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May 12, 1998
Xx. Xxxxxxx Xxxx Xxxxxxx Via Facsimile
Director of Regulatory Affairs
and Corporate Counsel
Rexall Sundown
000 Xxxxxx Xxxxx Xxxxxxx XX
Xxxx Xxxxx, XX 00000-0000
Re: Confirmation of Agreement Reached by Rexall Showcase International, Inc.
("Rexall") and Nutraceutix, Inc. ("Nutraceutix")
Dear Xx. Xxxxxxx:
This letter will confirm the basic terms of the agreement between Rexall and
Nutraceutix, Inc. for the purchase by Rexall from Nutraceutix of all of its
requirements for a hydrogen D-glucarate and/or calcium D-glucarate dietary
ingredient ("Ingredient"). This letter will further confirm that the parties
will enter into a License Agreement which shall set forth with specificity their
respective obligations on additional terms, including without limitation,
Nutraceutix's representations, warranties and indemnity obligations,
Nutraceutix's patent rights and Rexall's licensing thereof, confidentiality
agreement, permitted market, construction and execution, governing law,
jurisdiction and arbitration. Said license agreement shall include the terms
and conditions set forth in this letter.
The parties have agreed that during the period running from the date of this
letter through December 31, 1999, (the "Initial Term"), Rexall will purchase
all of its requirements for the Ingredient at the price of $120.00 per kilogram
plus a license fee of $40.00 per kilogram; provided that the price of the
Ingredient may be increased from time to time upon 60 days notice if
Nutraceutix's documented acquisition or production cost for glucarate
increases, said increase to be no greater than 110% of the increase in
Nutraceutix's acquisition or production cost. This purchase price and license
fee will apply both to purchases of the Ingredient by itself and to purchases
of products containing the Ingredient, and will apply to Rexall's initial
purchase under this agreement as well as all future purchases.
The Term may be extended on a year-by-year with the mutual agreement of both
parties. During the Initial Term, Rexall shall have a minimum initial purchase
requirement of 2,000 kilograms, 500 of which will be purchased within 30 days
of signing this agreement. Prior to Rexall's first purchase of Glucarate during
each year of the Term commencing on or after January 1, 2000, Rexall and
Nutraceutix will negotiate in good faith to determine the applicable minimum
quantity of the Ingredient to be purchased by Rexall during that year. Each
such minimum purchase
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May 12, 1998
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quantity will represent a reasonable increase over the minimum quantity
purchased by Rexall during the prior year based on consideration of all relevant
factors, including but not limited to Rexall's sales of products containing the
Ingredient during the previous year, the respective interests of the parties,
the applicable regulatory environment, the status of U.S. Patent 4,845,123 (the
"123 Patent") and the promotion of a mutually beneficial relationship between
the parties.
In meeting this initial minimum purchase requirement, Rexall may include all of
the following: 1) all purchases of the Ingredient by itself and its affiliates;
2) all purchases of the Ingredient contained in the prostate and breast dietary
supplements, manufactured under the 123 Patent; and 3) other products which may
be agreed to by the parties which would also be manufactured by Nutraceutix for
Rexall under the 123 Patent. In consideration of Rexall meeting its minimum
purchase requirement, Nutraceutix will not sell either the Ingredient, or any
nutraceuticals, nutritional and dietary supplements, foods, cosmetics and
over-the-counter pharmaceuticals containing the Ingredient, to any third party
for use with such third party's multi-level marketing program. Rexall and
affiliates shall not be permitted to distribute products containing the
Ingredient through traditional retail channels.
During the Initial term, the prostate dietary supplement will be supplied by
Nutraceutix to Rexall at a cost of $89.16 per 1,000 caplets and the breast
dietary supplement at the cost of $49.13 per 1,000 caplets with such costs being
inclusive of the purchase price and license fee for glucarate per the same
quantitative and qualitative formula developed by Rexall and agreed to by
Nutraceutix, attached hereto at Exhibit 1, provided, however, Rexall shall have
no minimum purchase requirements for such products. All products containing the
Ingredient will be manufactured either by Rexall or Nutraceutix, but not by any
third party; all of the Ingredient for products manufactured by either Rexall or
Nutraceutix will be supplied by Nutraceutix. A formula consistent with the
formula in Exhibit 1 including licensing fee will be used to price these other
products containing the Ingredient. Subject to the foregoing, products will be
priced based on good faith negotiation and consistent with competitive pricing
and compliance with Good Manufacturing Practices and Rexall's own quality
control standards. All deliveries will be FOB Nutraceutix's facility.
It is further understood that subject to Rexall seeking a renewal term and
meeting mutually agreed upon minimum annual purchase requirements for the
Ingredient, the parties will enter into subsequent renewal terms under which
Nutraceutix will continue to supply, on mutually agreed terms and conditions,
the Ingredient, the prostate and breast dietary supplements, and other products
including the Ingredient to Rexall. If Rexall does not meet its minimum purchase
requirement during the Initial Term, or if the parties are unable to reach an
agreement regarding the minimum purchase requirement for any subsequent year of
the Term, Nutraceutix will sell products containing the Ingredient to Rexall on
a non-exclusive basis pursuant to mutually agreeable terms and conditions.
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May 12, 1998
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The final agreement will state that the parties will keep confidential the terms
and conditions of this Agreement, but not the existence of the Agreement or the
transaction contemplated by it. The final agreement will also state that the
parties will negotiate in good faith to have Nutraceutix manufacture other
products not containing the Ingredient subject to Nutraceutix providing
competitive bids for such other products. All products manufactured by
Nutraceutix for Rexall, whether or not containing the Ingredient, will be
manufactured pursuant to Good Manufacturing Practices and Rexall's own quality
control standards.
Enclosed for your review is a first draft of the final agreement incorporating
the provisions set forth and referred to in this letter. However, I understand
that it may take some time to review and finalize the enclosed document, and I
know that Rexall is anxious to commence selling products containing the
Ingredient. Thus, please confirm below that the above letter accurately confirms
the terms of the agreement reached by the parties as noted above and pending
preparation and execution of said License Agreement, Rexall and Nutraceutix will
proceed pursuant to the Agreement set forth in this letter.
Sincerely,
Xxxxxxx X. Xx. Xxxx
President
WDS:ls
AGREED TO AND ACCEPTED BY:
REXALL SHOWCASE INTERNATIONAL AND XXXXXX XXXXXXX, INC.
By: /s/ XXXXXXX XXXX XXXXXXX 5-13-98
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Xxxxxxx Xxxx Xxxxxxx
Director of Regulatory Affairs
and Corporate Counsel
