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<SEC-DOCUMENT>0001095811-01-001327.txt : 20010223
<SEC-HEADER>0001095811-01-001327.hdr.sgml : 20010223
ACCESSION NUMBER:		0001095811-01-001327
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		11
CONFORMED PERIOD OF REPORT:	20001231
FILED AS OF DATE:		20010214

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NATURAL ALTERNATIVES INTERNATIONAL INC
		CENTRAL INDEX KEY:			0000787253
		STANDARD INDUSTRIAL CLASSIFICATION:	PHARMACEUTICAL PREPARATIONS [2834]
		IRS NUMBER:				841007839
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0630

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		
		SEC FILE NUMBER:	000-15701
		FILM NUMBER:		1541749

	BUSINESS ADDRESS:	
		STREET 1:		1185 LINDA VISTA DR
		CITY:			SAN MARCOS
		STATE:			CA
		ZIP:			92069
		BUSINESS PHONE:		6197447340

	MAIL ADDRESS:	
		STREET 1:		1185 LINDA VISTA DRIVE
		CITY:			SAN MARCOS
		STATE:			CA
		ZIP:			92069

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	AMERICAN ACQUISITIONS INC
		DATE OF NAME CHANGE:	19860929
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>a69688e10-q.txt
<DESCRIPTION>FORM 10-Q PERIOD ENDED DECEMBER 31, 2000.
<TEXT>

<PAGE>   1


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

         [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended December 31, 2000

                                       OR

         [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934


                         Commission file number 0-15701


                    NATURAL ALTERNATIVES INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)



DELAWARE                                                             84-1007839
- --------                                                             ----------
(State of other jurisdiction of incorporation                  (I.R.S. Employer
or organization)                                             Identification No.)

              1185 LINDA VISTA DRIVE, SAN MARCOS, CALIFORNIA 92069
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (760) 744-7340
              (Registrant's telephone number, including area code)


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes  [X]    No [ ]



                                    5,777,289

(Number of shares of common stock of the registrant outstanding, net of treasury
                      shares held, as of February 5, 2001


                                       1
<PAGE>   2



                    NATURAL ALTERNATIVES INTERNATIONAL, INC.
                         PART I - FINANCIAL INFORMATION
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>

                                                                           December 31           June 30
(Amounts in thousands except share data)                                       2000                2000
                                                                          --------------      --------------
                                                                           (unaudited)           (audited)
<S>                                                                       <C>                 <C>
Current Assets:

     Cash and cash equivalents                                            $          987      $          815
     Accounts receivable - less allowance for doubtful
          accounts of $211 at December 31, 2000 and
          $330 at June 30, 2000                                                    3,886               4,097
     Inventories (Note 2)                                                          7,868               7,627
     Income tax refund receivable                                                  1,500               1,500
     Deferred income taxes                                                         1,467               1,467
     Related parties notes receivable - current portion (Note 7)                      11                 815
     Prepaid expenses                                                                881                 635
     Deposits                                                                        492                 390
     Other current assets                                                            146                 110
                                                                          --------------      --------------
            Total Current Assets                                                  17,238              17,456
                                                                          --------------      --------------
Property and equipment, net                                                       14,162              15,037
                                                                          --------------      --------------

Other Assets:

     Deferred income taxes                                                         1,635               1,592
     Investments                                                                      44                 232
     Related parties notes receivable, less current portion (Note 7)                 480                 444
     Investments in and advances to a related party (Notes 8 and 9)                1,141                  --
     Other noncurrent assets, net                                                    114                 114
                                                                          --------------      --------------

            Total Other Assets                                                     3,414               2,382
                                                                          --------------      --------------

TOTAL ASSETS                                                              $       34,814      $       34,875
                                                                          ==============      ==============
</TABLE>



            See accompanying notes to unaudited financial statements.


                                       2
<PAGE>   3

                    NATURAL ALTERNATIVES INTERNATIONAL, INC.
                         PART I - FINANCIAL INFORMATION
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                      LIABILITIES AND STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>

                                                                        December 31            June 30
(Amounts in thousands except share data)                                    2000                 2000
                                                                       --------------       --------------
                                                                        (unaudited)           (audited)
<S>                                                                    <C>                  <C>
Current Liabilities:
      Accounts payable                                                 $        4,736       $        4,422
      Lines of credit and notes payable (Note 5)                                2,628                4,544
      Current installments of long-term debt (Note 5)                             833                  490
      Income taxes payable                                                         31                   --
      Accrual for loss on lease obligation                                         --                   50
      Accrued compensation and employee benefits                                  477                  355
                                                                       --------------       --------------

             Total Current Liabilities                                          8,705                9,861

Deferred income taxes                                                             766                  766
Long-term debt, less current installments (Note 5)                              3,966                3,345
Long-term pension liability                                                       223                  417
                                                                       --------------       --------------

             Total Liabilities                                                 13,660               14,389
                                                                       --------------       --------------

Stockholders' Equity (Note 6):
      Preferred stock; $.01 par value; 500,000 shares
           authorized; none issued or outstanding                                  --                   --
      Common stock; $.01 par value; 8,000,000 shares
           authorized, issued and outstanding 6,039,789 at
           December 31, 2000 and 6,024,380 at June 30, 2000                        60                   60
      Additional paid-in capital                                               11,292               11,272
      Retained earnings                                                        11,146               10,498
      Treasury stock, at cost, 262,500 shares                                  (1,283)              (1,283)
      Accumulated other comprehensive loss                                        (61)                 (61)
                                                                       --------------       --------------

             Total Stockholders' Equity                                        21,154               20,486
                                                                       --------------       --------------


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                             $       34,814       $       34,875
                                                                       ==============       ==============
</TABLE>


            See accompanying notes to unaudited financial statements.


                                       3
<PAGE>   4


                    NATURAL ALTERNATIVES INTERNATIONAL, INC.
                         PART I - FINANCIAL INFORMATION
      CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
                                   (UNAUDITED)




<TABLE>
<CAPTION>


                                                      Three months ended                  Six months ended
(Dollars in thousands except  share data)                 December 31,                       December 31,
                                                 -----------------------------       -----------------------------
                                                     2000              1999              2000              1999
                                                 -----------       -----------       -----------       -----------
<S>                                              <C>               <C>               <C>               <C>
Net sales                                        $    11,240       $    12,064       $    21,463       $    27,328

Cost of goods sold                                     8,395            10,586            16,607            22,661
Inventory write-off                                       --             2,000                --             2,000
                                                 -----------       -----------       -----------       -----------
  Total cost of goods sold                             8,395            12,586            16,607            24,661
                                                 -----------       -----------       -----------       -----------

 GROSS PROFIT (LOSS)                                   2,845              (522)            4,856             2,667

Selling, general &
  administrative expenses                              2,171             3,219             3,907             6,054
                                                 -----------       -----------       -----------       -----------

 INCOME (LOSS) FROM OPERATIONS                           674            (3,741)              949            (3,387)
                                                 -----------       -----------       -----------       -----------

Other income (expense):
  Interest income                                         37                17                68                45
  Interest expense                                      (199)              (75)             (383)             (105)
  Equity in loss of unconsolidated joint
     venture                                             (18)               --               (38)               --
  Foreign exchange loss                                 (104)               --               (65)               --
  Other, net                                             110               (48)              104               (56)
                                                 -----------       -----------       -----------       -----------

                                                        (174)             (106)             (314)             (116)
                                                 -----------       -----------       -----------       -----------

EARNINGS (LOSS) BEFORE INCOME TAXES                      500            (3,847)              635            (3,503)

Provision (benefit) for income taxes                      57            (1,436)              (13)           (1,179)
                                                 -----------       -----------       -----------       -----------

NET EARNINGS (LOSS) AND COMPREHENSIVE
    INCOME (LOSS)                                $       443       $    (2,411)      $       648       $    (2,324)
                                                 ===========       ===========       ===========       ===========


NET EARNINGS (LOSS) PER COMMON SHARE:

   Basic                                         $      0.08       $     (0.42)      $      0.11       $     (0.40)
                                                 ===========       ===========       ===========       ===========

   Diluted                                       $      0.08       $     (0.42)      $      0.11       $     (0.40)
                                                 ===========       ===========       ===========       ===========


Weighted average common shares outstanding:
   Basic shares                                    5,761,880         5,758,734         5,761,880         5,767,055
   Diluted shares                                  5,803,039         5,758,734         5,783,465         5,767,055
</TABLE>


            See accompanying notes to unaudited financial statements

                                       4
<PAGE>   5

                    NATURAL ALTERNATIVES INTERNATIONAL, INC.
                         PART I - FINANCIAL INFORMATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)



<TABLE>
<CAPTION>


                                                                  Six months ended
                                                                     December 31
                                                              -----------------------
(Dollars in thousands)                                          2000           1999
                                                              --------       --------
<S>                                                           <C>            <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
    Net earnings (loss)                                       $    648       $ (2,324)

    Adjustments to reconcile net earnings to net
     cash provided by operating
      activities:
      Bad debt provision                                           (64)           180
      Write-off of inventory                                        --          2,000
      Write-off of notes receivable and accrued interest            --             72
      Depreciation and amortization                              1,259            913
      Deferred income taxes                                        (43)            --
      Pension expense, net of contributions                       (194)            --
      Loss on disposal of assets                                    (4)            --
      Loss on unconsolidated joint venture                          38             --
      Accrued interest - notes receivable                          (49)
      Other                                                         --            (16)
      Foreign exchange gains - notes payable                       (31)            --
    Changes in operating assets and liabilities:
      (Increase) decrease in:
       Accounts receivable                                         168             83
       Inventories                                                (241)         1,208
       Tax refund receivable                                        --           (517)
       Prepaid expenses                                           (246)           (65)
       Deposits                                                   (102)          (196)
       Other current assets                                        (36)           986
       Accounts payable                                            285         (3,160)
       Income taxes payable                                         31             --
       Accrued compensation and employee benefits                  122           (217)
       Accrual for loss on lease obligation                        (50)            --
                                                              --------       --------


    Net Cash Provided by Operating Activities                 $  1,491       $ (1,053)
                                                              --------       --------
</TABLE>

                                                                     (continued)


                                       5
<PAGE>   6

                    NATURAL ALTERNATIVES INTERNATIONAL, INC.
                         PART 1 - FINANCIAL INFORMATION
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                   (UNAUDITED)


<TABLE>
<CAPTION>


                                                                Six months ended
                                                                   December 31
                                                             -----------------------
                                                               2000           1999
                                                             --------       --------
<S>                                                          <C>            <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures                                     $   (380)      $ (3,113)
    Repayment of notes receivable                                  12             30
    Issuance of notes receivable                                  (50)          (791)
                                                             --------       --------
    Net Cash Used in Investing Activities                        (418)        (3,874)
                                                             --------       --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Borrowings on lines of credit and notes payable             5,126          4,529
    Payments on lines of credit and notes payable              (6,047)           (58)
    Issuance of common stock                                       20             --
    Treasury stock acquisitions                                    --           (167)
                                                             --------       --------

    Net Cash (Used in) Provided by Financing Activities
                                                                 (901)         4,304
                                                             --------       --------

Net Increase (Decrease) in Cash and Cash Equivalents              172           (623)
Cash and Cash Equivalents at Beginning of Period
                                                                  815          1,063
                                                             --------       --------

Cash and Cash Equivalents at End of Period
                                                             $    987       $    440
                                                             ========       ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Cash paid during the period for:
      Interest                                               $    391       $     79
                                                             ========       ========
</TABLE>



            See accompanying notes to unaudited financial statements.

                                       6
<PAGE>   7

                    NATURAL ALTERNATIVES INTERNATIONAL, INC.
                         PART I - FINANCIAL INFORMATION
                     NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1 - Interim Financial Information

The unaudited consolidated financial statements of Natural Alternatives
International, Inc. and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles and with Article 10 of
the Securities and Exchange Commission's Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete consolidated financial statements. In the
opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation of the Company's financial
information as of and for the three and six months ended December 31, 2000 and
1999.

In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management is required to make certain estimates
and assumptions that may affect the reported amounts of assets, liabilities,
revenues and expenses during the reporting periods. Actual results may differ
from such estimates. The consolidated results of operations for the interim
periods ended December 31, 2000 and 1999 are not necessarily indicative of the
consolidated operating results for the full year. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's annual report on Form
10-K for the year ended June 30, 2000.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.


NOTE 2 - Inventories

Inventories are comprised of the following:


<TABLE>
<CAPTION>


                                    December 31          June 30
       (Dollars in thousands)          2000               2000
                                   -------------      -------------
<S>                                <C>                <C>
Raw materials                      $       4,026      $       4,187
Work in progress                           1,968              2,409
Finished goods                             1,874              1,031
                                   -------------      -------------

                                   $       7,868      $       7,627
                                   =============      =============
</TABLE>


                                       7
<PAGE>   8

NOTE 3 - Net Earnings Per Share

Basic net earnings (loss) per share is computed by dividing net earnings (loss)
by the weighted average number of common shares outstanding during the period.
Diluted net earnings (loss) per share reflects the potential dilution that could
occur if stock options or other contracts to issue common stock were exercised
or converted into common stock. The computation of diluted net earnings (loss)
per share does not assume exercise or conversion of securities that would have
an anti-dilutive effect on net earnings (loss) per share.


            For the Three and Six months Ended December 31, 2000, and 1999
             (Amounts in thousands except share data)
<TABLE>
<CAPTION>


                                              Three Months Ended December 31,            Six Months Ended December 31,
                                             ----------------------------------       ----------------------------------
                                                  2000                1999                 2000                1999
                                             --------------      --------------       --------------      --------------
<S>                                          <C>                 <C>                  <C>                 <C>
NUMERATOR:
Net earnings (loss)  - Numerator for
basic and diluted earnings (loss) per
 share - earnings available to
 common shareholders                         $          443      $       (2,411)      $          648      $       (2,324)
                                             ==============      ==============       ==============      ==============

DENOMINATOR:
Denominator for basic earnings (loss)
  per share - weighted
  average shares                                  5,761,880           5,758,734            5,761,880           5,767,055

Effect of dilutive securities -
  employee stock options                             41,159                  --               21,585                  --
                                             --------------      --------------       --------------      --------------

Denominator for diluted earnings (loss)
  per share - adjusted weighted average
  shares with assumed
  conversions                                     5,803,039           5,758,734            5,783,465           5,767,055
                                             ==============      ==============       ==============      ==============

Basic earnings (loss) per share              $         0.08      $        (0.42)      $         0.11      $        (0.40)

Diluted earnings (loss) per share            $         0.08      $        (0.42)      $         0.11      $        (0.40)
</TABLE>



For the three and six months ended December 31, 2000, there were outstanding
options to purchase 193,000 and 223,000, respectively, shares of common stock,
that were not included in the computation of diluted net earnings per share as
their effect would have been anti-dilutive.

For the three and six months ended December 31, 1999, there were outstanding
options to purchase 366,500 shares of common stock, that were not included in
the computation of diluted net earnings per share as their effect would have
been anti-dilutive.

                                       8
<PAGE>   9


NOTE 4 - Major Customers

The Company had substantial sales to five separate customers during one or more
of the periods shown in the following table. The loss of any of these customers
could have a material adverse impact on the Company's revenues and earnings.
Sales by customer, representing 9% or more of the respective period's total net
sales, are shown below.


<TABLE>
<CAPTION>

                          Three months ended December 31,                             Six months ended December 31,
               ----------------------------------------------------    ----------------------------------------------------
                         2000                        1999                        2000                        1999
               ------------------------    ------------------------    ------------------------    ------------------------
(Dollars in thousands)
                Sales by                    Sales by                    Sales by                    Sales by
    Customer    Customer        %(a)        Customer        %(a)        Customer      %(a) (c)      Customer        %(a)
               ----------    ----------    ----------    ----------    ----------    ----------    ----------    ----------
<S>            <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
Customer 1     $    5,809            52%   $    3,638            30%   $   11,034            51%   $    8,612            32%
Customer 2          1,042             9%        2,000            17%        1,969             9%        4,643            17%
Customer 3            (b)                       1,115             9%          (b)                       4,209            15%
Customer 4            (b)                       2,152            18%          (b)                       3,239            12%
Customer 5            975             9%        1,172            10%        2,233            10%        2,094             8%
               ----------    ----------    ----------    ----------    ----------    ----------    ----------    ----------
               $    7,826            70%   $   10,077            84%   $   15,236            71%   $   22,797            83%
               ==========    ==========    ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>


(a) Percent of total sales
(b) Sales for the period were less than 9% of total sales.
(c) Total does not foot due to rounding.

Accounts receivable from these customers totaled $2,715 and $3,399 at December
31, 2000 and June 30, 2000, respectively.

NOTE 5 - Debt

On December 20, 2000, the Company replaced an existing credit agreement with
$9.35 million in new financing. The new financing consists of a two year $7.0
million working capital line of credit, a $1.6 million five-year equipment term
note, and a line of credit of up to $750,000 for new capital equipment
financing. Interest accrues at an annual rate of prime plus 0.5%. At December
31, 2000 the effective interest rate was 10%. As of December 31, 2000, amounts
outstanding under the line of credit and equipment term note were $2.2 million
and $1.6 million, respectively. Borrowings under the working capital line of
credit are collateralized by eligible accounts receivable and inventory, as
defined in the agreement; proceeds are to be used to support ongoing operating
requirements. Financial covenants associated with this facility obligate the
Company to comply with specified financial ratios and tests, including minimum
working capital and tangible net worth requirements, maximum leverage ratios,
and minimum earnings levels. As of December 31, 2000, the Company was in
compliance with all financial covenant provisions of the credit agreement.

The Company also has a term note secured by a building due June 2011 with annual
interest at 8.25%. The note provides for principal and interest payable in
monthly installments of $11,000. As of December 31, 2000, the outstanding amount
is $900,000.

The Company's wholly owned subsidiary in Switzerland has a line of credit
agreement permitting borrowings up to CHF 1.0 million, or approximately $620,000
at December 31, 2000 at an annual interest rate of 5.5%. The line of credit
requires minimum annual principal payments of CHF 250,000, or $155,000, due
annually on December 31; management expects this line to be renewed in the
normal course of business. The agreement contains no financial covenants. As of
December 31, 2000, the Company has converted borrowings under the line of credit
of approximately $248,000 into various unsecured term notes with maturities from
six to twelve months at interest rates ranging from 5.5% to 6.0%. The amount
outstanding under the line of credit is approximately $469,000 at December 31,
2000. Availability under the line includes cash on hand, which was approximately
$640,000 at December 31, 2000.

On November 9, 1999, the Company entered into a term note agreement for $2.5
million, secured by equipment, at an annual interest rate of 9.2%. The note has
a five-year term that provides for principal and interest payable in monthly
installments of $52,000; proceeds have been used to support working capital
requirements. As of December 31, 2000 the outstanding amount is $2.05 million.

As of December 31, 2000, the composite interest rate on all outstanding debt was
9.1%.

                                       9
<PAGE>   10

NOTE 6 - Stockholders' Equity

On August 28, 2000, under the 1999 Omnibus Equity Incentive Plan, the Company
granted to various officers and employees, stock options to purchase 130,200
shares of the Company's common stock at $2.00 per share.

NOTE 7 - Related Party Transactions

During the current quarter, the Company made a further advance on a non-interest
bearing loan to the Chairperson of the Board of Directors, in the amount of
$50,000. Amounts owed on this loan, which is secured by proceeds from a life
insurance policy, were $350,000 and $300,000 at December 31, 2000 and June 30,
2000, respectively.

NOTE 8 - Custom Nutrition Joint Venture

In March 1999, the Company entered into a letter of intent to form a joint
venture with FitnessAge Incorporated, a privately held development stage company
based in San Diego, CA ("FitnessAge"). In connection therewith, on March 30,
1999 the Company purchased 300,000 shares of FitnessAge common stock for
$150,000. On or about the same date, the family limited partnership of the Chief
Executive Officer and the Chairperson of the Board of Directors and Secretary
purchased 200,000 shares of the Common Stock of FitnessAge for $100,000.

During December 1999, the Company and FitnessAge formalized the joint venture by
forming a new company named Custom Nutrition, LLC, a Delaware limited liability
company ("Custom Nutrition") in which the Company has a 40% ownership. Custom
Nutrition was formed for the purpose of developing, merchandising, selling and
distributing customized nutritional and related products to health and fitness
clubs, as well as over the internet. Under terms of a 10-year Exclusive
Manufacturing Agreement, the Company is the exclusive manufacturer of all
nutritional supplements for Custom Nutrition. In addition, Custom Nutrition
obtained an exclusive royalty free license to FitnessAge's proprietary software
technology, including their physical fitness assessments known as the FitnessAge
System, as well as, software under development designed to provide customized
nutritional assessments. In accordance with the Custom Nutrition LLC Operating
Agreement, the Company was required to make an initial capital contribution of
$100,000, which was funded during the fourth quarter of fiscal 2000. Income and
losses are to be allocated and any additional capital contribution requirements
of Custom Nutrition are to be made 60% to FitnessAge and 40% to the Company.

In addition, in November and December 1999, the Company loaned FitnessAge a
total of $750,000 (the "Loan"). The Loan is secured by all rights, title, and
interest of FitnessAge in Custom Nutrition and FitnessAge's allocable share of
gross revenues which at the time could have been received by Custom Nutrition
from a major customer and includes interest accruing at an annual rate of 12%.
The principal together with all accrued and unpaid interest on the Loan was due
November 10, 2000. The Company has the right at any time to convert all or any
portion of the amount due on the Loan into the common stock of FitnessAge at a
conversion price of $0.75 per share. As of December 31, 2000, the balance of the
Loan, including all accrued and unpaid interest, was $830,000, and the Company's
direct aggregate investment in FitnessAge was approximately $980,000. The
Company is currently accounting for this investment under the cost method of
accounting. (See Note 9 - Subsequent Events)

In conjunction with the Loan, the Company received a three-year Warrant (the
"Warrant") to purchase up to 150,000 shares of Common Stock of FitnessAge for
$0.75 per share. The Company may exercise the Warrant at any time up to and
including November 1, 2002. The Company was issued two additional warrants to
purchase common stock as additional consideration for providing a short-term
loan to FitnessAge which was repaid prior to June 30, 2000. One warrant provides
for the purchase of 80,000 shares of FitnessAge common stock for $1.25 per share
and the other warrant provides for the purchase of 80,000 shares of FitnessAge
common stock for $2.00 per share. The Company may exercise these two Warrants at
any time up to and including June 12, 2003. As of December 31, 2000, the Company
had not exercised any portion of these Warrants. The Company also obtained the
right to designate one representative of the Company to be a member of
FitnessAge's Board of Directors, which consists of five board members, and
registration rights and certain other rights as defined by the loan documents
and by an Investor Rights Agreement. If the Company converted the Loan and
exercised the Warrants, the

                                       10
<PAGE>   11

Company would own less than five percent, on an as converted basis, of
FitnessAge's common stock.

As of November 10, 2000, the Company agreed with FitnessAge to extend the
maturity of the Loan (the "Extension"). Pursuant to the Extension, the Company
capitalized all accrued and unpaid interest owing on the Loan and agreed to a
revised payment schedule requiring payments of $150,000 in February 2001,
$150,000 in March 2001, $225,000 in June 2001 and complete pay-off of any
outstanding principal and accrued interest by September 2001. In consideration
of the Extension, FitnessAge provided the Company with additional collateral in
the form of a perpetual, irrevocable, nonexclusive, royalty-free worldwide
license to FitnessAge's proprietary physical assessment software technology
together with all upgrades and enhancements thereto.

The Company believes these assets have future commercial value based on the
alternatives that may be available including those described below. The Company
reclassified its interests in FitnessAge and Custom Nutrition under the balance
sheet caption Investments in and Advances to a Related Party as of December 31,
2000. (See Note 9 - Subsequent Events)

NOTE 9 - Subsequent Events - FitnessAge Foreclosure Notice

FitnessAge was unable to meet its payment obligation on February 1, 2001
pursuant to the Extension. As a result, the Company notified FitnessAge on
February 2, 2001 of its decision to accelerate the maturity of the Loan and its
intention to retain the Loan collateral in satisfaction of FitnessAge's
obligations. The Company is evaluating the actions it may take, including but
not limited to, moving forward to commercialize the assets alone, or with
others, restructuring the joint venture with FitnessAge, abandoning its
investment, or other alternatives.

                                       11
<PAGE>   12

                    NATURAL ALTERNATIVES INTERNATIONAL, INC.
                         PART I - FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
        AND RESULTS OF OPERATIONS

Certain Forward-Looking Information

Information provided in this Quarterly Report on Form 10-Q may contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934 that are not historical facts and information. These
statements represent the Company's expectations or beliefs, including, but not
limited to, statements concerning future financial and operating results,
statements concerning industry performance, the Company's operations, economic
performance, financial condition, margins and growth in sales of the Company's
products, capital expenditures, financing needs, as well as assumptions related
to the foregoing. For this purpose, any statements contained in this Quarterly
Report that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the generality of the foregoing,
words such as "may", "will", "expect", "believe", "anticipate", "intend",
"could", "estimate" or "continue" or the negative or other variations thereof or
comparable terminology are intended to identify forward-looking statements.
These forward-looking statements are based on current expectations and involve
various risks and uncertainties that could cause actual results and outcomes for
future periods to differ materially from any forward-looking statement or views
expressed herein. The Company's financial performance and the forward-looking
statements contained herein are further qualified by other risks including but
not limited to those set forth herein and in the Company's most recent Form
10-K.

RESULTS OF OPERATIONS

SECOND QUARTER OF FISCAL 2001 AND 2000

Net sales for the second quarter of fiscal 2001 of $11.2 million decreased
approximately $900,000, or 7%, compared to net sales of $12.1 million for the
second quarter of fiscal 2000. The sales decline was primarily due to the loss
of two of our larger customers (NuSkin Enterprises Inc. and Bally Total Fitness)
with combined sales of $3.3 million during the second quarter of fiscal 2000 and
$200,000 during the same quarter in fiscal 2001. NuSkin informed the Company in
December 1999 that its production needs have been transitioned to other vendors.
Sales to our second largest customer in the second quarter of fiscal 2001,
decreased by $1.0 million from $2.0 million for the second quarter of fiscal
2000. We believe fiscal 2000 sales were higher because this customer acquired
large quantities of product to support an inventory build for a major product
introduction, while fiscal 2001 sales volumes have stabilized at lower levels.
The loss of these major customers were offset by an increase in sales to our
largest customer coupled with sales from our direct-to-consumer natural products
sold under the Dr. Cherry physicians branded label which was first introduced
during the third quarter of fiscal year 2000. Sales to our largest customer of
$5.8 million for the second quarter of fiscal 2001, increased by $2.2 million
from $3.6 million for the same period last year, while the direct-to-consumer
sales volume of the Dr. Cherry brand totaled $1.2 million during the second
quarter of fiscal 2001.

Gross profit for the second quarter of fiscal 2001 increased to $2.8 million,
representing 25% of net sales, an increase of $3.4 million over the loss of
$522,000 for the second quarter of fiscal 2000. Direct and indirect
manufacturing expenses were comparable from period to period at 26% of net
sales. Material costs decreased to $5.4 million for the current period, 48% of
net sales, from $9.4 million, 78% of net sales, for the same period last year.
During the fourth quarter of fiscal 2000, the Company began packaging most of
its finished goods internally. Prior to this independent 3rd-party packaging
vendors performed all packaging of the Company's products. Savings from bringing
this function in-house have been significant. Cost of outside packaging during
the second quarter of fiscal 2000 were approximately $1.5 million or 12% of net
sales, compared with $319,000, or 3%, for the same period of fiscal 2001. During
the second quarter of fiscal 2000, the Company wrote-off inventory of $2.0
million, 17% of net sales, which included $735,000 for deposits on inventory.
The analysis of inventory balances and subsequent write-off in fiscal 2000
related primarily to the loss of a major customer, a decline in market share and
continuing competitive pressures, which caused the Company to re-evaluate all
product lines and reduce or slow production of products with limited future
value.

                                       12
<PAGE>   13

Selling, general and administrative expenses were as a percentage of net sales
19% and 27% for the quarters ended December 31, 2001 and 2000, respectively. In
absolute dollars the expenses decreased by $1.0 million to $2.2 million as
reported for the second quarter of fiscal 2001. The reduction was primarily the
result of (i) the continuing benefits of the cost containment program, discussed
further below, (ii) the non-recurring nature of certain costs incurred in the
second quarter of fiscal 2000 associated with the start-up of our Swiss
manufacturing subsidiary and (iii) training and implementation expenses
associated with the installation of our integrated manufacturing and accounting
computer software system in May 1999.

The Company is a plaintiff in an anti-trust lawsuit against several
manufacturers of vitamins and other raw materials purchased by the Company.
Other income for the quarter ended December 31, 2000 includes receipt of
approximately $110,000 in settlement of the claims made against one of the
defendants in the suit. See Part II - Item 1. Legal Proceedings.

SIX MONTHS ENDED DECEMBER 31, 2000 AND 1999

Net sales for the six months ended December 31, 2000 of $21.5 million decreased
$5.8 million, or 21%, compared to net sales of $27.3 million for the same period
of fiscal 2000. The sales decline was primarily due to the loss of two of our
larger customers (NuSkin Enterprises Inc. and Bally Total Fitness) with combined
sales of $7.4 million during the first six months ended December 31, 1999 and
$219,000 during the same period in fiscal 2001. NuSkin informed the Company in
December 1999 that its production needs have been transitioned to other vendors.
Sales to our third largest customer in the first six months of fiscal 2001
decreased by $2.7 million from $4.6 million for the first six months ended
December 31, 1999. Fiscal 2000 sales were higher as this customer acquired large
quantities of product to support an inventory build for a major product
introduction, while fiscal 2001 sales volumes have stabilized at lower levels.
The loss of these major customers were offset by an increase in sales to our
largest customer coupled with sales from our direct-to-consumer natural products
sold under the Dr. Cherry physicians branded label which was first introduced
during the third quarter of fiscal year 2000. Sales to our largest customer of
$11.0 million for the first six months of fiscal 2001, increased by $2.4 million
from $8.6 million for the same period last year, while the direct-to-consumer
sales volume of the Dr. Cherry brand totaled $2.3 million during the first six
months of fiscal 2001.

Gross profit for the first six months ended December 31, 2000 increased to $4.9
million, representing 23% of net sales, an increase of approximately $2.2
million over the gross profit of $2.7 million, or 10% of net sales, for the same
period of fiscal 2000. Direct and indirect manufacturing expenses decreased by
$350,000 for the first six months ended December 31, 2000, versus the same
period of the previous year. This reduction is directly related to our
continuing cost containment program partially offset by the internal operating
costs for in-house packaging. Material costs decreased to $10.9 million for the
current period, 51% of net sales, from $18.6 million, 68% of net sales, for the
same period last year. During the fourth quarter of fiscal 2000, the Company
began packaging most of its finished goods internally. Prior to this independent
3rd-party packaging vendors performed all packaging of the Company's products.
Savings from bringing this function in-house have been significant. Cost of
outside packaging during the first six months ended December 31, 1999 were
approximately $3.5 million or 13% of net sales, compared with $500,000, or 2%,
for the same period of fiscal 2001. During the second quarter of fiscal 2000,
the Company wrote-off inventory of $2.0 million, 7% of sales, which included
$735,000 for deposits on inventory. The analysis of inventory balances and
subsequent write-off in fiscal 2000, related primarily to the loss of the major
customers, a decline in market share and continuing competitive pressures, which
caused the Company to re-evaluate all product lines and reduce or slow
production of products with limited future value.

Selling, general and administrative expenses were as a percentage of net sales
18% and 22% for the first six months ended December 31, 2000 and 1999,
respectively. In absolute dollars the expenses decreased by $2.2 million to $3.9
million as reported for the first six months of fiscal 2001. The reduction was
primarily the result of (i) the continuing benefits of the cost containment
program, discussed below, (ii) the non-recurring nature of certain costs
incurred in the second quarter of fiscal 2000 associated with the start-up of
our Swiss manufacturing subsidiary and (iii) training and implementation
expenses associated with the installation of our integrated manufacturing and
accounting computer software system in May 1999.

                                       13
<PAGE>   14

The Company is a plaintiff in an anti-trust lawsuit against several
manufacturers of vitamins and other raw materials purchased by the Company.
Other income for the six months ended December 31, 2000 includes receipt of
approximately $110,000 in settlement of the claims made against one of the
defendants in the suit. See Part II - Item 1. Legal Proceedings.

COST CONTAINMENT PROGRAM

In January 2000, the Company announced a cost containment program designed to
reduce future operating expenses. The program initiated expense control measures
intended to counteract the loss of a major customer and streamline business
processes to improve future operating performance. The program included an
immediate reduction of approximately 27% in the Company workforce, consisting of
both permanent and temporary personnel.

In May 2000, the Company took additional steps, which were completed by the end
of June 2000, as follows:

(i)      Substantial reduction of outside packaging services, as a result of the
         capital expansion initiative to invest in the integration of in-house
         finished goods packaging capabilities and to substantially eliminate
         future outside packaging services.

(ii)     An additional reduction in force of 25% effective May 2000, including
         reductions in executive compensation and benefits.

(iii)    Successfully terminating the long-term lease obligation related to the
         Carlsbad facility in June 2000. Initially the Company entered into two
         sublease agreements for the entire premises for approximately five
         years. Shortly thereafter, the Company completed a buyout of the
         fifteen-year lease obligation from the landlord. The buyout agreement
         provided for the sale of the Company's leasehold interests and
         obligations to the landlord for essentially the same cost of performing
         its obligations pursuant to the sublease agreements, resulting in the
         Company paying a $3.0 million settlement fee to the landlord.

Management is committed to the restoration of net earnings by maintaining its
operating cost structures with current operating levels.

The Company will continue to concentrate its efforts on improving operational
efficiencies, resource requirements, and core business processes to improve
operating performance. In addition, the Company will continue to focus on
existing customers and realizing the returns from the strategies implemented to
diversify and expand geographical and distribution channels through its Swiss
manufacturing operations, Custom Nutrition joint venture and Dr. Cherry
physician branding direct to consumer initiatives.

INCOME TAXES

Our effective tax rates were benefits of 2% and 34% for the six months of fiscal
2001 and 2000, respectively. The rate for fiscal 2001 reflects the five-year tax
holiday, which applies, at the Swiss federal level, a zero tax rate to pretax
earnings of our Swiss subsidiary, which was profitable in fiscal 2001. Earnings
of our Swiss subsidiary are taxed at the local level. The effective Swiss tax
rate is approximately 4% and resulted in $31,000 of tax expense for the six
months ended December 31, 2000.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations through cash flow from
operations, its working capital credit facility and equipment financing
arrangements.

At December 31, 2000, the Company has cash of approximately $987,000, versus
$815,000 at June 30, 2000. Net cash provided by operations during the first six
months of fiscal 2001 amounted to $1.5 million, which was used primarily to fund
our investing activities including the acquisition of capital equipment and to
reduce outstanding debt.

Capital expenditures for the first six months ended December 31, 2000 amounted
to $380,000. These expenditures relate primarily to the acquisition of
production equipment in both our U.S. and Swiss manufacturing facilities.


                                       14
<PAGE>   15

During the first six months of fiscal 2001, the Company's consolidated
outstanding debt decreased approximately $1 million to $7.4 million from
approximately $8.4 million at June 30, 2000. The net decrease reflects
borrowings of $1.4 million offset by payments of $2.3 million. These amounts
reflect normal borrowing activity and exclude the $3.8 million associated with
the establishment our new financing, the initial proceeds, from which, were used
to extinguish existing debt. See Note 5 to the Unaudited Financial Statements.
The composite interest rate on all outstanding debt at December 31, 2000 was
approximately 9.1%.

The Company has access to approximately $8.4 million of funds from existing
working capital credit facilities to support future operating requirements, net
of borrowings outstanding under these facilities as of December 31, 2000 of
approximately $2.9 million. The working capital line of credit facilities are
subject to eligibility requirements for current accounts receivable and
inventory balances. As of December 31, 2000 total excess borrowing capacity
based on eligible working capital balances was approximately $2.3 million. One
or more of the Company's loan agreements contain a number of covenants that
restrict the operations of the Company. Such restrictions include requiring the
Company to comply with specified financial ratios and tests, including minimum
tangible net worth requirements, maximum leverage ratios, debt coverage ratios,
and minimum net income. As of December 31, 2000, the Company was in compliance
with all restrictive covenants of these agreements.

The Company believes its available cash and existing credit facilities should be
sufficient to fund near-term operating activities. However, the Company's
ability to fund future operations and meet capital requirements will depend on
many factors, including but not limited to: the ability to seek additional
capital; the effectiveness of the Company's diversified growth strategy, cost
containment program, vertical integration of packaging operations, the expansion
of Swiss manufacturing operations, and the ability to establish additional
customers or changes to existing customer's business.

                                       15
<PAGE>   16


RISK FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

In addition to the other information included in this Report, the following
factors should be considered in evaluating the Company's business and future
prospects. The Company's business and results of operations could be seriously
harmed by any of the following risks. In addition, the market price of our
common stock could decline due to many factors, including but not limited to,
any of these risks.

DECLINING SALES, INDETERMINATE PROFITS

The net earnings and net sales for the first six months of fiscal 2001 were
$648,000 and $21.5 million, respectively, as compared with a loss of $2.3
million and sales of $27.3 million for the same period of fiscal 2000. The
Company implemented a cost containment program and a return to profitability
program in the prior fiscal year in an effort to reduce expenses to be
consistent with current operating levels. The Company is experiencing continued
difficulty in maintaining expenses consistent with operating levels and there
can be no assurance it will be able to do so in the future. The Company cannot
predict with any assurance whether the Company will be able to achieve
profitability in future periods. In addition the Company expects operating
results will fluctuate from period to period as a result of differences in when
it incurs expenses and recognizes revenues from product sales. Some of these
fluctuations may be significant.

RESULTS OF INVESTMENT IN JOINT VENTURE

In fiscal 2000 the Company loaned approximately $750,000 to a joint venture
partner. The debt became due and payable and was extended and restructured in
the second fiscal quarter of 2001. In the third fiscal quarter of 2001 the
borrower was not able to meet its obligations under the restructured debt. As a
result the Company has begun execution upon its security arrangements and
intends to acquire legal title to all Loan collateral as soon as possible. The
Company is evaluating the actions it may take, including but not limited to,
moving forward to commercialize the assets in future joint ventures or by
sub-licenses to third parties. At the present time the Company has not completed
this evaluation and has continuing discussions ongoing with its former partner.
If the Company abandons its investment or is unable to salvage a reasonable
business opportunity from its investment it will likely have a material adverse
impact upon its operations and financial condition.

RELIANCE ON LIMITED NUMBER OF CUSTOMERS FOR MAJORITY OF REVENUE

For the first six months of fiscal 2001, the Company had three major customers,
which together accounted for approximately 71% of the Company's net sales. The
loss of any of these major customers, or any substantial reduction of their
purchases from the Company, would have a material adverse impact on the
business, operations and financial condition of the Company.

RESTRICTIVE FINANCING COVENANTS.

One or more of the Company's loan agreements contain a number of covenants that
restrict the operations of the Company. Such restrictions include requiring the
Company to comply with specified financial ratios and tests, including minimum
tangible net worth requirements, maximum leverage ratios, debt coverage ratios,
minimum net income and minimum Earnings before Interest, Depreciation and
Amortization ("EBITDA") to cash interest expense ratios. The Company was not in
compliance with certain of these ratios at June 30, 2000, which the lender has
agreed to waive through June 30, 2000. As of December 31, 2000, the Company was
in compliance with all financial covenant provisions of its various credit
agreements, but there can be no assurance the Company will be able to maintain
compliance with such requirements in the present or future periods. The
Company's ability to comply with such covenants and other restrictions may be
affected by events beyond its control, including prevailing economic, financial
and industry conditions. The breach of any such covenants or restrictions could
result in a default under the various loan agreements that would permit the
lenders to declare all amounts outstanding there under to be immediately due and
payable, together with accrued and unpaid interest, and to terminate their
commitments to make further extensions of credit. Any such action could have a
material adverse impact upon the business operations and financial condition of
the Company.

                                       16
<PAGE>   17

DECLINE IN STOCK PRICE

The Company's stock price has experienced significant volatility at times during
the past few years and is currently at or near historic lows. In view of the
Company's difficulty in maintaining profitability there can be no assurance that
the stock price will not continue to languish at the current level or decline
further. Current market conditions in the vitamin and nutritional supplement
industry including increased price competition, consolidation, oversupply of
vitamin and supplement products, operating results of competitors, adverse
publicity and other factors such as operating results lower than the
expectations of analysts and investors, may have a continuing adverse affect on
the price of the Company's stock.

LAWSUIT BY FORMER PRESIDENT, DIRECTOR AND CHIEF FINANCIAL OFFICER

The Company is a party to a lawsuit filed by its former President, Director and
Chief Financial Officer, William P. Spencer. The Company terminated Mr. Spencer
for cause in January 1999. The lawsuit includes various claims, and alleges
damages in excess of six million dollars. The Company has responded to the
lawsuit and has denied it has any liability associated with the claim.
Management believes the claims against the Company are without merit. The
Company filed a cross-complaint in the lawsuit against Mr. Spencer and
Imagenetix, Inc., a corporation in which Mr. Spencer is currently a director,
principal shareholder and chief executive, and three other individuals, two of
whom are former employees of the Company and the other a former consultant to
the Company. Both the Company's and the other parties' complaints have been
amended, and additional parties have been added. Management believes the Company
will not be found liable on any claim, and will prevail in its cross-complaint
against each cross-defendant. The Company has expended considerable sums to date
in connection with the ongoing litigation and anticipates continuing expenses in
connection with the litigation to be significant in the present and future
periods. In the event the Company obtains a judgment in its favor there can be
no assurance the Company will be able to collect all or any portion thereof. In
the event a judgment is obtained against the Company in the amount of the
damages alleged in the lawsuit or any significant portion thereof, it would have
a material adverse impact upon the financial condition of the Company.

POTENTIAL FOR INCREASED COMPETITION

The market for the Company's products is highly competitive. The Company
competes with other dietary supplement products and over-the-counter
pharmaceutical manufacturers. Among other factors, competition among these
manufacturers is based upon price. If one or more manufacturers significantly
reduce their prices in an effort to gain market share, the Company's business,
operations and financial condition could be adversely affected. Many of the
Company's competitors, particularly manufacturers of nationally advertised brand
name products, are larger and have resources substantially greater than those of
the Company. There has been speculation about the potential for increased
participation in these markets by major international pharmaceutical companies.
In the future, if not already, one or more of these companies could seek to
compete more directly with the Company by manufacturing and distributing their
own or others' products, or by significantly lowering the prices of existing
national brand products. The Company sells substantially all of its supplement
products to customers who re-sell and distribute the products. Although the
Company does not currently participate significantly in other channels such as
health food stores, direct mail, internet sales and direct sales, the Company is
expanding its operations and its products, and will likely face increased
competition in such distribution and sales channels as more vendors and
customers utilize them.

RELIANCE ON LIMITED NUMBER OF SUPPLIERS; AVAILABILITY AND COST OF PURCHASED
MATERIALS

The Company purchases certain products it does not manufacture from a limited
number of raw material suppliers. Although the Company currently has supply
arrangements with several suppliers of these raw materials, and such materials
are generally available from numerous sources, the termination of the supply
relationship by any material supplier or an unexpected interruption of supply
could materially adversely affect the Company's business, operations and
financial condition.

The Company relies on a single supplier to process certain raw materials for a
product line of the Company's largest customer. An unexpected interruption of
supply of this service would materially adversely affect the Company's business,
operations and financial condition.

                                       17
<PAGE>   18

EFFECT OF ADVERSE PUBLICITY

The Company's products consist primarily of dietary supplements (vitamins,
minerals, herbs and other ingredients). The Company regards these products as
safe when taken as suggested by the Company. In addition, various scientific
studies have suggested the ingredients in some of the Company's products may
involve health benefits. The Company believes the growth in the dietary
supplements business of the last several years may, in part, be based on
significant media attention and various scientific research that has suggested
there may be potential health benefits from the consumption of certain vitamin
products. The Company is indirectly dependent upon its customers' perception of
the overall integrity of its business, as well as the safety and quality of its
products and similar products distributed by other companies who may not adhere
to the same quality standards as the Company. The business, operations, and
financial condition of the Company could be adversely affected if any of the
Company's products or any similar products distributed by other companies should
prove or be asserted to be harmful to consumers, or should scientific studies
provide unfavorable findings regarding the effect of products similar to those
produced by the Company.

EXPOSURE TO PRODUCT LIABILITY CLAIMS

The Company, like other retailers, distributors and manufacturers of products
that are ingested, faces a risk of exposure to product liability claims in the
event that, among other things, the use of its products results in injury. The
Company maintains product liability insurance coverage, including primary
product liability and excess liability coverage. There can be no assurance that
product liability insurance will continue to be available at an economically
reasonable cost or that the Company's insurance will be adequate to cover any
liability the Company incurs in respect to all possible product liability
claims. In addition, some of the ingredients included in one or more of the
products manufactured by the Company are subject to controversy involving
potential negative side effects or questionable health benefits. Some insurers
have recently excluded certain of these ingredients from their product liability
coverage. Although the Company's product liability insurance does not presently
have any such limitations, the Company's insurer could require such exclusions
or limitations on coverage in the future. In such event, the Company may have to
cease utilizing the ingredients or may have to rely on indemnification or
similar arrangements with its customers who wish to continue to include such
ingredients in their products. In such an event, the consequential increase in
product liability risk or the loss of customers or product lines could have a
material adverse impact on the Company's business, operations, and financial
condition.

RISKS ASSOCIATED WITH INTERNATIONAL MARKETS

The Company's growth may be dependent in part upon its ability to expand its
operations and those of its customers into new markets, including international
markets. The Company has a manufacturing facility in Switzerland, which is
intended to facilitate an increase in sales of the Company's products overseas.
The Company may experience difficulty entering new international markets due to
regulatory barriers, the necessity of adapting to new regulatory systems, and
problems related to entering new markets with different cultural bases and
political systems. Operating in international markets exposes the Company to
certain risks, including, among other things, (1) changes in or interpretations
of foreign import, currency transfer and other restrictions and regulations that
among other things may limit the Company's ability to sell certain products or
repatriate profits to the United States, (2) exposure to currency fluctuations,
(3) the potential imposition of trade or foreign exchange restrictions or
increased tariffs, and (4) economic and political instability. As the Company
continues to expand its international operations, these and other risks
associated with international operations are likely to increase.

GOVERNMENT REGULATION

The manufacturing, processing, formulation, packaging, labeling and advertising
of the Company's products are subject to regulation by one or more federal
agencies, including the United States Food and Drug Administration ("FDA"), the
Federal Trade Commission ("FTC"), the Consumer Product Safety Commission, the
United States Department of Agriculture, the United States Postal Service, the
United States Environmental Protection Agency, and the Occupational Safety and
Health Administration. The Company's activities are also regulated by various
agencies of the states and localities in which the Company's products are sold.
In particular, the FDA regulates the safety, labeling and distribution of
dietary supplements, including vitamins, minerals, herbs, food, and
over-the-counter and prescription drugs and cosmetics. In addition, the FTC has
overlapping jurisdiction with the FDA to regulate the labeling,


                                       18
<PAGE>   19

promotion and advertising of vitamins, over-the-counter drugs, cosmetics and
foods.

The Dietary Supplement Health and Education Act of 1994 ("DSHEA") was enacted on
October 25, 1994. DSHEA amends the Federal Food, Drug and Cosmetic Act by
defining dietary supplements, which include vitamins, minerals, nutritional
supplements and herbs as a new category of food separate from conventional food.
DSHEA provides a regulatory framework to ensure safe, quality dietary
supplements and the dissemination of accurate information about such products.
Under DSHEA, the FDA is generally prohibited from regulating the active
ingredients in dietary supplements as drugs unless product claims, such as
claims that a product may heal, mitigate, cure or prevent an illness, disease or
malady, trigger drug status.

DSHEA provides for specific nutritional labeling requirements for dietary
supplements. DSHEA permits substantiated, truthful and non-misleading statements
of nutritional support to be made in labeling, such as statements describing
general well being resulting from consumption of a dietary ingredient or the
role of a nutrient or dietary ingredient in affecting or maintaining a structure
or function of the body. The Company anticipates the FDA will finalize
manufacturing process regulations that are specific to dietary supplements and
require at least some of the quality control provisions applicable to drugs. The
Company currently manufactures its vitamins and nutritional supplement products
in compliance with the food good manufacturing processes.

The FDA is developing additional regulations to implement DSHEA. Labeling
regulations may require expanded or different labeling for the Company's vitamin
and nutritional products. The Company cannot determine what effect such
regulations, when fully implemented, will have on its business in the future.
Such regulations could, among other things, require the recall, reformulation or
discontinuance of certain products, additional record keeping, warnings,
notification procedures and expanded documentation of the properties of certain
products or scientific substantiation regarding ingredients, product claims,
safety or efficacy. Failure to comply with applicable FDA requirements could
result in sanctions being imposed on the Company or the manufacturers of its
products, including warning letters, fines, product recalls and seizures.

Governmental regulations in foreign countries where the Company plans to
commence or expand sales may prevent or delay entry into a market or prevent or
delay the introduction, or require the reformulation of, certain of the
Company's products. In addition, the Company cannot predict whether new domestic
or foreign legislation regulating its activities will be enacted. Such new
legislation could have a material adverse effect on the business, operations and
financial condition of the Company.

DISTRIBUTION AND MANAGEMENT OF OPERATIONS

In fiscal 1999, the Company leased and commenced operating three additional
facilities. Two of these are adjacent facilities comprising 74,000 square feet
in Vista, California used as a receiving, warehousing, weighing, blending,
finished goods packaging, and distribution facility. The third new facility is
an 18,000 square foot manufacturing facility in Lugano, Switzerland. All of
these facilities were completed and became fully operational during fiscal 2000.
During fiscal 1999, the Company also implemented an entirely new software system
to manage its materials, manufacturing and accounting operations, and use of
this system has continued to be refined in fiscal 2001. While the Company
believes new facilities and operating systems will increase the Company's
manufacturing and distribution capabilities, there can be no assurance they will
result in improved sales, profit margins or earnings. A significant, unexpected
disruption of these systems and facilities could have a material adverse effect
on the Company's results of operations.

FAILURE TO ATTRACT AND RETAIN MANAGEMENT COULD HARM OUR ABILITY TO ACHIEVE
PROFITABILITY AND GAIN

The Company's success is dependent in large part upon its continued ability to
identify, hire, retain, and motivate highly skilled management employees. These
types of qualified individuals are currently in great demand in the marketplace.
Competition for these employees is intense, and the Company may not be able to
hire additional qualified personnel in a timely manner and on reasonable terms.
The majority of the Company's current corporate officers began their employment
with the Company in fiscal years 1999 and 2000. The inability of the Company to
retain competent professional management could adversely affect our ability to
execute our business strategy.

                                       19
<PAGE>   20

CENTRALIZED LOCATION OF MANUFACTURING OPERATIONS

The Company currently manufactures the vast majority of its products at its
manufacturing facilities in San Marcos, California. Accordingly, any event
resulting in the slowdown or stoppage of the Company's manufacturing operations
or distribution facilities in San Marcos could have a material adverse affect on
the Company. The Company maintains business interruption insurance. There can be
no assurance, however, that such insurance will continue to be available at a
reasonable cost or, if available, will be adequate to cover any losses that may
be incurred from an interruption in the Company's manufacturing and distribution
operations.

CONCENTRATION OF OWNERSHIP; CERTAIN ANTI-TAKEOVER CONSIDERATIONS

The Company's directors and executive officers beneficially own in excess of
24.9% of the outstanding Common Stock as of December 31, 2000. Accordingly,
these shareholders will continue to have the ability to substantially influence
the management, policies, and business operations of the Company. The Company's
Board of Directors has the authority to approve the issuance of 500,000 shares
of preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the Company's shareholders. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of
holders of any preferred stock that may be issued in the future. Certain
provisions of Delaware law, as well as the issuance of preferred stock, and
other "anti-takeover" provisions in the Company's Articles and Bylaws, could
delay or inhibit the removal of incumbent directors and could delay, defer, make
more difficult or prevent a merger, tender offer or proxy contest, or any change
in control involving the Company, as well as the removal of management, even if
such events would be beneficial to the interests of the Company's shareholders,
and may limit the price certain investors may be willing to pay in the future
for shares of Common Stock.

                                       20
<PAGE>   21


                    NATURAL ALTERNATIVES INTERNATIONAL, INC.
                         PART I - FINANCIAL INFORMATION


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risks from adverse changes in interest rates,
and foreign exchange rates affecting the return on our investments and the cost
of our debt. The Company does not use derivative financial instruments to reduce
the impact of changes in interest or foreign exchange rates.

At December 31, 2000, the Company's cash equivalents consisted of financial
instruments with original maturities of three months or less.

The Company's debt as of December 31, 2000 totaled $7.4 million and was
comprised of fixed rate loans of $3.6 million and variable rate loans of $3.8
million. The average composite interest rates at December 31, 2000 for fixed
rate and variable rate loans were 8.1% and 10%, respectively.

The Company's wholly owned Swiss subsidiary has a line of credit denominated in
Swiss Francs. The balance of borrowing under the line was CHF 1.2 million at
December 31, 2000 ($717,000). The interest rate applied to the line is fixed,
but the Company is exposed to movements in the exchange rate between the Swiss
Franc and the U.S. Dollar. On December 31, 2000, the Swiss Franc closed at 1.61
to 1 U.S. dollar. The same rate was 1.64 Swiss Francs to 1 U.S. dollar at June
30, 2000. Foreign exchange loss for the first six months of fiscal 2001 was
$65,000.

An immediate adverse change of one hundred basis points in interest rates would
increase interest expense on an annual basis by $38,000. A 10% adverse change to
the Swiss Franc exchange rate would decrease earnings by $80,000.

                                       21
<PAGE>   22

                    NATURAL ALTERNATIVES INTERNATIONAL, INC.
                           PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

The Company is a party to a lawsuit filed by its former President, Director and
Chief Financial Officer, William P. Spencer. The lawsuit was filed in January
2000, and was served upon the Company in March 2000. Mr. Spencer was terminated
by the Company for cause in January 1999. The lawsuit alleges damages for
wrongful termination, breach of option contract, conversion, breach of
employment contract, discriminatory and retaliatory discharge, workplace
harassment and slander. The lawsuit seeks damages in an amount to be proved at
trial, and alleges damages in excess of six million dollars. The Company has
responded to the lawsuit and has denied it has any liability. Management
believes the claims against the Company are without merit. The Company has filed
a cross-complaint in the lawsuit against Mr. Spencer and Imagenetix, Inc., (a
corporation in which Mr. Spencer is a director, principal shareholder and chief
executive), and three other individuals, two of whom are former employees of the
Company and the other a former consultant to the Company. The cross-complaint
seeks damages and injunctive relief for breach of fiduciary duty;
fraud-concealment of material facts; intentional interference with prospective
economic advantage; negligent interference with prospective economic advantage;
civil conspiracy; intentional interference with contract; trade libel; slander
per se; breach of contract; conversion; misappropriation of trade secrets;
breach of duty of loyalty; unlawful, unfair and/or fraudulent business acts or
practices and an accounting. The additional defendants in NAI's cross-complaint
subsequently filed cross-actions against NAI, alleging similar claims to those
alleged by Mr. Spencer. The complaint against NAI was also amended to add
Imagenetix, Inc. as a claimant. Management believes the additional claims are
without merit, and the Company will prevail in its cross-complaint against each
cross-defendant. The Company subsequently amended its complaint, adding
additional claims against certain parties. In the event a judgment is obtained
against the Company in the amount of the damages alleged in the lawsuit or any
significant portion thereof, it would have a material adverse impact upon the
financial condition of the Company.

The Company is a plaintiff in an anti-trust lawsuit against several
manufacturers of vitamins and other raw materials purchased by the Company.
Other similarly situated companies have filed a number of similar lawsuits
against some or all of the same manufacturers. The Company's lawsuit has been
consolidated with some of the others and is captioned In re: Vitamin Antitrust
Litigation, and is pending in U.S. District Court in Washington D.C. One or more
consumer class actions have also been filed against some or all of the same
defendants, and at least one of these is presently in a settlement process. The
Company brought its own action to insure it understood what actually occurred.
To date the Company has received $110,000 in settlement payments from certain
defendants. There can be no assurance the remaining claims will be resolved, or,
if they are, that it will result in a material benefit to the Company.

The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, after consultation
with its legal counsel, the ultimate disposition of these matters will not have
a material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.

ITEM 2. CHANGES IN SECURITIES

None.

ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES

None.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

                                       22
<PAGE>   23

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits: The following exhibits are filed herewith:

10.1     Second Amendment to Loan Agreement dated as of November 10, 2000, by
         and between FitnessAge Incorporated and Natural Alternatives
         International, Inc.

10.2     Software License Agreement dated as of November 10, 2000, by and
         between FitnessAge Incorporated and Natural Alternatives International,
         Inc.

10.3     Security Agreement dated as of November 10, 2000 between Natural
         Alternatives International, Inc. and FitnessAge Incorporated.

10.4     Source Code Escrow Agreement dated as of November 10, 2000 by and among
         Natural Alternatives International, Inc., FitnessAge Incorporated and
         The Chicago Trust Company of California as Escrow Agent.

10.5     Executive Employment dated as of November 15, 2000 between Natural
         Alternatives International, Inc. and Mark A. LeDoux.

10.6     Executive Employment dated as of November 15, 2000 between Natural
         Alternatives International, Inc. and Peter C. Wulff.

10.7     Executive Employment dated as of November 15, 2000 between Natural
         Alternatives International, Inc. and David A. Lough.

10.8     Executive Employment dated as of November 15, 2000 between Natural
         Alternatives International, Inc. and Douglas E. Flaker.

10.9     Executive Employment dated as of November 15, 2000 between Natural
         Alternatives International, Inc. and John A. Wise.

10.10    Amended and Restated Executive Employment dated as of October 9, 2000
         between Natural Alternatives International, Inc. and Robert K. Clausen.


(b) No reports on Form 8-K were filed during the quarter for which this report
is filed.

                                       23
<PAGE>   24

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



NATURAL ALTERNATIVES INTERNATIONAL, INC.





 /s/ Peter C. Wulff                 Date:   February 14, 2001
- -----------------------------

Peter C. Wulff
Chief Financial Officer
and Treasurer

                                       24

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>a69688ex10-1.txt
<DESCRIPTION>EXHIBIT 10.1
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 10.1





                               SECOND AMENDMENT TO

                                 LOAN AGREEMENT

                                 BY AND BETWEEN

                             FITNESSAGE INCORPORATED

                                       AND

                    NATURAL ALTERNATIVES INTERNATIONAL, INC.


<PAGE>   2


                                SECOND AMENDMENT
                                       TO
                                 LOAN AGREEMENT

        This Second Amendment to Loan Agreement ("Second Amendment") effective
this 10th day of November, 2000 amends that certain Loan Agreement dated
November 11, 1999 (the "Initial Loan Agreement"), by and between FitnessAge
Incorporated, a Nevada corporation ("Corporation") and Natural Alternatives
International, Inc. a Delaware corporation ("Lender") as amended by that certain
First Amendment to Loan Agreement and Security Agreement ("First Amendment")
between the Corporation and the Lender dated December 6, 1999 (the Initial Loan
Agreement as amended by the First Amendment and this Second Amendment is
hereinafter referred to as the "Loan Agreement"). Unless otherwise defined in
this Second Amendment, capitalized terms used herein shall have the meanings
given them in the Initial Loan Agreement or the First Amendment, as the case may
be.

SECTION 1.     NEW NOTE

        Section 1 of the Initial Loan Agreement is deleted in its entirety. The
parties hereto agree that the indebtedness due and owing by the Corporation to
Lender pursuant to the Loan Agreement as of the date hereof equals $855,778.40
(the "Consolidated Loan"). The Consolidated Loan shall be evidenced by the
Consolidated Convertible Secured Promissory Note dated as of November 10, 2000
from the Corporation to the Lender in the form of Exhibit "A" attached hereto
and incorporated herein by this reference (the "New Note"). The principal amount
of the New Note shall consist of the sum of (i) the Loan of $750,000 made by
Lender to the Corporation pursuant to the Initial Loan Agreement as amended by
the First Amendment; plus (ii) accrued and unpaid interest on the Notes as of
November 10, 2000 in the amount of $90,778.40; plus (iii) $15,000 in
reimbursement for certain legal fees of Lender pursuant to Section 5 of this
Second Amendment. Upon execution and delivery of the New Note, the Lender shall
cancel the Notes and deliver the cancelled Notes to the Corporation. From and
after the date hereof, each reference in Sections 4 through 13 of the Initial
Loan Agreement to the Loan shall be deemed a reference to the New Loan and each
reference in Sections 4 through 13 of the Initial Loan Agreement to the Note or
the Notes shall be deemed a reference to the New Note.

SECTION 2.     ADDITIONAL SECURITY

        In addition to the security interest granted pursuant to the Security
Agreement in the property therein defined, and as further security for the
performance and payment of all obligations and indebtedness of the Corporation
to the Lender now or hereafter existing, the parties shall execute and deliver
(i) the Software License Agreement hereto as Exhibit "B" and incorporated herein
by this reference (the "New License Agreement"); (ii) the Software Escrow
Agreement as defined in the New License Agreement; and (iii) the Security
Agreement attached hereto as Exhibit "C" and incorporated herein by this
reference (the "New Security Agreement") pursuant to which the Corporation shall
grant to Lender a security interest in and to the New License Agreement and the
Software Escrow Agreement. From and after the date hereof, each reference in
Sections 4 through 13 of the Initial Loan Agreement to the Security Agreement
shall be deemed to include a reference also to the New Security Agreement and
each reference in Sections 4 through 13 of the Initial Loan


                                        1
<PAGE>   3

Agreement to the Collateral shall be deemed to include a reference also to the
New License Agreement and the Software Escrow Agreement.

SECTION 3.     THE BORROWING

        Section 3 of the Initial Loan Agreement is deleted in its entirety.

SECTION 4.     REPRESENTATIONS AND WARRANTIES OF THE CORPORATION

        The Corporation represents and warrants to the Lender as follows:

               (a) Except as otherwise disclosed on Schedule 4(a) hereto, each
of the representations and warranties contained in Section 4 of the Initial Loan
Agreement is true and correct as of the date hereof.

               (b) Except as otherwise disclosed on Schedule 4(b) hereto, as of
the date hereof there exists no Event of Default or condition which, with the
passage of time, will become an Event of Default.

SECTION 5.     LEGAL FEES OF LENDER

        The Corporation agrees to reimburse Lender in the amount of $15,000 for
fees and disbursements of legal counsel to Lender in connection with the
execution and delivery of this Second Amendment and the agreements contemplated
hereby.

        All remaining terms of the Initial Loan Agreement and the First
Amendment remain in full force and effect.


<TABLE>
<CAPTION>

<S>                                                <C>
Corporation:                                       Lender:

FitnessAge Incorporated                            Natural Alternatives International, Inc.
a Nevada corporation                               a Delaware corporation

By:                                                By:
   ----------------------------------                 -----------------------------------------
       Brian L. Harcourt                                  Peter C. Wulff
       Vice Chairman                                      Chief Financial Officer and Treasurer
</TABLE>

                                       2
<PAGE>   4


                                   EXHIBIT "A"

NEITHER THIS PROMISSORY NOTE NOR THE COMMON SHARES INTO WHICH IT IS CONVERTIBLE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES
LAW. THE CORPORATION WILL NOT TRANSFER THIS PROMISSORY NOTE OR THE UNDERLYING
COMMON SHARES UNLESS: (i) THERE IS AN EFFECTIVE REGISTRATION COVERING SUCH
PROMISSORY NOTE OR SUCH COMMON SHARES, AS THE CASE MAY BE, UNDER THE SECURITIES
ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS, OR (ii) IT FIRST RECEIVES A
LETTER FROM AN ATTORNEY, ACCEPTABLE TO THE BOARD OF DIRECTORS OR ITS AGENTS,
STATING THAT IN THE OPINION OF THE ATTORNEY THE PROPOSED TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND UNDER ALL APPLICABLE STATE
SECURITIES LAWS.

                             FITNESSAGE INCORPORATED
                CONSOLIDATED CONVERTIBLE SECURED PROMISSORY NOTE

                                NOVEMBER 10, 2000

        FOR VALUE RECEIVED, FitnessAge Incorporated, a Nevada corporation
("Company"), promises to pay to the order of Natural Alternatives International,
Inc., a Delaware corporation, or any subsequent holder of this Consolidated
Convertible Secured Promissory Note (the "Note") (hereinafter collectively
referred to as the "Holder") payable at the Holder's offices at 1185 Linda Vista
Drive, San Marcos, California 92069, or such other place as may be designated in
writing by notice to the Company from the Holder, the sum of $855,778.40 ( the
"Principal") with interest thereon during the period that any portion of the
Principal remains unpaid and outstanding at the rate of Twelve Percent (12%) per
annum, compounded monthly. The Company and Holder agree and acknowledge that
this Note consolidates the indebtedness (principal and accrued interest) of the
Company to Holder owing and unpaid as of the date hereof and evidenced by (i)
that certain Convertible Secured Promissory Note dated November 11, 1999 from
the Company to Holder in the original principal amount of $400,000, and (ii)
that certain Convertible Secured Promissory Note dated December 6, 1999 from the
Company to Holder in the original principal amount of $350,000 (such two
promissory notes being hereafter to as the "Prior Notes). In addition to such
indebtedness evidenced by the Prior Notes, the Principal includes $15,000
otherwise owing by the Company to the Holder.

        This Note is given pursuant to the Loan Agreement dated November 11,1999
between the Company and the Holder as amended by a First Amendment to Loan
Agreement and Security Agreement dated December 6, 1999 and a Second Amendment
to Loan Agreement dated November 10, 2000 (such loan agreement as so amended
being hereinafter referred to the "Loan Agreement").The terms of the Loan
Agreement are incorporated herein by this reference as if fully set forth
including, without limitation, the remedies available to Holder in the event of
any default in payment on this Note.

        The Principal, together with all accrued and unpaid interest, shall be
paid as follows: (i) $150,000 payable on February 1, 2001; (ii) $150,000 payable
on March 30, 2001; (iii) $225,000 payable on June 30, 2001; and (iv) payment of
all remaining principal plus accrued and unpaid

                                       3
<PAGE>   5

interest on September 15, 2001. Payments made pursuant to this Note shall be
applied first to accrued interest and thereafter to principal.

1.  WAIVER

        The Company and any and each other person or entity liable for the
payment or collection of this Note expressly waives demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
bringing of suit and diligence in taking any action to collect amounts called
for under this Note and in the handling of property at any time existing as
security in connection with this Note, and shall be directly and primarily
liable for the payment of all sums owing and to be owing on this Note,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for under this Note or in
connection with any right, lien, interest or property at any and all times had
or existing as security for any amount called for under this Note.

2.  COSTS OF COLLECTION

        The Company agrees to pay all reasonable costs, including reasonable
attorneys' fees, incurred by the Holder in collecting or enforcing payment of
this Note in accordance with its terms.

3.  NO SUBORDINATION

        (a) This Note shall, to the extent and in the manner hereinafter set
forth be subject in all cases to the provisions of any subordination agreement
between the holder(s) of other indebtedness of the Company and the Holder, and
otherwise shall be of first priority and shall not at any time be subordinated
or subject in right of payment to the prior payment of any other indebtedness of
the Company, whether now existing or hereafter created.

        (b) No payment on account of principal, premium, if any, or interest on
any other indebtedness of the Company shall be made if, at the time of such
payment or immediately after giving effect thereto: (i) there shall exist a
default in the payment of principal, premium, if any, or interest with respect
to this Note, or (ii) there shall have occurred an event of default with respect
to any other indebtedness, or in the instrument under which the same is
outstanding, permitting the holders thereof to accelerate the maturity of such
other indebtedness, and such event of default shall not have been cured or
waived or shall not have ceased to exist.

        (c) Upon: (i) any acceleration of the principal amount due on this Note;
or (ii) any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon any
dissolution or winding up or total or partial liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all principal, premium, if any, and interest
due or to become due upon this Note shall first be paid in full, or payment
thereof provided for in money or money's worth, before any other creditor of the
Company shall be entitled to retain any assets so paid or distributed in respect
to such other debt (for principal, premium, if any, or interest); and upon any
such dissolution or winding up or liquidation or reorganization or any payment
or distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to which the holder of any other indebtedness
would be entitled, except for these provisions, shall be paid by the Company or
by any receiver, trustee in bankruptcy, liquidating trustee, agent or other
person making

                                       4
<PAGE>   6

such payment or distribution, or by such other creditor if received by it,
directly to the Holder(s) of this Note or their representatives, to the extent
necessary to pay this Note in full.

4.  VOLUNTARY CONVERSION

        (a) The Holder shall have the right, at the Holder's option exercisable
at any time to convert this Note into such number of fully paid and
nonassessable shares of Common Stock (subject to adjustment as set forth below)
as shall be obtained by dividing the principal amount outstanding hereunder,
plus any accrued but unpaid interest, by the Conversion Price (as hereinafter
defined). The Conversion Price shall be $0.75 per share.

        (b) The Conversion Price shall be adjusted from time to time as follows:

               (i) In case the Company shall hereafter (A) subdivide its
        outstanding shares of Common Stock into a greater number of shares; (B)
        combine its outstanding shares of Common Stock into a smaller number of
        shares; or (C) issue by reclassification of its Common Stock any shares
        of capital stock of the Company, the Conversion Price in effect
        immediately prior to such action shall be adjusted so the Holder shall
        be entitled to receive the number of shares of Common Stock or other
        capital stock of the Company which it would have owned immediately
        following such action had this Note been converted immediately prior
        thereto. An adjustment made pursuant to this subsection (i) shall become
        retroactively effective as of immediately after the record date in the
        case of a dividend or distribution and shall become effective
        immediately after the effective date in the case of a subdivision,
        combination or reclassification. If, as a result of an adjustment made
        pursuant to this subsection (i), the Holder shall become entitled to
        receive shares of two or more classes or series of capital stock, the
        Board of Directors of the Company, in good faith (whose determination
        shall be conclusive and shall be described in a notice given to the
        Holder) shall determine for accounting purposes the allocation of the
        adjusted Conversion Price between or among shares of such classes of
        capital stock or shares of Common Stock and other capital stock.

               (ii) In case the Company shall hereafter issue options, rights
        or warrants to holders of its outstanding shares of Common Stock
        generally entitling them (for a period expiring within 45 days after the
        record date mentioned below) to subscribe for or purchase shares of
        Common Stock at a price per share less than the Conversion Price on the
        record date mentioned below, the Conversion Price shall be adjusted so
        that the same shall equal the price determined by multiplying the
        Conversion Price in effect immediately prior to the date of issuance of
        such options, rights or warrants by a fraction of which the numerator
        shall be the number of shares of Common Stock outstanding on the date of
        issuance of such options, rights or warrants plus the number of shares
        which the aggregate offering price of the total number of shares of
        Common Stock offered pursuant to such options, rights or warrants would
        purchase at such current Conversion Price per share of Common Stock, and
        of which the denominator shall be the number of shares of Common Stock
        outstanding on the date of issuance of such options, rights or warrants,
        plus the number of additional shares of Common Stock offered for
        subscription or purchase pursuant to such options, rights or warrants.
        Such adjustment shall become retroactively effective as of immediately
        after the record date for the determination of stockholders entitled to
        receive such options, rights or warrants.

                                       5
<PAGE>   7

               (iii) No adjustment in the Conversion Price shall be required
        unless such adjustment would require an increase or decrease of at least
        1% of such price; provided, however, that any adjustments which by
        reason of this subsection (iii) are not required to be made shall be
        carried forward and taken into account in any subsequent adjustment. All
        calculations shall be made to the nearest cent or to the nearest 1/100th
        of a share, as the case may be.

               (iv) In the event that at any time as a result of an adjustment
        made pursuant to subsection (i) above, the Holder shall become entitled
        to receive any shares of the Company other than shares of Common Stock,
        thereafter the Conversion Price of such other shares so receivable upon
        conversion of this Note shall be subject to readjustment from time to
        time in a manner and on terms as nearly equivalent as practicable to the
        provision with respect to Common Stock contained in this Note.

               (v) No adjustment in the Conversion Price need be made under
        subsection (ii), if the Company issues or distributes to the Holder the
        shares, rights, options, or warrants referred to in such subsection that
        the Holder would have been entitled to receive had the Note been
        converted prior to the happening of such event or the record date with
        respect thereto.

        (c) If at any time the Company shall be recapitalized by reclassifying
its outstanding Common Stock into shares with a par value, if the Company or a
successor corporation shall consolidate or merge with or convey all or
substantially all of its or of any successor corporation's property and assets
to any other corporation or corporations, or if the Company or a successor
corporation shall distribute Common Stock or other assets pursuant to, without
limitation, any spin-off, split-off or other distribution of assets, the Holder
shall thereafter have the right to receive upon the basis and on the terms and
conditions specified in this Note in lieu of the Common Stock theretofore
issuable upon the conversion of this Note, such shares, securities or assets as
may be issued or payable with respect to, or in exchange for, the number of
shares of Common Stock theretofore issuable upon the conversion of this Note had
such conversion taken place immediately prior to such recapitalization,
consolidation, merger, conveyance or distribution.

        (d) If at any time the Company shall dissolve, liquidate or wind up its
affairs, the Holder may thereafter receive upon conversion hereof in lieu of
each share of Common Stock that it would have been entitled to receive the same
kind and amount of any securities or assets as may be issuable, distributable or
payable upon any such dissolution, liquidation or winding up with respect to
each share of Common Stock.

        (e) In the event (i) the Company shall issue any shares of Common Stock,
options or rights to subscribe for shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock, (ii) the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable otherwise than in cash or any other
distribution in respect to the Common Stock pursuant to, without limitation, any
spin-off, split-off or distribution of the Company's assets, or (iii) the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to subscribe for or purchase any shares of any class or to
receive any other rights; or (iv) of any reclassification or other
reorganization or recapitalization of the shares which the Company is authorized
to issue,


                                       6
<PAGE>   8

consolidation or merger of the Company with or into another corporation, or
conveyance of all of substantially all of the assets of the Company; then, and
in such event, the Company shall send to the Holder, at least 30 days prior
thereto, a notice stating the date or expected date on which such event is to
take place. Such notice shall specify the date or expected date if any is to be
fixed, as of which holders of Common Stock of record shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reclassification, reorganization, consolidation or merger, as the case may
be.

        (f) The Company will at all times reserve and keep available out of its
authorized shares, solely for issuance upon the conversion of this Note, such
number of shares of Common Stock as from time to time shall be issuable upon the
conversion of this Note.

        (g) In order to exercise the conversion privilege, the Holder shall
deliver this Note to the Company accompanied by a written request for conversion
executed by the Holder. Such conversion shall be deemed to have been effected
immediately prior to the close of business on the day on which such conversion
request and Note shall have been received by the Company, and at such time the
rights of the Holder to receive principal and interest shall cease, and the
Holder shall be treated for all purposes as the record holder of such Common
Stock at such time. As promptly as practicable after the receipt of such
conversion request and this Note, the Company shall cause to be issued and
delivered to the Holder a certificate or certificates for the number of shares
of Common Stock issuable upon conversion of this Note. Such certificate or
certificates shall bear such legends required, in the opinion of counsel for the
Company, under applicable securities law.

        (h) It is specifically agreed that this Note may be converted in part
only by the Holder and upon such conversion in part, the Company will deliver to
the Holder another Note in this form for the proportionate part of this Note not
converted.

        (i) No fractional shares of Common Stock will be issued in connection
with any conversion under this Note, but in lieu of such fractional shares, the
Company shall make a cash refund therefor equal in amount to the product of the
applicable fraction multiplied by the Conversion Price then in effect.

        (j) The Holder and all holders of shares of Common Stock issued upon
conversion of this Note ("Conversion Shares") are entitled to certain rights to
registration of such Conversion Shares by the Company under an Investor Rights
Agreement. Reference is made to the Investor Rights Agreement for a more
complete statement of the registration rights of the Holder and the holders of
Conversion Shares. Copies of the Investor Rights Agreement are on file at the
office of the Company.

5.  OPTIONAL PREPAYMENT

        This Note is pre-payable at any time upon thirty (30) days written
notice, in whole or in part, by the Company without penalty provided, however,
that upon notice of prepayment by the Company, Natural Alternatives
International, Inc. or Holder shall have 30 days after the receipt of notice
herein, to exercise their conversion privileges as set forth herein, including
under the heading "Voluntary Conversion." Prepayments shall be applied first to
accrued but unpaid interest and then to principal.

                                       7
<PAGE>   9

6.  AMENDMENT

        This Note may not be amended in any respect except by a written
agreement executed by the person to be charged with the amendment.

7.  SECURITY

        This Note is secured by (i) all of the rights title and interest of the
Corporation in Custom Nutrition, LLC, a Delaware limited liability company,
including without limitation any interest of the Company as a Manager, Member or
creditor of Custom Nutrition, LLC and the Company's allocable share of all gross
revenue received by Custom Nutrition, LLC from Bally Total Fitness Holding
Corporation or its affiliates as set forth in the Loan Agreement between the
parties hereto, dated November 11, 1999, and shall include the proceeds,
products and accessories of any kind to any thereof, pursuant to and with the
priorities referenced in the Security Agreement executed by the Company as of
the November 11, 1999; and (ii) a Security Agreement dated as of November 10,
2000, granting to Holder a security interest in a license for the use of certain
intellectual property of the Company as more specifically described therein.

8.  APPLICABLE LAW

        This Note shall be governed by and construed and enforced in accordance
with the laws of the State of Delaware. It is the intention of the Company and
Holder to conform strictly to the usury laws now in force in any the state whose
laws may apply to this transaction. Accordingly, notwithstanding anything to the
contrary in this Note or in any instrument securing the same, it is agreed that
if a court of competent jurisdiction applies the laws of any state other than
Delaware in construing this Note or the enforcement thereof, then in that event
the aggregate of all charges that constitute interest under the laws of that
state that are contracted for, chargeable or receivable under this Note or any
other such instrument shall under no circumstances exceed the maximum amount of
interest permitted by laws of that state, and any excess, whether occasioned by
acceleration of maturity of this Note or otherwise, shall be deemed a mistake in
calculation and canceled automatically and, if theretofore paid, shall be either
refunded to the Company or credited on the principal amount of this Note, at the
election of the Holder.

DATED: November 10, 2000                    FitnessAge Incorporated,
                                            a Nevada corporation



                                            By:
                                               ---------------------------------
                                               Brian L. Harcourt, Vice Chairman

                                       8
<PAGE>   10

                                   EXHIBIT "B"

                              NEW LICENSE AGREEMENT

                                       9
<PAGE>   11




                                   EXHIBIT "C"

                             NEW SECURITY AGREEMENT

                                       10

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>a69688ex10-2.txt
<DESCRIPTION>EXHIBIT 10.2
<TEXT>

<PAGE>   1
                                                                   EXHIBIT 10.2

                           SOFTWARE LICENSE AGREEMENT

        This License Agreement (the "Agreement") is entered into and effective
as of November 10, 2000 (the "Effective Date") by and between Natural
Alternatives International, Inc., a Delaware corporation with its principal
place of business at 1185 Linda Vista Drive, San Marcos, California 92069
("Licensee"), on the one hand, and FitnessAge Incorporated, a Nevada corporation
with its principal place of business at 4250 Executive Square, Suite 101, La
Jolla, CA 92037 ("Licensor"), on the other.

        WHEREAS, Licensor owns and/or controls certain computer programs (the
"Program" as defined below), along with certain related proprietary trade
secrets, trademarks, patents, patent applications and other technological
know-how, relating to the Program, all of which, including, without limitation,
the Program, is collectively known herein as the Licensed Property;

        WHEREAS, Licensor and Licensee have previously formed an LLC known as
Custom Nutrition, LLC, which has, inter alia, received a license to and used the
Licensed Property to assist in the exploitation of Licensee's products;

        WHEREAS, Licensor is currently indebted to Licensee in an amount in
excess of $750,000, the promissory notes for which became due and payable on
November 10, 2000 (the "Loan Obligation"); and

        WHEREAS, Licensor and Licensee have agreed in writing to extend the due
date of the Loan Obligation in exchange for additional securitization thereof,
including, without limitation, this Software License Agreement and a Security
Agreement of even date herewith.

        NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby mutually acknowledged by each of the parties
hereto, it is agreed as follows:

        1. License: Licensor hereby grants to Licensee a perpetual, irrevocable,
non-exclusive, royalty-free, worldwide license to use display, modify,
sub-license, commercialize, and otherwise exploit the Licensed Property, subject
to the terms and conditions hereinafter set forth (the "License"), and
specifically excluding the rights licensed by Licensor to Custom Nutrition, LLC
pursuant to the License Agreement dated as of November 11, 1999, by and between
Licensor and Custom Nutrition LLC. It is understood and agreed by the parties
hereto that this License is and shall be an element of the collateral for the
secured Loan which is the subject of the Loan Documents, and, as such, is
subject to the terms and conditions of the revised Security Agreement, entered
into as of the Effective Date.

        2. Consideration: As consideration for the performance by Licensor of
all of its obligations and grant of all rights to Licensee herein, Licensee
shall forego the immediate foreclosure of the Loan Obligation, and shall agree
to extend the repayment of the same as set forth in the Second Amendment to Loan
Agreement between Licensor and Licensee dated November 10, 2000 (the "Loan
Agreement").

                                       1
<PAGE>   2

        3. The Program: The Program shall consist of the modules or components,
shall perform the functions and shall comply with the proposals and
specifications, identified or set forth on Schedule "A" to the Source Code
Escrow Agreement, executed concurrently herewith, a copy of which is annexed
hereto as Exhibit "A" (the "Escrow Agreement"), which modules and/or components
together comprise a system known as the FitnessAge Assessment Application
System.

        4. Documentation: The Documentation shall consist of all operator and
user manuals, training materials, guides, listings, specifications, and other
materials for use in conjunction with the Program, as set forth in Schedule "B"
to the Escrow Agreement. Licensor shall deliver to the Escrow Agent, as
specified below, five (5) complete copies of the Documentation. Licensee shall
have the right, as part of the license granted herein, to make as many
additional copies of the Documentation for its own use as it may determine.

        5. Source Code: No later than the full execution of this Agreement,
Licensor shall place in escrow a fully commented and documented copy of the
source code form of the Program, a listing thereof and all relevant
Documentation, a listing thereof and Commentary pursuant to the Escrow Agreement
(collectively the "Deposit"). Licensee shall be entitled to receive a copy of
the Deposit under the circumstances set forth in the Escrow Agreement, and may
then use any or all of the deposit for its own benefit. If Licensor corrects any
defects in, or provides any revisions to, the Program under this Agreement,
under any software maintenance agreement, or for any other reason, Licensor
shall simultaneously furnish the Escrow Agent with a corrected or revised copy
of the source code form of the Program, a revised listing thereof, and revised
Documentation.

        6. Term: This Agreement shall commence upon the Effective Date and shall
continue until the last expiration of a term of any of the intellectual property
transferred hereunder.

        7. New Location: Licensee may, at any time, without prior notice to or
consent of Licensor, transfer or copy the Program to an unlimited number of
locations other than the site of initial installation for use on any other
central processing unit ("CPU") which is owned or controlled by Licensee or by
subsidiaries or other entities owned or controlled by Licensee.

        8. Training: The License includes training of Licensee's employees on
the use and operation of the Program, including instruction in any necessary
conversion of Licensee's data for such use.

        9. Licensor's Warranties: Licensor hereby warrants and represents to
Licensee as follows:

               (a) Ownership. Licensor is the owner of the Program or otherwise
has the right to grant to Licensee the License without violating any rights of
any third party, and there is currently no actual or threatened suit by any such
third party based on an alleged violation of such right by Licensor;

                                       2
<PAGE>   3

               (b) Intellectual Property Rights. The use, public display, public
performance, reproduction, distribution, or modification of the Program and/or
Documentation does not and will not violate the rights of any third parties,
including, but not limited to, copyrights, trade secrets, trademarks, publicity,
privacy, and patents;

               (c) Functionality. The Program, and each module or component and
function thereof, will be capable of operating fully and correctly in the same
manner, with the same hardware and the same operating system as it has been
operated by Custom Nutrition, LLC since the inception of its utilization by
Custom Nutrition, LLC and as it is currently operating, and as it is
contemplated to operate within the six (6) months following the Effective Date.
The Program will be capable of adapting to current hardware and operating
systems as reasonably contemplated by the parties currently utilizing the
Program;

               (d) Warranty Period. For a period of one (1) year from the
Effective Date, as specified above (the "Warranty Period") and for the term of
any Program Maintenance Contract, the Program shall (i) be free from defects in
material and workmanship under normal use and remain in good working order, and
(ii) function properly and in conformity with the warranties herein and in
accordance with this Agreement and the uses of the Program contemplated by the
parties hereto, including updates or new releases, and the Documentation shall
completely and accurately reflect the operation of the Program;

               (e) Capacity. During the Warranty Period and for the term of any
Program Maintenance Contract, the Program can and shall maintain, use, update,
and otherwise process the number of transactions reasonably required to perform
to the expectations of Licensee and Custom Nutrition, LLC without adversely
affecting its response time or other performance, and shall do so in acceptable
time frames;

               (f) Reliability. During the Warranty Period and for the term of
any Program Maintenance Contract, the Program, can maintain the uptime or
reliability standards consistent with current standards in the relevant segment
of the software industry;

               (g) Remedies for Breach of Program Warranties. In the event that
the Program does not meet the above warranties, Licensor shall provide at no
charge during the Warranty Period or the term of any Program Maintenance
Contract, the necessary software and services required to attain the levels or
standards set forth in said warranties;

               (h) Service and Maintenance. Licensor warrants that each of its
employees or subcontractors assigned to perform any work hereunder, and under
any Program Maintenance Contract, shall have the proper skill, training and
background so as to be able to perform in a competent and professional manner
and that all work will be so performed;

               (i) Service Warranty. For the Warranty Period and the term of any
Program Maintenance Contract, Licensor warrants that it shall maintain the
Program in good working order, keep it free from defects in material and
workmanship, and remedy any failure of the Program to perform in accordance with
this Agreement (including the warranties set forth herein), any Exhibits hereto,
or which impairs Licensee's use thereof, or any other malfunction,

                                       3
<PAGE>   4

defect or non-conformity in the Program, which shall be provided as follows:
Licensor agrees to respond to any request for service due to a failure,
malfunction, defect or non conformity by telephone response by a qualified and
knowledgeable representative within four (4) hours of receipt of such request
and such representative shall render continuous effort, via telecommunications,
to remedy the failure, malfunction, defect or non-conformity. If such failure,
malfunction, defect or non-conformity cannot be remedied by such means within
twenty-four (24) hours of receipt of such request, Licensor shall immediately
send at least one qualified and knowledgeable representative to Licensee's Site
and said representative(s) will furnish continuous effort to remedy the failure,
malfunction, defect or non-conformity.

        10. Program Maintenance:

               (a) During the warranty period, and for the term of any Program
Maintenance Contract Licensor shall promptly notify Licensee of any defects or
malfunctions in the Program or Documentation of which it learns from any source.
Licensor shall promptly correct any defects or malfunctions in the Program or
Documentation discovered during such warranty period and the term of any Program
Maintenance Contract and provide Licensee with corrected copies of same, without
additional charge. Licensor's obligation hereunder shall not affect any other
liability which it may have to Licensee.

               (b) Licensor shall provide to Licensee, without additional
charge, copies of the Program and Documentation revised to reflect any
enhancements to the Program made by Licensor during the warranty period and the
term of any Program Maintenance Contract. Such enhancements shall include all
modifications to the Program which increase the speed, efficiency or ease of
operation of the Program System, or add additional capabilities to or otherwise
improve the functions of the Program System.

        11. Additional Support: During the warranty period and for the term of
any Program Maintenance Contract, Licensor shall provide to Licensee, without
additional charge, all reasonably necessary telephone, email or other written
consultation requested by Licensee in connection with its use and operation of
the Program or any problems therewith.

        12. Program Maintenance Contract and Renewal Option: After expiration of
the Warranty Period, if Licensee elects, Licensor shall provide maintenance,
additional support and enhancements in connection with the Program, pursuant to
the terms of a Program Maintenance Contract, the terms of which shall be at
least as favorable to Licensee as any other Program Maintenance Contract in
effect at the time of Licensee's election hereunder, pursuant to paragraph 18
below. Licensor grants to Licensee the option to renew the Program Maintenance
Contract for seven (7) one-year terms after the initial one-year term. In
addition to any rights otherwise granted to Licensee hereunder, as part of the
Program Maintenance Contract, Licensor shall make available to Licensee all
updates and enhancements to the Program. For each update or enhancement,
Licensor warrants and represents that the installation of such update or
enhancement shall not give rise to any additional costs and the installation of
the update or enhancement shall not adversely affect the Program performance as
warranted herein. Licensee shall have the right to refuse to utilize any such
update or enhancement, and such refusal shall not relieve Licensor of its
obligations for support, warranty and maintenance of the Program.

                                       4
<PAGE>   5

Any additional services during the Warranty Period or the term of any Program
Maintenance Contract shall be provided upon Licensee's request at Licensor's
standard time and materials rates.

        13. Licensee Modifications: Licensee shall have the right (subject to
the rights of Custom Nutrition, LLC to the Program), in its own discretion, to
independently modify and use the Program for its own purposes, through the
services of its own employees or of independent contractors, provided that same
agree not to disclose or distribute any part of the Program to any other person
or entity or otherwise violate Licensor's proprietary rights therein. Licensee
shall be the owner of any such modifications. Such modifications, if approved by
Licensor, shall not affect Licensor's warranty or maintenance obligations
hereunder. Licensor shall not incorporate any such modifications into its
software for distribution to third parties unless it first agrees to pay
Licensee a reasonable royalty, pursuant to mutually agreed upon terms.

        14. Indemnity: Licensor, at its own expense, shall indemnify and hold
harmless Licensee, its subsidiaries, affiliates or assignees, and their
directors, officers, employees and agents and defend any action brought against
same with respect to any claim, demand, cause of action, debt or liability,
including attorneys' fees, to the extent that it is based upon a claim (1) that
the Program used hereunder infringes or violates any patents, copyrights, trade
secrets, licenses, or other property rights of any third party, (2) of any other
breach or alleged breach of this Agreement, or (3) relating to the exploitation
of this License. Licensee may, at its own expense, assist in such defense if it
so chooses, provided that, as long as Licensor can demonstrate sufficient
financial resources, Licensor shall control such defense and all negotiations
relative to the settlement of any such claim. Licensee shall promptly provide
Licensor with written notice of any claim which Licensee believes falls within
the scope of this paragraph. In the event that the Program or any portion
thereof is held to constitute an infringement and its use is enjoined, Licensor
shall have the obligation to, at its expense: (i) modify the infringing Program
without impairing in any material respect the functionality or performance
thereof, so that it is non-infringing, (ii) procure for Licensee the right to
continue to use the infringing Program, or (iii) replace said Program with
equally suitable, non-infringing software. These remedies shall be in addition
to, and not exclusive of all other remedies available to Licensee. Licensor
agrees to indemnify Licensee for any liability or expense due to claims for
personal injury or property damage either arising out of the furnishing or
performance of the Program or the services provided hereunder or arising out of
the fault or negligence of Licensor.

        15. Confidentiality:

               (a) Confidential Information. The terms of this Agreement,
technical and marketing plans or other sensitive business information, including
all materials containing said information, which are supplied by either of the
parties hereto ("Disclosing Party") to the other ("Receiving Party") are the
confidential information ("Confidential Information").

               (b) Restrictions on Use. Receiving Party agrees that except as
authorized in a writing signed by Disclosing Party: (i) Receiving Party will
preserve and protect the confidentiality of all Confidential Information; (ii)
Receiving Party will not disclose the


                                       5
<PAGE>   6

existence, source, content or substance of the Confidential Information to any
third party, or make copies of Confidential Information; (iii) Receiving Party
will not deliver Confidential Information to any third party, or permit the
Confidential Information to be removed from Receiving Party's premises; (iv)
Receiving Party will not use Confidential Information in any way other than as
provided in this Agreement; (v) Receiving Party will not disclose, use or copy
any third party information or materials received in confidence by Receiving
Party for purposes of work performed under this Agreement; and (vi) Receiving
Party shall require that each of its employees and independent contractors who
work on or have access to the Confidential Information maintain Disclosing
Party's Confidential Information with the same care and security as they would
their own.

               (c) Limitations. Information shall not be considered to be
Confidential Information if Receiving Party can demonstrate that it (i) is
already known or otherwise becomes publicly known through no act of Receiving
Party; (ii) is lawfully received from third parties subject to no restriction of
confidentiality; (iii) can be shown by Receiving Party to have been
independently developed by it without use of the Confidential Information; or
(iv) is authorized in a writing signed by Disclosing Party to be disclosed,
copied or used.

               (d) Injunctive Relief. Each party acknowledges that any breach of
the provisions of this Paragraph 15 may cause irreparable harm and significant
injury to an extent that may be extremely difficult to ascertain. Accordingly,
each party agrees that the other party will have, in addition to any other
rights or remedies available to it at law or in equity, the right to seek
injunctive relief to enjoin any breach or violation of this Paragraph 15.

        16. Licensor's Proprietary Notices: Licensee agrees that any copies of
the Program or Documentation which it makes pursuant to this Agreement shall
bear all copyright, trademark and other proprietary notices included therein by
Licensor and, except as expressly authorized herein, Licensee shall not
distribute same to any third party without Licensor's prior written consent.
Notwithstanding the preceding sentence, Licensee may add its own copyright or
other proprietary notice to any copy of the Program or Documentation which
contains modifications to which Licensee has ownership rights pursuant to this
Agreement.

        17. Most Favored Customer: Licensor agrees to treat Licensee as its most
favored customer. Licensor represents that all of the prices, warranties,
benefits and other terms being provided hereunder are equivalent to or better
than the terms being offered by Licensor to its current customers, including,
without limitation, the obligation to promptly provide Licensee with any updates
Licensor generates relating to the Program. If, during the warranty period or
Program Maintenance Contract, Licensor enters into an agreement with any other
customer providing such customer with more favorable terms, then this Agreement
shall be deemed appropriately amended to provide such terms to Licensee.
Licensor shall promptly provide Licensee with any refund or credits thereby
created.

        18. Assignment: Licensee may assign this agreement at its sole
discretion. Licensor shall not assign this Agreement without Licensee's prior
written consent, which shall not be unreasonably withheld. An assignee of either
party, if authorized hereunder, shall have all of the rights and obligations of
the assigning party set forth in this Agreement.

                                       6
<PAGE>   7

        19. Miscellaneous Provisions:

               (a) Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto relating to the subject matter hereof. No
modification, amendment, waiver, termination or discharge of this Agreement or
any of the terms or provisions hereof shall be binding upon either party hereto
unless confirmed by a written instrument signed by both parties. No waiver by
either party hereto of any term or provision of this Agreement or of any default
hereunder shall affect either party's respective rights thereafter to enforce
such term or provision or to exercise any right or remedy in the event of any
other default, whether or not similar.

               (b) Agency. Licensor is an independent contractor hereunder.
Nothing contained herein shall be construed or interpreted as constituting an
employer/employee, partnership, joint venture, or agency relationship between
the Licensor and Licensee. No third party is intended to be a third party
beneficiary hereof.

               (c) Binding Agreement. This Agreement shall be binding on and
inure to the benefit of the respective successors, assigns, licensees and
representatives of each party hereto.

               (d) Notice. The respective addresses of the parties hereto for
all purposes of this Agreement are set forth on page 1 hereof, unless and until
notice of a different address is received by the party notified of that
different address. All notices shall be in writing and shall be either served by
certified or registered mail (return receipt requested), by hand delivery, or by
facsimile, in each case with all charges prepaid. Notices shall be deemed
effective when mailed, hand delivered, or faxed, all charges prepaid, except for
notices of change of address. A copy of each notice to Licensee shall be
simultaneously sent to Michael Leventhal, Esq., Squadron, Ellenoff, Plesent &
Sheinfeld, LLP, 2049 Century Park East, Suite 700, Los Angeles, CA 90067, and
David A. Fisher, Esq., Fisher Thurber LLP, 4225 Executive Square, Suite 1600, La
Jolla, CA 92037-1483.

               (e) Severability. If any provision of this Agreement shall be
held void, invalid, or inoperative, no other provision of this Agreement shall
be affected as a result thereof, and, accordingly, the remaining provisions of
this Agreement shall remain in full force and effect as though no such void,
invalid, or inoperative provision had been contained herein.

               (f) Attorney Fees. In the event of any action, suit, or
proceeding arising from or based upon this agreement brought by either party
hereto against the other, the prevailing party shall be entitled to recover from
the other its reasonable attorneys' fees in connection therewith in addition to
the costs of such action, suit, or proceeding.

               (g) Governing Law. This Agreement has been entered into in the
State of California and its validity, construction, interpretation and legal
effect shall be governed by the laws of the State of California applicable to
contracts entered into and performed entirely therein. The parties hereto agree
that all legal proceedings relating to the subject matter of this Agreement
shall be maintained in courts sitting within the State of California, and each
party

                                       7
<PAGE>   8

consents and agrees that jurisdiction and venue for such proceedings shall lie
exclusively with such courts.

               (h) Remedies. The rights and remedies of Licensee set forth in
this Agreement are not exclusive and are in addition to any other rights and
remedies available to it in law or in equity.


        IN WITNESS WHEREOF the parties have executed this agreement on the date
first set forth above.

LICENSOR                                           LICENSEE


By:                                                By:
   ---------------------------------                  --------------------------
      Brian L. Harcourt                                   Peter Wulff
Its: Vice Chairman                                 Its: CFO and Treasurer

                                       8
<PAGE>   9

                                   EXHIBIT "A"

                          SOURCE CODE ESCROW AGREEMENT

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>4
<FILENAME>a69688ex10-3.txt
<DESCRIPTION>EXHIBIT 10.3
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 10.3

                               SECURITY AGREEMENT

        THIS SECURITY AGREEMENT ("Agreement") is made as of November 10, 2000,
between Natural Alternatives International, Inc., a Delaware corporation
(referred to as "Secured Party") and FitnessAge Incorporated, a Nevada
corporation (referred to as "Debtor").

        NOW THEREFORE, the parties agree as follows:

        1.     Definitions of Terms Used Herein.

               (i) "Event of Default" shall mean a failure by Debtor to perform
any obligation or pay any indebtedness now or hereafter owing to Secured Party
including, without limitation, any and all obligation or indebtedness arising
out of (i) that certain Loan Agreement between Debtor and Secured Party dated
November 11, 1999, as amended by a First Amendment to Loan Agreement and
Security Agreement dated December 6, 1999 and a Second Amendment to Loan
Agreement dated November 10, 2000 (such agreement as so amended the "Loan
Agreement") and (ii) this Agreement.

               (ii) "Collateral" shall mean (i) all rights conveyed or to be
conveyed pursuant to the License Agreement attached to the Loan Agreement as
Exhibit "B" and incorporated herein by reference; (ii) the Source Code and
Documentation, as defined in the Source Code Escrow Agreement attached as
Exhibit "A" to the License Agreement and incorporated herein by reference; and
(iii) Proceeds from any of the foregoing.

               (iii) "Liability" or "Liabilities" shall mean all obligations and
indebtedness of the Debtor to the Secured Party now or hereafter existing
including, without limitation, the indebtedness owing pursuant to the Loan
Agreement.

               (iv) "Proceeds" shall mean whatever is received, including cash,
negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements or other documents, when any of the Collateral is
sold, exchanged, leased, collected or otherwise disposed of, and any
instruments, securities, contract rights, general intangibles, credits, claims,
dividends and any other property, rights and interest of Debtor.

               (v) "Security Interest" shall mean a lien or other interest in
the Collateral which secures performance or payment of a Liability or
performance of any obligation hereunder continuing in full force and effect
until the payment in full of all of the Liabilities.

        2. Security Interest. As security for the payment of the Liabilities,
the Debtor hereby grants to the Secured Party a Security Interest in all the
Collateral and in all ledger sheets, files, records and documents relating to
the Collateral. Until full and complete performance of the Liabilities, the
Security Interest in all Collateral hereby shall continue in force and effect.

        3. Taxes; Financing Statements. At its option, the Secured Party may
discharge taxes, liens or security interest or other encumbrances at any time
levied or placed on the Collateral, and may pay for the maintenance and
preservation thereof, and the Debtor agrees to reimburse the Secured Party on
demand for any payment made or any expense incurred by the Secured Party on
demand for any payment made or any expense incurred by the Secured Party
pursuant to the foregoing authorization. The Debtor hereby authorizes the
Secured Party to file a


                                       1
<PAGE>   2

financing statement or financing statements on Form UCC-1 and any amendments
thereto without the signature of the Debtor. Such authorization is limited to
the Security Interest granted by this Security Agreement.

        4. Collections. Upon the occurrence of an Event of Default hereunder,
the Secured Party shall have the right to receive, endorse, assign and/or
deliver in its own name or the name of the Debtor any and all checks, drafts and
other instruments for the payment of money relating to the Collateral and the
Proceeds and the Debtor hereby waives notices of presentment, protest and
nonpayment of any instrument so endorsed. In furtherance of the foregoing, upon
the occurrence of an Event of Default hereunder, the Debtor hereby irrevocably
appoints the Secured Party its true and lawful agent, with power of substitution
for such Debtor's name or in the name of the Secured Party or otherwise, for the
use and benefit of the Secured Party: (a) To endorse the name of the Debtor upon
any notes, acceptances, checks, drafts, money orders or other evidences of
payment that may come into the possession of the Secured Party; (b) To commence
and prosecute any and all suits, actions or proceedings in law or in equity in
any court of competent jurisdiction to collect or otherwise realize on all or
any of the Collateral or the Proceeds or to enforce any rights in respect
thereof; (c) To settle, compromise, compound, adjust or defend any actions,
suits or proceedings relating to or pertaining to all or any of the Collateral;
and (d) Generally to sell, assign, transfer, pledge, make any agreement with
respect to or otherwise deal with all or any of the Collateral, and do all other
acts and things necessary to carry out this Security Agreement, as fully and
completely as though the Secured Party were the absolute owner thereof for all
purposes; provided, however, that, unless an Event of Default shall have
occurred, the Debtor may make collections and otherwise may deal with the
Collateral (including the Proceeds) in any lawful manner in the ordinary course
of its business. The Secured Party shall not be responsible nor liable for any
shortage, discrepancy, damage, loss or destruction of any part of the Collateral
wherever the same may be located regardless of the cause thereof unless the same
shall happen through the Secured Party's negligence or willful misconduct. The
costs of collection, notification and enforcement, including counsel fees and
out-of-pocket expenses, shall be borne solely by the Debtor whether the same are
incurred by the Security Party or the Debtor.

        5. Event of Default. If an Event of Default shall occur, the Secured
Party may take any or all of the following actions, at the same or different
times:

               (i) declare any or all of the Liabilities immediately due and
payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived, anything contained herein or in the Note to
the contrary notwithstanding;

               (ii) with or without legal process and with or without previous
notice or demand for performance, enter any premises where the Collateral is
located and take possession of the same, together with anything therein, and
make disposition of, or proceed to enforce payment of, the Collateral subject to
any and all applicable provisions of law; and/or

               (iii) exercise any and all rights and remedies afforded to it
under any and all applicable provisions of law or principles of equity.

        If the Collateral is sold at public sale, the Secured Party may purchase
all or part of the Collateral at such sale. The Secured Party shall apply the
proceeds of any such sale as follows:


                                       2
<PAGE>   3

first, to the extent the same have not been paid within 30 days of the invoice
therefor, to the payment of all costs and expenses of the Secured Party incurred
in connection with such sale or otherwise in connection with this Agreement, the
Loan Agreement or any of the Note including, but not limited to, the reasonable
fees and expenses of its agents, attorneys and counsel; second, upon three (3)
business days' notice to the Debtor of the Secured Party's intention to make
such application, to the payment or reduction of any principal of or interest on
the Note then due and payable, whether at the stated maturity thereof, or by
acceleration or otherwise, and any remainder of the proceeds of such sale shall
be paid over to the Debtor.

        6. Waiver. The Secured Party shall not be deemed to have waived any
rights hereunder under any other agreement, instrument or paper signed by the
Secured Party. No delay or omission on the part of the Secured Party in
exercising any right hereunder shall operate as a waiver thereof or of any other
right. A waiver upon any one occasion shall not be construed as a bar or a
waiver of any right or remedy on any future occasion. All of the rights and
remedies of the Secured Party, whether evidenced hereby or by any other
agreement, instrument or paper, shall be cumulative and may be exercised singly
or concurrently.

        7. Governing Law. This Agreement shall be deemed to be a contract made
under the laws of the State of California and shall be construed in accordance
with and governed by the laws of said State and the United States of America.

        8. Successors and Assigns. Whenever in this Agreement any of the parties
hereto is referred to, such reference shall be deemed to include the successors
and assigns of such party; and all covenants, promises and agreements by or on
behalf of the Secured Party in this Agreement shall bind and inure to the
benefit of the successors and assigns of the Secured Party.

        9. Severability. If any part of this Agreement is contrary to,
prohibited by or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.

        10. Execution by the Secured Party. This Agreement shall take effect
immediately upon execution by the Debtor, and the execution hereof by the
Secured Party shall not be required as a condition to the effectiveness of the
Security Agreement. The provision for execution of this Agreement by the Secured
Party is only for purposes of filing this Agreement as a Security Agreement
under the Uniform Commercial Code, if execution hereof by the Secured Party is
required for purposes of such filings.

        11. Headings. Sections headings have been inserted in this Agreement as
a matter of convenience of reference only, and it is agreed that such Section
headings are not a part of this Agreement and shall not be used in the
interpretation of any provision of this Agreement.

        12. Jurisdiction; Service of Process. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties only in the courts of the
State of California, County of San Diego, or, if it has or can acquire
jurisdiction, in the United States District Court for the Southern District of
California, and each of the parties consents to the jurisdiction of such courts
(and of the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein.


                                       3
<PAGE>   4

Process in any action or proceeding referred to in the proceeding sentence may
be served on any party anywhere in the world.

        IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

SECURED PARTY:                          DEBTOR:

Natural Alternatives International,     FitnessAge Incorporated, a Nevada
Inc., a Delaware corporation            corporation


By:                                     By:
   ---------------------------------       -------------------------------------
   Peter Wulff, Chief Financial Officer    Brian L. Harcourt Vice Chairman
   and Treasurer



                                       4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>5
<FILENAME>a69688ex10-4.txt
<DESCRIPTION>EXHIBIT 10.4
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 10.4

                          SOURCE CODE ESCROW AGREEMENT

        This Source Code Escrow Agreement (the "Escrow Agreement") is entered
into and effective as of November 10, 2000 (the "Effective Date") by and among
Natural Alternatives International, Inc., a Delaware corporation with its
principal place of business at 1185 Linda Vista Drive, San Marcos, California
92069 ("Licensee"), FitnessAge Incorporated, a Nevada corporation with its
principal place of business at 4250 Executive Square, Suite 101, La Jolla, CA
92037 ("Licensor"), and The Chicago Trust Company of California, with its
principal place of business at 401 B Street, Suite 900, San Diego, CA 92101
("Escrow Agent").

        WHEREAS, Licensor is simultaneously granting a license to Licensee to,
inter alia, use certain computer software (the "Program"), a description of
which is attached hereto as Schedule "A" and incorporated herein by this
reference, pursuant to the terms and conditions of a Software License Agreement
(the "License Agreement"), to which this Escrow Agreement is annexed as Exhibit
A;

        WHEREAS, the License Agreement also provides, inter alia, for the
deposit referenced in paragraph 1 thereof upon execution of the License
Agreement and this Escrow Agreement;

        WHEREAS, the uninterrupted availability of all forms of such computer
software is critical to Licensee in the conduct of its business; and

        WHEREAS, Licensor has agreed to deposit in escrow a copy of the source
code form of the Program covered by the License Agreement, as well as any
corrections or enhancements to such source code, to be held by Escrow Agent in
accordance with the terms and conditions of this Escrow Agreement.

        NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties agree as follows:

        1. Deposit: Licensor shall, upon execution of this Escrow Agreement
deposit with Escrow Agent a copy of the source code form of the Program, a
description of which is attached hereto as Schedule "A" and incorporated herein
by this reference (the "Source Code"), including all relevant commentary,
explanations, and other documentation of the Source Code, which documentation is
attached hereto as Schedule "B" and incorporated herein by this reference
(collectively, "Commentary") (The Source Code and Commentary are sometimes
collectively referred to herein as the "Escrowed Property"). Licensor also
agrees to deposit with Escrow Agent, at such times as they are made, a copy of
all revisions to the Source Code or Commentary encompassing all corrections or
enhancements made to the Program by Licensor pursuant to the License Agreement,
any Software Maintenance Contract between the parties, or made for any other
reason during the Term of this Escrow Agreement. Promptly after any such
revision is deposited with Escrow Agent, both Licensor and Escrow Agent shall
give written notice thereof to Licensee.

        2. Term: This Escrow Agreement shall commence on the Effective Date and
remain in effect during the term of the License Agreement and any Software
Maintenance Contract between Licensee and Licensor. Termination hereof is
automatic upon delivery of all of the deposited Source Code and Commentary to
Licensee in accordance with the provisions hereof.


                                       1
<PAGE>   2

        3. Default: A default by Licensor shall be deemed to have occurred under
this Escrow Agreement upon the occurrence of any of the following:

               (a) if Licensor has availed itself of, or been subjected to by
any third party, a proceeding in bankruptcy in which Licensor is the named
debtor, an assignment by Licensor for the benefit of its creditors, the
appointment of a receiver for Licensor, or any other proceeding involving
insolvency or the protection of, or from, creditors, and same has not been
discharged or terminated without any prejudice to Licensee's rights or interests
under the License Agreement within thirty (30) days, or Licensor otherwise
becomes insolvent; or

               (b) if Licensor has ceased its on-going business operations, or
sale, licensing, maintenance or other support of the Program; or

               (c) if Licensor fails to pay the annual fee due to Escrow Agent
hereunder; or

               (d) an Event of Default, as defined in the Security Agreement,
entered into as of November 10, 2000, by and between the parties hereto; or

               (e) if any other event or circumstance occurs which demonstrates
with reasonable certainty the inability or unwillingness of Licensor to fulfill
its obligations to Licensee under the License Agreement, this Escrow Agreement
or any Software Maintenance Contract between the parties, including, without
limitation, the correction of defects in the Program.

        4. Notice of Default: Licensee shall give written notice to Escrow Agent
and Licensor of the occurrence of a default hereunder, except that Escrow Agent
shall give notice of the default to Licensee and Licensor if same is based on
the failure of Licensor to pay Escrow Agent's annual fee. Unless within seven
(7) days thereafter Licensor files with the Escrow Agent its affidavit executed
by a responsible executive officer stating that no such default has occurred or
that the default has been cured, then the Escrow Agent shall upon the eighth
(8th) day deliver to Licensee in accordance with Licensee's instructions the
entire Source Code and Commentary with respect to the Program then being held by
Escrow Agent. If Escrow Agent does receive such an affidavit from Licensor prior
to the eighth (8th) day after such notice from Licensee, Escrow Agent shall not
deliver a copy of the Source Code or Commentary to the Licensee, but shall
continue to store the Source Code and Commentary until: (a) otherwise directed
by the Licensor and Licensee by way of an agreement with authorized, notarized
signatures of both Licensor and Licensee, authorizing the release of Source Code
and Commentary to one of the parties hereto; (b) Escrow Agent has received
notice of the resolution of the dispute by a court of competent jurisdiction, or
(c) Escrow Agent has deposited the Source Code and Commentary with a trustee
selected by a court of competent jurisdiction for the purpose of determination
of its obligations under this Escrow Agreement.

        5. Responsibilities: The responsibilities and liabilities of the Escrow
Agent include:

               (a) Escrow Agent shall hold and release the Source Code and
Commentary in accordance with the terms of this Agreement and shall maintain the
confidentiality of the Source Code and Commentary.


                                       2
<PAGE>   3

               (b) Escrow Agent shall store all Source Code and Commentary in a
dual controlled, fire-resistant safe cabinet. Escrow Agent shall provide the
same degree of care for all Source Code and Commentary as it maintains for its
valuable documents and those of its clients lodged in the same location with
appropriate atmospheric or other safeguards. The parties hereto agree that
Escrow Agent shall not be held liable for any loss of, destruction of, or damage
to the property caused by anything other than its own gross negligence or
willful misconduct. Among other things, Escrow Agent shall not be held liable
for loss, destruction or damage caused by natural disasters including, but not
limited to, fire, flood, earthquake and other acts of nature and acts of God.

               (c) Except as required to carry out its duties hereunder, Escrow
Agent shall use its best efforts to avoid unauthorized access to the Source Code
and Commentary deposited with Escrow Agent hereunder by its employees or any
other person.

        6. Compensation: As compensation for the services to be performed by
Escrow Agent hereunder, Licensor shall pay to Escrow Agent an initial fee of
$2,000.00, payable at the time of execution of this Agreement, and an annual fee
in the amount of $1,500.00 to be paid to Escrow Agent in advance on each
anniversary date hereafter during the term of this Agreement.

        7. Liability:

               (a) Escrow Agent shall not, by reason of its execution of its
Agreement, assume any responsibility or liability for any transaction between
Licensor and Licensee, other than the performance of its obligations as Escrow
Agent with respect to the Source Code and Commentary held by it in accordance
with this Agreement.

               (b) Escrow Agent shall be entitled to rely upon, and shall be
fully protected from all liability, loss, cost, damage or expense in acting or
omitting to act pursuant to, any instruction, order, judgment, certification,
affidavit, demand, notice, opinion, instrument or other writing delivered to it
hereunder without being required to determine the authenticity of such document,
the correctness of any fact stated therein, the propriety of the service thereof
or the capacity, identity or authority of any party purporting to sign or
deliver such document.

               (c) The duties of the Escrow Agent are only as herein
specifically provided, and are purely ministerial in nature. The Escrow Agent
shall neither be responsible for or under, nor chargeable with knowledge of, the
terms and conditions of any other agreement, instrument or document in
connection herewith, and shall be required to act in respect of the Escrowed
Property only as provided in this Agreement. This Agreement sets forth all the
obligations of the Escrow Agent with respect to any and all matters pertinent to
the escrow contemplated hereunder and no additional obligations of the Escrow
Agent shall be implied from the terms of this Agreement or any other agreement.
The Escrow Agent shall incur no liability in connection with the discharge of
its obligations under this Agreement or otherwise in connection therewith,
except such liability as may arise from the willful misconduct of the Escrow
Agent.

               (d) Escrow Agent may consult with counsel of its choice and shall
not be liable for any action taken or omitted to be taken by the Escrow Agent in
accordance with the advice of such counsel.


                                       3
<PAGE>   4

               (e) Escrow Agent shall not be bound by any modification,
cancellation or rescission of this Agreement unless in writing and signed by the
Escrow Agent.

               (f) Escrow Agent is acting as a stakeholder only with respect to
the Escrowed Property. If any dispute arises as to whether the Escrow Agent is
obligated to deliver the Escrowed Property or as to whom the Escrowed Property
is to be delivered or the amount thereof, the Escrow Agent shall not be required
to make any delivery, but in such event the Escrow Agent may hold the Escrowed
Property until receipt by the Escrow Agent of instructions in writing, signed by
all parties which have, or claim to have, an interest in the Escrowed Property,
directing the disposition of the Escrowed Property, or in the absence of such
authorization, the Escrow Agent may hold the Escrowed Property until receipt of
a certified copy of a final judgment of a court of competent jurisdiction
providing for the disposition of the Escrowed Property. The Escrow Agent may
require, as a condition to the disposition of the Escrowed Property pursuant to
written instructions, indemnification and/or opinions of counsel, in form and
substance satisfactory to the Escrow Agent, from each party providing such
instructions. If such written instructions, indemnification and opinions are not
received, or proceedings for such determination are not commenced, within thirty
(30) days after receipt by the Escrow Agent of notice of any such dispute and
diligently continued, or if the Escrow Agent is uncertain as to which party or
parties are entitled to the Escrowed Property, the Escrow Agent may either (i)
hold the Escrowed Property until receipt of (X) such written instructions and
indemnification or (Y) a certified copy of a final judgment of a court of
competent jurisdiction providing for the disposition of the Escrowed Property,
or (ii) deposit the Escrowed Property in the registry of a court of competent
jurisdiction; provided, however, that notwithstanding the foregoing, the Escrow
Agent may, but shall not be required to, institute legal proceedings of any
kind.

               (g) Escrow Agent shall have the right at any time to resign for
any reason and be discharged of its duties as Escrow Agent hereunder by giving
written notice of its resignation to the parties at least thirty (30) days prior
to the date specified for such resignation to take effect. The parties shall
have the right at any time jointly to appoint a successor Escrow Agent, and in
the event such appointment is made without the resignation of Escrow Agent,
shall be effective upon thirty (30) days written notice to Escrow Agent. All
obligations of Escrow Agent hereunder shall cease and terminate on the earlier
of the effective date of its resignation or the appointment of a successor
Escrow Agent and its sole responsibility thereafter shall be to transfer any
funds and documents held in escrow to the successor Escrow Agent or other party
as described below. If a successor Escrow Agent shall have been appointed and
written notice thereof shall have been given to the resigning or terminated
Escrow Agent by the parties, then the resigning or terminated Escrow Agent shall
deliver any funds, books, records and other items held under the Escrow
Instructions to the successor Escrow Agent, or if a successor Escrow Agent shall
not have been appointed, for any reason whatsoever, the resigning or terminated
Escrow Agent shall deliver any funds, books, records and other items held under
this Escrow Agreement to a court of competent jurisdiction and give written
notice of the same to the Parties hereto. The resigning or terminated Escrow
Agent shall be entitled to be reimbursed by the Parties for any expenses
incurred in connection with its resignation, termination and transfer of any
property or funds held in escrow.

        8. Indemnification: Licensor and Licensee, jointly and severally, agree
to reimburse the Escrow Agent on demand for, and to indemnify and hold the
Escrow Agent harmless against and with respect to, any and all loss, liability,
damage or expense (including, without limitation,


                                       4
<PAGE>   5

attorneys' fees and costs) that the Escrow Agent may suffer or incur in
connection with the entering into of this Agreement or otherwise in connection
therewith, except to the extent such loss, liability, damage or expense arises
from the willful misconduct of the Escrow Agent. Without in any way limiting the
foregoing, the Escrow Agent shall be reimbursed for the cost of all legal fees
and costs incurred by it in acting as the Escrow Agent hereunder based on the
normal hourly rates in effect at the time services are rendered. The Escrow
Agent shall have the right at any time and from time to time to charge, and
reimburse itself from, the Escrowed Property for all amounts to which it is
entitled pursuant to this Agreement.

        9. Tests: Upon written notice to Licensor and Escrow Agent, Licensee
shall have the right to conduct tests of the Source Code held in escrow, under
the supervision of Licensor, to confirm that it is the current Source Code for
the Program specified in the License Agreement.

        10. Confidentiality: Except as provided in this Agreement, Escrow Agent
agrees that it shall not divulge or disclose or otherwise make available to any
third person whatsoever, or make any use whatsoever, of the Source Code or
Commentary, without the express prior written consent of Licensor.

        11. Miscellaneous Provisions:

               (a) Notices. Except as otherwise provided herein, any notice,
demand, election or other communication (a "Notice") required or permitted to be
given or delivered under this Agreement shall be in writing and shall be given
by (a) mailing the same by certified mail, return receipt requested; (b)
delivery of same to a recognized overnight express mail service or carrier; (c)
personal hand delivery; or (d) electronic facsimile with "hard copy" original to
follow as provided in clause (a), (b) or (c) above, addressed:

        if to Licensor, to:

               FitnessAge Incorporated
               4250 Executive Square, Suite 101
               La Jolla, CA 92037
               Fax: (858) 625-4200
               Attention: Ross Lyndon-James

        if to Licensee, to:

               Natural Alternatives International, Inc.
               1185 Linda Vista Drive
               San Marcos, California 92069
               Fax: (760) 591-9637
               Attention: Peter Wulff


                                       5
<PAGE>   6

        with copies to:

               Squadron, Ellenoff, Plesent & Sheinfeld, LLP
               2049 Century Park East, Suite 700
               Los Angeles, CA 90067
               Fax: (310) 551-0364
               Attention: Michael Leventhal, Esq.

        and

               Fisher Thurber LLP
               4225 Executive Square, Suite 1600
               La Jolla, CA 92037-1483
               Fax: (858) 535-1616
               Attention: David A. Fisher, Esq.


        if to Escrow Agent, to:

               The Chicago Trust Company of California
               401 B Street, Suite 900
               San Diego, CA 92101
               Fax: (619) 238-4162
               Attention:  Kelly A. Torrey Pearl

               (b) Assignment. Neither this Escrow Agreement, nor any rights,
liabilities or obligations hereunder may be assigned by Escrow Agent without the
prior written consent of Licensee and Licensor.

               (c) Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto relating to the subject matter hereof. No
modification, amendment, waiver, termination or discharge of this Agreement or
any of the terms or provisions hereof shall be binding upon either party hereto
unless confirmed by a written instrument signed by both parties. No waiver by
either party hereto of any term or provision of this Agreement or of any default
hereunder shall affect either party's respective rights thereafter to enforce
such term or provision or to exercise any right or remedy in the event of any
other default, whether or not similar.

               (d) Binding Agreement. This Agreement shall be binding on and
inure to the benefit of the respective successors, assigns, licensees and
representatives of each party hereto.

               (e) Severability. If any provision of this Agreement shall be
held void, invalid, or inoperative, no other provision of this Agreement shall
be affected as a result thereof, and, accordingly, the remaining provisions of
this Agreement shall remain in full force and effect as though no such void,
invalid, or inoperative provision had been contained herein.

               (f) Attorney Fees. In the event of any action, suit, or
proceeding arising from or based upon this agreement brought by either party
hereto against the other, the prevailing party


                                       6
<PAGE>   7

shall be entitled to recover from the other its reasonable attorneys' fees in
connection therewith in addition to the costs of such action, suit, or
proceeding.

               (g) Governing Law. This Agreement has been entered into in the
State of California and its validity, construction, interpretation and legal
effect shall be governed by the laws of the State of California applicable to
contracts entered into and performed entirely therein. Each party acknowledges
and agrees that they have had the opportunity to be represented by independent
legal counsel of their own choice in connection with the preparation,
negotiation and implementation of this Agreement. If not, either party's failure
to be represented by legal counsel was determined solely by that party and not
by the other party in whole or in part.


        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.

ESCROW AGENT                            LICENSEE

The Chicago Trust Company of            Natural Alternatives International, Inc.
California

By:                                     By:
   --------------------------------        -------------------------------------
           William Exeter                               Peter C. Wulff

Its: Executive Vice President           Its: CFO and Treasurer


By:
   -------------------------------
        Kelly A. Torrey Pearl

Its:  Vice President

                                        LICENSOR

                                        By:
                                           -------------------------------------
                                                       Brian L. Harcourt

                                        Its: Vice Chairman


                                       7
<PAGE>   8

                                  SCHEDULE "A"
                         TO SOURCE CODE ESCROW AGREEMENT

The FitnessAge Assessment Application System consists of the following major
components:

1.  Core FitnessAge Assessment Application System

    General Description -- A proprietary and patented (patent no. 6,010,452 US
    PTO) application program that measures the physiological age of an
    individual based on the four physical components of cardiovascular fitness;
    muscle and joint flexibility; body fat composition; and muscle strength. The
    assessment measures both the individual components as defined above as well
    as a composite figure to produce a physiological body age as opposed to your
    chronological age.

    THE APPLICABLE SOURCE CODE AND USER MANUALS INCLUDED IN THIS LICENSE
    ARRANGEMENT REFER TO IVID COMMUNICATIONS SOFTWARE DESIGN SPECIFICATIONS
    DOCUMENT -- SCHEDULE B

2.  Vcustom Plug-in Application System -- PREVIOUSLY LICENSED EXCLUSIVELY TO
    CUSTOM NUTRITION

    General Description -- The components of the FitnessAge Assessment
    Application System are used to make an individual recommendation for use of
    nutritional supplements.

    NOT APPLICABLE TO THIS LICENSE AGREEMENT AS IT IS LICENSED EXCLUSIVELY TO
    CUSTOM NUTRITION.

3.  Core Application Database tables

    General Description -- The database tables and fields are required to
    capture and report the individual measurements taken from the FitnessAge
    Assessment Application Software.

    REFER TO IVID COMMUNICATIONS SOFTWARE DESIGN SPECIFICATIONS DOCUMENT
    APPENDIX D -- SCHEDULE B


4.  FitnessAge Web Applet

    General Description -- A Java applet containing the same functionality as
    the assessment application used to calculate a fitnessage. This application
    can be run on any webserver and is treated as a "blackbox" fitnessage
    calculator tool.


5.  Administration and Reporting System

    General Description -As described on pp 36 to 49 of FitnessAge User's
Guide-Schedule B.

Refer to FitnessAge User's Guide--Schedule B.


                                       8
<PAGE>   9

                                  SCHEDULE "B"
                         TO SOURCE CODE ESCROW AGREEMENT




    1.  CD-ROM labeled "FitnessAge HTML Kiosk Setup Disk (VCustom)" by IVID
        Communications, Inc.

    2.  CD-ROM labeled "FitnessAge Web Site Files."

    3.  FitnessAge User's Guide dated April 14, 2000.

    4.  FitnessAge HTML Kiosk Program Software Design Specifications dated June
        26, 2000 prepared by IVID Communications, Inc.



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>6
<FILENAME>a69688ex10-5.txt
<DESCRIPTION>EXHIBIT 10.5
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 10.5

                         EXECUTIVE EMPLOYMENT AGREEMENT

        Mark A. LeDoux ("Employee") hereby accepts the offer of Natural
Alternatives International, Inc. ("NAI") for employment as Chief Executive
Officer and President beginning November 15, 2000. Collectively, NAI and
Employee will be referred to herein as the "Parties."

        1. The Parties anticipate that Employee will be employed through June
30, 2001 (the "Term"). During the Term, Employee's employment will be at-will
and may be terminated by either Employee or NAI at any time for any reason or no
reason, with or without cause upon written notice to the other. The at-will
status of the employment relationship may not be modified except in writing
authorized in advance by the Board of Directors of NAI and signed by the
Executive Vice President of NAI and Employee.

        2. Employee and NAI further understand and agree that nothing in the NAI
Employee Handbook is intended to be, and nothing in it should be construed to
be, a limitation of NAI's right to terminate, transfer, demote, suspend and
administer discipline at any time for any reason. Employee and NAI understand
and agree nothing in the Handbook is intended to, and nothing in the Handbook
should be construed to, create an implied or express contract of employment
contrary to this agreement.

        3. While Employee is employed by NAI, Employee's rate of compensation
will be at a rate of $225,000 per year, payable no less frequently than monthly,
which will be reviewed prior to the end of the term to determine, based upon
Employee's performance and the performance of NAI, the amount of increase, (if
any), in the rate of compensation. The compensation set forth in this Section 3
will be Employee's only compensation except standard employee benefits available
to the level one executives of NAI or any other written compensation arrangement
approved by the Board of Directors of NAI. NAI is currently evaluating a system
of bonus compensation for certain of its employees. Employee will be entitled to
participate in any such bonus compensation in a manner and at a level consistent
with the level one executives of NAI. Currently the level one executives of NAI
include all of the Corporate Officers of NAI, except for the Chief Executive
Officer.

        4. If Employee continues working for NAI past the end of the Term, and
if NAI still desires Employee's services, then the following terms and
conditions will apply:

               (a) Employee shall be an at-will employee and either Employee or
        NAI will be entitled to terminate the employment relationship for any
        reason or for no reason, with or without cause and with or without
        notice.

               (b) Employee will be compensated at the rate set forth in section
        3 herein above unless another rate is mutually agreed upon; and

               (c) As to benefits and other terms of employment, Employee shall
        be subject to the same policies and procedures as other employees of NAI
        in similar positions.



                                      -1-
<PAGE>   2

        5. During the Term, and any extension thereof, Employee shall have such
responsibilities, duties and authority as NAI through its Board of Directors may
from time to time assign to Employee, and that are normal and customary duties
of a Chief Executive Officer and President of a publicly held corporation.
Employee's initial title shall be Chief Executive Officer and President.

        6. In the event this Agreement is terminated by NAI without cause,
whether during or at the end of the Term (and any renewals thereof), Employee
shall be entitled to severance pay, including standard employee benefits
available to the level one executives of NAI, in an amount equivalent to his
then current compensation rate for the period set forth below opposite the
number of complete calendar months which have elapsed from the beginning date of
Employee's employment by NAI at the time of termination. One half of such amount
shall be paid upon termination and the balance shall be paid on a bi-weekly
basis during said severance period:

<TABLE>
<CAPTION>
               MONTHS OF                           SEVERANCE
               EMPLOYMENT                          PERIOD
               ----------                          ------
<S>                                                <C>
               1 through 6 months                  2 months
               7 through 12 months                 6 months
               13 through 24 months                9 months
               more than 24 months                 12 months
</TABLE>

        NAI may terminate this Agreement with cause, which shall be limited to
the occurrence of one or more of the following events: (i) the Employee's
commission of any fraud against NAI; (ii) Employee's intentional appropriation
for his personal use or benefit the funds of the Company not authorized by the
Board of Directors, (iii) Employee's conviction of any crime involving moral
turpitude, (iv) Employee's conviction of a violation of any state or federal law
which could result in a material adverse impact upon the business of NAI; or (v)
Employee's material violation of this Agreement, provided that Employee shall be
given written notice by NAI of any alleged material violation of the Agreement
and an opportunity within 60 days, to cure the alleged breach, which Employee
must diligently pursue to completion. No severance pay shall be due to Employee
if Employee is terminated for cause.

        7. In the event of any Change in Control, the following provisions will
apply.

               Any of the following shall constitute a "Change in Control" for
the purposes of this Section 7:

               A. A "person" (meaning an individual, a partnership, or other
group or association as defined in sections 13(d) and 14(d) of the Securities
Exchange Act of 1934) acquires fifty percent (50%) or more of the combined
voting power of the outstanding securities of NAI having a right to vote in
elections of directors; or



                                      -2-
<PAGE>   3

               B. The members of the Board of Directors of the Company who were
members of the Board of Directors on the commencement date hereof, shall for any
reason cease to constitute a majority of the Board of Directors of the Company;
or

               C. All, or substantially all of the business of NAI is disposed
of by NAI to a party or parties other than a subsidiary or other affiliate of
NAI, in which NAI owns less than a majority of the equity, pursuant to a partial
or complete liquidation of NAI, sale of assets (including stock of a subsidiary
of NAI) or otherwise.

        In the event of any such Change in Control, this Agreement shall
continue in effect unless the Employee at his sole option, and at any time
elects voluntarily to terminate this Agreement. In such case, NAI shall pay
Employee as severance pay or liquidated damages, or both, a lump sum payment
("Change in Control Severance Payment") equal to one hundred fifty percent
(150%) of the Employee's annual salary and bonus specified in Section 3 above or
such greater amount as the Board of Directors determines from time to time
pursuant to terms which may not be revoked or reduced thereafter.

        In the event this Agreement is terminated following a Change in Control
by NAI, and/or the surviving or resulting corporation, without cause, Employee
shall be entitled to a Change in Control Severance Payment equal to one hundred
fifty percent (150%) of the Employee's annual salary specified in Section 3
above or such greater amount as the Board of Directors determines from time to
time pursuant to terms which may not be revoked or reduced thereafter.

        Any Severance Payment shall be made not later than the fifteenth (15th)
day following the effective date of the voluntary or involuntary termination of
this Agreement in connection with a Change in Control; provided, however, that
if the amount of such payments cannot be finally determined on or before such
date, NAI shall pay to Employee on such date a good faith estimate of the
minimum amount of such payments, and shall pay the remainder of such payments
(together with interest at the rate provided in Internal Revenue Code Section
1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined, but
in no event later than the thirtieth (30th) day after the applicable termination
date. In the event the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
NAI payable on the fifteenth (15th) day after receipt by Employee of a written
demand for payment from NAI (together with interest calculated as above). The
total of any payment pursuant to this Section 7 shall be limited to the extent
necessary, in the opinion of legal counsel acceptable to Employee and NAI, to
avoid the payment of an "excess parachute" payment within the meaning of
Internal Revenue Code Section 280 G or any similar successor provision.


        In the event of termination of this Agreement either by the Employee
under paragraph 7(B) or by NAI under paragraph 7(C), NAI shall cause each stock
option heretofore granted by NAI to the Employee to become fully exercisable and
to remain exercisable for the term of the option.

        8. Employee and NAI hereby agree to the Mutual Agreement to Arbitrate
attached hereto and made a part hereof as Attachment #1.



                                      -3-
<PAGE>   4

        9. Employee and NAI hereby agree to the Assignment of Inventions,
Patents and Copyrights Agreement Regarding Confidential Information Covenant of
Exclusivity and Not to Compete attached hereto and made a part hereof as
Attachment #2.

        10. This Agreement contains the entire agreement between the parties. It
supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to Employee's employment by NAI. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein and acknowledges that no
other agreement, statement or promise not contained in this Agreement shall be
valid or binding. This Agreement may not be modified or amended by oral
agreement or course of conduct, but only by an agreement in writing signed by
the Executive Vice President of NAI and Employee.

        11. This Executive Employment Agreement shall be construed and enforced
in accordance with the laws of the State of California.

        12. Should any part or provision of this Executive Employment Agreement
be held unenforceable or in conflict with the law of any jurisdiction, the
validity of the remaining parts shall not be affected by such holding.

                                        "EMPLOYEE"

                                        ----------------------------------------
                                        Mark A. LeDoux

                                        NATURAL ALTERNATIVES INTERNATIONAL, INC.
                                        a Delaware corporation

                                        By:
                                           -------------------------------------
                                           David Lough, Executive Vice President



                                      -4-
<PAGE>   5

                                  ATTACHMENT #1

                      MUTUAL AGREEMENT TO ARBITRATE CLAIMS

        This Mutual Agreement to Arbitrate Claims is entered into between Mark
A. LeDoux ("Employee") and Natural Alternatives International, Inc. ("NAI").

1.      Binding Arbitration of Disagreement and Claims

               We each voluntarily promise and agree to arbitrate any claims
covered by this Agreement. We further agree that such binding arbitration
pursuant to this Agreement shall be the sole and exclusive remedy for resolving
any such claims or disputes.

2.      Claims Covered by this Agreement

        A. Claims and disputes covered by this Agreement include all claims
against NAI (as defined below) and all claims that NAI may have against the
Employee, including, without limitation, those arising under:

               (1) Any federal, state or local laws, regulations or statutes
prohibiting employment discrimination (such as, without limitation: race, sex,
national origin, age, disability, religion, sexual orientation) and harassment.

               (2) Any alleged or actual agreement or covenant (oral, written or
implied) between Employee and NAI.

               (3) Any company policy or compensation or benefit plan, unless
the decision in question was made by an entity other than NAI.

               (4)    Any public policy.

               (5) Any other claim for personal, emotional, physical or economic
injury.

        B. The only disputes between Employee and NAI which are not included
within this Mutual Agreement to Arbitrate Claims are:

               (1) Any claim by Employee for workers' compensation or
unemployment compensation benefits.

               (2) Any claim by Employee for benefits under a company plan which
provides for its own arbitration procedure.

3.      Arbitration Procedure

        A. The arbitration will be conducted in accordance with the rules of the
current Judicial Arbitration and Mediation Services ("JAMS"), except that the
arbitrator shall be mutually acceptable to both parties. The arbitration will be
held in the state and county of the Employee's primary employment at the time of
the act giving rise to the dispute. The fees and expenses of the Arbitrator, and
the arbitration, will be borne by the Company. Each party will pay for the fees
and expenses of its own attorneys, experts, witnesses, transcripts and
preparation and presentation of proofs and


                                      -1-
<PAGE>   6

post-hearing briefs, unless the party prevails on a claim for which attorneys'
fees and costs are recoverable by statute or contract, in which case the
prevailing party shall be awarded attorneys fees and costs in accordance with
that statute or contract.

        B. Before such arbitration, each party shall have the right to conduct
discovery on the same basis and to the same extent as a civil action brought in
the Federal District Court for the Southern District of California.

        C. Any action to enforce or vacate the arbitrator's award shall be
governed by the Federal Arbitration Act if applicable, and otherwise by
applicable state law.

4.      Miscellaneous Provisions

        A. The term "company" means NAI, and all related entities, all officers,
employees, directors, agents, shareholders, partners, benefit plan sponsors,
fiduciaries, administrators or affiliates of any of the above, and all
successors and assignees of any of the above.

        B. If either party pursues a covered claim against the other by any
action, method or legal proceeding other than the arbitration provided herein,
the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorneys' fees
related to such other action or proceeding.

        C. The parties of this arbitration agreement acknowledge and agree that
they are waiving their right to a jury trial on the issues covered by this
Agreement.

        D. This is the complete Agreement of the parties on the subject of
arbitration of disputes and claims. This Agreement supersedes any prior or
contemporaneous oral, written or implied understanding on the subject, shall
survive the termination of Employee's employment and can only be revoked or
modified by a written agreement signed by the parties which specifically states
an intent to revoke or modify this agreement. If any provision of this Agreement
is adjudicated to be void or otherwise unenforceable in whole or in part, such
adjudication shall not affect the validity of the remainder of the Agreement,
which shall continue in full force and effect.

        My signature below signifies that I have read, understand and agree to
the Arbitration Agreement.

                                        "EMPLOYEE"

                                        ----------------------------------------
                                        Mark A. LeDoux

                                        NATURAL ALTERNATIVES INTERNATIONAL, INC.
                                        a Delaware corporation

                                        By:
                                           -------------------------------------
                                           David Lough, Executive Vice President



                                      -2-
<PAGE>   7

                                  ATTACHMENT #2

ASSIGNMENT OF INVENTIONS, PATENTS AND COPYRIGHTS AGREEMENT REGARDING
CONFIDENTIAL INFORMATION COVENANT OF EXCLUSIVITY AND NOT TO COMPETE


        In consideration of and as a condition of my prospective and continued
employment and the compensation afforded to me under the terms and conditions
thereof by Natural Alternatives International, Inc. (the "Company"), I agree to
the following, and I agree the following shall be in addition to the terms and
conditions of any Confidential Information and Invention Assignment Agreement
executed by employees of the Company generally, and which I may execute in
addition hereto:

        1.      INVENTIONS

               a. Disclosure. I will disclose promptly in writing to the
appropriate officer or other representative of the Company, any idea, invention,
work of authorship, design, formula, pattern, compilation, program, device,
method, technique, process, improvement, development or discovery, whether or
not patentable or copyrightable or entitled to legal protection as a trade
secret, trademark service mark, trade name or otherwise ("Invention"), that I
may conceive, make, develop, reduce to practice or work on, in whole or in part,
solely or jointly with others ("Invent"), during the term of my employment with
the Company. The disclosure required by this Section 1 (a) applies to each and
every Invention that I Invent (i) whether during my regular hours of employment
or during my time away from work (ii) whether or not the Invention was made at
the suggestion of the Company, and (iii) whether or not the Invention was
reduced to or embodied in writing, electronic media or tangible form. The
disclosure required by this Section 1 (a) also applies to any Invention which
may relate at the time of conception or reduction to practice of the Invention
to the Company's business or actual or demonstrably anticipated research or
development of the Company, and to any Invention which results from any work
performed by me for the Company. The disclosure required by this Section 1 (a)
shall be received in confidence by the Company within the meaning of and to the
extent required by California Labor Code Section 2871, the provisions of which
are set forth on Exhibit "A" hereto.

               b. Assignment. I hereby assign to the Company without royalty or
any other further consideration my entire right, title and interest in and to
each and every Invention I am required to disclose under Section 1 (a) other
than an Invention that (i) I have or shall have developed entirely on my own
time without using the Company's equipment, supplies, facilities or trade secret
information, (ii) does not relate at the time of conception or reduction to
practice of the Invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company, and (iii) does not result
from any work performed by me for the Company. I acknowledge that the Company
has notified me that the assignment provided for in this Section l(b) does not
apply to any Invention to which the assignment may not lawfully apply under the
provisions of Section Section 2870 of the California Labor Code, a copy of which
is attached as Exhibit "A" hereto.

               c. Additional Assistance and Documents. I will assist the Company
in obtaining, maintaining and enforcing patents, copyrights, trade secrets,
trademarks, service marks, trade names and other proprietary rights in
connection with any Invention I have assigned to the Company under Section


                                      -1-
<PAGE>   8

l(b), and I further agree that my obligations under this Section l(c) shall
continue beyond the termination of my employment with the Company. Among other
things, for the foregoing purposes I will (i) testify at the request of the
Company in any interference, litigation or other legal proceeding that may arise
during or after my employment, and (ii) execute, verify, acknowledge and deliver
any proper document (and, if, because of my mental or physical incapacity or for
any other reason whatsoever, the Company is unable to obtain my signature to
apply for or to pursue any application for any United States or foreign patent
or copyright covering Inventions assigned to the Company by me, I hereby
irrevocably designate and appoint each of the Company and its duly authorized
officers and agents as my agent and attorney in fact to act for me and in my
behalf and stead to execute and file any such applications and to do all other
lawfully permitted acts to further the prosecution and issuance of any United
States or foreign patent or copyright thereon with the same legal force and
effect as if executed by me). I shall be entitled to reimbursement of any
out-of-pocket expenses incurred by me in rendering such assistance and, if I am
required to render such assistance after the termination of my employment, the
Company shall pay me a reasonable rate of compensation for time spent by me in
rendering such assistance to the extent permitted by law (provided, I understand
that no compensation shall be paid for my time in connection with preparing for
or rendering any testimony or statement under oath in any judicial proceeding,
arbitration or similar proceeding).

               d. Prior Contracts and Inventions; Rights of Third Parties. I
represent to the Company that, except as set forth on Exhibit "B" hereto, there
are no other contracts to assign Inventions now in existence between me and any
other person or entity (and if no Exhibit "B" is attached hereto or there is no
such contract described thereon, then it means that by signing this Agreement, I
represent to the Company that there is no such other contract). In addition, I
represent to the Company that I have no other employments or undertaking which
do or would restrict or impair my performance of this Agreement. I further
represent to the Company that Exhibit "C" hereto sets forth a brief description
of all Inventions made or conceived by me prior to my employment with the
Company which I desire to be excluded from this Agreement (and if no Exhibit "C"
is attached hereto or there is no such description set forth thereon, then it
means that by signing this Agreement I represent to the Company that there is no
such Invention made or conceived by me prior to my employment with the Company).
In connection with my employment with the Company, I promise not to use or
disclose to the Company any patent, copyright, confidential trade secret or
other proprietary information of any previous employer or other person that I am
not lawfully entitled so to use or disclose. If in the course of my employment
with the Company I incorporate into an Invention or any product process or
service of the Company any Invention made or conceived by me prior to my
employment with the Company, I hereby grant to the Company a royalty-free,
irrevocable, worldwide nonexclusive license to make, have made, use and sell
that Invention without restriction as to the extent of my ownership or interest.

        2.      CONFIDENTIAL INFORMATION

               a. Company Confidential Information. I will not use or disclose
Confidential Information, whether before, during or after the term of my
employment except to perform my duties as an employee of the Company based on my
reasonable judgment as an Officer of the Company, or in accordance with
instruction or authorization of the Company, without prior written consent of
the Company or pursuant to process or requirements of law after I have disclosed
such process or requirements to the Company so as to afford it the opportunity
to seek appropriate relief therefrom. "Confidential Information"
means any Invention of any person in which the Company has an interest and in
addition means any financial, client, customer, supplier, marketing,
distribution and other


                                      -2-
<PAGE>   9

information of a confidential or private nature connected with the business of
the Company or any person with whom it deals, provided by the Company to me or
to which I have access during or in the course of any employment.

               b. Third Party Information. I acknowledge that during my
employment with the Company I may have access to patent, copyright,
confidential, trade secret or other proprietary information of third parties
subject to restrictions on the use or disclosure thereof by the Company. During
the term of my employment and thereafter I will not use or disclose any such
information other than consistent with the restrictions and my duties as an
employee of the Company.

        3. PROPERTY OF THE COMPANY. All documents, instruments, notes,
memoranda, reports, drawings, blueprints, manuals, materials, data and other
papers and records of every kind which come into my possession during or in the
course of my employment, relating to any Inventions or Confidential Information,
are and shall remain the property of the Company and shall be surrendered by me
to the Company upon termination of my employment with the Company, or upon the
request of the Company, at any time during or after termination of my employment
with the Company.

        4. NO SOLICITATION OF COMPANY EMPLOYEES. While employed by the Company
and for a period of one year after termination of my employment with the
Company, I agree not to induce or attempt to influence directly or indirectly
any employee of the Company to terminate employment with the Company or to work
for me or any other person or entity.

        5. COVENANT OF EXCLUSIVITY AND NOT TO COMPETE. During the term of my
employment with the Company, I will not engage in any other professional
employment or consulting or directly or indirectly participate in or assist any
business which is a current or potential supplier, customer or competitor of the
Company without prior written approval from the Executive Vice President of the
Company.

        6. GENERAL.

               a. Assignments, Successors and Assignees. All representations,
warranties, covenants and agreements of the parties shall bind their respective
heirs, executors, personal representatives, successors and assignees
("transferees") and shall inure to the benefit of their respective permitted
transferees. The Company shall have the right to assign any or all of its rights
and to delegate any or all of its obligations hereunder. The undersigned
employee shall not have the right to assign any rights or delegate any
obligations hereunder without the prior written consent of the Company or its
transferee.

               b. Number and Gender, Headings. Each number and gender shall be
deemed to include each other number and gender as the context may require. The
headings and captions contained in this agreement shall not constitute a part
thereof and shall not be used in its construction or interpretation.

               c. Severability. If any provision of this agreement is found by
any court or arbitral tribunal of competent jurisdiction to be invalid or
unenforceable, the invalidity of such provision shall not affect the other
provisions of this agreement and all provisions not affected by the invalidity
shall remain in full force and effect.



                                      -3-
<PAGE>   10

               d. Amendment and Modification. This agreement may be amended or
modified only by a writing executed by each party.

               e. Government Law. The construction, interpretation and
performance of this agreement and all transactions under it shall be governed by
the internal laws of California.

               f. Remedies. I acknowledge that breach by me of any of the
provisions of this agreement will cause irreparable injury that cannot
adequately be compensated by money damages. The Company shall be entitled to
specific performance, temporary restraining orders, preliminary injunctions and
permanent injunctive relief to enforce my obligations under this agreement. No
remedy conferred by any of the specific provisions of this agreement is intended
to be exclusive of any other remedy. I agree to arbitrate on a final and binding
basis all disputes under this Agreement in accordance with and before the
Judicial Arbitration and Mediation Service ("JAMS").

               g. Attorneys' Fees. In the event of any litigation or other
action in connection with this agreement, the prevailing party shall be entitled
to recover its reasonable attorneys' fees and disbursements from the other party
as costs of suit and not as damages.

               h. No Effect on Other Terms or Conditions of Employment. I
acknowledge that this agreement does not affect any term or condition of my
employment except as expressly provided in this agreement, and that this
agreement does not give rise to any right or entitlement on my part to
employment or continued employment with the Company. I further acknowledge that
this agreement does not affect in any way the right of the Company to terminate
my employment.

        IN WITNESS WHEREOF, I have executed this agreement as of the date set
forth next to my signature below.


                                        -------------------------------------
                                        Signature of Employee
                                        Mark A. LeDoux
                                        -------------------------------------
                                        Printed Name of Employee

ACCEPTED:
NATURAL ALTERNATIVES INTERNATIONAL, INC.
a Delaware corporation

By:
   -------------------------------------
   David Lough, Executive Vice President



                                      -4-
<PAGE>   11

                                   EXHIBIT "A"

CALIFORNIA LABOR CODE

SECTION 2870.  INVENTION ON OWN TIME-EXEMPTION FROM AGREEMENT.

        (a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities or trade secret information expect for those
inventions that either:

               (1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.

               (2) Result from any work performed by the employee for the
employer.

        (b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.

SECTION 2871.  RESTRICTIONS ON EMPLOYER FOR CONDITION OF EMPLOYMENT.

        No employer shall require a provision made void or unenforceable by
Section 2870 as a condition of employment or continued employment. Nothing in
this article shall be construed to forbid or restrict the right of an employer
to provide in contracts of employment for disclosure, provided that any such
disclosures be received in confidence, of all of the employee's inventions made
solely or jointly with others during the term of his or her employment, a review
process by the employer to determine such issues as may arise, and for full
title to certain patents and inventions to be in the United States, as required
by contracts between the employer and the United States or any of its agencies.


                                      -5-
<PAGE>   12

                                   EXHIBIT "B"

        Except as set forth below, Employee represents to the Company that there
are no other contracts to assign Inventions now in existence between Employee
and any other person or entity (see Section l(d) of the Agreement):




                                      -6-
<PAGE>   13

                                   EXHIBIT "C"

        Set forth below is a brief description of all Inventions made or
conceived by Employee prior to Employee's employment with the Company which
Employee desires to be excluded from this agreement (see Section l(d) of the
Agreement):



                                      -7-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>7
<FILENAME>a69688ex10-6.txt
<DESCRIPTION>EXHIBIT 10.6
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 10.6

                         EXECUTIVE EMPLOYMENT AGREEMENT

        Peter C. Wulff ("Employee") hereby accepts the offer of Natural
Alternatives International, Inc. ("NAI") for employment as Chief Financial
Officer and Treasurer beginning November 15, 2000. Collectively, NAI and
Employee will be referred to herein as the "Parties."

        1. The Parties anticipate that Employee will be employed through June
30, 2001 (the "Term"). During the Term, Employee's employment will be at-will
and may be terminated by either Employee or NAI at any time for any reason or no
reason, with or without cause upon written notice to the other. The at-will
status of the employment relationship may not be modified except in writing
authorized in advance by the Board of Directors of NAI and signed by the Chief
Executive Officer of NAI and Employee.

        2. Employee and NAI further understand and agree that nothing in the NAI
Employee Handbook is intended to be, and nothing in it should be construed to
be, a limitation of NAI's right to terminate, transfer, demote, suspend and
administer discipline at any time for any reason. Employee and NAI understand
and agree nothing in the Handbook is intended to, and nothing in the Handbook
should be construed to, create an implied or express contract of employment
contrary to this agreement.

        3. While Employee is employed by NAI, Employee's rate of compensation
will be at a rate of $195,000 per year, payable no less frequently than monthly,
which will be reviewed at least annually to determine, based upon Employee's
performance and the performance of NAI, the amount of increase, (if any), in the
rate of compensation. The compensation set forth in this Section 3 will be
Employee's only compensation except standard employee benefits available to
other level one executives of NAI or any other written compensation arrangement
approved by the Board of Directors of NAI. Employee will be entitled to
participate in any bonus compensation in a manner and at a level consistent with
other level one executives of NAI. Currently, the level one executives of NAI
include all of the Corporate Officers of NAI, except for the Chief Executive
Officer.

        4. If Employee continues working for NAI past the end of the Term, and
if NAI still desires Employee's services, then the following terms and
conditions will apply:

               (a) Employee shall be an at-will employee and either Employee or
        NAI will be entitled to terminate the employment relationship for any
        reason or for no reason, with or without cause and with or without
        notice;

               (b) Employee will be compensated at the rate set forth in section
        3 herein above unless another rate is mutually agreed upon; and

               (c) As to benefits and other terms of employment, Employee shall
        be subject to the same policies and procedures as other employees of NAI
        in similar positions.

        5. During the Term, and any extension thereof, Employee shall have such
responsibilities, duties and authority as NAI through its Chief Executive
Officer may from time to


                                      -1-
<PAGE>   2

time assign to Employee, and that are normal and customary duties of a Chief
Financial Officer and Treasurer of a publicly held corporation. Employee's
initial title shall be Chief Financial Officer and Treasurer.

        6. In the event this Agreement is terminated by NAI without cause,
whether during or at the end of the Term (and any renewals thereof), Employee
shall be entitled to severance pay, including standard employee benefits
available to other level one executives of NAI, in an amount equivalent to his
then current compensation rate for the period set forth below opposite the
number of complete calendar months which have elapsed from the beginning date of
Employee's employment by NAI at the time of termination. One half of such amount
shall be paid upon termination and the balance shall be paid on a bi-weekly
basis during said severance period:

<TABLE>
<CAPTION>
               MONTHS OF                           SEVERANCE
               EMPLOYMENT                          PERIOD
               ----------                          ------
<S>                                                <C>
               1 through 6 months                  2 months
               7 through 12 months                 6 months
               13 through 24 months                9 months
               more than 24 months                 12 months
</TABLE>

        NAI may terminate this Agreement with cause, which shall be limited to
the occurrence of one or more of the following events: (i) the Employee's
commission of any fraud against NAI; (ii) Employee's intentional appropriation
for his personal use or benefit the funds of the Company not authorized by the
Chief Executive Officer or the Board of Directors, (iii) Employee's conviction
of any crime involving moral turpitude, (iv) Employee's conviction of a
violation of any state or federal law which could result in a material adverse
impact upon the business of NAI; or (v) Employee's material violation of this
Agreement, provided that Employee shall be given written notice by NAI of any
alleged material violation of the Agreement and an opportunity within 60 days,
to cure the alleged breach, which Employee must diligently pursue to completion.
No severance pay shall be due to Employee if Employee is terminated for cause.

        7. In the event of any Change in Control, the following provisions will
apply.

               Any of the following shall constitute a "Change in Control" for
the purposes of this Section 7:

               A. A "person" (meaning an individual, a partnership, or other
group or association as defined in sections 13(d) and 14(d) of the Securities
Exchange Act of 1934) acquires fifty percent (50%) or more of the combined
voting power of the outstanding securities of NAI having a right to vote in
elections of directors; or

               B. The members of the Board of Directors of the Company who were
members of the Board of Directors on the commencement date hereof, shall for any
reason cease to constitute a majority of the Board of Directors of the Company;
or



                                      -2-
<PAGE>   3

               C. All, or substantially all of the business of NAI is disposed
of by NAI to a party or parties other than a subsidiary or other affiliate of
NAI, in which NAI owns less than a majority of the equity, pursuant to a partial
or complete liquidation of NAI, sale of assets (including stock of a subsidiary
of NAI) or otherwise.

        In the event of any such Change in Control, this Agreement shall
continue in effect unless the Employee at his sole option, and at any time
elects voluntarily to terminate this Agreement. In such case, NAI shall pay
Employee as severance pay or liquidated damages, or both, a lump sum payment
("Change in Control Severance Payment") equal to one hundred fifty percent
(150%) of the Employee's annual salary and bonus specified in Section 3 above or
such greater amount as the Board of Directors determines from time to time
pursuant to terms which may not be revoked or reduced thereafter.

        In the event this Agreement is terminated following a Change in Control
by NAI, and/or the surviving or resulting corporation, without cause, Employee
shall be entitled to a Change in Control Severance Payment equal to one hundred
fifty percent (150%) of the Employee's annual salary specified in Section 3
above or such greater amount as the Board of Directors determines from time to
time pursuant to terms which may not be revoked or reduced thereafter.

        Any Severance Payment shall be made not later than the fifteenth (15th)
day following the effective date of the voluntary or involuntary termination of
this Agreement in connection with a Change in Control; provided, however, that
if the amount of such payments cannot be finally determined on or before such
date, NAI shall pay to Employee on such date a good faith estimate of the
minimum amount of such payments, and shall pay the remainder of such payments
(together with interest at the rate provided in Internal Revenue Code Section
1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined, but
in no event later than the thirtieth (30th) day after the applicable termination
date. In the event the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
NAI payable on the fifteenth (15th) day after receipt by Employee of a written
demand for payment from NAI (together with interest calculated as above). The
total of any payment pursuant to this Section 7 shall be limited to the extent
necessary, in the opinion of legal counsel acceptable to Employee and NAI, to
avoid the payment of an "excess parachute" payment within the meaning of
Internal Revenue Code Section 280 G or any similar successor provision.

        In the event of termination of this Agreement either by the Employee
under paragraph 7(B) or by NAI under paragraph 7(C), NAI shall cause each stock
option heretofore granted by NAI to the Employee to become fully exercisable and
to remain exercisable for the term of the option.

        8. Employee and NAI hereby agree to the Mutual Agreement to Arbitrate
attached hereto and made a part hereof as Attachment #1.

        9. Employee and NAI hereby agree to the Assignment of Inventions,
Patents and Copyrights Agreement Regarding Confidential Information Covenant of
Exclusivity and Not to Compete attached hereto and made a part hereof as
Attachment #2.



                                      -3-
<PAGE>   4

        10. This Agreement contains the entire agreement between the parties. It
supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to Employee's employment by NAI. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein and acknowledges that no
other agreement, statement or promise not contained in this Agreement shall be
valid or binding. This Agreement may not be modified or amended by oral
agreement or course of conduct, but only by an agreement in writing signed by
the Chief Executive Officer of NAI and Employee.

        11. This Executive Employment Agreement shall be construed and enforced
in accordance with the laws of the State of California.

        12. Should any part or provision of this Executive Employment Agreement
be held unenforceable or in conflict with the law of any jurisdiction, the
validity of the remaining parts shall not be affected by such holding.

                                        "EMPLOYEE"

                                        ----------------------------------------
                                        Peter C. Wulff

                                        NATURAL ALTERNATIVES INTERNATIONAL, INC.
                                        a Delaware corporation

                                        By:
                                           -------------------------------------
                                           Mark A. Le Doux, Chief Executive
                                           Officer



                                      -4-
<PAGE>   5

                                  ATTACHMENT #1

                      MUTUAL AGREEMENT TO ARBITRATE CLAIMS

        This Mutual Agreement to Arbitrate Claims is entered into between Peter
C. Wulff ("Employee") and Natural Alternatives International, Inc. ("NAI").

1.      Binding Arbitration of Disagreement and Claims

               We each voluntarily promise and agree to arbitrate any claims
covered by this Agreement. We further agree that such binding arbitration
pursuant to this Agreement shall be the sole and exclusive remedy for resolving
any such claims or disputes.

2.      Claims Covered by this Agreement

        A. Claims and disputes covered by this Agreement include all claims
against NAI (as defined below) and all claims that NAI may have against the
Employee, including, without limitation, those arising under:

               (1) Any federal, state or local laws, regulations or statutes
prohibiting employment discrimination (such as, without limitation: race, sex,
national origin, age, disability, religion, sexual orientation) and harassment.

               (2) Any alleged or actual agreement or covenant (oral, written or
implied) between Employee and NAI.

               (3) Any company policy or compensation or benefit plan, unless
the decision in question was made by an entity other than NAI.

               (4) Any public policy.

               (5) Any other claim for personal, emotional, physical or economic
injury.

        B. The only disputes between Employee and NAI which are not included
within this Mutual Agreement to Arbitrate Claims are:

               (1) Any claim by Employee for workers' compensation or
unemployment compensation benefits.

               (2) Any claim by Employee for benefits under a company plan which
provides for its own arbitration procedure.

3.      Arbitration Procedure

        A. The arbitration will be conducted in accordance with the rules of the
current Judicial Arbitration and Mediation Services ("JAMS"), except that the
arbitrator shall be mutually acceptable to both parties. The arbitration will be
held in the state and county of the Employee's primary employment at the time of
the act giving rise to the dispute. The fees and expenses of the Arbitrator, and
the arbitration, will be borne by the Company. Each party will pay for the fees
and expenses of its own attorneys, experts, witnesses, transcripts and
preparation and presentation of proofs and post-


                                      -1-
<PAGE>   6

hearing briefs, unless the party prevails on a claim for which attorneys' fees
and costs are recoverable by statute or contract, in which case the prevailing
party shall be awarded attorneys fees and costs in accordance with that statute
or contract.

        B. Before such arbitration, each party shall have the right to conduct
discovery on the same basis and to the same extent as a civil action brought in
the Federal District Court for the Southern District of California.

        C. Any action to enforce or vacate the arbitrator's award shall be
governed by the Federal Arbitration Act if applicable, and otherwise by
applicable state law.

4.      Miscellaneous Provisions

        A. The term "company" means NAI, and all related entities, all officers,
employees, directors, agents, shareholders, partners, benefit plan sponsors,
fiduciaries, administrators or affiliates of any of the above, and all
successors and assignees of any of the above.

        B. If either party pursues a covered claim against the other by any
action, method or legal proceeding other than the arbitration provided herein,
the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorneys' fees
related to such other action or proceeding.

        C. The parties of this arbitration agreement acknowledge and agree that
they are waiving their right to a jury trial on the issues covered by this
Agreement.

        D. This is the complete Agreement of the parties on the subject of
arbitration of disputes and claims. This Agreement supersedes any prior or
contemporaneous oral, written or implied understanding on the subject, shall
survive the termination of Employee's employment and can only be revoked or
modified by a written agreement signed by the parties which specifically states
an intent to revoke or modify this agreement. If any provision of this Agreement
is adjudicated to be void or otherwise unenforceable in whole or in part, such
adjudication shall not affect the validity of the remainder of the Agreement,
which shall remain in full force and effect.

        My signature below signifies that I have read, understand and agree to
the Arbitration Agreement.

                                        "EMPLOYEE"

                                        ----------------------------------------
                                        Peter C. Wulff

                                        NATURAL ALTERNATIVES INTERNATIONAL, INC.
                                        a Delaware corporation

                                        By:
                                           -------------------------------------
                                           Mark A. Le Doux, Chief Executive
                                           Officer



                                      -2-
<PAGE>   7

                                  ATTACHMENT #2

ASSIGNMENT OF INVENTIONS, PATENTS AND COPYRIGHTS AGREEMENT REGARDING
CONFIDENTIAL INFORMATION COVENANT OF EXCLUSIVITY AND NOT TO COMPETE


        In consideration of and as a condition of my prospective and continued
employment and the compensation afforded to me under the terms and conditions
thereof by Natural Alternatives International, Inc. (the "Company"), I agree to
the following, and I agree the following shall be in addition to the terms and
conditions of any Confidential Information and Invention Assignment Agreement
executed by employees of the Company generally, and which I may execute in
addition hereto:

        1.      INVENTIONS

               a. Disclosure. I will disclose promptly in writing to the
appropriate officer or other representative of the Company, any idea, invention,
work of authorship, design, formula, pattern, compilation, program, device,
method, technique, process, improvement, development or discovery, whether or
not patentable or copyrightable or entitled to legal protection as a trade
secret, trademark service mark, trade name or otherwise ("Invention"), that I
may conceive, make, develop, reduce to practice or work on, in whole or in part,
solely or jointly with others ("Invent"), during the term of my employment with
the Company. The disclosure required by this Section 1 (a) applies to each and
every Invention that I Invent (i) whether during my regular hours of employment
or during my time away from work (ii) whether or not the Invention was made at
the suggestion of the Company, and (iii) whether or not the Invention was
reduced to or embodied in writing, electronic media or tangible form. The
disclosure required by this Section 1 (a) also applies to any Invention which
may relate at the time of conception or reduction to practice of the Invention
to the Company's business or actual or demonstrably anticipated research or
development of the Company, and to any Invention which results from any work
performed by me for the Company. The disclosure required by this Section 1 (a)
shall be received in confidence by the Company within the meaning of and to the
extent required by California Labor Code Section 2871, the provisions of which
are set forth on Exhibit "A" hereto.

               b. Assignment. I hereby assign to the Company without royalty or
any other further consideration my entire right, title and interest in and to
each and every Invention I am required to disclose under Section 1 (a) other
than an Invention that (i) I have or shall have developed entirely on my own
time without using the Company's equipment, supplies, facilities or trade secret
information, (ii) does not relate at the time of conception or reduction to
practice of the Invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company and (iii) does not result
from any work performed by me for the Company. I acknowledge that the Company
has notified me that the assignment provided for in this Section l(b) does not
apply to any Invention to which the assignment may not lawfully apply under the
provisions of Section Section 2870 of the California Labor Code, a copy of which
is attached as Exhibit "A" hereto.

               c. Additional Assistance and Documents. I will assist the Company
in obtaining, maintaining and enforcing patents, copyrights, trade secrets,
trademarks, service marks, trade names and other proprietary rights in
connection with any Invention I have assigned to the Company under Section


                                      -1-
<PAGE>   8

l(b), and I further agree that my obligations under this Section l(c) shall
continue beyond the termination of my employment with the Company. Among other
things, for the foregoing purposes I will (i) testify at the request of the
Company in any interference, litigation or other legal proceeding that may arise
during or after my employment, and (ii) execute, verify, acknowledge and deliver
any proper document (and, if, because of my mental or physical incapacity or for
any other reason whatsoever, the Company is unable to obtain my signature to
apply for or to pursue any application for any United States or foreign patent
or copyright covering Inventions assigned to the Company by me, I hereby
irrevocably designate and appoint each of the Company and its duly authorized
officers and agents as my agent and attorney in fact to act for me and in my
behalf and stead to execute and file any such applications and to do all other
lawfully permitted acts to further the prosecution and issuance of any United
States or foreign patent or copyright thereon with the same legal force and
effect as if executed by me). I shall be entitled to reimbursement of any
out-of-pocket expenses incurred by me in rendering such assistance and, if I am
required to render such assistance after the termination of my employment, the
Company shall pay me a reasonable rate of compensation for time spent by me in
rendering such assistance to the extent permitted by law (provided, I understand
that no compensation shall be paid for my time in connection with preparing for
or rendering any testimony or statement under oath in any judicial proceeding,
arbitration or similar proceeding).

               d. Prior Contracts and Inventions; Rights of Third Parties. I
represent to the Company that, except as set forth on Exhibit "B" hereto, there
are no other contracts to assign Inventions now in existence between me and any
other person or entity (and if no Exhibit "B" is attached hereto or there is no
such contract described thereon, then it means that by signing this Agreement, I
represent to the Company that there is no such other contract). In addition, I
represent to the Company that I have no other employments or undertaking which
do or would restrict or impair my performance of this Agreement. I further
represent to the Company that Exhibit "C" hereto sets forth a brief description
of all Inventions made or conceived by me prior to my employment with the
Company which I desire to be excluded from this Agreement (and if no Exhibit "C"
is attached hereto or there is no such description set forth thereon, then it
means that by signing this Agreement I represent to the Company that there is no
such Invention made or conceived by me prior to my employment with the Company).
In connection with my employment with the Company, I promise not to use or
disclose to the Company any patent, copyright, confidential trade secret or
other proprietary information of any previous employer or other person that I am
not lawfully entitled so to use or disclose. If in the course of my employment
with the Company I incorporate into an Invention or any product process or
service of the Company any Invention made or conceived by me prior to my
employment with the Company, I hereby grant to the Company a royalty-free,
irrevocable, worldwide nonexclusive license to make, have made, use and sell
that Invention without restriction as to the extent of my ownership or interest.

        2.      CONFIDENTIAL INFORMATION

               a. Company Confidential Information. I will not use or disclose
Confidential Information, whether before, during or after the term of my
employment except to perform my duties as an employee of the Company based on my
reasonable judgment as an Officer of the Company, or in accordance with
instruction or authorization of the Company, without prior written consent of
the Company or pursuant to process or requirements of law after I have disclosed
such process or requirements to the Company so as to afford it the opportunity
to seek appropriate relief therefrom. "Confidential Information" means any
Invention of any person in which the Company has an interest and in addition
means any financial, client, customer, supplier, marketing, distribution and
other


                                      -2-
<PAGE>   9

information of a confidential or private nature connected with the business of
the Company or any person with whom it deals, provided by the Company to me or
to which I have access during or in the course of any employment.

               b. Third Party Information. I acknowledge that during my
employment with the Company I may have access to patent, copyright,
confidential, trade secret or other proprietary information of third parties
subject to restrictions on the use or disclosure thereof by the Company. During
the term of my employment and thereafter I will not use or disclose any such
information other than consistent with the restrictions and my duties as an
employee of the Company.

        3. PROPERTY OF THE COMPANY. All documents, instruments, notes,
memoranda, reports, drawings, blueprints, manuals, materials, data and other
papers and records of every kind which come into my possession during or in the
course of my employment, relating to any Inventions or Confidential Information,
are and shall remain the property of the Company and shall be surrendered by me
to the Company upon termination of my employment with the Company, or upon the
request of the Company, at any time during or after termination of my employment
with the Company.

        4. NO SOLICITATION OF COMPANY EMPLOYEES. While employed by the Company
and for a period of one year after termination of my employment with the
Company, I agree not to induce or attempt to influence directly or indirectly
any employee of the Company to terminate employment with the Company or to work
for me or any other person or entity.

        5. COVENANT OF EXCLUSIVITY AND NOT TO COMPETE. During the term of my
employment with the Company, I will not engage in any other professional
employment or consulting or directly or indirectly participate in or assist any
business which is a current or potential supplier, customer or competitor of the
Company without prior written approval from the Chief Executive Officer of the
Company.

        6. GENERAL.

               a. Assignments, Successors and Assignees. All representations,
warranties, covenants and agreements of the parties shall bind their respective
heirs, executors, personal representatives, successors and assignees
("transferees") and shall inure to the benefit of their respective permitted
transferees. The Company shall have the right to assign any or all of its rights
and to delegate any or all of its obligations hereunder. The undersigned
employee shall not have the right to assign any rights or delegate any
obligations hereunder without the prior written consent of the Company or its
transferee.

               b. Number and Gender, Headings. Each number and gender shall be
deemed to include each other number and gender as the context may require. The
headings and captions contained in this agreement shall not constitute a part
thereof and shall not be used in its construction or interpretation.

               c. Severability. If any provision of this agreement is found by
any court or arbitral tribunal of competent jurisdiction to be invalid or
unenforceable, the invalidity of such provision shall not affect the other
provisions of this agreement and all provisions not affected by the invalidity
shall remain in full force and effect.



                                      -3-
<PAGE>   10

               d. Amendment and Modification. This agreement may be amended or
modified only by a writing executed by each party.

               e. Government Law. The construction, interpretation and
performance of this agreement and all transactions under it shall be governed by
the internal laws of California.

               f. Remedies. I acknowledge that breach by me of any of the
provisions of this agreement will cause irreparable injury that cannot
adequately be compensated by money damages. The Company shall be entitled to
specific performance, temporary restraining orders, preliminary injunctions and
permanent injunctive relief to enforce my obligations under this agreement. No
remedy conferred by any of the specific provisions of this agreement is intended
to be exclusive of any other remedy. I agree to arbitrate on a final and binding
basis all disputes under this Agreement in accordance with and before the
Judicial Arbitration and Mediation Service ("JAMS").

               g. Attorneys' Fees. In the event of any litigation or other
action in connection with this agreement, the prevailing party shall be entitled
to recover its reasonable attorneys' fees and disbursements from the other party
as costs of suit and not as damages.

               h. No Effect on Other Terms or Conditions of Employment. I
acknowledge that this agreement does not affect any term or condition of my
employment except as expressly provided in this agreement, and that this
agreement does not give rise to any right or entitlement on my part to
employment or continued employment with the Company. I further acknowledge that
this agreement does not affect in any way the right of the Company to terminate
my employment.

        IN WITNESS WHEREOF, I have executed this agreement as of the date set
forth next to my signature below.


                                        ------------------------------------
                                        Signature of Employee
                                        Peter C. Wulff
                                        ------------------------------------
                                        Printed Name of Employee

ACCEPTED:
NATURAL ALTERNATIVES INTERNATIONAL, INC.
a Delaware corporation

By:
   -------------------------------------
   Mark A. Le Doux, Chief Executive
   Officer



                                      -4-
<PAGE>   11

                                   EXHIBIT "A"

CALIFORNIA LABOR CODE

SECTION 2870.  INVENTION ON OWN TIME-EXEMPTION FROM AGREEMENT.

        (a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities or trade secret information expect for those
inventions that either:

               (1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.

               (2) Result from any work performed by the employee for the
employer.

        (b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.

SECTION 2871.  RESTRICTIONS ON EMPLOYER FOR CONDITION OF EMPLOYMENT.

        No employer shall require a provision made void or unenforceable by
Section 2870 as a condition of employment or continued employment. Nothing in
this article shall be construed to forbid or restrict the right of an employer
to provide in contracts of employment for disclosure, provided that any such
disclosures be received in confidence, of all of the employee's inventions made
solely or jointly with others during the term of his or her employment, a review
process by the employer to determine such issues as may arise, and for full
title to certain patents and inventions to be in the United States, as required
by contracts between the employer and the United States or any of its agencies.




                                      -5-
<PAGE>   12

                                   EXHIBIT "B"

        Except as set forth below, Employee represents to the Company that there
are no other contracts to assign Inventions now in existence between Employee
and any other person or entity (see Section l(d) of the Agreement):




                                      -6-
<PAGE>   13

                                   EXHIBIT "C"

        Set forth below is a brief description of all Inventions made or
conceived by Employee prior to Employee's employment with the Company which
Employee desires to be excluded from this agreement (see Section l(d) of the
Agreement):



                                      -7-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>8
<FILENAME>a69688ex10-7.txt
<DESCRIPTION>EXHIBIT 10.7
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 10.7

                         EXECUTIVE EMPLOYMENT AGREEMENT

        David Lough ("Employee") hereby accepts the offer of Natural
Alternatives International, Inc. ("NAI") for employment as Executive Vice
President beginning November 15, 2000. Collectively, NAI and Employee will be
referred to herein as the "Parties."

        1. The Parties anticipate that Employee will be employed through June
30, 2001 (the "Term"). During the Term, Employee's employment will be at-will
and may be terminated by either Employee or NAI at any time for any reason or no
reason, with or without cause upon written notice to the other. The at-will
status of the employment relationship may not be modified except in writing
authorized in advance by the Board of Directors of NAI and signed by the Chief
Executive Officer of NAI and Employee.

        2. Employee and NAI further understand and agree that nothing in the NAI
Employee Handbook is intended to be, and nothing in it should be construed to
be, a limitation of NAI's right to terminate, transfer, demote, suspend and
administer discipline at any time for any reason. Employee and NAI understand
and agree nothing in the Handbook is intended to, and nothing in the Handbook
should be construed to, create an implied or express contract of employment
contrary to this agreement.

        3. While Employee is employed by NAI, Employee's rate of compensation
will be at a rate of $170,000 per year, payable no less frequently than monthly,
which will be reviewed prior to the end of the term to determine, based upon
Employee's performance and the performance of NAI, the amount of increase, (if
any), in the rate of compensation. The compensation set forth in this Section 3
will be Employee's only compensation except standard employee benefits available
to other level one executives of NAI or any other written compensation
arrangement approved by the Board of Directors of NAI. Employee will be entitled
to participate in any bonus compensation in a manner and at a level consistent
with other level one executives of NAI. Currently all the level one executives
of NAI include all of the Corporate Officers of NAI, except for the Chief
Executive Officer.

        4. If Employee continues working for NAI past the end of the Term, and
if NAI still desires Employee's services, then the following terms and
conditions will apply:

               (a) Employee shall be an at-will employee and either Employee or
        NAI will be entitled to terminate the employment relationship for any
        reason or for no reason, with or without cause and with or without
        notice.

               (b) Employee will be compensated at the rate set forth in section
        3 herein above unless another rate is mutually agreed upon; and

               (c) As to benefits and other terms of employment, Employee shall
        be subject to the same policies and procedures as other employees of NAI
        in similar positions.

        5. During the Term, and any extension thereof, Employee shall have such
responsibilities, duties and authority as NAI through its Chief Executive
Officer may from time to



<PAGE>   2

time assign to Employee, and that are normal and customary duties of an
Executive Vice President of a publicly held corporation. Employee's initial
title shall be Executive Vice President.

        6. In the event this Agreement is terminated by NAI without cause,
whether during or at the end of the Term (and any renewals thereof), Employee
shall be entitled to severance pay, including standard employee benefits
available to other level one executives of NAI, in an amount equivalent to his
then current compensation rate for the period set forth below opposite the
number of complete calendar months which have elapsed from the beginning date of
Employee's employment by NAI at the time of termination. One half of such amount
shall be paid upon termination and the balance shall be paid on a bi-weekly
basis during said severance period:

<TABLE>
<CAPTION>
               MONTHS OF                           SEVERANCE
               EMPLOYMENT                          PERIOD
               ----------                          ------
<S>                                                <C>
               1 through 6 months                  2 months
               7 through 12 months                 6 months
               13 through 24 months                9 months
               more than 24 months                 12 months
</TABLE>

        NAI may terminate this Agreement with cause, which shall be limited to
the occurrence of one or more of the following events: (i) the Employee's
commission of any fraud against NAI; (ii) Employee's intentional appropriation
for his personal use or benefit the funds of the Company not authorized by the
Chief Executive Officer or the Board of Directors, (iii) Employee's conviction
of any crime involving moral turpitude, (iv) Employee's conviction of a
violation of any state or federal law which could result in a material adverse
impact upon the business of NAI; or (v) Employee's material violation of this
Agreement, provided that Employee shall be given written notice by NAI of any
alleged material violation of the Agreement and an opportunity within 60 days,
to cure the alleged breach, which Employee must diligently pursue to completion.
No severance pay shall be due to Employee if Employee is terminated for cause.

        7. In the event of any Change in Control, the following provisions will
apply.

               Any of the following shall constitute a "Change in Control" for
the purposes of this Section 7:

               A. A "person" (meaning an individual, a partnership, or other
group or association as defined in sections 13(d) and 14(d) of the Securities
Exchange Act of 1934) acquires fifty percent (50%) or more of the combined
voting power of the outstanding securities of NAI having a right to vote in
elections of directors; or

               B. The members of the Board of Directors of the Company who were
members of the Board of Directors on the commencement date hereof, shall for any
reason cease to constitute a majority of the Board of Directors of the Company;
or

               C. All, or substantially all of the business of NAI is disposed
of by NAI to a party or parties other than a subsidiary or other affiliate of
NAI, in which NAI owns less than a majority


                                      -2-
<PAGE>   3

of the equity, pursuant to a partial or complete liquidation of NAI, sale of
assets (including stock of a subsidiary of NAI) or otherwise.

        In the event of any such Change in Control, this Agreement shall
continue in effect unless the Employee at his sole option, and at any time
elects voluntarily to terminate this Agreement. In such case, NAI shall pay
Employee as severance pay or liquidated damages, or both, a lump sum payment
("Change in Control Severance Payment") equal to one hundred fifty percent
(150%) of the Employee's annual salary and bonus specified in Section 3 above or
such greater amount as the Board of Directors determines from time to time
pursuant to terms which may not be revoked or reduced thereafter.

        In the event this Agreement is terminated following a Change in Control
by NAI, and/or the surviving or resulting corporation, without cause, Employee
shall be entitled to a Change in Control Severance Payment equal to one hundred
fifty percent (150%) of the Employee's annual salary specified in Section 3
above or such greater amount as the Board of Directors determines from time to
time pursuant to terms which may not be revoked or reduced thereafter.

        Any Severance Payment shall be made not later than the fifteenth (15th)
day following the effective date of the voluntary or involuntary termination of
this Agreement in connection with a Change in Control; provided, however, that
if the amount of such payments cannot be finally determined on or before such
date, NAI shall pay to Employee on such date a good faith estimate of the
minimum amount of such payments, and shall pay the remainder of such payments
(together with interest at the rate provided in Internal Revenue Code Section
1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined, but
in no event later than the thirtieth (30th) day after the applicable termination
date. In the event the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
NAI payable on the fifteenth (15th) day after receipt by Employee of a written
demand for payment from NAI (together with interest calculated as above). The
total of any payment pursuant to this Section 7 shall be limited to the extent
necessary, in the opinion of legal counsel acceptable to Employee and NAI, to
avoid the payment of an "excess parachute" payment within the meaning of
Internal Revenue Code Section 280 G or any similar successor provision.

        In the event of termination of this Agreement either by the Employee
under paragraph 7(B) or by NAI under paragraph 7(C), NAI shall cause each stock
option heretofore granted by NAI to the Employee to become fully exercisable and
to remain exercisable for the term of the option.

        8. Employee and NAI hereby agree to the Mutual Agreement to Arbitrate
attached hereto and made a part hereof as Attachment #1.

        9. Employee and NAI hereby agree to the Assignment of Inventions,
Patents and Copyrights Agreement Regarding Confidential Information Covenant of
Exclusivity and Not to Compete attached hereto and made a part hereof as
Attachment #2.

        10. This Agreement contains the entire agreement between the parties. It
supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to Employee's employment by NAI. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any


                                      -3-
<PAGE>   4

party, or anyone acting on behalf of any party, which are not embodied herein
and acknowledges that no other agreement, statement or promise not contained in
this Agreement shall be valid or binding. This Agreement may not be modified or
amended by oral agreement or course of conduct, but only by an agreement in
writing signed by the Chief Executive Officer of NAI and Employee.

        11. This Executive Employment Agreement shall be construed and enforced
in accordance with the laws of the State of California.

        12. Should any part or provision of this Executive Employment Agreement
be held unenforceable or in conflict with the law of any jurisdiction, the
validity of the remaining parts shall not be affected by such holding.

                                        "EMPLOYEE"

                                        ----------------------------------------
                                        David Lough

                                        NATURAL ALTERNATIVES INTERNATIONAL, INC.
                                        a Delaware corporation

                                        By:
                                           -------------------------------------
                                           Mark A. LeDoux, Chief Executive
                                           Officer



                                      -4-
<PAGE>   5

                                  ATTACHMENT #1

                      MUTUAL AGREEMENT TO ARBITRATE CLAIMS

        This Mutual Agreement to Arbitrate Claims is entered into between David
Lough ("Employee") and Natural Alternatives International, Inc. ("NAI").

1.      Binding Arbitration of Disagreement and Claims

               We each voluntarily promise and agree to arbitrate any claims
covered by this Agreement. We further agree that such binding arbitration
pursuant to this Agreement shall be the sole and exclusive remedy for resolving
any such claims or disputes.

2.      Claims Covered by this Agreement

        A. Claims and disputes covered by this Agreement include all claims
against NAI (as defined below) and all claims that NAI may have against the
Employee, including, without limitation, those arising under:

               (1) Any federal, state or local laws, regulations or statutes
prohibiting employment discrimination (such as, without limitation: race, sex,
national origin, age, disability, religion, sexual orientation) and harassment.

               (2) Any alleged or actual agreement or covenant (oral, written or
implied) between Employee and NAI.

               (3) Any company policy or compensation or benefit plan, unless
the decision in question was made by an entity other than NAI.

               (4)    Any public policy.

               (5) Any other claim for personal, emotional, physical or economic
injury.

        B. The only disputes between Employee and NAI which are not included
within this Mutual Agreement to Arbitrate Claims are:

               (1) Any claim by Employee for workers' compensation or
unemployment compensation benefits.

               (2) Any claim by Employee for benefits under a company plan which
provides for its own arbitration procedure.

3.      Arbitration Procedure

        A. The arbitration will be conducted in accordance with the rules of the
current Judicial Arbitration and Mediation Services ("JAMS"), except that the
arbitrator shall be mutually acceptable to both parties. The arbitration will be
held in the state and county of the Employee's primary employment at the time of
the act giving rise to the dispute. The fees and expenses of the Arbitrator, and
the arbitration, will be borne by the Company. Each party will pay for the fees
and expenses of its own attorneys, experts, witnesses, transcripts and
preparation and presentation of proofs and post-


                                      -1-
<PAGE>   6

hearing briefs, unless the party prevails on a claim for which attorneys' fees
and costs are recoverable by statute or contract, in which case the prevailing
party shall be awarded attorneys fees and costs in accordance with that statute
or contract.

        B. Before such arbitration, each party shall have the right to conduct
discovery on the same basis and to the same extent as a civil action brought in
the Federal District Court for the Southern District of California.

        C. Any action to enforce or vacate the arbitrator's award shall be
governed by the Federal Arbitration Act if applicable, and otherwise by
applicable state law.

4.      Miscellaneous Provisions

        A. The term "company" means NAI, and all related entities, all officers,
employees, directors, agents, shareholders, partners, benefit plan sponsors,
fiduciaries, administrators or affiliates of any of the above, and all
successors and assignees of any of the above.

        B. If either party pursues a covered claim against the other by any
action, method or legal proceeding other than the arbitration provided herein,
the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorneys' fees
related to such other action or proceeding.

        C. The parties of this arbitration agreement acknowledge and agree that
they are waiving their right to a jury trial on the issues covered by this
Agreement.

        D. This is the complete Agreement of the parties on the subject of
arbitration of disputes and claims. This Agreement supersedes any prior or
contemporaneous oral, written or implied understanding on the subject, shall
survive the termination of Employee's employment and can only be revoked or
modified by a written agreement signed by the parties which specifically states
an intent to revoke or modify this agreement. If any provision of this Agreement
is adjudicated to be void or otherwise unenforceable in whole or in part, such
adjudication shall not affect the validity of the remainder of the Agreement,
which shall continue in full force and effect.

        My signature below signifies that I have read, understand and agree to
the Arbitration Agreement.


                                        "EMPLOYEE"

                                        ----------------------------------------
                                        David Lough

                                        NATURAL ALTERNATIVES INTERNATIONAL, INC.
                                        a Delaware corporation

                                        By:
                                           -------------------------------------
                                           Mark A. LeDoux, Chief Executive
                                           Officer



                                      -2-
<PAGE>   7

                                  ATTACHMENT #2

ASSIGNMENT OF INVENTIONS, PATENTS AND COPYRIGHTS AGREEMENT REGARDING
CONFIDENTIAL INFORMATION COVENANT OF EXCLUSIVITY AND NOT TO COMPETE


        In consideration of and as a condition of my prospective and continued
employment and the compensation afforded to me under the terms and conditions
thereof by Natural Alternatives International, Inc. (the "Company"), I agree to
the following, and I agree the following shall be in addition to the terms and
conditions of any Confidential Information and Invention Assignment Agreement
executed by employees of the Company generally, and which I may execute in
addition hereto:

        1.      INVENTIONS

               a. Disclosure. I will disclose promptly in writing to the
appropriate officer or other representative of the Company, any idea, invention,
work of authorship, design, formula, pattern, compilation, program, device,
method, technique, process, improvement, development or discovery, whether or
not patentable or copyrightable or entitled to legal protection as a trade
secret, trademark service mark, trade name or otherwise ("Invention"), that I
may conceive, make, develop, reduce to practice or work on, in whole or in part,
solely or jointly with others ("Invent"), during the term of my employment with
the Company. The disclosure required by this Section 1 (a) applies to each and
every Invention that I Invent (i) whether during my regular hours of employment
or during my time away from work (ii) whether or not the Invention was made at
the suggestion of the Company, and (iii) whether or not the Invention was
reduced to or embodied in writing, electronic media or tangible form. The
disclosure required by this Section 1 (a) also applies to any Invention which
may relate at the time of conception or reduction to practice of the Invention
to the Company's business or actual or demonstrably anticipated research or
development of the Company, and to any Invention which results from any work
performed by me for the Company. The disclosure required by this Section 1 (a)
shall be received in confidence by the Company within the meaning of and to the
extent required by California Labor Code Section 2871, the provisions of which
are set forth on Exhibit "A" hereto.

               b. Assignment. I hereby assign to the Company without royalty or
any other further consideration my entire right, title and interest in and to
each and every Invention I am required to disclose under Section 1 (a) other
than an Invention that (i) I have or shall have developed entirely on my own
time without using the Company's equipment, supplies, facilities or trade secret
information, (ii) does not relate at the time of conception or reduction to
practice of the Invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company and (iii) does not result
from any work performed by me for the Company. I acknowledge that the Company
has notified me that the assignment provided for in this Section l(b) does not
apply to any Invention to which the assignment may not lawfully apply under the
provisions of Section Section 2870 of the California Labor Code, a copy of which
is attached as Exhibit "A" hereto.

               c. Additional Assistance and Documents. I will assist the Company
in obtaining, maintaining and enforcing patents, copyrights, trade secrets,
trademarks, service marks, trade names and other proprietary rights in
connection with any Invention I have assigned to the Company under Section


                                      -1-
<PAGE>   8

l(b), and I further agree that my obligations under this Section l(c) shall
continue beyond the termination of my employment with the Company. Among other
things, for the foregoing purposes I will (i) testify at the request of the
Company in any interference, litigation or other legal proceeding that may arise
during or after my employment, and (ii) execute, verify, acknowledge and deliver
any proper document (and, if, because of my mental or physical incapacity or for
any other reason whatsoever, the Company is unable to obtain my signature to
apply for or to pursue any application for any United States or foreign patent
or copyright covering Inventions assigned to the Company by me, I hereby
irrevocably designate and appoint each of the Company and its duly authorized
officers and agents as my agent and attorney in fact to act for me and in my
behalf and stead to execute and file any such applications and to do all other
lawfully permitted acts to further the prosecution and issuance of any United
States or foreign patent or copyright thereon with the same legal force and
effect as if executed by me). I shall be entitled to reimbursement of any
out-of-pocket expenses incurred by me in rendering such assistance and, if I am
required to render such assistance after the termination of my employment, the
Company shall pay me a reasonable rate of compensation for time spent by me in
rendering such assistance to the extent permitted by law (provided, I understand
that no compensation shall be paid for my time in connection with preparing for
or rendering any testimony or statement under oath in any judicial proceeding,
arbitration or similar proceeding).

               d. Prior Contracts and Inventions; Rights of Third Parties. I
represent to the Company that, except as set forth on Exhibit "B" hereto, there
are no other contracts to assign Inventions now in existence between me and any
other person or entity (and if no Exhibit "B" is attached hereto or there is no
such contract described thereon, then it means that by signing this Agreement, I
represent to the Company that there is no such other contract). In addition, I
represent to the Company that I have no other employments or undertaking which
do or would restrict or impair my performance of this Agreement. I further
represent to the Company that Exhibit "C" hereto sets forth a brief description
of all Inventions made or conceived by me prior to my employment with the
Company which I desire to be excluded from this Agreement (and if no Exhibit "C"
is attached hereto or there is no such description set forth thereon, then it
means that by signing this Agreement I represent to the Company that there is no
such Invention made or conceived by me prior to my employment with the Company).
In connection with my employment with the Company, I promise not to use or
disclose to the Company any patent, copyright, confidential trade secret or
other proprietary information of any previous employer or other person that I am
not lawfully entitled so to use or disclose. If in the course of my employment
with the Company I incorporate into an Invention or any product process or
service of the Company any Invention made or conceived by me prior to my
employment with the Company, I hereby grant to the Company a royalty-free,
irrevocable, worldwide nonexclusive license to make, have made, use and sell
that Invention without restriction as to the extent of my ownership or interest.

        2.      CONFIDENTIAL INFORMATION

               a. Company Confidential Information. I will not use or disclose
Confidential Information, whether before, during or after the term of my
employment except to perform my duties as an employee of the Company based on my
reasonable judgment as an Officer of the Company, or in accordance with
instruction or authorization of the Company, without prior written consent of
the Company or pursuant to process or requirements of law after I have disclosed
such process or requirements to the Company so as to afford it the opportunity
to seek appropriate relief therefrom. "Confidential Information" means any
Invention of any person in which the Company has an interest and in addition
means any financial, client, customer, supplier, marketing, distribution and
other


                                      -2-
<PAGE>   9

information of a confidential or private nature connected with the business of
the Company or any person with whom it deals, provided by the Company to me or
to which I have access during or in the course of any employment.

               b. Third Party Information. I acknowledge that during my
employment with the Company I may have access to patent, copyright,
confidential, trade secret or other proprietary information of third parties
subject to restrictions on the use or disclosure thereof by the Company. During
the term of my employment and thereafter I will not use or disclose any such
information other than consistent with the restrictions and my duties as an
employee of the Company.

        3. PROPERTY OF THE COMPANY. All documents, instruments, notes,
memoranda, reports, drawings, blueprints, manuals, materials, data and other
papers and records of every kind which come into my possession during or in the
course of my employment, relating to any Inventions or Confidential Information,
are and shall remain the property of the Company and shall be surrendered by me
to the Company upon termination of my employment with the Company, or upon the
request of the Company, at any time during or after termination of my employment
with the Company.

        4. NO SOLICITATION OF COMPANY EMPLOYEES. While employed by the Company
and for a period of one year after termination of my employment with the
Company, I agree not to induce or attempt to influence directly or indirectly
any employee of the Company to terminate employment with the Company or to work
for me or any other person or entity.

        5. COVENANT OF EXCLUSIVITY AND NOT TO COMPETE. During the term of my
employment with the Company, I will not engage in any other professional
employment or consulting or directly or indirectly participate in or assist any
business which is a current or potential supplier, customer or competitor of the
Company without prior written approval from the Chief Executive Officer of the
Company.

        6. GENERAL.

               a. Assignments, Successors and Assignees. All representations,
warranties, covenants and agreements of the parties shall bind their respective
heirs, executors, personal representatives, successors and assignees
("transferees") and shall inure to the benefit of their respective permitted
transferees. The Company shall have the right to assign any or all of its rights
and to delegate any or all of its obligations hereunder. The undersigned
employee shall not have the right to assign any rights or delegate any
obligations hereunder without the prior written consent of the Company or its
transferee.

               b. Number and Gender, Headings. Each number and gender shall be
deemed to include each other number and gender as the context may require. The
headings and captions contained in this agreement shall not constitute a part
thereof and shall not be used in its construction or interpretation.

               c. Severability. If any provision of this agreement is found by
any court or arbitral tribunal of competent jurisdiction to be invalid or
unenforceable, the invalidity of such provision shall not affect the other
provisions of this agreement and all provisions not affected by the invalidity
shall remain in full force and effect.



                                      -3-
<PAGE>   10

               d. Amendment and Modification. This agreement may be amended or
modified only by a writing executed by each party.

               e. Government Law. The construction, interpretation and
performance of this agreement and all transactions under it shall be governed by
the internal laws of California.

               f. Remedies. I acknowledge that breach by me of any of the
provisions of this agreement will cause irreparable injury that cannot
adequately be compensated by money damages. The Company shall be entitled to
specific performance, temporary restraining orders, preliminary injunctions and
permanent injunctive relief to enforce my obligations under this agreement. No
remedy conferred by any of the specific provisions of this agreement is intended
to be exclusive of any other remedy. I agree to arbitrate on a final and binding
basis all disputes under this Agreement in accordance with and before the
Judicial Arbitration and Mediation Service ("JAMS").

               g. Attorneys' Fees. In the event of any litigation or other
action in connection with this agreement, the prevailing party shall be entitled
to recover its reasonable attorneys' fees and disbursements from the other party
as costs of suit and not as damages.

               h. No Effect on Other Terms or Conditions of Employment. I
acknowledge that this agreement does not affect any term or condition of my
employment except as expressly provided in this agreement, and that this
agreement does not give rise to any right or entitlement on my part to
employment or continued employment with the Company. I further acknowledge that
this agreement does not affect in any way the right of the Company to terminate
my employment.

        IN WITNESS WHEREOF, I have executed this agreement as of the date set
forth next to my signature below.


                                        ----------------------------------------
                                        Signature of Employee
                                        David Lough
                                        ----------------------------------------
                                        Printed Name of Employee


ACCEPTED:
NATURAL ALTERNATIVES INTERNATIONAL, INC.
a Delaware corporation

By:
   -------------------------------------
   Mark A. LeDoux, Chief Executive
   Officer



                                      -4-
<PAGE>   11

                                   EXHIBIT "A"

CALIFORNIA LABOR CODE

SECTION 2870.  INVENTION ON OWN TIME-EXEMPTION FROM AGREEMENT.

        (a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities or trade secret information expect for those
inventions that either:

               (1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.

               (2) Result from any work performed by the employee for the
employer.

        (b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.

SECTION 2871.  RESTRICTIONS ON EMPLOYER FOR CONDITION OF EMPLOYMENT.

        No employer shall require a provision made void or unenforceable by
Section 2870 as a condition of employment or continued employment. Nothing in
this article shall be construed to forbid or restrict the right of an employer
to provide in contracts of employment for disclosure, provided that any such
disclosures be received in confidence, of all of the employee's inventions made
solely or jointly with others during the term of his or her employment, a review
process by the employer to determine such issues as may arise, and for full
title to certain patents and inventions to be in the United States, as required
by contracts between the employer and the United States or any of its agencies.




                                      -5-
<PAGE>   12

                                   EXHIBIT "B"

        Except as set forth below, Employee represents to the Company that there
are no other contracts to assign Inventions now in existence between Employee
and any other person or entity (see Section l(d) of the Agreement):


                                      -6-
<PAGE>   13

                                   EXHIBIT "C"

        Set forth below is a brief description of all Inventions made or
conceived by Employee prior to Employee's employment with the Company which
Employee desires to be excluded from this agreement (see Section l(d) of the
Agreement):


                                      -7-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>9
<FILENAME>a69688ex10-8.txt
<DESCRIPTION>EXHIBIT 10.8
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 10.8

                         EXECUTIVE EMPLOYMENT AGREEMENT

        Douglas E. Flaker ("Employee") hereby accepts the offer of Natural
Alternatives International, Inc. ("NAI") for employment as Vice President
Marketing beginning November 15, 2000. Collectively, NAI and Employee will be
referred to herein as the "Parties."

        1. The Parties anticipate that Employee will be employed through June
30, 2001 (the "Term"). During the Term, Employee's employment will be at-will
and may be terminated by either Employee or NAI at any time for any reason or no
reason, with or without cause upon written notice to the other. The at-will
status of the employment relationship may not be modified except in writing
authorized in advance by the Board of Directors of NAI and signed by the Chief
Executive Officer of NAI and Employee.

        2. Employee and NAI further understand and agree that nothing in the NAI
Employee Handbook is intended to be, and nothing in it should be construed to
be, a limitation of NAI's right to terminate, transfer, demote, suspend and
administer discipline at any time for any reason. Employee and NAI understand
and agree nothing in the Handbook is intended to, and nothing in the Handbook
should be construed to, create an implied or express contract of employment
contrary to this agreement.

        3. While Employee is employed by NAI, Employee's rate of compensation
will be at a rate of $140,000 per year, payable no less frequently than monthly,
which will be reviewed prior to the end of the term to determine, based upon
Employee's performance and the performance of NAI, the amount of increase, (if
any), in the rate of compensation. The compensation set forth in this Section 3
will be Employee's only compensation except standard employee benefits available
to other level one executives of NAI or any other written compensation
arrangement approved by the Board of Directors of NAI. Employee will be entitled
to participate in any bonus compensation in a manner and at a level consistent
with other level one executives of NAI. Currently all the level one executives
of NAI include all of the Corporate Officers of NAI, except for the Chief
Executive Officer.

        4. If Employee continues working for NAI past the end of the Term, and
if NAI still desires Employee's services, then the following terms and
conditions will apply:

               (a) Employee shall be an at-will employee and either Employee or
        NAI will be entitled to terminate the employment relationship for any
        reason or for no reason, with or without cause and with or without
        notice.

               (b) Employee will be compensated at the rate set forth in section
        3 herein above unless another rate is mutually agreed upon; and

               (c) As to benefits and other terms of employment, Employee shall
        be subject to the same policies and procedures as other employees of NAI
        in similar positions.

        5. During the Term, and any extension thereof, Employee shall have such
responsibilities, duties and authority as NAI through its Chief Executive
Officer may from time to


<PAGE>   2

time assign to Employee, and that are normal and customary duties of a Vice
President-Marketing of a publicly held corporation. Employee's initial title
shall be Vice President-Marketing.

        6. In the event this Agreement is terminated by NAI without cause,
whether during or at the end of the Term (and any renewals thereof), Employee
shall be entitled to severance pay, including standard employee benefits
available to other level one executives of NAI, in an amount equivalent to his
then current compensation rate for the period set forth below opposite the
number of complete calendar months which have elapsed from the beginning date of
Employee's employment by NAI at the time of termination. One half of such amount
shall be paid upon termination and the balance shall be paid on a bi-weekly
basis during said severance period:

<TABLE>
<CAPTION>
               MONTHS OF                           SEVERANCE
               EMPLOYMENT                          PERIOD
               ----------                          ------
<S>                                                <C>
               1 through 6 months                  2 months
               7 through 12 months                 6 months
               13 through 24 months                9 months
               more than 24 months                 12 months
</TABLE>

        NAI may terminate this Agreement with cause, which shall be limited to
the occurrence of one or more of the following events: (i) the Employee's
commission of any fraud against NAI; (ii) Employee's intentional appropriation
for his personal use or benefit the funds of the Company not authorized by the
Chief Executive Officer or the Board of Directors, (iii) Employee's conviction
of any crime involving moral turpitude, (iv) Employee's conviction of a
violation of any state or federal law which could result in a material adverse
impact upon the business of NAI; or (v) Employee's material violation of this
Agreement, provided that Employee shall be given written notice by NAI of any
alleged material violation of the Agreement and an opportunity within 60 days,
to cure the alleged breach, which Employee must diligently pursue to completion.
No severance pay shall be due to Employee if Employee is terminated for cause.

        7. In the event of any Change in Control, the following provisions will
apply.

               Any of the following shall constitute a "Change in Control" for
the purposes of this Section 7:

               A. A "person" (meaning an individual, a partnership, or other
group or association as defined in sections 13(d) and 14(d) of the Securities
Exchange Act of 1934) acquires fifty percent (50%) or more of the combined
voting power of the outstanding securities of NAI having a right to vote in
elections of directors; or

               B. The members of the Board of Directors of the Company who were
members of the Board of Directors on the commencement date hereof, shall for any
reason cease to constitute a majority of the Board of Directors of the Company;
or

               C. All, or substantially all of the business of NAI is disposed
of by NAI to a party or parties other than a subsidiary or other affiliate of
NAI, in which NAI owns less than a majority


                                      -2-
<PAGE>   3

of the equity, pursuant to a partial or complete liquidation of NAI, sale of
assets (including stock of a subsidiary of NAI) or otherwise.

        In the event of any such Change in Control, this Agreement shall
continue in effect unless the Employee at his sole option, and at any time
elects voluntarily to terminate this Agreement. In such case, NAI shall pay
Employee as severance pay or liquidated damages, or both, a lump sum payment
("Change in Control Severance Payment") equal to one hundred fifty percent
(150%) of the Employee's annual salary and bonus specified in Section 3 above or
such greater amount as the Board of Directors determines from time to time
pursuant to terms which may not be revoked or reduced thereafter.

        In the event this Agreement is terminated following a Change in Control
by NAI, and/or the surviving or resulting corporation, without cause, Employee
shall be entitled to a Change in Control Severance Payment equal to one hundred
fifty percent (150%) of the Employee's annual salary specified in Section 3
above or such greater amount as the Board of Directors determines from time to
time pursuant to terms which may not be revoked or reduced thereafter.

        Any Severance Payment shall be made not later than the fifteenth (15th)
day following the effective date of the voluntary or involuntary termination of
this Agreement in connection with a Change in Control; provided, however, that
if the amount of such payments cannot be finally determined on or before such
date, NAI shall pay to Employee on such date a good faith estimate of the
minimum amount of such payments, and shall pay the remainder of such payments
(together with interest at the rate provided in Internal Revenue Code Section
1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined, but
in no event later than the thirtieth (30th) day after the applicable termination
date. In the event the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
NAI payable on the fifteenth (15th) day after receipt by Employee of a written
demand for payment from NAI (together with interest calculated as above). The
total of any payment pursuant to this Section 7 shall be limited to the extent
necessary, in the opinion of legal counsel acceptable to Employee and NAI, to
avoid the payment of an "excess parachute" payment within the meaning of
Internal Revenue Code Section 280 G or any similar successor provision.

        In the event of termination of this Agreement either by the Employee
under paragraph 7(B) or by NAI under paragraph 7(C), NAI shall cause each stock
option heretofore granted by NAI to the Employee to become fully exercisable and
to remain exercisable for the term of the option.

        8. Employee and NAI hereby agree to the Mutual Agreement to Arbitrate
attached hereto and made a part hereof as Attachment #1.

        9. Employee and NAI hereby agree to the Assignment of Inventions,
Patents and Copyrights Agreement Regarding Confidential Information Covenant of
Exclusivity and Not to Compete attached hereto and made a part hereof as
Attachment #2.

        10. This Agreement contains the entire agreement between the parties. It
supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to Employee's employment by NAI. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any


                                      -3-
<PAGE>   4

party, or anyone acting on behalf of any party, which are not embodied herein
and acknowledges that no other agreement, statement or promise not contained in
this Agreement shall be valid or binding. This Agreement may not be modified or
amended by oral agreement or course of conduct, but only by an agreement in
writing signed by the Chief Executive Officer of NAI and Employee.

        11. This Executive Employment Agreement shall be construed and enforced
in accordance with the laws of the State of California.

        12. Should any part or provision of this Executive Employment Agreement
be held unenforceable or in conflict with the law of any jurisdiction, the
validity of the remaining parts shall not be affected by such holding.

                                        "EMPLOYEE"

                                        ----------------------------------------
                                        Douglas E. Flaker

                                        NATURAL ALTERNATIVES INTERNATIONAL, INC.
                                        a Delaware corporation

                                        By:
                                           -------------------------------------
                                           Mark A. LeDoux, Chief Executive
                                           Officer



                                      -4-
<PAGE>   5

                                  ATTACHMENT #1

                      MUTUAL AGREEMENT TO ARBITRATE CLAIMS

        This Mutual Agreement to Arbitrate Claims is entered into between
Douglas E. Flaker ("Employee") and Natural Alternatives International, Inc.
("NAI").

1.      Binding Arbitration of Disagreement and Claims

               We each voluntarily promise and agree to arbitrate any claims
covered by this Agreement. We further agree that such binding arbitration
pursuant to this Agreement shall be the sole and exclusive remedy for resolving
any such claims or disputes.

2.      Claims Covered by this Agreement

        A. Claims and disputes covered by this Agreement include all claims
against NAI (as defined below) and all claims that NAI may have against the
Employee, including, without limitation, those arising under:

               (1) Any federal, state or local laws, regulations or statutes
prohibiting employment discrimination (such as, without limitation: race, sex,
national origin, age, disability, religion, sexual orientation) and harassment.

               (2) Any alleged or actual agreement or covenant (oral, written or
implied) between Employee and NAI.

               (3) Any company policy or compensation or benefit plan, unless
the decision in question was made by an entity other than NAI.

               (4)    Any public policy.

               (5) Any other claim for personal, emotional, physical or economic
injury.

        B. The only disputes between Employee and NAI which are not included
within this Mutual Agreement to Arbitrate Claims are:

               (1) Any claim by Employee for workers' compensation or
unemployment compensation benefits.

               (2) Any claim by Employee for benefits under a company plan which
provides for its own arbitration procedure.

3.      Arbitration Procedure

        A. The arbitration will be conducted in accordance with the rules of the
current Judicial Arbitration and Mediation Services ("JAMS"), except that the
arbitrator shall be mutually acceptable to both parties. The arbitration will be
held in the state and county of the Employee's primary employment at the time of
the act giving rise to the dispute. The fees and expenses of the Arbitrator, and
the arbitration, will be borne by the Company. Each party will pay for the fees
and expenses of its own attorneys, experts, witnesses, transcripts and
preparation and presentation of proofs and post-



                                      -1-
<PAGE>   6

hearing briefs, unless the party prevails on a claim for which attorneys' fees
and costs are recoverable by statute or contract, in which case the prevailing
party shall be awarded attorneys fees and costs in accordance with that statute
or contract.

        B. Before such arbitration, each party shall have the right to conduct
discovery on the same basis and to the same extent as a civil action brought in
the Federal District Court for the Southern District of California.

        C. Any action to enforce or vacate the arbitrator's award shall be
governed by the Federal Arbitration Act if applicable, and otherwise by
applicable state law.

4.      Miscellaneous Provisions

        A. The term "company" means NAI, and all related entities, all officers,
employees, directors, agents, shareholders, partners, benefit plan sponsors,
fiduciaries, administrators or affiliates of any of the above, and all
successors and assignees of any of the above.

        B. If either party pursues a covered claim against the other by any
action, method or legal proceeding other than the arbitration provided herein,
the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorneys' fees
related to such other action or proceeding.

        C. The parties of this arbitration agreement acknowledge and agree that
they are waiving their right to a jury trial on the issues covered by this
Agreement.

        D. This is the complete Agreement of the parties on the subject of
arbitration of disputes and claims. This Agreement supersedes any prior or
contemporaneous oral, written or implied understanding on the subject, shall
survive the termination of Employee's employment and can only be revoked or
modified by a written agreement signed by the parties which specifically states
an intent to revoke or modify this agreement. If any provision of this Agreement
is adjudicated to be void or otherwise unenforceable in whole or in part, such
adjudication shall not affect the validity of the remainder of the Agreement,
which shall continue in full force and effect.

        My signature below signifies that I have read, understand and agree to
the Arbitration Agreement.


                                        "EMPLOYEE"

                                        ----------------------------------------
                                        Douglas E. Flaker

                                        NATURAL ALTERNATIVES INTERNATIONAL, INC.
                                        a Delaware corporation

                                        By:
                                           -------------------------------------
                                           Mark A. LeDoux, Chief Executive
                                           Officer



                                      -2-
<PAGE>   7

                                  ATTACHMENT #2

ASSIGNMENT OF INVENTIONS, PATENTS AND COPYRIGHTS AGREEMENT REGARDING
CONFIDENTIAL INFORMATION COVENANT OF EXCLUSIVITY AND NOT TO COMPETE


        In consideration of and as a condition of my prospective and continued
employment and the compensation afforded to me under the terms and conditions
thereof by Natural Alternatives International, Inc. (the "Company"), I agree to
the following, and I agree the following shall be in addition to the terms and
conditions of any Confidential Information and Invention Assignment Agreement
executed by employees of the Company generally, and which I may execute in
addition hereto:

        1.      INVENTIONS

               a. Disclosure. I will disclose promptly in writing to the
appropriate officer or other representative of the Company, any idea, invention,
work of authorship, design, formula, pattern, compilation, program, device,
method, technique, process, improvement, development or discovery, whether or
not patentable or copyrightable or entitled to legal protection as a trade
secret, trademark service mark, trade name or otherwise ("Invention"), that I
may conceive, make, develop, reduce to practice or work on, in whole or in part,
solely or jointly with others ("Invent"), during the term of my employment with
the Company. The disclosure required by this Section 1 (a) applies to each and
every Invention that I Invent (i) whether during my regular hours of employment
or during my time away from work (ii) whether or not the Invention was made at
the suggestion of the Company, and (iii) whether or not the Invention was
reduced to or embodied in writing, electronic media or tangible form. The
disclosure required by this Section 1 (a) also applies to any Invention which
may relate at the time of conception or reduction to practice of the Invention
to the Company's business or actual or demonstrably anticipated research or
development of the Company, and to any Invention which results from any work
performed by me for the Company. The disclosure required by this Section 1 (a)
shall be received in confidence by the Company within the meaning of and to the
extent required by California Labor Code Section 2871, the provisions of which
are set forth on Exhibit "A" hereto.

               b. Assignment. I hereby assign to the Company without royalty or
any other further consideration my entire right, title and interest in and to
each and every Invention I am required to disclose under Section 1 (a) other
than an Invention that (i) I have or shall have developed entirely on my own
time without using the Company's equipment, supplies, facilities or trade secret
information, (ii) does not relate at the time of conception or reduction to
practice of the Invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company and (iii) does not result
from any work performed by me for the Company. I acknowledge that the Company
has notified me that the assignment provided for in this Section l(b) does not
apply to any Invention to which the assignment may not lawfully apply under the
provisions of Section Section 2870 of the California Labor Code, a copy of which
is attached as Exhibit "A" hereto.

               c. Additional Assistance and Documents. I will assist the Company
in obtaining, maintaining and enforcing patents, copyrights, trade secrets,
trademarks, service marks, trade names and other proprietary rights in
connection with any Invention I have assigned to the Company under Section


                                      -1-
<PAGE>   8

l(b), and I further agree that my obligations under this Section l(c) shall
continue beyond the termination of my employment with the Company. Among other
things, for the foregoing purposes I will (i) testify at the request of the
Company in any interference, litigation or other legal proceeding that may arise
during or after my employment, and (ii) execute, verify, acknowledge and deliver
any proper document (and, if, because of my mental or physical incapacity or for
any other reason whatsoever, the Company is unable to obtain my signature to
apply for or to pursue any application for any United States or foreign patent
or copyright covering Inventions assigned to the Company by me, I hereby
irrevocably designate and appoint each of the Company and its duly authorized
officers and agents as my agent and attorney in fact to act for me and in my
behalf and stead to execute and file any such applications and to do all other
lawfully permitted acts to further the prosecution and issuance of any United
States or foreign patent or copyright thereon with the same legal force and
effect as if executed by me). I shall be entitled to reimbursement of any
out-of-pocket expenses incurred by me in rendering such assistance and, if I am
required to render such assistance after the termination of my employment, the
Company shall pay me a reasonable rate of compensation for time spent by me in
rendering such assistance to the extent permitted by law (provided, I understand
that no compensation shall be paid for my time in connection with preparing for
or rendering any testimony or statement under oath in any judicial proceeding,
arbitration or similar proceeding).

               d. Prior Contracts and Inventions; Rights of Third Parties. I
represent to the Company that, except as set forth on Exhibit "B" hereto, there
are no other contracts to assign Inventions now in existence between me and any
other person or entity (and if no Exhibit "B" is attached hereto or there is no
such contract described thereon, then it means that by signing this Agreement, I
represent to the Company that there is no such other contract). In addition, I
represent to the Company that I have no other employments or undertaking which
do or would restrict or impair my performance of this Agreement. I further
represent to the Company that Exhibit "C" hereto sets forth a brief description
of all Inventions made or conceived by me prior to my employment with the
Company which I desire to be excluded from this Agreement (and if no Exhibit "C"
is attached hereto or there is no such description set forth thereon, then it
means that by signing this Agreement I represent to the Company that there is no
such Invention made or conceived by me prior to my employment with the Company).
In connection with my employment with the Company, I promise not to use or
disclose to the Company any patent, copyright, confidential trade secret or
other proprietary information of any previous employer or other person that I am
not lawfully entitled so to use or disclose. If in the course of my employment
with the Company I incorporate into an Invention or any product process or
service of the Company any Invention made or conceived by me prior to my
employment with the Company, I hereby grant to the Company a royalty-free,
irrevocable, worldwide nonexclusive license to make, have made, use and sell
that Invention without restriction as to the extent of my ownership or interest.

        2.      CONFIDENTIAL INFORMATION

               a. Company Confidential Information. I will not use or disclose
Confidential Information, whether before, during or after the term of my
employment except to perform my duties as an employee of the Company based on my
reasonable judgment as an Officer of the Company, or in accordance with
instruction or authorization of the Company, without prior written consent of
the Company or pursuant to process or requirements of law after I have disclosed
such process or requirements to the Company so as to afford it the opportunity
to seek appropriate relief therefrom. "Confidential Information" means any
Invention of any person in which the Company has an interest and in addition
means any financial, client, customer, supplier, marketing, distribution and
other


                                      -2-
<PAGE>   9

information of a confidential or private nature connected with the business of
the Company or any person with whom it deals, provided by the Company to me or
to which I have access during or in the course of any employment.

               b. Third Party Information. I acknowledge that during my
employment with the Company I may have access to patent, copyright,
confidential, trade secret or other proprietary information of third parties
subject to restrictions on the use or disclosure thereof by the Company. During
the term of my employment and thereafter I will not use or disclose any such
information other than consistent with the restrictions and my duties as an
employee of the Company.

        3. PROPERTY OF THE COMPANY. All documents, instruments, notes,
memoranda, reports, drawings, blueprints, manuals, materials, data and other
papers and records of every kind which come into my possession during or in the
course of my employment, relating to any Inventions or Confidential Information,
are and shall remain the property of the Company and shall be surrendered by me
to the Company upon termination of my employment with the Company, or upon the
request of the Company, at any time during or after termination of my employment
with the Company.

        4. NO SOLICITATION OF COMPANY EMPLOYEES. While employed by the Company
and for a period of one year after termination of my employment with the
Company, I agree not to induce or attempt to influence directly or indirectly
any employee of the Company to terminate employment with the Company or to work
for me or any other person or entity.

        5. COVENANT OF EXCLUSIVITY AND NOT TO COMPETE. During the term of my
employment with the Company, I will not engage in any other professional
employment or consulting or directly or indirectly participate in or assist any
business which is a current or potential supplier, customer or competitor of the
Company without prior written approval from the Chief Executive Officer of the
Company.

        6. GENERAL.

               a. Assignments, Successors and Assignees. All representations,
warranties, covenants and agreements of the parties shall bind their respective
heirs, executors, personal representatives, successors and assignees
("transferees") and shall inure to the benefit of their respective permitted
transferees. The Company shall have the right to assign any or all of its rights
and to delegate any or all of its obligations hereunder. The undersigned
employee shall not have the right to assign any rights or delegate any
obligations hereunder without the prior written consent of the Company or its
transferee.

               b. Number and Gender, Headings. Each number and gender shall be
deemed to include each other number and gender as the context may require. The
headings and captions contained in this agreement shall not constitute a part
thereof and shall not be used in its construction or interpretation.

               c. Severability. If any provision of this agreement is found by
any court or arbitral tribunal of competent jurisdiction to be invalid or
unenforceable, the invalidity of such provision shall not affect the other
provisions of this agreement and all provisions not affected by the invalidity
shall remain in full force and effect.



                                      -3-
<PAGE>   10

               d. Amendment and Modification. This agreement may be amended or
modified only by a writing executed by each party.

               e. Government Law. The construction, interpretation and
performance of this agreement and all transactions under it shall be governed by
the internal laws of California.

               f. Remedies. I acknowledge that breach by me of any of the
provisions of this agreement will cause irreparable injury that cannot
adequately be compensated by money damages. The Company shall be entitled to
specific performance, temporary restraining orders, preliminary injunctions and
permanent injunctive relief to enforce my obligations under this agreement. No
remedy conferred by any of the specific provisions of this agreement is intended
to be exclusive of any other remedy. I agree to arbitrate on a final and binding
basis all disputes under this Agreement in accordance with and before the
Judicial Arbitration and Mediation Service ("JAMS").

               g. Attorneys' Fees. In the event of any litigation or other
action in connection with this agreement, the prevailing party shall be entitled
to recover its reasonable attorneys' fees and disbursements from the other party
as costs of suit and not as damages.

               h. No Effect on Other Terms or Conditions of Employment. I
acknowledge that this agreement does not affect any term or condition of my
employment except as expressly provided in this agreement, and that this
agreement does not give rise to any right or entitlement on my part to
employment or continued employment with the Company. I further acknowledge that
this agreement does not affect in any way the right of the Company to terminate
my employment.

        IN WITNESS WHEREOF, I have executed this agreement as of the date set
forth next to my signature below.


                                        ----------------------------------------
                                        Signature of Employee
                                        Douglas E. Flaker
                                        ----------------------------------------
                                        Printed Name of Employee


ACCEPTED:
NATURAL ALTERNATIVES INTERNATIONAL, INC.
a Delaware corporation

By:
   -------------------------------------
   Mark A. LeDoux, Chief Executive
   Officer



                                      -4-
<PAGE>   11

                                   EXHIBIT "A"

CALIFORNIA LABOR CODE

SECTION 2870.  INVENTION ON OWN TIME-EXEMPTION FROM AGREEMENT.

        (a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities or trade secret information expect for those
inventions that either:

               (1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.

               (2) Result from any work performed by the employee for the
employer.

        (b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.

SECTION 2871.  RESTRICTIONS ON EMPLOYER FOR CONDITION OF EMPLOYMENT.

        No employer shall require a provision made void or unenforceable by
Section 2870 as a condition of employment or continued employment. Nothing in
this article shall be construed to forbid or restrict the right of an employer
to provide in contracts of employment for disclosure, provided that any such
disclosures be received in confidence, of all of the employee's inventions made
solely or jointly with others during the term of his or her employment, a review
process by the employer to determine such issues as may arise, and for full
title to certain patents and inventions to be in the United States, as required
by contracts between the employer and the United States or any of its agencies.



                                      -5-
<PAGE>   12

                                   EXHIBIT "B"

        Except as set forth below, Employee represents to the Company that there
are no other contracts to assign Inventions now in existence between Employee
and any other person or entity (see Section l(d) of the Agreement):




                                      -6-
<PAGE>   13

                                   EXHIBIT "C"

        Set forth below is a brief description of all Inventions made or
conceived by Employee prior to Employee's employment with the Company which
Employee desires to be excluded from this agreement (see Section l(d) of the
Agreement):


                                      -7-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>10
<FILENAME>a69688ex10-9.txt
<DESCRIPTION>EXHIBIT 10.9
<TEXT>

<PAGE>   1
                                                                    EXHIBIT 10.9

                         EXECUTIVE EMPLOYMENT AGREEMENT

        John A. Wise ("Employee") hereby accepts the offer of Natural
Alternatives International, Inc. ("NAI") for employment as Vice
President-Science and Technology beginning November 15, 2000. Collectively, NAI
and Employee will be referred to herein as the "Parties."

        1. The Parties anticipate that Employee will be employed through June
30, 2001 (the "Term"). During the Term, Employee's employment will be at-will
and may be terminated by either Employee or NAI at any time for any reason or no
reason, with or without cause upon written notice to the other. The at-will
status of the employment relationship may not be modified except in writing
authorized in advance by the Board of Directors of NAI and signed by the Chief
Executive Officer of NAI and Employee.

        2. Employee and NAI further understand and agree that nothing in the NAI
Employee Handbook is intended to be, and nothing in it should be construed to
be, a limitation of NAI's right to terminate, transfer, demote, suspend and
administer discipline at any time for any reason. Employee and NAI understand
and agree nothing in the Handbook is intended to, and nothing in the Handbook
should be construed to, create an implied or express contract of employment
contrary to this agreement.

        3. While Employee is employed by NAI, Employee's rate of compensation
will be at a rate of $180,000 per year, payable no less frequently than monthly,
which will be reviewed at least annually to determine, based upon Employee's
performance and the performance of NAI, the amount of increase, (if any), in the
rate of compensation. The compensation set forth in this Section 3 will be
Employee's only compensation except standard employee benefits available to
other level one executives of NAI or any other written compensation arrangement
approved by the Board of Directors of NAI. Employee will be entitled to
participate in any bonus compensation in a manner and at a level consistent with
other level one executives of NAI. Currently, the level one executives of NAI
include all of the Corporate Officers of NAI, except for the Chief Executive
Officer.

        4. If Employee continues working for NAI past the end of the Term, and
if NAI still desires Employee's services, then the following terms and
conditions will apply:

               (a) Employee shall be an at-will employee and either Employee or
        NAI will be entitled to terminate the employment relationship for any
        reason or for no reason, with or without cause and with or without
        notice;

               (b) Employee will be compensated at the rate set forth in section
        3 herein above unless another rate is mutually agreed upon; and

               (c) As to benefits and other terms of employment, Employee shall
        be subject to the same policies and procedures as other employees of NAI
        in similar positions.

        5. During the Term, and any extension thereof, Employee shall have such
responsibilities, duties and authority as NAI through its Chief Executive
Officer may from time to


                                      -1-
<PAGE>   2

time assign to Employee, and that are normal and customary duties of a Vice
President-Science and Technology of a publicly held corporation. Employee's
initial title shall be Vice President-Science and Technology.

        6. In the event this Agreement is terminated by NAI without cause,
whether during or at the end of the Term (and any renewals thereof), Employee
shall be entitled to severance pay, including standard employee benefits
available to other level one executives of NAI, in an amount equivalent to his
then current compensation rate for the period set forth below opposite the
number of complete calendar months which have elapsed from the beginning date of
Employee's employment by NAI at the time of termination. One half of such amount
shall be paid upon termination and the balance shall be paid on a bi-weekly
basis during said severance period:

<TABLE>
<CAPTION>
               MONTHS OF                           SEVERANCE
               EMPLOYMENT                          PERIOD
               ----------                          ------
<S>                                                <C>
               1 through 6 months                  2 months
               7 through 12 months                 6 months
               13 through 24 months                9 months
               more than 24 months                 12 months
</TABLE>

        NAI may terminate this Agreement with cause, which shall be limited to
the occurrence of one or more of the following events: (i) the Employee's
commission of any fraud against NAI; (ii) Employee's intentional appropriation
for his personal use or benefit the funds of the Company not authorized by the
Chief Executive Officer or the Board of Directors, (iii) Employee's conviction
of any crime involving moral turpitude, (iv) Employee's conviction of a
violation of any state or federal law which could result in a material adverse
impact upon the business of NAI; or (v) Employee's material violation of this
Agreement, provided that Employee shall be given written notice by NAI of any
alleged material violation of the Agreement and an opportunity within 60 days,
to cure the alleged breach, which Employee must diligently pursue to completion.
No severance pay shall be due to Employee if Employee is terminated for cause.

        7. In the event of any Change in Control, the following provisions will
apply.

               Any of the following shall constitute a "Change in Control" for
the purposes of this Section 7:

               A. A "person" (meaning an individual, a partnership, or other
group or association as defined in sections 13(d) and 14(d) of the Securities
Exchange Act of 1934) acquires fifty percent (50%) or more of the combined
voting power of the outstanding securities of NAI having a right to vote in
elections of directors; or

               B. The members of the Board of Directors of the Company who were
members of the Board of Directors on the commencement date hereof, shall for any
reason cease to constitute a majority of the Board of Directors of the Company;
or


                                      -2-
<PAGE>   3

               C. All, or substantially all of the business of NAI is disposed
of by NAI to a party or parties other than a subsidiary or other affiliate of
NAI, in which NAI owns less than a majority of the equity, pursuant to a partial
or complete liquidation of NAI, sale of assets (including stock of a subsidiary
of NAI) or otherwise.

        In the event of any such Change in Control, this Agreement shall
continue in effect unless the Employee at his sole option, and at any time
elects voluntarily to terminate this Agreement. In such case, NAI shall pay
Employee as severance pay or liquidated damages, or both, a lump sum payment
("Change in Control Severance Payment") equal to one hundred fifty percent
(150%) of the Employee's annual salary and bonus specified in Section 3 above or
such greater amount as the Board of Directors determines from time to time
pursuant to terms which may not be revoked or reduced thereafter.

        In the event this Agreement is terminated following a Change in Control
by NAI, and/or the surviving or resulting corporation, without cause, Employee
shall be entitled to a Change in Control Severance Payment equal to one hundred
fifty percent (150%) of the Employee's annual salary specified in Section 3
above or such greater amount as the Board of Directors determines from time to
time pursuant to terms which may not be revoked or reduced thereafter.

        Any Severance Payment shall be made not later than the fifteenth (15th)
day following the effective date of the voluntary or involuntary termination of
this Agreement in connection with a Change in Control; provided, however, that
if the amount of such payments cannot be finally determined on or before such
date, NAI shall pay to Employee on such date a good faith estimate of the
minimum amount of such payments, and shall pay the remainder of such payments
(together with interest at the rate provided in Internal Revenue Code Section
1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined, but
in no event later than the thirtieth (30th) day after the applicable termination
date. In the event the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
NAI payable on the fifteenth (15th) day after receipt by Employee of a written
demand for payment from NAI (together with interest calculated as above). The
total of any payment pursuant to this Section 7 shall be limited to the extent
necessary, in the opinion of legal counsel acceptable to Employee and NAI, to
avoid the payment of an "excess parachute" payment within the meaning of
Internal Revenue Code Section 280 G or any similar successor provision.

        In the event of termination of this Agreement either by the Employee
under paragraph 7(B) or by NAI under paragraph 7(C), NAI shall cause each stock
option heretofore granted by NAI to the Employee to become fully exercisable and
to remain exercisable for the term of the option.

        8. Employee and NAI hereby agree to the Mutual Agreement to Arbitrate
attached hereto and made a part hereof as Attachment #1.

        9. Employee and NAI hereby agree to the Assignment of Inventions,
Patents and Copyrights Agreement Regarding Confidential Information Covenant of
Exclusivity and Not to Compete attached hereto and made a part hereof as
Attachment #2.



                                      -3-
<PAGE>   4

        10. This Agreement contains the entire agreement between the parties. It
supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to Employee's employment by NAI. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein and acknowledges that no
other agreement, statement or promise not contained in this Agreement shall be
valid or binding. This Agreement may not be modified or amended by oral
agreement or course of conduct, but only by an agreement in writing signed by
the Chief Executive Officer of NAI and Employee.

        11. This Executive Employment Agreement shall be construed and enforced
in accordance with the laws of the State of California.

        12. Should any part or provision of this Executive Employment Agreement
be held unenforceable or in conflict with the law of any jurisdiction, the
validity of the remaining parts shall not be affected by such holding.


                                        "EMPLOYEE"

                                        ----------------------------------------
                                        John A. Wise

                                        NATURAL ALTERNATIVES INTERNATIONAL, INC.
                                        a Delaware corporation

                                        By:
                                           -------------------------------------
                                           Mark A. Le Doux, Chief Executive
                                           Officer



                                      -4-
<PAGE>   5

                                  ATTACHMENT #1

                      MUTUAL AGREEMENT TO ARBITRATE CLAIMS

        This Mutual Agreement to Arbitrate Claims is entered into between John
A. Wise ("Employee") and Natural Alternatives International, Inc. ("NAI").

1.      Binding Arbitration of Disagreement and Claims

               We each voluntarily promise and agree to arbitrate any claims
covered by this Agreement. We further agree that such binding arbitration
pursuant to this Agreement shall be the sole and exclusive remedy for resolving
any such claims or disputes.

2.      Claims Covered by this Agreement

        A. Claims and disputes covered by this Agreement include all claims
against NAI (as defined below) and all claims that NAI may have against the
Employee, including, without limitation, those arising under:

               (1) Any federal, state or local laws, regulations or statutes
prohibiting employment discrimination (such as, without limitation: race, sex,
national origin, age, disability, religion, sexual orientation) and harassment.

               (2) Any alleged or actual agreement or covenant (oral, written or
implied) between Employee and NAI.

               (3) Any company policy or compensation or benefit plan, unless
the decision in question was made by an entity other than NAI.

               (4)    Any public policy.

               (5) Any other claim for personal, emotional, physical or economic
injury.

        B. The only disputes between Employee and NAI which are not included
within this Mutual Agreement to Arbitrate Claims are:

               (1) Any claim by Employee for workers' compensation or
unemployment compensation benefits.

               (2) Any claim by Employee for benefits under a company plan which
provides for its own arbitration procedure.

3.      Arbitration Procedure

        A. The arbitration will be conducted in accordance with the rules of the
current Judicial Arbitration and Mediation Services ("JAMS"), except that the
arbitrator shall be mutually acceptable to both parties. The arbitration will be
held in the state and county of the Employee's primary employment at the time of
the act giving rise to the dispute. The fees and expenses of the Arbitrator, and
the arbitration, will be borne by the Company. Each party will pay for the fees
and expenses of its own attorneys, experts, witnesses, transcripts and
preparation and presentation of proofs and post-


                                      -1-
<PAGE>   6

hearing briefs, unless the party prevails on a claim for which attorneys' fees
and costs are recoverable by statute or contract, in which case the prevailing
party shall be awarded attorneys fees and costs in accordance with that statute
or contract.

        B. Before such arbitration, each party shall have the right to conduct
discovery on the same basis and to the same extent as a civil action brought in
the Federal District Court for the Southern District of California.

        C. Any action to enforce or vacate the arbitrator's award shall be
governed by the Federal Arbitration Act if applicable, and otherwise by
applicable state law.

4.      Miscellaneous Provisions

        A. The term "company" means NAI, and all related entities, all officers,
employees, directors, agents, shareholders, partners, benefit plan sponsors,
fiduciaries, administrators or affiliates of any of the above, and all
successors and assignees of any of the above.

        B. If either party pursues a covered claim against the other by any
action, method or legal proceeding other than the arbitration provided herein,
the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorneys' fees
related to such other action or proceeding.

        C. The parties of this arbitration agreement acknowledge and agree that
they are waiving their right to a jury trial on the issues covered by this
Agreement.

        D. This is the complete Agreement of the parties on the subject of
arbitration of disputes and claims. This Agreement supersedes any prior or
contemporaneous oral, written or implied understanding on the subject, shall
survive the termination of Employee's employment and can only be revoked or
modified by a written agreement signed by the parties which specifically states
an intent to revoke or modify this agreement. If any provision of this Agreement
is adjudicated to be void or otherwise unenforceable in whole or in part, such
adjudication shall not affect the validity of the remainder of the Agreement,
which shall remain in full force and effect.

        My signature below signifies that I have read, understand and agree to
the Arbitration Agreement.


                                        "EMPLOYEE"

                                        ----------------------------------------
                                        John A. Wise

                                        NATURAL ALTERNATIVES INTERNATIONAL, INC.
                                        a Delaware corporation

                                        By:
                                           -------------------------------------
                                           Mark A. Le Doux, Chief Executive
                                           Officer



                                      -2-
<PAGE>   7

                                  ATTACHMENT #2

ASSIGNMENT OF INVENTIONS, PATENTS AND COPYRIGHTS AGREEMENT REGARDING
CONFIDENTIAL INFORMATION COVENANT OF EXCLUSIVITY AND NOT TO COMPETE


        In consideration of and as a condition of my prospective and continued
employment and the compensation afforded to me under the terms and conditions
thereof by Natural Alternatives International, Inc. (the "Company"), I agree to
the following, and I agree the following shall be in addition to the terms and
conditions of any Confidential Information and Invention Assignment Agreement
executed by employees of the Company generally, and which I may execute in
addition hereto:

        1.      INVENTIONS

               a. Disclosure. I will disclose promptly in writing to the
appropriate officer or other representative of the Company, any idea, invention,
work of authorship, design, formula, pattern, compilation, program, device,
method, technique, process, improvement, development or discovery, whether or
not patentable or copyrightable or entitled to legal protection as a trade
secret, trademark service mark, trade name or otherwise ("Invention"), that I
may conceive, make, develop, reduce to practice or work on, in whole or in part,
solely or jointly with others ("Invent"), during the term of my employment with
the Company. The disclosure required by this Section 1(a) applies to each and
every Invention that I Invent (i) whether during my regular hours of employment
or during my time away from work (ii) whether or not the Invention was made at
the suggestion of the Company, and (iii) whether or not the Invention was
reduced to or embodied in writing, electronic media or tangible form. The
disclosure required by this Section 1(a) also applies to any Invention which
may relate at the time of conception or reduction to practice of the Invention
to the Company's business or actual or demonstrably anticipated research or
development of the Company, and to any Invention which results from any work
performed by me for the Company. The disclosure required by this Section 1(a)
shall be received in confidence by the Company within the meaning of and to the
extent required by California Labor Code Section 2871, the provisions of which
are set forth on Exhibit "A" hereto.

               b. Assignment. I hereby assign to the Company without royalty or
any other further consideration my entire right, title and interest in and to
each and every Invention I am required to disclose under Section 1(a) other
than an Invention that (i) I have or shall have developed entirely on my own
time without using the Company's equipment, supplies, facilities or trade secret
information, (ii) does not relate at the time of conception or reduction to
practice of the Invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company and (iii) does not result
from any work performed by me for the Company. I acknowledge that the Company
has notified me that the assignment provided for in this Section l(b) does not
apply to any Invention to which the assignment may not lawfully apply under the
provisions of Section 2870 of the California Labor Code, a copy of which
is attached as Exhibit "A" hereto.

               c. Additional Assistance and Documents. I will assist the Company
in obtaining, maintaining and enforcing patents, copyrights, trade secrets,
trademarks, service marks, trade names and other proprietary rights in
connection with any Invention I have assigned to the Company under Section


                                      -1-
<PAGE>   8

l(b), and I further agree that my obligations under this Section l(c) shall
continue beyond the termination of my employment with the Company. Among other
things, for the foregoing purposes I will (i) testify at the request of the
Company in any interference, litigation or other legal proceeding that may arise
during or after my employment, and (ii) execute, verify, acknowledge and deliver
any proper document (and, if, because of my mental or physical incapacity or for
any other reason whatsoever, the Company is unable to obtain my signature to
apply for or to pursue any application for any United States or foreign patent
or copyright covering Inventions assigned to the Company by me, I hereby
irrevocably designate and appoint each of the Company and its duly authorized
officers and agents as my agent and attorney in fact to act for me and in my
behalf and stead to execute and file any such applications and to do all other
lawfully permitted acts to further the prosecution and issuance of any United
States or foreign patent or copyright thereon with the same legal force and
effect as if executed by me). I shall be entitled to reimbursement of any
out-of-pocket expenses incurred by me in rendering such assistance and, if I am
required to render such assistance after the termination of my employment, the
Company shall pay me a reasonable rate of compensation for time spent by me in
rendering such assistance to the extent permitted by law (provided, I understand
that no compensation shall be paid for my time in connection with preparing for
or rendering any testimony or statement under oath in any judicial proceeding,
arbitration or similar proceeding).

               d. Prior Contracts and Inventions; Rights of Third Parties. I
represent to the Company that, except as set forth on Exhibit "B" hereto, there
are no other contracts to assign Inventions now in existence between me and any
other person or entity (and if no Exhibit "B" is attached hereto or there is no
such contract described thereon, then it means that by signing this Agreement, I
represent to the Company that there is no such other contract). In addition, I
represent to the Company that I have no other employments or undertaking which
do or would restrict or impair my performance of this Agreement. I further
represent to the Company that Exhibit "C" hereto sets forth a brief description
of all Inventions made or conceived by me prior to my employment with the
Company which I desire to be excluded from this Agreement (and if no Exhibit "C"
is attached hereto or there is no such description set forth thereon, then it
means that by signing this Agreement I represent to the Company that there is no
such Invention made or conceived by me prior to my employment with the Company).
In connection with my employment with the Company, I promise not to use or
disclose to the Company any patent, copyright, confidential trade secret or
other proprietary information of any previous employer or other person that I am
not lawfully entitled so to use or disclose. If in the course of my employment
with the Company I incorporate into an Invention or any product process or
service of the Company any Invention made or conceived by me prior to my
employment with the Company, I hereby grant to the Company a royalty-free,
irrevocable, worldwide nonexclusive license to make, have made, use and sell
that Invention without restriction as to the extent of my ownership or interest.

        2.      CONFIDENTIAL INFORMATION

               a. Company Confidential Information. I will not use or disclose
Confidential Information, whether before, during or after the term of my
employment except to perform my duties as an employee of the Company based on my
reasonable judgment as an Officer of the Company, or in accordance with
instruction or authorization of the Company, without prior written consent of
the Company or pursuant to process or requirements of law after I have disclosed
such process or requirements to the Company so as to afford it the opportunity
to seek appropriate relief therefrom. "Confidential Information" means any
Invention of any person in which the Company has an interest and in addition
means any financial, client, customer, supplier, marketing, distribution and
other


                                      -2-
<PAGE>   9

information of a confidential or private nature connected with the business of
the Company or any person with whom it deals, provided by the Company to me or
to which I have access during or in the course of any employment.

               b. Third Party Information. I acknowledge that during my
employment with the Company I may have access to patent, copyright,
confidential, trade secret or other proprietary information of third parties
subject to restrictions on the use or disclosure thereof by the Company. During
the term of my employment and thereafter I will not use or disclose any such
information other than consistent with the restrictions and my duties as an
employee of the Company.

        3. PROPERTY OF THE COMPANY. All documents, instruments, notes,
memoranda, reports, drawings, blueprints, manuals, materials, data and other
papers and records of every kind which come into my possession during or in the
course of my employment, relating to any Inventions or Confidential Information,
are and shall remain the property of the Company and shall be surrendered by me
to the Company upon termination of my employment with the Company, or upon the
request of the Company, at any time during or after termination of my employment
with the Company.

        4. NO SOLICITATION OF COMPANY EMPLOYEES. While employed by the Company
and for a period of one year after termination of my employment with the
Company, I agree not to induce or attempt to influence directly or indirectly
any employee of the Company to terminate employment with the Company or to work
for me or any other person or entity.

        5. COVENANT OF EXCLUSIVITY AND NOT TO COMPETE. During the term of my
employment with the Company, I will not engage in any other professional
employment or consulting or directly or indirectly participate in or assist any
business which is a current or potential supplier, customer or competitor of the
Company without prior written approval from the Chief Executive Officer of the
Company.

        6. GENERAL.

               a. Assignments, Successors and Assignees. All representations,
warranties, covenants and agreements of the parties shall bind their respective
heirs, executors, personal representatives, successors and assignees
("transferees") and shall inure to the benefit of their respective permitted
transferees. The Company shall have the right to assign any or all of its rights
and to delegate any or all of its obligations hereunder. The undersigned
employee shall not have the right to assign any rights or delegate any
obligations hereunder without the prior written consent of the Company or its
transferee.

               b. Number and Gender, Headings. Each number and gender shall be
deemed to include each other number and gender as the context may require. The
headings and captions contained in this agreement shall not constitute a part
thereof and shall not be used in its construction or interpretation.

               c. Severability. If any provision of this agreement is found by
any court or arbitral tribunal of competent jurisdiction to be invalid or
unenforceable, the invalidity of such provision shall not affect the other
provisions of this agreement and all provisions not affected by the invalidity
shall remain in full force and effect.



                                      -3-
<PAGE>   10

               d. Amendment and Modification. This agreement may be amended or
modified only by a writing executed by each party.

               e. Government Law. The construction, interpretation and
performance of this agreement and all transactions under it shall be governed by
the internal laws of California.

               f. Remedies. I acknowledge that breach by me of any of the
provisions of this agreement will cause irreparable injury that cannot
adequately be compensated by money damages. The Company shall be entitled to
specific performance, temporary restraining orders, preliminary injunctions and
permanent injunctive relief to enforce my obligations under this agreement. No
remedy conferred by any of the specific provisions of this agreement is intended
to be exclusive of any other remedy. I agree to arbitrate on a final and binding
basis all disputes under this Agreement in accordance with and before the
Judicial Arbitration and Mediation Service ("JAMS").

               g. Attorneys' Fees. In the event of any litigation or other
action in connection with this agreement, the prevailing party shall be entitled
to recover its reasonable attorneys' fees and disbursements from the other party
as costs of suit and not as damages.

               h. No Effect on Other Terms or Conditions of Employment. I
acknowledge that this agreement does not affect any term or condition of my
employment except as expressly provided in this agreement, and that this
agreement does not give rise to any right or entitlement on my part to
employment or continued employment with the Company. I further acknowledge that
this agreement does not affect in any way the right of the Company to terminate
my employment.

        IN WITNESS WHEREOF, I have executed this agreement as of the date set
forth next to my signature below.


                                        ----------------------------------------
                                        Signature of Employee
                                        John A. Wise
                                        ----------------------------------------
                                        Printed Name of Employee


ACCEPTED:
NATURAL ALTERNATIVES INTERNATIONAL, INC.
a Delaware corporation

By:
   -------------------------------------
   Mark A. Le Doux, Chief Executive
   Officer



                                      -4-
<PAGE>   11

                                   EXHIBIT "A"

CALIFORNIA LABOR CODE

SECTION 2870.  INVENTION ON OWN TIME-EXEMPTION FROM AGREEMENT.

        (a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities or trade secret information expect for those
inventions that either:

               (1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.

               (2) Result from any work performed by the employee for the
employer.

        (b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.

SECTION 2871.  RESTRICTIONS ON EMPLOYER FOR CONDITION OF EMPLOYMENT.

        No employer shall require a provision made void or unenforceable by
Section 2870 as a condition of employment or continued employment. Nothing in
this article shall be construed to forbid or restrict the right of an employer
to provide in contracts of employment for disclosure, provided that any such
disclosures be received in confidence, of all of the employee's inventions made
solely or jointly with others during the term of his or her employment, a review
process by the employer to determine such issues as may arise, and for full
title to certain patents and inventions to be in the United States, as required
by contracts between the employer and the United States or any of its agencies.




                                      -5-
<PAGE>   12

                                   EXHIBIT "B"

        Except as set forth below, Employee represents to the Company that there
are no other contracts to assign Inventions now in existence between Employee
and any other person or entity (see Section l(d) of the Agreement):




                                      -6-
<PAGE>   13

                                   EXHIBIT "C"

        Set forth below is a brief description of all Inventions made or
conceived by Employee prior to Employee's employment with the Company which
Employee desires to be excluded from this agreement (see Section l(d) of the
Agreement):



                                      -7-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.10
<SEQUENCE>11
<FILENAME>a69688ex10-10.txt
<DESCRIPTION>EXHIBIT 10.10
<TEXT>

<PAGE>   1
                                                                   EXHIBIT 10.10

                              AMENDED AND RESTATED

                         EXECUTIVE EMPLOYMENT AGREEMENT

        Robert K. Clausen ("Employee") previously accepted the offer of Natural
Alternatives International, Inc. ("NAI") for employment as Vice
President-Operations beginning October 9, 2000, pursuant to an Executive
Employment Agreement entered into by NAI and Employee. Collectively, NAI and
Employee will be referred to herein as the "Parties." Prior to the grant of the
Restricted Stock Award referenced in Section 3.B. herein, the Parties agreed to
modify the terms of Employee's employment effective as of October 9, 2000. As a
result thereof, the Parties agreed to amend and restate the original Executive
Employment Agreement. As a result thereof, the Parties have executed this
Amended and Restated Executive Employment Agreement, intending it to be
effective October 9, 2000.

        1. The Parties anticipate that Employee will be employed through June
30, 2001 (the "Term"). During the Term, Employee's employment will be at-will
and may be terminated by either Employee or NAI at any time for any reason or no
reason, with or without cause upon written notice to the other. The at-will
status of the employment relationship may not be modified except in writing
authorized in advance by the Board of Directors of NAI and signed by the Chief
Executive Officer of NAI and Employee.

        2. Employee and NAI further understand and agree that nothing in the NAI
Employee Handbook is intended to be, and nothing in it should be construed to
be, a limitation of NAI's right to terminate, transfer, demote, suspend and
administer discipline at any time for any reason. Employee and NAI understand
and agree nothing in the Handbook is intended to, and nothing in the Handbook
should be construed to, create an implied or express contract of employment
contrary to this agreement.

        3. A. While Employee is employed by NAI, Employee's rate of compensation
will be at least 12,083.33 per month, payable no less frequently than monthly,
which will be reviewed at least annually to determine, based upon Employee's
performance and the performance of NAI, the amount of increase, (if any), in the
rate of compensation. The compensation set forth in this Section 3 will be
Employee's only compensation except standard employee benefits available to
other level one executives of NAI or any other written compensation arrangement
approved by the Board of Directors of NAI. Employee will be entitled to
participate in any bonus compensation in a manner and at a level consistent with
other level one executives of NAI. Currently, the level one executives of NAI
include all of the Corporate Officers of NAI, except for the Chief Executive
Officer.

               B. Upon and only following subsequent approval by the Board of
Directors on or after January 2, 2001, and contingent upon Employee's continuing
employment and satisfactory review by the Board of Directors in their sole
discretion, Employee shall receive a Restricted Stock Award of 5,000 shares of
common stock of NAI, pursuant to the NAI 1999 Omnibus Equity Incentive Plan and
the Restricted Stock Agreement which following its execution (if ever) shall be
attached hereto as Attachment #3 and at that time shall be incorporated herein.

               C. NAI shall grant the Employee an incentive stock option to
purchase 20,000 shares of NAI common stock. Such grant shall be proposed to the
Board of Directors of NAI at its next regularly scheduled meeting. One-third of
the options shall become exercisable on each of October 9, 2001, October 9,
2002, and October 9, 2003. The options shall have a term of 10 years and an
exercise price equal to the closing price for NAI Common Stock, as reported on
the date of approval of the grant by the Board of Directors of NAI.




<PAGE>   2

               D. Employee shall receive a single lump sum for relocation
expenses in the amount of $45,000, plus an amount sufficient to pay federal and
state income tax on such amount in the estimation of NAI, based on tax
withholding information furnished by Employee. Such amount is payable $22,500 on
execution hereof and $22,500 payable upon request of Employee, but in no event
later than March 1, 2001.

        4. If Employee continues working for NAI past the end of the Term, and
if NAI still desires Employee's services, then the following terms and
conditions will apply:

               (a) Employee shall be an at-will employee and either Employee or
        NAI will be entitled to terminate the employment relationship for any
        reason or for no reason, with or without cause and with or without
        notice.

               (b) Employee will be compensated at the rate set forth in section
        3 herein above unless another rate is mutually agreed upon; and

               (c) As to benefits and other terms of employment, Employee shall
        be subject to the same policies and procedures as other employees of NAI
        in similar positions.

        5. During the Term, and any extension thereof, Employee shall have such
responsibilities, duties and authority as NAI through its Chief Executive
Officer may from time to time assign to Employee, and that are normal and
customary duties of a Vice President-Operations of a publicly held corporation.
Employee's initial title shall be Vice President-Operations.

        6. In the event this Agreement is terminated by NAI without cause,
whether during or at the end of the Term (and any renewals thereof), Employee
shall be entitled to severance pay, including standard employee benefits
available to other level one executives of NAI, in an amount equivalent to his
then current compensation rate for the period set forth below opposite the
number of complete calendar months which have elapsed from the beginning date of
Employee's employment by NAI at the time of termination. One half of such amount
shall be paid upon termination and the balance shall be paid on a bi-weekly
basis during said severance period:

<TABLE>
<CAPTION>
               MONTHS OF                           SEVERANCE
               EMPLOYMENT                          PERIOD
               ----------                          ------
<S>                                                  <C>
               1 through 6 months                    2 months
               7 through 12 months                   6 months
               13 through 24 months                  9 months
               more than 24 months                 12 months
</TABLE>

        NAI may terminate this Agreement with cause, which shall be limited to
the occurrence of one or more of the following events: (i) the Employee's
commission of any fraud against NAI; (ii) Employee's intentional appropriation
for his personal use or benefit the funds of the Company not authorized by the
Chief Executive Officer or the Board of Directors, (iii) Employee's conviction
of any crime involving moral turpitude, (iv) Employee's conviction of a
violation of any state or federal law which could result in a material adverse
impact upon the business of NAI; or (v) Employee's material violation of this
Agreement, provided that Employee shall be given written notice by NAI of any
alleged material violation of the Agreement and an opportunity within 60 days,
to cure the alleged breach, which


                                      -2-
<PAGE>   3

Employee must diligently pursue to completion. No severance pay shall be due to
Employee if Employee is terminated for cause.

        7. In the event of any Change in Control, the following provisions will
apply.

               Any of the following shall constitute a "Change in Control" for
the purposes of this Section 7:

               A. A "person" (meaning an individual, a partnership, or other
group or association as defined in sections 13(d) and 14(d) of the Securities
Exchange Act of 1934) acquires fifty percent (50%) or more of the combined
voting power of the outstanding securities of NAI having a right to vote in
elections of directors; or

               B. The members of the Board of Directors of the Company who were
members of the Board of Directors on the commencement date hereof, shall for any
reason cease to constitute a majority of the Board of Directors of the Company;
or

               C. All, or substantially all of the business of NAI is disposed
of by NAI to a party or parties other than a subsidiary or other affiliate of
NAI, in which NAI owns less than a majority of the equity, pursuant to a partial
or complete liquidation of NAI, sale of assets (including stock of a subsidiary
of NAI) or otherwise.

        In the event of any such Change in Control, this Agreement shall
continue in effect unless the Employee at his sole option, and at any time
elects voluntarily to terminate this Agreement. In such case, NAI shall pay
Employee as severance pay or liquidated damages, or both, a lump sum payment
("Change in Control Severance Payment") equal to one hundred fifty percent
(150%) of the Employee's annual salary and bonus specified in Section 3 above or
such greater amount as the Board of Directors determines from time to time
pursuant to terms which may not be revoked or reduced thereafter.

        In the event this Agreement is terminated following a Change in Control
by NAI, and/or the surviving or resulting corporation, without cause, Employee
shall be entitled to a Change in Control Severance Payment equal to one hundred
fifty percent (150%) of the Employee's annual salary specified in Section 3
above or such greater amount as the Board of Directors determines from time to
time pursuant to terms which may not be revoked or reduced thereafter.

        Any Severance Payment shall be made not later than the fifteenth (15th)
day following the effective date of the voluntary or involuntary termination of
this Agreement in connection with a Change in Control; provided, however, that
if the amount of such payments cannot be finally determined on or before such
date, NAI shall pay to Employee on such date a good faith estimate of the
minimum amount of such payments, and shall pay the remainder of such payments
(together with interest at the rate provided in Internal Revenue Code Section
1274(b)(2)(B) of the Code), as soon as the amount thereof can be determined, but
in no event later than the thirtieth (30th) day after the applicable termination
date. In the event the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
NAI payable on the fifteenth (15th) day after receipt by Employee of a written
demand for payment from NAI (together with interest calculated as above). The
total of any payment pursuant to this Section 7 shall be limited to the extent
necessary, in the opinion of legal counsel acceptable to Employee and NAI, to
avoid the payment of an "excess parachute" payment within the meaning of
Internal Revenue Code Section 280 G or any similar successor provision.



                                      -3-
<PAGE>   4

        In the event of termination of this Agreement either by the Employee
under paragraph 7(B) or by NAI under paragraph 7(C), NAI shall cause each stock
option heretofore granted by NAI to the Employee to become fully exercisable and
to remain exercisable for the term of the option.

        8. Employee and NAI hereby agree to the Mutual Agreement to Arbitrate
attached hereto and made a part hereof as Attachment #1.

        9. Employee and NAI hereby agree to the Assignment of Inventions,
Patents and Copyrights Agreement Regarding Confidential Information Covenant of
Exclusivity and Not to Compete attached hereto and made a part hereof as
Attachment #2.

        10. This Agreement contains the entire agreement between the parties. It
supersedes any and all other agreements, either oral or in writing, between the
parties hereto with respect to Employee's employment by NAI. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not embodied herein and acknowledges that no
other agreement, statement or promise not contained in this Agreement shall be
valid or binding. This Agreement may not be modified or amended by oral
agreement or course of conduct, but only by an agreement in writing signed by
the Chief Executive Officer of NAI and Employee.

        11. This Executive Employment Agreement shall be construed and enforced
in accordance with the laws of the State of California.

        12. Should any part or provision of this Executive Employment Agreement
be held unenforceable or in conflict with the law of any jurisdiction, the
validity of the remaining parts shall not be affected by such holding.

                                        "EMPLOYEE"

                                        ----------------------------------------
                                        Robert K. Clausen

                                        NATURAL ALTERNATIVES INTERNATIONAL, INC.
                                        a Delaware corporation

                                        By:
                                           -------------------------------------
                                           Mark A. LeDoux, Chief Executive
                                           Officer



                                      -4-
<PAGE>   5

                                  ATTACHMENT #1

                      MUTUAL AGREEMENT TO ARBITRATE CLAIMS

        This Mutual Agreement to Arbitrate Claims is entered into between Robert
K. Clausen ("Employee") and Natural Alternatives International, Inc. ("NAI").

1.      Binding Arbitration of Disagreement and Claims

               We each voluntarily promise and agree to arbitrate any claims
covered by this Agreement. We further agree that such binding arbitration
pursuant to this Agreement shall be the sole and exclusive remedy for resolving
any such claims or disputes.

2.      Claims Covered by this Agreement

        A. Claims and disputes covered by this Agreement include all claims
against NAI (as defined below) and all claims that NAI may have against the
Employee, including, without limitation, those arising under:

               (1) Any federal, state or local laws, regulations or statutes
prohibiting employment discrimination (such as, without limitation: race, sex,
national origin, age, disability, religion, sexual orientation) and harassment.

               (2) Any alleged or actual agreement or covenant (oral, written or
implied) between Employee and NAI.

               (3) Any company policy or compensation or benefit plan, unless
the decision in question was made by an entity other than NAI.

               (4)    Any public policy.

               (5) Any other claim for personal, emotional, physical or economic
injury.

        B. The only disputes between Employee and NAI which are not included
within this Mutual Agreement to Arbitrate Claims are:

               (1) Any claim by Employee for workers' compensation or
unemployment compensation benefits.

               (2) Any claim by Employee for benefits under a company plan which
provides for its own arbitration procedure.

3.      Arbitration Procedure

        A. The arbitration will be conducted in accordance with the rules of the
current Judicial Arbitration and Mediation Services ("JAMS"), except that the
arbitrator shall be mutually acceptable to both parties. The arbitration will be
held in the state and county of the Employee's primary employment at the time of
the act giving rise to the dispute. The fees and expenses of the Arbitrator, and
the arbitration, will be borne by the Company. Each party will pay for the fees
and expenses of its own attorneys, experts, witnesses, transcripts and
preparation and presentation of proofs and post-


                                      -1-
<PAGE>   6

hearing briefs, unless the party prevails on a claim for which attorneys' fees
and costs are recoverable by statute or contract, in which case the prevailing
party shall be awarded attorneys fees and costs in accordance with that statute
or contract.

        B. Before such arbitration, each party shall have the right to conduct
discovery on the same basis and to the same extent as a civil action brought in
the Federal District Court for the Southern District of California.

        C. Any action to enforce or vacate the arbitrator's award shall be
governed by the Federal Arbitration Act if applicable, and otherwise by
applicable state law.

4.      Miscellaneous Provisions

        A. The term "company" means NAI, and all related entities, all officers,
employees, directors, agents, shareholders, partners, benefit plan sponsors,
fiduciaries, administrators or affiliates of any of the above, and all
successors and assignees of any of the above.

        B. If either party pursues a covered claim against the other by any
action, method or legal proceeding other than the arbitration provided herein,
the responding party shall be entitled to dismissal or injunctive relief
regarding such action and recovery of all costs, losses and attorneys' fees
related to such other action or proceeding.

        C. The parties to this arbitration agreement acknowledge and agree that
they are waiving their right to a jury trial on the issues covered by this
Agreement.

        D. This is the complete Agreement of the parties on the subject of
arbitration of disputes and claims. This Agreement supersedes any prior or
contemporaneous oral, written or implied understanding on the subject, shall
survive the termination of Employee's employment and can only be revoked or
modified by a written agreement signed by the parties which specifically states
an intent to revoke or modify this agreement. If any provision of this Agreement
is adjudicated to be void or otherwise unenforceable in whole or in part, such
adjudication shall not affect the validity of the remainder of the Agreement,
which shall continue in full force and effect.

        My signature below signifies that I have read, understand and agree to
the Arbitration Agreement.


                                        "EMPLOYEE"

                                        ----------------------------------------
                                        Robert K. Clausen

                                        NATURAL ALTERNATIVES INTERNATIONAL, INC.
                                        a Delaware corporation

                                        By:
                                           -------------------------------------
                                           Mark A. LeDoux, Chief Executive
                                           Officer



                                      -2-
<PAGE>   7

                                  ATTACHMENT #2

ASSIGNMENT OF INVENTIONS, PATENTS AND COPYRIGHTS AGREEMENT REGARDING
CONFIDENTIAL INFORMATION COVENANT OF EXCLUSIVITY AND NOT TO COMPETE


        In consideration of and as a condition of my prospective and continued
employment and the compensation afforded to me under the terms and conditions
thereof by Natural Alternatives International, Inc. (the "Company"), I agree to
the following, and I agree the following shall be in addition to the terms and
conditions of any Confidential Information and Invention Assignment Agreement
executed by employees of the Company generally, and which I may execute in
addition hereto:

        1.      INVENTIONS

               a. Disclosure. I will disclose promptly in writing to the
appropriate officer or other representative of the Company, any idea, invention,
work of authorship, design, formula, pattern, compilation, program, device,
method, technique, process, improvement, development or discovery, whether or
not patentable or copyrightable or entitled to legal protection as a trade
secret, trademark service mark, trade name or otherwise ("Invention"), that I
may conceive, make, develop, reduce to practice or work on, in whole or in part,
solely or jointly with others ("Invent"), during the term of my employment with
the Company. The disclosure required by this Section 1(a) applies to each and
every Invention that I Invent (i) whether during my regular hours of employment
or during my time away from work (ii) whether or not the Invention was made at
the suggestion of the Company, and (iii) whether or not the Invention was
reduced to or embodied in writing, electronic media or tangible form. The
disclosure required by this Section 1(a) also applies to any Invention which
may relate at the time of conception or reduction to practice of the Invention
to the Company's business or actual or demonstrably anticipated research or
development of the Company, and to any Invention which results from any work
performed by me for the Company. The disclosure required by this Section 1(a)
shall be received in confidence by the Company within the meaning of and to the
extent required by California Labor Code Section 2871, the provisions of which
are set forth on Exhibit "A" hereto.

               b. Assignment. I hereby assign to the Company without royalty or
any other further consideration my entire right, title and interest in and to
each and every Invention I am required to disclose under Section 1(a) other
than an Invention that (i) I have or shall have developed entirely on my own
time without using the Company's equipment, supplies, facilities or trade secret
information, (ii) does not relate at the time of conception or reduction to
practice of the Invention to the Company's business, or actual or demonstrably
anticipated research or development of the Company and (iii) does not result
from any work performed by me for the Company. I acknowledge that the Company
has notified me that the assignment provided for in this Section l(b) does not
apply to any Invention to which the assignment may not lawfully apply under the
provisions of Section 2870 of the California Labor Code, a copy of which
is attached as Exhibit "A" hereto.

               c. Additional Assistance and Documents. I will assist the Company
in obtaining, maintaining and enforcing patents, copyrights, trade secrets,
trademarks, service marks, trade names and other proprietary rights in
connection with any Invention I have assigned to the Company under Section l(b),
and I further agree that my obligations under this Section l(c) shall continue
beyond the termination of my employment with the Company. Among other things,
for the foregoing purposes I will (i) testify


                                      -1-
<PAGE>   8

at the request of the Company in any interference, litigation or other legal
proceeding that may arise during or after my employment, and (ii) execute,
verify, acknowledge and deliver any proper document (and, if, because of my
mental or physical incapacity or for any other reason whatsoever, the Company is
unable to obtain my signature to apply for or to pursue any application for any
United States or foreign patent or copyright covering Inventions assigned to the
Company by me, I hereby irrevocably designate and appoint each of the Company
and its duly authorized officers and agents as my agent and attorney in fact to
act for me and in my behalf and stead to execute and file any such applications
and to do all other lawfully permitted acts to further the prosecution and
issuance of any United States or foreign patent or copyright thereon with the
same legal force and effect as if executed by me). I shall be entitled to
reimbursement of any out-of-pocket expenses incurred by me in rendering such
assistance and, if I am required to render such assistance after the termination
of my employment, the Company shall pay me a reasonable rate of compensation for
time spent by me in rendering such assistance to the extent permitted by law
(provided, I understand that no compensation shall be paid for my time in
connection with preparing for or rendering any testimony or statement under oath
in any judicial proceeding, arbitration or similar proceeding).

               d. Prior Contracts and Inventions; Rights of Third Parties. I
represent to the Company that, except as set forth on Exhibit "B" hereto, there
are no other contracts to assign Inventions now in existence between me and any
other person or entity (and if no Exhibit "B" is attached hereto or there is no
such contract described thereon, then it means that by signing this Agreement, I
represent to the Company that there is no such other contract). In addition, I
represent to the Company that I have no other employments or undertaking which
do or would restrict or impair my performance of this Agreement. I further
represent to the Company that Exhibit "C" hereto sets forth a brief description
of all Inventions made or conceived by me prior to my employment with the
Company which I desire to be excluded from this Agreement (and if no Exhibit "C"
is attached hereto or there is no such description set forth thereon, then it
means that by signing this Agreement I represent to the Company that there is no
such Invention made or conceived by me prior to my employment with the Company).
In connection with my employment with the Company, I promise not to use or
disclose to the Company any patent, copyright, confidential trade secret or
other proprietary information of any previous employer or other person that I am
not lawfully entitled so to use or disclose. If in the course of my employment
with the Company I incorporate into an Invention or any product process or
service of the Company any Invention made or conceived by me prior to my
employment with the Company, I hereby grant to the Company a royalty-free,
irrevocable, worldwide nonexclusive license to make, have made, use and sell
that Invention without restriction as to the extent of my ownership or interest.

        2.      CONFIDENTIAL INFORMATION

               a. Company Confidential Information. I will not use or disclose
Confidential Information, whether before, during or after the term of my
employment except to perform my duties as an employee of the Company based on my
reasonable judgment as an Officer of the Company, or in accordance with
instruction or authorization of the Company, without prior written consent of
the Company or pursuant to process or requirements of law after I have disclosed
such process or requirements to the Company so as to afford it the opportunity
to seek appropriate relief therefrom. "Confidential Information" means any
Invention of any person in which the Company has an interest and in addition
means any financial, client, customer, supplier, marketing, distribution and
other information of a confidential or private nature connected with the
business of the Company or any person with whom it deals, provided by the
Company to me or to which I have access during or in the course of any
employment.



                                      -2-
<PAGE>   9

               b. Third Party Information. I acknowledge that during my
employment with the Company I may have access to patent, copyright,
confidential, trade secret or other proprietary information of third parties
subject to restrictions on the use or disclosure thereof by the Company. During
the term of my employment and thereafter I will not use or disclose any such
information other than consistent with the restrictions and my duties as an
employee of the Company.

        3. PROPERTY OF THE COMPANY. All documents, instruments, notes,
memoranda, reports, drawings, blueprints, manuals, materials, data and other
papers and records of every kind which come into my possession during or in the
course of my employment, relating to any Inventions or Confidential Information,
are and shall remain the property of the Company and shall be surrendered by me
to the Company upon termination of my employment with the Company, or upon the
request of the Company, at any time during or after termination of my employment
with the Company.

        4. NO SOLICITATION OF COMPANY EMPLOYEES. While employed by the Company
and for a period of one year after termination of my employment with the
Company, I agree not to induce or attempt to influence directly or indirectly
any employee of the Company to terminate employment with the Company or to work
for me or any other person or entity.

        5. COVENANT OF EXCLUSIVITY AND NOT TO COMPETE. During the term of my
employment with the Company, I will not engage in any other professional
employment or consulting or directly or indirectly participate in or assist any
business which is a current or potential supplier, customer or competitor of the
Company without prior written approval from the Chief Executive Officer of the
Company.

        6. GENERAL.

               a. Assignments, Successors and Assignees. All representations,
warranties, covenants and agreements of the parties shall bind their respective
heirs, executors, personal representatives, successors and assignees
("transferees") and shall inure to the benefit of their respective permitted
transferees. The Company shall have the right to assign any or all of its rights
and to delegate any or all of its obligations hereunder. The undersigned
employee shall not have the right to assign any rights or delegate any
obligations hereunder without the prior written consent of the Company or its
transferee.

               b. Number and Gender Headings. Each number and gender shall be
deemed to include each other number and gender as the context may require. The
headings and captions contained in this agreement shall not constitute a part
thereof and shall not be used in its construction or interpretation.

               c. Severability. If any provision of this agreement is found by
any court or arbitral tribunal of competent jurisdiction to be invalid or
unenforceable, the invalidity of such provision shall not affect the other
provisions of this agreement and all provisions not affected by the invalidity
shall remain in full force and effect.

               d. Amendment and Modification. This agreement may be amended or
modified only by a writing executed by each party.

               e. Government Law. The construction, interpretation and
performance of this agreement and all transactions under it shall be governed by
the internal laws of California.



                                      -3-
<PAGE>   10

               f. Remedies. I acknowledge that breach by me of any of the
provisions of this agreement will cause irreparable injury that cannot
adequately be compensated by money damages. The Company shall be entitled to
specific performance, temporary restraining orders, preliminary injunctions and
permanent injunctive relief to enforce my obligations under this agreement. No
remedy conferred by any of the specific provisions of this agreement is intended
to be exclusive of any other remedy. I agree to arbitrate on a final and binding
basis all disputes under this Agreement in accordance with and before the
Judicial Arbitration and Mediation Service ("JAMS").

               g. Attorneys' Fees. In the event of any litigation or other
action in connection with this agreement, the prevailing party shall be entitled
to recover its reasonable attorneys' fees and disbursements from the other party
as costs of suit and not as damages.

               h. No Effect on Other Terms or Conditions of Employment. I
acknowledge that this agreement does not affect any term or condition of my
employment except as expressly provided in this agreement, and that this
agreement does not give rise to any right or entitlement on my part to
employment or continued employment with the Company. I further acknowledge that
this agreement does not affect in any way the right of the Company to terminate
my employment.

        IN WITNESS WHEREOF, I have executed this agreement as of the date set
forth next to my signature below.


                                        ----------------------------------------
                                        Signature of Employee
                                        Robert K. Clausen
                                        ----------------------------------------
                                        Printed Name of Employee

ACCEPTED:
NATURAL ALTERNATIVES INTERNATIONAL, INC.
a Delaware corporation

By:
   -------------------------------------
   Mark A. LeDoux, Chief Executive
   Officer



                                      -4-
<PAGE>   11

                                   EXHIBIT "A"

CALIFORNIA LABOR CODE

SECTION 2870.  INVENTION ON OWN TIME-EXEMPTION FROM AGREEMENT.

        (a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities or trade secret information expect for those
inventions that either:

               (1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.

               (2) Result from any work performed by the employee for the
employer.

        (b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.

SECTION 2871.  RESTRICTIONS ON EMPLOYER FOR CONDITION OF EMPLOYMENT.

        No employer shall require a provision made void or unenforceable by
Section 2870 as a condition of employment or continued employment. Nothing in
this article shall be construed to forbid or restrict the right of an employer
to provide in contracts of employment for disclosure, provided that any such
disclosures be received in confidence, of all of the employee's inventions made
solely or jointly with others during the term of his or her employment, a review
process by the employer to determine such issues as may arise, and for full
title to certain patents and inventions to be in the United States, as required
by contracts between the employer and the United States or any of its agencies.




                                      -5-
<PAGE>   12

                                   EXHIBIT "B"

        Except as set forth below, Employee represents to the Company that there
are no other contracts to assign Inventions now in existence between Employee
and any other person or entity (see Section l(d) of the Agreement):




                                      -6-
<PAGE>   13

                                   EXHIBIT "C"

        Set forth below is a brief description of all Inventions made or
conceived by Employee prior to Employee's employment with the Company which
Employee desires to be excluded from this agreement (see Section l(d) of the
Agreement):



                                      -7-
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</DOCUMENT>
</SEC-DOCUMENT>
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