EXHIBIT 10.3
STRATEGIC ALLIANCE AGREEMENT
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THIS AGREEMENT is made as of the 30th day of March 1995 by and between
PacificHealth Laboratories, Inc., a New Jersey corporation (hereinafter referred
to as "PHL"), XXXXXX XXXX, T. XXXXX XXXXXXXX, and the INSTITUTE OF NUTRITION &
FOOD HYGIENE (hereinafter referred to as "INFH").
WHEREAS INFH and Xxxxxx Xxxx have (1) special relationships with leading
Chinese medical and nutrition institutions, (2) special expertise and know how
in the use of natural products for the treatment and prevention of disease and
maintenance of health, (3) relationships with Chinese clinicians and researchers
and (4) expertise and know how in the licensing, research and development of
products; and
WHEREAS PHL desires to enter into an exclusive relationship with INFH and
Xxxxxx Xxxx for the purpose of commercializing products, know how and/or
intellectual property as may be described below;
NOW THEREFORE, in consideration of the premises and other mutual covenants
and agreements hereinafter set forth, the parties agree as follows.
1. INFH will seek out and enter into Exclusive Licensing Agreements with
other institutions on a project-by-project basis for non-prescription drugs and
medicines, foods, food supplements, nutritional supplements, extracts from
naturally derived sources and the know how, intellectual property and technology
for developing products derived from natural sources that can be used in the
prevention and treatment of disease and
maintenance of health and well being, (hereinafter the "Products") that can be
commercialized outside of China. Any future Products licensed by INFH will be
assigned to PHL subject to the terms and conditions of this Agreement.
2. INFH will seek out and enter into Exclusive Licensing Agreements for
Products for, but not limited to, Obesity Management, Sports Enhancement,
Stamina Improvement, Sports Recovery/Antifatigue, Female Health (PMS and
Estrogen Supplementation), Health Teas, Arthritis, Diabetes Mellitus,
Cholesterol Lowering, Cold Prevention, Cold Relief, Antipruritic, Stress
Reduction and Improvement in Mental Acuity.
3. PHL has entered into Exclusive Licensing Agreements with the Institute
of Nutrition and Food Hygiene.
4. All Exclusive Licensing Agreements arranged for PHL must be preapproved
by PHL prior to execution by INFH.
5. INFH will use its best efforts to enter into Exclusive Licensing
Agreements for Products from key Chinese medical institutes including, but not
limited to, Chinese Academy of Traditional Medicine; Institute of Materia
Medica, Chinese Academy of Medical Sciences; Beijing Traditional Chinese Medical
University; Beijing Medical University; Capital University of Medical Sciences;
and China-Japan Friendship Institute of Clinical Medical Sciences.
6. PHL will pay royalties to INFH and any other organization designated by
INFH for the Net Sales of any Products exported from China, developed in China
or based whole or in part
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on extracts from China. "Net Sales" shall mean the compensation which PHL
receives from the sale of a product less the sum of the following:
a. Product returns
b. Discounts allowed and taken
c. Promotional discounts, advertising incentives and/or trade allowances
d. Federal, state and local sales or excise taxes
e. Amounts paid or separately invoiced for shipping costs including
freight, insurance and special packaging.
7. No royalty would be paid to INFH on Products licensed, purchased and/or
co-marketed from companies outside of China or companies with whom INFH had no
direct involvement or Products developed by PHL using only natural ingredients
or extracts not available from China.
8. PHL shall Pay royalties to INFH as follows:
a. A royalty of 2% shall be paid on annual Net Sales of up to $25
million.
b. In addition to Paragraph 8.a., a royalty of 1.5% shall be paid on
annual Net Sales greater than $25 million but less than $100 million.
c. For all royalties earned in excess of $25 million but less than $100
million, PHL shall receive a 30% credit. This credit shall be escrowed
by PHL and be applied to "Special Services" performed by INFH,
institutions or individuals with whom INFH has entered into a
licensing agreement. Unused credit shall carry over beyond the year in
which it was earned. For purposes of this Agreement, Special Services
shall be defined as:
(1) Clinical studies/research
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(2) Laboratory studies/research
(3) Toxicology studies/research
(4) Formulation and/or product development
(5) Quality control studies/services
(6) Payment to Chinese consultants for work including, but not
limited to, clinical and/or research design, product development,
quality control, manufacturing and/or sourcing.
d. In addition to Paragraphs 8.a. and 8.b., a royalty of 1% shall be paid
on annual Net Sales greater than $100 million but less than $200
million. PHL shall receive no credit against any royalties paid on
annual Net Sales greater than $100 million.
e. In addition to Paragraphs 8.a., 8.b. and 8.d., a royalty of 0.5% shall
be paid for annual Net Sales greater than $200 million. Appendix 2,
for purposes of example only, details royalty payments under four
hypothetical Net Sales levels.
9. If INFH enters into a Exclusive Licensing Agreement for Products with
institutions and/or individuals and the Exclusive Licensing Agreement requires
payment of fees, royalties or commissions, INFH will have the sole obligation to
pay such fees, royalties or commissions so long as PHL meets the terms and
conditions outlined in Paragraphs 6, 7, 8, 10, 11, 12 and 13. If by mutual
agreement PHL pays such fees, royalties or commissions directly, there will be
an offset against royalties owed by PHL to INFH.
10. No royalty will be paid until the profits of PHL are as follows:
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(Pretax profits) - (Royalty) - (Loss carry forward) 0.5 - (Taxes) > $0
11. Within 60 days after the end of each calendar quarter, PHL shall submit
to INFH a written report stating Net Sales of all Products which occurred during
the preceding calendar quarter.
12. PHL's obligation to pay royalties and make reports hereunder shall
continue as long as it or its successors or permitted assigns shall be making
sales of products covered by this Agreement.
13. PHL shall maintain at its principal office books and records showing
transactions subject to this Agreement. Such books and records shall be open for
inspection and copying during business hours by INFH or its agents, attorneys,
accountants or representative for two (2) years after the fiscal quarter for
which they pertain, for the purposes of verifying the accuracy of the reports
made by PHL under this Agreement.
14. Until PHL begins paying royalties, PHL will negotiate on a project
basis a fee for any services that may be performed by INFH or institutions or
individuals with whom INFH has entered into an Exclusive Licensing Agreement.
Until payments of royalties begin, PHL agrees to pay for work performed on a
project basis for the following Special Services:
(1) Clinical studies/research
(2) Laboratory studies/research
(3) Toxicology studies/research
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(4) Formulation and/or product development
(5) Quality control studies/services
(6) Payment to Chinese consultants for work including, but not
limited to, clinical and/or research design, product development,
quality control, manufacturing and/or sourcing.
15. Prior to initiation of any work described in Paragraph 14, INFH will
submit to PHL a written estimate for the work performed or services provided for
approval by PHL.
16. For future Products not specified in Paragraph 1 and subject to the
exclusions noted in Paragraph 19, PHL shall have the absolute right of first
refusal according to the following terms and conditions:
a. INFH shall present any and all Products that it has either
licensed or has the potential to license to PHL.
b. PHL shall respond in writing to INFH within forty-five (45) days
stating whether PHL wishes to license such Products.
c. If PHL declines to license such Products as may be presented,
INFH shall have the right to license such Products to whomever it
may choose.
d. If PHL agrees to license such Products, PHL shall be obligated to
sign an Agreement satisfactory to INFH within ninety (90) days
after meeting the conditions of Paragraph 16 b.
17. It is the intention of PHL to seek patent and trademark protection
where appropriate for such Products licensed to PHL by INFH. INFH agrees to
assign such patents to PHL and agrees to
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assist PHL, as necessary, in the patent and trademark approval process.
18. PHL may share proprietary and confidential information regarding its
operations, financial status, new product development and marketing plans.
Parties that are signatories to this Agreement will not disclose such
information while this Agreement is in force without the prior written approval
of PHL.
19. While this Agreement is in force, no parties will engage in any
activity that is competitive to the business of PHL as defined by the Products,
directly own more than 5% of shares in a public company that is competitive to
PHL or is directly or indirectly involved in the management of any company
competitive to PHL subject to the exclusion that ownership, participation or
management by T. Xxxxx Xxxxxxxx, T. Xxxxxx Xxxxxxxx, Xxxxxx Xxxx and Keyou Ge in
(1) activities related to the parenteral personal care products under future
agreements with NuSkin International, and (2) to the business of Paracelsian is
permitted.
20. In addition to commercializing the Products, PHL may also engage in
other business activities including, but not limited to, contract manufacturing
and importation of products into China. INFH will use its best efforts to assist
PHL in these endeavors.
21. INFH and PHL recognize that in the future it may be beneficial to
establish a joint venture company in China to assist in the sourcing and
manufacturing of the Products.
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22. This Agreement cannot be assigned by INFH without the written consent
of PHL.
23. This Agreement is the complete, sole and exclusive expression of all of
the agreements, understandings, representations, conditions, warranties and
covenants made between the parties hereto, and supersedes any prior agreements.
24. 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 full right
to require such performance at any time thereafter. Nor shall the waiver by
either party of a breach of any provision hereof be taken or held to be a waiver
of the provision itself.
25. This Agreement shall be construed in accordance with the laws of the
State of New Jersey.
26. This Agreement may be assigned as an entirety by PHL as part of a sale
of PHL's entire business, or with a sale of the entire portion of PHL's business
to which this Agreement pertains.
27. This Agreement and all of its provisions shall be binding upon the
legal representatives, heirs, distributees, successors and permitted assigns of
the parties.
28. The invalidity, unenforceability or impossibility of any particular
provision of this Agreement shall not affect any other provision hereof, and the
Agreement shall be construed in all respects as if such invalid unenforceable or
impossible provision were omitted.
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29. Should either party commit any substantial breach of any provision of
this Agreement, the Agreement may be terminated by the other party giving notice
to the party committing such breach on ninety (90) days notice specifying the
breach complained of, provided however that such notice shall not be effective
if within ninety (90) days the defaulting party substantially corrects the
breach.
30. Any dispute or controversy arising out of or relating to this
Agreement, any document or instrument delivered pursuant to, in connection with,
or simultaneously with this Agreement, or any breach of this Agreement or any
such document or instrument shall be settled by arbitration to be held in the
State of New Jersey in accordance with the rules then in effect of the American
Arbitration Association or any successor thereto.
The arbitrator may grant injunction or other relief in such dispute or
controversy and may determine which party shall be responsible for attorneys'
fees, costs and other expenses of such arbitration. The decision of the
arbitrator shall be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any court
having jurisdiction and the Parties irrevocably consent to the jurisdiction of
the New Jersey courts for this purpose. Unless determined by the arbitrator,
each party shall pay its pro rata share of the costs and expenses of such
arbitration and each shall separately pay his own attorneys' fees and expenses.
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31. Any notice, request, demand, payments or other communication required
or permitted hereunder shall be deemed to be properly given when deposited in
the United States Mail, Certified, Return Receipt Requested, Postage Pre-paid
and Addressed:
a. In the case of INFH to
Keyou Ge
Director
Institute of Nutrition & Food Hygiene
00 Xxx Xxx Xxxx
Xxxxxxx, XXX 000000
or to such other person or address as INFH may
furnish to PHL.
b. In the case of PHL to
Xxxxxx Xxxxxxx, PhD
Chairman
PacificHealth Laboratories, Inc.
0000 Xxxxx 0 Xxxxx
Xxxxxxxxxx, XX 00000
or to such other person or address as PHL may furnish to INFH.
IN WITNESS WHEREOF, this Agreement was executed as of the date first above
written.
/s/ Keyou Ge Date April 6, 1995
-------------------------------- --------------------
Keyou Ge, Director
Institute of Nutrition
& Food Hygiene
00 Xxx Xxx Xxxx
Xxxxxxx, XXX 000000
/s/ Xxxxxx Xxxxxxx Date
-------------------------------- --------------------
Xxxxxx Xxxxxxx, Ph.D.
Chairman and CEO
PacificHealth Laboratories, Inc.
0000 Xxxxx 0 Xxxxx
Xxxxxxxxxx, XX 00000
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/s/ Xxxxxx Xxxx Date April 6, 1995
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Xxxxxx Xxxx, M.D.
/s/ T. Xxxxx Xxxxxxxx Date
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T. Xxxxx Xxxxxxxx, Ph.D.
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APPENDIX 1
Licensing Agreement Between PHL and the Institute of Nutrition and Food Hygiene
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APPENDIX 2
Example of royalties under four hypothetical sales levels
Scenario #1
Company sales - $2 million
Company profitability (as based on formula per Paragraph 12) - 0
Cost of Special Services provided by Chinese - $200,000
Royalty paid to INFH - 0
Credit earned by PacificHealth Laboratories - 0
Payment for Special Services provided by Chinese - $200,000
Total payments for Royalties and Special Services - $200,000
Scenario #2
Company sales - $25 million
Company profitability (as based on formula per Paragraph 12) -
$500,000
Cost of Special Services provided by Chinese - $200,000
Royalty paid to INFH - $500,000
Credit earned by PacificHealth Laboratories - 0
Payment for Special Services provided by Chinese - $200,000
Total payments for Royalties and Special Services - $700,000
Scenario #3
Company sales - $50 million
Company profitability (as based on formula per Paragraph 12) -
$5,000,000
Cost of Special Services provided by Chinese - $200,000
Royalty paid to INFH - $500,000 (2% x $25 million) + $262,500
([1.5% x $25 million].70)= $762,500
Credit earned by PacificHealth Laboratories - $112,500 ([1.5% x
$25 million].30)
Payment for Special Services provided by Chinese - $200,000 -
$112,500 = $87,500
Total payments for Royalties and Special Services - $850,000
Scenario #4
Company sales - $125 million
Company profitability (as based on formula per Paragraph 12) -
$12,500,000
Cost of Special Services provided by Chinese - $400,000
Royalty paid to INFH - $500,000 (2% x $25 million) + $787,500
([1.5% x $75 million].70) + $250,000 (1% x $25 million) =
$1,537,500
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Credit earned by PacificHealth Laboratories - $337,500 ([1.5% x $75 million].30)
Payment for Special Services provided by Chinese - $400,000 - $337,500 = $62,500
Total payments for Royalties and Special Services - $1,600,000
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