator shall also have the power to award recovery of all costs and fees, to
impose sanctions and to take such other action as the arbitrator deems necessary
to the same extent a judge could pursuant to the Federal Rules of Civil
Procedure, the Minnesota Rules of Civil Procedure or other applicable law.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction. The institution and maintenance of an action for judicial
relief or pursuit of a provisional or ancillary remedy shall not constitute a
waiver of the right of any party, including the plaintiff, to submit the
controversy or claim to arbitration if any other party contests such action for
judicial relief.

 

(e) Discovery. In any arbitration proceeding discovery will be permitted in
accordance with the Rules. All discovery shall be expressly limited to matters
directly relevant to the dispute being arbitrated and must be completed no later
than 20 days before the hearing date and within 180 days of the filing of the
dispute with the AAA. Any requests for an extension of the discovery periods, or
any discovery disputes, will be subject to final determination by the arbitrator
upon a showing that the request for discovery is essential for the party’s
presentation and that no alternative means for obtaining information is
available.

 

(f) Class Proceedings and Consolidations. The resolution of any dispute arising
pursuant to the terms of this Agreement shall be determined by a separate
arbitration proceeding and such dispute shall not be consolidated with other
disputes or included in any class proceeding.

 

(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs
and expenses of the arbitration proceeding.

 

(h) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators
and the parties shall take all action required to conclude any arbitration
proceeding within 180 days of the filing of the dispute with the AAA. No
arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business or by applicable law or
regulation. If more than one agreement for arbitration by or between the parties
potentially applies to a dispute, the arbitration provision most directly
related to the documents between the parties or the subject matter of the
dispute shall control. This arbitration provision shall survive termination,
amendment or expiration of any of the documents or any relationship between the
parties.

 

Page 3 of 3 : SECAGREQ

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LOGO [g37889img_1.jpg]   

Wells Fargo Equipment Finance, Inc.

2030 Main Street, Ste. 900

Irvine, CA 92614

   Schedule A

 

Contract Number 120423-702 dated as of November 9, 2005

 

Debtor: Natural Alternatives International, Inc.

 

Equipment location: 1215 Park Center Dr. Ste. C Vista, CA 92083

The following Manufacturing equipment & other equipment as more fully described
on the referenced Invoices:

 

Description

--------------------------------------------------------------------------------

  

Serial #

--------------------------------------------------------------------------------

  

Vendor

--------------------------------------------------------------------------------

  

Invoice #

--------------------------------------------------------------------------------

OFFICE FURNITURE - LAB AT VISTA FACILITY         GML OFFICE FURNITURE, INC   
14937 HPLC SYSTEM, 2695 SEPARATION MODULE W/3 DETECTORS         WATERS CORP   
263955531, 263952140, 263985240, 263955877, 263951800 METAL DETECTOR & TRANSFER
CONVEYOR, POWDER LINE #3         LOMA SYSTEMS    35324 CAPSULE FILLING MACH
REPLACEMENT PARTS, MATIC 90 FAS #277    2183&2174    IMA NORTH AMERICA, INC.   
IS32669-IN FARMATIC 90 REBUILD PARTS (SEE ASSET#194)    2183&2174    IMA NORTH
AMERICA, INC.    IS32669-IN LEAK/BURST PRESSURE DECAY TESTER    0604H417   
MOCON, INC    74343 QC LAB EQUIPMENT-BALANCE, AUTO FEEDER, QC CONTROL SYSTEM.
DISH         FISHER SCIENTIFIC    8089674 S200 NETWORKABLE DIODE ARRAY UV/VIS
DETECTOR    292G1122511    Perkin Elmer    5300639614 HPLC SYSTEM, 2695
SEPARATION MODULE W/1 DETECTOR         WATERS CORP    264057335 COMBUSTION
ANALYZER W/AUTOSAMPLER & SOFTWARE KIT    H51104235052    SHIMADZU SCIENTIFIC   
40025918 VACUUM PUMP REBUILD, RIETSCHLE 501 (SEE ASSET #375)         ADVANCED
AIR & VACUUM    11195, 11365 BRIDGE CRANE (INCLUDES FABRICATION AND
INSTALLATION)    74975    GEORGE & KROUGH    13239, 13202, 13328, P.O. 603081
HEAT PUMPS (TOTAL OF TWO 5-TON)         AIR VAC    S.O. 6234 HOPPER, AUTO SCREW
FEED (PURCHASED USED FROM AUCTION)         TAUBER-ARONS, INC.    112 HOPPER,
AUTO SCREW FEED (PURCHASED USED FROM AUCTION)         TAUBER-ARONS, INC.    112
2002 CREMER AUTOMATIC TABLET COUNTER    12625-01    TAUBER-ARONS, INC.    112
INKJET PRINTERS   

0020700-18-WD;

0020700-16-WD;

20020700-1-WD

   TAUBER-ARONS, INC.    112 ENCAPSULATOR, IMPRESSA HIGH-SPEED AUTO (USED FROM
AUCTION)    PC-1004    TAUBER-ARONS, INC.    112 CHANGE PARTS (0-00) FOR
IMPRESSA ENCAPSULATOR, FAS #1953         TAUBER-ARONS, INC.    112 POUCHER, OMAG
3-LANE (PURCHASED USED FROM AUCTION)    1648    TAUBER-ARONS, INC.    112
WASHING MACHINE SYSTEM FOR TOTES AND LIDS    3282    KUHL INTERNATIONAL    35506
WASHING MACHINE SYSTEM FOR DRUMS AND LIDS    3283    KUHL INTERNATIONAL    35506
FOIL SEALER, HEAT INDUCTION AUTO MATE AM-250    A25940    AUTO MATE/KAPS ALL   
50806 BOTTLE CAPPER, C8 CAPPER WITH FSRF-36 ROTARY CAP FEEDER    5623, 4319   
KAPS-ALL    39478 BRONCO LABELER 125         NJM PACKAGING SYSTEMS    M04D0021
TOTES, 17,000 QUANTITY FOR NEW TABLETING & ENCAPSULATING AREA         BUCKhorn
   407603, 408332, 408404 SLAT COUNTER, PROCOUNT 72-42    040303/P2037   
INTEGRATED PACKAGING SYS    7607 BOTTLE UNSCRAMBLER. WITH 36” PREFEEDER, 12”
ELEVATOR & 15CF HOPR    5614   

KAPS-ALL

   39479 CONVEYOR TABLE TOP 20’         APPLIED INDUSTRIAL TECH.    85457187

 

     Page 1 of 3    Initials         JR        

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CONVEYOR TABLE TOP 20’         APPLIED INDUSTRIAL TECH.    85457187 CONVEYOR
TABLE TOP 24’         APPLIED INDUSTRIAL TECH.    85457187 AUTO CAPSEALERAND
VERTICAL PERFORATION ATTACHMENT         MARBURG INDUSTRIES INC.    10501
COMPRESSOR, 75 HP W/ DRYER AND TANK REGRLATOR    003145566, T0405209J   
C.A.S.E.I.    18438 FITZPATRICK CHILSONATOR SYSTEM (W/COMPACTOR, COMMINUTOR)   
716, 11846    THE FITZPATRICK COMPANY    285783 HPLC SYSTEM, 2695XC SEPARATION
MODULE W/2996 ARRAY DETECTOR         WATERS CORP    264163124 HPLC SYSTEM,
2695XC SEPARATION MODULE W/2996 ARRAY DETECTOR         WATERS CORP    264163124
HPLC SYSTEM, 2695XC SEPARATION MODULE W/2996 ARRAY DETECTOR         WATERS CORP
   264163124 CAPSULE FILLING MACHINE REBUILD, ZANASI 40F (SEE ALSO FAS #347)   
44124    IMA NORTH AMERICA, INC.    IS37521-IN, IS37653-IN, IS38654-IN,
IT38153-IN, IT OMAG SIX LANE VERTICAL PACKAGING MACHINE UPGRADE (SEE FAS #1599)
   1633    VARIOUS    31996, 814593, 8153726, 8138933, 275-957, 275-958,
81536150, 2121588, 31999, 85454777, 85454735, 85454628, 85455524, 85455573,
854455185, 85455632, 8546668, 86455657, 85455732, 03360/0085454601 FUME HOODS &
RELATED ASSESSORIES FOR LABORATORY         VWR SCIENTIFIC    21381177, 21381189,
14313 COTTON INSERTING MACHINE, CS2 FULLY AUTOMATED         EQUIPMENT TECHNOLOGY
   0105-13 COTTON INSERTING MACHINE, CS2 FULLY AUTOMATED         EQUIPMENT
TECHNOLOGY    0105-13 BLENDING MACHINE, 60 CF, SLANT CONE SLOW SPEED AGITATOR   
None    GEMCO    33679 PALLET RACKING/FLO SYSTEM W/12 SINGLE WIDE BAYS (INCL
INSTALL.)         COLBRESE    1950 AC Upgrade Vacuum Rooms         Good &
Roberts Inc.    505800001 DI Skid Water Purification System         Pacific
Coast Water and Filtration    20226, 20312, 20232 6 New Dock Door Seals        
Door Service & Repair    1021817 Manufacturing Consolidation Project         A&D
Fire Protection Inc; CDS Architects dba Smith Consulting Architects; Partners;
   205173, 13816, 13827, 4043, 14110, 14121, 13955 Install Aluminum Sheeting in
Blender Rooms         George & Krogh Welding Inc.    33358 Security System
Upgrade         American Surveillance/Adobe Lock and Safe    6337, 6536, 7004,
7015, 7862, 7993 DI Skid Water Purification Water System         Applied
Microbiological Services    2221, 2210,2211 New Hallway Buildout         Ozzy’s
Plumbing & Drain Services, Inc.    3263 Server and Memory Upgrade        
AmeriComp    26732 Spectrometer Workstation Unit         AmeriComp    27084
Floor Scrubber         Tenhant Sales and Service Co    93416356

 

 

     Page 2 of 3    Initials     JR                        

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Drum Storage Table System         Colbrese Material Handling    1649, 1608,
1598, 1624, 1639, 1653, 4868, 1686, no invoice #, 2300, 1712, 2170 Conveyor
System for Tabling & Encapsulating Areas         Colbrese Material Handling   
1669, 2140, 1713, 1753, 1793, 1774, 2138, 4727, 2259, 2184 Incubator Glass Door
        Fisher Scientific    4217917 Automated Dissolution Tester         Logan
Instruments Corp    8325 Autoclave Sterilizer         South Shore
Scientific/Consolidated Stills & Sterilizers    16396 Ribbon Mixer Motor        
Applied Industrial Tec    85462580, 85462755 Blender Safety Rails         George
& Krogh Welding Inc    33703 Inverter         Applied Industrial Tech   
85463671 Two (2) Complete Ventilator kits, including all parts and accessories
        TMP Mechanical, Inc.    7602 Two (2) CK30C Wireless Keypad Handheld
Computers, including all parts and accessories         Softchoice      One
(1) Impressa Machine    PC1009    IMA North America Inc.    IM46698-IN,
IA4588I-IN Misc. parts to the Impressa Machine including Caps Chute, SC1000,
connector, cover capsules tank, square plate, cinvyeing unit capsules    None   
IMA North America Inc.    IS43964-IN Two (2) 6Ft. Cabinets with Stands    None
   VWR International    23279729

 

Dated: November 9, 2005

 

Debtor: Natural Alternatives International, Inc.

 

By:

 

/s/ John Reaves

Its:

 

CFO

 

 

Page 3 of 3