-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SlT9HilgyG+KmwigifEq4mgaC0OlKv5pxfEQZzzbON/HcBEqQSVUaPg+CS1kOG/P qKHcRWpHDViLiNDmuNBJ7Q== 0000898432-97-000474.txt : 19971106 0000898432-97-000474.hdr.sgml : 19971106 ACCESSION NUMBER: 0000898432-97-000474 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19971105 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NBTY INC CENTRAL INDEX KEY: 0000070793 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 112228617 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-39527 FILM NUMBER: 97707980 BUSINESS ADDRESS: STREET 1: 90 ORVILLE DR CITY: BOHEMIA STATE: NY ZIP: 11716 BUSINESS PHONE: 5165679500 MAIL ADDRESS: STREET 1: 90 ORVILLE DRIVE CITY: BOHEMIA STATE: NY ZIP: 11716 FORMER COMPANY: FORMER CONFORMED NAME: NATURES BOUNTY INC DATE OF NAME CHANGE: 19920703 S-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1997 Registration No. ------ ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 NBTY, INC. (Exact name of Registrant as specified in its charter)
DELAWARE 2834 11-2228617 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
--------------------- 90 ORVILLE DRIVE BOHEMIA, NEW YORK 11716 TELEPHONE: (516) 567-9500 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) --------------------- SCOTT RUDOLPH PRESIDENT NBTY, INC. 90 ORVILLE DRIVE BOHEMIA, NEW YORK 11716 TELEPHONE: (516) 567-9500 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES TO: MICHAEL C. DUBAN THOMAS F. COONEY, III MICHAEL C. DUBAN, P.C. SIMON M. NADLER 81 MAIN STREET KIRKPATRICK & LOCKHART LLP WHITE PLAINS, NEW YORK 10601 1800 MASSACHUSETTS AVENUE, N.W. (914) 681-0606 SECOND FLOOR WASHINGTON, D.C. 20036 (202) 778-9000 --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered in this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] _________. If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] _______________. CALCULATION OF REGISTRATION FEE
- --------------------------------------------------- -------------- -------------------- ---------------------- ------------------ PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF REGISTERED REGISTERED UNIT (1) PRICE REGISTRATION FEE - --------------------------------------------------- -------------- -------------------- ---------------------- ------------------ 8-5/8% Senior Subordinated Notes due 2007, Series B $150,000,000 100% $150,000,000 $45,455 - --------------------------------------------------- -------------- -------------------- ---------------------- ------------------ (1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457. - ----------------------------------------------------------------------------------------------------------------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -----------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED NOVEMBER 5, 1997 PROSPECTUS - -------------------- NBTY, INC. OFFER TO EXCHANGE 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B FOR ALL OUTSTANDING 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007 OF NBTY, INC. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ________________, UNLESS EXTENDED. NBTY, Inc., a Delaware corporation ("NBTY"), hereby offers (the "Exchange Offer"), upon the terms and conditions set forth in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount of its 8-5/8% Senior Subordinated Notes due 2007, Series B (the "Exchange Notes"), registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus is a part, for each $1,000 principal amount of its outstanding 8-5/8% Senior Subordinated Notes due 2007 (the "Original Notes"), of which $150,000,000 principal amount is outstanding. The form and terms of the Exchange Notes are the same as the form and terms of the Original Notes except that (i) the Exchange Notes will bear a Series B designation and a different CUSIP number from the Original Notes, (ii) the issuance of the Exchange Notes will have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, and (iii) holders of the Exchange Notes will not be entitled to certain rights of holders of Original Notes under the Exchange and Registration Rights Agreement (as defined). The Original Notes and the Exchange Notes are referred to herein collectively as the "Notes." The Exchange Notes will evidence the same debt as the Original Notes (which they replace) and will be issued under and be entitled to the benefits of that certain Indenture, dated as of September 23, 1997 (the "Indenture"), by and between NBTY, as issuer, and IBJ Schroder Bank & Trust Company, as trustee, governing the Notes. See "The Exchange Offer" and "Description of the Exchange Notes." NBTY will accept for exchange any and all Original Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on ____________________, unless extended by NBTY in its sole discretion (the "Expiration Date"). Tenders of Original Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is subject to certain customary conditions. See "The Exchange Offer." The Original Notes were sold by NBTY on September 23, 1997, to Chase Securities Inc. (the "Initial Purchaser") in a transaction not registered under the Securities Act in reliance upon an exemption under the Securities Act (the "Initial Offering"). The Initial Purchaser subsequently placed the Original Notes with qualified institutional buyers in reliance upon Rule 144A under the Securities Act ("Rule 144A"). Accordingly, the Original Notes may not be reoffered, resold or otherwise transferred in the United States unless registered under the Securities Act or unless an applicable exemption from the registration requirements of the Securities Act is available. The Exchange Notes are being offered hereunder to satisfy the obligations of NBTY under that certain Exchange and Registration Rights Agreement, dated as of September 23, 1997, by and between NBTY and the Initial Purchaser (the "Exchange and Registration Rights Agreement"), entered into in connection with the Initial Offering. See "The Exchange Offer - Purpose and Effect of the Exchange Offer." Interest on the Exchange Notes will accrue from the last interest payment on which interest was paid on the Original Notes surrendered in exchange therefor or, if no interest has been paid on the Original Notes, from the Issue Date (as defined), and will be payable semi-annually on September 15 and March 15 of each year, commencing on March 15, 1998. The Notes will mature on September 15, 2007. Except as described below, NBTY may not redeem the Notes prior to September 15, 2002. On or after such date, NBTY may redeem the Notes, in whole or in part, at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. In addition, at any time and from time to time on or prior to September 15, 2000, NBTY may, subject to certain requirements, redeem up to 33-1/3% of the aggregate principal amount of the Notes with the Net Cash Proceeds (as defined) from one or more Public Equity Offerings (as defined) by NBTY at a price equal to 108.625% of the principal amount to be redeemed, together with accrued and unpaid interest, if any, to the date of redemption, provided that at least 66-2/3% of the original aggregate principal amount of the Original Notes remains outstanding after each such redemption. The Notes will not be subject to any sinking fund requirement. Upon the occurrence of a Change of Control (as defined), NBTY will be required to make an offer to repurchase the Notes at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. See "Description of the Exchange Notes." The Notes will be unsecured and subordinated in right of payment to all existing and future Senior Indebtedness (as defined) of NBTY. The Notes will rank PARI PASSU in right of payment with any future senior subordinated indebtedness of NBTY and will rank senior to all Subordinated Indebtedness (as defined) of NBTY. The Indenture under which the Notes will be issued permits NBTY to incur additional indebtedness, including Senior Indebtedness, subject to certain restrictions. See "Description of the Exchange Notes." As of June 30, 1997, on a pro forma basis after giving effect to the Transaction (as defined), the aggregate principal amount of NBTY's outstanding Senior Indebtedness would have been approximately $31.1 million (exclusive of unused commitments) and NBTY would have had no senior subordinated indebtedness outstanding other than the Notes and no Subordinated Indebtedness. See "Description of the Exchange Notes" and "Capitalization." The common stock of NBTY is listed on the Nasdaq Stock Market under the symbol "NBTY." There has not previously been any public market for the Original Notes or the Exchange Notes. NBTY does not intend to list the Exchange Notes on any securities exchange, but the Original Notes are eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market. There can be no assurance that an active market for the Exchange Notes will develop. See "Risk Factors - Absence of Public Market." Moreover, to the extent that the Original Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Original Notes could be adversely affected. -------------------------------------------------------------------------- SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER. -------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------------------------------------------------------------------- Based upon an interpretation by the staff of the Securities and Exchange Commission (the "Commission") set forth in certain no-action letters issued to third parties, NBTY believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Original Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of NBTY within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. See "The Exchange Offer - Resale of the Exchange Notes." Holders of Original Notes wishing to accept the Exchange Offer must represent to ii NBTY, as required by the Exchange and Registration Rights Agreement, that such conditions have been met. Each broker-dealer that receives Exchange Notes for its own account (an "Exchanging Dealer") pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, an Exchanging Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by an Exchanging Dealer in connection with resales of Exchange Notes received in exchange for Original Notes where such Original Notes were acquired by such Exchanging Dealer as a result of market making activities or other trading activities. NBTY has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any Exchanging Dealer for use in connection with any such resale. See "Plan of Distribution." NTBY will not receive any proceeds from the Exchange Offer. NBTY has agreed to bear the expenses of the Exchange Offer. No underwriter is being used in connection with the Exchange Offer. Holders of Original Notes not tendered and accepted in the Exchange Offer will continue to hold such Original Notes and will be entitled to all the rights and benefits and will be subject to the limitations applicable thereto under the Indenture and with respect to transfer under the Securities Act. The Exchange Offer is intended to satisfy certain exchange and registration rights of holders of Original Notes under the Exchange and Registration Rights Agreement. Such rights shall terminate upon consummation of the Exchange Offer. See "The Exchange Offer - Purpose and Effect of the Exchange Offer." THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF ORIGINAL NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. UNTIL _________________ (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. The Exchange Notes will be available initially only in book-entry form. Except as may be described under "Book-Entry; Delivery and Form," NBTY expects that the Exchange Notes issued pursuant to the Exchange Offer will be represented by one or more duly registered Global Notes (as defined), that will be deposited with, or on behalf of, the Depository Trust Company ("DTC") and registered in its name or in the name of Cede & Co., its nominee. Beneficial interests in the Global Note representing the Exchange Notes will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its participants. After the initial issuance of the Global Note, Exchange Notes in certificated form will be issued in exchange for the Global Note only in accordance with the terms and conditions set forth in the Indenture. See "Book-Entry; Delivery and Form." This Prospectus incorporates documents by reference which are not iii presented herein or delivered herewith. These documents are available upon request from Harvey Kamil, Secretary, NBTY, Inc., 90 Orville Drive, Bohemia, New York 11716, (516) 567-9500. In order to ensure timely delivery of the documents, any request should be made by _______ (five days before Expiration Date). THE CONTENTS OF THIS PROSPECTUS ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS OR TAX ADVICE. EACH PROSPECTIVE PARTICIPANT IN THE EXCHANGE OFFER SHOULD CONSULT ITS OWN ATTORNEY, BUSINESS ADVISOR OR TAX ADVISOR AS TO LEGAL, BUSINESS OR TAX ADVICE. PROSPECTIVE INVESTORS MAY OBTAIN ADDITIONAL INFORMATION UPON REQUEST FROM THE INITIAL PURCHASER OR THE COMPANY WHICH THEY MAY REASONABLY REQUIRE IN CONNECTION WITH THE DECISION TO PARTICIPATE IN THE EXCHANGE OFFER. iv FORWARD LOOKING STATEMENTS THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY, INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY," "UNAUDITED PRO FORMA COMBINED FINANCIAL DATA," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL OF THESE FORWARD LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE COMPANY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES OR STATEMENTS WILL BE REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE: (1) ADVERSE PUBLICITY REGARDING THE CONSUMPTION OF NUTRITIONAL SUPPLEMENTS; (2) ADVERSE FEDERAL, STATE OR FOREIGN LEGISLATION OR REGULATION OR ADVERSE DETERMINATIONS BY REGULATORS; (3) SLOW OR NEGATIVE GROWTH IN THE NUTRITIONAL SUPPLEMENT INDUSTRY; (4) INABILITY OF THE COMPANY TO SUCCESSFULLY IMPLEMENT ITS BUSINESS STRATEGY; (5) INCREASED COMPETITION; (6) INCREASED COSTS; (7) LOSS OR RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (8) INCREASES IN THE COMPANY'S COST OF BORROWINGS OR INABILITY OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL; AND (9) CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH THE COMPANY MAY, FROM TIME TO TIME, COMPETE. MANY OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. FOR FURTHER INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK FACTORS." v SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION, RISK FACTORS AND HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA, INCLUDING THE RELATED NOTES, APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE REQUIRES, (i) "NBTY" REFERS TO NBTY, INC. AND ITS SUBSIDIARIES AS CONSTITUTED PRIOR TO THE ACQUISITION, (ii) "H&B" REFERS TO HOLLAND & BARRETT HOLDINGS LTD. AND ITS SUBSIDIARIES AS CONSTITUTED PRIOR TO THE ACQUISITION, AND (III) THE "COMPANY" REFERS TO NBTY, INC. AND ITS SUBSIDIARIES (INCLUDING H&B) AFTER GIVING EFFECT TO THE ACQUISITION. UNLESS OTHERWISE INDICATED, ALL FINANCIAL STATEMENTS IN THIS PROSPECTUS HAVE BEEN PREPARED IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("U.S. GAAP") AND ALL DOLLAR REFERENCES ARE IN U.S. DOLLARS. FINANCIAL INFORMATION OF H&B HAS BEEN DERIVED FROM THE HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF H&B PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED KINGDOM ("U.K. GAAP"). H&B FINANCIAL DATA, WHICH IS STATED IN U.S. DOLLARS, HAS BEEN ADJUSTED TO REFLECT U.S. GAAP AND IS BASED ON AN EXCHANGE RATE OF ONE POUND STERLING TO 1.665 U.S. DOLLARS. REFERENCES IN THIS PROSPECTUS TO FISCAL YEARS ARE TO NBTY'S FISCAL YEARS ENDING SEPTEMBER 30 OR H&B'S FISCAL YEARS ENDING JUNE 30, AS THE CASE MAY BE. UNLESS OTHERWISE NOTED, ALL MARKET DATA PRESENTED IN THIS PROSPECTUS IS BASED ON THE COMPANY'S RESEARCH AND ESTIMATES. NATURE'S BOUNTY(REGISTERED TRADEMARK), GOOD `N NATURAL(REGISTERED TRADEMARK), HUDSON(REGISTERED TRADEMARK), AMERICAN HEALTH(REGISTERED TRADEMARK), NATURAL WEALTH(REGISTERED TRADEMARK), PURITAN'S PRIDE(REGISTERED TRADEMARK), VITAMIN WORLD(REGISTERED TRADEMARK) AND HOLLAND & BARRETT ARE REGISTERED TRADEMARKS OF THE COMPANY. THE COMPANY OVERVIEW NBTY, founded in 1971, is one of the leading manufacturers and distributors of nutritional supplements in the U.S., marketing a complete line of vitamins, minerals and other nutritional supplements offered at value prices to its customers. NBTY markets its multi-branded products primarily through (i) one of the industry's leading mail order programs under its PURITAN'S PRIDE brand name to its proprietary list of over two million active customers, (ii) 115 Vitamin World retail stores strategically located primarily in factory outlet malls across the U.S., and (iii) wholesale distribution to drug store chains, supermarkets, independent pharmacies and health food stores such as Eckerd, Osco and Albertson's under the NATURE'S BOUNTY, NATURAL WEALTH, HUDSON, AMERICAN HEALTH and GOOD `N NATURAL brand names. Management believes that this unique three-tiered distribution system enables NBTY to most effectively market its products and lends stability, when compared to certain of its competitors, to its revenues and EBITDA. NBTY's revenues from mail order, retail and wholesale sales were approximately 42%, 16% and 42%, respectively, of total NBTY revenues for the nine month period ended June 30, 1997. NBTY's revenues and EBITDA for the nine month period ended June 30, 1997 were approximately $184 million and $33 million, respectively, and same store sales growth for the same period was approximately 15%. NBTY acquired (the "Acquisition") Holland & Barrett Holdings Ltd. ("H&B"), one of the leading nutritional supplement retailers in the United Kingdom ("U.K.") with 410 locations, on August 7, 1997. The Acquisition provides the Company with significant strategic opportunities to enhance H&B's revenues and profitability and increase its market share. H&B markets a broad line of nutritional supplement products, including vitamins, minerals and other nutritional supplements (approximately 58% of H&B's revenues for fiscal year 1997), and food products, including fruits and nuts, confectionery and other items (approximately 42% of H&B's revenues for fiscal year 1997). H&B's strategic retail locations in prime shopping areas and broad product offering have enabled it to become one of the U.K.'s largest nutritional supplement retailers. H&B's revenues and EBITDA for the fiscal year ended June 30, 1997 were approximately $171 million and $18 million, respectively, and same store sales growth for the same period was approximately 3%. The Company expects to derive substantial opportunities from the combination of NBTY's and H&B's operations. Pro forma for the Acquisition, the Company's revenues for mail order, retail and wholesale sales would have been approximately 25%, 50% and 25%, respectively, of total Company revenues for the nine month period ended June 30, 1997. Management believes that cross-selling an expansive selection of NBTY-manufactured products into H&B's 410 retail stores will enable H&B to offer a broader product selection at lower prices than its competitors and, at the same time, enhance H&B's margins. In addition, management expects to reduce per unit production costs in NBTY's manufacturing facilities through increased capacity utilization derived from this vertical integration. The Company also plans to increase the efficiency of its H&B operations by integrating NBTY's state-of-the-art point of sale ("POS") system throughout H&B's retail stores that will allow for more effective management of inventory and purchasing. The Company's vertically integrated structure and three-tiered distribution system, combined with its breadth of well recognized, value oriented brand names, position it to pursue continued growth and competitive success in each of its distribution channels. The U.S. retail market for vitamins, minerals and other nutritional supplements has grown at a compound annual rate of approximately 15%, from $3.7 billion in 1992 to $6.5 billion in 1996, according to the 1997 Packaged Facts Survey ("Packaged Facts"). According to the Simmons Market Research Bureau, 54% of the U.S. adult population uses vitamins, minerals or supplements. Further, based on U.S. Bureau of the Census data, the 45-and-older age group, which accounted for approximately 32% of the U.S. population in 1990, is expected to grow to 40% of the U.S. population by 2010. Management believes this industry growth is expected to continue based on the following factors: (i) the aging population, (ii) the growing body of research suggesting the benefits of certain nutritional supplements, and (iii) the favorable regulatory environment that allows for new product development, thereby stimulating total demand. COMPETITIVE STRENGTHS The Company believes that the following competitive strengths provide it with a solid foundation to further enhance growth, profitability and the Company's position as an industry leader: o VERTICALLY INTEGRATED OPERATIONS. As a result of the Acquisition, the Company will increase its degree of vertical integration by manufacturing nutritional supplements in NBTY facilities for sale through H&B's retail stores. Due to NBTY's existing level of vertical integration, NBTY is able to price its products at its stores approximately 20-40% lower than its largest competitor yet still maintain gross margins in excess of approximately 50%. The Acquisition will allow the Company to further increase its margins by providing NBTY-manufactured products throughout H&B retail stores. o EFFICIENT, MULTI-CHANNEL DISTRIBUTION NETWORK. NBTY's three-tiered U.S. distribution network (mail order, retail and wholesale), supplemented by H&B's strong retail position in the U.K. nutritional supplement market, allows the Company to access a broader base of nutritional supplement buyers and is unique among the Company's competitors. Management believes this diverse network lowers distribution risk and lends stability, when compared to certain of its competitors, to both revenues and EBITDA. o STRONG PORTFOLIO OF RETAIL STORES. NBTY's 115 Vitamin World stores, in combination with H&B's 410 stores, comprise a retail network that is strategically located in the high growth U.S. and U.K. markets. These stores delivered approximately 15% and 4% same store sales growth during the nine month period ended June 30, 1997 in the U.S. and the U.K., respectively. In addition to providing a platform for growth, management believes the Company's established retail stores pose significant barriers to entry for new competitors due to the Company's penetration of U.S. factory outlet malls and prime U.K. locations. o LEADING MAIL ORDER SUPPLIER. Management believes NBTY is the industry leader in the U.S. mail order nutritional supplement market with over two million active customers and response rates that management believes to be in excess of the mail order industry average. The Company's position as a leading mail order nutritional supplement distributor allows the Company to lower its per customer distribution costs, thereby enhancing margins. The Company plans to further expand its mail order operations in the U.K. by utilizing its mail order distribution warehouse in Southampton, England, which became fully operational in January 1997. o INNOVATIVE NEW PRODUCT DEVELOPMENT. NBTY continually pursues new product development in response to customer demand. In 1997 alone, NBTY 2 introduced more than 100 new stock keeping units ("SKUs") through its product development and merchandising groups working directly with managers at the retail level. Management believes its retail stores provide the Company with rapid access to customer demand information and allow the Company to test market new products before initiating a complete product launch across all distribution channels. o EXPERIENCED MANAGEMENT TEAM. Scott Rudolph, Chairman of the Board, President and Chief Executive Officer, has 11 years of experience with NBTY and 21 years in the nutritional supplement industry. Mr. Rudolph's skilled management team averages over 14 years of industry experience (primarily with NBTY) in the mail order, retail and wholesale distribution channels. BUSINESS STRATEGY The Company's strategy is to target the growing value-conscious consumer segment in order to increase sales and improve profitability, thereby strengthening its position as an industry leader through the following key initiatives: o INCREASE HIGH MARGIN RETAIL SALES. As a result of the Acquisition, NBTY's 115 retail stores have been augmented by H&B's 410 U.K. stores. In the U.S., the Company plans to open approximately 80 new stores per year, substantially increasing its penetration of the factory outlet mall base. By increasing overall foot traffic through its growing base of stores, the Company expects to increase its revenues and profitability, and enhance its market share. In the U.K., the Company expects to increase nutritional supplement sales by offering its products at lower prices than its competitors. o INCREASE HIGH MARGIN MAIL ORDER SALES. Management believes NBTY's PURITAN'S PRIDE mail order operation is the industry's leader with approximately two million active mail order customers. NBTY is currently in the process of automating its mail order shipping department, which will enable NBTY to fulfill mail order requests with greater speed and efficiency. NBTY expects to continue to strengthen its mail order sales through frequent promotions in order to further improve its response rate, which management believes is already above the mail order industry average. NBTY also expects to continue to add customers through the selective acquisition of companies that have similar or complementary products. In addition, NBTY's recently increased manufacturing capability will enable it to successfully compete for additional mail order customers through its ability to quickly introduce and deliver new products in response to consumer demand. o EMPHASIZE HIGHER MARGIN PRODUCTS. In addition to manufacturing and distributing high sales volume products (such as vitamins C and E), the Company also manufactures and distributes higher margin, specialty products. These popular specialty products, such as melatonin and St. John's Wort, are targeted primarily at dedicated nutritional supplement users and typically provide higher margins than more established products and broaden the Company's product line. o ENHANCE OPERATING EFFICIENCIES. The Acquisition will enable the Company to increase its level of vertical integration by selling nutritional supplements manufactured by NBTY through the H&B retail stores in the U.K. Management expects to supply approximately 75% of H&B's nutritional supplements from NBTY's U.S. manufacturing operations, thereby increasing NBTY's manufacturing margins and increasing H&B's margins while reducing per unit production costs in NBTY's manufacturing facilities through increased capacity utilization. Additionally, the Company intends to achieve significant operating efficiencies from the integration of its POS system into the H&B stores, which will significantly improve inventory management, production scheduling and administrative functions. o RAPID NEW PRODUCT INTRODUCTION. Management believes that NBTY is among the leaders in its industry in the timely introduction of products in response to consumer demands. During 1997 alone, NBTY introduced more than 100 new SKUs. Given the changing nature of consumer demands for new products and the growing publicity of the value of vitamins, minerals and other nutritional supplements in the promotion of general health, 3 management believes that NBTY will continue to attract new customers based upon its ability to rapidly respond to consumer demands with high quality, value oriented products. As a result of the Company's ongoing manufacturing expansion, the Company will be poised to further develop new products that meet consumers' demand. THE TRANSACTION On August 7, 1997, NBTY acquired all of the issued and outstanding capital stock of Holland & Barrett Holdings Ltd. from Lloyds Chemists plc ("Lloyds") for an aggregate purchase price of approximately $169.0 million. Prior to the Acquisition, H&B operated as a subsidiary of Lloyds. Lloyds was acquired by GEHE AG ("GEHE") in January 1997 and, pursuant to GEHE's strategy of divesting Lloyds of non-core assets, GEHE determined to divest the H&B subsidiary. NBTY issued to Lloyds two promissory notes (the "Promissory Notes") totaling approximately $169.0 million as consideration for the purchase of the capital stock of H&B. In connection with the Acquisition, NBTY (i) entered into a $50.0 million revolving credit facility (the "Revolving Credit Facility"), which provides for borrowings for working capital and general corporate purposes, and (ii) issued $150.0 million of Original Notes (the "Initial Offering," and together with the Revolving Credit Facility, the "Financing"). The Acquisition and the Financing are, together, referred to as the Transaction. On a pro forma basis, after giving effect to the Transaction, the Company's unused availability under the Revolving Credit Facility was approximately $37.5 million. See "Capitalization" and "Description of the Revolving Credit Facility." NBTY paid in full the Promissory Notes on October 17, 1997, using proceeds from the Initial Offering and the Financing. The sources and uses of funds for the Transaction, which assume that the Transaction had occurred on June 30, 1997, are as follows: SOURCES: (DOLLARS IN MILLIONS) Cash on hand......................................... $ 15.2 Revolving Credit Facility(a)......................... 12.5 Original Notes....................................... 148.8 ----- Total Sources of Funds............................ $176.5 ====== USES: Payment of Promissory Notes.......................... $169.0 Transaction fees and expenses........................ 7.5 ------ Total Uses of Funds............................... $176.5 ====== - ---------- (a) Following consummation of the Transaction, the Company had available $37.5 million under the Revolving Credit Facility that may be drawn for working capital and general corporate purposes, including capital expenditures. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 4 THE INITIAL OFFERING Original Notes......................... The Original Notes were sold by NBTY on September 23, 1997 (the "Initial Offering"), to Chase Securities Inc. (the "Initial Purchaser") pursuant to a Purchase Agreement, dated as of September 17, 1997, by and between NBTY and the Initial Purchaser (the "Purchase Agreement"). The Initial Purchaser subsequently resold the Original Notes to qualified institutional buyers pursuant to Rule 144A under the Securities Act ("Rule 144A"). Exchange and Registration Rights Agreement.............................. Pursuant to the Purchase Agreement, NBTY and the Initial Purchaser entered into an Exchange and Registration Rights Agreement (the "Exchange and Registration Rights Agreement"), dated as of September 23, 1997 (the "Issue Date"), which grants the holders of the Original Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy such exchange and registration rights, which rights shall terminate upon consummation of the Exchange Offer. See "The Exchange Offer - Purpose and Effect of the Exchange Offer." THE EXCHANGE OFFER Securities Offered..................... $150,000,000 aggregate principal amount of 8-5/8% Senior Subordinated Notes due 2007, Series B, of NBTY (the "Exchange Notes"). The Exchange Offer..................... $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of Original Notes. As of the date hereof, $150,000,000 aggregate principal amount of Original Notes are outstanding. NBTY will issue the Exchange Notes to holders as promptly as practicable after the Expiration Date. Based on an interpretation by the staff of the Securities and Exchange Commission (the "Commission") set forth in no-action letters issued to third parties, NBTY believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Original Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of NBTY within the meaning of Rule 405 under the Securities Act of 1933, as amended (the "Securities Act")) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and that such holder does not intend to participate and has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes. Any participating broker-dealer (an "Exchanging Dealer") that acquired Original Notes for its own account as a result of market making activities or other trading activities may be a 5 statutory underwriter. Each Exchanging Dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, an Exchanging Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by an Exchanging Dealer in connection with resales of Exchange Notes received in exchange for Original Notes where such Original Notes were acquired by such Exchanging Dealer as a result of market making activities or other trading activities. NBTY has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any Exchanging Dealer for use in connection with any such resale. See "Plan of Distribution." Any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Exchange Notes could not rely on the position of the staff of the Commission enunciated in no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Failure to comply with such requirements in such instance may result in such holder incurring liability under the Securities Act for which the holder is not indemnified by NBTY. Expiration Date........................ 5:00 p.m., New York City time, on _________________, unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. Accrued Interest on the Exchange Notes and the Original Notes........... Interest on the Exchange Notes issued pursuant to the Exchange Offer will accrue from the last interest payment date on which interest was paid on the Original Notes surrendered in exchange therefor or, if no interest has been paid on the Original Notes, from the Issue Date. Holders whose Original Notes are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the Original Notes. Conditions to the Exchange Offer....... The Exchange Offer is subject to certain customary conditions, which may be waived by NBTY. See "The Exchange Offer - Conditions." Procedures for Tendering Original Notes.................................. Each holder of Original Notes wishing to accept the Exchange Offer must complete, sign and date the accompanying Letter of Transmittal, or a facsimile thereof (or, in the case of a book-entry transfer, transmit an Agent's Message (as defined) in lieu thereof), in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter 6 of Transmittal, or such facsimile (or Agent's Message), together with the Original Notes and any other required documentation to the Exchange Agent (as defined) at the address set forth herein. By executing the Letter of Transmittal (or transmitting an Agent's Message), each holder will represent to NBTY that, among other things, the Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the holder, that neither the holder nor any such other person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that neither the holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of NBTY. See "The Exchange Offer - Purpose and Effect of the Exchange Offer" and "- Procedures for Tendering." Untendered Original Notes.............. Following the consummation of the Exchange Offer, holders of Original Notes eligible to participate but who do not tender their Original Notes will not have any further exchange or registration rights and such Original Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Original Notes could be adversely affected. See "Risk Factors - Absence of Public Market." Consequences of Failure to Exchange............................... Original Notes that are not exchanged pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Original Notes may be resold only (i) to NBTY, (ii) pursuant to Rule 144A or Rule 144 under the Securities Act or pursuant to some other exemption under the Securities Act, (iii) outside the United States to a foreign person pursuant to the requirements of Rule 904 under the Securities Act, or (iv) pursuant to an effective registration statement under the Securities Act. See "The Exchange Offer - Consequences of Failure to Exchange." Shelf Registration Statement........... If any holder of Original Notes (other than any such holder which is an "affiliate" of NBTY within the meaning of Rule 405 under the Securities Act) is not eligible under applicable securities laws to participate in the Exchange Offer and such holder has satisfied certain conditions relating to the provision of information to NBTY for use therein, and under certain other circumstances, NBTY has agreed to use its reasonable best efforts to file with the Commission a shelf registration statement (the "Shelf Registration Statement"), and to use its reasonable best efforts to have such Shelf Registration Statement declared effective. NBTY has agreed to maintain the effectiveness of the Shelf Registration Statement for, under certain circumstances, a maximum of two years, to cover resales of the Original Notes held by any such holders. 7 Special Procedures for Beneficial Owners................................. Any beneficial owner whose Original Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering its Original Notes, either make appropriate arrangements to register ownership of the Original Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Guaranteed Delivery Procedures......... Holders of Original Notes who wish to tender their Original Notes and whose Original Notes are not immediately available or who cannot deliver their Original Notes (or comply with the procedures for book-entry transfer), the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent (or transmit an Agent's Message in lieu thereof) prior to the Expiration Date must tender their Original Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer - Guaranteed Delivery Procedures." Withdrawal Rights...................... Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. Acceptance of Original Notes and Delivery of Exchange Notes............. NBTY will accept for exchange any and all Original Notes that are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered as promptly as practicable following the Expiration Date. See "The Exchange Offer - Terms of the Exchange Offer." Use of Proceeds........................ There will be no cash proceeds to NBTY from the exchange pursuant to the Exchange Offer. Exchange Agent......................... IBJ Schroder Bank & Trust Company. THE EXCHANGE NOTES General................................ The form and terms of the Exchange Notes are the same as the form and terms of the Original Notes (which they replace) except that (i) the 8 Exchange Notes bear a Series B designation and a different CUSIP number from the Original Notes, (ii) the issuance of the Exchange Notes will have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, and (iii) the holders of Exchange Notes will not be entitled to certain rights under the Exchange and Registration Rights Agreement, including the provisions providing for an increase in the interest rate on the Original Notes in certain circumstances relating to the timing of the Exchange Offer, which rights will terminate when the Exchange Offer is consummated. See "The Exchange Offer - Purpose and Effect of the Exchange Offer." The Exchange Notes will evidence the same debt as the Original Notes and will be entitled to the benefits of the Indenture. See "Description of the Exchange Notes." The Original Notes and the Exchange Notes are referred to herein collectively as the "Notes." Issuer................................. NBTY, Inc. Securities Offered..................... $150 million aggregate principal amount of 8-5/8% Senior Subordinated Notes due 2007, Series B. Maturity............................... September 15, 2007. Interest Payment Dates................. September 15 and March 15 of each year, commencing March 15, 1998. Sinking Fund........................... None. Optional Redemption.................... Except as described below, NBTY may not redeem the Exchange Notes prior to September 15, 2002. On or after such date, NBTY may redeem the Exchange Notes, in whole or in part, at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. In addition, at any time and from time to time on or prior to September 15, 2000, NBTY may redeem up to 33-1/3% of the aggregate principal amount of the Exchange Notes with the net cash proceeds of one or more Public Equity Offerings (as defined) by NBTY, at a redemption price equal to 108.625% of the principal amount to be redeemed, together with accrued and unpaid interest, if any, to the date of redemption, provided that at least 66-2/3% of the originally issued aggregate principal amount of the Exchange Notes remains outstanding after each such redemption. See "Description of the Exchange Notes - Optional Redemption." Change of Control...................... Upon the occurrence of a Change of Control, NBTY will be required to make an offer to repurchase the Exchange Notes at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. See "Description of the Exchange Notes - Change of Control." 9 Ranking................................ The Exchange Notes will be unsecured and will be subordinated in right of payment to all existing and future Senior Indebtedness (as defined) of NBTY. The Exchange Notes will rank PARI PASSU in right of payment with any future senior subordinated indebtedness of NBTY and will rank senior to all Subordinated Indebtedness (as defined) of NBTY. As of June 30, 1997, on a pro forma basis after giving effect to the Transaction, the aggregate principal amount of NBTY's outstanding Senior Indebtedness would have been approximately $31.1 million. NBTY would have had no senior subordinated indebtedness outstanding other than the Notes. See "Description of the Exchange Notes - Ranking" and "- Subordination of the Exchange Notes." Restrictive Covenants.................. The indenture under which the Exchange Notes will be issued (the "Indenture") will limit, among other things, (i) the incurrence of additional indebtedness by NBTY and its Subsidiaries, (ii) the payment of dividends on, and redemption of, capital stock of NBTY and its Subsidiaries, (iii) investments, (iv) sales of assets and Subsidiary stock, (v) transactions with affiliates and (vi) consolidations, mergers and transfers of all or substantially all of NBTY's assets. The Indenture will also prohibit certain restrictions on distributions from Subsidiaries. However, all of these limitations and prohibitions are subject to a number of important qualifications and exceptions. See "Description of the Exchange Notes - Certain Covenants." Use of Proceeds........................ NBTY will not receive any proceeds from the Exchange Offer. NBTY used the net proceeds from the Initial Offering, together with amounts drawn under the Revolving Credit Facility, to pay the Promissory Notes issued in connection with the Acquisition and to pay related fees and expenses. See "Use of Proceeds." RISK FACTORS See "Risk Factors" for a discussion of certain factors that should be considered before tendering Original Notes in exchange for Exchange Notes. These risk factors are generally applicable to the Original Notes as well as the Exchange Notes. -------------------------------------------- The principal executive offices of the Company are located at 90 Orville Drive, Bohemia, New York 11716, and the Company's telephone number is (516) 567-9500. 10 SUMMARY PRO FORMA COMBINED FINANCIAL DATA THE COMPANY The following table sets forth certain unaudited summary pro forma combined financial data of the Company for the periods ended and as of the dates indicated as described in the Unaudited Pro Forma Combined Financial Data. The unaudited summary pro forma combined statement of income data give effect to the Transaction as if it had occurred at the beginning of the periods indicated. The unaudited summary pro forma combined balance sheet data give effect to the Transaction as if it had occurred on June 30, 1997. "Other Data" below, not directly derived from the Unaudited Pro Forma Combined Financial Data, or the NBTY or H&B historical consolidated financial statements, have been presented to provide additional analysis. The consolidated financial statements of H&B prepared in accordance with U.K. GAAP used in preparing the Unaudited Pro Forma Combined Financial Data have been adjusted to present such information in accordance with U.S. GAAP and translated into U.S. dollar equivalent financial statements using the exchange rate in effect at June 30, 1997, which was one pound sterling to 1.665 U.S. dollars. For further information regarding the effect, if any, of the difference between U.K. GAAP and U.S. GAAP, see Note 3 of H&B's Consolidated Financial Statements included elsewhere in this Prospectus. The Summary Pro Forma Combined Financial Data do not purport to represent what the Company's results of operations or financial condition would have actually been had the Transaction been consummated as of such dates or to project the Company's results of operations or financial condition for any future period. The Summary Pro Forma Combined Financial Data have been derived from and should be read in conjunction with the Unaudited Pro Forma Combined Financial Data and the notes thereto, the separate historical consolidated financial statements of NBTY and H&B and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus.
NINE MONTHS ENDED YEAR ENDED JUNE 30, 1997 SEPTEMBER 30, 1996 ------------- ------------------ (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF INCOME DATA: Net Sales....................................... $ 311.8 $ 345.3 Gross profit (a)................................ 157.3 169.8 Income from operations.......................... 33.5 29.3 Interest expense, net........................... 12.5 17.2 Net income...................................... 11.6 6.1 Net income per share............................ $ 0.58 $ 0.31 OTHER DATA: EBITDA (b)...................................... $ 47.3 $ 45.9 EBITDA margin (b)............................... 15.2% 13.3% Capital expenditures............................ $ 18.8 $ 27.1 Number of retail stores (at end of period)...... 516 444 Ratio of total debt to EBITDA................... - - Ratio of EBITDA to interest expense............. 3.8x 2.7x Ratio of earnings to fixed charges (c).......... 2.1x 1.5x BALANCE SHEET DATA (END OF PERIOD): Working capital................................. $ 47.6 Total assets.................................... 370.5 Total debt...................................... 179.5 Stockholders' equity............................ 113.3
- -------------- (a) Gross profit is defined as net sales less cost of sales. (b) EBITDA is defined as net income before interest expense, income taxes and depreciation and amortization. Management believes that EBITDA is a measure commonly used by analysts and investors to determine a company's ability to service and incur debt. Accordingly, this information has been presented to permit a more complete analysis. EBITDA should not be considered a substitute for net income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. EBITDA margin is computed as EBITDA as a percentage of net sales. (c) For the purposes of computing these ratios, earnings consist of income before income taxes and fixed charges. Fixed charges consist of interest expense, amortization of debt financing costs and one-third of rental expenses. 11 SUMMARY HISTORICAL FINANCIAL DATA NBTY, INC. The following table sets forth summary financial data of NBTY for each of the five fiscal years in the period ended September 30, 1996 and for the nine month periods ended June 30, 1997 and 1996. The statement of income data for the five fiscal years in the period ended September 30, 1996 are derived from NBTY's audited historical financial statements included elsewhere in this Prospectus. The statement of income data for the nine month periods ended June 30, 1997 and 1996 has been derived from the unaudited financial statements of NBTY. "Other Data" below, not directly derived from NBTY's historical financial statements, have been presented to provide additional analysis. In the opinion of management, the unaudited data includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the data for such periods. Interim results for the nine month period ended June 30, 1997 are not necessarily indicative of results that can be expected in future periods. The summary financial data below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Historical Results of Operations -- NBTY," "Selected Historical Financial Data -- NBTY" and the historical financial statements and notes thereto included elsewhere in this Prospectus.
NINE MONTHS ENDED JUNE 30, YEAR ENDED SEPTEMBER 30, ------------------- --------------------------------------------------------- 1997 1996 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ---- ---- (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF INCOME DATA: Net Sales ................... $ 184.1 $ 142.1 $ 194.4 $ 178.8 $ 156.1 $ 138.4 $ 100.9 Gross Profit (a) ............ 95.9 70.0 98.8 84.9 76.2 70.4 50.3 Catalog printing, postage and promotion ............... 14.6 13.2 17.6 19.3 14.8 11.5 7.5 Selling, general and administrative .......... 53.9 42.8 58.6 56.7 49.2 42.8 35.5 Income from operations ...... 27.4 14.0 22.6 8.9 12.2 16.1 7.3 Interest expense, net ....... 1.3 1.0 1.4 1.1 0.9 1.2 1.3 Net income .................. 16.1 8.1 13.4 5.1 7.8 9.7 3.7 Net income per share ........ $ 0.80 $ 0.41 $ 0.67 $ 0.26 $ 0.38 $ 0.53 $ 0.25 OTHER DATA: EBITDA (b) ..................... $ 32.7 $ 18.6 $ 29.4 $ 14.3 $ 17.7 $ 20.8 $ 10.2 EBITDA margin (b) .............. 17.8% 13.1% 15.1% 8.0% 11.3% 15.0% 10.1% Capital expenditures ........... $ 11.1 $ 11.5 $ 15.8 $ 11.5 $ 11.6 $ 13.9 $ 4.6 Same store sales growth ........ 15.1% 23.1% 31.0% 16.0% 7.5% 31.9% -- Number of retail stores (at end of period)................. 106 58 55 19 7 3 2 Ratio of earnings to fixed charges (c).................... 14.4x 10.7x 11.7x 6.6x 10.7x 10.8x 4.6x
- ------------ (a) Gross profit is defined as net sales less cost of sales. (b) EBITDA is defined as net income before interest expense, income taxes and depreciation and amortization. Management believes that EBITDA is a measure commonly used by analysts and investors to determine a company's ability to service and incur debt. Accordingly, this information has been presented to permit a more complete analysis. EBITDA should not be considered a substitute for net income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. EBITDA margin is computed as EBITDA as a percentage of net sales. (c) For the purposes of computing these ratios, earnings consist of income before income taxes and fixed charges. Fixed charges consist of interest expense, amortization of debt financing costs and one-third of rental expenses. 12 SUMMARY HISTORICAL FINANCIAL DATA HOLLAND & BARRETT HOLDINGS LTD. The following table sets forth summary financial data of H&B for each of the three fiscal years in the period ended June 30, 1997. The statement of income data for the three fiscal years in the period ended June 30, 1997 are derived from H&B's audited historical consolidated financial statements included elsewhere in this Prospectus. The Summary Historical Financial Data have been presented in accordance with U.K. GAAP in pounds sterling. "Other Data," not directly derived from the H&B historical consolidated financial statements, have been presented to provide additional analysis. In the opinion of management, the unaudited data includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the data for such periods. The summary financial data below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations--Historical Results of Operations--H&B," "Selected Historical Financial Data--H&B" and the historical consolidated financial statements and notes thereto included elsewhere in this Prospectus.
YEAR ENDED JUNE 30, ----------------------------------------------- 1997 1996 1995 ---- ---- ---- (POUNDS STERLING IN MILLIONS) STATEMENT OF INCOME DATA: Turnover (a)...................................... (Pound (Pound (Pound Sterling)102.9 Sterling)90.6 Sterling)77.1 Gross profit...................................... 49.3 42.7 36.0 Distribution costs................................ 39.4 33.9 28.7 Administrative expense............................ 2.2 1.5 1.5 Operating profit.................................. 7.7 7.3 5.8 Interest payable and other similar charges (b).... 0.3 0.4 0.6 Profit on ordinary activities after taxation (c).. 4.8 4.4 3.5 OTHER DATA: EBITDA (d)........................................ (Pound (Pound (Pound Sterling) 11.0 Sterling)10.0 Sterling) 7.4 EBITDA margin (d)................................. 10.7% 11.0% 9.6% Capital expenditures.............................. (Pound (Pound (Pound Sterling) 6.8 Sterling) 6.8 Sterling) 6.1 Same store sales growth........................... 2.8% 8.0% - Number of retail stores (at end of period)........ 410 389 347
- ------------ (a) Turnover represents net sales. (b) Interest payable and other similar charges includes non-operating charges. (c) Profit on ordinary activities after taxation represents net income. (d) EBITDA is defined as net income before interest expense, income taxes, depreciation and amortization and other non-operating charges. Management believes that EBITDA is a measure commonly used by analysts and investors to determine a company's ability to service and incur debt. Accordingly, this information has been presented to permit a more complete analysis. EBITDA should not be considered a substitute for net income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. EBITDA margin is computed as EBITDA as a percentage of turnover. 13 RISK FACTORS PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE TENDERING ORIGINAL NOTES IN EXCHANGE FOR EXCHANGE NOTES. THE RISK FACTORS SET FORTH BELOW ARE GENERALLY APPLICABLE TO THE ORIGINAL NOTES AS WELL AS THE EXCHANGE NOTES. EFFECT OF UNFAVORABLE PUBLICITY The Company believes the nutritional supplement market is affected by national media attention regarding the consumption of nutritional supplements. There can be no assurance that future scientific research or publicity will be favorable to the nutritional supplement market or any particular product, or consistent with earlier favorable research or publicity. Future research reports or publicity that are perceived as less favorable or that question such earlier research or publicity could have a material adverse effect on the Company. Because of the Company's dependence upon consumer perceptions, adverse publicity, whether or not accurate, associated with illness or other adverse effects resulting from the consumption of the Company's products or any similar products distributed by other companies could have a material adverse effect on the Company. Such adverse publicity could arise even if the adverse effects associated with such products resulted from consumers' failure to consume such products appropriately. See "Business -- Litigation." GOVERNMENT REGULATION UNITED STATES. The manufacturing, packaging, labeling, advertising, distribution and sale of the Company's products are subject to regulation by Federal, state and local agencies, the most active of which is the U.S. Food and Drug Administration ("FDA"). The FDA regulates the Company's dietary supplements, principally under amendments to the Federal Food, Drug, and Cosmetic Act embodied in the Dietary Supplement Health and Education Act ("DSHEA"). Under DSHEA, new dietary ingredients (those not used in dietary supplements marketed before October 15, 1994) require premarket submission to the FDA of evidence of a history of their safe use, or other evidence establishing that they are reasonably expected to be safe. There can be no assurance that the FDA will accept the evidence of safety for any new dietary ingredient that the Company may decide to use, and the FDA's refusal to accept such evidence could result in regulation of such dietary ingredients as food additives, requiring the FDA pre-approval based on newly conducted, costly safety testing. Also, while DSHEA authorizes the use of statements of nutritional support in the labeling of dietary supplements, the FDA is required to be notified of such statements, and there can be no assurance that the FDA will deem a given statement of nutritional support made by the Company to be adequately substantiated as required by DSHEA, or that the FDA will not consider such a statement to be a drug claim rather than acceptable statements of nutritional support, necessitating approval of a costly new drug application, either of which findings could result in relabeling to delete or modify such a statement. DSHEA also authorizes the FDA to promulgate good manufacturing practice regulations ("GMP") for dietary supplements, which would require special quality controls for the manufacture, packaging, storage and distribution of supplements. There can be no assurance, if such GMP rules are issued, that the Company will be able to comply with them without incurring material expense to do so. DSHEA further authorizes the FDA to promulgate regulations governing the labeling of dietary supplements, including claims for supplements pursuant to recommendations made by the Presidential Commission on Dietary Supplement Labels. Such rules are expected to be issued, which will require relabeling of the Company's dietary supplements, and may require additional record keeping and claim substantiation testing, and even reformulation, recall or discontinuance of certain of the Company's supplements, and there can be no assurance that such requirements will not involve material expenses to the Company. Moreover, there can be no assurance that new laws or regulations imposing more stringent regulatory requirements on the dietary supplement industry will not be enacted or issued. NBTY is currently subject to a Federal Trade Commission ("FTC") consent decree and a U.S. Postal Service consent order, prohibiting certain advertising 14 claims for certain of the Company's products. Violations of these orders could result in substantial monetary penalties, which could have a material effect on the Company's business. See "Business--Government Regulation." UNITED KINGDOM. In the U.K., the manufacture, advertising, sale and marketing of food products is regulated by a number of government agencies including the Ministry of Agriculture, Fisheries and Food ("MAFF") and the Department of Health. In addition, there are various independent committees and agencies that report to the government, such as the Food Advisory Committee, which reports to MAFF and suggests appropriate courses of action by the relevant government department where there are areas of concern relating to food, and the Committee on Toxicity, which reports to the Department of Health. The relevant legislation governing the sale of food includes the Food Safety Act 1990, which sets out general provisions relating to the sale of food; for example, this law makes it unlawful to sell food that is harmful to human health. In addition, there are various statutory instruments and EC regulations governing specific areas such as the use of sweeteners, coloring and additives in food. Trading standards officers under the control of the Department of Trade and Industry also regulate matters such as the cleanliness of the properties on which food is produced and sold. There can be no assurance that more stringent regulations will not be promulgated or that, if more stringent regulations are promulgated, the Company will be able to meet such regulations without incurring material expense to do so. Food that has medicinal properties may fall under the jurisdiction of the Medicines Control Agency ("MCA"), a regulatory authority whose responsibility is to ensure that all medicines sold or supplied for human use in the U.K. meet acceptable standards of safety, quality and efficacy. These standards are determined by the 1968 Medicines Act together with an increasing number of European Commission ("E.C.") regulations and directives laid down by the European Union ("E.U."). The latter take precedence over national law. The MCA has a "borderline department" that determines when food should be treated as a medicine and should therefore fall under the relevant legislation relating to medicines. The MCA operates as the agent of the licensing authority (the United Kingdom Health Ministers) and its activities cover every facet of medicines controlled in the U.K., including involvement in the development of common standards of medicines controlled in Europe. The MCA is responsible, for example, for licensing, inspection and enforcement to ensure that legal requirements concerning manufacture, distribution, sale, labeling, advertising and promotion are upheld. Although the general tendency has been to liberalize restrictions on nutritional products and consider them food supplements rather than medicines, there can be no assurance that all new U.K. or E.U. regulations will be favorable for the Company. Any move by the U.K. or E.U. to restrict existing products or potencies, as well as the development of new products or potencies, could have a material adverse effect on the Company. Further, the Company is unable to predict what effect, if any, the Labour Party's victory in the 1997 U.K. elections will have on the Company, nor can the Company predict what effect, if any, the regulations of the E.U. will have on the Company. RISKS ASSOCIATED WITH INTERNATIONAL MARKETS The Company may experience difficulty entering new international markets due to greater regulatory barriers, the necessity of adapting to new regulatory systems, and problems related to entering new markets with different cultural bases and political systems. Giving effect to the Acquisition, approximately 45% of the Company's pro forma net sales for the nine months ended June 30, 1997 would have been generated outside the U.S. Operating in international markets exposes the Company to certain risks, including, among other things: (i) changes in or interpretations of foreign regulations that may limit the Company's ability to sell certain products or repatriate profits to the U.S.; (ii) exposure to currency fluctuations; (iii) the potential imposition of trade or foreign exchange restrictions or increased tariffs; and (iv) political instability. As the Company continues to expand its international operations, these and other risks associated with international operations are likely to increase. See "Business--Business Strategy" and "--Government Regulation." RETAIL STORE ROLL-OUT The Company is currently pursuing an aggressive retail store roll-out schedule, pursuant to which the Company anticipates opening an additional 80 Vitamin World stores per year. This strategy relies on the Company's ability to continue to increase its comparable store sales figures as well as the continued 15 growth in the retail segment of the Company's business. There can be no assurance that the Company's roll-out strategy will be successful, or that circumstances beyond the Company's control, such as unforeseen delays in the construction process for new stores, will not hinder the Company's strategy. See "Business--Business Strategy." LEVERAGE; RESTRICTIVE COVENANTS The Company has significant debt service obligations. As of June 30, 1997, after giving effect to the Transaction, the Company would have had outstanding debt of approximately $179.9 million and stockholders' equity of approximately $113.3 million. See "The Transaction," "Use of Proceeds" and "Capitalization." For the nine months ended June 30, 1997, the Company's ratio of earnings to fixed charges, on a pro forma basis, would have been 2.1x. The degree to which the Company is leveraged could have important consequences to the holders of the Exchange Notes, including: (i) the Company's ability to obtain additional financing for working capital, capital expenditures or acquisitions may be limited; (ii) a portion of the Company's cash flow from operations will be dedicated to the payment of the principal of, premium, if any, and interest on its indebtedness, thereby reducing funds available for investments; (iii) certain of the Company's borrowings, including all borrowings under the Company's Revolving Credit Facility, are and will continue to be at variable rates of interest, which exposes the Company to the risk of increased interest rates; and (iv) the Company may be more vulnerable to economic downturns and be limited in its ability to withstand competitive pressures. Certain of the Company's competitors may currently operate on a less leveraged basis and therefore could have significantly greater operating and financing flexibility than the Company. The Company's ability to make scheduled payments of the principal of, premium, if any, or interest on, or to refinance, its indebtedness will depend on its future operating performance and cash flow, which are subject to prevailing economic conditions, prevailing interest rate levels, and financial, competitive, business and other factors, many of which are beyond its control. See "--Risks Associated with International Markets." The Company believes that, based upon current levels of operations, it will be able to meet its debt service obligations, including payments of the principal of, premium, if any, and interest on the Exchange Notes when due. However, if the Company cannot generate sufficient cash flow from operations to meet its debt service obligations, then the Company may be required to refinance its indebtedness and may be forced to adopt an alternative strategy that could include actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing its indebtedness, or seeking additional equity capital. There is no assurance that refinancings would be permitted by the terms of the Revolving Credit Facility or the Indenture or, along with the alternative strategies, could be effected on satisfactory terms. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Revolving Credit Facility and the Indenture contain numerous restrictive covenants that limit the discretion of the Company's management with respect to certain business matters. These covenants place significant restrictions on, among other things, the ability of the Company to incur additional indebtedness, to create liens or other encumbrances, to pay dividends or make certain other payments, investments, loans and guarantees and to sell or otherwise dispose of assets and merge or consolidate with another entity. The Revolving Credit Facility contains a number of financial covenants that require the Company to meet certain financial ratios and financial condition tests. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Description of the Revolving Credit Facility" and "Description of the Exchange Notes--Certain Covenants." The Company's ability to meet these financial ratios and financial condition tests can be affected by events beyond its control, and there can be no assurance that the Company will meet such ratios or such tests. A failure to comply with the obligations in the Revolving Credit Facility or the Indenture could result in an event of default under the Revolving Credit Facility or an Event of Default (as defined) under the Indenture which, if not cured or waived, could permit acceleration of the relevant indebtedness and acceleration of indebtedness under other instruments that may contain cross-acceleration or cross-default provisions. If the indebtedness under the Revolving Credit Facility were to be accelerated, there can be no assurance that the assets of the Company would be sufficient to repay in full that indebtedness and the other indebtedness of the Company, including the Exchange Notes. Other indebtedness of the Company and its subsidiaries that 16 may be incurred in the future may contain financial or other covenants more restrictive than those applicable to the Exchange Notes. SUBORDINATION The Exchange Notes will be general unsecured obligations of the Company. The payment of principal of, premium, if any, and interest on, and any other amounts owing in respect of, the Exchange Notes will be subordinated to the prior payment in full of all existing and future Senior Indebtedness of the Company. In addition, repayment of the Revolving Credit Facility, but not the Exchange Notes, is secured by the pledge of all tangible and intangible assets of the Company. In the event of the bankruptcy, liquidation, dissolution, reorganization and other winding up of the Company, the assets of the Company will be available to pay obligations on the Exchange Notes only after all Senior Indebtedness has been paid in full; accordingly, there may not be sufficient assets remaining to pay amounts due on any or all of the Exchange Notes then outstanding. In addition, under certain circumstances, the Company may not pay principal of, premium, if any, or interest on, or pay other amounts owing in respect of, the Exchange Notes, or purchase, redeem or otherwise retire the Exchange Notes, in the event of certain defaults with respect to certain classes of Senior Indebtedness. As of June 30, 1997, after giving pro forma effect to the Transaction, there would have been approximately $31.1 million of Senior Indebtedness outstanding (excluding unused commitments). Additional Senior Indebtedness may be incurred by the Company from time to time, subject to certain restrictions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of the Exchange Notes--Certain Covenants--Limitation on Indebtedness." LIMITATIONS ON CHANGE OF CONTROL Upon the occurrence of a Change of Control, the Company will be required to make an offer for cash to repurchase the Exchange Notes at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. If a Change of Control were to occur, there can be no assurance that the Company would have sufficient funds to pay the purchase price for all of the Exchange Notes that the Company might be required to purchase. Certain events involving a Change of Control may result in an event of default under the Revolving Credit Facility or other indebtedness of the Company that may be incurred in the future. In the event a Change of Control occurs at a time when the Company is prohibited from purchasing the Exchange Notes, the Company could seek the consent of its lenders to purchase the Exchange Notes or could attempt to refinance the borrowings that contain such prohibition. There can be no assurance that such consent or refinancing would be obtained, or, if obtained, would be available on terms favorable to the Company. If the Company does not obtain such consent or repay such borrowings, the Company would remain prohibited from purchasing the Exchange Notes. In such case, the Company's failure to purchase tendered Exchange Notes would constitute an Event of Default under the Indenture. See "Description of the Exchange Notes--Subordination" and "--Change of Control." DEPENDENCE ON KEY PERSONNEL The Company's continued success will largely depend on the efforts and abilities of its executive officers and certain other key employees, including key H&B personnel. The Company's operations could be adversely affected if, for any reason, such officers or employees did not remain with NBTY or H&B, as applicable. See "Management." RELIANCE ON CERTAIN SUPPLIERS The Company purchases from third party suppliers certain important ingredients and raw materials that the Company cannot manufacture. The principal raw materials used in the manufacturing process are natural and synthetic vitamins, purchased from bulk manufacturers in the United States, Japan and Europe. Although raw materials are available from numerous sources, one supplier currently provides approximately 10% of the Company's purchases; an unexpected interruption of supply could cause the Company's results of operations to be adversely affected. No other supplier accounts for 10% or more of the Company's raw material purchases. 17 COMPETITION The market for vitamins and other nutritional supplements is highly competitive in all of the Company's channels of distribution. Numerous companies compete with the Company in the development, manufacture and marketing of vitamins and nutritional supplements. In the U.S., the Company's NATURE'S BOUNTY and NATURAL WEALTH brands compete for sales to drug store chains and supermarkets with heavily advertised national brands manufactured by large pharmaceutical companies, as well as Your Life, Nature Made and Sundown, sold by Leiner Health Products, Inc., Pharmavite Corp. and Rexall Sundown, Inc., respectively. The Vitamin World stores compete with specialty vitamin stores, such as General Nutrition Centers ("GNC") stores, health food stores and other retail stores. With respect to mail order sales, management believes PURITAN'S PRIDE is the largest mail order supplier of vitamins and other nutritional supplements in the U.S. and competes with a large number of smaller, usually less geographically diverse, mail order companies, some of which manufacture their own products and some of which sell products manufactured by others. Increased competition from companies that distribute through the wholesale channel could have a material adverse effect on the Company as they may have greater financial and other resources available to them and possess extensive manufacturing, distribution and marketing capabilities far greater than those of the Company. See "Business--Competition." As in the U.S., the market for sales of vitamins, minerals and other nutritional supplements in the U.K. is highly competitive. H&B's principal competitors are large pharmacy chains, including Superdrug, Boots and Lloyds, and major supermarket chains such as Tesco, Sainsbury's and ASDA. There are also approximately 1,300 independent retailers of health foods and nutritional supplements in the U.K. market. In addition, GNC has recently entered the U.K. market and currently operates approximately 30 stores in the U.K. The Company expects other large U.S.-based companies to enter the U.K. market as well. There can be no assurance that H&B will be able to effectively compete with such other companies, nor can there be any assurance that unfavorable market trends in the U.K. will not develop. ABILITY TO IMPLEMENT BUSINESS STRATEGY Implementation of the Company's business strategy involves certain risks, including risks associated with integrating and operating H&B's business, the expansion of retail locations in the U.S., increased manufacturing demands to supply products for H&B distribution and the manufacture and sale of new products. There can be no assurance that the Company will be successful in implementing its business strategy. The failure of the Company to successfully implement its business strategy could have a material adverse effect on its financial performance and its ability to pay principal of, premium, if any, and interest on the Notes and meet its other obligations under the Indenture. PROTECTION OF TRADEMARKS The Company owns trademarks registered with the United States Patent and Trademark Office and many foreign jurisdictions for its NATURE'S BOUNTY, GOOD `N NATURAL, HUDSON, AMERICAN HEALTH, PURITAN'S Pride, VITAMIN WORLD and NATURAL WEALTH brands, among others, and with the appropriate U.K. authorities for its HOLLAND & BARRETT trademark, among others, and has rights to use other names essential to its business. The Company's policy is to pursue registrations for all trademarks associated with its key products. U.S. registered trademarks have a perpetual life, as long as they are renewed on a timely basis and used properly as trademarks, subject to the rights of third parties to seek cancellation of the trademarks if they claim priority or confusion of usage. The Company regards its trademarks and other proprietary rights as valuable assets and believes they have significant value in the marketing of its products. The Company vigorously protects its trademarks against infringement. There can be no assurance that, to the extent the Company does not have patents or trademarks on its products, another company will not replicate one or more of the Company's products. Further, there can be no assurance that in those foreign jurisdictions in which the Company conducts business the protection available to the Company will be as extensive as the protection available to the Company in the U.S. See "Business--Trademarks." ABSENCE OF PUBLIC MARKET The Original Notes were issued to, and the Company believes are currently owned by, a relatively small number of beneficial owners. Prior to the 18 Exchange Offer, there has not been any public market for the Original Notes. The Original Notes have not been registered under the Securities Act and will be subject to restrictions on transferability to the extent that they are not exchanged for Exchange Notes by holders who are entitled to participate in the Exchange Offer. The market for Original Notes not tendered for exchange in the Exchange Offer is likely to be more limited than the existing market for Original Notes. The holders of Original Notes (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who are not eligible to participate in the Exchange Offer are entitled to certain registration rights, and the Company is required to file a Shelf Registration Statement with respect to such Original Notes. See "The Exchange Offer -- Purpose and Effect of the Exchange Offer." The Exchange Notes are new securities for which there currently is no market. Although the Initial Purchaser has informed the Company that it currently intends to make a market in the Exchange Notes, it is not obligated to do so and any such market making may be discontinued at any time without notice. In addition, such market making activity may be limited during the effectiveness of the Shelf Registration Statement (if filed). Accordingly, there can be no assurance as to the development or liquidity of any market for the Exchange Notes. The Original Notes have been designated for trading in the PORTAL market. The Company does not intend to apply for listing of the Exchange Notes on any securities exchange or for their quotation through an automated dealer quotation system. The liquidity of, and trading market for, the Exchange Notes also may be adversely affected by general declines in the market for similar securities. Such a decline may adversely affect such liquidity and trading markets independent of the financial performance of, and prospects for, the Company. FAILURE TO EXCHANGE ORIGINAL NOTES FOR EXCHANGE NOTES Exchange Notes will be issued in exchange for Original Notes only after timely receipt by the Exchange Agent of such Original Notes, a properly completed and duly executed Letter of Transmittal and all other required documentation. See "The Exchange Offer - Procedures for Tendering." Therefore, holders of Original Notes desiring to tender such Original Notes in exchange for Exchange Notes should allow sufficient time to ensure timely delivery. Neither the Exchange Agent nor the Company is under any duty to give notification of defects or irregularities with respect to tenders of Original Notes for exchange. Original Notes that are not tendered or are tendered but not accepted will, following consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof and, upon consummation of the Exchange Offer, certain registration rights under the Exchange and Registration Rights Agreement will terminate. In addition, any holder of Original Notes who tenders in the Exchange Offer for the purpose of participating in the distribution of the Exchange Notes may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirement of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Notes for its own account in exchange for Original Notes, where such Original Notes were acquired by such activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. To the extent that Original Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Original Notes could be adversely affected due to the limited amount, or "float," of the Original Notes that are expected to remain outstanding following the Exchange Offer. Generally, a lower "float" of a security could result in less demand to purchase such security and could, therefore, result in lower prices for such security. For the same reason, to the extent that a large amount of Original Notes are not tendered or are tendered and not accepted in the Exchange Offer, the trading market for the Exchange Notes could be adversely affected. See "Plan of Distribution" and "The Exchange Offer." DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS This Prospectus includes "forward looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements other than statements of historical facts included in this Prospectus, including those regarding financial position, business strategy, projected costs, and plans and objectives of management for future operations, are forward looking statements. 19 Although the Company believes that the expectations reflected in such forward looking statements are reasonable, there can be no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company's expectations ("Cautionary Statements") are disclosed herein under "Risk Factors" and elsewhere in this Prospectus including under "Forward Looking Statements" on page (iv) hereof. All subsequent written and oral forward looking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by the Cautionary Statements. 20 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Original Notes were sold by the Company on September 23, 1997, to the Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser subsequently resold the Original Notes to qualified institutional buyers (as defined in Rule 144A) ("QIBs") in reliance on Rule 144A. As a condition to the Purchase Agreement, the Company and the Initial Purchaser entered into the Exchange and Registration Rights Agreement on the date of the Initial Offering (the "Issue Date"). The following description of the Exchange and Registration Rights Agreement is a summary only, does not purport to be complete and is qualified in its entirety by reference to all provisions of the Exchange and Registration Rights Agreement, a copy of which has been filed as an exhibit to the Exchange Offer Registration Statement (as defined). See "Available Information." Pursuant to the Exchange and Registration Rights Agreement, the Company agreed to (i) file with the Securities and Exchange Commission (the "Commission") on or prior to 60 days after the Issue Date a registration statement (the "Exchange Offer Registration Statement") relating to the Exchange Offer and (ii) use its reasonable best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act within 150 days after the Issue Date. As soon as practicable after the effectiveness of the Exchange Offer Registration Statement, the Company will offer to the holders of Transfer Restricted Securities (as defined) who are not prohibited by any law or policy of the Commission from participating in the Exchange Offer the opportunity to exchange their Transfer Restricted Securities for the Exchange Notes. The Company will keep the Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date notice of the Exchange Offer is mailed to the holders of the Original Notes. If a change in law or applicable interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer or do not permit any holder of the Original Notes (including the Initial Purchaser) to participate in the Exchange Offer, the Company will use its reasonable best efforts to file with the Commission a shelf registration statement (the "Shelf Registration Statement") to cover resales of Transfer Restricted Securities by such holders who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. For purposes of the foregoing, "Transfer Restricted Securities" means each Original Note until (i) the date on which such Original Note has been exchanged for a freely transferable Exchange Note in the Exchange Offer; (ii) the date on which such Original Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement; or (iii) the date on which such Original Note is distributed to the public in accordance with Rule 144 under the Securities Act or is salable pursuant to Rule 144(k) under the Securities Act. The Company will use its reasonable best efforts to have the Exchange Offer Registration Statement or, if applicable, the Shelf Registration Statement (each, a "Registration Statement") declared effective by the Commission as promptly as practicable after the filing thereof. Unless the Exchange Offer would not be permitted by a policy of the Commission, the Company will commence the Exchange Offer and will use its reasonable best efforts to consummate the Exchange Offer as promptly as practicable, but in any event prior to 185 days after the Issue Date. If applicable, the Company will use its best efforts to keep the Shelf Registration Statement effective for a period of two years after the Issue Date, or such shorter period as may be required to permit holders to sell the Original Notes in accordance with Rule 144 under the Securities Act. If (i) either an Exchange Offer Registration Statement or Shelf Registration Statement is not filed with the Commission on or prior to 60 days after the Issue Date; (ii) either an Exchange Offer Registration Statement or a Shelf Registration Statement is not declared effective within 150 days after the Issue Date; or (iii) the Exchange Offer is not consummated on or prior to 185 days after the Issue Date in respect of tendered Original Notes and a Shelf Registration Statement has not been declared effective or a Shelf Registration Statement is filed and declared effective within 150 days after the Issue Date but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being succeeded within 60 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iii), a "Registration Default"), the Company will pay liquidated damages ("Liquidated Damages") to each holder of Transfer Restricted Securities, during the period of one or more 21 such Registration Defaults, in an amount equal to $0.192 per week per $1,000 principal amount of the Original Notes constituting Transfer Restricted Securities held by such holder until a Registration Statement is filed, an Exchange Offer Registration Statement or Shelf Registration Statement is declared effective or the Exchange Offer is consummated or the Shelf Registration Statement is declared effective or again becomes effective, as the case may be. All accrued Liquidated Damages shall be paid to holders in the same manner as interest payments on the Original Notes on semi-annual payment dates which correspond to interest payment dates for the Original Notes. Following the cure of all Registration Defaults, the accrual of Liquidated Damages will cease. The Exchange and Registration Rights Agreement also provides that the Company (i) shall make available for a period of 180 days after the consummation of the Exchange Offer a prospectus meeting the requirements of the Securities Act to any broker-dealer for use in connection with any resale of any such Exchange Notes and (ii) shall pay all expenses incident to the Exchange Offer (including the expense of one counsel to the holders of the Original Notes) and will indemnify certain holders of the Original Notes (including any broker-dealer) against certain liabilities, including liabilities under the Securities Act. A broker-dealer which delivers such a prospectus to purchasers in connection with such resales will be subject to certain of the civil liability provisions under the Securities Act and will be bound by the provisions of the Exchange and Registration Rights Agreement (including certain indemnification rights and obligations). Each holder of Original Notes who wishes to exchange such Original Notes for Exchange Notes in the Exchange Offer will be required to make certain representations, including representations that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business; (ii) it has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes; and (iii) it is not an affiliate of the Company or an Exchanging Dealer (as defined) not complying with the requirements of the next paragraph, or if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the holder is not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account in exchange for Original Notes, where such Original Notes were acquired by such broker-dealer as a result of market making activities or other trading activities (an "Exchanging Dealer"), must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." Holders of the Original Notes will be required to make certain representations to the Company (as described above) in order to participate in the Exchange Offer and will be required to deliver information to be used in connection with the Shelf Registration Statement in order to have their Original Notes included in the Shelf Registration Statement and benefit from the provisions regarding Liquidated Damages set forth in the preceding paragraphs. A holder who sells Original Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Exchange and Registration Rights Agreement which are applicable to such a holder (including certain indemnification obligations). Following the consummation of the Exchange Offer, holders of the Original Notes who were eligible to participate in the Exchange Offer but who did not tender their Original Notes will not have any further registration rights and such Original Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Original Notes could be adversely affected. See "Risk Factors - Absence of Public Market." 22 TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Original Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Original Notes accepted in the Exchange Offer. Holders may tender some or all of their Original Notes pursuant to the Exchange Offer. However, Original Notes may be tendered only in integral multiples of $1,000. The form and terms of the Exchange Notes are the same as the form and terms of the Original Notes except that (i) the Exchange Notes bear a Series B designation and a different CUSIP Number from the Original Notes, (ii) the issuance of the Exchange Notes will have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, and (iii) the holders of the Exchange Notes will not be entitled to certain rights under the Exchange and Registration Rights Agreement, including the provisions providing for an increase in the interest rate on the Original Notes in certain circumstances relating to the timing of the Exchange Offer, all of which rights terminate upon consummation of the Exchange Offer. The Exchange Notes will evidence the same debt as the Original Notes and will be entitled to the benefits of the Indenture. As of the date of this Prospectus, $150,000,000 aggregate principal amount of Original Notes are outstanding. The Company has fixed the close of business on ___________ as the record date for the Exchange Offer for purposes of determining the persons to whom this Prospectus and the Letter of Transmittal will be mailed initially. Holders of Original Notes do not have any appraisal or dissenters' rights under the General Corporation Law of Delaware or the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations of the Commission thereunder. The Company shall be deemed to have accepted validly tendered Original Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purpose of receiving the Exchange Notes from the Company. If any tendered Original Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, the certificates for any such unaccepted Original Notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Original Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Original Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the Exchange Offer. See "-- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on ______________ unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by written notice and will mail to the 23 registered holders of Original Notes an announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. The Company reserves the right, in its sole discretion, (i) to delay accepting any Original Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "-- Conditions" shall not have been satisfied, by giving oral or written notice of such delay, extension or termination to the Exchange Agent, or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. INTEREST ON THE EXCHANGE NOTES Interest on the Exchange Notes issued pursuant to the Exchange Offer will accrue from the last interest payment date on which interest was paid on the Original Notes surrendered in exchange therefor or, if no interest has been paid on the Original Notes, from the Issue Date. Holders whose Original Notes are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the Original Notes. Interest on the Exchange Notes is payable semi-annually in arrears on each March 15 and September 15, commencing on March 15, 1998. PROCEDURES FOR TENDERING Only a holder of Original Notes may tender such Original Notes in the Exchange Offer. For a holder to validly tender Original Notes pursuant to the Exchange Offer, a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantee, or (in the case of a book-entry transfer) an Agent's Message in lieu of the Letter of Transmittal, and any other required documents must be received by the Exchange Agent at the address set forth under "Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. In addition, prior to 5:00 p.m., New York City time, on the Expiration Date, either (a) certificates for tendered Original Notes must be received by the Exchange Agent at such address or (b) such Original Notes must be transferred pursuant to the procedures for book-entry transfer described below (and a confirmation of such tender received by the Exchange Agent, including an Agent's Message if the tendering holder has not delivered a Letter of Transmittal). The term "Agent's Message" means a message transmitted by the book-entry transfer facility, The Depository Trust Company (the "Book-Entry Transfer Facility"), to and received by the Exchange Agent and forming a part of a book-entry confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the tendering participant that such participant has received and agrees to be bound by the Letter of Transmittal and that the Company may enforce such Letter of Transmittal against such participant. By executing the Letter of Transmittal (or transmitting an Agent's Message in lieu thereof), each holder will make to the Company the representations set forth above under the heading "-- Purpose and Effect of the Exchange Offer." The tender of Original Notes by a holder and the acceptance thereof by the Company will constitute agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF ORIGINAL NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION 24 DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Original Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. See "Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" included with the Letter of Transmittal. Signatures on a Letter of Transmittal or a notice of withdrawal described below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Original Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be made by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States, or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act, which is a member of one of the recognized signature guarantee programs identified in the Letter of Transmittal (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Original Notes listed therein, such Original Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Original Notes with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or any Original Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence satisfactory to the Company or their authority to so act must be submitted with the Letter of Transmittal. The Company understands that the Exchange Agent will make a request promptly after the date of this Prospectus to establish accounts with respect to the Original Notes at the Book-Entry Transfer Facility for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Original Notes by causing such Book-Entry Transfer Facility to transfer such Original Notes into the Exchange Agent's account with respect to the Original Notes in accordance with the Book-Entry Transfer Facility's procedures for such transfer. Although delivery of the Original Notes may be effected through book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly completed and duly executed with any required signature guarantee (or, in the case of book-entry transfer, an Agent's Message in lieu thereof) and all other required documents must in each case be transmitted to and received or confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Original Notes and withdrawal of tendered Original Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Original Notes not properly tendered or any Original Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right in its sole discretion 25 to waive any defects, irregularities or conditions of tender as to particular Original Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Original Notes must be cured prior to the Expiration Date. Neither the Company, the Exchange Agent nor any other person is obligated to give notice of any defect or irregularity with respect to any tender of Original Notes, nor shall any of them incur any liability for failure to give any such notice. Tenders of Original Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Original Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Original Notes and (i) whose Original Notes are not immediately available, (ii) who cannot deliver their Original Notes, the Letter of Transmittal (or, in the case of book-entry transfer, an Agent's Message) or any other required documents to the Exchange Agent, or (iii) who cannot complete the procedures for book-entry transfer (including delivery of an Agent's Message), prior to the Expiration Date, may effect a tender if: (a) the tender is made through an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution (i) an Agent's Message with respect to guaranteed delivery that is accepted by the Company, or (ii) a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder, the certificate number(s) of such Original Notes and the principal amount of Original Notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Original Notes (or a confirmation of book-entry transfer of such Original Notes into the Exchange Agent's account at the Book-Entry Transfer Facility), and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal or facsimile thereof (or, in the case of book-entry transfer, an Agent's Message), as well as the certificate(s) representing all tendered Original Notes in proper form for transfer (or a confirmation of book-entry transfer of such Original Notes into the Exchange Agent's account at the Book-Entry Transfer Facility), and all other documents required by the Letter of Transmittal are received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Original Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Original Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Original Notes in the Exchange Offer, a telegram, telex, letter or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original Notes to be withdrawn (including the certificate number(s) and principal amount of such Original Notes, or, in the case of Original Notes transferred by book-entry transfer, the 26 name and number of the account at the Book-Entry Transfer Facility to be credited), (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Original Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee with respect to the Original Notes register the transfer of such Original Notes into the name of the person withdrawing the tender, and (iv) specify the name in which any such Original Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Original Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Original Notes so withdrawn are validly retendered. Any Original Notes which have been tendered but which are not accepted for exchange will be retendered to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Original Notes may be retendered by following one of the procedures described above under "-- Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or exchange Exchange Notes for, any Original Notes, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Original Notes, if: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer, or any material adverse development has occurred in any existing action or proceeding with respect to the Company or any of its subsidiaries; (b) any law, statute, rule, regulation or interpretation by the staff of the Commission is proposed, adopted or enacted, which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or materially impair the contemplated benefits of the Exchange Offer to the Company; or (c) any governmental approval has not been obtained, which approval the Company shall, in its sole discretion, deem necessary for the consummation of the Exchange Offer as contemplated hereby. If the Company determines in its sole discretion that any of the conditions are not satisfied, the Company may (i) refuse to accept any Original Notes and return all tendered Original Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Original Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Original Notes (see "-- Withdrawal of Tenders"), or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Original Notes which have not been withdrawn. The Company is not aware of any federal or state consents that must be obtained, other than obtaining the effectiveness of the Exchange Offer Registration Statement, prior to consummation of the Exchange Offer. EXCHANGE AGENT IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent (the "Exchange Agent") for the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: 27
BY OVERNIGHT DELIVERY: BY MAIL: BY HAND: IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company One State Street P.O. Box 84 One State Street New York, NY 10004 Bowling Green Station New York, NY 10004 Attn: Securities Processing Window New York, NY 10274-0084 Attn: Securities Processing Window Subcellar One (SC-1) Attn: Reorganization Operations Subcellar One (SC-1) Department FACSIMILE TRANSMISSION NUMBER: (212) 858-2611 CONFIRM BY TELEPHONE: (212) 858-2103
FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telecopy, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers, or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. ACCOUNTING TREATMENT The Exchange Notes will be recorded at the same carrying value as the Original Notes, which is face value, less the original issue discount (net of amortization) as reflected in the Company's accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized by the Company. Certain expenses of the Exchange Offer will be expensed over the term of the Exchange Notes. CONSEQUENCES OF FAILURE TO EXCHANGE The Original Notes that are not exchanged for Exchange Notes pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Original Notes may be resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so long as the Original Notes are eligible for resale pursuant to Rule 144A, to a person inside the United States whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant to another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel reasonably acceptable to the Company), (iii) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act, or (iv) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. 28 RESALE OF THE EXCHANGE NOTES With respect to resales of Exchange Notes, based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that a holder or other person who receives Exchange Notes, whether or not such person is the holder (other than a person who is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who receives Exchange Notes in exchange for Original Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes, will be allowed to resell the Exchange Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the Exchange Notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquired Exchange Notes in the Exchange Offer for the purpose of distributing or participating in a distribution of the Exchange Notes, such holder cannot rely on the position of the staff of the Commission enunciated in such no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, each Exchanging Dealer that receives Exchange Notes for its own account in exchange for Original Notes, where such Original Notes were acquired by such Exchanging Dealer as a result of market making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." As contemplated by these no-action letters and the Exchange and Registration Rights Agreement, each holder accepting the Exchange Offer is required to represent to the Company in the Letter of Transmittal that (i) the Exchange Notes are to be acquired by the holder or the person receiving such Exchange Notes, whether or not such person is the holder, in the ordinary course of business, (ii) the holder or any such other person (other than a broker-dealer referred to in the next sentence) is not engaging, and does not intend to engage, in the distribution of the Exchange Notes, (iii) the holder or any such other person has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iv) neither the holder nor any such other person is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act, and (v) the holder or any such other person acknowledges that if such holder or other person participates in the Exchange Offer for the purpose of distributing the Exchange Notes it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the Exchange Notes and cannot rely on those no-action letters. As indicated above, each Exchanging Dealer that receives an Exchange Note for its own account in exchange for Original Notes must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. For a description of the procedures for such resales by Exchanging Dealers, see "Plan of Distribution." 29 USE OF PROCEEDS This Exchange Offer is intended to satisfy certain of the Company's obligations under the Purchase Agreement and the Exchange and Registration Rights Agreement. The Company will not receive any proceeds from the issuance of the Exchange Notes offered hereby. In consideration for issuing the Exchange Notes contemplated in this Prospectus, the Company will receive Original Notes in like principal amount, the form and terms of which are the same as the form and terms of the Exchange Notes (which replace the Original Notes), except as otherwise described herein. The Original Notes surrendered in exchange for Exchange Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes will not result in any increase or decrease in the indebtedness of the Company. As such, no effect has been given to the Exchange Offer in the pro forma statements or capitalization tables. The $148.8 million of gross proceeds from the Initial Offering (before deductions of underwriting discounts and other expenses of the Initial Offering), together with cash on hand of $15.2 million and borrowings under the Revolving Credit Facility, estimated to be approximately $12.5 million, were used to pay (i) the Promissory Notes and (ii) fees and expenses, estimated to be approximately $7.5 million, incurred in connection with the Transaction. See "Description of the Revolving Credit Facility." THE TRANSACTION On August 7, 1997, NBTY acquired all of the issued and outstanding capital stock of H&B from Lloyds for an aggregate purchase price of approximately $169.0 million. Prior to the Acquisition, H&B operated as a subsidiary of Lloyds. Lloyds was acquired by GEHE in January 1997 and, pursuant to GEHE's strategy of divesting Lloyds of non-core assets, GEHE determined to divest the H&B subsidiary. NBTY issued to Lloyds the Promissory Notes totaling approximately $169.0 million as consideration for the purchase of the capital stock of H&B. In connection with the Acquisition, NBTY (i) entered into a $50.0 million Revolving Credit Facility, which provides for borrowings for working capital and general corporate purposes, and (ii) issued $150.0 million of Original Notes pursuant to the Initial Offering. On a pro forma basis, after giving effect to the Transaction, the Company's unused availability under the Revolving Credit Facility was approximately $37.5 million. See "Capitalization" and "Description of the Revolving Credit Facility." NBTY paid in full the Promissory Notes on October 17, 1997, using proceeds from the Initial Offering and the Financing. The sources and uses of funds for the Transaction, which assume that the Transaction had occurred on June 30, 1997, are as follows: (DOLLARS IN MILLIONS) SOURCES: Cash on hand.......................................... $ 15.2 Revolving Credit Facility(a).......................... 12.5 Original Notes........................................ 148.8 ----- Total Sources of Funds............................ $176.5 ====== USES: Payment of Promissory Notes........................... $169.0 Transaction fees and expenses......................... 7.5 ------ Total Uses of Funds............................... $176.5 ====== - ------------ (a) Upon consummation of the Transaction, the Company had available $37.5 million under the Revolving Credit Facility that may be drawn for working capital and general corporate purposes, including capital expenditures. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 30 CAPITALIZATION The following table sets forth the unaudited historical capitalization of each of NBTY and H&B as of June 30, 1997 and as adjusted to give pro forma effect to the Transaction as if it had been consummated on June 30, 1997. See "Use of Proceeds" and "The Transaction." This table should be read in conjunction with the Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1997 and the related notes thereto and the separate historical financial statements and related notes thereto of NBTY and H&B, all included elsewhere in this Prospectus.
AS OF JUNE 30, 1997 ----------------------------------------------------------- PRO FORMA PRO FORMA NBTY H&B(a) ADJUSTMENTS(b) COMBINED ---- ------ -------------- --------- (DOLLARS IN MILLIONS) Current portion of long-term debt $ 1.0 $ 17.1 $ (17.1) $ 1.0 and capital leases............. Long-term debt:.................... Existing indebtedness(c)....... 17.6 -- -- 17.6 Revolving Credit Facility(d)... -- -- 12.5 12.5 Notes offered hereby........... -- -- 148.8 148.8 ------- ------- Total debt..................... 18.6 17.1 144.2 179.9 -------- -------- ------- ------- Stockholders' equity:.............. Common stock................... 0.1 1.7 (1.7) 0.1 Additional paid-in capital..... 56.3 7.6 (7.6) 56.3 Retained earnings.............. 60.1 21.2 (21.2) 60.1 Treasury shares and other...... (3.2) -- -- (3.2) --------- --------- -------- -------- Total stockholders' equity..... 113.3 30.5 (30.5) 113.3 -------- -------- ------- -------- Total capitalization............ $ 131.9 $ 47.6 $ 113.7 $ 293.2 ======== ========= ======== ========
- ------------ (a) The capitalization of H&B as of June 30, 1997 has been adjusted to present such information in accordance with U.S. GAAP and translated into the U.S. dollar equivalent using the exchange rate in effect at June 30, 1997 of 1.665 U.S. dollars to each pound sterling. For further information regarding the effect of the difference between U.K. GAAP and U.S. GAAP, see Note 3 of H&B's Consolidated Financial Statements included elsewhere in this Prospectus. (b) The pro forma adjustments reflect the purchase price of the Acquisition and related fees and expenses associated with the Transaction totaling $176.5 million, of which $15.2 million was paid with available cash and $161.3 million was paid through the Financing. (c) Existing indebtedness relates primarily to capital lease obligations and mortgages on NBTY's manufacturing facilities. (d) Upon consummation of the Transaction, the Company had available $37.5 million under the Revolving Credit Facility that may be drawn for working capital and general corporate purposes, including capital expenditures. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 31 SELECTED HISTORICAL FINANCIAL DATA NBTY, INC. The following table sets forth selected financial data of NBTY as of and for each of the five fiscal years in the period ended September 30, 1996 and for the nine month periods ended June 30, 1997 and 1996. The statement of income and balance sheet data as of and for each of the five fiscal years in the period ended September 30, 1996 are derived from NBTY's audited historical consolidated financial statements included elsewhere in this Prospectus. The statement of income and balance sheet data as of and for the nine month periods ended June 30, 1997 and 1996 have been derived from the unaudited historical financial statements of NBTY. In the opinion of management, the unaudited data includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the data for such periods. Interim results for the nine month period ended June 30, 1997 are not necessarily indicative of results that can be expected in future periods. "Other Data," not directly derived from NBTY's financial statements, have been presented to provide additional analysis. The Selected Historical Financial Data below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Historical Results of Operations -- NBTY," "Summary Historical Financial Data -- NBTY" and the historical financial statements and notes thereto included elsewhere in this Prospectus.
NINE MONTHS ENDED YEAR ENDED JUNE 30, SEPTEMBER 30, ----------------- ----------------------------------------------------- 1997 1996 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ---- ---- (DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) STATEMENT OF INCOME DATA: Net sales...................... $ 184.1 $ 142.1 $194.4 $ 178.8 $ 156.1 $ 138.4 $100.9 Cost of sales.................. 88.2 72.1 95.6 93.9 79.9 68.0 50.6 ------- ------- ------ ------- ------ ------- ------ Gross profit................... 95.9 70.0 98.8 84.9 76.2 70.4 50.3 Catalog printing, postage and promotion 14.6 13.2 17.6 19.3 14.8 11.5 7.5 Selling, general and administrative 53.9 42.8 58.6 56.7 49.2 42.8 35.5 ------- ------- ------ ------- ------ ------- ------- Income from operations......... 27.4 14.0 22.6 8.9 12.2 16.1 7.3 Interest expense, net.......... 1.3 1.0 1.4 1.1 0.9 1.2 1.3 Miscellaneous income (expense), net ........................ 0.7 0.6 1.2 0.6 1.3 0.7 (0.2) ------- ------- ------ ------- ------- ------- ------- Income before income taxes..... 26.8 13.6 22.4 8.4 12.6 15.6 5.8 Income taxes................... 10.7 5.5 9.0 3.3 4.8 5.9 2.1 ------- ------- ------ ------- ------- ------- ------- Net income.................... $ 16.1 $ 8.1 $ 13.4 $ 5.1 $ 7.8 $ 9.7 $ 3.7 ======= ======= ======= ======= ======= ======= ====== Net income per share......... $ 0.80 $ 0.41 $ 0.67 $ 0.26 $ 0.38 $ 0.53 $ 0.25 ======== ======= ======= ======== ======== ======== ======= OTHER DATA: EBITDA(a)..................... $ 32.7 $ 18.6 $ 29.4 $ 14.3 $ 17.7 $ 20.8 $ 10.2 EBITDA margin(a).............. 17.8% 13.1% 15.1% 8.0% 11.3% 15.0% 10.1% Capital expenditures.......... $ 11.1 $ 11.5 $ 15.8 $ 11.5 $ 11.6 $ 13.9 $ 4.6 Same store sales growth....... 15.1% 23.1% 31.0% 16.0% 7.5% 31.9% -- Number of retail stores (at end of period)................ 106 58 55 19 7 3 2 Ratio of earnings to fixed 14.4x 10.7x 11.7x 6.6x 10.7x 10.8x 4.6x charges (b) .................. BALANCE SHEET DATA (END OF PERIOD): Working capital............... $ 61.9 $ 49.8 $ 52.3 $ 40.7 $ 39.5 $ 42.9 $ 13.1 Total assets.................. 173.7 138.6 145.6 123.5 115.1 102.6 58.3 Total debt.................... 18.6 19.6 19.3 11.3 13.3 8.5 21.2 Stockholders' equity.......... 113.3 91.6 96.9 82.6 78.0 70.0 16.5
- ------------ (a) EBITDA is defined as net income before interest expense, income taxes and depreciation and amortization. Management believes that EBITDA is a measure commonly used by analysts and investors to determine a company's ability to service and incur debt. Accordingly, this information has been presented to permit a more complete analysis. EBITDA should not be considered a substitute for net income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. EBITDA margin is computed as EBITDA as a percentage of net sales. (b) For the purposes of computing these ratios, earnings consist of income before income taxes and fixed charges. Fixed charges consist of interest expense, amortization of debt financing costs and one-third of rental expenses. 32 SELECTED HISTORICAL FINANCIAL DATA HOLLAND & BARRETT HOLDINGS LTD. The following table sets forth selected financial data of H&B as of and for each of the three fiscal years in the period ended June 30, 1997. The statement of income and balance sheet data set forth below are derived from H&B's audited historical consolidated financial statements included elsewhere in this Prospectus. Such Statements and the Selected Historical Financial Data have been presented in accordance with U.K. GAAP in pounds sterling. "Other Data" below, not directly derived from the H&B historical consolidated financial statements, have has been presented to provide additional analysis. The Selected Historical Financial Data below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations--Historical Results of Operations--H&B," "Summary Historical Financial Data--H&B" and the historical consolidated financial statements and notes thereto included elsewhere in this Prospectus.
YEAR ENDED JUNE 30, -------------------------------------- 1997 1996 1995 (POUNDS STERLING IN MILLIONS) STATEMENT OF INCOME DATA: Turnover(a)....................................... (Pound (Pound (Pound Sterling) Sterling) Sterling) 102.9 90.6 77.1 Cost of sales..................................... 53.6 47.9 41.1 ------ ----- ------ Gross profit...................................... 49.3 42.7 36.0 Distribution costs................................ 39.4 33.9 28.7 Administrative expense ........................... 2.2 1.5 1.5 ------- ------ ------- Operating profit.................................. 7.7 7.3 5.8 Interest payable and other similar charges(b)..... 0.3 0.4 0.6 ------- ------ ------- Profit on ordinary activities before taxation..... 7.4 6.9 5.2 Taxation and profit on ordinary activities ....... 2.6 2.5 1.7 ------- ------ ------- Profit on ordinary activities after taxation(c)... (Pound (Pound (Pound Sterling) Sterling) Sterling) 4.8 4.4 3.5 ======== ======= ======== OTHER DATA: EBITDA(d)......................................... (Pound (Pound (Pound Sterling) Sterling) Sterling) 11.0 10.0 7.4 EBITDA margin(d).................................. 10.7% 11.0% 9.6% Capital expenditures.............................. (Pound (Pound (Pound Sterling) Sterling) Sterling) 6.8 6.8 6.1 Same store sales growth........................... 2.8% 8.0% -- Number of retail stores (at end of period)........ 410 389 347 BALANCE SHEET DATA (END OF PERIOD): Working capital(e)................................ (Pound -- -- Sterling) 0.6 Total assets ..................................... 50.8 -- -- Total debt........................................ 11.1 -- -- Shareholders' funds............................... 16.9 -- --
- ---------------- (a) Turnover represents net sales. (b) Interest payable and other similar charges includes non-operating charges. (c) Profit on ordinary activities after taxation represents net income. (d) EBITDA is defined as net income before interest expense, income taxes, depreciation and amortization and other non-operating charges. EBITDA is a measure commonly used by analysts and investors to determine a company's ability to service and incur debt. Accordingly, this information has been presented to permit a more complete analysis. EBITDA should not be considered a substitute for net income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. EBITDA margin is computed as EBITDA as a percentage of turnover. (e) Working capital is presented in accordance with U.K. GAAP. As such, cash on hand, non-trading intercompany receivables and payables, and corporation taxes payable are excluded from the calculation of working capital. 33 UNAUDITED PRO FORMA COMBINED FINANCIAL DATA The following Unaudited Pro Forma Combined Financial Data of the Company are based on, and should be read in conjunction with, the Consolidated Financial Statements of NBTY and H&B and the notes thereto included elsewhere in this Prospectus, and have been adjusted to give pro forma effect to the Transaction. The Unaudited Pro Forma Combined Statement of Income of the Company for the nine months ended June 30, 1997 and for the year ended September 30, 1996 give pro forma effect to the Transaction as if it had occurred on October 1, 1995. The Unaudited Pro Forma Combined Income Statement for the nine month period ended June 30, 1997 has been prepared by combining the Consolidated Statement of Income of NBTY for the nine month period ended June 30, 1997 with the Consolidated Profit and Loss Account of H&B for the nine month period ended March 31, 1997. The Unaudited Pro Forma Combined Statement of Income for the year ended September 30, 1996 has been prepared by combining the Consolidated Statement of Income of NBTY for the year ended September 30, 1996 with the Consolidated Profit and Loss Account of H&B for the year ended June 30, 1996. The Unaudited Pro Forma Combined Balance Sheet as of June 30, 1997 has been prepared by combining the June 30, 1997 consolidated balance sheets of NBTY and H&B and give pro forma effect to the Transaction as if it had occurred on such date. The pro forma adjustments are based upon available information and certain assumptions that NBTY believes are reasonable. Other data included on the pro forma statements of income have been presented to provide additional analysis. The Acquisition has been accounted for using the purchase method of accounting. Allocations of the purchase price have been determined based upon preliminary information and estimates of fair value and are subject to change. Differences between the amounts included herein and the final allocations are not expected to have a material effect on the Unaudited Pro Forma Combined Financial Data. The Unaudited Pro Forma Combined Financial Data do not purport to represent what the Company's results of operations would have been if such events had occurred at the dates indicated, nor do such statements purport to project the results of the Company's operations for any future period. 34 NBTY, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME NINE MONTH PERIOD ENDED JUNE 30, 1997
PRO FORMA PRO FORMA NBTY H&B ADJUSTMENTS CONSOLIDATED ---- --- ----------- ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales ............................ $ 184,108 $ 127,659 -- $ 311,767 ------------ ------------ ------------ ------------ Costs and expenses: Cost of sales ..................... 88,205 66,245 -- 154,450 Catalog printing, postage and promotion ...................... 14,581 -- -- 14,581 Selling, general and administrative 53,885 51,357 $ 3,996(b) 109,238 ------------ ------------ ------------ ------------ 156,671 117,602 3,996 278,269 Income from operations ............... 27,437 10,057 (3,996) 33,498 Other income (expense): Interest, net ..................... (l,294) 103 (11,325)(c)(d) (12,516) Miscellaneous, net ................ (80) -- 532 ------------ ------------ ------------ ------------ 612 (682) 23 (11,325) (11,984) Income before income taxes ........... 26,755 10,080 (15,321) 21,514 Income taxes ......................... 10,702 3,698 (4,530)(e) 9,870 ------------ ------------ ------------ ------------ Net income ........................... $ 16,053 $ 6,382 $ (10,791) $ 11,644 ============ ============ ============ ============ Net income per share ................. $ 0.80 $ 0.58 ============ ============ Weighted average common shares outstanding ....................... 20,052,391 20,052,391 ========== ============ Other Data: EBITDA(f) ......................... $ 47.3 EBITDA margin(f) .................. 15.2% Capital expenditures .............. $ 18.8
See Notes to Unaudited Pro Forma Combined Financial Data. 35
NBTY, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME YEAR ENDED SEPTEMBER 30, 1996 PRO FORMA PRO FORMA NBTY H&B ADJUSTMENTS CONSOLIDATED ---- --- ------------ ------------ (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales........................... $ 194,403 $ 150,902 -- $ 345,305 --------- --------- ---------- Costs and expenses: Cost of sales.................... 95,638 79,867 -- 175,505 Catalog printing, postage and promotion 17,635 -- -- 17,635 Selling, general and administrative 58,515 58,999 5,328(b) 122,842 --------- --------- ----------- ---------- 171,788 138,866 5,328 315,982 Income from operations.............. 22,615 12,036 (5,328) 29,323 Other income (expense): Interest, net.................... (1,445) (654) (15,100)(c)(d) (17,199) Miscellaneous, net............... 1,203 -- -- 1,203 ---------- ---------- ----------- ---------- (242) (654) (15,100) (15,996) Income before income taxes.......... 22,373 11,382 (20,428) 13,327 Income taxes........................ 9,021 4,236 (6,040)(e) 7,217 ---------- ---------- ----------- ---------- Net income.......................... $ 13,352 $ 7,146 $ (14,388) $ 6,110 ========== ========== =========== ========== Net income per share................ $ 0.67 $ 0.31 ========== ========== Weighted average common shares outstanding...................... 19,975,678 19,975,678 =========== ========== Other Data: EBITDA(f)........................................................................ $ 45.9 EBITDA margin(f)................................................................. 13.3% Capital expenditures............................................................. $ 27.1
See Notes to Unaudited Pro Forma Combined Financial Data. 36
NBTY, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1997 PRO FORMA PRO FORMA NBTY H&B ADJUSTMENTS(a)(g) CONSOLIDATED ---- --------- ----------------- ------------ (DOLLARS IN THOUSANDS) ASSETS: Current assets: Cash and cash equivalents .................. $ 2,915 $ 9,437 $ (9,437) $ 2,915 Short term investments ..................... 15,541 -- (15,238) 303 Accounts receivable, net ................... 13,012 163 -- 13,175 Accounts receivable, other ................. -- 4,739 (4,545) 194 Inventories ................................ 58,682 19,113 -- 77,795 Deferred income taxes ...................... 3,155 -- -- 3,155 Prepaid catalog and other current assets ... 7,649 12,887 -- 20,536 --------- --------- --------- --------- Total current assets .................. 100,954 46,339 (29,220) 118,073 Property, plant and equipment, net ............ 68,448 38,275 -- 106,723 Intangible assets, net ........................ 3,748 2,207 133,189 139,144 Deferred financing costs ...................... -- -- 6,000 6,000 Other assets .................................. 515 -- -- 515 --------- --------- --------- --------- Total assets .......................... $ 173,665 $ 86,821 $ 109,969 $ 370,455 ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Current portion of long-term debt and capital lease obligations ............. $ 995 $ 17,131 $ (17,131) $ 995 Accounts payable ........................... 22,807 26,429 -- 49,236 Taxes payable .............................. -- 5,144 (3,643) 1,501 Accrued expenses ........................... 15,259 3,500 -- 18,759 --------- --------- --------- --------- Total current liabilities ............. 39,061 52,204 (20,774) 70,491 Long-term debt ................................ 14,782 -- $ 161,262 176,044 Obligations under capital leases .............. 2,864 -- -- 2,864 Deferred income taxes ......................... 2,827 4,098 -- 6,925 Other liabilities ............................. 793 -- -- 793 --------- --------- --------- --------- Total liabilities ..................... 60,327 56,302 140,488 257,117 Commitments and contingencies Stockholders' equity: Common stock .............................. 161 1,748 (1,748) 161 Capital in excess of par .................. 56,304 7,637 (7,637) 56,304 Retained earnings ......................... 60,062 21,134 (21,134) 60,062 --------- --------- --------- --------- 116,527 30,519 (30,519) 116,527 Less treasury shares at cost .................. 2,663 -- -- 2,663 Stock subscriptions receivable ................ 526 526 --------- --------- --------- --------- Total stockholders' equity ............... 113,338 30,519 (30,519) 113,338 --------- --------- --------- --------- Total liabilities and stockholders' equity $ 173,665 $ 86,821 $ 109,969 $ 370,455 ========= ========= ========= =========
See Notes to Unaudited Pro Forma Combined Financial Data. 37 NBTY INC. AND SUBSIDIARIES NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA (DOLLARS IN THOUSANDS) (a) On August 7, 1997 NBTY, Inc. and Subsidiaries ("NBTY") acquired Holland & Barrett Holdings Ltd. ("H&B") for approximately $169,000. Prior to the Acquisition, H&B operated as a subsidiary of Lloyds Chemists plc, ("Lloyds") which was recently acquired by GEHE AG. NBTY completed the acquisition by issuing two promissory notes (the "Promissory Notes") for approximately $169,000 at an interest rate of 4.5% to Lloyds. NBTY paid the Promissory Notes and Transaction costs of $7,500 through proceeds of $148,762 realized from the Initial Offering, borrowings under the Revolving Credit Facility of $12,500 and available cash of $15,238. Pursuant to the terms of the Acquisition agreement, NBTY will not be receiving cash and certain receivables aggregating $13,982 and will not be assuming approximately $20,774 in liabilities of H&B. (b) Represents amortization of the excess purchase price over the net assets acquired of $3,996 and $5,328 for the nine months and year end periods, respectively, which are amortized over a twenty-five year period on a straight-line basis. (c) Reflects the amortization of $450 and $600 for the nine month and year end periods, respectively, of the deferred financing costs of $6,000, which are amortizable over the life of the debt. (d) Reflects (i) additional interest expense relating to the Notes of $9,703 and $12,938 for the nine month and year end periods, respectively, at an annual interest rate of 8.625%, (ii) additional interest expense on the Revolving Credit Facility of $704 and $938 for the nine month and year end periods, respectively, at an annual interest rate of 7.5%, (iii) amortization of $93 and $124 for the nine month and year end periods, respectively, of the original issue discount of $1,238, and (iv) a decrease in interest income of $375 and $500 for the nine month and year end periods, respectively, earned on cash utilized to pay for the Acquisition. (e) Represents the tax effect of the pro forma adjustments, excluding the amortization of goodwill which is not deductible for tax purposes. (f) EBITDA is defined as net income before interest expense, income taxes and depreciation and amortization. Management believes that EBITDA is a measure commonly used by analysts and investors to determine a company's ability to service and incur debt. Accordingly, this information has been presented to permit a more complete analysis. EBITDA should not be considered a substitute for net income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. EBITDA margin is computed as EBITDA as a percentage of net sales. (g) To reflect the use of $15,238 of available cash and the proceeds of $148,762 from the issuance of $150,000 of the Notes and borrowings of $12,500 under the Revolving Credit Facility in order to fund the acquisition of H&B, related acquisition costs of approximately $1,500 and financing costs of approximately $6,000. Pursuant to the terms of the Acquisition agreement, NBTY will not be receiving cash and certain receivables aggregating $13,982 and will not be assuming approximately $20,774 in liabilities of H&B. (h) The historical consolidated financial statements of H&B used in the Unaudited Pro Forma Combined Financial Data have been adjusted to present such information in accordance with U.S. GAAP and translated into U.S. dollar equivalent financial statements using the exchange rate in effect at June 30, 1997 which was one pound sterling to 1.665 U.S. dollars. For further information regarding the effect of the difference between U.K. GAAP and U.S. GAAP, see Note 3 of the H&B Historical Consolidated Financial Statements included elsewhere in this Prospectus. Certain reclassifications have been made to the historical consolidated financial statements of H&B to conform to the NBTY presentation. 38 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the historical results of operations and financial condition of NBTY and H&B cover periods before completion of the Transaction. Accordingly, the discussion and analysis of such historical periods does not reflect the significant impact that the Transaction will have on the Company. See "Unaudited Pro Forma Combined Financial Data." This discussion and analysis should be read in conjunction with the historical financial statements of NBTY and H&B and the notes thereto included elsewhere in this Prospectus. HISTORICAL RESULTS OF OPERATIONS--NBTY GENERAL NBTY, founded in 1971, is one of the leading manufacturers and distributors of nutritional supplements in the U.S., marketing a complete line of vitamins, minerals and other nutritional supplements offered at value prices to its customers. NBTY markets its multi-branded products primarily through (i) one of the industry's leading mail order programs under its PURITAN'S PRIDE brand name to its proprietary list of over two million active customers, (ii) 115 Vitamin World retail stores strategically located primarily in factory outlet malls across the U.S., and (iii) wholesale distribution to drug store chains, supermarkets, independent pharmacies and health food stores such as Eckerd, Osco and Albertson's under the NATURE'S BOUNTY, NATURAL WEALTH, HUDSON, AMERICAN HEALTH and GOOD `N NATURAL brand names. Management believes that this unique three-tiered distribution system enables NBTY to most effectively market its products and lends stability, when compared to certain of its competitors, to its revenues and EBITDA. NBTY's revenues from mail order, retail and wholesale sales were approximately 42%, 16% and 42%, respectively, of total NBTY revenues for the nine month period ended June 30, 1997. NBTY's revenues and EBITDA for the nine month period ended June 30, 1997 were approximately $184 million and $33 million, respectively, and same store sales growth for the same period was approximately 15%. The following table sets forth certain historical operating results of NBTY as a percentage of sales:
NINE MONTHS ENDED YEAR ENDED JUNE 30, SEPTEMBER 30, ------------------- ----------------------------- 1997 1996 1996 1995 1994 --- ---- ---- ---- ---- Net sales 100.0% 100.0% 100.0% 100.0% 100.0% Costs and expenses: Cost of sales............................ 47.9 50.7 49.2 52.5 51.2 Catalog printing, postage and promotion.. 7.9 9.3 9.1 10.8 9.5 Selling, general and administrative...... 29.3 30.1 30.1 31.7 31.5 ---- ---- ----- ----- ----- 85.1 90.1 88.4 95.0 92.2 ---- ---- ----- ----- ----- Income from operations...................... 14.9 9.9 11.6 5.0 7.8 Interest expense and other.................. (0.4) (0.3) (0.1) (0.3) 0.2 ------ ------ ------ ------- ----- Income before income taxes.................. 14.5 9.6 11.5 4.7 8.0 Income taxes................................ 5.8 3.9 4.6 1.8 3.0 ----- ----- ----- ----- ----- Net income.................................. 8.7% 5.7% 6.9% 2.9% 5.0% ====== ====== ====== ====== ====== NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO NINE MONTHS ENDED JUNE 30, 1996
Net sales in the nine months ended June 30, 1997 were $184.1 million, compared with $142.1 million for the nine months ended June 30, 1996, an increase of $42.0 million or 29.6%. Sales increases were across all channels of distribution. Mail order sales were $78.0 million, compared to $62.9 million for the prior comparable period (an increase of $15.1 million or 24.0%) due to increased response to promotional efforts; wholesale sales were $77.4 million, 39 compared to $64.4 million for the prior comparable period (an increase of $13.0 million or 20.2%) due to increased shelf space and consumer demand; and retail sales were $28.7 million, compared to $14.8 million (an increase of $13.9 million or 93.9%) due to an increase in the number of retail stores for the prior comparable period. Comparable same store sales for stores open for more than one year were up $1.8 million (or 15.1%) over the nine months ended June 30, 1996. Approximately 70 new SKUs were introduced over the past nine months. Sales for NBTY's new mail order operation in the U.K. were $1.6 million in 1997 and $0.5 million in 1996. Cost of sales for the nine months ended June 30, 1997 was $88.2 million (or 47.9% of sales), compared to $72.1 million for the prior comparable period (or 50.7% of sales). The decrease was associated with lower raw material costs due to discounts obtained for long-term purchase commitments, manufacturing efficiencies, and changes in product mix due to the introduction of new higher margin products. Catalog printing, postage and promotion expenses were $14.6 million for the nine months ended June 30, 1997 (an increase of $1.4 million or 10.6%) from $13.2 million for the nine months ended June 30, 1996. As a percentage of sales, catalog printing, postage and promotion expenses were 7.9% for the nine months ended June 30, 1997 and 9.3% for the prior comparable nine months. The increase in expenditures was primarily attributable to national television advertising and the increased number of catalogs printed and mailed for the mail order division. Selling, general and administrative expenses were $53.9 million, or 29.3% as a percentage of sales for the nine months ended June 30, 1997, compared with $42.8 million, or 30.1% as a percentage of sales for the prior comparable period, an increase of $11.1 million (or 26.0%). This increase was primarily due to increases in indirect salaries, building, freight and outside services expenses. These expenses increased due to the retail store expansion and the opening of the international mail order operations. NBTY's net income was $16.1 million for the nine month period ended June 30, 1997, and $8.1 million for the nine months ended June 30, 1996. YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995 Net sales for fiscal year 1996 were $194.4 million, an increase of $15.6 million or 8.7% over fiscal year 1995. Of the $15.6 million increase, $8.8 million was attributable to increased retail sales; $1.8 million was attributable to increased wholesale sales; and $13.2 million was attributable to mail order sales, less a decrease of $8.2 million from Beautiful Visions, a cosmetic catalog which was sold in October 1995. Cost of sales for fiscal year 1996 was $95.6 million, an increase of $1.9 million or 2.0% over fiscal year 1995. Gross profit increased to 50.8% in fiscal year 1996 from 47.5% in fiscal year 1995. This increase was due to various factors, including lower raw material costs due to discounts obtained for long-term purchase commitments, manufacturing efficiencies, and changes in product mix due to the introduction of new higher margin products. Catalog printing, postage and promotion expenses for 1996 were $17.6 million, a decrease of $1.7 million over 1995. Such costs, as a percentage of net sales, were 9.1% in 1996 compared with 10.8% in 1995. The decrease was mainly due to the discontinuance of the Beautiful Visions mail order operation. Selling, general and administrative expenses for fiscal year 1996 were $58.6 million, an increase of $1.9 million over fiscal year 1995. As a percentage of net sales, these costs were 30.1% in fiscal year 1996 as compared to 30.7% in fiscal year 1995. Decreases in fringe benefits and other miscellaneous costs were offset by increases due to the retail store expansion and professional fees. NBTY's net income was $13.4 million for fiscal year 1996, and $5.1 million for fiscal year 1995. YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994 Net sales for fiscal year 1995 were $178.8 million, an increase of $22.7 million or 14.5% over fiscal year 1994. Of the $22.7 million increase, $12.5 million was attributable to wholesale and retail sales and $10.2 million was attributable to mail order sales. In October 1995, Beautiful Visions, a cosmetic catalog operation, was sold. Sales for such operation in fiscal year 1995 were $8.2 million, a decrease of $5.0 million from the prior fiscal year. 40 Cost of sales for fiscal year 1995 was $93.9 million, an increase of $14.0 million or 17.5% over fiscal year 1994. Gross profit decreased to 47.5% in fiscal year 1995 from 48.8% in fiscal year 1994. This decrease as a percentage of net sales was due to various factors which included pricing pressures and write-downs for labels and unsold Beautiful Visions inventory. Catalog printing, postage and promotion for fiscal year 1995 was $19.3 million, an increase of $4.5 million or 30.3% over fiscal year 1994. This cost, as a percentage of net sales, was 10.8% in fiscal year 1995 compared with 9.5% in fiscal year 1994. The increase was mainly due to expanded trade advertising and costs associated with promotional programs to independent stores and chain stores. Selling, general and administrative expenses for fiscal year 1995 was $56.7 million, an increase of $7.5 million or 15.3% over fiscal year 1994. As a percentage of net sales, these costs remained relatively constant at 31.7% in fiscal year 1995 and 31.5% in fiscal year 1994. The increase was primarily a result of increases in salaries, wages, fringe benefits and professional services. NBTY's net income was $5.1 million for fiscal year 1995, and $7.8 million for fiscal year 1994. HISTORICAL RESULTS OF OPERATIONS--H&B GENERAL H&B markets a broad line of nutritional supplement products, including vitamins, minerals and other nutritional supplements (approximately 58% of revenues for fiscal year 1997), and food products, including fruits and nuts, confectionery and other items (approximately 42% of revenues for fiscal year 1997). H&B's strategic retail locations in prime shopping areas and broad product offering have enabled it to become one of the U.K.'s largest nutritional supplement retailers. The Consolidated Financial Statements of H&B have been prepared in accordance with U.K. GAAP. For further information regarding the effect of the difference between U.S. GAAP and U.K. GAAP, see note 3 of the Consolidated Financial Statements of H&B included elsewhere in this Prospectus. The following table sets forth certain historical operating results of H&B in accordance with U.K. GAAP as a percentage of sales: YEAR ENDED JUNE 30, ------------------- 1997 1996 ---- ---- Turnover.......................................... 100.0% 100.0% Cost of sales..................................... 52.1 52.9 ----- ------ Gross profit...................................... 47.9 47.1 Distribution costs................................ 38.3 37.4 Administrative expenses........................... 2.1 1.7 ------ ------ Operating profit.................................. 7.5 8.0 ------ ------ Profit on ordinary activities after taxation...... 4.7% 4.8% ====== ======= YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996 (DOLLARS AND POUNDS STERLING IN MILLIONS) For the fiscal years ended June 30, 1997 and 1996, sales were (Pound Sterling) 102.9 (or $171.3) and (Pound Sterling) 90.6 (or $150.9), respectively, an increase of 13.5%. The number of retail stores operating at the end of fiscal years 1997 and 1996 was 410 and 389, respectively. For the fiscal year ended June 30, 1997, same store sales for comparable stores increased 3%. Gross profit for the fiscal year ended 1997 was (Pound Sterling) 49.3 (or $82.1) or 47.9% as a percentage of sales, and for the fiscal year ended June 30, 1996, gross profit was (Pound Sterling) 42.7 (or $71.0) or 47.1% as a percentage of sales. Payroll costs for the fiscal year ended June 30, 1997 were (Pound Sterling) 13.8 (or $23.0) and (Pound Sterling) 11.5 (or $19.1) for the fiscal year ended June 30, 1996. Payroll costs increased mainly due to the increased 41 number of employees. Operating profits for the fiscal year ended June 30, 1997 were (Pound Sterling) 7.7 (or $12.8) and (Pound Sterling) 7.3 (or $12.2) for the fiscal year ended June 30, 1996. As a percentage of sales, operating profits were 7.5% for the fiscal year ended June 30, 1997, and 8.0% for the fiscal year ended June 30, 1996. Profit on ordinary activities before taxation was (Pound Sterling) 7.4 (or $12.4) for the fiscal year ended June 30, 1997, and (Pound Sterling) 6.9 (or $11.5) for the fiscal year ended June 30, 1996. Capital expenditures for the years ended June 30, 1997 and 1996 remained constant at (Pound Sterling) 6.8 (or $11.3). LIQUIDITY AND CAPITAL RESOURCES As a result of the Transaction, interest payments on the Notes and on the Revolving Credit Facility represent significant liquidity requirements for the Company. The Company anticipates that the Notes will require annual interest payments of approximately $12.9 million. See "Unaudited Pro Forma Combined Financial Data." In addition to its debt service obligations, the Company will require liquidity for capital expenditures and working capital needs. Total capital expenditures for the Company are expected to be approximately $23.0 million for fiscal year 1998, of which $7.0 million will be related to maintenance capital expenditures. The Company believes that the cash flow generated from its operations, together with amounts available under the Revolving Credit Facility, should be sufficient to fund its debt service requirements, working capital needs, anticipated capital expenditures and other operating expenses for the foreseeable future. The Revolving Credit Facility provides the Company with available borrowings up to an aggregate principal amount of $50.0 million. On a pro forma basis, after giving effect to the Transaction, the Company's unused availability under the Revolving Credit Facility would have been $37.5 million. The Company's future operating performance and ability to service or refinance the Notes and to refinance the Revolving Credit Facility will be subject to future economic conditions and to financial, business and other factors, many of which are beyond the Company's control. See "Risk Factors." The Revolving Credit Facility and the Notes impose certain restrictions on the Company's ability to make capital expenditures and limit the Company's ability to incur additional indebtedness. Such restrictions could limit the Company's ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business or acquisition opportunities. The covenants contained in the Revolving Credit Facility and the Notes also, among other things, limit the ability of the Company to dispose of assets, repay indebtedness or amend other debt instruments, pay distributions, create liens on assets, enter into sale and leaseback transactions, make investments, loans or advances and make acquisitions. 42 BUSINESS OVERVIEW NBTY, founded in 1971 by Arthur Rudolph, is one of the leading manufacturers and distributors of nutritional supplements in the U.S., marketing a complete line of vitamins, minerals and other nutritional supplements offered at value prices to its customers. NBTY markets its multi-branded products primarily through (i) one of the industry's leading mail order programs under its PURITAN'S PRIDE brand name to its proprietary list of over two million active customers, (ii) 115 Vitamin World retail stores strategically located primarily in factory outlet malls across the U.S., and (iii) wholesale distribution to drug store chains, supermarkets, independent pharmacies and health food stores such as Eckerd, Osco and Albertson's under the NATURE'S BOUNTY, NATURAL WEALTH, HUDSON, AMERICAN HEALTH and GOOD `N NATURAL brand names. Management believes that this unique three-tiered distribution system enables NBTY to most effectively market its products and lends stability, when compared to certain of its competitors, to its revenues and EBITDA. NBTY's revenues from mail order, retail and wholesale sales were approximately 42%, 16% and 42%, respectively, of total NBTY revenues for the nine month period ended June 30, 1997. NBTY's revenues and EBITDA for the nine month period ended June 30, 1997 were approximately $184 million and $33 million, respectively, and same store sales growth for the same period was approximately 15%. NBTY acquired H&B, one of the leading nutritional supplement retailers in the U.K. with 410 locations, on August 7, 1997. The Acquisition provides the Company with significant strategic opportunities to enhance H&B's revenues and profitability and increase its market share. H&B markets a broad line of nutritional supplement products, including vitamins, minerals and other nutritional supplements (approximately 58% of H&B's revenues for fiscal year 1997) and food products, including fruits and nuts, confectionery and other items (approximately 42% of H&B's revenues for fiscal year 1997). H&B's strategic retail locations in prime shopping areas and broad product offering have enabled it to become one of the U.K.'s largest nutritional supplement retailers. H&B's revenues and EBITDA for the fiscal year ended June 30, 1997 were approximately $171 million and $18 million, respectively, and same store sales growth for the same period was approximately 3%. The Company expects to derive substantial opportunities from the combination of NBTY's and H&B's operations. Pro forma for the Acquisition, the Company's revenues for mail order, retail and wholesale sales would have been approximately 25%, 50% and 25%, respectively, of total Company revenues for the nine month period ended June 30, 1997. Management believes that cross-selling an expansive selection of NBTY-manufactured products into H&B's 410 retail stores will enable H&B to offer a broader product selection at lower prices than its competitors and, at the same time, enhance H&B's margins. In addition, management expects to reduce per unit production costs in NBTY's manufacturing facilities through increased capacity utilization derived from this vertical integration. The Company also plans to increase the efficiency of its H&B operations by integrating NBTY's state-of-the-art POS system throughout H&B's retail stores that will allow for more effective management of inventory and purchasing. The Company's vertically integrated structure and three-tiered distribution system, combined with its breadth of well recognized, value oriented brand names, position it to pursue continued growth and competitive success in each of its distribution channels. COMPETITIVE STRENGTHS The Company believes that the following competitive strengths provide it with a solid foundation to further enhance growth, profitability and the Company's position as an industry leader: o VERTICALLY INTEGRATED OPERATIONS. As a result of the Acquisition, the Company will increase its degree of vertical integration by manufacturing nutritional supplements in NBTY facilities for sale through H&B's retail stores. Due to NBTY's existing level of vertical integration, NBTY is able to price its products at its stores approximately 20-40% lower than its largest competitor yet still maintain gross margins in excess of approximately 50%. The Acquisition will allow the Company to further increase its margins by providing NBTY-manufactured products throughout all 410 H&B retail stores. 43 o EFFICIENT, MULTI-CHANNEL DISTRIBUTION NETWORK. NBTY's three-tiered U.S. distribution network (mail order, retail and wholesale), supplemented by H&B's strong retail position in the U.K. nutritional supplement market, allows the Company to access a broader base of nutritional supplement buyers and is unique among the Company's competitors. Management believes this diverse network lowers distribution risk and lends stability to both revenues and EBITDA. o STRONG PORTFOLIO OF RETAIL STORES. NBTY's 115 Vitamin World stores, in combination with H&B's 410 stores, comprise a retail network that is strategically located in the high growth U.S. and U.K. markets. These stores delivered approximately 15% and 4% same store sales growth during the nine month period ended June 30, 1997 in the U.S. and the U.K., respectively. In addition to providing a platform for growth, management believes the Company's established retail stores pose significant barriers to entry for new competitors due to the Company's penetration of U.S. factory outlet malls and prime U.K. locations. o LEADING MAIL ORDER SUPPLIER. Management believes NBTY is the industry leader in the U.S. mail order nutritional supplement market with over two million active customers and response rates that management believes to be in excess of the mail order industry average. The Company's position as a leading mail order nutritional supplement distributor allows the Company to lower its per customer distribution costs, thereby enhancing margins. The Company plans to further expand its mail order operations in the U.K. by utilizing its mail order distribution warehouse in Southampton, England, which became fully operational in January 1997. o INNOVATIVE NEW PRODUCT DEVELOPMENT. NBTY continually pursues new product development in response to customer demand. In 1997 alone, NBTY introduced 100 new SKUs through its product development and merchandising groups working directly with managers at the retail level. Management believes its retail stores provide the Company with rapid access to customer demand information and allow the Company to test market new products before initiating a complete product launch across all distribution channels. o EXPERIENCED MANAGEMENT TEAM. Scott Rudolph, Chairman of the Board, President and Chief Executive Officer, has 11 years of experience with NBTY and 21 years in the nutritional supplement industry. Mr. Rudolph's skilled management team averages over 14 years of industry experience (primarily with NBTY) in the mail order, retail and wholesale distribution channels. BUSINESS STRATEGY The Company's strategy is to target the growing value-conscious consumer segment in order to increase sales and improve profitability, thereby strengthening its position as an industry leader through the following key initiatives: o INCREASE HIGH MARGIN RETAIL SALES. As a result of the Acquisition, NBTY's 115 retail stores have been augmented by H&B's 410 U.K. stores. In the U.S., the Company plans to open approximately 80 new stores per year under its proven store format, substantially increasing its penetration of the factory outlet mall base. By increasing overall foot traffic through its growing base of stores, the Company expects to increase its revenues and profitability, and enhance its market share. In the U.K, the Company expects to increase nutritional supplement sales by offering its products at lower prices than its compeititors. o INCREASE HIGH MARGIN MAIL ORDER SALES. Management believes NBTY's PURITAN'S PRIDE mail order operation is the industry's leader with approximately two million active mail order customers. NBTY is currently in the process of automating its mail order shipping department, which will enable NBTY to fulfill mail order requests with greater speed and efficiency. NBTY expects to continue to strengthen its mail order sales through frequent promotions in order to further improve its response rate, which management believes is already above the mail order industry average. NBTY also expects to continue to add customers through the selective acquisition of companies that have similar or complementary products. In addition, NBTY's recently increased manufacturing capability will enable it to successfully compete for additional mail order 44 customers through its ability to quickly introduce and deliver new products in response to consumer demand. o EMPHASIZE HIGHER MARGIN PRODUCTS. In addition to manufacturing and distributing high sales volume products (such as vitamins C and E), the Company also manufactures and distributes higher margin, specialty products. These popular specialty products, such as melatonin and St. John's Wort, are targeted primarily at dedicated nutritional supplement users and typically provide higher margins than more established products and broaden the Company's product line. o ENHANCE OPERATING EFFICIENCIES. The Acquisition will enable the Company to increase its level of vertical integration by selling nutritional supplements manufactured by NBTY through the H&B retail stores in the U.K. Management expects to supply approximately 75% of H&B's nutritional supplements from NBTY's U.S. manufacturing operations, thereby increasing NBTY's manufacturing margins and increasing H&B's margins while reducing per unit production costs in NBTY's manufacturing facilities through increased capacity utilization. Additionally, the Company intends to achieve significant operating efficiencies from the integration of its POS system into the H&B stores, which will significantly improve inventory management, production scheduling and administrative functions. o RAPID NEW PRODUCT INTRODUCTION. Management believes that NBTY is among the leaders in its industry in the timely introduction of products in response to consumer demands. During 1997 alone, NBTY introduced more than 100 new SKUs. Given the changing nature of consumer demands for new products and the growing publicity of the value of vitamins, minerals and other nutritional supplements in the promotion of general health, management believes that NBTY will continue to attract new customers based upon its ability to rapidly respond to consumer demands with high quality, value oriented products. As a result of the Company's ongoing manufacturing expansion, the Company will be poised to further develop new products that meet consumers' demand. COMPANY HISTORY NBTY. The business of NBTY as a direct marketer of vitamins was begun in 1971 under the name of NATURE'S BOUNTY, Inc. by Arthur Rudolph, NBTY's former chairman, and NBTY completed its initial public offering of stock that same year. NBTY first developed its manufacturing capabilities in 1974 in order to capitalize on efficiencies gained through vertical integration. NBTY began its mail order operation in 1974, opened its first retail store in 1979 and has grown through a series of strategic acquisitions that included the acquisition, in 1989, of GNC's mail order operation. It changed its name to NBTY, Inc. in 1995. H&B. H&B, founded in 1920, was acquired in the late 1960s by Booker plc. Under the direction of Booker plc, the H&B network was expanded to 183 stores through new store openings as well as through the acquisition of independent health food stores. In 1991, H&B was acquired by Lloyds. Under the direction of Lloyds, H&B was expanded to 410 stores through continued store openings and acquisitions of independent health food stores. Lloyds was acquired by GEHE in January 1997 and, pursuant to GEHE's strategy of divesting Lloyds of non-core assets, GEHE determined to divest the H&B subsidiary. INDUSTRY OVERVIEW The U.S. retail market for vitamins, minerals and other nutritional supplements ("VMS") has grown at a compound annual rate of approximately 15%, from $3.7 billion in 1992 to $6.5 billion in 1996, according to the 1997 Packaged Facts Survey. This growth has stemmed primarily from the availability of new supplements and wider distribution as well as from a positive regulatory environment. In addition to these factors driving the growth of the nutritional supplement industry, recent scientific research suggesting important health benefits derived from the regular consumption of vitamins and other nutritional supplement products has fueled an increasing societal interest in preventive health measures. The continued aging of the U.S. population, together with an increased focus on preventive health measures, is expected to result in a continuing 45 increase in demand for nutritional supplement products. According to the Simmons Market Research Bureau, 54% of the U.S. adult population regularly uses vitamins, minerals or supplements. Further, based on U.S. Bureau of the Census data, the 45-and-older age group, which accounted for approximately 32% of the U.S. population in 1990, is expected to grow to 40% of the U.S. population by 2010. Vitamins and other nutritional supplements are sold primarily through the following channels of distribution: health food stores, drug stores, supermarkets and other grocery stores, discount stores, mail order and direct sales organizations. Mass market retailers (drug stores, grocery stores and discount stores), health food stores and mail order and direct selling account for approximately 46%, 38%, and 16%, respectively, of industry sales. The mass marketers traditionally offer more mainstream VMS products, such as multivitamins, individual vitamins (such as Vitamins A, C and E), and minerals (such as calcium, potassium and magnesium), while the health food stores, mail order and direct selling companies traditionally offer greater product breadth, including the more sophisticated supplement products. The retail and wholesale segments of the VMS industry are highly fragmented. There are approximately 11,000 health food and vitamin chain stores in the U.S., of which approximately 70% are independently owned and operated and approximately 30% are associated with one of several regional or national chains. PRODUCTS NBTY. NBTY manufactures and markets over 650 different products, including vitamins, minerals, herbs, amino acids, sports nutrition products, diet aids and other nutritional supplements. Management believes that NBTY's unique production process enables the Company to manufacture smaller, easier to swallow products than its competitors. Products are then packaged in recyclable plastic bottles with tamper-evident hinged caps. As a result, NBTY's products appeal to the needs of today's environmentally and safety conscious consumer. NBTY assures total customer satisfaction by employing rigorous quality assurance programs in its state-of-the-art laboratories. H&B. H&B's product range is classified into two categories: nutritional supplement products, which generated approximately 58% of total sales in fiscal year 1997, and food products, which generated approximately 42% of total sales in fiscal year 1997. Nutritional supplement products include herbal and alternative remedies, sports nutrition, aromatherapy, and diet products. Food product lines include fruit and nuts, confectionery, chilled and frozen foods, beverages and milk, vegetarian foods, herbal teas, water and juices, honeys and spreads, breakfast foods, condiments, and biscuits. MANUFACTURING AND QUALITY CONTROL NBTY. As a result of its ongoing manufacturing expansion, NBTY operates technologically advanced manufacturing and production facilities, located on Long Island in Bohemia, New York, consisting of approximately 625,000 square feet in four modern buildings, of which 100,000 square feet is devoted to manufacturing, 72,000 square feet to office space, 1,500 square feet to a quality assurance and testing laboratory and the balance to warehouse and distribution. All manufacturing is conducted in accordance with the good manufacturing practices ("GMP") of the FDA and other applicable regulatory standards. NBTY believes that the capacity of its manufacturing and distribution facilities is adequate to meet the requirements of its current business and will be adequate to meet the requirements of anticipated increases in net sales as a result of the Acquisition. NBTY's manufacturing process places special emphasis on quality control. All raw materials used in production are initially held in quarantine during which time NBTY's laboratory employees assay the product against the manufacturer's certificate of analysis. Once cleared, a lot number is assigned, samples are retained and the material is processed by formulating, mixing and granulating, compression and sometimes coating operations. After the tablet is manufactured, laboratory employees test its weight, purity, potency, dissolution and stability. When a product such as vitamin tablets is ready for bottling, the automated equipment counts the tablets, inserts them into bottles, adds a tamper-resistant cap with an inner safety seal and affixes a label. NBTY uses computer-generated documentation for picking and packing for order fulfillment. 46 H&B. H&B has been a direct seller of a wide range of food and nutritional supplement products and health food products and has not historically manufactured its products. Prior to the Acquisition, H&B purchased all of its products direct from wholesale manufacturers and third party representatives and sold certain of these products under the H&B name. SALES AND ADVERTISING NBTY. NBTY has approximately 400 sales employees located throughout the U.S. in its Vitamin World stores, and 70 employees who sell to NBTY's wholesale distributors. In addition, NBTY sells through commissioned sales representative organizations. In fiscal year 1996 and for the nine months ended June 30, 1997, NBTY spent approximately $12.8 million and $10.6 million, respectively, on advertising in print and media, including cooperative advertising. NBTY creates its own advertising materials through a staff of approximately 22 employees. H&B. During fiscal year 1997 H&B employed an average of 1,979 sales employees in its retail stores. H&B runs advertisements weekly in four national newspapers. It also conducts approximately 17 promotions per year at its retail locations in addition to managers' specials. Six times per year H&B publishes a glossy magazine with helpful articles and promotional materials. RAW MATERIALS The principal raw materials used in the manufacturing process are natural and synthetic vitamins, purchased from bulk manufacturers in the U.S., Japan and Europe. NBTY purchases raw materials from numerous sources. One supplier currently provides approximately 10% of NBTY's purchases, and no other supplier accounts for 10% or more of NBTY's raw material purchases. NBTY believes that the loss of its largest supplier would have a temporary adverse effect upon its operations but that, over time, NBTY would be able to replace such source of supply. PROPERTIES NBTY. NBTY owns a total of approximately 625,000 square feet of plant facilities located at 60, 90, 105 and 115 Orville Drive in Bohemia, New York and 4320 Veterans Memorial Highway, Holbrook, New York. In addition, NBTY leases approximately 10,000 square feet of warehouse space in Southampton, England, and approximately 10,000 square feet of warehouse space in Reno, Nevada. NBTY operates 115 retail stores under the name Vitamin World. The stores have an average selling area of 1,200 square feet. Generally, NBTY leases the stores for three to five years at annual base rents ranging from $12,000 to $94,000 and percentage rents in the event sales exceed a specified amount. H&B. H&B leases all of the locations of its 410 retail stores for terms varying between 10 and 25 years at varying rents. No percentage rents are payable. H&B leases approximately 9,000 square feet of space in Hinckley for executive and administrative staff and also leases a 44,500 square foot facility in Hinckley for warehouse and distribution space. COMPETITION UNITED STATES. The market for vitamins and other nutritional supplements is highly competitive in all of NBTY's channels of distribution. With respect to mail order sales, management believes that PURITAN'S PRIDE is the largest mail order supplier of vitamins and other nutritional supplements and competes with a large number of smaller, usually less geographically diverse, mail order companies, some of which manufacture their own products and some of which sell products manufactured by other companies. In its retail Vitamin World stores, the Company competes regionally with specialty vitamin stores, such as GNC and local drug stores, health food stores, supermarkets, department stores and mass merchandisers. NBTY's NATURE'S BOUNTY and NATURAL WEALTH brands compete with numerous vitamin distributors and manufacturers for sales to drug store chains and supermarkets with heavily advertised national brands manufactured by large pharmaceutical companies, as well as Your Life, Nature Made and Sundown, marketed by Leiner Health Products, Inc., Pharmavite Corp. and Rexall Sundown, Inc., respectively. It is not possible to estimate accurately the number of competitors since the nutritional supplement industry is fragmented. 47 Management believes that NBTY competes favorably with other mail order sellers of similar products on the basis of price and customer service, including speed of delivery and new product offerings. Management believes that NBTY competes favorably with the large pharmaceutical companies and other companies that sell to wholesalers, on the basis of price, breadth of product line, reputation and customer service, including innovative packaging and displays and other services. Management believes that NBTY derives a competitive advantage from its ability to manufacture and package its own vitamin and nutritional supplement products, which affords it the flexibility to respond to the shifting demands of each channel of distribution and, consequently, the ability to achieve the manufacturing and operating efficiencies resulting from larger production runs of products that can be packaged for sale in one or more such channel. UNITED KINGDOM. As in the U.S., the market for sales of vitamins, minerals and other nutritional supplements is highly competitive. H&B's principal competitors are large pharmacy chains, including Superdrug, Boots and Lloyds, and major supermarket chains such as Tesco, Sainsbury's and ASDA. There are also approximately 1,300 independent retailers of health foods and nutritional supplements in the U.K. market. In addition, GNC has recently entered the U.K. market and currently operates approximately 30 stores in the U.K. As a result of the Acquisition, H&B intends to compete more effectively with its competition through improved store formats, greater product offerings and value pricing. GOVERNMENT REGULATION UNITED STATES. The manufacturing, packaging, labeling, advertising, distribution and sale of NBTY's products are subject to regulation by one or more federal agencies, the most active of which is the FDA. The Company's products are also subject to regulation by the FTC, the Consumer Product Safety Commission, the U.S. Department of Agriculture and the Environmental Protection Agency, and by various agencies of the states and localities and foreign countries in which NBTY's products are sold. In particular, the FDA, pursuant to the Federal Food, Drug, and Cosmetic Act ("FDCA") regulates the production, packaging, labeling and distribution of dietary supplements, including vitamins, minerals and herbs, and over-the-counter ("OTC") drugs. In addition, the FTC has jurisdiction to regulate advertising of dietary supplements and OTC drugs, while the U.S. Postal Service regulates advertising claims with respect to such products sold by mail order. The FDCA has been amended several times with respect to dietary supplements, most recently by the Dietary Supplement Health and Education Act of 1994 ("DSHEA") and the Nutrition Labeling and Education Act of 1990 ("NLEA"). DSHEA, enacted on October 15, 1994, introduced a new statutory framework governing the composition and labeling of dietary supplements. With respect to composition, DSHEA creates a new class of "dietary supplements," dietary ingredients consisting of vitamins, minerals, herbs, amino acids and other dietary substances for human use to supplement the diet, as well as concentrates, metabolites, extracts or combinations of such dietary ingredients. Generally, under DSHEA, dietary ingredients that were on the market before October 15, 1994 may be sold without FDA pre-approval and without notifying the FDA. On the other hand, a new dietary ingredient (one not on the market before October 15, 1994) requires proof that it has been used as an article of food without being chemically altered, or evidence of a history of use or other evidence of safety establishing that it is reasonably expected to be safe. The FDA must be supplied with such evidence at least 75 days before the initial use of a new dietary ingredient. There can be no assurance that the FDA will accept the evidence of safety for any new dietary ingredients that the Company may decide to use, and the FDA's refusal to accept such evidence could result in regulation of such dietary ingredients as food additives requiring FDA pre-approval prior to marketing. As for labeling, DSHEA permits "statements of nutritional support" for dietary supplements without FDA pre-approval. Such statements may describe how particular dietary ingredients affect the structure, function or general well-being of the body, or the mechanism of action by which a dietary ingredient may affect body structure, function or well-being (but may not state that a dietary supplement will diagnose, mitigate, treat, cure or prevent a disease). A company making a statement of nutritional support must possess substantiating 48 evidence for the statement, disclose on the label that the FDA has not reviewed that statement and that the product is not intended for use for a disease, and notify the FDA of the statement within 30 days after its initial use. However, there can be no assurance that the FDA will not determine that a given statement of nutritional support that the Company makes is not adequately substantiated as required by DSHEA, or is a drug claim rather than a nutritional support statement requiring the Company's submission and the FDA's approval of a new drug application ("NDA"). Either determination could entail costly and time-consuming clinical studies and in either situation the Company may have to delete or modify the statement or claim involved. In addition, DSHEA allows the dissemination of "third party literature", publications such as reprints of scientific articles linking particular dietary ingredients with health benefits. Third party literature may be used in connection with the sale of dietary supplements to consumers at retail or by mail order. Such a publication may be so distributed if, among other things, it is not false or misleading, no particular manufacturer or brand of dietary supplement is mentioned, and a balanced view of available scientific information on the subject matter is presented. There can be no assurance, however, that all pieces of third party literature that may be disseminated in connection with the Company's products will be determined by the FDA to satisfy each of these requirements, and any such failure could subject the product involved to regulation as a new drug. Management anticipates that the FDA may promulgate good manufacturing practice ("GMP") regulations authorized by DSHEA, which are specific to dietary supplements. GMP regulations would require supplements to be prepared, packaged and held in compliance with such rules, and may require similar quality control provisions contained in the GMP regulations for drugs. The Company currently manufactures its vitamins and nutritional supplement products pursuant to the applicable food GMP rules. There can be no assurance that, if the FDA adopts GMP regulations specific to dietary supplements, NBTY will be able to comply with such GMP rules upon promulgation or without incurring material expense to do so. The FDA has finalized regulations to implement certain labeling provisions of DSHEA. In addition, further DSHEA labeling regulations are expected to be proposed by the FDA once the agency receives the final report of the expert Commission on Dietary Supplement Labels, established by DSHEA to provide recommendations on labeling claims for supplements. The Commission on Dietary Supplements issued its draft report in June 1997. It is uncertain when the final report will be issued or when the FDA will propose further regulations. NBTY cannot determine what effect such regulations, when promulgated, will have on its business in the future. There can be no assurance that such regulations will not require expanded or different labeling for NBTY's vitamins and nutritional products or, among other things, require the recall, reformulation or discontinuance of certain products, additional recordkeeping, warnings, notification procedures and expanded documentation of the properties of certain products and scientific substantiation regarding ingredients, product claims, safety or efficacy. NLEA prohibits the use of any health claim (as distinguished from "statements of nutritional support" permitted by DSHEA) for foods, including dietary supplements, unless the health claim is supported by significant scientific agreement and is pre-approved by the FDA. To date, the FDA has approved the use of health claims for dietary supplements only in connection with the use of calcium for osteoporosis and the use of folic acid for neural tube defects. The FDA has broad authority to enforce the provisions of the FDCA applicable to dietary supplements, including the power to seize adulterated or misbranded products or unapproved new drugs, to request their recall from the market, to enjoin their further manufacture or sale, to publicize information about a hazardous product, to issue warning letters and to institute criminal proceedings. Although the regulation of dietary supplements is less restrictive than that imposed upon drugs and food additives, there can be no assurance that dietary supplements will continue to be subject to the less restrictive statutory scheme and regulations currently in effect. Further, there can be no assurance that, if more stringent statutes are enacted or regulations are promulgated, the Company will be able to comply with such statutes and regulations without incurring material expense to do so. The OTC pharmaceutical products distributed by the Company are subject to regulation by a number of Federal and State governmental agencies. In particular, the FDA regulates the formulation, manufacture, packaging and labeling of all OTC pharmaceutical products pursuant to a monograph system 49 specifying OTC active drug ingredients that are generally recognized as safe and effective for particular therapeutic conditions. Compliance with applicable FDA monographs is required for the lawful interstate sale of OTC drugs. The FDA has the same above-noted enforcement powers for violations of the FDCA by drug manufacturers as it does for such violations by dietary supplement producers. The FTC, which exercises jurisdiction over the advertising of dietary supplements, has in the past several years instituted enforcement actions against several dietary supplement companies for false and misleading advertising of certain products. These enforcement actions have resulted in consent decrees and the payment of fines by the companies involved. In addition, the FTC has increased its scrutiny of infomercials. The Company is currently subject to an FTC consent decree for past advertising claims for certain of its products, and the Company is required to maintain compliance with this decree under pain of civil monetary penalties. Further, the U.S. Postal Service has issued cease and desist orders against certain mail order advertising claims made by dietary supplement manufacturers, including NBTY, and NBTY is required to maintain compliance with this order, also under pain of civil monetary penalties. The Company is also subject to regulation under various international, state and local laws that include provisions regulating, among other things, the marketing of dietary supplements and the operations of direct sales programs. The Company may be subject to additional laws or regulations administered by the FDA or other federal, state or foreign regulatory authorities, the repeal of laws or regulations that considers favorable, such as DSHEA, or more stringent interpretations of current laws or regulations, from time to time in the future. The Company is unable to predict the nature of such future laws, regulations, interpretations or applications, nor can it predict what effect additional governmental regulations or administrative orders, when and if promulgated, would have on its business in the future. These regulations could, however, require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, imposition of additional recordkeeping requirements, expanded documentation of the properties of certain products, expanded or different labeling, and/or scientific substantiation. Any or all of such requirements could have a material adverse effect on the Company's results of operations and financial condition. See "Risk Factors--Government Regulation." UNITED KINGDOM. In the U.K., the manufacture, advertising, sale and marketing of food products is regulated by a number of government agencies including the Ministry of Agriculture, Fisheries and Food and the Department of Health. In addition, there are various independent committees and agencies that report to the government, such as the Food Advisory Committee, which reports to MAFF and suggests appropriate courses of action by the relevant government department where there are areas of concern relating to food, and the Committee on Toxicity, which reports to the Department of Health. The relevant legislation governing the sale of food includes the Food Safety Act 1990, which sets out general provisions relating to the sale of food; for example, this law makes it unlawful to sell food that is harmful to human health. In addition, there are various statutory instruments and E.C. regulations governing specific areas such as the use of sweeteners, colouring and additives in food. Trading standards officers under the control of the Department of Trade and Industry also regulate matters such as the cleanliness of the properties on which food is produced and sold. Food that has medicinal properties may fall under the jurisdiction of the Medicines Control Agency, a regulatory authority whose responsibility is to ensure that all medicines sold or supplied for human use in the U.K. meet acceptable standards of safety, quality and efficacy. These standards are determined by the 1968 Medicines Act together with an increasing number of E.C. regulations and directives laid down by the European Union. The latter take precedence over national law. The MCA has a "borderline department" which determines when food should be treated as a medicine and should therefore fall under the relevant legislation relating to medicines. The MCA operates as the agent of the licensing authority (the United Kingdom Health Ministers) and its activities cover every facet of medicines controlled in the U.K. including involvement in the development of common standards of medicines controlled in Europe. The MCA is responsible, for example, for licensing, inspection and enforcement to ensure that legal requirements concerning manufacture, distribution, sale, labeling, advertising and promotion are upheld. 50 TRADEMARKS NBTY. NBTY owns trademarks registered with the United States Patent and Trademark Office and many foreign jurisdictions for its NATURE'S BOUNTY, GOOD `N NATURAL, HUDSON, AMERICAN HEALTH, NATURAL WEALTH, PURITAN'S PRIDE and Vitamin World trademarks and has rights to use other names essential to its business. U.S. registered trademarks have a perpetual life, as long as they are renewed on a timely basis and used properly as trademarks, subject to the rights of third parties to seek cancellation of the marks. NBTY regards its trademarks and other proprietary rights as valuable assets and believes they have significant value in the marketing of its products. NBTY vigorously protects its trademarks against infringement. H&B. H&B owns trademarks registered with the appropriate U.K. authorities for its Holland & Barrett trademark and has rights to use other names essential to its business. EMPLOYEES NBTY. As of June 30, 1997, NBTY employed approximately 1,460 persons, of whom approximately 350 are in executive and administrative capacities, 70 are in wholesale sales, 400 are in the Vitamin World stores and the balance are in manufacturing, shipping and packaging. None of NBTY's employees are represented by a labor union. NBTY believes that its relationship with its employees is excellent. H&B. During fiscal year 1997, H&B employed an average of 2,195 persons, of whom 99 worked in executive or administrative capacities, 1,979 worked in retail stores and 117 worked in warehouse and distribution. Other administrative, clerical and buying services were provided by Lloyds personnel pursuant to a central services arrangement. There is no trade union representation at H&B. H&B management believes that its relationship with its employees is excellent. LITIGATION NBTY. NBTY and certain other companies in the industry have been named as defendants in cases arising out of the ingestion of products containing L-Tryptophan. NBTY had been named in more than 265 such lawsuits, of which four are still pending against NBTY. The other 261 lawsuits have been settled at no cost to NBTY. NBTY's supplier of L-Tryptophan agreed to indemnify NBTY and the other companies named in the lawsuits through the final resolution of all cases involving L-Tryptophan. In addition, the supplier has posted, for the benefit of NBTY and the other companies named in the lawsuits, a revolving, irrevocable letter of credit of $20 million to be used in the event that the supplier is unable or unwilling to satisfy any claims or judgments. While not all of these suits quantify the amount demanded, NBTY believes that the amount required to either settle these cases or to pay judgments rendered therein will be paid by the supplier or by NBTY's product liability insurance carrier. In October 1994, litigation was commenced in the U.S. District Court, Eastern District of New York, against NBTY and two of its officers. An Amended Complaint was filed in October 1996, alleging that false and misleading statements and representations were made concerning NBTY's sales and earnings estimates for the fiscal years ending September 30, 1993 and 1994 and the fiscal quarters of 1994. The allegations are that NBTY improperly (i) recognized revenue on a sale to a customer in September 1993, (ii) capitalized and amortized certain promotional costs in 1994, (iii) reported positive sales trends in mid-1994 by an improper comparison to prior year sales, and (iv) expressed comfort with an independent analyst's projection of modest earnings for 1994 when earnings later proved to be less than analysts predicted. Plaintiffs' case has been certified as a class action. NBTY and its officers denied the allegations of the Amended Complaint and have vigorously contested the claim. In order to avoid the further commitment of senior management time and to limit further litigation expense, on October 17, 1997, NBTY signed a Memorandum of Understanding to settle the class action. While vigorously denying any liability, under the terms of the settlement, the Company will pay a total of $8 million, comprised of $4.4 million in cash and $3.6 million in stock. The settlement requires the approval of the Court to be finalized. An undetermined portion of that payment will be covered by insurance reimbursement under a Directors and Officer Indemnity Policy, which was purchased prior to the commencement of the lawsuit. H&B. H&B is not involved in any litigation believed to be material to its business or operations. 51 MANAGEMENT DIRECTORS AND OFFICERS Set forth below are the names and other relevant information regarding executive and certain other of officers of the Company as of August 29, 1997.
COMMENCEMENT YEAR FIRST OF TERM AS ELECTED EXECUTIVE OR NAME AGE POSITION DIRECTOR OTHER OFFICER - ---- --- -------- -------- ------------- Scott Rudolph 39 Chairman of the Board, President and Chief Executive Officer 1986 1986 Harvey Kamil 53 Executive Vice President, Chief Financial Officer and Secretary -- 1982 Barry Drucker 49 Senior Vice President--Sales -- 1985 Patricia E. Ciccarone 41 Vice President--Vitamin World -- 1992 James P. Flaherty 40 Vice President--Advertising -- 1988 James A. Taylor 56 Vice President--Production -- 1982 Arthur Rudolph 69 Director 1971 -- Aram Garabedian 62 Director 1971 -- Bernard G. Owen 69 Director 1971 -- Alfred Sacks 69 Director 1971 -- Murray Daly 70 Director 1988 -- Glenn Cohen 38 Director 1994 -- Nathan Rosenblatt 40 Director 1994 --
The Directors of the Company are elected to serve a three-year term or until their respective successors are elected and qualified. Officers of the Company hold office until the meeting of the Board of Directors immediately following the next annual shareholders meeting or until removal by the Board, whether with or without cause. SCOTT RUDOLPH is the Chairman of the Board of Directors, President and Chief Executive Officer and is a shareholder of the Company. Mr. Rudolph founded U.S. Nutrition Corp., a mail order vitamin company in 1976, which was purchased by NBTY in 1986. He is the Chairman of Dowling College, Long Island, New York. He joined NBTY in 1986. He is the son of Arthur Rudolph. HARVEY KAMIL is Executive Vice President, Chief Financial Officer and Secretary. He is on the Board of Directors of the Council for Responsible Nutrition. He joined NBTY in 1982. BARRY DRUCKER is Senior Vice President--Sales. He joined NBTY in 1976. PATRICIA E. CICCARONE is Vice President--Vitamin World. She previously served as Director of Stores for Park Lane, a 500 store hosiery chain. She joined NBTY in 1988. JAMES P. FLAHERTY is Vice President--Advertising. He joined NBTY in 1979. JAMES E. TAYLOR is Vice President--Production. He joined NBTY in 1981. ARTHUR RUDOLPH founded Arco Pharmaceuticals, Inc., NBTY's predecessor, in 1960 and served as NBTY's Chief Executive Officer and Chairman of the Board of Directors since that date until his resignation in September 1993. He remains a member of the Board of Directors and was responsible for the formation of NBTY in 1971. He is the father of Scott Rudolph. 52 ARAM GARABEDIAN has been a real estate developer in Rhode Island since 1988. He was associated with NBTY and its predecessor, Arco Pharmaceuticals, Inc., for 20 years in a sales capacity and as an Officer. He has served as a Director since 1971. BERNARD G. OWEN has been associated with Cafiero, Cuchel and Owen Insurance Agency, Pitkin, Owen Insurance Agency and Wood-HEW Travel Agency for more than the past five years. He currently serves as Chairman of these firms. ALFRED SACKS has been engaged as President of Al Sacks, Inc., an insurance agency, for the past thirty years. MURRAY DALY, formerly a Vice President of J. P. Egan Office Equipment Co., is currently a consultant to the office equipment industry. GLENN COHEN has been the President of Glenn-Scott Landscape and Design for more than five years. BUD SOLK has been President of Chase/Ehrenberg & Rosene, Inc., an advertising and marketing agency located in Chicago, Illinois since 1995. Previously, Mr. Solk was President of Bud Solk Associates, Inc., which he founded in 1958. NATHAN ROSENBLATT is the President and Chief Executive Officer of Ashland Maintenance Corp., a commercial maintenance organization located in Long Island, New York. EMPLOYMENT AGREEMENTS Scott Rudolph, Chairman of the Board, President and Chief Executive Officer of the Company, entered into an employment agreement effective February 1, 1994, as amended, to terminate January 31, 2004, providing for annual compensation of $450,000 with annual cost of living index increases, bonuses and other fringe benefits accorded other executives of NBTY. Harvey Kamil, Executive Vice President, Chief Financial Officer and Secretary of the Company, entered into an employment agreement effective February 1, 1994, to terminate January 31, 2004, providing for annual compensation of $250,000 with annual cost of living index increases, bonuses and other fringe benefits accorded other executives of NBTY. Each of the above agreements also provides for the immediate acceleration of the payment of all compensation for the term of the contract and the registration and sale of all issued stock, stock options and shares underlying options in the event of a change of control, a tender offer for shares of NBTY, which offer was not authorized by the Board of Directors, or involuntary (i) termination of employment, (ii) reduction of compensation, or (iii) diminution of responsibilities or authority. Additionally, three rnembers of H&B's senior executive staff have 12 month service contracts which require that they provide the Company with three months notice prior to termination of the contract. 53 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following information with respect to the outstanding shares of common stock beneficially owned by (i) each director of the Company, (ii) the chief executive officer and the five other most highly compensated executive officers, (iii) all beneficial owners of more than five percent of common stock known to the Company, and (iv) the directors and executive officers as a group, is furnished as of August 25, 1997, except as otherwise indicated.
NUMBER OF SHARES OF PERCENT OF NAME OF BENEFICIAL OWNERS COMMON STOCK CLASS - ------------------------- ------------ ---------- Scott Rudolph(b).............................................. 3,147,686 16.0% Arthur Rudolph(b)............................................. 647,982 3.5 Aram Garabedian............................................... 14,000 * Bernard G. Owen............................................... 27,500 * Alfred Sacks.................................................. -- -- Murray Daly................................................... 15,009 * Glen Cohen.................................................... 29,000 * Bud Solk...................................................... 14,000 -- Nathan Rosenblatt............................................. -- -- Harvey Kamil.................................................. 689,780 3.7 Barry Drucker................................................. 100,131 * James P. Flaherty............................................. 44,408 * James H. Taylor............................................... 41,483 * Patricia E. Ciccarone......................................... 1,781 * All directors and Executive Offficers as a group (14 persons)(b) 4,099,778 20.4 NBTY, Inc. Profit Sharing Plan................................ 1,062,228 5.7
(*) Indicates ownership of less than one percent of class. - ----------------- (a) Each stockholder shown on the table has sole voting and investment power with respect to the shares beneficially owned. Each named person or group is deemed to be the beneficial owner of securities which may be acquired within 60 days through the exercise or conversion of options, if any, and such securities are deemed to be outstanding for the purpose of computing the percentage beneficially owned by such person or group. Such securities are not deemed to be outstanding for the purpose of computing the percentage of class beneficially owned by any other person or group. Accordingly, the indicated number of shares includes shares issuable upon exercise of options (including employee stock options) and any other beneficial ownership of securities held by such person or group. (b) Includes shares held in a Trust created by Arthur Rudolph for the benefit of Scott Rudolph and others. 54 DESCRIPTION OF THE REVOLVING CREDIT FACILITY The Revolving Credit Facility is provided by a syndicate of banks and other financial institutions led by The Chase Manhattan Bank, as administrative agent (the "Agent"), and provides for borrowings in an aggregate principal amount of up to $50.0 million (of which up to $5.0 million is available in the form of letters of credit and up to $5.0 million may be extended in the form of swingline loans). The Company used a portion of the Revolving Credit Facility to pay the Promissory Notes. The following summary of the Revolving Credit Facility does not purport to be complete and is subject to, and qualified in its entirety by reference to, the Revolving Credit Facility. SECURITY, GUARANTEES. The obligations of the Company under the Revolving Credit Facility are unconditionally and irrevocably guaranteed, jointly and severally, by each direct and indirect domestic subsidiary of the Company and each subsequently acquired or organized subsidiary of the Company. In addition, the obligations of the Company under the Revolving Credit Facility and the guarantees thereunder are secured by substantially all of the non-real estate assets of the Company and the guarantors. INTEREST. The Revolving Credit Facility is a six-year facility and bears interest at a rate per annum equal (at the Company's option) to: (i) the Agent's Eurodollar rate plus an applicable margin, (ii) an alternate base rate plus an applicable margin or (iii) the Agent's Eurocurrency rate plus an applicable margin. Principal amounts under the Revolving Credit Facility not paid when due shall bear interest at a default rate equal to 2.00% per annum above the otherwise applicable rate. Other amounts not paid when due under the Revolving Credit Facility shall bear interest at the interest rate then applicable to alternate base rate loans under the Revolving Credit Facility plus 2.00% per annum. PREPAYMENTS. Voluntary prepayments of borrowings under the Revolving Credit Facility and voluntary reductions of the unutilized portions of the Revolving Credit Facility are permitted at any time in minimum principal amounts to be agreed upon. FEES. The Company is required to pay the lenders, on a quarterly basis, a commitment fee ranging from 0.25% to 0.50% per annum on the undrawn portion of the commitments, based upon the Company's ratio of (i) consolidated total debt as of the date of determination and (ii) consolidated EBITDA for the period of four consecutive fiscal quarters most recently ended as of such date of determination. The Company is also required to pay (a) a per annum letter of credit fee, on a quarterly basis, equal to the applicable Eurodollar loan margin on the amount available to be drawn under standby letters of credit, (b) a fee, on a quarterly basis, equal to 0.25% of the aggregate face amount of outstanding commercial letters of credit, (c) a fronting bank fee, and (d) agent, arrangement and other similar fees. COVENANTS. The Revolving Credit Facility contains a number of covenants that, among other things, restrict the ability of the Company and its subsidiaries, subject to certain exceptions, to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay other indebtedness or amend other debt instruments, make distributions or pay dividends on partnership interests or capital stock, redeem and repurchase partnership interests or capital stock, create liens on assets, enter into sale and leaseback transactions, make investments, loans or advances, make acquisitions, engage in mergers or consolidations, change the business conducted by the Company or its subsidiaries, make capital expenditures or engage in certain transactions with affiliates and otherwise restrict certain business activities. In addition, the Company is required to comply with specified financial ratios and tests, including minimum fixed charge coverage ratios, maximum leverage ratios and minimum net worth tests. The Revolving Credit Facility also contains provisions that prohibit any modification of the Indenture in any manner adverse to the lenders and that limit the Company's ability to refinance or otherwise prepay the Exchange Notes without the consent of such lenders. EVENTS OF DEFAULT. The Revolving Credit Facility contains customary events of default, including payment defaults, breach of representations and warranties, covenant defaults, cross-defaults and cross-acceleration to certain other indebtedness, certain events of bankruptcy and insolvency, Employee 55 Retirement Income Security Act of 1974 events, judgment defaults, actual or asserted invalidity of any security documents or guarantees, change of control, the voluntary creation of security interests relating to partnership interests in the Company or the voluntary creation of any prohibition on the creation of such security interests. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following discussion is based on the current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations, judicial authority and administrative rulings and practice. There can be no assurance that the Internal Revenue Service (the "Service") will not take a contrary view, and no ruling from the Service has been or will be sought. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conditions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to holders. Certain holders (including insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. The Company recommends that each holder consult such holder's own tax advisor as to the particular tax consequences of exchanging such holder's Original Notes for Exchange Notes, including the applicability and effect of any state, local or foreign tax laws. The Company believes that the exchange of Original Notes for Exchange Notes pursuant to the Exchange Offer will not be treated as an "exchange" for federal income tax purposes because the Exchange Notes will not be considered to differ materially in kind or extent from the Original Notes. Rather, the Exchange Notes received by a holder will be treated as a continuation of the Original Notes in the hands of such holder. As a result, there should be no federal income tax consequences to holders exchanging Original Notes for Exchange Notes pursuant to the Exchange Offer. 56 DESCRIPTION OF THE EXCHANGE NOTES The Original Notes were, and the Exchange Notes will be, issued under an Indenture (the "Indenture"), dated as of September 23, 1997, by and between the Company and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"). The form and terms of the Exchange Notes are the same as the form and terms of the Original Notes (which they replace) except that (i) the Exchange Notes bear a Series B designation, (ii) the Exchange Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof, and (iii) the holders of Exchange Notes will not be entitled to certain rights under the Exchange and Registration Rights Agreement, including the provisions providing for an increase in the interest rate on the Original Notes in certain circumstances relating to the timing of the Exchange Offer, which rights will terminate when the Exchange Offer is consummated. The Original Notes issued in the Initial Offering and the Exchange Notes offered hereby are referred to collectively as the "Notes." The following summary of certain provisions of the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and to all of the provisions of the Indenture, including the definitions of certain terms therein and those terms made a part of the Indenture by reference to the Trust Indenture Act, as in effect on the date of the Indenture. The definitions of certain capitalized terms used in the following summary are set forth below under "Certain Definitions." References in this "Description of the Exchange Notes" section and the "Registration Rights," "Book-Entry; Delivery and Form" and "Plan of Distribution" sections to "the Company" mean only NBTY, Inc. and not any of its Subsidiaries. GENERAL The Notes are unsecured, senior subordinated obligations of the Company. The Original Notes were and the Exchange Notes will be, issued only in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. Pursuant to the Indenture, the Trustee, initially, will serve as registrar and paying agent. No service charge will be made for any registration of transfer or exchange of the Notes, except for any tax or other governmental charge that may be imposed in connection therewith. RANKING The Notes rank junior to, and are subordinated in right of payment to, all existing and future Senior Indebtedness of the Company, PARI PASSU in right of payment with all senior subordinated Indebtedness of the Company and senior in right of payment to all Subordinated Indebtedness of the Company. At June 30, 1997, on a pro forma basis after giving effect to the Transaction, the Company would have had approximately $31.1 million of Senior Indebtedness outstanding (excluding unused commitments) and no senior subordinated Indebtedness, other than the Notes. All debt incurred under the Revolving Credit Facility is Senior Indebtedness of the Company, is guaranteed by the Company's domestic Subsidiaries and is secured by substantially all of the assets of the Company and its Subsidiaries. 57 MATURITY, INTEREST AND PRINCIPAL OF THE NOTES The Notes are limited to $150 million aggregate principal amount and will mature on September 15, 2007. Cash interest on the Notes will accrue at a rate of 8-5/8% per annum and will be payable semi-annually in arrears on each September 15 and March 15, commencing on March 15, 1998, to the holders of record of Notes at the close of business on September 1 and March 1, respectively, immediately preceding such interest payment date. Interest will accrue from the most recent interest payment date to which interest has been paid or, if no interest has been paid, from the date of issuance. Interest will be computed on the basis of a 360-day year of twelve 30-day months. OPTIONAL REDEMPTION The Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after September 15, 2002, at the redemption prices (expressed as a percentage of principal amount) set forth below, plus accrued and unpaid interest thereon, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period beginning on September 15, of the years indicated below: REDEMPTION YEAR PRICE - --- ---------- 2002................................................. 104.313% 2003................................................. 102.875% 2004................................................. 101.438% 2005 and thereafter.................................. 100.000% In addition, at any time and from time to time on or prior to September 15, 2000, the Company may redeem in the aggregate up to 33-1/3% of the originally issued aggregate principal amount of the Notes with the net cash proceeds of one or more Public Equity Offerings by the Company at a redemption price in cash equal to 108.625% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the date of redemption (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date); PROVIDED, HOWEVER, that at least 66-2/3% of the originally issued aggregate principal amount of the Notes must remain outstanding immediately after giving effect to each such redemption (excluding any Notes held by the Company or any of its Affiliates). Notice of any such redemption must be given within 60 days after the date of the closing of the relevant Public Equity Offering of the Company. SELECTION AND NOTICE OF REDEMPTION In the event that less than all of the Notes are to be redeemed at any time pursuant to an optional redemption, selection of such Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; PROVIDED, HOWEVER, that no Notes of a principal amount of $1,000 or less shall be redeemed in part; provided, further, however, that if a partial redemption is made with the net cash proceeds of a Public Equity Offering by the Company, selection of the Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to the procedures of The Depository Trust Company), unless such method is otherwise prohibited. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of 58 the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption as long as the Company has deposited with the paying agent for the Notes funds in satisfaction of the applicable redemption price pursuant to the Indenture. SUBORDINATION OF THE NOTES The payment of the principal of, premium, if any, and interest on the Notes is subordinated in right of payment, to the extent and in the manner provided in the Indenture, to the prior payment in full in cash of all Senior Indebtedness. Upon any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities (excluding any payment or distribution of Permitted Junior Securities and excluding any payment from funds deposited in accordance with, and held in trust for the benefit of Holders pursuant to, "Legal Defeasance and Covenant Defeasance" (a "Defeasance Trust Payment")), upon any dissolution or winding up or total liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all Senior Indebtedness then due shall first be paid in full in cash before the Holders of the Notes or the Trustee on behalf of such Holders shall be entitled to receive any payment by the Company of the principal of, premium, if any, or interest on the Notes, or any payment by the Company to acquire any of the Notes for cash, property or securities, or any distribution by the Company with respect to the Notes of any cash, property or securities (excluding any payment or distribution of Permitted Junior Securities and excluding any Defeasance Trust Payment). Before any payment may be made by, or on behalf of, the Company of the principal of, premium, if any, or interest on the Notes upon any such dissolution or winding up or total liquidation or reorganization, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities (excluding any payment or distribution of Permitted Junior Securities and excluding any Defeasance Trust Payment), to which the Holders of the Notes or the Trustee on their behalf would be entitled, but for the subordination provisions of the Indenture, shall be made by the Company or by any receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, directly to the holders of the Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their representatives or to the trustee or trustees or agent or agents under any agreement or indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all such Senior Indebtedness in full in cash after giving effect to any prior or concurrent payment, distribution or provision therefor to or for the holders of such Senior Indebtedness. No direct or indirect payment (excluding any payment or distribution of Permitted Junior Securities and excluding any Defeasance Trust Payment) by or on behalf of the Company of principal of, premium, if any, or interest on the Notes, whether pursuant to the terms of the Notes, upon acceleration, pursuant to an Offer to Purchase or otherwise, shall be made if, at the time of such payment, there exists a default in the payment of all or any portion of the obligations on any Senior Indebtedness, whether at maturity, on account of mandatory redemption or prepayment, acceleration or otherwise, and such default shall not have been cured or waived or the benefits of this sentence waived by or on behalf of the holders of such Senior Indebtedness. In addition, during the continuance of any non-payment event of default with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be immediately accelerated, and upon receipt by the Trustee of written notice (a "Payment Blockage Notice") from the holder or holders of such Designated Senior Indebtedness or the trustee or agent acting on behalf of the holders of such Designated Senior Indebtedness, then, unless and until such event of default has 59 been cured or waived or has ceased to exist or such Designated Senior Indebtedness has been discharged or repaid in full in cash or the benefits of these provisions have been waived by the holders of such Designated Senior Indebtedness, no direct or indirect payment (excluding any payment or distribution of Permitted Junior Securities and excluding any Defeasance Trust Payment) will be made by or on behalf of the Company of principal of, premium, if any, or interest on the Notes, whether pursuant to the terms of the Notes, upon acceleration, pursuant to an Offer to Purchase or otherwise, to such Holders, during a period (a "Payment Blockage Period") commencing on the date of receipt of such notice by the Trustee and ending 179 days thereafter. Notwithstanding anything in the subordination provisions of the Indenture or the Notes to the contrary, (x) in no event will a Payment Blockage Period extend beyond 179 days from the date the Payment Blockage Notice in respect thereof was given, (y) there shall be a period of at least 181 consecutive days in each 360-day period when no Payment Blockage Period is in effect and (z) not more than one Payment Blockage Period may be commenced with respect to the Notes during any period of 360 consecutive days. No event of default that existed or was continuing on the date of commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period (to the extent the holder of Designated Senior Indebtedness, or trustee or agent, giving notice commencing such Payment Blockage Period had knowledge of such existing or continuing event of default) may be, or be made, the basis for the commencement of any other Payment Blockage Period by the holder or holders of such Designated Senior Indebtedness or the trustee or agent acting on behalf of such Designated Senior Indebtedness, whether or not within a period of 360 consecutive days, unless such event of default has been cured or waived for a period of not less than 90 consecutive days. The failure to make any payment or distribution for or on account of the Notes by reason of the provisions of the Indenture described under this "Subordination of the Notes" heading will not be construed as preventing the occurrence of any Event of Default in respect of the Notes. See "Events of Default" below. By reason of the subordination provisions described above, in the event of insolvency of the Company, funds which would otherwise be payable to Holders of the Notes will be paid to the holders of Senior Indebtedness to the extent necessary to pay the Senior Indebtedness in full in cash, and the Company may be unable to meet fully or at all its obligations with respect to the Notes. At the time of the issuance of the Notes, the Revolving Credit Facility will be the only outstanding Senior Indebtedness of the Company. Subject to the restrictions set forth in the Indenture, in the future the Company may issue additional Senior Indebtedness. OFFER TO PURCHASE UPON CHANGE OF CONTROL Following the occurrence of a Change of Control (the date of such occurrence being the "Change of Control Date"), the Company shall notify the Holders of the Notes of such occurrence in the manner prescribed by the Indenture and shall, within 20 days after the Change of Control Date, make an Offer to Purchase all Notes then outstanding at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant interest payment date). If a Change of Control occurs which also constitutes an event of default under the Revolving Credit Facility, the lenders under the Revolving Credit Facility would be entitled to exercise the remedies available to a secured lender under applicable law and pursuant to the terms of the Revolving Credit Facility. Accordingly, any claims of such lenders with respect to the assets of the Company will be prior to any claim of the Holders of the Notes with respect to such assets. If the Company makes an Offer to Purchase, the Company will comply with all applicable tender offer laws and regulations, including, to the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other applicable Federal or state securities laws and regulations and any applicable requirements of any securities exchange on which the Notes are listed, and any violation of the provisions of the Indenture relating to such Offer to Purchase occurring as a result of such compliance shall not be deemed a Default or an Event of Default. 60 Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. CERTAIN COVENANTS LIMITATION ON INDEBTEDNESS. The Company shall not, and shall not cause or permit any Subsidiary to, directly or indirectly, Incur any Indebtedness (including Acquired Indebtedness), except for Permitted Indebtedness; PROVIDED, HOWEVER, that the Company may Incur Indebtedness if, at the time of and immediately after giving pro forma effect to such Incurrence of Indebtedness and the application of the proceeds therefrom, the Consolidated Coverage Ratio would be greater than (x) 2.375 to 1.00 if such Indebtedness is Incurred prior to the first anniversary of the Issue Date; (y) 2.5 to 1.00 if such Indebtedness is Incurred on or after the first anniversary of the Issue Date and prior to the second anniversary of the Issue Date; and (z) 2.625 to 1.00 if such Indebtedness is Incurred thereafter. Notwithstanding the foregoing, after October 17, 1997, the Company shall not permit to be outstanding the Promissory Notes or the letters of credit issued to collateralize such Promissory Notes. The limitations contained in the preceding paragraph will not apply to the Incurrence of any of the following (collectively, "Permitted Indebtedness"), each of which shall be given independent effect: (a) Indebtedness under the Notes; (b) Indebtedness of the Company Incurred under the Revolving Credit Facility in an aggregate principal amount at any one time outstanding not to exceed $60 million; (c) Indebtedness of any Subsidiary of the Company owed to and held by the Company or any Wholly Owned Subsidiary, and Indebtedness of the Company owed to and held by any Wholly Owned Subsidiary that is unsecured and subordinated in right of payment to the payment and performance of the Company's obligations under any Senior Indebtedness, the Indenture and the Notes; PROVIDED, HOWEVER, that an Incurrence of Indebtedness that is not permitted by this clause (c) shall be deemed to have occurred upon (i) any sale or other disposition of any Indebtedness of the Company or any Subsidiary of the Company referred to in this clause (c) to a Person (other than the Company or a Wholly Owned Subsidiary), (ii) any sale or other disposition of Equity Interests of any Subsidiary which holds Indebtedness of the Company or another Subsidiary; (d) Interest Rate Protection Obligations; PROVIDED, HOWEVER, that such Interest Rate Protection Obligations have been entered into for bona fide business purposes and not for speculation; (e) Purchase Money Indebtedness and Capitalized Lease Obligations of the Company or any Subsidiary of the Company and other Indebtedness of the Company, in an aggregate principal amount at any one time outstanding not to exceed $20 million; (f) Indebtedness of the Company under Currency Agreements; PROVIDED, HOWEVER, (i) that such Currency Agreements have been entered into for bona fide business purposes and not for speculation and (ii) that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and its Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (g) Indebtedness to the extent representing a replacement, renewal, refinancing or extension (collectively, a "refinancing") of outstanding Indebtedness (other than Indebtedness Incurred under clauses (b), (c), (d), (e), 61 (f) or (h) of this covenant); PROVIDED, HOWEVER, that (i) any such refinancing shall not exceed the sum of the principal amount (or accreted amount (determined in accordance with GAAP), if less) of the Indebtedness being refinanced, plus the amount of accrued interest thereon, plus the amount of any reasonably determined prepayment premium necessary to accomplish such refinancing and such reasonable fees and expenses incurred in connection therewith, (ii) Indebtedness representing a refinancing of Indebtedness other than Senior Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being refinanced; (iii) Indebtedness that is pari passu with the Notes may only be refinanced with Indebtedness that is made pari passu with or subordinate in right of payment to the Notes and Subordinated Indebtedness may only be refinanced with Subordinated Indebtedness; and (iv) Indebtedness of the Company may only be refinanced by Indebtedness of the Company and Indebtedness of a Subsidiary of the Company may only be refinanced by Indebtedness of Subsidiaries or by the Company; and (h) guarantees by a Subsidiary of the Company of Senior Indebtedness Incurred by the Company so long as the Incurrence of such Indebtedness is otherwise permitted by the terms of the Indenture. LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS. The Company shall not, directly or indirectly, Incur any Indebtedness that by its terms would expressly rank senior in right of payment to the Notes and subordinate in right of payment to any other Indebtedness of the Company. LIMITATION ON RESTRICTED PAYMENTS. The Company shall not, and shall not cause or permit any Subsidiary of the Company to, directly or indirectly, (i) declare or pay any dividend or any other distribution on any Equity Interests of the Company or any Subsidiary of the Company or make any payment or distribution to the direct or indirect holders (in their capacities as such) of Equity Interests of the Company or any Subsidiary of the Company (other than any dividends, distributions and payments made to the Company or any Wholly Owned Subsidiary of the Company and dividends or distributions payable to any Person solely in Qualified Equity Interests of the Company or in options, warrants or other rights to purchase Qualified Equity Interests of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Subsidiary of the Company (other than any such Equity Interests owned by the Company or any Subsidiary of the Company); or (iii) make any Investment in any Person (other than Permitted Investments) (any such payment or any other action (other than any exception thereto) described in (i), (ii) or (iii) (a "Restricted Payment"), unless (a) no Default or Event of Default shall have occurred and be continuing at the time or immediately after giving effect to such Restricted Payment; (b) immediately after giving effect to such Restricted Payment, the Company would be able to Incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the Consolidated Coverage Ratio of the first paragraph of "Limitation on Indebtedness" above; and (c) immediately after giving effect to such Restricted Payment, the aggregate amount of all Restricted Payments declared or made on or after the Issue Date does not exceed an amount equal to the sum of (1) 50% of cumulative Consolidated Net Income determined for the period (taken as one period) from the beginning of the first fiscal quarter commencing after the Issue Date and ending on the last day of the most recent fiscal quarter immediately preceding the date of such Restricted Payment for which consolidated financial information of the 62 Company is available (or if such cumulative Consolidated Net Income shall be a loss, minus 100% of such loss), plus (2) the aggregate net cash proceeds received by the Company either (x) as capital contributions to the Company after the Issue Date or (y) from the issue and sale (other than to a Subsidiary of the Company) of its Qualified Equity Interests after the Issue Date (excluding the net proceeds from any issuance and sale of Qualified Equity Interests financed, directly or indirectly, using funds borrowed from the Company or any Subsidiary of the Company until and to the extent such borrowing is repaid), plus (3) the principal amount (or accreted amount (determined in accordance with GAAP), if less) of any Indebtedness of the Company or any Subsidiary of the Company Incurred after the Issue Date which has been converted into or exchanged for Qualified Equity Interests of the Company (minus the amount of any cash or property distributed by the Company or any Subsidiary of the Company upon such conversion or exchange), plus (4) in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after the Issue Date, an amount equal to 100% of the net cash proceeds thereof (or dividends, distributions or interest payments received in cash thereon). The foregoing provisions will not prevent (i) the payment of any dividend or distribution on, or redemption of, Equity Interests within 60 days after the date of declaration of such dividend or distribution or the giving of formal notice of such redemption, if at the date of such declaration or giving of such formal notice such payment or redemption would comply with the provisions of the Indenture; (ii) the purchase, redemption, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent issue and sale (other than to a Subsidiary of the Company) of, Qualified Equity Interests of the Company; PROVIDED, HOWEVER, that any such net cash proceeds and the value of any Qualified Equity Interests issued in exchange for such retired Equity Interests are excluded from clause (c)(2) of the preceding paragraph (and were not included therein at any time) and are not used to redeem the Notes pursuant to "--Optional Redemption" above; (iii) the purchase, redemption or other acquisition for value of shares of capital stock of the Company (other than Disqualified Capital Stock) or options on such shares held by officers or employees or former officers or employees (or their estates or beneficiaries under their estates) upon the death, disability, retirement or termination of employment of such current or former officers or employees pursuant to the terms of an employee benefit plan or any other agreement pursuant to which such shares of capital stock or options were issued or pursuant to a severance, buy-sell or right of first refusal agreement with such current or former officer or employee; PROVIDED, HOWEVER, that the aggregate cash consideration paid, or distributions made, pursuant to this clause (iii) do not in any one fiscal year exceed $1 million; and (iv) Investments constituting Restricted Payments made as a result of the receipt of non-cash consideration from any Asset Sale made pursuant to and in compliance with "--Disposition of Proceeds of Asset Sales" below; provided however, that in the case of each of clauses (ii), (iii) and (iv), no Default or Event of Default shall have occurred and be continuing or would arise therefrom. In determining the amount of Restricted Payments permissible under this covenant, amounts expended pursuant to clauses (i) and (iv) of the immediately preceding paragraph shall be included as Restricted Payments. The amount of any non-cash Restricted Payment shall be deemed to be equal to the Fair Market Value thereof at the date of the making of such Restricted Payment. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not cause or permit any Subsidiary of the Company to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary of the Company to (a) pay dividends or make any other distributions to the Company or any other Subsidiary of the Company on its Equity Interests or with respect to any other interest or participation in, or measured by, its profits, or pay any Indebtedness owed to the Company or any other Subsidiary of the Company, (b) make loans or advances to, or guarantee any Indebtedness or other obligations of, or make any Investment in, the Company or any other Subsidiary of the Company or (c) transfer any of its properties or assets to the Company or any other Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (i) the Revolving Credit Facility as in effect on the Issue Date, any other agreement of the 63 Company or its Subsidiaries outstanding on the Issue Date as in effect on the Issue Date and any other agreement of the Company or its Subsidiaries outstanding from time to time governing Senior Indebtedness provided that such encumbrances or restrictions are no more adverse to the Company than those contained in the Revolving Credit Facility as in effect on the Issue Date, and any amendments, restatements, renewals, replacements or refinancings thereof; PROVIDED, HOWEVER, that any such amendment, restatement, renewal, replacement or refinancing is no more restrictive with respect to such encumbrances or restrictions than those contained in the agreement being amended, restated, reviewed, replaced or refinanced; (ii) applicable law; (iii) any instrument governing Indebtedness or Equity Interests of an Acquired Person acquired by the Company or any Subsidiary of the Company as in effect at the time of such acquisition (except to the extent such Indebtedness was Incurred by such Acquired Person in connection with, as a result of or in contemplation of such acquisition); PROVIDED, HOWEVER, that such encumbrances and restrictions are not applicable to the Company or any Subsidiary of the Company, or the properties or assets of the Company or any Subsidiary of the Company, other than the Acquired Person; (iv) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices; (v) Purchase Money Indebtedness for property acquired in the ordinary course of business that only imposes encumbrances and restrictions on the property so acquired; (vi) any agreement for the sale or disposition of the Equity Interests or assets of any Subsidiary of the Company; PROVIDED, HOWEVER, that such encumbrances and restrictions described in this clause (vi) are only applicable to such Subsidiary or assets, as applicable, and any such sale or disposition is made in compliance with "Disposition of Proceeds of Asset Sales" below to the extent applicable thereto; (vii) refinancing Indebtedness permitted under clause (g) of the second paragraph of "Limitation on Indebtedness" above; PROVIDED, HOWEVER, that such encumbrances and restrictions contained in the agreements governing such Indebtedness are no more restrictive in the aggregate than those contained in the agreements governing such Indebtedness being refinanced immediately prior to such refinancing; or (viii) the Indenture. LIMITATION ON LIENS. The Company shall not, and shall not cause or permit any Subsidiary of the Company to, directly or indirectly, Incur any Liens of any kind against or upon any of their respective properties or assets now owned or hereafter acquired, or any proceeds therefrom or any income or profits therefrom, to secure any Indebtedness unless contemporaneously therewith effective provision is made to secure the Notes and all other amounts due under the Indenture, equally and ratably with such Indebtedness (or, in the event that such Indebtedness is subordinated in right of payment to the Notes prior to such Indebtedness) with a Lien on the same properties and assets securing such Indebtedness for so long as such Indebtedness is secured by such Lien, except for (i) Liens securing Senior Indebtedness and (ii) Permitted Liens. DISPOSITION OF PROCEEDS OF ASSET SALES. The Company shall not, and shall not cause or permit any Subsidiary of the Company to, directly or indirectly, make any Asset Sale, unless (i) the Company or such Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets sold or otherwise disposed of and (ii) at least 85% of such consideration consists of (A) cash or Cash Equivalents or (B) properties and capital assets that replace the properties and assets that were the subject of such Asset Sale or in properties and capital assets that will be used in the business of the Company and its Subsidiaries as existing on the Issue Date or in businesses reasonably related thereto (as determined in good faith by the Company's Board of Directors) ("Replacement Assets"), provided that if the property or assets subject to such Asset Sale were directly owned by the Company such Replacement Assets also shall be so directly owned. The amount of any Indebtedness (other than any Subordinated Indebtedness) of the Company or any Subsidiary of the Company that is actually assumed by the transferee in such Asset Sale and from which the Company and its Subsidiaries are fully and unconditionally released shall be deemed to be cash for purposes of determining the percentage of cash consideration received by the Company or its Subsidiaries. The Company or such Subsidiary of the Company, as the case may be, may (i) apply the Net Cash Proceeds of any Asset Sale within 180 days of receipt thereof to repay Senior Indebtedness and permanently reduce any related commitment, or (ii) make an Investment in Replacement Assets; PROVIDED, HOWEVER, that such Investment occurs or the Company or a Subsidiary of the Company enters into contractual commitments to make such Investment, subject only to customary 64 conditions (other than the obtaining of financing), on or prior to the 180th day following the receipt of such Net Cash Proceeds and Net Cash Proceeds contractually committed are so applied within 270 days following the receipt of such Net Cash Proceeds. To the extent all or part of the Net Cash Proceeds of any Asset Sale are not applied as described in clause (i) or (ii) of the immediately preceding paragraph within the time periods set forth therein (the "Net Proceeds Utilization Date") (such Net Cash Proceeds, the "Unutilized Net Cash Proceeds"), the Company shall, within 20 days after such Net Proceeds Utilization Date, make an Offer to Purchase all outstanding Notes up to a maximum principal amount (expressed as a multiple of $1,000) of Notes equal to such Unutilized Net Cash Proceeds, at a purchase price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date; PROVIDED, HOWEVER, that the Offer to Purchase may be deferred until there are aggregate Unutilized Net Cash Proceeds equal to or in excess of $5 million, at which time the entire amount of such Unutilized Net Cash Proceeds, and not just the amount in excess of $5 million, shall be applied as required pursuant to this paragraph. With respect to any Offer to Purchase effected pursuant to this covenant, among the Notes, to the extent the aggregate principal amount of Notes tendered pursuant to such Offer to Purchase exceeds the Unutilized Net Cash Proceeds to be applied to the repurchase thereof, such Notes shall be purchased pro rata based on the aggregate principal amount of such Notes tendered by each Holder. To the extent the Unutilized Net Cash Proceeds exceed the aggregate amount of Notes tendered by the Holders of the Notes pursuant to such Offer to Purchase, the Company may retain and utilize any portion of the Unutilized Net Cash Proceeds not required to be applied to repurchase Notes tendered pursuant to such Offer for any purpose consistent with the other terms of the Indenture. In the event that the Company makes an Offer to Purchase the Notes, the Company shall comply with any applicable securities laws and regulations, including any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act, and any violation of the provisions of the Indenture relating to such Offer to Purchase occurring as a result of such compliance shall not be deemed an Event of Default or an event that with the passing of time or giving of notice, or both, would constitute an Event of Default. Each Holder shall be entitled to tender all or any portion of the Notes owned by such Holder pursuant to the Offer to Purchase, subject to the requirement that any portion of a Note tendered must be tendered in an integral multiple of $1,000 principal amount and subject to any proration among tendering Holders as described above. MERGER, SALE OF ASSETS, ETC. The Indenture provides that the Company shall not consolidate with or merge with or into any other entity and the Company shall not and shall not cause or permit any Subsidiary to, sell, convey, assign, transfer, lease or otherwise dispose of all or substantially all of the Company's and its Subsidiaries' properties and assets (determined on a consolidated basis for the Company and its Subsidiaries) to any entity in a single transaction or series of related transactions, unless: (i) either (x) the Company shall be the Surviving Person or (y) the Surviving Person (if other than the Company) shall be a corporation organized and validly existing under the laws of the United States of America or any State thereof or the District of Columbia, and shall, in any such case, expressly assume by a supplemental indenture, the due and punctual payment of the principal of, premium, if any, and interest on all the Notes and the performance and observance of every covenant of the Indenture and the Registration Rights Agreement to be performed or observed on the part of the Company; and (ii) immediately thereafter, no Default or Event of Default shall have occurred and be continuing. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all the properties and assets of one or more Subsidiaries of the Company the Equity Interests of which constitutes all or substantially all the properties and assets of the Company shall be deemed to be the transfer of all or substantially all the properties and assets of the Company. 65 TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not cause or permit any Subsidiary of the Company to, directly or indirectly, conduct any business or enter into any transaction (or series of related transactions) with or for the benefit of any of their respective Affiliates or any officer, director or employee of the Company or any Subsidiary of the Company (each an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms which are no less favorable to the Company or such Subsidiary, as the case may be, than would be available in a comparable transaction with an unaffiliated third party and (ii) if such Affiliate Transaction (or series of related Affiliate Transactions) involves aggregate payments or other consideration having a Fair Market Value in excess of $500,000, such Affiliate Transaction is in writing and a majority of the disinterested members of the Board of Directors of the Company shall have approved such Affiliate Transaction and determined that such Affiliate Transaction complies with the foregoing provisions. In addition, any Affiliate Transaction involving aggregate payments or other consideration having a Fair Market Value in excess of $2.5 million will also require a written opinion from an Independent Financial Advisor (filed with the Trustee) stating that the terms of such Affiliate Transaction are fair, from a financial point of view, to the Company or its Subsidiaries involved in such Affiliate Transaction, as the case may be. Notwithstanding the foregoing, the restrictions set forth in this covenant shall not apply to (i) transactions with or among the Company and any Wholly Owned Subsidiary or between or among Wholly Owned Subsidiaries; (ii) reasonable fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees or agents of the Company or any Subsidiary of the Company as determined in good faith by the Company's Board of Directors; (iii) any transactions undertaken pursuant to any contractual obligations in existence on the Issue Date (as in effect on the Issue Date); and (iv) any Restricted Payments made in compliance with "Limitation on Restricted Payments" above. LIMITATION ON THE SALE OR ISSUANCE OF EQUITY INTERESTS OF SUBSIDIARIES. The Company shall not sell any Equity Interest of a Subsidiary of the Company, and shall not cause or permit any Subsidiary of the Company, directly or indirectly, to issue or sell or have outstanding any Equity Interests, except to the Company or a Wholly Owned Subsidiary. Notwithstanding the foregoing, the Company is permitted to sell all the Equity Interest of a Subsidiary of the Company as long as the Company is in compliance with the terms of the covenant described under "Disposition of Proceeds of Asset Sales" and, if applicable, "Merger, Sale of Assets, Etc." above. PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto, the Company shall file with the SEC (if permitted by SEC practice and applicable law and regulations) the annual reports, quarterly reports and other documents which the Company would have been required to file with the SEC pursuant to such Section 13(a) or 15(d) or any successor provision thereto if the Company were so subject, such documents to be filed with the SEC on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so subject. The Company shall also in any event (a) within 15 days of each Required Filing Date (whether or not permitted or required to be filed with the SEC) (i) transmit (or cause to be transmitted) by mail to all Holders, as their names and addresses appear in the Note register, without cost to such Holders, and (ii) file with the Trustee, copies of the annual reports, quarterly reports and other documents which the Company is required to file with the SEC pursuant to the preceding sentence, or, if such filing is not so permitted, information and data of a similar nature, and (b) if, notwithstanding the preceding sentence, filing such documents by the Company with the SEC is not permitted by SEC practice or applicable law or regulations, promptly upon written request supply copies of such documents to any Holder. In addition, for so long as any Notes remain outstanding and prior to the later of the consummation of the Exchange Offer and the filing of the Initial Shelf Registration Statement, if required, the Company will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any beneficial holder of Notes, if not obtainable from the SEC, information of the type that would be filed with the SEC pursuant to the foregoing provisions, upon the request of any such Holder. 66 EVENTS OF DEFAULT The occurrence of any of the following will be defined as an "Event of Default" under the Indenture: (a) failure to pay principal of (or premium, if any, on) any Note when due (whether or not prohibited by the provisions of the Indenture described under "Subordination of the Notes" above); (b) failure to pay any interest on any Note when due, continued for 30 days or more (whether or not prohibited by the provisions of the Indenture described under "Subordination of the Notes" above); (c) default in the payment of principal of or interest on any Note required to be purchased pursuant to any Offer to Purchase required by the Indenture when due and payable or failure to pay on the Purchase Date the Purchase Price for any Note validly tendered pursuant to any Offer to Purchase (whether or not prohibited by the provisions of the Indenture described under "Subordination of the Notes" above); (d) failure to perform or comply with any of the provisions described under "Certain Covenants-Merger, Sale of Assets, etc." above; (e) failure to perform any other covenant, warranty or agreement of the Company under the Indenture or in the Notes, continued for 30 days or more after written notice to the Company by the Trustee or Holders of at least 25% in aggregate principal amount of the outstanding Notes; (f) default or defaults under the terms of one or more instruments evidencing or securing Indebtedness of the Company or any of its Subsidiaries having an outstanding principal amount of $5.0 million or more individually or in the aggregate that has resulted in the acceleration of the payment of such Indebtedness or failure by the Company or any of its Subsidiaries to pay principal when due at the stated maturity of any such Indebtedness and such default or defaults shall have continued after any applicable grace period and shall not have been cured or waived; (g) the rendering of a final judgment or judgments (not subject to appeal) against the Company or any of its Subsidiaries in an amount of $5.0 million or more (net of any amounts covered by reputable and creditworthy insurance companies) which remains undischarged or unstayed for a period of 60 days after the date on which the right to appeal has expired; or (h) certain events of bankruptcy, insolvency or reorganization affecting the Company or any of its Significant Subsidiaries. Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders of Notes, unless such Holders shall have offered to the Trustee reasonable indemnity. Subject to such provisions for the indemnification of the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on such Trustee. If an Event of Default with respect to the Notes (other than an Event of Default described in clause (h) of the preceding paragraph) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the outstanding Notes, by notice in writing to the Company may declare the unpaid principal of (and premium, if any) and accrued interest to the date of acceleration on all the outstanding Notes to be due and payable immediately and, upon any such declaration, such principal amount (and premium, if any) and accrued interest, notwithstanding anything contained in the Indenture or the Notes to the contrary, will become immediately due and payable. If an Event or Default specified in clause (h) of the preceding paragraph occurs under the Indenture, the Notes will ipso facto become immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of the Notes. Any such declaration with respect to the Notes may be rescinded and annulled by the Holders of a majority in aggregate principal amount of the outstanding Notes upon the conditions provided in the Indenture. For information as to waiver of defaults, see "Modification and Waiver" below. The Indenture provides that the Trustee shall, within 30 days after the occurrence of any Default or Event of Default with respect to the Notes outstanding, give the Holders of the Notes thereof notice of all uncured Defaults or Events of Default thereunder known to it; PROVIDED, HOWEVER, that, except in the case of a Default or an Event of Default in payment with respect to the Notes or a Default or Event of Default in complying with "Certain Covenants-Merger, Sale of Assets, etc." above, the Trustee shall be protected in 67 withholding such notice if and so long as a committee of its trust officers in good faith determines that the withholding of such notice is in the interest of the Holders of the Notes. No Holder of any Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such Holder shall have previously given to the Trustee written notice of a continuing Event of Default thereunder and unless the Holders of at least 25% of the aggregate principal amount of the outstanding Notes shall have made written request, and offered reasonable indemnity, to the Trustee to institute such proceeding, and the Trustee shall have not have received from the Holders of a majority in aggregate principal amount of such outstanding Notes a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days. However, such limitations do not apply to a suit instituted by a Holder of such a Note for enforcement of payment of the principal of and premium, if any, or interest on such Note on or after the respective due dates expressed in such Note. The Company will be required to furnish to the Trustee annually a statement as to the performance by the Company of certain of its obligations under the Indenture and as to any default in such performance. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR, MANAGER AND STOCKHOLDERS No director, officer, employee, incorporator, manager or stockholder of the Company or any of its Affiliates, as such, shall have any liability for any obligations of the Company under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have its obligations discharged with respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, except for (i) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are due, (ii) the Company's obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payments, (iii) the rights, powers, trust, duties and immunities of the Trustee and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, reorganization and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or 68 there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (vii) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; (viii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that (A) the trust funds will not be subject to any rights of holders of Senior Indebtedness, including, without limitation, those arising under the Indenture and (B) assuming no intervening bankruptcy of the Company between the date of deposit and the 91st day following the date of the deposit and that no Holder is an insider of the Company, after the 91st day following the date of the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (ix) certain other customary conditions precedent are satisfied. Notwithstanding the foregoing, the opinion of counsel required by clause (ii) above need not be delivered if all Notes not theretofore delivered to the Trustee for cancellation (x) have become due and payable, (y) will become due and payable on the maturity date within one year or (z) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company. GOVERNING LAW The Indenture and the Notes will be governed by the laws of the State of New York without regard to principles of conflicts of laws. MODIFICATION AND WAIVER Modifications and amendments of the Indenture may be made by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes); PROVIDED, HOWEVER, that no such modification or amendment to the Indenture may, without the consent of the Holder of each Note affected thereby, (a) change the maturity of the principal of or any installment of interest on any such Note or alter the optional redemption or repurchase provisions of any such Note or the Indenture in a manner adverse to the Holders of the Notes; (b) reduce the principal amount of (or the premium of) any such Note; (c) reduce the rate of or extend the time for payment of interest on any such Note; (d) change the place or currency of payment of principal of (or premium) or interest on any such Note; (e) modify any provisions of the Indenture relating to the waiver of past defaults (other than to add sections of the Indenture or the Notes subject thereto) or the right 69 of the Holders of Notes to institute suit for the enforcement of any payment on or with respect to any such Note or the modification and amendment provisions of the Indenture and the Notes (other than to add sections of the Indenture or the Notes which may not be modified, amended, supplemented or waived without the consent of each Holder affected); (f) reduce the percentage of the principal amount of outstanding Notes necessary for amendment to or waiver of compliance with any provision of the Indenture or the Notes or for waiver of any Default in respect thereof; (g) waive a default in the payment of principal of, interest on, or redemption payment with respect to, the Notes (except a rescission of acceleration of the Notes by the Holders thereof as provided in the Indenture and a waiver of the payment default that resulted from such acceleration); (h) modify the ranking or priority of any Note or modify the definition of Senior Indebtedness or amend or modify the subordination provisions of the Indenture in any manner adverse to the Holders of the Notes; or (i) modify the provisions of any covenant (or the related definitions) in the Indenture requiring the Company to make an Offer to Purchase in a manner materially adverse to the Holders of Notes affected thereby otherwise than in accordance with the Indenture. The Holders of a majority in aggregate principal amount of the outstanding Notes, on behalf of all Holders of Notes, may waive compliance by the Company with certain restrictive provisions of the Indenture. Subject to certain rights of the Trustee, as provided in the Indenture, the Holders of a majority in aggregate principal amount of the Notes, on behalf of all Holders, may waive any past default under the Indenture (including any such waiver obtained in connection with a tender offer or exchange offer for the Notes), except a default in the payment of principal, premium or interest or a default arising from failure to purchase any Notes tendered pursuant to an Offer to Purchase, or a default in respect of a provision that under the Indenture cannot be modified or amended without the consent of the Holder of each Note that is affected. THE TRUSTEE Except during the continuance of a Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of a Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Indenture and provisions of the Trust Indenture Act incorporated by reference therein contain limitations on the rights of the Trustee, should it become a creditor of the Company or any other obligor upon the Notes, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claim as security or otherwise. The Trustee is permitted to engage in other transactions with the Company or an Affiliate of the Company; PROVIDED, HOWEVER, that if it acquires any conflicting interest (as defined in the Indenture or in the Trust Indenture Act), it must eliminate such conflict or resign. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full definition of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (a) assumed in connection with an Acquisition from such Person or (b) existing at the time such Person becomes a Subsidiary of the Company or is merged or consolidated with or into the Company or any Subsidiary of the Company. "ACQUIRED PERSON" means, with respect to any specified Person, any other Person which merges with or into or becomes a Subsidiary of such specified Person. "ACQUISITION" means (i) any capital contribution (by means of transfers of cash or other property to others or payments for property or services for the account or use of others, or otherwise) by the Company or any Subsidiary of the 70 Company to any other Person, or any acquisition or purchase of Equity Interests of any other Person by the Company or any Subsidiary of the Company, in either case pursuant to which such Person shall become a Subsidiary of the Company or shall be consolidated with or merged into the Company or any Subsidiary of the Company or (ii) any acquisition by the Company or any Subsidiary of the Company of the assets of any Person which constitute substantially all of an operating unit or line of business of such Person or which is otherwise outside of the ordinary course of business. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "ASSET SALE" means any direct or indirect sale, conveyance, transfer, lease (that has the effect of a disposition) or other disposition (including, without limitation, any merger, consolidation or sale-leaseback transaction) to any Person other than the Company, in one transaction or a series of related transactions, of (i) any Equity Interest of any Subsidiary of the Company (other than directors' qualifying shares, to the extent mandated by applicable law); (ii) any assets of the Company or any Subsidiary of the Company which constitute substantially all of an operating unit or line of business of the Company or any Subsidiary of the Company; or (iii) any other property or asset of the Company or any Subsidiary of the Company outside of the ordinary course of business (including the receipt of proceeds paid on account of the loss of or damage to any property or asset and awards of compensation for any asset taken by condemnation, eminent domain or similar proceedings). For the purposes of this definition, the term "Asset Sale" shall not include (a) any transaction consummated in compliance with "Certain Covenants--Merger, Sale of Assets, etc." above and the creation of any Lien not prohibited by "Certain Covenants--Limitation on Liens" above; (b) sales of property or equipment that has become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any Subsidiary of the Company, as the case may be; and (c) any transaction consummated in compliance with "Certain Covenants--Limitation on Restricted Payments" above. In addition, solely for purposes of "Certain Covenants--Disposition of Proceeds of Asset Sales" above, any sale, conveyance, transfer, lease or other disposition of (i) the Company's cosmetic pencil business or (ii) any property or asset, whether in one transaction or a series of related transactions, involving assets with a Fair Market Value not in excess of $100,000 in any fiscal year, shall be deemed not to be an Asset Sale. "ATTRIBUTABLE INDEBTEDNESS" in respect of a Sale and Lease-Back Transaction means, as at the time of determination, the present value (discounted according to GAAP at the cost of indebtedness implied in the lease) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Lease-Back Transaction (including any period for which such lease has been extended). "BOARD RESOLUTION" means, with respect to any Person, a duly adopted resolution of the Board of Directors of such Person. "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be so required to be capitalized on the balance sheet in accordance with GAAP. "CASH EQUIVALENTS" means: (a) U.S. dollars; (b) securities issued or directly and fully guaranteed or insured by the U.S. government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition; (c) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and 71 surplus in excess of $500 million; (d) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (b) and (c) above entered into with any financial institution meeting the qualifications specified in clause (c) above; (e) commercial paper rated P-1, A-1 or the equivalent thereof by Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively, and in each case maturing within six months after the date of acquisition; and (f) in the case of any Subsidiary of the Company whose jurisdiction of incorporation is not the United States or any state thereof or the District of Columbia, Investments: (i) in direct obligations of the sovereign nation (or any agency thereof) in which such foreign Subsidiary is organized and is conducting business or in obligations fully and unconditionally guaranteed by such sovereign nation (or any agency thereof) or (ii) of the type and maturity described in clauses (a) and (b) above of foreign obligors, which Investment or obligors (or the parents of such obligors) have ratings described in such clauses or equivalent ratings from comparable foreign rating agencies. "CHANGE OF CONTROL" means the occurrence of any of the following events (whether or not approved by the Board of Directors of the Company): (i) any Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act, including any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than one or more Permitted Holders, is or becomes the "beneficial owner" (as defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 35% of the total voting power of the then outstanding Voting Equity Interests of the Company; (ii) the Company consolidates with, or merges with or into, another Person (other than a Wholly Owned Subsidiary) or the Company or any of its Subsidiaries sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of the assets of the Company and its Subsidiaries (determined on a consolidated basis) to any Person (other than the Company or any Wholly Owned Subsidiary), other than any such transaction where immediately after such transaction the Person or Persons that "beneficially owned" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time) immediately prior to such transaction, directly or indirectly, a majority of the total voting power of the then outstanding Voting Equity Interests of the Company "beneficially own" (as so determined), directly or indirectly, a majority of the total voting power of the then outstanding Voting Equity Interests of the surviving or transferee Person; (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (iv) the Company is liquidated or dissolved or adopts a plan of liquidation or dissolution other than in a transaction which complies with the provisions described under "--Merger, Sale of Assets, etc." "CHANGE OF CONTROL DATE" has the meaning set forth under "Offer to Purchase upon Change of Control" above. "CONSOLIDATED COVERAGE RATIO" as of any date of determination means the ratio of (i) the aggregate amount of Consolidated EBITDA for the four quarter period of the most recent four consecutive fiscal quarters ending prior to the date of such determination (the "Four Quarter Period") to (ii) Consolidated Interest Expense for such Four Quarter Period; PROVIDED, HOWEVER, that (1) if the Company or any Subsidiary of the Company has incurred any Indebtedness since the beginning of such Four Quarter Period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such Four Quarter Period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if 72 such Indebtedness had been Incurred on the first day of such Four Quarter Period and the discharge of any other Indebtedness repaid, repurchased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such Four Quarter Period, (2) if since the beginning of such Four Quarter Period the Company or any Subsidiary of the Company shall have made any Asset Sale, the Consolidated EBITDA for such Four Quarter Period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) directly attributable to the assets that are the subject of such Asset Sale for such Four Quarter Period or increased by an amount equal to the Consolidated EBITDA (if negative) directly attributable thereto for such Four Quarter Period and Consolidated Interest Expense for such Four Quarter Period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Subsidiary of the Company repaid, repurchased or otherwise discharged with respect to the Company and its continuing Subsidiaries in connection with such Asset Sale for such Four Quarter Period (or, if the Equity Interests of any Subsidiary of the Company are sold, the Consolidated Interest Expense for such Four Quarter Period directly attributable to the Indebtedness of such Subsidiary to the extent the Company and its continuing Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if since the beginning of such Four Quarter Period the Company or any Subsidiary of the Company (by merger or otherwise) shall have made an Investment in any Subsidiary of the Company (or any Person that becomes a Subsidiary of the Company) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, Consolidated EBITDA and Consolidated Interest Expense for such Four Quarter Period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such Four Quarter Period and (4) if since the beginning of such Four Quarter Period any Person (that subsequently became a Subsidiary or was merged with or into the Company or any Subsidiary of the Company since the beginning of such Four Quarter Period) shall have made any Asset Sale or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Subsidiary of the Company during such Four Quarter Period, Consolidated EBITDA and Consolidated Interest Expense for such Four Quarter Period shall be calculated after giving pro forma effect thereto as if such Asset Sale, Investment or acquisition of assets occurred on, with respect to any Investment or acquisition, the first day of such Four Quarter Period and, with respect to any Asset Sale, the day prior to the first day of such Four Quarter Period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in accordance with Regulation S-X under the Securities Act as in effect on the date of such calculation. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any agreement under which Interest Rate Protection Obligations are outstanding applicable to such Indebtedness if such agreement under which such Interest Rate Protection Obligations are outstanding has a remaining term as at the date of determination in excess of 12 months); PROVIDED, HOWEVER, that the Consolidated Interest Expense of the Company attributable to interest on any Indebtedness Incurred under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the Four Quarter Period. "CONSOLIDATED EBITDA" means, for any period, the Consolidated Net Income for such period, plus the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Income Tax Expense for such period; (ii) Consolidated Interest Expense for such period; and (iii) Consolidated Non-cash Charges for such period less (A) all non-cash items increasing Consolidated Net Income for such period and (B) all cash payments during such period relating to non-cash charges that were added back in determining Consolidated EBITDA in any prior period. "CONSOLIDATED INCOME TAX EXPENSE" means, with respect to the Company for any period, the provision for Federal, state, local and foreign income taxes payable by the Company and its Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED INTEREST EXPENSE" means, with respect to the Company for any period, without duplication, the sum of (i) the interest expense of the 73 Company and its Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount, (b) the net cost under Interest Rate Protection Obligations (including any amortization of discounts), (c) the interest portion of any deferred payment obligation, (d) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (e) all capitalized interest and all accrued interest, (f) non-cash interest expense and (g) interest on Indebtedness of another Person that is guaranteed by the Company or any Subsidiary of the Company actually paid by the Company or any Subsidiary of the Company and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company and its Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED NET INCOME" means, for any period, the consolidated net income (loss) of the Company and its Subsidiaries; PROVIDED, HOWEVER, that there shall not be included in such Consolidated Net Income: (i) any net income (loss) of any Person if such person is not a Subsidiary of the Company, except the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; (ii) any net income (loss) of any person acquired by the Company or a Subsidiary of the Company in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income (but not loss) of any Subsidiary of the Company if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Subsidiary, directly or indirectly, to the Company to the extent of such restrictions; (iv) any gain or loss realized upon the sale or other disposition of any asset of the Company or its Subsidiaries (including pursuant to any sale/leaseback transaction) outside of the ordinary course of business including, without limitation, on or with respect to Investments (and excluding dividends, distributions or interest thereon); (v) any extraordinary gain or loss; (vi) the cumulative effect of a change in accounting principles after the Issue Date; and (vii) any restoration to income of any contingency reserve of an extraordinary, non-recurring or unusual nature, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date. "CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any period the sum of (A) depreciation, (B) amortization and (C) other non-cash expenses of such Person and its Subsidiaries reducing Consolidated Net Income of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding, for purposes of clause (C) only, such charges which require an accrual of or a reserve for cash charges for any future period.) "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Subsidiary of the Company against fluctuations in currency values. "DEFAULT" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "DESIGNATED SENIOR INDEBTEDNESS" means (a) any Indebtedness outstanding under the Revolving Credit Facility and (b) any other Senior Indebtedness which, at the time of determination, has an aggregate principal amount outstanding, together with any commitments to lend additional amounts, of at least $25.0 million, if the instrument governing such Senior Indebtedness expressly states that such Indebtedness is "Designated Senior Indebtedness" for purposes of the Indenture and a Board Resolution setting forth such designation by the Company has been filed with the Trustee. "DISPOSITION" means, with respect to any Person, any merger, consolidation or other business combination involving such Person (whether or not such Person is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of such Person's assets. "DISQUALIFIED EQUITY INTEREST" means any Equity Interest which, by its terms (or by the terms of any security into which it is convertible or for which 74 it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable, at the option of the holder thereof, in whole or in part, or exchangeable into Indebtedness on or prior to the earlier of the maturity date of the Notes or the date on which no Notes remain outstanding. "EQUITY INTEREST" in any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock or other equity participations, including partnership interests, whether general or limited, in such Person, including any Preferred Equity Interests. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "EXPIRATION DATE" has the meaning set forth in the definition of "Offer to Purchase" below. "FAIR MARKET VALUE" means, with respect to any asset, the price (after taking into account any liabilities relating to such assets) which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing and able buyer, neither of which is under any compulsion to complete the transaction; PROVIDED, HOWEVER, that the Fair Market Value of any such asset shall be determined conclusively by the Board of Directors of the Company acting in good faith, and shall be evidenced by resolutions of the Board of Directors of the Company delivered to the Trustee. "FOUR QUARTER PERIOD" has the meaning set forth in the definition of "Consolidated Coverage Ratio" above. "GAAP" means, at any date of determination, generally accepted accounting principles in effect in the United States which are applicable at the date of determination and which are consistently applied for all applicable periods. "GUARANTEE" means, as applied to any obligation, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. "HOLDERS" means the registered holders of the Notes. "INCUR" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (including by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings correlative to the foregoing). Indebtedness of any Acquired Person or any of its Subsidiaries existing at the time such Acquired Person becomes a Subsidiary of the Company (or is merged into or consolidated with the Company or any Subsidiary of the Company), whether or not such Indebtedness was Incurred in connection with, as a result of, or in contemplation of, such Acquired Person becoming a Subsidiary of the Company (or being merged into or consolidated with the Company or any Subsidiary), shall be deemed Incurred at the time any such Acquired Person becomes a Subsidiary or merges into or consolidates with the Company or any Subsidiary. "INDEBTEDNESS" means (without duplication), with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (a) every obligation of such Person for money borrowed; (b) 75 every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (c) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person; (d) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable incurred in the ordinary course of business and payable in accordance with industry practices, or other accrued liabilities arising in the ordinary course of business); (e) every Capital Lease Obligation of such Person; (f) every net obligation under Interest Rate Protection Obligations or similar agreements or Currency Agreements of such Person; (g) Attributable Indebtedness; (h) every obligation of the type referred to in clauses (a) through (g) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable for, directly or indirectly, as obligor, guarantor or otherwise; and (i) any and all deferrals, renewals, extensions and refundings of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (a) through (h) above. Indebtedness (i) shall not be calculated taking into account any cash and cash equivalents held by such Person; (ii) shall not include obligations of any Person (x) arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds in the ordinary course of business, provided that such obligations are extinguished within two Business Days of their incurrence, (y) resulting from the endorsement of negotiable instruments for collection in the ordinary course of business and consistent with past business practices and (z) under stand-by letters of credit to the extent collateralized by cash or Cash Equivalents; (iii) which provides that an amount less than the principal amount thereof shall be due upon any declaration of acceleration thereof shall be deemed to be Incurred or outstanding in an amount equal to the accreted value thereof at the date of determination; and (iv) shall not include obligations under performance bonds, performance guarantees, surety bonds and appeal bonds, letters of credit or similar obligations, incurred in the ordinary course of business. "INDEPENDENT FINANCIAL ADVISOR" means a nationally recognized accounting, appraisal, investment banking firm or consultant (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "INSOLVENCY OR LIQUIDATION PROCEEDING" means, with respect to any Person, any liquidation, dissolution or winding up of such Person, or any bankruptcy, reorganization, insolvency, receivership or similar proceeding with respect to such Person, whether voluntary or involuntary. "INTEREST" means, with respect to the Notes, the sum of any cash interest and any Liquidated Damages (as defined under "Registration Rights" below) on the Notes. "INTEREST RATE PROTECTION OBLIGATIONS" means, with respect to any Person, the Obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "INVESTMENT" means, with respect to any Person, any direct or indirect loan, advance, guarantee or other extension of credit or capital contribution to (by means of transfers of cash or other property or assets to others or payments for property or services for the account or use of others, or otherwise), or purchase or acquisition of capital stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. For purposes of the "Limitation on Restricted Payments" covenant above, the amount of any Investment shall be the original cost of such Investment, plus the cost of all additions thereto, but without any other adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment; reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; PROVIDED, HOWEVER, that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. In determining the 76 amount of any Investment involving a transfer of any property or asset other than cash, such property shall be valued at its fair market value at the time of such transfer, as determined in good faith by the Board of Directors (or comparable body) of the Person making such transfer. "ISSUE DATE" means the original issue date of the Notes. "LIEN" means any lien, mortgage, charge, security interest, hypothecation, assignment for security or encumbrance of any kind (including any conditional sale or capital lease or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest). "MATURITY DATE" means the date, which is set forth on the face of the Notes, on which the Notes will mature. "NET CASH PROCEEDS" means the aggregate proceeds in the form of cash or Cash Equivalents received by the Company or any Subsidiary of the Company in respect of any Asset Sale, including all cash or Cash Equivalents received upon any sale, liquidation or other exchange of proceeds of Asset Sales received in a form other than cash or Cash Equivalents, net of (a) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof; (b) taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements); (c) amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of Directors of the Company to be provided as a reserve, in accordance with GAAP, against any liabilities associated with such assets which are the subject of such Asset Sale; including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an officers' certificate delivered to the Trustee (provided that the amount of any such reserves shall be deemed to constitute Net Cash Proceeds at the time such reserves shall have been reversed or are not otherwise required to be retained as a reserve); and (e) with respect to Asset Sales by Subsidiaries, the portion of such cash payments attributable to Persons holding a minority interest in such Subsidiary. "NET PROCEEDS UTILIZATION DATE" has the meaning set forth in the second paragraph under "Certain Covenants--Disposition of Proceeds of Asset Sales" above. "OBLIGATIONS" means any principal, interest (including, without limitation, Post-Petition Interest), penalties, fees, indemnifications, reimbursement obligations, damages and other liabilities payable under the documentation governing any Indebtedness. "OFFER" has the meaning set forth in the definition of "Offer to Purchase" below. "OFFER TO PURCHASE" means a written offer (the "Offer") sent by or on behalf of the Company by first-class mail, postage prepaid, to each holder at his address appearing in the register for the Notes on the date of the Offer offering to purchase up to the principal amount of Notes specified in such Offer at the purchase price specified in such Offer (as determined pursuant to the Indenture). Unless otherwise required by applicable law, the Offer shall specify an expiration date (the "Expiration Date") of the Offer to Purchase, which shall be not less than 20 Business Days nor more than 60 days after the date of such Offer, and a settlement date (the "Purchase Date") for purchase of Notes to occur no later than five Business Days after the Expiration Date. The Company shall notify the Trustee at least 15 Business Days (or such shorter period as is acceptable to the Trustee) prior to the mailing of the Offer of the Company's 77 obligation to make an Offer to Purchase, and the Offer shall be mailed by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. The Offer shall contain all the information required by applicable law to be included therein. The Offer shall also contain information concerning the business of the Company and its Subsidiaries which the Company in good faith believes will enable such Holders to make an informed decision with respect to the Offer to Purchase (which at a minimum will include (i) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the documents required to be filed with the Trustee pursuant to the Indenture (which requirements may be satisfied by delivery of such documents together with the Offer), (ii) a description of material developments in the Company's business subsequent to the date of the latest of such financial statements referred to in clause (i) (including a description of the events requiring the Company to make the Offer to Purchase), (iii) if applicable, appropriate pro forma financial information concerning the Offer to Purchase and the events requiring the Company to make the Offer to Purchase and (iv) any other information required by applicable law to be included therein). The Offer shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Offer to Purchase. The Offer shall also state: (1) the Section of the Indenture pursuant to which the Offer to Purchase is being made; (2) the Expiration Date and the Purchase Date; (3) the aggregate principal amount of the outstanding Notes offered to be purchased by the Company pursuant to the Offer to Purchase (including, if less than 100%, the manner by which such amount has been determined pursuant to the Section of the Indenture requiring the Offer to Purchase) (the "Purchase Amount"); (4) the purchase price to be paid by the Company for each $1,000 aggregate principal amount of Notes accepted for payment (as specified pursuant to the Indenture) (the "Purchase Price"); (5) that the Holder may tender all or any portion of the Notes registered in the name of such Holder and that any portion of a Note tendered must be tendered in an integral multiple of $1,000 principal amount; (6) the place or places where Notes are to be surrendered for tender pursuant to the Offer to Purchase; (7) that interest on any Note not tendered or tendered but not purchased by the Company pursuant to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date the Purchase Price will become due and payable upon each Note being accepted for payment pursuant to the Offer to Purchase and that interest thereon shall cease to accrue on and after the Purchase Date; (9) that each Holder electing to tender all or any portion of a Note pursuant to the Offer to Purchase will be required to surrender such Note at the place or places specified in the Offer prior to the close of business on the Expiration Date (such Note being, if the Company or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing); (10) that Holders will be entitled to withdraw all or any portion of Notes tendered if the Company (or its Paying Agent) receives, not later than the close of business on the fifth Business Day next preceding the Expiration Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder tendered, the certificate number of the Note the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (11) that (a) if Notes in an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase all such Notes and (b) if Notes in an aggregate principal amount in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase Notes having an aggregate principal amount equal to the Purchase Amount on a pro rata basis (with such adjustments as may be deemed appropriate so that only Notes in denominations of $1,000 principal amount or integral multiples thereof shall be purchased); and (12) that in the case of any Holder whose Note is purchased only in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unpurchased portion of the Note so tendered. An Offer to Purchase shall be governed by and effected in accordance with the provisions above pertaining to any Offer. "OPINION OF COUNSEL" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "PERMITTED HOLDER" means Scott Rudolph and Arthur Rudolph and members of either of their immediate families and trusts of which such persons are the beneficiaries. 78 "PERMITTED INDEBTEDNESS" has the meaning set forth in the second paragraph of "Certain Covenants-Limitation on Indebtedness" above. "PERMITTED INVESTMENTS" means (a) Cash Equivalents; (b) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers' compensation, performance and other similar deposits; (c) Interest Rate Protection Obligations and Currency Agreements; (d) Investments received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers, in each case arising in the ordinary course of business; (e) Investments in the Company and direct or indirect loans, advances, guarantees or other extensions of credit in the ordinary course of business to or on behalf of a Subsidiary of the Company and cash Investments in a Person that, as a result of or in connection with such Investment, is merged with or into or consolidated with the Company or a Wholly Owned Subsidiary; (f) Investments paid for in Common Stock of the Company; and (g) loans or advances to officers or employees of the Company and its Subsidiaries in the ordinary course of business for bona fide business purposes of the Company and its Subsidiaries (including travel and moving expenses) not in excess of $1 million in the aggregate at any one time outstanding. "PERMITTED JUNIOR SECURITIES" means any securities of the Company or any other Person that are (i) equity securities without special covenants or (ii) debt securities expressly subordinated in right of payment to all Senior Indebtedness that may at the time be outstanding, to substantially the same extent as, or to a greater extent than, the Notes are subordinated as provided in the Indenture, in any event pursuant to a court order so providing and as to which (a) the rate of interest on such securities shall not exceed the effective rate of interest on the Notes on the date of the Indenture, (b) such securities shall not be entitled to the benefits of covenants or defaults materially more beneficial to the holders of such securities than those in effect with respect to the Notes on the date of the Indenture and (c) such securities shall not provide for amortization (including sinking fund and mandatory prepayment provisions) commencing prior to the date six months following the final scheduled maturity date of the Senior Indebtedness (as modified by the plan of reorganization of readjustment pursuant to which such securities are issued). "PERMITTED LIENS" means (a) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company; PROVIDED, HOWEVER, that such Liens were in existence prior to the contemplation of such merger or consolidation and do not secure any property or assets of the Company or any Subsidiary of the Company other than the property or assets subject to the Liens prior to such merger or consolidation; (b) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens and other similar Liens arising in the ordinary course of business which secure payment of obligations not more than 30 days past due or which are being contested in good faith and by appropriate proceedings; (c) Liens existing on the Issue Date and Liens in favor of the lenders under the Revolving Credit Facility; (d) Liens securing only the Notes; (e) Liens in favor of the Company or any Subsidiary of the Company; (f) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; PROVIDED, HOWEVER, that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (g) easements, reservation of rights of way, restrictions and other similar easements, licenses, restrictions on the use of properties, or minor imperfections of title that in the aggregate are not material in amount and do not in any case materially detract from the properties subject thereto or interfere with the ordinary conduct of the business of the Company and its Subsidiaries; (h) Liens resulting from the deposit of cash or notes in connection with contracts, tenders or expropriation proceedings, or to secure workers' compensation, surety or appeal bonds, costs of litigation when required by law and public and statutory obligations or obligations under franchise arrangements entered into in the ordinary course of business; (i) Liens securing Indebtedness consisting of Capitalized Lease Obligations, Purchase Money Indebtedness, mortgage financings, industrial revenue bonds or other monetary obligations, in each case incurred solely for the purpose of financing all or any part of the purchase price or cost of construction or installation of assets used in the business of the Company or its Subsidiaries, or repairs, additions or improvements to such assets, PROVIDED, HOWEVER, that (I) such Liens secure Indebtedness in an amount not in excess of the original purchase price or the original cost of any such assets or repair, addition or improvements thereto (plus an amount equal to the reasonable fees and expenses in connection with the incurrence of such Indebtedness), (II) such Liens do not extend to any other assets of the Company or its Subsidiaries (and, in the case 79 of repair, addition or improvements to any such assets, such Lien extends only to the assets (and improvements thereto or thereon) repaired, added to or improved), (III) the Incurrence of such Indebtedness is permitted by "Certain Covenants-Limitation on Indebtedness" above and (IV) such Liens attach within 90 days of such purchase, construction, installation, repair, addition or improvement; and (j) Liens to secure any refinancings, renewals, extensions, modifications or replacements (collectively, "refinancings") (or successive refinancings), in whole or in part, of any Indebtedness secured by Liens referred to in the clauses above so long as such Lien does not extend to any other property (other than improvements thereto). "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, limited liability limited partnership, trust, unincorporated organization or government or any agency or political subdivision thereof. "POST-PETITION INTEREST" means, with respect to any Indebtedness of any Person, all interest accrued or accruing on such Indebtedness after the commencement of any Insolvency or Liquidation Proceeding against such Person in accordance with and at the contract rate (including, without limitation, any rate applicable upon default) specified in the agreement or instrument creating, evidencing or governing such Indebtedness, whether or not, pursuant to applicable law or otherwise, the claim for such interest is allowed as a claim in such Insolvency or Liquidation Proceeding. "PREFERRED EQUITY INTEREST," in any Person, means an Equity Interest of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over Equity Interests of any other class in such Person. "PRINCIPAL" of a debt security means the principal of the security plus, when appropriate, the premium, if any, on the security. "PUBLIC EQUITY OFFERING" means, with respect to the Company, an underwritten public offering of Qualified Equity Interests of the Company pursuant to an effective registration statement filed under the Securities Act (excluding registration statements filed on Form S-8). "PURCHASE AMOUNT" has the meaning set forth in the definition of "Offer to Purchase" above. "PURCHASE DATE" has the meaning set forth in the definition of "Offer to Purchase" above. "PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company or any Subsidiary of the Company Incurred for the purpose of financing in the ordinary course of business all or any part of the purchase price or the cost of construction or improvement of any property; PROVIDED, HOWEVER, that the aggregate principal amount of such Indebtedness does not exceed the lesser of the Fair Market Value of such property or such purchase price or cost, including any refinancing of such Indebtedness that does not increase the aggregate principal amount (or accreted amount, if less) thereof as of the date of refinancing. "PURCHASE PRICE" has the meaning set forth in the definition of "Offer to Purchase" above. "QUALIFIED EQUITY INTEREST" in any Person means any Equity Interest in such Person other than any Disqualified Equity Interest. "REDEMPTION DATE" has the meaning set forth in the third paragraph of "Optional Redemption" above. "REPLACEMENT ASSETS" has the meaning set forth in the first paragraph under "Certain Covenants--Disposition of Proceeds of Asset Sales" above. 80 "REVOLVING CREDIT FACILITY" means the credit and guarantee agreement, dated as of the Issue Date, by and among the Company, the Subsidiaries of the Company identified on the signature pages thereof and any Subsidiary of the Company that is later added thereto, the lenders named therein, and The Chase Manhattan Bank, N.A. as Agent, as amended, including any deferrals, renewals, extensions, replacements, refinancings or refundings thereof, or amendments, modifications or supplements thereto and any agreement providing therefor, whether by or with the same or any other lender, creditor, group of lenders or group of creditors, and including related notes, guarantee and note agreements and other instruments and agreements executed in connection therewith. "SALE AND LEASE-BACK TRANSACTION" means any arrangement with any Person providing for the leasing by the Company or any Subsidiary of the Company of any real or tangible personal Property, which property has been or is to be sold or transferred by the Company or such Subsidiary to such Person in contemplation of such leasing. "SEC" means the Securities and Exchange Commission. "SENIOR INDEBTEDNESS" means, at any date, (a) all Obligations of the Company under the Revolving Credit Facility; (b) all Interest Rate Protection Obligations of the Company and all Obligations of the Company under Currency Agreements; (c) all Obligations of the Company under stand-by letters of credit; and (d) all other Indebtedness of the Company, including principal, premium, if any, and interest (including Post-Petition Interest) on such Indebtedness, unless the instrument under which such Indebtedness of the Company is Incurred expressly provides that such Indebtedness for money borrowed is not senior or superior in right of payment to the Notes, and all renewals, extensions, modifications, amendments or refinancings thereof. Notwithstanding the foregoing, Senior Indebtedness shall not include (a) to the extent that it may constitute Indebtedness, any Obligation for Federal, state, local or other taxes; (b) any Indebtedness among or between the Company and any Subsidiary of the Company or any Affiliate of the Company or any of such Affiliate's Subsidiaries; (c) to the extent that it may constitute Indebtedness, any Obligation in respect of any trade payable Incurred for the purchase of goods or materials, or for services obtained, in the ordinary course of business; (d) that portion of any Indebtedness that is Incurred in violation of the Indenture; (e) Indebtedness evidenced by the Notes; (f) Indebtedness of the Company that is expressly subordinate or junior in right of payment to any other Indebtedness of the Company; (g) to the extent that it may constitute Indebtedness, any obligation owing under leases (other than Capitalized Lease Obligations) or management agreements; and (h) any obligation that by operation of law is subordinate to any general unsecured obligations of the Company. No Indebtedness shall be deemed to be subordinated to other Indebtedness solely because such other Indebtedness is secured. "SIGNIFICANT SUBSIDIARY" means, at any date of determination, (a) any Subsidiary of the Company that, together with its Subsidiaries (i) for the most recent fiscal year of the Company accounted for more than 10.0% of the consolidated revenues of the Company and its Subsidiaries or (ii) as of the end of such fiscal year, owned more than 10.0% of the consolidated assets of the Company and its Subsidiaries, all as set forth on the consolidated financial statements of the Company and the Subsidiaries for such year prepared in conformity with GAAP, and (b) any Subsidiary of the Company which, when aggregated with all other Subsidiaries of the Company that are not otherwise Significant Subsidiaries and as to which any event described in clause (h) of "Events of Default" above has occurred, would constitute a Significant Subsidiary under clause (a) of this definition. "STATED MATURITY" means, when used with respect to any Note or any installment of interest thereon, the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable. "SUBORDINATED INDEBTEDNESS" means, with respect to the Company, any Indebtedness of the Company which is expressly subordinated in right of payment to the Notes. 81 "SUBSIDIARY" means, with respect to any Person, (a) any corporation of which the outstanding Voting Equity Interests having at least a majority of the votes entitled to be cast in the election of directors shall at the time be owned, directly or indirectly, by such Person, or (b) any other Person of which at least a majority of Voting Equity Interests are at the time, directly or indirectly, owned by such first named Person. "SURVIVING PERSON" means, with respect to any Person involved in or that makes any Disposition, the Person formed by or surviving such Disposition or the Person to which such Disposition is made. "UNITED STATES GOVERNMENT OBLIGATIONS" means direct non-callable obligations of the United States of America for the payment of which the full faith and credit of the United States is pledged. "UNUTILIZED NET CASH PROCEEDS" has the meaning set forth in the third paragraph under "Certain Covenants--Disposition of Proceeds of Asset Sales" above. "VOTING EQUITY INTERESTS" means Equity Interests in a corporation or other Person with voting power under ordinary circumstances entitling the holders thereof to elect the Board of Directors or other governing body of such corporation or Person. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required scheduled payment of principal, including payment of final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding aggregate principal amount of such Indebtedness. "WHOLLY OWNED SUBSIDIARY" means any Subsidiary of the Company all of the outstanding Voting Equity Interests (other than directors' qualifying shares) of which are owned, directly or indirectly, by the Company. 82 BOOK-ENTRY; DELIVERY AND FORM Except as described in the next paragraph, the Notes initially will be represented by one or more permanent global certificates in definitive, duly registered form (the "Global Notes"). The Global Notes will be deposited on the Issue Date with, or on behalf of, The Depository Trust Company, New York, New York ("DTC"), and registered in the name of a nominee of DTC. THE GLOBAL NOTES. The Company expects that pursuant to procedures established by DTC (i) upon the issuance of the Global Notes, DTC or its custodian will credit, on its internal system, an interest in such Global Notes to the respective accounts of persons who have accounts with DTC and (ii) ownership of beneficial interests in the Global Notes will be shown on, and the transfer of such ownership will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). Such accounts initially will be designated by or on behalf of the Initial Purchaser and ownership of beneficial interests in the Global Notes will be limited to persons who have accounts with DTC ("participants") or persons who hold interests through participants. QIBs and institutional Accredited Investors who are not QIBs may hold their interests in the Global Notes directly through DTC if they are participants in such system, or indirectly through organizations which are participants in such system. So long as DTC, or its nominee, is the registered owner or holder of the Notes, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Notes for all purposes under the Indenture. No beneficial owner of an interest in the Global Notes will be able to transfer that interest except in accordance with DTC's procedures, in addition to those provided for under the Indenture with respect to the Notes. Payments of the principal of, premium, if any, and interest on the Global Notes will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of the Company, the Trustee or any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. The Company expects that DTC or its nominee, upon receipt of any payment of principal, premium, if any, and interest on the Global Notes, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the Global Notes as shown on the records of DTC or its nominee. The Company also expects that payments by participants to owners of beneficial interests in the Global Notes held through such participants will be governed by standing instructions and customary practice, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in the ordinary way through DTC's same-day funds system in accordance with DTC rules and will be settled in same-day funds. If a holder requires physical delivery of a Certificated Security for any reason, including to sell Notes to persons in states that require physical delivery of the Notes, or to pledge such securities, such holder must transfer its interest in a Global Note in accordance with the normal procedures of DTC and with the procedures set forth in the Indenture. DTC has advised the Company that it will take any action permitted to be taken by a Holder of Notes (including the presentation of Notes for exchange as described below) only at the direction of one or more participants to whose account the DTC interests in the Global Notes are credited and only in respect 83 of such portion of the aggregate principal amount of Notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under the Indenture, DTC will exchange the Global Notes for Certificated Securities, which it will distribute to its participants. DTC has advised the Company as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Note among participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. CERTIFICATED SECURITIES. If DTC is at any time unwilling or unable to continue as a depositary for the Global Note and a successor depositary is not appointed by the Issuer within 90 days, Certificated Securities will be issued in exchange for the Global Notes. PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Original Notes where such Original Notes were acquired as a result of market making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until ___________, all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. 84 For a period of 180 days after the Expiration Date, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the holders of the Original Notes), other than commissions or concessions of any broker-dealers and will indemnify the holders of the Original Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. The Company will be indemnified by the holders of Original Notes, severally, against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the Exchange Notes offered hereby will be passed upon for the Company by Kirkpatrick & Lockhart LLP, Washington, D.C. INDEPENDENT ACCOUNTANTS The consolidated balance sheets as of September 30, 1996 and 1995 and the consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1996 of NBTY, Inc. and Subsidiaries included in this Prospectus have been included herein in reliance on the report of Coopers & Lybrand L.L.P., independent accountants given on the authority of that firm as experts in accounting and auditing. The consolidated balance sheets as of June 30, 1997 and 1996 and the consolidated profit and loss accounts, statements of total recognized gains and losses, and cash flows for each of the three years in the period ended June 30, 1997 of Holland & Barrett Holdings Ltd. included in this Prospectus have been included herein in reliance on the report of KPMG, chartered accountants and registered auditors, given on the authority of that firm as experts in accounting and auditing. AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-4 (the "Exchange Offer Registration Statement," which term shall encompass all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, covering the Exchange Notes offered hereby. This Prospectus does not contain all the information set forth in the Exchange Offer Registration Statement. For further information with respect to the Company and the Exchange Offer, reference is made to the Exchange Offer Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to such contract, agreement or other document filed as an exhibit to the Exchange Offer Registration Statement, reference is made to the exhibit for a more complete description of the document or matter involved, and each such statement shall be deemed qualified in its entirety by such reference. While any Original Notes remain outstanding the Company will make available, upon request, to any holder and any prospective purchaser of Notes the information required pursuant to Rule 144A(d) (4) under the Securities Act during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act. Any such request should be directed to Harvey Kamil, Secretary, NBTY, Inc., 90 Orville Drive, Bohemia, New York 11716-2510. The Company is subject to the informational requirements of the Exchange Act, and in accordance therewith, files reports, proxy statements and other information with the Commission. Such material, including the Exchange 85 Offer Registration Statement, may be inspected and copied at prescribed rates at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, DC 20549, and at the following Regional Offices of the Commission: Seven World Trade Center, New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, as does the Company; the address of such site is http://www.sec.gov. The common stock of NBTY is listed on the Nasdaq Stock Market under the symbol "NBTY." Material filed by NBTY may be inspected at the offices of the National Association of Securities Dealers, Inc., Reports Section, 1735 K Street, N.W. Washington, D.C. 20006. The Indenture provides that the Company will furnish copies of the periodic reports required to be filed with the Commission under the Exchange Act to the holders of the Notes. If the Company is not subject to the periodic reporting and informational requirements of the Exchange Act, it will, to the extent such filings are accepted by the Commission, and whether or not the Company has a class of securities registered under the Exchange Act, file with the Commission, and provide the Trustee and the holders of the Notes within 15 days after such filings with, annual reports containing the information required to be contained in Form 10-K promulgated under the Exchange Act, quarterly reports containing the information required to be contained in Form 10-Q promulgated under the Exchange Act, and from time to time such other information as is required to be contained in Form 8-K promulgated under the Exchange Act. If filing such reports with the Commission is not accepted by the Commission or prohibited by the Exchange Act, the Company will also provide copies of such reports, at its cost, to prospective purchasers of the Notes and participants in the Exchange Offer promptly upon written request. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, which have been filed by NBTY with the Commission, are incorporated herein by reference: 1. Annual Report on Form 10-K for the fiscal year ended September 30, 1996. 2. Quarterly Reports on Form 10-Q for the fiscal quarters ended December 31, 1996, March 31, 1997 and June 30, 1997. 3. Reports on Form 8-K, dated August 21, 1997, October 17, 1997 and November 4, 1997. All documents filed by NBTY with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the sale of the Exchange Notes offered hereby shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. NBTY will provide without charge to each person to whom this Prospectus is delivered, upon the written or oral request of such person, a copy of any or all of the documents which have been or may be incorporated by reference in this Prospectus, other than exhibits to such documents not specifically described above. Requests for such documents should be directed to Harvey Kamil, Executive Vice President and Secretary, at the address of NBTY. 86 INDEX TO FINANCIAL STATEMENTS PAGE ---- NBTY, INC. AND SUBSIDIARIES Report of Independent Accountants.......................................... F-2 Consolidated Balance Sheets as of September 30, 1996 and 1995.............. F-3 Consolidated Statements of Income for the Years Ended September 30, 1996, 1995 and 1994......................................................... F-4 Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1996, 1995 and 1994...................................... F-5 Consolidated Statements of Cash Flows for the Years Ended September 30, 1996, 1995 and 1994................................................... F-6 Notes to Consolidated Financial Statements................................. F-8 Condensed Consolidated Balance Sheets as of June 30, 1997 (Unaudited) and September 30, 1996................................................. F-18 Condensed Consolidated Statements of Income (Unaudited) for the Nine Months Ended June 30, 1997 and 1996........................................... F-19 Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended June 30, 1997 and 1996................................................. F-20 Notes to Condensed Consolidated Financial Statements....................... F-22 HOLLAND & BARRETT HOLDINGS LIMITED (FORMERLY HOLLAND & BARRETT RETAIL LIMITED) A WHOLLY-OWNED SUBSIDIARY OF GEHE AG Independent Auditors' Report............................................... F-24 Consolidated Profit and Loss Accounts for the Years Ended June 30, 1997, 1996 and 1995............................................................... F-25 Consolidated Statements of Total Recognized Gains and Losses for the Years Ended June 30, 1997, 1996 and 1995..................................... F-26 Reconciliation of Movements in Group Shareholders' Funds for the Years Ended June 30, 1997, 1996 and 1995........................................... F-26 Consolidated Balance Sheets at June 30, 1997 and 1996...................... F-27 Consolidated Cash Flow Statements for the Years Ended June 30, 1997, 1996 and 1995.............................................................. F-28 Notes to the Consolidated Financial Statements............................. F-29 F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of NBTY, Inc.: We have audited the consolidated financial statements of NBTY, Inc. and Subsidiaries as listed on page F-1. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of NBTY, Inc. and Subsidiaries as of September 30, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Melville, New York November 5, 1996 F-2 NBTY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND 1995
1996 1995 ---------- ---------- ASSETS Current assets: Cash and cash equivalents.............................................. $ 9,292,374 $ 10,378,476 Short-term investments................................................. 11,024,624 Accounts receivable, less allowance for doubtful accounts of $793,669 in 1996 and $576,579 in 1995........................... 11,625,112 12,354,545 Inventories............................................................ 38,070,071 36,972,592 Deferred income taxes.................................................. 3,155,163 1,846,875 Prepaid catalog costs and other current assets......................... 5,682,874 6,170,243 ----------- ----------- Total current assets............................................... 78,850,218 67,722,731 Property, plant and equipment, net......................................... 61,731,625 48,324,576 Intangible assets, net..................................................... 3,974,573 5,813,031 Other assets............................................................... 993,785 1,668,309 ----------- ----------- Total assets....................................................... $145,550,201 $123,528,647 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt and capital lease obligations........ $ 934,887 $ 358,675 Accounts payable....................................................... 10,943,228 16,411,562 Accrued expenses....................................................... 14,704,507 10,287,989 ----------- ----------- Total current liabilities.......................................... 26,582,622 27,058,226 ----------- ----------- Long-term debt............................................................. 15,178,412 9,705,534 Obligations under capital leases........................................... 3,219,127 1,218,920 Deferred income taxes...................................................... 2,827,198 2,161,537 Other liabilities.......................................................... 792,985 768,985 ----------- ----------- Total liabilities.................................................. 48,600,344 40,913,202 ----------- ----------- Commitments and contingencies Stockholders' equity: Common stock, $.008 par; authorized 25,000,000 shares; issued 20,079,676 shares in 1996 and 19,207,676 shares in 1995 and outstanding 18,592,119 shares in 1996 and 17,766, 119 shares in 1995................................................. 160,638 153,662 Capital in excess of par............................................... 56,012,910 54,151,206 Retained earnings...................................................... 44,008,465 30,656,586 ----------- ----------- 100,182,013 84,961,454 Less 1,487,557 and 1,441,557 treasury shares at cost, in 1996 and 1995, respectively........................................ 2,648,256 2,346,009 Stock subscriptions receivable......................................... 583,900 ----------- ----------- Total stockholders' equity......................................... 96,949,857 82,615,445 ----------- ----------- Total liabilities and stockholders' equity......................... $145,550,201 $123,528,647 =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-3 NBTY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1996 1995 1994 ----------- ------------ ------------ Net sales ................................. $ 194,403,040 $ 178,759,871 $ 156,057,056 ------------- ------------- ------------- Costs and expenses: Cost of sales ......................... 95,638,272 93,875,162 79,891,302 Catalog printing, postage and promotion 17,634,801 19,261,733 14,786,217 Selling, general and administrative ... 58,515,059 56,728,368 49,207,943 ------------- ------------- ------------- 171,788,132 169,865,263 143,885,462 ------------- ------------- ------------- Income from operations .................... 22,614,908 8,894,608 12,171,594 ------------- ------------- ------------- Other income (expenses): Interest, net ......................... (1,445,036) (1,084,331) (913,583) Miscellaneous, net .................... 1,203,061 571,098 1,284,953 ------------- ------------- ------------- (241,975) (513,233) 371,370 ------------- ------------- ------------- Income before income taxes ................ 22,372,933 8,381,375 12,542,964 Income taxes .............................. 9,021,054 3,245,517 4,766,526 ------------- ------------- ------------- Net income ...................... $ 13,351,879 $ 5,135,858 $ 7,776,438 ============= ============= ============= Net income per share ...................... $ 0.67 $ 0.26 $ 0.38 ============= ============= ============= Weighted average common shares outstanding 19,975,678 19,974,270 20,257,325 ============= ============= =============
See notes to consolidated financial statements. F-4
NBTY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994 COMMON STOCK TREASURY STOCK ------------------- ------------------ STOCK NUMBER OF CAPITAL IN RETAINED NUMBER OF SUBSCRIPTIONS SHARES AMOUNT EXCESS OF PAR EARNINGS SHARES AMOUNT RECEIVABLE TOTAL ------- ------ ------------- ---------- --------- ------ ---------- -------- Balance, September 30, 1993.................... 18,717,676 $ 149,742 $52,970,926 $ 17,744,290 1,213,404 $ (862,722) $ 70,002,236 Net income for year ended September 30, 1994.... 7,776,438 7,776,438 Expenses associated with prior year public offering of stock..... (225,000) (225,000) Exercise of stock options.............. 60,000 480 29,520 30,000 Tax benefit from exercise of stock options............... 433,200 433,200 --------- ---------- ---------- ---------- --------- --------- ---------- ------------ Balance, September 30, 1994.................... 18,777,676 150,222 53,208,646 25,520,728 1,213,404 (862,722) 78,016,874 Net income for year ended September 30, 1995.... 5,135,858 5,135,858 Exercise of stock options............... 430,000 3,440 211,560 215,000 Tax benefit from exercise of stock options...... 731,000 731,000 Purchase of treasury stock, at cost........ 228,153 (1,483,287) (1,483,287) --------- ---------- ---------- ---------- --------- ---------- ---------- ------------ Balance, September 30, 1995.................... 19,207,676 153,662 54,151,206 30,656,586 1,441,557 (2,346,009) 82,615,445 Net income for year ended September 30, 1996.... 13,351,879 13,351,879 Exercise of stock options............... 872,000 6,976 587,904 $ (583,900) 10,980 Tax benefit from exercise of stock options...... 1,273,800 1,273,800 Purchase of treasury stock, at cost........ 46,000 (302,247) (302,247) --------- ---------- ---------- ---------- --------- --------- ----------- ------------ Balance, September 30, 1996.................. 20,079,676 $ 160,638 $56,012,910 $44,008,465 1,487,557 $(2,648,256) $96,949,857 $ (583,900) ========== ========== =========== =========== ========= ============ =========== =============
See notes to consolidated financial statements. F-5 NBTY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1996 1995 1994 --------- --------- --------- Cash flows from operating activities: Net income................................................ $ 13,351,879 $ 5,135,858 $ 7,776,438 Adjustments to reconcile net income to cash provided by operating activities: Loss on disposal/sale of property, plant and equipment.. 422 374,126 519 Depreciation and amortization......................... 5,623,277 4,840,570 4,243,985 Provision (recovery) for allowance for doubtful accounts 217,090 (17,943) 89,968 Deferred income taxes................................. (642,627) 684,426 3,046,493 Changes in assets and liabilities: Accounts receivable................................. 1,615,504 (2,119,589) (454,841) Inventories......................................... (2,035,883) 4,453,583 (10,770,809) Income tax receivable............................... 1,300,198 3,089,929 Prepaid catalog costs and other current assets...... 487,369 (264,253) (2,297,276) Other assets........................................ 674,524 1,123,818 (2,465,151) Accounts payable.................................... (5,468,334) 3,160,180 (2,828,998) Accrued expenses.................................... 5,690,318 2,809,518 3,226,894 Other liabilities................................... 24,000 274,999 (353,225) ---------- ---------- ---------- Net cash provided by operating activities......... 19,537,539 21,755,491 2,303,926 ---------- ---------- ---------- Cash flows from investment activities: Purchase of property, plant and equipment................. (15,750,517) (11,547,570) (11,592,662) Increase in intangible assets............................. (66,691) (1,063,953) (253,772) Proceeds from sale of property, plant and equipment....... 4,270 11,000 Purchase of short-term investments........................ (11,024,624) Receipt of payments on notes from sale of direct mail cosmetics business...................................... 741,303 Proceeds from sale of direct mail cosmetic business....... 350,000 ---------- ---------- ---------- Net cash used in investing activities............. (25,746,259) (12,611,523) (11,835,434) ---------- ---------- ---------- Cash flows from financing activities: Net (payments) borrowings under line of credit agreement.. (5,000,000) 5,000,000 Borrowings under long-term debt agreements................ 6,000,000 2,400,000 Principal payments under long-term debt agreements and capital leases...................................... (586,115) (797,799) (221,307) Purchase of treasury stock................................ (302,247) (1,292,287) Proceeds from stock options exercised..................... 10,980 24,000 30,000 Proceeds from public offering, less expenses.............. (225,000) ---------- ---------- ---------- Net cash provided by (used in) financing activities 5,122,618 (4,666,086) 4,583,693 ---------- ---------- ---------- Net (decrease) increase in cash and cash equivalents........ (1,086,102) 4,477,882 (4,947,815) Cash and cash equivalents at beginning of year.............. 10,378,476 5,900,594 10,848,409 ---------- ---------- ---------- Cash and cash equivalents at end of year.................... $ 9,292,374 $ 10,378,476 $ 5,900,594 ========== ========== ========== Supplemental disclosure of cash flow information: Cash paid during the period for interest.................. $ 1,454,380 $ 1,085,647 $ 913,145 ========== ========== ========== Cash paid during the period for income taxes.............. $ 5,386,714 $ 1,648,765 $ 2,349,198 ========== ========== ==========
See notes to consolidated financial statements. F-6 SUPPLEMENTAL NON-CASH INVESTING AND FINANCING INFORMATION: The Company entered into capital leases for machinery and equipment aggregating $2,635,412 during fiscal 1996 and $1,416,472 in fiscal 1995. During fiscal 1996, 1995 and 1994, options were exercised with shares of common stock issued to certain officers and directors. Accordingly, the tax benefit of approximately $1,274,000, $731,000 and $433,000 for the years ended September 30, 1996, 1995 and 1994, respectively, was recorded as an increase in capital in excess of par and a reduction in taxes currently payable. (See Note 11.) On October 9, 1995, the Company sold certain assets of its direct-mail cosmetics business for approximately $2,495,000. The Company received $350,000 in cash and non-interest bearing notes aggregating approximately $2,145,000 for inventory, a customer list and other intangible assets. The notes will be paid over a three-year period based on a predetermined formula with guaranteed minimum payments. A final payment for the remaining outstanding balance will be made on September 30, 1998. See notes to consolidated financial statements. F-7 NBTY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS OPERATIONS NBTY, Inc., formerly Nature's Bounty, Inc. (the "Company"), manufactures and distributes vitamins, food supplements and health and beauty aids. The processing, formulation, packaging, labeling and advertising of the Company's products are subject to regulation by one or more federal agencies, including the Food and Drug Administration, the Federal Trade Commission, the Consumer Product Safety Commission, the United States Department of Agriculture, the United States Environmental Protection Agency and the United States Postal Service. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated. REVENUE RECOGNITION The Company recognizes revenue upon shipment or, with respect to its own retail store operations, upon the sale of products. The Company has no single customer that represents more than 10% of annual net sales or accounts receivable as of September 30, 1996. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined on a first-in, first-out basis. The cost elements of inventory include materials, labor and overhead. One supplier provided approximately 12% of the Company's purchases in 1996. PREPAID CATALOG COSTS Mail order production and mailing costs are capitalized as prepaid catalog costs and charged to income over the catalog period, which typically approximates three months. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the related assets. Expenditures which significantly improve or extend the life of an asset are capitalized. Maintenance and repairs are charged to expense in the year incurred. Cost and related accumulated depreciation for property, plant and equipment are removed from the accounts upon sale or disposition and the resulting gain or loss is reflected in earnings. F-8 INTANGIBLE ASSETS Goodwill represents the excess of purchase price over the fair value of identifiable net assets of companies acquired. Goodwill and other intangibles are amortized on a straight-line basis over appropriate periods not exceeding 40 years. INCOME TAXES The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. SHORT-TERM INVESTMENTS Short-term interest bearing investments are those with maturities of less than one year but greater than three months when purchased. These investments are readily convertible to cash and are stated at market value, which approximates cost. Realized gains and losses are included in other income on a specific identification basis in the period they are realized. COMMON SHARES AND EARNINGS PER SHARE Earnings per share are based on the weighted average number of common shares outstanding during the period. Common stock equivalents are not included in income per share computations since their effect on the calculation is immaterial. STOCK-BASED PLANS In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which establishes financial accounting and reporting standards for stock based plans. The Statement, which becomes effective in fiscal 1997, requires the Company to choose between accounting for issuances of stock and other equity instruments to employees based on their fair value or to continue to use an intrinsic value based method and disclosing the pro forma effects such accounting would have had on the Company's net income and earnings per share. The Company will continue to use the intrinsic value based method, which generally does not result in compensation cost. RECLASSIFICATIONS Certain reclassifications have been made to conform prior year amounts to the current year presentation. F-9 2. SALE OF DIRECT-MAIL COSMETICS BUSINESS On October 9, 1995, the Company sold certain assets of its direct-mail cosmetics business for approximately $2,495,000. The Company received $350,000 in cash and non interest bearing notes aggregating approximately $2,145,000 for inventory, a customer list and other intangible assets. The notes will be paid over a three-year period based on a predetermined formula with guaranteed minimum payments. A final payment for the remaining outstanding balance will be made on September 30, 1998. Revenues applicable to this marginally unprofitable business were $136,648, $8,283,517 and $13,276,045 for fiscal 1996, 1995 and 1994, respectively. 3. INVENTORIES SEPTEMBER 30, ------------------------------- 1996 1995 ----------- ---------- Raw materials......................... $17,131,532 $15,898,215 Work-in-process....................... 1,522,803 1,848,629 Finished goods........................ 19,415,736 19,225,748 ---------- ---------- $38,070,071 $36,972,592 ========== ========== 4. PROPERTY, PLANT AND EQUIPMENT SEPTEMBER 30, --------------------------- 1996 1995 ---------- --------- Land.................................. $ 4,764,965 $ 3,064,965 Buildings and leasehold improvements.. 38,087,461 31,830,638 Machinery and equipment............... 28,560,427 22,279,226 Furniture and fixtures................ 8,484,103 6,065,382 Transportation equipment.............. 640,982 200,982 Computer equipment.................... 8,544,945 7,296,395 ---------- ---------- 89,082,883 70,737,588 Less accumulated depreciation and amortization.......................... 27,351,258 22,413,012 ========== ========== $61,731,625 $48,324,576 Depreciation and amortization of property, plant and equipment for the years ended September 30, 1996, 1995 and 1994 was approximately $4,974,000, $4,064,000 and $3,190,000, respectively. Property, plant and equipment includes approximately $4,052,000 and $1,416,000 for assets recorded under capital leases for fiscal 1996 and 1995, respectively. F-10 5. INTANGIBLE ASSETS Intangible assets, at cost, acquired at various dates are as follows: SEPTEMBER 30, ------------------------- 1996 1995 AMORTIZATION ---- ----- PERIOD Goodwill......................... $ 469,400 $ 469,400 20-40 Customer lists................... 8,783,475 10,540,017 6-15 Trademark and licenses........... 1,201,205 1,134,514 2-3 Covenants not to compete......... 1,304,538 1,304,538 5-7 ---------- ---------- 11,758,618 13,448,469 Less accumulated amortization 7,784,045 7,635,438 ---------- ---------- $ 3,974,573 $ 5,813,031 ========== ========== Amortization included in the consolidated statements of income under the caption "selling, general and administrative expenses" in 1996, 1995 and 1994 was approximately $649,000, $776,000 and $1,054,000, respectively. Effective October 1, 1993, the Company changed its estimates of the lives of certain customer lists. Customer list amortization lives that previously averaged 6 years were increased to an average of 15 years. This change was made to better reflect the estimated periods during which an individual will remain a customer of the Company. The change had the effect of reducing amortization expense by approximately $500,000 and increasing the net income by $310,000 in 1994. 6. ACCRUED EXPENSES SEPTEMBER 30, ---------------------------- 1996 1995 --- ---- Payroll and related payroll taxes...... $ 2,730,453 $ 2,166,355 Customer deposits...................... 1,862,837 2,034,175 Accrued purchases...................... 1,765,420 1,734,844 Income taxes payable................... 2,670,270 39,815 Other.................................. 5,675,527 4,312,800 ---------- ---------- $14,704,507 $10,287,989 ========== ========== F-11 7. LONG-TERM DEBT
SEPTEMBER 30, -------------------------- 1996 1995 ---- ---- Mortgages: First mortgage, payable in monthly principal and interest (10.375%) installments (a)............................... $ 7,447,859 $ 7,566,144 First mortgage payable in monthly principal and interest (9.73%) installments of $25,396 (b)...................... 2,257,729 2,338,432 First mortgage, payable in monthly principal and interest (7.375%) installments of $55,196 (c)..................... 5,926,038 ---------- --------- 15,631,626 9,904,576 Less current portion........................................... 453,214 199,042 ---------- --------- $15,178,412 $ 9,705,534 ========== =========
- ------------- (a) In September 1990, the Company obtained an $8,000,000 first mortgage, collateralized by the underlying building, issued through the Town of Islip, New York Industrial Development Agency. The taxable bond, held by an insurance company, has monthly principal and interest payments of $74,821 for ten years through 2000, with a final payment of $6,891,258 in September 2000. (b) In November 1994, the Company purchased a building which it previously occupied under a long-term lease. The purchase price of approximately $3,090,000 was funded with $690,000 in cash and the balance through a 15-year mortgage note payable. This agreement contains restrictive covenants identical to the covenants noted under the revolving credit facility described below. (c) In April 1996, the Company obtained a $6,000,000 first mortgage with a fixed interest rate of 7.375%, collateralized by the underlying real estate. The mortgage has monthly principal and interest payments of $55,196 for fifteen years through 2011. On April 3, 1996, the Company renewed a revolving credit agreement (the "Agreement") with two banks that provides for unsecured borrowings up to $15,000,000 which expires March 31, 1999. As of September 30, 1996, there were no borrowings under this Agreement. Under the most restrictive covenants of the Agreement, the Company is required to maintain tangible net worth of at least $84,000,000, a current ratio of at least 1.75 to 1.00 and has a limitation on the amount of capital expenditures. Required principal payments of long-term debt are as follows: YEARS ENDED SEPTEMBER 30, - ---------- 1997...................................................... $ 453,214 1998...................................................... 494,324 1999...................................................... 539,266 2000...................................................... 7,419,600 2001...................................................... 443,875 Thereafter................................................ 6,281,347 ---------- $15,631,626 ========== F-12 8. CAPITAL LEASE OBLIGATIONS The Company entered into six capital leases for machinery and equipment aggregating $2,635,412 during fiscal 1996 and two capital leases for machinery and equipment aggregating $1,416,472 in fiscal 1995. The leases provide the Company with bargain purchase options at the end of such lease terms. Future minimum payments under capital lease obligations as of September 30, 1996 are as follows: 1997........................................................... $ 758,872 1998........................................................... 758,872 1999........................................................... 758,872 2000........................................................... 758,872 2001........................................................... 758,872 Thereafter..................................................... 870,186 --------- 4,664,546 Less, amount representing interest............................. 963,746 --------- Present value of minimum lease payments (including $481,673 due within one year)....................... $3,700,800 ========= 9. INCOME TAXES Provision for income taxes consists of the following: YEAR ENDED SEPTEMBER 30, -------------------------------------------- 1996 1995 1994 ---- ---- ---- Federal Current.......... $ 7,551,755 $ 2,224,935 $ 856,774 Deferred......... (501,249) 636,516 3,156,289 State Current.......... 2,111,926 336,156 515,893 Deferred......... (141,378) 47,910 237,570 --------- --------- --------- Total provision...... $ 9,021,054 $ 3,245,517 $ 4,766,526 ========= ========= ========= The following is a reconciliation of the income tax expense computed using the statutory federal income tax rate to the actual income tax expense and its effective income tax rate.
YEAR ENDED SEPTEMBER 30, --------------------------------------------------------------- 1996 1995 1994 ------------------ ------------------ -------------------- PERCENT OF PERCENT OF PERCENT OF PRETAX PRETAX PRETAX AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME Income tax expense at statutory rate................. $ 7,830,527 35.0% $ 2,849,668 34.0% $ 4,390,037 35.0% State income taxes, net of federal income tax benefit..... 1,280,856 5.7% 253,483 3.0% 489,751 3.9% Other, individually less than 5%... (90,329) (0.4)% 142,366 1.7% (113,262) (0.9)% --------- ---- --------- ---- --------- ---- Actual income tax provision...................... $ 9,021,054 40.3% $ 3,245,517 38.7% $ 4,766,526 38.0% ========= ==== ========= ==== ========= ====
F-13 The components of deferred tax assets and liabilities are as follows:
1996 1995 ---- ---- Deferred tax assets: Current: Inventory capitalization................................. $ 243,000 $ 178,034 Accrued expenses and reserves not currently deductible... 2,591,137 1,049,584 Tax credits.............................................. 321,026 555,822 Miscellaneous............................................ 63,435 --------- --------- Current deferred tax assets........................ 3,155,163 1,846,875 --------- --------- Noncurrent: Intangibles............................................ 334,820 231,701 Reserves not currently deductible...................... 200,070 342,910 --------- --------- Total noncurrent................................. 534,890 574,611 --------- --------- Deferred tax liabilities: Property, plant and equipment............................. (3,362,088) (2,736,148) --------- --------- Net deferred tax asset (liability).............. $ 327,965 $ (314,662) ========= =========
Available state tax credits of $321,026 and $555,822 in 1996 and 1995, respectively, are scheduled to expire through fiscal 2002. 10. COMMITMENTS LEASES The Company conducts retail operations under operating leases which expire at various dates through 2011. Some of the leases contain renewal options and provide for additional rentals based upon sales plus certain tax and maintenance costs. Future minimal rental payments under the retail location and automotive leases that have initial or noncancelable lease terms in excess of one year at September 30, 1996 are as follows: YEAR ENDING SEPTEMBER 30, - ---------- 1997.................................................... $ 3,319,803 1998.................................................... 3,010,636 1999.................................................... 2,807,311 2000.................................................... 2,375,884 2001.................................................... 1,660,407 Thereafter.............................................. 811,796 ---------- $13,985,837 ========== Operating lease rental expense, including real estate tax and maintenance costs and leases on a month to month basis, was approximately $1,979,000, $1,248,000 and $1,200,000 for the years ended September 30, 1996, 1995 and 1994, respectively. F-14 PURCHASE COMMITMENTS The Company was committed to make future purchases under various purchase order arrangements with fixed price provisions aggregating approximately $12,923,000 and $972,000 at September 30, 1996 and 1995, respectively. EMPLOYMENT AND CONSULTING AGREEMENT AGREEMENTS The Company has employment agreements with two of its officers. The agreements, which expire in January 2004, provide for minimum salary levels, as adjusted for cost of living changes, as well as contain provisions regarding severance and changes in control of the Company. The commitment for salaries as of September 30, 1996 was approximately $749,000 per year. The Company also has a two-year consulting agreement with its former chairman and current director which expires on December 31, 1996. Such agreement required annual payments of approximately $300,000. The parties are presently negotiating a renewal of the agreement under substantially comparable terms. In addition, an entity owned by a relative of an officer received sales commissions of $417,000, $510,000 and $351,000 in 1996, 1995 and 1994, respectively. 11. STOCK OPTION PLANS The Board of Directors approved the issuance of 1,608,000 non-qualified stock options on December 11, 1989, exercisable at $0.50 per share, which options terminated on December 10, 1994. The Board also approved the issuance of 2,220,000 non-qualified options on September 23, 1990, exercisable at $0.63 per share, which options terminate on September 23, 2000. In addition, on March 11, 1992, the Board of Directors approved the issuance of an aggregate of 1,800,000 non-qualified stock options to directors and officers, exercisable at $0.92 per share, and expiring on March 10, 2002. The exercise price of each of the aforementioned issuances was in excess of the market price at the date such options were granted. During fiscal 1996, options were exercised with 872,000 shares of common stock issued to certain officers and directors for $10,980 and interest bearing notes in the amount of $583,900. As a result of the exercise of these options, the Company is entitled to a compensation deduction for tax purposes of approximately $3,145,000 which should ultimately result in a tax benefit to the Company of approximately $1,273,800. Accordingly, the Company has recorded an increase in capital in excess of par and has adjusted its current liability to recognize the effect of this tax benefit. During fiscal 1995, options were exercised with 430,000 shares of common stock issued to certain officers and directors for $24,000 and an interest bearing note in the amount of $191,000. The promissory note, including interest, was paid by the surrender of 23,153 NBTY common shares to the Company at the prevailing market price. As a result of the exercise of these options, the Company was entitled to a compensation deduction of approximately $1,827,500 which resulted in a tax benefit of approximately $731,000. Such benefit was recorded as an increase in capital in excess of par and a reduction to taxes currently payable. During fiscal 1994, options were exercised with 60,000 shares of common stock issued to certain directors for $30,000. As a result of the exercise of these options, the Company was entitled to a compensation deduction for tax purposes of approximately $1,140,000 which resulted in a tax benefit of approximately $433,200. Such benefit was recorded as an increase to capital in excess of par and a reduction to taxes currently payable. F-15 A summary of stock option activity is as follows:
COMMON EXERCISE PRICE SHARES PER SHARE ------ ---------- Shares under option, September 30, 1994 (fully exercisable).......... 2,825,000 $.50-$.92 Exercised in 1995.......................................... 430,000 $.50 -------- -------- 2,395,000 $.63-$.92 Shares under option, September 30, 1995 (fully exercisable) Exercised in 1996.......................................... 872,000 $.63-$.92 -------- -------- Shares under option, September 30, 1996 (fully exercisable).......... 1,523,000 $.63-$.92 ======== ========
12. EMPLOYEE BENEFIT PLANS The Company maintains a defined contribution savings plan, which qualifies under Section 401(k) of the Internal Revenue Code, and an employee stock ownership plan. The accompanying financial statements reflect contributions to these plans in the approximate amount of $489,000, $498,000 and $103,000 for the years ended September 30, 1996, 1995 and 1994, respectively. 13. LITIGATION L-TRYPTOPHAN The Company and certain other companies in the industry, including distributors, wholesalers and retailers (the "Indemnified Group") had been named as defendants in cases arising out of the ingestion of products containing L-tryptophan. The Company had been named in more than 265 lawsuits, 4 of which are still pending against the Company. The Indemnified Group has entered into an agreement with the Company's supplier of bulk L-tryptophan, Showa Denko America, Inc. (the "Supplier"), under which the Supplier, a U.S. subsidiary of a major Japanese corporation, Showa Denko K.K., has assumed the defense of all claims against the Indemnified Group and has agreed to pay the legal fees and expenses in that defense. The Supplier and Showa Denko K.K. has agreed to indemnify the Indemnified Group against any judgments and to fund settlements arising out of those actions and claims. The Supplier has posted a revolving, irrevocable letter of credit of $20 million to be used for the benefit of the Indemnified Group in the event that the Supplier is unable or unwilling to satisfy any claims or judgments. While not all of these suits quantify the amount demanded, it can reasonably be assumed that the amount required to either settle these cases or to pay judgments rendered therein will be paid by the Supplier or by the Company's product liability insurance carrier. To date, no cases in which the Company is a party have reached trial. While the outcome of any litigation is uncertain, it is the opinion of management and legal counsel of the Company that it is remote that the Company will incur a material loss as a result of the L-tryptophan litigation and claims. Accordingly, no provision for liability, if any, that may result therefrom has been made in the Company's financial statements. SHAREHOLDER LITIGATION In October 1994, litigation was commenced in the U.S. District Court, Eastern District of New York, against the Company and two of its officers. The F-16 complaint alleges that false and misleading statements and representations were made concerning the Company's sales and earnings estimates for the fourth fiscal quarter and the year ended September 30, 1994. The allegations are that: (a) sales were artificially inflated; (b) costs were improperly capitalized; (c) sales and profit margins were materially declining; (d) inventory and accounts receivable were overstated; and (e) that because of the foregoing, the Company would incur a loss in its fourth fiscal quarter. The Plaintiffs seek Class Action certification and an unspecified amount of monetary damages. The Company and its officers deny the allegations of the complaints and intend to vigorously contest the litigation. In 1994, prior to commencement of these lawsuits, the Company purchased a directors and officers Indemnity Policy. Special counsel has been retained to represent the Company and its officers. Since the outcome of any litigation is uncertain, the Company is unable to predict (i) whether it will ultimately prevail; (ii) whether it will be fully or partially indemnified, if at all; (iii) the amount of loss, if any, that may be attributable to the above, and (iv) the amount of expense which may be incurred in the defense of these actions. OTHER LITIGATION The Company is also involved in miscellaneous claims and litigation which, taken individually or in the aggregate, would not have a material adverse effect on the Company's financial position or its business. 14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the unaudited quarterly results of operations for fiscal 1996 and 1995 (dollars in thousands, except per share data):
QUARTER ENDED ---------------------------------------------------------- DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, ------------ -------- ------- ------------- Net sales................................ $ 38,589 $ 55,605 $ 47,900 $ 52,309 Gross profit............................. 17,779 27,760 24,453 28,773 Income (loss) before income taxes........ (412) 7,502 6,503 8,780(a) Net income (loss)........................ (251) 4,576 3,763 5,264 Earnings (loss) per share................ $ (0.01) $ 0.23 $ 0.19 $ 0.26 1995: Net sales................................ $ 37,478 $ 50,945 $ 41,650 $ 48,687 Gross profit............................. 18,380 25,220 20,564 20,720 Income before income taxes............... 1,648 4,336 2,004 394(b) Net income............................... 939 2,552 1,152 493 Earnings per share....................... $ 0.05 $ 0.13 $ 0.06 $ 0.02
- ------------ (a) 1996 year-end adjustments resulting in an increase to pre-tax income of approximately $2 million related to adjustments of inventory amounts. (b) 1995 year-end adjustments resulting in a charge to operations included approximately $1,475,000 for various accruals and for the write-off of certain equipment associated with the Company's cosmetic pencil operation, and $900,000 pertaining to the identification of obsolete inventory. F-17 NBTY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, SEPTEMBER 30, 1997 1996 ------- ---------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents............................................ $ 2,915,318 $ 9,292,374 Short-term investments............................................... 15,540,808 11,024,624 Accounts receivable, less allowance for doubtful accounts of $996,491 in 1997 and $793,669 in 1996................................... 13,012,095 11,625,112 Inventories.......................................................... 58,682,289 38,070,071 Deferred income taxes................................................ 3,155,163 3,155,163 Prepaid catalog costs and other current assets....................... 7,648,111 5,682,874 ----------- ----------- Total current assets..................................................... 100,953,784 78,850,218 Property, plant and equipment............................................ 99,846,582 89,082,883 Less accumulated depreciation and amortization........................... 31,398,648 27,351,258 ----------- ----------- 68,447,934 61,731,625 Intangible assets, net................................................... 3,748,030 3,974,573 Other assets............................................................. 514,845 993,785 ----------- ----------- Total assets............................................................. $173,664,593 $145,550,201 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt and capital lease obligations...... $ 995,225 $ 934,887 Accounts payable..................................................... 22,807,676 10,943,228 Accrued expenses..................................................... 15,258,867 14,704,507 ----------- ----------- Total current liabilities................................................ 39,061,768 26,582,622 Long-term debt........................................................... 14,782,083 15,178,412 Obligations under capital leases......................................... 2,863,638 3,219,127 Deferred income taxes.................................................... 2,827,198 2,827,198 Other liabilities........................................................ 792,985 792,985 ----------- ----------- Total liabilities........................................................ 60,327,672 48,600,344 Commitments and contingencies Stockholders' equity: Commonstock, $.008 par; authorized 25,000,000 shares; issued 20,116,676 shares in 1997 and 20,079,676 in 1996 and outstanding 18,628,491 shares in 1997 and 18,592, 119 shares in 1996............................................. 160,934 160,638 Capital in excess of par................................................. 56,303,677 56,012,910 Retained earnings........................................................ 60,061,732 44,008,465 ----------- ----------- 116,526,343 100,182,013 Less 1,488,185 and 1,487,557 treasury shares at cost, in 1997 and 1996, respectively......................................................... 2,663,167 2,648,256 Stock subscriptions receivable........................................... 526,255 583,900 ----------- ----------- Total stockholders' equity............................................... 113,336,921 96,949,857 ----------- ----------- Total liabilities and stockholders' equity............................... $173,664,593 $145,550,201 =========== ===========
See notes to condensed consolidated financial statements. F-18 NBTY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, -------------------------- 1997 1996 ---- ---- Net sales........................................................ $ 184,107,656 $ 142,093,552 ----------- ----------- Costs and expenses: Cost of sales................................................ 88,205,269 72,101,151 Catalog printing, postage and promotion...................... 14,580,501 13,240,001 Selling, general and administrative.......................... 53,884,692 42,782,415 ----------- ----------- 156,670,462 128,123,567 ----------- ----------- Income from operations........................................... 27,437,194 13,969,985 ----------- ----------- Other income (charges): Interest expense............................................. (1,294,232) (1,017,497) Miscellaneous, net........................................... 612,483 640,730 ----------- ----------- (681,749) (376,767) ----------- ----------- Income before income taxes....................................... 26,755,445 13,593,218 Income taxes..................................................... 10,702,178 5,505,398 ----------- ----------- Net income....................................................... $ 16,053,267 $ 8,087,820 =========== =========== Earnings per common share and common share equivalents........... $0.80 $0.41 ===== ===== Weighted average common shares and common share equivalents..................................... 20,052,391 19,939,042 =========== ===========
See notes to condensed consolidated financial statements. F-19 NBTY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, ----------------------- 1997 1996 ---- ---- Net income............................................................... $ 16,053,267 $ 8,087,820 Adjustments to reconcile net income to cash provided by operating activities: (Gain), Loss on sale of property, plant and equipment................ 25,526 (2,250) Depreciation and amortization........................................ 4,582,566 4,003,164 Provision for allowance for doubtful accounts........................ 202,822 169,481 Changes in assets and liabilities, net of acquisitions: (Increase) decrease in accounts receivable..................... (2,636,906) 797,534 (Increase) decrease in inventories............................. (20,612,218) 229,671 Increase in prepaid catalog costs and other current assets..... (1,965,237) (4,499,475) Decrease other assets.......................................... 453,343 2,547,275 Increase (decrease) in accounts payable........................ 11,864,448 (5,083,382) Increase in accrued expenses................................... 880,193 2,298,094 ---------- ---------- Net cash provided by operating activities................................ 8,847,804 8,547,932 ---------- ---------- Cash flow from investing activities: Increase in intangible assets........................................ (40,047) Purchase of property, plant and equipment............................ (11,092,412) (11,494,483) Proceeds from sale of property, plant and equipment.................. 20,150 2,250 Purchase of short-term investments................................... (4,516,184) Proceeds from sale of direct-mail cosmetics business................. 350,000 Receipt of payments from direct-mail cosmetics business.............. 1,047,101 499,670 ---------- ---------- Net cash used in investing activities................................ (14,541,345) (10,682,610) ---------- ---------- Cash flows from financing activities: Borrowings under long term debt agreements........................... 6,000,000 Principal payments under long-term debt agreements and capital leases............................................. (691,479) (368,248) Purchase of treasury stock........................................... (14,911) (302,247) Proceeds from stock options exercised................................ 22,875 10,980 ---------- ---------- Net cash (used in) provided by financing activities...................... (683,515) 5,340,485 ---------- ---------- Net (decrease) increase in cash and cash equivalents..................... (6,377,056) 3,205,807 Cash and cash equivalents at beginning of year........................... 9,292,374 10,378,476 ---------- ---------- Cash and cash equivalents at end of quarter.............................. $ 2,915,318 $ 13,584,283 ========== ========== Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest............................. $ 1,294,232 $ 1,012,622 Cash paid during the period for taxes................................ $ 11,067,626 $ 2,178,025 ========== ==========
See notes to condensed consolidated financial statements. F-20 NBTY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) SUPPLEMENTAL NON-CASH INVESTING AND FINANCING INFORMATION: The Company entered into capital leases for machinery and equipment aggregating $2,635,412 for the nine months ended June 30, 1996. During the first nine months of 1997, options were exercised with 37,000 shares of common stock issued to certain officers for $22,875 and a note for $10,980. As a result of the exercise of those options, the Company received a compensation deduction for tax purposes of approximately $643,000 and a tax benefit of approximately $257,200. An additional 628 NBTY common shares were surrendered to the Company, at market price, in payment of a stock subscription receivable and interest in 1997. The average cost of shares was $22.50 in 1997. During the first nine months of fiscal 1996, options were exercised with 872,000 shares of common stock issued to certain officers for $10,980 and interest bearing notes in the amount of $583,900. As a result of the exercise of those options, the Company received a compensation deduction for tax purposes of approximately $3,150,000 and a tax benefit of approximately $1,230,000. On October 9, 1995, the Company sold certain assets of its direct-mail cosmetics business for approximately $2,495,000. The Company received $350,000 in cash and non-interest bearing notes aggregating approximately $2,145,000 for inventory, a customer list and other intangible assets. The inventory note was repaid in full in October 1996. In April 1997, the Company received $725,000 as a final payment of the customer list note. See notes to condensed consolidated financial statements. F-21 NBTY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly its financial position as of June 30, 1997 and results of operations for the nine months ended June 30, 1997 and 1996 and statements of cash flows for the nine months ended June 30, 1997 and 1996. The consolidated condensed balance sheet as of September 30, 1996 has been derived from the audited balance sheet as of that date. This report should be read in conjunction with the Company's annual report filed on Form 10-K for the fiscal year ended September 30, 1996. 2. The results of operations and cash flows for the nine months ended June 30, 1997 are not necessarily indicative of the results to be expected for the full year. 3. Sale of Direct-Mail Cosmetic Business: On October 9, 1995, the Company sold certain assets of its direct-mail cosmetics business for approximately $2,495,000. The Company received $350,000 in cash and non-interest bearing notes aggregating approximately $2,145,000 for inventory, a customer list and other intangible assets. The inventory note was repaid in full in October 1996. In April 1997, the Company received $725,000 as a final payment of the customer list note. 4. Inventories have been estimated by using the gross profit method for the interim periods. The components of the inventories are as follows: JUNE 30, SEPTEMBER 30, 1997 1996 ------------ ------------ (UNAUDITED) Raw materials and work-in-process..... $ 35,023,137 $ 18,654,335 Finished goods........................ 23,659,152 19,415,736 ------------ ------------ $ 58,682,289 $ 38,070,071 ============ ============ 5. Intangible assets, at cost, acquired at various dates are as follows: JUNE 30, SEPTEMBER 30, 1997 1996 ---------- ------------- (UNAUDITED) Goodwill...................................... $ 469,400 $ 469,400 Customer lists................................ 8,783,475 8,783,475 Trademark and licenses........................ 1,201,205 1,201,205 Covenants not to compete...................... 1,304,538 1,304,538 ---------- ----------- 11,758,618 11,758,618 Less, accumulated amortization................ 8,010,588 7,784,045 ---------- ----------- $ 3,748,030 $ 3,974,573 ========== =========== 6. Accrued expenses: JUNE 30, SEPTEMBER 30, 1997 1996 ----------- ------------- (UNAUDITED) Payroll and related payroll taxes........... $ 3,286,118 $ 2,730,453 Customer deposits........................... 2,499,656 1,862,837 Accrued purchases........................... 935,110 1,765,420 Income taxes payable........................ 2,115,214 2,670,270 Other....................................... 6,422,769 5,675,527 ----------- ----------- $15,258,867 $14,704,507 =========== =========== 7. The Company purchased 46,000 shares of its common stock for $302,247 for the nine months ended June 30, 1996 in open market transactions. The average price per share was $6.57. An additional 628 NBTY common shares were surrendered to the Company at market price in payment of a stock subscription receivable and interest in 1997. The average cost of shares was $22.50 in 1997. 8. Earnings per share are based on the weighted average number of common shares and common equivalent shares outstanding during the three and nine month periods ended June 30, 1997 and 1996. The calculation of earnings per share include 1,441,560 and 1,501,084 common stock equivalent shares for the nine month periods ended June 30, 1997 and 1996, respectively. 9. During the first nine months of 1997, options were exercised with 37,000 shares of common stock issued to certain officers and a director for $22,875 and a note for $10,980. As a result of the exercise of those options, the Company received a compensation deduction for tax purposes of approximately $643,000 and a tax benefit of approximately $257,200. An additional 628 NBTY common shares were surrendered to the Company, at market price, in payment of a stock subscription receivable and interest in 1997. The average cost of shares was $22.50 in 1997. During the first nine months of 1996, options were exercised with 872,000 shares of common stock issued to certain officers for $10,980 and interest bearing notes in the amount of $583,900. As a result of the exercise of those options, the Company received a compensation deduction for tax purposes of approximately $3,150,000 and a tax benefit of approximately $1,230,000. In November 1995, options were exercised with shares of common stock issued to certain officers for an interest bearing note in the amount of $437,500. As a result of the exercise of those options, the Company received a compensation deduction for tax purposes of approximately $2,362,500 and a tax benefit of approximately $920,000. The following is a summary of changes in outstanding options for the Company's Stock Option Plans for the nine month period ended June 30, 1997:
EXERCISE PRICE -------- Shares under option, September 30, 1996 (fully exercisable)........ 1,523,000 $.63-$.92 Options exercised.................................................. (37,000) $.92 Shares exercisable, June 30, 1997 (fully exercisable).............. 1,486,000 $.63-$.92
10. Subsequent event: The Company has entered into negotiations to acquire a vitamin and health food retailer that operates 410 stores in the United Kingdom. The Company would finance the purchase with bonds and borrowings through a U.S. bank. The Company has not reached an agreement in principle in connection with this potential transaction. F-23 INDEPENDENT AUDITORS' REPORT To: The Directors and shareholders of Holland & Barrett Holdings Limited We have audited the accompanying consolidated balance sheets of Holland & Barrett Holdings Limited (formerly Holland & Barrett Retail Limited) and its subsidiaries ("the Group") as at 30 June 1996 and 1997 and the related consolidated profit and loss accounts, cash flow statements, statements of total recognized gains and losses and changes in shareholders' funds for each of the years in the three year period ended 30 June 1997. These consolidated financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in the United Kingdom which do not differ in any material respects from generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the aforementioned consolidated financial statements present fairly, in all material respects, the financial position of Holland & Barrett Holdings Limited and subsidiaries as of 30 June 1996 and 1997, and the results of their operations and their cash flows for each of the years in the three year period ended 30 June 1997 in conformity with generally accepted accounting principles in the United Kingdom. Generally accepted accounting principles in the United Kingdom vary in certain significant respects from generally accepted accounting principles in the United States. Application of generally accepted accounting principles in the United States would have affected results of operations for each of the years in the two year period ended 30 June 1997 and shareholders' equity as of 30 June 1997 and 1996, to the extent summarized in Note 3 of the consolidated financial statements. KPMG Chartered Accountants Registered Auditors Birmingham, England 4 August 1997, except for Note 23 which is as of 7 August 1997 F-24 HOLLAND & BARRETT HOLDINGS LIMITED (A WHOLLY-OWNED SUBSIDIARY OF GEHE AG) CONSOLIDATED PROFIT AND LOSS ACCOUNTS FOR THE THREE YEARS ENDED 30 JUNE
YEAR ENDED 30 JUNE -------------------------- 1997 1996 1995 NOTE (POUND STERLING)`000 (POUND STERLING)`000 (POUND STERLING)`000 ---- -------------------- -------------------- ------------------- Turnover........................................... 102,880 90,632 77,124 Cost of sales...................................... (53,578) (47,968) (41,077) ------ ------ ----- Gross profit....................................... 49,302 42,664 36,047 Distribution costs................................. (39,365) (33,860) (28,729) Administrative expenses............................ (2,232) (1,532) (1,512) Other operating income............................. -- 46 1 ------ ------ ----- Operating profit................................... 4 7,705 7,318 5,807 Loss on sale of fixed assets....................... (372) (46) (230) Other interest receivable and similar income....... 7 92 -- 2 Interest payable and similar charges............... 8 (7) (393) (387) ------ ------ ----- Profit on ordinary activities before taxation...... 7,418 6,879 5,192 Taxation on profit on ordinary activities.......... 9 (2,575) (2,493) (1,725) ------ ------ ----- Profit on ordinary activities after taxation....... 4,843 4,386 3,467 Dividend written back/(proposed)................... 8,100 (8,100) (2,395) ------ ------ ----- Retained profit/(loss) for the financial year...... 10,19 12,943 (3,714) 1,072 ------ ------ ----- - ------------ There are no discontinued activities. The effect of acquisitions on turnover and operating profit is considered to be not material. The accompanying notes are an integral part of these consolidated financial statements.
F-25 HOLLAND & BARRETT HOLDINGS LIMITED (A WHOLLY-OWNED SUBSIDIARY OF GEHE AG) CONSOLIDATED STATEMENTS OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE THREE YEARS ENDED 30 JUNE 1997 During the three years ended 30 June 1997 there were no gains or losses other than the profit for the financial year. RECONCILIATION OF MOVEMENTS IN GROUP SHAREHOLDERS' FUNDS
YEAR ENDED 30 JUNE ----------------------------- 1997 1996 1995 (POUND STERLING)`000 (POUND STERLING)`000 (POUND STERLING)`000 ------------------- ------------------- ------------------- Profit for the year......................................... 4,843 4,386 3,467 Dividends written back/(proposed)........................... 8,100 (8,100) (2,395) ------ ----- ----- 12,943 (3,714) 1,072 Other recognized gains and losses relating to the year: Goodwill written off.................................... (130) -- (595) ------ ----- ----- Net movement in shareholders' funds..................... 12,813 (3,714) 477 Shareholders' funds at beginning of year................ 4,095 7,809 7,332 ------ ----- ----- Shareholders' funds at end of year...................... 16,908 4,095 7,809 ------ ----- ----- The accompanying notes are an integral part of these consolidated financial statements.
F-26 HOLLAND & BARRETT HOLDINGS LIMITED (A WHOLLY-OWNED SUBSIDIARY OF GEHE AG) CONSOLIDATED BALANCE SHEETS AT 30 JUNE 1997 AND 1996
1997 1996 NOTE (POUND STERLING)`000 (POUND STERLING)`000 ---- -------------------- -------------------- FIXED ASSETS: Tangible assets......................................... 11 22,988 20,042 ------ ------ CURRENT ASSETS: Stocks.................................................. 13 11,479 12,037 Debtors................................................. 14 10,684 8,559 Cash at bank and in hand................................ 5,668 2,748 ------ ------ 27,831 23,344 Creditors: amounts falling due within one year.............. 15 (31,354) (24,734) ------ ------ Net current liabilities..................................... (3,523) (1,390) ------ ------ Total assets less current liabilities....................... 19,465 18,652 Creditors: amounts falling due after more than one year..... 16 -- (12,500) Provisions for liabilities and charges...................... 17 (2,557) (2,057) ------ ------ NET ASSETS.................................................. 16,908 4,095 ====== ====== Capital and reserves Called up share capital................................. 18 1,050 1,050 Goodwill write off reserve.............................. 19 (680) (582) Consolidated goodwill................................... 19 (715) (715) Capital reserve......................................... 19 4,587 4,587 Profit and loss account................................. 19 12,666 (245) ------ ------ Equity shareholders' funds.................................. 16,908 4,095 ====== ====== The accompanying notes are an integral part of these consolidated financial statements.
F-27 HOLLAND & BARRETT HOLDINGS LIMITED (A WHOLLY-OWNED SUBSIDIARY OF GEHE AG) CONSOLIDATED CASH FLOW STATEMENTS FOR THE THREE YEARS ENDED 30 JUNE 1997
1997 1996 1995 (POUND STERLING)`000 (POUND STERLING)`000 (POUND STERLING)`000 -------------------- ------------------- -------------------- NET CASH INFLOW FROM OPERATING ACTIVITIES..................... 20(a) 10,994 11,050 6,087 ------ ------ ----- RETURNS ON INVESTMENTS AND SERVICING OF FINANCE: Interest received......................................... 92 -- 2 Interest paid............................................. (7) (393) (387) ------ ------ ----- 85 (393) (385) ------ ------ ----- TAXATION Corporation tax (paid)/received............................... (1,368) 21 (1,795) ------ ------ ----- CAPITAL EXPENDITURES Payments to acquire tangible fixed assets..................... (6,817) (6,787) (6,141) Receipts from sales of tangible fixed assets.................. 156 153 79 ------ ------ ----- (6,661) (6,634) (6,062) ------ ------ ----- ACQUISITIONS AND DISPOSALS Acquisition of businesses and subsidiaries.................... (130) -- (388) ------ ------ ----- Net cash inflow/(outflow) before financing and increase/(decrease) in cash and cash equivalents.............................. 20(b) 2,920 4,044 (2,543) ====== ====== =====
The accompanying notes are an integral part of these consolidated statements. F-28 HOLLAND & BARRETT HOLDINGS LIMITED (A WHOLLY-OWNED SUBSIDIARY OF GEHE AG) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PREPARATION OF FINANCIAL INFORMATION The consolidated financial statements of Holland & Barrett Holdings Limited (formerly Holland and Barrett Retail Limited), a wholly-owned subsidiary of Gehe AG (the "Parent") have been prepared under the historical cost convention and in accordance with generally accepted accounting principles in the United Kingdom ("UK GAAP"). Transfers of net assets between entities under the common control of the Parent have been accounted for at historical cost in a manner similar to pooling of interests with the financial statements restated to give effect to the transactions as if such entities had always been combined. On 11 October 1996, Holland & Barrett Holdings Limited was incorporated under the Laws of England and Wales. On 11 April 1997 it acquired the investment in Holland & Barrett Retail Limited ("Retail") from Lloyds Chemists plc, a fellow subsidiary company. On 30 June 1995, Holland & Barrett Retail Limited ("Retail") acquired the trade and assets of the Holland & Barret Distribution ("Distribution") from Barclay Pharmaceutical Limited at book value, a fellow subsidiary of Lloyds Chemists plc. On 11 April 1997 Retail acquired Holland & Barrett Limited ("H&B") and Lifecycle Limited ("Lifecycle"), two dormant subsidiaries of Lloyds Chemists plc for (Pound Sterling)50,000. The net assets of H&B and Lifecycle were (Pound Sterling) 4,637,000, being amounts due from Lloyds Chemists plc. The excess of net assets over the purchase price was treated as a capital transaction. The results and assets of Distribution, H&B and Lifecycle have been included in the consolidated financial statements for the three year period ended 30 June 1997. 2. ACCOUNTING POLICIES The following accounting policies conform with UK Generally Accepted Accounting Principles ("UK GAAP") and have been applied consistently in dealing with the items which are considered material in relation to the consolidated financial statements: CONSOLIDATION The consolidated financial statements include the financial statements of all wholly owned subsidiaries, all of which are made up to 30 June each year. Intercompany transactions and balances have been eliminated. FIXED ASSETS Fixed assets are stated at cost, less appropriate depreciation and provisions. Depreciation is calculated so as to write off the gross book value F-29 less estimated residual value of tangible fixed assets over their estimated useful lives. The principal rates used are as follows: Short leasehold property -- period of the lease Motor vehicles -- 25% on a reducing balance Fixtures, fittings and equipment -- 10%-20% on a straight time basis LEASED ASSETS All leases are operating leases and the rental charges are taken to the profit and loss account on a straight tine basis over the life of the lease. STOCKS Stocks are valued at the lower of cost and net realizable value. Cost for this purpose consists of materials and an appropriate proportion of overheads. PENSIONS The company sponsors a defined contribution pension scheme operated as part of Lloyds Chemists Group. The assets of the scheme are held separately in an independently administered fund. The pension cost charge represents contributions payable during the year. TAXATION The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Provision is made for deferred tax only to the extent that it is probable that an actual liability will crystallize. GOODWILL Goodwill relating to the acquisition of businesses is written off immediately against reserves. TURNOVER Turnover represents amounts invoiced by the group to third parties in respect of goods sold during the year, excluding value added tax and trade discounts. In the opinion of the directors there is only one class of business. All turnover is within the UK. 3. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP The consolidated financial statements have been prepared in accordance with UK GAAP which differs in certain significant respects from generally accepted accounting principles in the United States ("US GAAP"). This summary should not be taken as a complete list of all differences between UK GAAP and US GAAP. The significant differences between UK GAAP and US GAAP which affect the Group's net profit and shareholders' funds are set out below: F-30 (a) Goodwill and other intangibles Under UK GAAP, the Group writes off goodwill, being the excess of cost over the fair value attributable to the net assets acquired, to consolidated equity in the year of acquisition. In calculating any gain or loss resulting from a disposal of assets, attributable goodwill previously written off is included. Under US GAAP, goodwill is capitalized and amortized through the statement of income over a period representing its estimated useful life of 25 years. (b) Deferred taxation Under UK GAAP, provision is made for deferred taxation under the liability method unless there is reasonable certainty that such deferred taxation will not become payable or receivable in the foreseeable future. Under US GAAP, deferred taxation is provided on all temporary differences which will result in taxable or tax deductible amounts in future years, subject to a valuation allowance to reduce deferred tax assets if it is more likely than not that the related tax benefit will not be realized. (c) Dividends Under UK GAAP, dividends are provided for in the year to which they relate. These dividends are deducted from current year earnings, US GAAP recognizes dividends as a reduction of retained earnings in the accounting period in which they are formally declared. (d) Cash flows Under UK GAAP, the Group complies with Financial Reporting Standard No. 1 (revised), "Cash flow statements" ("FRSI"). Its objectives and principles are similar to US GAAP as set out in Statement of Financial Accounting Standards No 95, "Statement of Cash flows" ("SFAS No 95"). The principal difference between the standards is in respect of classification. Under FRSI, the Group presents its cash flows for a) operating activities, b) returns on investments and servicing of finance, c) taxation, d) capital expenditure and financial investment, e) acquisitions and disposals, f) equity dividends paid, g) management of liquid resources and h) financing. SFAS No 95 requires only three categories of cash flow activity: a) operating activities, b) investing activities and c) financing activities. Under FRSI, cash includes deposits and overdrafts, repayable on demand while movements on short term investments are included in management of liquid resources. SFAS No 95 defines cash and cash equivalents as also including short term highly liquid investments. Cash flows arising from taxation and returns on investments and servicing of finance under FRSI would be included as operating activities under SFAS No 95. Cash flows relating to capital expenditure and financial investment and acquisitions and disposals would be included as investing activities under SFAS No 95. Equity dividend payments would be included as a financing activity under SFAS No 95. A summarized consolidated cash flow under US GAAP is as follows:
1997 1996 (POUND STERLING)`000 (POUND STERLING)`000 -------------------- -------------------- Cash inflow from operating activities............. 9,711 10,678 Cash (outflow) on investing activities............ (6,791) (6,634) Cash inflow/(outflow) from financing activities... -- -- ----- ------ Increase in cash and cash equivalents............. 2,920 4,044 Cash and cash equivalents at beginning of year.... 2,748 (1,296) ----- ------ Cash and cash equivalents at end of year.......... 5,668 2,748 ===== ======
F-31 The following is a summary of the material adjustments to net income and shareholders' funds which would have been required if US GAAP had been applied instead of UK GAAP. YEARS ENDED 30 JUNE -------------------------- 1997 1996 (POUND STERLING)`000 (POUND STERLING)`000 -------------------- -------------------- Profit after tax--UK GAAP............ 4,843 4,386 Adjustments to conform with US GAAP Amortization of goodwill......... (59) (43) Deferred tax..................... (35) (51) ----- ----- Net income--US GAAP.................. 4,749 4,292 ===== ===== AT 30 JUNE -------------------------- 1997 1996 POUND STERLING)`000 (POUND STERLING)`000 ------------------- -------------------- Shareholders' funds, UK GAAP............ 16,908 4,095 Adjustment to conform to US GAAP: Goodwill...................... 1,326 1,255 Deferred tax.................. 96 131 Dividends..................... -- 8,100 ------ ------ Shareholders' funds, US GAAP............ 18,330 13,581 ====== ====== 4. OPERATING PROFIT This is stated after charging the following:
1997 1996 1995 ------ ----- ----- (POUND STERLING)'000 (POUND STERLING)`000 (POUND STERLING)`000 -------------------- -------------------- -------------------- Depreciation........................................... 3,343 2,659 1,619 Directors' emoluments (see note 6)..................... 181 128 121 Payments under operating leases: Land and buildings................................. 13,981 11,864 10,162 Plant and machinery................................ 510 113 145 Auditors' renumeration: Audit.............................................. 15 19 15 ------ ------ ------
F-32 5. STAFF NUMBERS AND COSTS: The average number of persons employed by the group (including directors) during the year, was as follows:
1997 1996 1995 ------ ----- ----- NUMBER NUMBER NUMBER Administration................................................... 99 127 120 Retail........................................................... 1,979 1,786 1,539 Distribution..................................................... 117 109 100 ------ ------ ----- 2,195 2,022 1,759 ====== ====== ===== The aggregate payroll costs of these persons were as follows: (Pound Sterling)'000 (Pound Sterling)'000 (Pound Sterling)'000 (Pound Sterling)'000 ------------------- -------------------- -------------------- Wages and salaries........................................... 12,947 10,720 8,899 Social security costs........................................ 844 702 581 Other pension costs.......................................... 40 31 25 ------ ------ ----- 13,831 11,453 9,505 ====== ====== =====
6. EMOLUMENTS OF DIRECTORS The emoluments (excluding pension contributions) including estimated benefits in kind of the director who served as chairman during the year were (Pound Sterling) Nil (1996: (Pound Sterling) Nil; 1995: (Pound Sterling) Nil). Excluding pension contributions, the emoluments of the highest paid director were (Pound Sterling) 99,246 (1996: (Pound Sterling) 75,750; 1995: (Pound Sterling) 64,000). Excluding pension contributions but including benefits in kind the emoluments of the directors were within the following ranges:
1997 1996 1995 NUMBER NUMBER NUMBER ----- ----- ----- (Pound Sterling) 0 - (Pound Sterling) 5,000 8 6 6 (Pound Sterling) 5,001 - (Pound Sterling) 10,000 1 -- -- (Pound Sterling) 45,001 - (Pound Sterling) 50,000 -- 1 1 (Pound Sterling) 60,001 - (Pound Sterling) 65,000 1 -- -- (Pound Sterling) 70,001 - (Pound Sterling) 75,000 -- -- 1 (Pound Sterling) 75,001 - (Pound Sterling) 80,000 -- 1 -- (Pound Sterling) 95,001 - (Pound Sterling)100,000. 1 -- -- ----- ----- ----- 7. OTHER INTEREST RECEIVABLE AND SIMILAR INCOME 1997 1996 1995 ----- ----- ----- (POUND STERLING)`000 (POUND STERLING)`000 (POUND STERLING)`000 Bank Interest...................... 92 -- 2 ----- ------- ------ 8. INTEREST PAYABLE AND SIMILAR CHARGES 1997 1996 1995 ----- ----- ----- (POUND STERLING)`000 (POUND STERLING)`000 (POUND STERLING)`000 On bank overdrafts.................. 7 393 387 - --- ---
F-33 9. TAX ON PROFIT ON ORDINARY ACTIVITIES Taxation based on the profit for the year:
1996 1995 1997 ----- ----- ----- (POUND STERLING)'000(POUND STERLING)'000 (POUND STERLING)'000 Corporation tax at 33% (1996: 33%; 1995: 33%)............. 2,196 1,558 979 Deferred taxation......................................... 310 733 752 Adjustments in respect of prior years: Corporation tax....................................... (121) 430 (6) Deferred taxation..................................... 190 (228) -- ----- ----- ----- 2,575 2,493 1,725 ===== ===== ===== 10. RETAINED PROFIT/(LOSS) FOR THE FINANCIAL YEAR 1997 1996 1995 ------ ------ ----- (POUND STERLING)`000(POUND STERLING)`000(POUND STERLING)`000 Holland and Barrett Holdings Limited................. 12,812 (3,914) 1,218 Subsidiaries......................................... 131 200 (146) ------ ----- ----- 12,943 (3,714) 1,072 ====== ===== =====
11. TANGIBLE FIXED ASSETS
SHORT FIXTURES, FREEHOLD LEASEHOLD MOTOR LININGS, TOOLS LAND PROPERTY VEHICLES AND EQUIPMENT TOTAL ------ ------- -------- ---------- ------ (POUND STERLING)'000 (POUND STERLING)'000 (POUND STERLING)'000 (POUND STERLING)'000(POUND STERLING)'000 COST At 1 July 1996................. 130 4,712 261 24,373 29,476 Additions.................. -- -- 5 6,812 6,817 Disposals.................. -- (361) -- (1,435) (1,796) --- ----- --- ------ ------ At 30 June 1997................ 130 4,351 266 29,750 34,497 === ===== === ====== ====== DEPRECIATION At 1 July 1996................. -- 2,717 41 6,676 9,434 Charged in year............ -- 225 44 3,074 3,343 Disposals.................. -- (292) -- (976) (1,268) --- ----- --- ------ ------ At 30 June 1997................ -- 2,650 85 8,774 11,509 === ===== === ====== ====== NET BOOK VALUE At 30 June 1997................ 130 1,701 181 20,976 22,988 --- ----- --- ------ ------ At 30 June 1996................ 130 1,995 220 17,697 20,042 === ===== === ====== ======
F-34 12. SUBSIDIARY UNDERTAKINGS The investments in subsidiary undertakings, which are all wholly owned directly by Holland and Barrett Retail Limited, are as follows:
NAME PRINCIPAL ACTIVITY SHARES --- ----------- ----- Holland & Barrett (Franchising) Limited................................ Dormant company 50,000 ordinary shares of (Pound Sterling) 1 each Natural Health & Beauty Stores Limited................................ Dormant company 100 ordinary shares of (Pound Sterling)1 each 100 preferred ordinary shares of (Pound Sterling) 1 each Hillstart Limited.......................... Dormant company 160,000 ordinary shares of (Pound Sterling) 1 each Nature's Way Limited....................... Dormant company 100 ordinary shares of (Pound Sterling) 1 each Beaumonts Health Stores Limited............ Retailer Healthfood 100 ordinary shares of (Pound Sterling) 1 each produces Naplers of Edinburgh Limited............... Dormant company 99 ordinary shares of (Pound Sterling) 1 each Neals Yard (Wholefoods) Limited............ Retailer Health food 100 ordinary shares of (Pound Sterling) 1 each products 234,900 redeemable preference shares of (Pound Sterling) 1 each Holland & Barrett Limited.................. Dormant company 5,533,398 ordinary shares of (Pound Sterling) 1 each Lifecycle Limited.......................... Dormant company 1,500,000 ordinary shares of (Pound Sterling) 1 each With the exception of Holland & Barrett (Franchising) Limited which is registered in Scotland, all of these companies are registered in England and Wales.
13. STOCKS 1997 1996 ----- ----- (POUND STERLING)`000 (POUND STERLING)`000 Goods for resale.............. 11,479 12,037 ------ ------ 14. DEBTORS
1997 1996 ------ ----- (POUND STERLING)`000(POUND STERLING)`000 Trade debtors........................................................... 98 282 Amounts owed by the Parent and its subsidiary undertakings.............. 2,846 1,110 Other debtors........................................................... 288 431 Corporation tax recoverable............................................. -- 92 Prepayments............................................................. 7,452 6,644 ------ ----- 10,684 8,559 ====== =====
F-35 15. CREDITORS; AMOUNTS FALLING DUE WITHIN ONE YEAR
1997 1996 ---- ----- (POUND STERLING) `000(POUND STERLING)`000 Trade creditors......................................................... 15,039 15,457 Amounts owed to the Parent and its subsidiary undertakings.............. 11,123 5,933 Other taxation and social security...................................... 902 276 Other creditors and accruals............................................ 2,102 1,495 Corporation tax......................................................... 2,188 1,573 ------ ------ 31,354 24,734 ====== ====== 16. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 1997 1996 ---- ---- (POUND STERLING)`000 (POUND STERLING)`000 Amounts owed to the parent and its subsidiary undertakings............... -- 12,500 ----- ------ 17. PROVISIONS FOR LIABILITIES AND CHARGES DEFERRED TAXATION ------------ (POUND STERLING)`000 At 1 July 1996................................................................ 2,057 Charge for the year........................................................... 500 ----- At 30 June 1997............................................................... 2,557 ===== The amounts provided for deferred taxation and the full potential liability are set out below. 1997 1996 ----- ----- (POUND STERLING)`000 (POUND STERLING)`000 Accelerated capital allowances..................................... 2,559 2,094 Short term timing differences...................................... (2) (37) Chargeable gains rolled over....................................... 73 73 ----- ----- Full potential liability........................................... 2,630 2,130 Amounts provided in financial statements........................... (2,557) (2,057) ----- ----- Amounts for which no provisions have been made..................... 73 73 ===== =====
F-36 18. CALLED UP SHARE CAPITAL
1997 1996 ------ ----- (POUND STERLING)`000(POUND STERLING)`000 AUTHORIZED, ALLOTTED, CALLED UP AND FULLY PAID: 1,050,000 ordinary shares of (Pound Sterling) 1 each............. 1,050 1,050 ----- ----- 19. RESERVES CONSOLIDATED GOODWILL PROFIT GOODWILL WRITE OFF CAPITAL AND LOSS RESERVE RESERVE RESERVE ACCOUNT --------- -------- --------- -------- (POUND STERLING)`000 (POUND STERLING)`000 (POUND STERLING)`000 (POUND STERLING)`000 At 1 July 1996................................ (715) (582) 4,587 (245) Goodwill written off.......................... -- (130) -- -- Goodwill transferred to profit and loss account................................... -- 32 -- (32) Retained profit for the year.................. -- -- -- 12,943 --- --- ----- ------ At 30 June 1997............................... (715) (680) 4,587 12,666 === === ===== ====== 20. CASH FLOW NOTES (a) Reconciliation of operating profit to net cash inflow from operating activities: 1997 1996 1995 ------ ------ ------ (POUND STERLING)`000(POUND STERLING)`000(POUND STERLING)`000 Operating profit.................................. 7,705 7,318 5,807 Depreciation...................................... 3,343 2,659 1,619 Decrease/(increase) in stocks..................... 558 (3,921) (855) (Increase)/decrease in debtors.................... (210) (3,170) (1,957) (Decrease)/Increase in creditors.................. (402) 8,164 1,473 ------ ------ ----- 10,994 11,050 6,087 ====== ====== ===== (b) Analysis of change in cash and cash equivalents during the year: CASH OVERDRAFT NET ------ ------- ------ (POUND STERLING)`000(POUND STERLING)`000(POUND STERLING)`000 Balance at 1 July 1994.......................... 1,247 -- 1,247 Net Cash inflow................................. (1,209) (1,334) (2,543) ----- ----- ----- Balance at 30 June 1995......................... 38 (1,334) (1,296) Net cash inflow................................. 2,710 1,334 4,044 ----- ----- ----- Balance at 30 June 1996......................... 2,748 -- 2,748 Net cash inflow................................. 2,920 -- 2,920 ----- ----- ----- Balance at 30 June 1997......................... 5,668 -- 5,668 ===== ===== =====
F-37 21. COMMITMENTS UNDER OPERATING LEASES Annual commitments under non-cancelable operating leases in respect of assets other than land and buildings are: 1997 ------ (POUND STERLING)`000 Commitments which expire Within one year................................ 669 Within two to five years....................... 1,602 After five years............................... 12,089 ------ 14,360 ====== 22. RELATED PARTY TRANSACTIONS In the three year period ended 30 June 1997 Lloyds Chemists plc charged the following management fees to the Group 1997 (Pound Sterling) Nil, 1996 (Pound Sterling) 362,000, 1995 (Pound Sterling) 430,000, representing the cost of central services, including legal, company secretarial, property maintenance and management, personnel and payroll services and data processing departments. Such fees are included within administrative expenses in the profit and loss account. 23. SUBSEQUENT EVENTS On 7 August 1997 the whole of the issued share capital of Holland & Barrett Holdings Limited was acquired by NBTY Inc. for an aggregate consideration of approximately $169 million. F-38 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. - -------------------------------------------------------------------------------- TABLE OF CONTENTS Summary....................................................................1 Risk Factors...............................................................14 The Exchange Offer.........................................................21 Use of Proceeds............................................................30 The Transaction............................................................30 Capitalization.............................................................31 Selected Historical Financial Data.........................................32 Unaudited Pro Forma Combined Financial Data................................35 Management's Discussion and Analysis of Financial Condition and Results of Operations..............................................41 Business...................................................................45 Management.................................................................55 Security Ownership of Certain Beneficial Owners and Management.............................................................57 Description of the Revolving Credit Facility...............................58 Certain Federal Income Tax Consequences....................................59 Description of the Exchange Notes..........................................60 Book-Entry; Delivery and Form..............................................86 Plan of Distribution.......................................................87 Legal Matters..............................................................88 Independent Accountants....................................................88 Available Information......................................................88 Incorporation of Certain Documents by Reference............................89 Index to Financial Statements..............................................F-1 PROSPECTUS $150,000,000 NBTY, INC. OFFER TO EXCHANGE 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B FOR ALL OUTSTANDING 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007 OF NBTY, INC. - -------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Reference is made to the Company's Certificate of Incorporation and to Section 145 of the Delaware General Corporation Law ("DGCL"). Section 145 of the DGCL authorizes a corporation to provide indemnification against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred, in non-derivative actions, suits or proceedings brought by third parties against an officer, director, employee or agent of the corporation, if such party acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful as determined in accordance with the statute. In a derivative action, i.e., one by or in the right of the corporation, indemnification may be made only for expenses actually and reasonably incurred by directors, officers, employees or agents in connection with the defense or settlement of an action or suit, and only with respect to a matter as to which they shall have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable to the corporation, unless and only to the extent that the Court in which the action or suit was brought shall determine upon application that the defendant directors, officers, employees or agents are fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability. The Company maintains officers and directors liability insurance. Further, the Company has agreed to indemnify all directors and officers of the Company for any claims made against them, subject to the following conditions. Such indemnification will not extend to certain claims, including claims based upon or attributable to the indemnitee's gaining personal profit or advantage to which he is not legally entitled, claims brought or contributed to by the dishonesty of the indemnitee and claims under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), for an accounting of profits resulting from the purchase or sale by the indemnitee of the Company's securities. Notwithstanding the foregoing, and insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"), may be permitted to directors, officers or personnel controlling the Company, in the opinion of the Securities and Exchange Commission (the "Commission"), such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or a controlling person of the Company in a successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person for liabilities arising under the Securities Act in connection with the securities being registered hereunder, the Company will, unless in the opinion of its counsel the issue has been settled by controlling precedent, submit to a court or appropriate jurisdiction the issue as to whether such indemnification by it is against public policy as expressed in the Securities Act and will comply with the final adjudication of such issue. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the II-1 question as to whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 21. EXHIBITS (a) The following is a complete list of exhibits filed as part of this Registration Statement, which are incorporated herein: 3.1 Amended and Restated Certificate of Incorporation of NBTY, Inc. 3.2 Amended and Restated By-Laws of NBTY, Inc. 4.1 Indenture, dated as of September 23, 1997, between NBTY, Inc. and IBJ Schroder Bank & Trust Company, as trustee, relating to $150,000,000 in aggregate principal amount of 8-5/8% Senior Subordinated Notes due 2007, Series A and Series B. 4.2 Specimen Certificate of 8-5/8% Senior Subordinated Notes due 2007, Series A ("Original Notes") (included in Exhibit 4.1 hereto). 4.3 Specimen Certificate of 8-5/8% Senior Subordinated Notes due 2007, Series B (the "Exchange Notes") (included in Exhibit 4.1 hereto). 4.4 Exchange and Registration Rights Agreement, dated as of September 23, 1997, by and between NBTY, Inc. and Chase Securities Inc. 5.1 Opinion of Kirkpatrick & Lockhart LLP regarding the validity of the Exchange Notes. 10.1 Credit and Guarantee Agreement, dated as of September 23, 1997, among NBTY, Inc., Holland & Barrett Holdings Limited and The Chase Manhattan Bank. 12.1 Statement of Computation of Ratio of Earnings to Fixed Charges. 21.1 Subsidiaries of NBTY, Inc. (included in Exhibit 10.1 hereto) 23.1 Consent of Kirkpatrick & Lockhart LLP (included in Exhibit 5.1). 23.2 Consent of Coopers & Lybrand L.L.P. 23.3 Consent of KPMG. 24.1 Power of Attorney of NBTY, Inc. (included on signature page to this Registration Statement on Form S-4). 25.1 Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture Act of 1939, as amended, of IBJ Schroder Bank & Trust Company. 99.1 Form of Letter of Transmittal and related documents to be used in conjunction with the Exchange Offer. II-2 (b) Financial Statement Schedules: None. ITEM 22. UNDERTAKINGS. (a) The undersigned Registrant hereby undertakes that insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim of indemnification against such liabilities (other than the payment by the Registrant of expenses incurred by the Registrant in the successful defense of any action, suit paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (d) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-3 SIGNATURES Pursuant to the requirements of the Securities Act, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Bohemia, State of New York on November 4, 1997. NBTY, INC. By: /s/ Scott Rudolph ---------------------------------- Scott Rudolph Chairman of the Board of Directors, President and Chief Executive Officer POWER OF ATTORNEY Know All Men By These Presents, that each person whose signature appears below constitutes and appoints Scott Rudolph and Harvey Kamil, and each of them, such person's true and lawful attorneys-in-fact and agents, with full power of substitution and revocation, for such person and in such person's name, place and stead, in any and all amendment (including post-effective amendments to this Registration Statement) and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and as of the dates indicated.
SIGNATURE TITLE DATE /s/ Scott Rudolph - ------------------------------- Chairman of the Board of November 4, 1997 Scott Rudolph Directors, President and Chief Executive Officer (Principal Executive Officer) /s/ Harvey Kamil - ------------------------------- Executive Vice President and November 4, 1997 Harvey Kamil Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Arthur Rudolph - ------------------------------- Director November 4, 1997 Arthur Rudolph /s/ Aram Garabedian - ------------------------------- Director November 4, 1997 Aram Garabedian /s/ Bernard Owen - ------------------------------- Director November 4, 1997 Bernard Owen /s/ Alfred Sacks - ------------------------------- Director November 4, 1997 Alfred Sacks /s/ Murray Daly - ------------------------------- Director November 4, 1997 Murray Daly /s/ Glenn Cohen Director November 4, 1997 - ------------------------------- Glenn Cohen /s/ Bud Solk Director November 4, 1997 - ------------------------------- Bud Solk /s/ Nathan Rosenblatt Director November 4, 1997 - ------------------------------- Nathan Rosenblatt
EX-3.1 2 EX-3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION NBTY INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: That a meeting of the Board of Directors of NBTY, Inc., a resolution was adopted in accordance with Section 245 of the General Corporation Law of the State of Delaware, restating and integrating all previously filed Certificate of Incorporation and Amendments thereto. The Restated Certificate of Incorporation does further amend the provisions of the Certificate of Incorporation as therefore amended or supplemented, and there is no discrepancy between those provisions and the provisions of the Restated Certificate of Incorporation. The date of incorporation is July 24, 1979. That thereafter, pursuant to resolution of its Board of Directors, an annual meeting of the stockholders of said corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment. The restated Certificate of Incorporation will read as follows: FIRST: The name of the incorporation is NBTY, INC. SECOND: Its registered office and place of business in the State of Delaware is to be located at 15 North Street in the City of Dover, County of Kent. The Registered Agent in charge thereof is Corporate Service Bureau, Inc. THIRD: The nature of the business and the objects and purposes proposed to be transacted, promoted and carried on are to do any and all things herein mentioned, as fully and to the same extent as natural persons might or could do, and in any part of the world, viz: The purpose of the corporation is to engage in any lawful act or activity for which corporation may be organized under the General Corporation Law of Delaware. FOURTH: The Corporation shall be authorized to issue Twenty-five Million (25,000,000) Common Shares at $0.008 Par value. FIFTH: The Directors shall have the power to make and to alter or amend the By-Laws; to fix the amount to be reserved as working capital, and to authorize and cause to be executed, mortgages and liens without limit as to the amount, upon the property and franchise of this Corporation. With the consent, in writing, and pursuant to a vote of the holders of a majority of the capital stock, issued and outstanding, the Directors shall have authority to dispose, in any manner, of the whole property of this Corporation. The By-Laws shall determine whether and to what extent the account and books of this Corporation, or any of them, shall be open to the inspection of the stockholders; no stockholder shall have any right of inspecting any account, or book, or document of this Corporation, except as conferred by the law or by the By-Laws, or by resolution of the stockholders. The stockholders and directors shall have power to hold their meetings and keep the books, documents and papers of the Corporation outside of the State of Delaware, at such places as may be, from time to time, designated by the By-Laws or by resolution of the stockholders or directors, except as otherwise required by the laws of Delaware. It is the intention that all objects, purposes and powers specified in the THIRD paragraph hereof, shall, except where otherwise specified in said paragraph, be nowise limited or restricted by reference to or interference from the terms of any other clause or paragraph in this Certification of Incorporation, but that the objects, purposes and powers specified in the THIRD paragraph and in each of the clauses or paragraphs of this charter shall be regarded as independent objects, purposes and powers. SIXTH: The Corporation shall, to the full extent permitted by Section 145 of the Delaware General Corporation Law, as amended from time to time, indemnify all persons whom it may indemnify pursuant thereto. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. SEVENTH: (1) "Affiliate" and "Associate" shall be determined pursuant to Rule 12b-2 (or any successor rule) of the General Rules and Regulations under the Securities Exchange Act of 1934. (2) "Beneficial Ownership" shall be determined pursuant to Rule 13d-3 (or any successor rule) of the General Rules and Regulations under the Securities Exchange Act of 1934 and shall include: (i) shares of stock which a Person has the right to acquire, hold or vote pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants, options or otherwise; and (ii) shares of stock which are beneficially owned, directly or indirectly (including shares deemed owned through application of the foregoing clause (i), by any Person (a) with which it or its 2 Affiliate or Associate has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of shares of stock of the corporation or (b) which is its Affiliate or Associate; (3) "Business Combination" shall include: (i) any merger or consolidation of the corporation with or into any other Related Person; (ii) the sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Related Person of any assets of the corporation or any subsidiary thereof having an aggregate fair market value of $15,000,000 or more; (iii) the issuance or transfer by the corporation or any subsidiary thereof (in one transaction or a series of transactions) of any securities of the corporation or any subsidiary thereof to any Related Person in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $15,000,000 or more; (iv) the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed by or on behalf of any Related Person; or (v) any reclassification or recapitalization of securities of the corporation if the effect, directly or indirectly, of such transaction is to increase the relative voting power of any Related Person; (4) "Continuing Director" shall mean a member of the Board of Directors of the corporation who was not affiliated with the Related Person and was a member of the Board of Directors prior to the time that the Related Person acquired the last shares of stock of the corporation entitling such Related Person to exercise, in the aggregate, in excess of ten (10%) percent of the total voting power of all classes of stock of the corporation entitled to vote in elections of directors, or a Person recommended to succeed a Continuing Director by a majority of Continuing Directors; (5) "Person" shall include any individual, corporation, partnership, person or other entity; and (6) "Related Person" shall mean any Person, together with any Affiliate or Associate of such Person, which has Beneficial Ownership, directly or indirectly, of shares of stock of the corporation entitling such Person to exercise more than ten (10%) percent of the total voting power of all classes of stock of the corporation entitled to vote in elections of directors, considered for the purposes of this Article SEVENTH as one class, together with the successors and assigns of any such Person in any transaction or series of transactions not involving a public offering of the corporations stock within the meaning of the Securities Act of 1933. 3 B. Unless the conditions set forth in subparagraphs (1) or (2) of this paragraph B are satisfied, the affirmative vote of not less than seventy-five (75%) percent of the outstanding shares of stock of the corporation entitled to vote in elections of directors, considered for the purposes of this Article SEVENTH as one class, shall be required for the adoption or authorization of a Business Combination with any Related Person. Such affirmative vote shall be required notwithstanding the fact that no vote, or a lesser percentage, may be required by law or in any agreement with any national securities exchange or otherwise, but such vote shall not be applicable if: (1) The definitive agreement or other arrangements to effectuate a Business Combination with a Related Person are approved by a majority of the Continuing Directors; such determination shall be made by a majority of the Continuing Directors even if such majority does not constitute a quorum of the members of the Board of Directors then in office; or (2) All of the following conditions are satisfied: (i) the cash and fair market value of the property, securities or other consideration (including, without limitation, stock of the corporation retained by its existing publicstockholders in the event of a Business Combination in which the corporation is the surviving corporation) to be received per share by the holders of each class or series of stock of the corporation in a Business Combination with a Related Person is not less than the highest per share price (including brokerage commissions and/or soliciting dealers fees) paid by such Related Person in acquiring any shares of such class or series, respectively; (ii) The consideration to be received by holders of a particular class of securities shall be in cash or in the same form as the Related Person has previously paid for shares of such class of stock. If the Related Person has paid for shares of any class of stock with varying forms of consideration, the form of consideration for such class of stock shall be either in cash or the form used to acquire the largest number of shares of such class of stock previously acquired by it; (iii) After a Person has become a Related Person and prior to the consummation of a Business Combination, except as approved by a majority of the Continuing Directors, there shall have been no reduction in the annual rate of dividends paid on shares of stock of the corporation (except as necessary to reflect any subdivision of such shares); (iv) The Related Person shall not have (a) received the benefit, directly or indirectly (except proportionately as a stockholder), or any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the corporation, or (b) made any major change in the corporation's 4 business or equity capital structures without the approval of a majority of the Continuing Directors, in either case prior to the consummation of the Business Combination, and (v) A proxy statement complying with the requirements of the Securities Exchange Act of 1934 shall be mailed to public stockholders of the corporation for the purpose of soliciting stockholder approval of the Business Combination and shall contain at the front thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the Business Combination which the Continuing Directors, or any of them, may choose to state and, if deemed advisable by a majority of the Continuing Directors, an opinion of a reputable investment banking firm as to the fairness (or not) of the terms of such Business Combination, from the point of view of the remaining public stockholders of the corporation (such investment banking firm to be selected by a majority of the Continuing Directors and to be paid a reasonable fee for their services by the corporation upon receipt of such opinion). The provisions of this Article SEVENTH shall also apply to a Business Combination with any Person which at any time has been a Related Person, notwithstanding the fact that such Person is no longer a Related Person, if, at any time the definitive agreement or other arrangements relating to a Business Combination with such Person was entered into, it was a related Person or it, as of the record date for the determination of stockholders entitled to notice of and to vote on the Business Combination, such Person is an Affiliate of the corporation. C. A majority of the Continuing Directors shall have the power and duty, consistent with the fiduciary obligations, to determine for the purpose of this Article SEVENTH, on the basis of information known to them, (1) whether any Person is a Related Person; (2) whether any Person is an Affiliate or Associate of another, (3) whether any Person has an agreement, arrangement, or understanding with another, or (4) the fair market value of property, securities or other consideration (other than cash) to be received by the holders of shares of stock of the corporation. The good faith determination of a majority of the Continuing Directors on such matters shall be binding and conclusive for purposes of this Article SEVENTH. D. Any corporate action which may be taken by the written consent of stockholders entitled to vote upon such action pursuant to this Restated Certificate of Incorporation or pursuant to Delaware General Corporation Law shall be only by the written consent of holders of not less than seventy-five 5 (75%) percent of the shares of stock of the corporation entitled to vote thereon, notwithstanding the fact that a lesser percentage may be required by law or otherwise. E. Any corporate action which may be taken at a special meting of stockholders called by the Board of Directors, a majority of which Board are not Continuing Directors, shall be only by the affirmative vote of the holders of not less than seventy-five (75%) percent of the outstanding shares of stock of the corporation entitled to vote in elections of directors, considered for the purposes of this Article SEVENTH as one class, notwithstanding the fact that a lesser percentage may be required by law or otherwise. F. Notwithstanding any other provision contained in this Restated Certificate of Incorporation, any action by stockholders to amend this Restated Certificate of Incorporation or the By-Laws of the corporation shall be made at a meeting of the stockholders called for that purpose and not by written consent. G. No amendment to the Certificate of Incorporation shall amend, alter, change or repeal any of the provisions of this Article SEVENTH, unless the amendment effecting such amendment, alteration, change or repeal shall receive the affirmative vote of not less than seventy-five (75%) percent of the shares of stock of the corporation entitled to vote in elections of directors, considered for the purposes of this Article SEVENTH as one class; provided that this paragraph G shall not apply to, and such seventy-five (75%) percent vote shall not be required for, any amendment, alteration, change or repeal recommended to the stockholders by a majority of the Continuing Directors. H. Nothing contained in this Article SEVENTH shall be construed to relieve the Board of Directors or any Related Person from a fiduciary obligation imposed by law. EIGHTH: That said amendment was duly adopted in accordance with the provisions of Section 245 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said NBTY, INC., has caused its corporate seal to be hereunto affixed and this Certificate to be signed by Scott Rudolph, its President, and Harvey Kamil, its Secretary, this 29th day of November, 1994. /S/ SCOTT RUDOLPH, PRESIDENT ---------------------------- Scott Rudolph, President /S/ HARVEY KAMIL, SECRETARY --------------------------- Harvey Kamil, Secretary 6 EX-3.2 3 EX-3.2 AMENDED AND RESTATED BY-LAWS OF NBTY, INC. ARTICLE I - OFFICES SECTION 1. REGISTERED OFFICE. - The registered office shall be established and maintained at 410 So. State Street, Dover in the County of Kent in the State of Delaware. SECTION 2. OTHER OFFICES. - The corporation may have other offices, either within or without the State of Delaware, at such place or places as the Board of Directors may from time to time appoint or the business of the corporation may require. ARTICLE II - MEETING OF STOCKHOLDERS SECTION 1. ANNUAL MEETINGS. - Annual meetings of stockholders for the election of directors, and for such other business as may be stated in the notice of the meeting, shall be held at such place, either within or without the State of Delaware, and at such times and date as the Board of Directors, by resolution, shall determine and as set forth in the notice of the meeting. At an annual meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been brought before the annual meeting (a) by, or at the direction of, the presiding officer of the annual meeting or (b) by any stockholder of the corporation who complies with the notice procedures set forth in this Section. For a proposal to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof, in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to, or mailed by registered or certified mail, return receipt requested, and received at, the principal executive offices of the corporation not less than 60 days nor more than 90 days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of that meeting to a later date; provided, however, that, if less than 70 days' notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the stockholder, to be timely, must be so delivered or received not later than the close of business on the tenth day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. A stockholder's notice to the Secretary shall set forth, as to each matter the stockholder proposes to bring before the annual meeting, (a) a brief description of the proposal desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (c) the class and number of shares of the corporation's stock that are beneficially owned by the stockholder on the date of such stockholder notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder notice, and (d) any financial interest of the stockholder in such proposal. The presiding officer of the annual meeting shall determine and declare at the annual meeting whether a stockholder proposal was made in accordance with the terms of this Section. If the presiding officer determines that a stockholder proposal was not made in accordance with the terms of this Section, he or she shall so declare at the annual meeting and any such proposal shall not be acted upon at the annual meeting. No business shall be conducted at an annual meeting, except in accordance with the procedures set forth in this Section. Nothing contained in this Section shall preclude the corporation from excluding from any proxy materials, to the extent permitted by the laws of the State of Delaware, any stockholder proposal of a type described in Rule 14a-8(c) under the Securities Exchange Act of 1934, as amended, or any successor or similar provision. SECTION 2. SPECIAL MEETINGS. - Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by law or by the Certificate of Incorporation, may be called at any time by a majority of the entire Board of Directors, the Chairman of the Board of Directors or the President of the corporation. Special meetings of the stockholders of the corporation may not be called by any other person or persons. Special meetings may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting. No business may be transacted at such meeting except that referred to in the notice thereof. SECTION 3. CONDUCT OF MEETINGS. - The Board of Directors may adopt by resolution such rules and regulations for the conduct of meetings of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the presiding officer of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding officer, are appropriate for the proper conduct of the meeting. Such rules, regulations and procedures, whether adopted by the Board of Directors or prescribed by the presiding officer of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) rules and procedures for maintaining order at the meeting and the safety of those present; (c) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the presiding officer of the meeting shall determine; (d) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (e) limitations on the time allotted to questions and/or comments by participants. Unless and to the extent determined by the Board of Directors or the presiding officer of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. SECTION 4. VOTING. - Each stockholder entitled to vote in accordance with the terms and provisions of the Certificate of Incorporation and these By-Laws shall be entitled to one vote, in person or by proxy, for each share of 2 stock entitled to vote held by such stockholder. The vote for directors and upon any question before the meeting shall be by ballot. All elections for directors shall be deiced by plurality vote; all other questions shall be decided by majority affirmative vote, except as otherwise provided by the Certificate of Incorporation or required by the laws of the State of Delaware. SECTION 5. PROXIES. - Any stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for him, her or it by proxy, but no such proxy shall be voted after three years from its date, unless the proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for him, her or it as proxy, the foregoing shall constitute a valid means by which a stockholder may grant such authority; (a) a stockholder may execute a writing authorizing another person or persons to act for him, her or it as proxy; execution may be accomplished by the stockholder or his, her or its authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile signature; and (b) a stockholder may authorize another person or persons to act for him, her or it as proxy by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. It if is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission required by the above may be submitted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction is a complete reproduction of the entire original writing or transmission. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. SECTION 6. STOCKHOLDER LIST. - The officer who has charge of the stock ledger of the corporation shall at least 10 days before each meeting of the stockholders prepare a complete alphabetical addressed list of the stockholders entitled to vote at the ensuing election, with the number of shares held by each. Said list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall be available for inspection at the meeting. 3 SECTION 7. QUORUM; ADJOURNMENT. - Except as otherwise required by law, by the Certificate of Incorporation or by these By-Laws, the presence, in person or by proxy, of stockholders holding a majority of the stock of the corporation entitled to vote shall constitute a quorum at all meetings of the stockholders. In case a quorum shall not be present at any meeting, the presiding officer of the meeting or a majority in interest of the stockholders entitled to vote thereat present in person or by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of stock entitled to vote shall be present. At any such adjourned meeting at which the requisite amount of stock entitled to vote shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed; but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof. In addition, the Board of Directors may adjourn a meeting of the stockholders if the Board of Directors determines that adjournment is necessary or appropriate in order to enable the stockholders (a) to consider fully information that the Board of Directors determine has not been made sufficiently or timely available to stockholders or (b) to otherwise effectively exercise their voting rights. SECTION 8. NOTICE OF MEETINGS. - Written notice, stating the place, date and time of the meeting, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat at his, her or its address as it appears on the records of the corporation, not less than 10 nor more than 60 days before the date of the meeting. SECTION 9. ACTION WITHOUT MEETING. - Except as otherwise provided by the Certificate of Incorporation, whenever the vote of stockholders at a meeting thereof is required or permitted to be taken in connection with any corporate action by any provisions of the statutes or the Certificate of Incorporation or of these By-Laws, the meeting and vote of stockholders may be dispensed with if all the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken. ARTICLE III - DIRECTORS SECTION 1. NUMBER AND TERM. - The number of directors shall be at least three and not more than nine, unless otherwise set by a resolution passed by a vote of Directors comprising seventy-five (75%) percent of the Board of Directors. The Board of Directors of the Company shall be divided into three classes of directors, in such manner as the Board of Directors in its sole discretion may determine, each class to be elected in annual sequences for terms of three years each after the implementation of the classes (or until their successors are duly elected and qualified). Until fully implemented, the term of the office of the first class shall expire at the annual meeting next ensuing; of the second class one year thereafter; of the third class two years thereafter; and at each annual election held after such classification and election, directors shall be chosen for a full term of three years. Vacancies which occur during the year may be filled by a majority of the Board of Directors in accordance with Section 6 of this Article III. 4 SECTION 2. NOMINATIONS. - Nominations of persons for election to the Board of Directors may be made at an annual meeting of stockholders (a) by or at the direction of the Board of Directors by any nominating committee or person appointed by the Board of Directors or (b) by any stockholder of the Corporation entitled to vote for the election of directors at the annual meeting who complies with the notice procedures set forth in this Section. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to, or mailed, by registered or certified mail, return receipt requested, and received at, the principal executive offices of the corporation not less than 60 days nor more than 90 days prior to the scheduled annual meeting, regardless of any postponements, deferrals or adjournments of the annual meeting to a later date; provided, however, that, if less than 70 days' notice or prior public disclosure of the date of the scheduled annual meeting is given or made, notice by the stockholder, to be timely, must be so delivered or received not later than the close of business on the tenth day following the earlier of the day on which such notice of the date of the scheduled annual meeting was mailed or the day on which such public disclosure was made. A stockholder's notice to the Secretary shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the corporation that are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for the election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, or any successor or similar provision, and (b) as to the stockholder giving notice, (i) the name and address, as they appear on the corporation's books, of the stockholder, and (ii) the class and number of shares of the corporation's stock that are beneficially owned by the stockholder on the date of such stockholder notice. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this Section. The presiding officer of the annual meeting shall determine, in his sole discretion, and declare at the annual meeting whether the nomination was made in accordance with the terms of this Section. If the presiding officer determines that a nomination was not made in accordance with the terms of this Section, he or she shall so declare at the annual meeting and any such defective nomination shall be disregarded. SECTION 3. RESIGNATIONS. - Any director, member of a committee or other officer may resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective. 5 SECTION 4. REMOVAL. - Any director or directors may be removed for cause at any time by the affirmative vote of the holders of a majority of all the shares of stock outstanding and entitled to vote, at a special meeting of the stockholders called for the purpose. SECTION 5. INCREASE OF NUMBER. - The number of directors may be increased by amendment of these By-Laws by the affirmative vote of seventy-five (75%) percent of the entire Board of Directors. SECTION 6. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. - Newly created directorships resulting from any increase in the authorized number of directors or any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification or removal from office for cause shall be filled only by the affirmative vote of seventy-five (75%) percent of the directors then in office, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which time the term of office of the class to which they have been elected expires and until such director's successor shall have been duly elected and qualified. If the office of any member of a committee becomes vacant, the remaining directors in office, though less than a quorum, by the affirmative vote of at least a majority of such directors, may appoint any qualified person to fill such vacancy. SECTION 7. COMPENSATION. - Unless otherwise restricted by the Certificate of Incorporation, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors any may be paid a fixed sum for attendance at each meeting of the Board of Directors and/or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 8. ACTION WITHOUT MEETING. - Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if, prior to such action, a written consent thereto is signed by all members of the Board of Directors, or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or such committee. ARTICLE IV -- OFFICERS SECTION 1. OFFICERS. - The Officers of the corporation shall consist of a President, a Treasurer, and a Secretary, and shall be elected by the Board of Directors and shall hold office until their successors are elected and qualified. In addition, the Board of Directors may elect a Chairman, one or more Vice-Presidents and such Assistant Secretaries and Assistant Treasurers as it may deem proper. None of the officers of the corporation need be directors. The officers shall be elected at the first meeting of the Board of Directors after each annual meeting. More than two offices may be held by the same person. 6 SECTION 2. OTHER OFFICERS AND AGENTS. - The Board of Directors may appoint such officers and agents as it may deem advisable, who shall hold their offices for such terms and shall exercise such power and perform such duties as shall be determined from time to time by the Board of Directors. SECTION 3. CHAIRMAN. - The Chairman of the Board of Directors, if one be elected, shall preside at all meetings of the Board of Directors and he shall have and perform such other duties as from time to time may be assigned to him by the Board of Directors. SECTION 4. PRESIDENT. - The president shall be the chief executive officer of the corporation and shall have the general powers and duties of supervision and management usually vested in the office of President of a Corporation. He shall preside at all meetings of the stockholders if present thereat, and in the absences or nonelection of the Chairman of the Board of Directors, at all meetings of the Board of Directors, and shall have general supervision, direction and control of the business of the corporation. Except as the Board of Directors shall authorize the execution thereof in some other manner, he shall execute bonds, mortgages, and other contracts on behalf of the corporation, and shall cause the seal to be affixed to any instrument requiring it and when so affixed the seal shall be attested by the signature of the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer. SECTION 5. VICE-PRESIDENT. - Each Vice-President shall have such power and shall perform such duties as shall be assigned to him by the directors. SECTION 6. TREASURER. -- The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the corporation. He shall deposit all moneys and other valuables in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors, or the President, taking proper vouchers for such disbursements. He shall render to the President and Board of Directors at the regular meetings of the Board of Directors, or whenever they may request it, an account of all his transactions as Treasurer and of the financial condition of the corporation. If required by the Board of Directors, he shall give the corporation a bond for the faithful discharge of his duties in such amount and with such surety as the board shall prescribe. SECTION 7. SECRETARY. - The Secretary shall give, or cause to be given, notice of all meetings of stockholders and directors, and all other notices required by law or by these By-Laws, and in case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the President, or by the directors, or stockholders, upon whose requisition the meeting is called as provided in these By-Laws. He shall record all the proceedings of the meeting of the corporation and of directors in a book to be kept for that purpose. He shall keep in safe custody the seal of the corporation, and when authorized by the Board of Directors, affix the same to any instrument requiring it, and when so affixed, it shall be attested by his signature or by the signature of any Assistant Secretary. 7 SECTION 8. ASSISTANT TREASURERS & ASSISTANT SECRETARIES. - Assistant Treasurers and Assistant Secretaries, if any, shall be elected and shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the directors. ARTICLE V - MISCELLANEOUS SECTION 1. CERTIFICATES OF STOCK. - Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the Chairman or Vice-Chairman of the Board of Directors, or the President or a Vice-President and the Treasurer or an Assistant Treasurer, or the Secretary of the corporation, certifying the number of shares owned by him, her or it in the corporation. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations, or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class of series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Where a certificate is countersigned (a) by a transfer agent other than the corporation or its employee or (b) by a registrar other than the corporation or its employee, the signature of such officers may be facsimiles. SECTION 2. LOST CERTIFICATES. - New certificates of stock may be issued in the place of any certificate previously issued by the corporation, alleged to have been lost or destroyed, and the directors may, in their discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the corporation a bond, in such sum as they may direct, not exceeding double the value of the stock, to indemnify the corporation against it on account of the alleged loss of any such new certificate. SECTION 3. TRANSFER OF SHARES. - The shares of stock of the corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to the corporation by the delivery thereof to the person in charge of the stock and transfer books and ledgers, or to such other persons as the directors may designate, by who they shall be canceled, and new certificates shall thereupon be issued. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer. SECTION 4. STOCKHOLDERS RECORD DATE. - In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate 8 action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 days nor less than 10 days before the day of such meeting, nor more than 60 days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 5. DIVIDENDS. - Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when they deem expedient. Before declaring any dividends there may be set apart out of any funds of the corporation available for dividends, such sum or sums as directors from time to time in their discretion deem proper working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conducive to the interest of the corporation. SECTION 6. SEAL. - The corporate seal shall be circular in form and shall contain the name of the corporation, the year of its creation and the words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. SECTION 7. FISCAL YEAR. - The fiscal year of the corporation shall be determined by resolution of the Board of Directors. SECTION 8. CHECKS. - All checks, drafts, or other orders for the payment of money, notes or other evidence of indebtedness issued in the name of the corporation shall be signed by the officer or officers, agent or agents of the corporation, and in such manner as shall be determined from time to time by resolution of the Board of Directors. SECTION 9. NOTICE AND WAIVER OF NOTICE. - Whenever, under applicable law or the Certificate of Incorporation or these By-Laws, notice is required to be given to any director or stockholder, such notice may be given by person, in writing, or by mail, telegram, facsimile, telecommunication or other electronic transmission, addressed to such director or stockholder, at his, her or its address as it appears on the records of the corporation. Notice shall be deemed to be given at the time when the same shall be (a) personally delivered, (b) guaranteed to be delivered, if transmitted timely to a third party company or governmental entity providing delivery services in the ordinary course of business, (c) deposited in the United States mail, postage prepaid, or (d) when electronically telecommunicated, each as the case may be. Notice to directors also may be given by telegram, telephone or mailgram. Whenever any notice is required to be given under applicable law or the Certificate of Incorporation or these By-Laws, a waiver thereof, in writing, signed by the person or persons entitled to said notice, whether before or after 9 the time stated therein, shall be deemed equivalent thereto. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by statute. SECTION 10. INVALID PROVISIONS. - If any part of these By-Laws shall be held invalid or inoperative for any reason, the remaining parts, so far as it is possible and reasonable, shall remain valid and operative. ARTICLE VI - AMENDMENTS These By-Laws may be altered and repealed and By-Laws may be made at any annual meeting of the stockholders, or at any special meeting thereof if notice thereof is contained in the notice of such special meeting, by the affirmative vote of seventy-five (75%) percent of the stock issued and outstanding or entitled to vote thereat. These By-Laws may be altered and repealed and By-Laws may be made at any regular meeting of the Board of Directors, or at any special meeting thereof of notice thereof is contained in the notice of such special meeting, by the affirmative vote of seventy-five (75%) percent of the entire Board of Directors EX-4.1 4 EX-4.1 ================================================================================ INDENTURE DATED AS OF SEPTEMBER 23, 1997 AMONG NBTY, INC., AS ISSUER, AND IBJ SCHRODER BANK & TRUST COMPANY, AS TRUSTEE ------------------ $150,000,000 8 5/8% SENIOR SUBORDINATED SECURITIES DUE 2007, SERIES A 8 5/8% SENIOR SUBORDINATED SECURITIES DUE 2007, SERIES B ================================================================================ CROSS-REFERENCE TABLE TRUST INDENTURE INDENTURE ACT SECTION SECTION - --------------- --------- Section 310(a)(1)............................................. 7.10 (a)(2).................................................. 7.10 (a)(3).................................................. N.A. (a)(4).................................................. N.A. (a)(5).................................................. 7.08, 7.10. (b)..................................................... 7.08; 7.10; 11.02 (c)..................................................... N.A. Section 311(a)................................................ 7.11 (b)..................................................... 7.11 (c)..................................................... N.A. Section 312(a)................................................ 2.05 (b)..................................................... 11.03 (c)..................................................... 11.03 Section 313(a)................................................ 7.06 (b)(1).................................................. 7.06 (b)(2).................................................. 7.06 (c)..................................................... 7.06; 11.02 (d)..................................................... 7.06 Section 314(a)................................................ 4.11; 4.12; 11.02 (b)..................................................... N.A. (c)(1).................................................. 11.04 (c)(2).................................................. 11.04 (c)(3).................................................. N.A. (d)..................................................... N.A. (e)..................................................... 11.05 (f)..................................................... N.A. Section 315(a)................................................ 7.01(b) (b)..................................................... 7.05; 11.02 (c)..................................................... 7.01(a) (d)..................................................... 7.01(c) (e)..................................................... 6.11 Section 316(a)(last sentence)................................. 2.09 (a)(1)(A)............................................... 6.05 (a)(1)(B)............................................... 6.04 (a)(2).................................................. N.A. (b)..................................................... 6.07 (c)..................................................... 10.04 Section 317(a)(1)............................................. 6.08 (a)(2).................................................. 6.09 (b)..................................................... 2.04 Section 318(a)................................................ 11.01 - ---------------- N.A. means Not Applicable. NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of this Indenture. TABLE OF CONTENTS Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions......................................................1 SECTION 1.02. Incorporation by Reference of Trust Indenture Act...............16 SECTION 1.03. Rules of Construction...........................................17 ARTICLE TWO THE SECURITIES SECTION 2.01. Form and Dating.................................................17 SECTION 2.02. Execution and Authentication....................................18 SECTION 2.03. Registrar and Paying Agent......................................18 SECTION 2.04. Paying Agent To Hold Assets in Trust............................19 SECTION 2.05. Holder Lists....................................................19 SECTION 2.06. Transfer and Exchange...........................................19 SECTION 2.07. Replacement Securities..........................................20 SECTION 2.08. Outstanding Securities..........................................20 SECTION 2.09. Treasury Securities.............................................21 SECTION 2.10. Temporary Securities............................................21 SECTION 2.11. Cancellation....................................................21 SECTION 2.12. Defaulted Interest..............................................21 SECTION 2.13. CUSIP Number....................................................22 SECTION 2.14. Deposit of Moneys...............................................22 SECTION 2.15. Book-Entry Provisions for Global Securities.....................22 SECTION 2.16. Registration of Transfers and Exchanges.........................23 ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee..............................................26 SECTION 3.02. Selection of Securities To Be Redeemed..........................26 SECTION 3.03. Notice of Redemption............................................27 SECTION 3.04. Effect of Notice of Redemption..................................27 SECTION 3.05. Deposit of Redemption Price.....................................28 SECTION 3.06. Securities Redeemed in Part.....................................28 -i- ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Securities...........................................28 SECTION 4.02. Maintenance of Office or Agency.................................28 SECTION 4.03. Transactions with Affiliates....................................29 SECTION 4.04. Limitation on Indebtedness......................................29 SECTION 4.05. Disposition of Proceeds of Asset Sales..........................30 SECTION 4.06. Limitation on Restricted Payments...............................32 SECTION 4.07. Corporate Existence.............................................33 SECTION 4.08. Limitation on the Sale or Issuance of Equity Interests of Subsidiaries...................................................34 SECTION 4.09. Notice of Defaults..............................................34 SECTION 4.10. Limitation on Liens.............................................34 SECTION 4.11. Compliance Certificate..........................................34 SECTION 4.12. Provision of Financial Information..............................34 SECTION 4.13. Limitations on Dividend and Other Payment Restrictions Affecting Subsidiaries.........................................35 SECTION 4.14. Offer to Purchase upon Change of Control........................36 SECTION 4.15. Limitation on Senior Subordinated Indebtedness..................36 ARTICLE FIVE MERGERS; SUCCESSOR CORPORATION SECTION 5.01. Mergers, Sale of Assets, etc....................................37 SECTION 5.02. Successor Corporation Substituted...............................37 ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default...............................................37 SECTION 6.02. Acceleration....................................................38 SECTION 6.03. Other Remedies..................................................39 SECTION 6.04. Waiver of Past Default..........................................39 SECTION 6.05. Control by Majority.............................................40 SECTION 6.06. Limitation on Suits.............................................40 SECTION 6.07. Rights of Holders To Receive Payment............................40 SECTION 6.08. Collection Suit by Trustee......................................40 SECTION 6.09. Trustee May File Proofs of Claim................................41 SECTION 6.10. Priorities......................................................41 SECTION 6.11. Undertaking for Costs...........................................41 ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee...............................................42 SECTION 7.02. Rights of Trustee...............................................43 -ii- SECTION 7.03. Individual Rights of Trustee....................................44 SECTION 7.04. Trustee's Disclaimer............................................44 SECTION 7.05. Notice of Defaults..............................................44 SECTION 7.06. Reports by Trustee to Holders...................................44 SECTION 7.07. Compensation and Indemnity......................................45 SECTION 7.08. Replacement of Trustee..........................................46 SECTION 7.09. Successor Trustee by Merger, etc................................46 SECTION 7.10. Eligibility; Disqualification...................................46 SECTION 7.11. Preferential Collection of Claims Against Company...............47 ARTICLE EIGHT SUBORDINATION OF SECURITIES SECTION 8.01. Securities Subordinated to Senior Indebtedness..................47 SECTION 8.02. Payment Over of Proceeds upon Dissolution, etc..................47 SECTION 8.03. No Payment on Securities in Certain Circumstances...............48 SECTION 8.04. Subrogation.....................................................49 SECTION 8.05. Obligations of Company Unconditional............................50 SECTION 8.06. Notice to Trustee...............................................50 SECTION 8.07. Reliance on Judicial Order or Certificate of Liquidating Agent..51 SECTION 8.08. Trustee's Relation to Senior Indebtedness.......................51 SECTION 8.09. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Indebtedness.....................51 SECTION 8.10. Holders Authorize Trustee To Effectuate Subordination of Securities....................................................51 SECTION 8.11. This Article Not To Prevent Events of Default...................52 SECTION 8.12. Trustee's Compensation Not Prejudiced...........................52 SECTION 8.13. No Waiver of Subordination Provisions...........................52 SECTION 8.14. Subordination Provisions Not Applicable to Money Held in Trust for Holders; Payments May Be Paid Prior to Dissolution.........52 SECTION 8.15. Acceleration of Securities......................................52 ARTICLE NINE DISCHARGE OF INDENTURE SECTION 9.01. Termination of Company's Obligations............................53 SECTION 9.02. Conditions to Legal Defeasance or Covenant Defeasance...........53 SECTION 9.03. Application of Trust Money; Trustee Acknowledgment and Indemnity......................................................54 SECTION 9.04. Repayment to Company............................................55 SECTION 9.05. Reinstatement...................................................55 ARTICLE TEN AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 10.01. Without Consent of Holders.....................................55 SECTION 10.02. With Consent of Holders........................................56 SECTION 10.03. Compliance with Trust Indenture Act............................57 SECTION 10.04. Record Date for Consents and Effect of Consents................57 -iii- SECTION 10.05. Notation on or Exchange of Securities..........................57 SECTION 10.06. Trustee To Sign Amendments, etc................................58 SECTION 10.07. Certain Amendments.............................................58 ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. Trust Indenture Act Controls...................................58 SECTION 11.02. Notices........................................................58 SECTION 11.03. Communications by Holders with Other Holders...................59 SECTION 11.04. Certificate and Opinion as to Conditions Precedent.............60 SECTION 11.05. Statements Required in Certificate.............................60 SECTION 11.06. Rules by Trustee, Paying Agent, Registrar......................60 SECTION 11.07. Governing Law..................................................60 SECTION 11.08. No Recourse Against Others.....................................60 SECTION 11.09. Successors.....................................................61 SECTION 11.10. Counterpart Originals..........................................61 SECTION 11.11. Severability...................................................61 SECTION 11.12. No Adverse Interpretation of Other Agreements..................61 SECTION 11.13. Legal Holidays.................................................61 SIGNATURES...................................................................S-1 EXHIBIT A Form of Series A Security.........................................A-1 EXHIBIT B Form of Series B Security.........................................B-1 EXHIBIT C Form of Legend for Global Securities..............................C-1 EXHIBIT D Form of Transfer Certificate......................................D-1 EXHIBIT E Form of Transfer Certificate for Institutional Accredited Investors........................................................E-1 - ----------------- NOTE: This Table of Contents shall not, for any purpose, be deemed to be a part of this Indenture. -iv- INDENTURE dated as of September 23, 1997, among NBTY, INC., a Delaware corporation (the "COMPANY"), and IBJ Schroder Bank & Trust Company, as trustee (the "TRUSTEE"). Each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the Securities: ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. DEFINITIONS. "ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (a) assumed in connection with an Acquisition from such Person or (b) existing at the time such Person becomes a Subsidiary of the Company or is merged or consolidated with or into the Company or any Subsidiary of the Company. "ACQUIRED PERSON" means, with respect to any specified Person, any other Person which merges with or into or becomes a Subsidiary of such specified Person. "ACQUISITION" means (i) any capital contribution (by means of transfers of cash or other property to others or payments for property or services for the account or use of others, or otherwise) by the Company or any Subsidiary of the Company to any other Person, or any acquisition or purchase of Equity Interests of any other Person by the Company or any Subsidiary of the Company, in either case pursuant to which such Person shall become a Subsidiary of the Company or shall be consolidated with or merged into the Company or any Subsidiary of the Company or (ii) any acquisition by the Company or any Subsidiary of the Company of the assets of any Person which constitute substantially all of an operating unit or line of business of such Person or which is otherwise outside of the ordinary course of business. "AFFILIATE" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "CONTROL" (including, with correlative meanings, the terms "CONTROLLING," "CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "AFFILIATE TRANSACTION" has the meaning provided in Section 4.03. "AGENT" means any Registrar, Paying Agent or co-Registrar. "ASSET SALE" means any direct or indirect sale, conveyance, transfer, lease (that has the effect of a disposition) or other disposition (including, without limitation, any merger, consolidation or sale-leaseback transaction) to any Person other than the Company, in one transaction or a series of related transactions, of (i) any Equity Interest of any Subsidiary of the Company (other than directors' qualifying shares, to the extent mandated by applicable law); (ii) any assets of the Company or any Subsidiary of the Company which constitute substantially all of an operating unit or line of business of the Company or any Subsidiary of the Company; or (iii) any other property or asset of the Company or any Subsidiary of the Company outside of the ordinary course of business (including the receipt of proceeds paid on account of the loss of or damage to any property or asset and awards of compensation for any asset taken by condemnation, eminent domain or similar proceedings). For the purposes of this definition the term "Asset Sale" shall not include (a) any transaction consummated in compliance with Article 5 and the creation of any Lien not prohibited by Section 4.10; (b) sales of property or equipment that has become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any Subsidiary of the Company, as the case may be; and (c) any transaction consummated in compliance with Section 4.06. In addition, solely for purposes of Section 4.05, any sale, conveyance, transfer, lease or other disposition of (i) the Company's cosmetic pencil business or (ii) any property or asset, whether in one transaction or a series of related transactions, involving assets with a Fair Market Value not in excess of $100,000 in any fiscal year shall be deemed not to be an Asset Sale. "ATTRIBUTABLE INDEBTEDNESS" in respect of a Sale and Lease-Back Transaction means, as at the time of determination, the present value (discounted according to GAAP at the cost of indebtedness implied in the lease) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Lease-Back Transaction (including any period for which such lease has been extended). "BANKRUPTCY LAW" has the meaning provided in Section 6.01. "BOARD OF DIRECTORS" means the Board of Directors of the Company or any authorized committee of such Board of Directors. "BOARD RESOLUTION" means, with respect to any Person, a duly adopted resolution of the Board of Directors of such Person. "CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be so required to be capitalized on the balance sheet in accordance with GAAP. "CASH EQUIVALENTS" means: (a) U.S. dollars; (b) securities issued or directly and fully guaranteed or insured by the U.S. government or any agency or instrumentality thereof having maturities of not more than six months from the date of acquisition; (c) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $500 million; (d) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (b) and (c) above entered into with any financial institution meeting the qualifications specified in clause (c) above; (e) commercial paper rated P-1, A-1 or the equivalent thereof by Moody's Investors Service, Inc. or Standard & Poor's Corporation, respectively, and in each case maturing within six months after the date of acquisition; and (f) in the case of any Subsidiary of the Company whose jurisdiction of incorporation is not the United States or any state thereof or the District of Columbia, Investments: (i) in direct obligations of the sovereign nation (or any agency thereof) in which such foreign Subsidiary is organized and is conducting business or in obligations fully and unconditionally guaranteed by such sovereign nation (or any agency thereof) or (ii) of the type and maturity described in clauses (a) and (b) above of foreign obligors, which Investment or obligors (or the parents of such obligors) have ratings described in such clauses or equivalent ratings from comparable foreign rating agencies. "CHANGE OF CONTROL" means the occurrence of any of the following events (whether or not approved by the Board of Directors of the Company): (i) any Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act, including any group acting for the purpose of acquiring, holding or disposing of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than one or more Permitted Holders, is or becomes the "beneficial owner" (as 2 defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all shares that any such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, upon the happening of an event or otherwise), directly or indirectly, of more than 35% of the total voting power of the then outstanding Voting Equity Interests of the Company; (ii) the Company consolidates with, or merges with or into, another Person (other than a Wholly Owned Subsidiary) or the Company or any of its Subsidiaries sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of the assets of the Company and its Subsidiaries (determined on a consolidated basis) to any Person (other than the Company or any Wholly Owned Subsidiary), other than any such transaction where immediately after such transaction the Person or Persons that "beneficially owned" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have "beneficial ownership" of all securities that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time, upon the happening of an event or otherwise), immediately prior to such transaction, directly or indirectly, a majority of the total voting power of the then outstanding Voting Equity Interests of the Company "beneficially own" (as so determined), directly or indirectly, a majority of the total voting power of the then outstanding Voting Equity Interests of the surviving or transferee Person; (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company was approved by a vote of a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of the Company then in office; or (iv) the Company is liquidated or dissolved or adopts a plan of liquidation or dissolution other than in a transaction which complies with the provisions described in Article 5. "CHANGE OF CONTROL DATE" has the meaning provided in Section 4.14. "COMPANY" means the Person named as the "Company" in the first paragraph of this Indenture until a successor shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor. "COMPANY REQUEST" or "COMPANY ORDER" means a written request or order signed in the name of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President, a Vice President or its Treasurer, and by an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "CONSOLIDATED COVERAGE RATIO" as of any date of determination means the ratio of (i) the aggregate amount of Consolidated EBITDA for the four quarter period of the most recent four consecutive fiscal quarters ending prior to the date of such determination (the "Four Quarter Period") to (ii) Consolidated Interest Expense for such Four Quarter Period; PROVIDED, HOWEVER, that (1) if the Company or any Subsidiary of the Company has incurred any Indebtedness since the beginning of such Four Quarter Period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such Four Quarter Period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such Four Quarter Period and the discharge of any other Indebtedness repaid, repurchased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such Four Quarter Period, (2) if since the beginning of such Four Quarter Period the Company or any Subsidiary of the Company shall have made any Asset Sale, the Consolidated EBITDA for such Four Quarter Period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) directly attributable to the assets that are the subject of such Asset Sale for such Four Quarter Period or increased by an amount equal to the Consolidated EBITDA (if negative) directly attributable thereto for such Four Quarter Period and Consolidated Interest Expense for such Four Quarter Period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Subsidiary of the Company repaid, repurchased or otherwise discharged with respect to the Company and the continuing Subsidiaries in connection with such Asset Sale for 3 such Four Quarter Period (or, if the Equity Interests of any Subsidiary of the Company are sold, the Consolidated Interest Expense for such Four Quarter Period directly attributable to the Indebtedness of such Subsidiary to the extent the Company and its continuing Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if since the beginning of such Four Quarter Period the Company or any Subsidiary of the Company (by merger or otherwise) shall have made an Investment in any Subsidiary of the Company (or any Person that becomes a Subsidiary of the Company) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, Consolidated EBITDA and Consolidated Interest Expense for such Four Quarter Period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such Four Quarter Period and (4) if since the beginning of such Four Quarter Period any Person (that subsequently became a Subsidiary or was merged with or into the Company or any Subsidiary of the Company since the beginning of such Four Quarter Period) shall have made any Asset Sale or any Investment or acquisition of assets that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Subsidiary of the Company during such Four Quarter Period, Consolidated EBITDA and Consolidated Interest Expense for such Four Quarter Period shall be calculated after giving pro forma effect thereto as if such Asset Sale, Investment or acquisition of assets occurred on, with respect to any Investment or acquisition, the first day of such Four Quarter Period and, with respect to any Asset Sale, the day prior to the first day of such Four Quarter Period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in accordance with Regulation S-X under the Securities Act as in effect on the date of such calculation. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any agreement under which Interest Rate Protection Obligations are outstanding applicable to such Indebtedness if such agreement under which such Interest Rate Protection Obligations are outstanding has a remaining term as at the date of determination in excess of 12 months); PROVIDED, HOWEVER, that the Consolidated Interest Expense of the Company attributable to interest on any Indebtedness Incurred under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the Four Quarter Period. "CONSOLIDATED EBITDA" means, for any period, the Consolidated Net Income for such period, plus the following to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Income Tax Expense for such period; (ii) Consolidated Interest Expense for such period; and (iii) Consolidated Non-cash Charges for such period less (A) all non-cash items increasing Consolidated Net Income for such period and (B) all cash payments during such period relating to non-cash charges that were added back in determining Consolidated EBITDA in any prior period. "CONSOLIDATED INCOME TAX EXPENSE" means, with respect to the Company for any period, the provision for Federal, state, local and foreign income taxes payable by the Company and its Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED INTEREST EXPENSE" means, with respect to the Company for any period, without duplication, the sum of (i) the interest expense of the Company and its Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount, (b) the net cost under Interest Rate Protection Obligations (including any amortization of discounts), (c) the interest portion of any deferred payment obligation, (d) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (e) all capitalized interest and all accrued interest, (f) non-cash interest expense and (g) interest on indebtedness of another Person that is guaranteed by the Company or any Subsidiary of the Company actually paid by the Company or any Subsidiary of the Company and (ii) the interest component of 4 Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company and the Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED NET INCOME" means, for any period, the consolidated net income (loss) of the Company and its Subsidiaries; PROVIDED, HOWEVER, that there shall not be included in such Consolidated Net Income: (i) any net income (loss) of any Person if such person is not a Subsidiary of the Company, except the Company's equity in a net loss of any such Person for such period shall be included in determining such Consolidated Net Income; (ii) any net income (loss) of any person acquired by the Company or a Subsidiary of the Company in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income (but not loss) of any Subsidiary of the Company if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Subsidiary, directly or indirectly, to the Company to the extent of such restrictions; (iv) any gain or loss realized upon the sale or other disposition of any asset of the Company or its Subsidiaries (including pursuant to any Sale and Lease-Back Transaction) outside of the ordinary course of business including, without limitation, on or with respect to Investments (and excluding dividends, distributions or interest thereon); (v) any extraordinary gain or loss; (vi) the cumulative effect of a change in accounting principles after the Issue Date; and (vii) any restoration to income of any contingency reserve of an extraordinary, non-recurring or unusual nature, except to the extent that provision for such reserve was made out of Consolidated Net Income accrued at any time following the Issue Date. "CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any period the sum of (A) depreciation, (B) amortization and (C) other non-cash expenses of such Person and its Subsidiaries reducing Consolidated Net Income of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding, for purposes of clause (C) only, such charges which require an accrual of or a reserve for cash charges for any future period). "CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the Trustee specified in Section 11.02 or such other address as the Trustee may give notice to the Company. "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Subsidiary of the Company against fluctuations in currency values. "CUSTODIAN" has the meaning provided in Section 6.01. "DEFAULT" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "DEFEASANCE TRUST PAYMENT" has the meaning provided in Section 8.02. "DEPOSITORY" means, with respect to the Securities issued in the form of one or more Global Securities, The Depository Trust Company or another Person designated as Depository by the Company, which must be a clearing agency registered under the Exchange Act. "DESIGNATED SENIOR INDEBTEDNESS" means (a) any Indebtedness outstanding under the Revolving Credit Facility and (b) any other Senior Indebtedness which, at the time of determination, has an aggregate principal amount outstanding, together with any commitments to lend additional amounts, of at least $25.0 million, if the instrument governing such Senior Indebtedness expressly states that such Indebtedness is "Designated Senior Indebtedness" for purposes of this Indenture and a Board Resolution setting forth such designation by the Company has been filed with the Trustee. 5 "DISPOSITION" means, with respect to any Person, any merger, consolidation or other business combination involving such Person (whether or not such Person is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of such Person's assets. "DISQUALIFIED EQUITY INTEREST" means any Equity Interest which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable, at the option of the holder thereof, in whole or in part, or exchangeable into Indebtedness on or prior to the earlier of the maturity date of the Securities or the date on which no Securities remain outstanding. "EQUITY INTEREST" in any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock or other equity participations, including partnership interests, whether general or limited, in such Person, including any Preferred Equity Interests. "EVENT OF DEFAULT" has the meaning provided in Section 6.01. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated by the SEC thereunder. "EXCHANGE SECURITIES" means the 8 5/8% Senior Subordinated Notes due 2007, Series B, to be issued in exchange for the Initial Securities pursuant to the Registration Rights Agreement. "EXPIRATION DATE" has the meaning set forth in the definition of "OFFER TO PURCHASE" below. "FAIR MARKET VALUE" means, with respect to any asset, the price (after taking into account any liabilities relating to such asset) which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing and able buyer, neither of which is under any compulsion to complete the transaction; PROVIDED, HOWEVER, that the Fair Market Value of any such asset shall be determined conclusively by the Board of Directors of the Company acting in good faith, and shall be evidenced by the resolutions of the Board of Directors of the Company delivered to the Trustee. "FINAL MATURITY DATE" means September 15, 2007. "FOUR QUARTER PERIOD" has the meaning set forth in the definition of "CONSOLIDATED COVERAGE RATIO" above. "GAAP" means, at any date of determination, generally accepted accounting principles in effect in the United States which are applicable at the date of determination and which are consistently applied for all applicable periods. "GLOBAL SECURITIES" means one or more 144A Global Securities or IAI Global Securities. "GUARANTEE" means, as applied to any obligation, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. 6 "HOLDERS" means the registered holders of the Securities. "IAI GLOBAL SECURITY" means a permanent global security in registered form representing the aggregate principal amount of Securities transferred after the Issue Date to Institutional Accredited Investors. "INCUR" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (including by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "INCURRENCE," "INCURRED" and "INCURRING" shall have meanings correlative to the foregoing). Indebtedness of any Acquired Person or any of its Subsidiaries existing at the time such Acquired Person becomes a Subsidiary of the Company (or is merged into or consolidated with the Company or any Subsidiary of the Company), whether or not such Indebtedness was Incurred in connection with, as a result of, or in contemplation of, such Acquired Person becoming a Subsidiary of the Company (or being merged into or consolidated with the Company or any Subsidiary of the Company), shall be deemed Incurred at the time any such Acquired Person becomes a Subsidiary of the Company or merges into or consolidates with the Company or any Subsidiary of the Company. "INDEBTEDNESS" means (without duplication), with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (a) every obligation of such Person for money borrowed; (b) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (c) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person; (d) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable Incurred in the ordinary course of business and payable in accordance with industry practices, or other accrued liabilities arising in the ordinary course of business); (e) every Capital Lease Obligation of such Person; (f) every net obligation under Interest Rate Protection Obligations or similar agreements or Currency Agreements of such Person; (g) Attributable Indebtedness; (h) every obligation of the type referred to in clauses (a) through (g) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable for, directly or indirectly, as obligor, guarantor or otherwise; and (i) any and all deferrals, renewals, extensions and refundings of, or amendments, modifications or supplements to, any liability of the kind described in any of the preceding clauses (a) through (h) above. Indebtedness (i) shall not be calculated taking into account any cash and cash equivalents held by such Person; (ii) shall not include obligations of any Person (x) arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds in the ordinary course of business, provided that such obligations are extinguished within two Business Days of their incurrence, (y) resulting from the endorsement of negotiable instruments for collection in the ordinary course of business and consistent with past business practices and (z) under stand-by letters of credit to the extent collateralized by cash or Cash Equivalents; (iii) which provides that an amount less than the principal amount thereof shall be due upon any declaration of acceleration thereof shall be deemed to be Incurred or outstanding in an amount equal to the accreted value thereof at the date of determination; (iv) shall include the liquidation preference and any mandatory redemption payment obligations in respect of any Disqualified Equity Interests of the Company or any Subsidiary of the Company; and (v) shall not include obligations under performance bonds, performance guarantees, surety bonds and appeal bonds, letters of credit or similar obligations, incurred in the ordinary course of business. "INDENTURE" means this Indenture, as amended or supplemented from time to time. "INDEPENDENT FINANCIAL ADVISOR" means a nationally recognized accounting, appraisal, investment banking firm or consultant (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct 7 or indirect financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "INITIAL PURCHASER" means Chase Securities Inc. "INITIAL SECURITIES" means the 8 5/8% Senior Subordinated Notes due 2007, Series A, of the Company. "INSOLVENCY OR LIQUIDATION PROCEEDING" means, with respect to any Person, any liquidation, dissolution or winding up of such Person, or any bankruptcy, reorganization, insolvency, receivership or similar proceeding with respect to such Person, whether voluntary or involuntary. "INSTITUTIONAL ACCREDITED INVESTOR" means an institution that is an "accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "INTEREST" means, with respect to the Securities, the sum of any cash interest and any Liquidated Damages on the Securities. "INTEREST PAYMENT DATE" means each semiannual interest payment date on March 15 and September 15 of each year, commencing March 15, 1998. "INTEREST RATE PROTECTION OBLIGATIONS" means, with respect to any Person, the Obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "INTEREST RECORD DATE" for the interest payable on any Interest Payment Date (except a date for payment of defaulted interest) means the March 1 or September 1 (whether or not a Business Day), as the case may be, immediately preceding such Interest Payment Date. "INVESTMENT" means, with respect to any Person, any direct or indirect loan, advance, guarantee or other extension of credit or capital contribution to (by means of transfers of cash or other property or assets to others or payments for property or services for the account or use of others, or otherwise), or purchase or acquisition of capital stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. For purposes of Section 4.06, the amount of any Investment shall be the original cost of such Investment, plus the cost of all additions thereto, but without any other adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment; reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; PROVIDED, HOWEVER, that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. In determining the amount of any Investment involving a transfer of any property or asset other than cash, such property shall be valued at its fair market value at the time of such transfer, as determined in good faith by the Board of Directors (or comparable body) of the Person making such transfer. "ISSUE DATE" means the original issue date of the Securities, September 23, 1997. "LIEN" means any lien, mortgage, charge, security interest, hypothecation, assignment for security or encumbrance of any kind (including any conditional sale or capital lease or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). 8 "LIQUIDATED DAMAGES" has the meaning provided in Section 3(a) of the Registration Rights Agreement. "MATURITY DATE" means the date, which is set forth on the face of the Securities, on which the Securities will mature. "NET CASH PROCEEDS" means the aggregate proceeds in the form of cash or Cash Equivalents received by the Company or any Subsidiary of the Company in respect of any Asset Sale, including all cash or Cash Equivalents received upon any sale, liquidation or other exchange of proceeds of Asset Sales received in a form other than cash or Cash Equivalents, net of (a) the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof; (b) taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements); (c) amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale; (d) amounts deemed, in good faith, appropriate by the Board of Directors of the Company to be provided as a reserve, in accordance with GAAP, against any liabilities associated with such assets which are the subject of such Asset Sale; including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an Officers' Certificate delivered to the Trustee (provided that the amount of any such reserves shall be deemed to constitute Net Cash Proceeds at the time such reserves shall have been reversed or are not otherwise required to be retained as a reserve); and (e) with respect to Asset Sales by Subsidiaries, the portion of such cash payments attributable to Persons holding a minority interest in such Subsidiary. "OBLIGATIONS" means any principal, interest (including, without limitation, Post-Petition Interest), penalties, fees, indemnifications, reimbursement obligations, damages and other liabilities payable under the documentation governing any Indebtedness. "OFFER" has the meaning set forth in the definition of "OFFER TO PURCHASE" below. "OFFER TO PURCHASE" means a written offer (the "OFFER") sent by or on behalf of the Company by first-class mail, postage prepaid, to each Holder at his address appearing in the register for the Securities on the date of the Offer offering to purchase up to the principal amount of Securities specified in such Offer at the purchase price specified in such Offer (as determined pursuant to this Indenture). Unless otherwise required by applicable law, the Offer shall specify an expiration date (the "EXPIRATION Date") of the Offer to Purchase, which shall be not less than 20 Business Days nor more than 60 days after the date of such Offer, and a settlement date (the "PURCHASE DATE") for purchase of Securities to occur no later than five Business Days after the Expiration Date. The Company shall notify the Trustee at least 15 Business Days (or such shorter period as is acceptable to the Trustee) prior to the mailing of the Offer of the Company's obligation to make an Offer to Purchase, and the Offer shall be mailed by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. The Offer shall contain all the information required by applicable law to be included therein. The Offer shall also contain information concerning the business of the Company and its Subsidiaries which the Company in good faith believes will enable such Holders to make an informed decision with respect to the Offer to Purchase (which at a minimum will include (i) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the documents required to be filed with the Trustee pursuant to this Indenture (which requirements may be satisfied by delivery of such documents together with the Offer), (ii) a description of material developments in the Company's business subsequent to the date of the latest of such financial statements referred to in clause (i) (including a description of the events requiring the Company to make the Offer to Purchase), (iii) if applicable, appropriate pro forma financial information concerning the Offer to Purchase and the events requiring the Company to make the Offer to Purchase and (iv) any other information required by applicable law to be included therein). The Offer 9 shall contain all instructions and materials necessary to enable such Holders to tender Securities pursuant to the Offer to Purchase. The Offer shall also state: (1) the Section of this Indenture pursuant to which the Offer to Purchase is being made; (2) the Expiration Date and the Purchase Date; (3) the aggregate principal amount of the outstanding Securities offered to be purchased by the Company pursuant to the Offer to Purchase (including, if less than 100%, the manner by which such amount has been determined pursuant to the Section of this Indenture requiring the Offer to Purchase) (the "PURCHASE AMOUNT"); (4) the purchase price to be paid by the Company for each $1,000 aggregate principal amount of Securities accepted for payment (as specified pursuant to this Indenture) (the "PURCHASE PRICE"); (5) that the Holder may tender all or any portion of the Securities registered in the name of such Holder and that any portion of a Security tendered must be tendered in an integral multiple of $1,000 principal amount; (6) the place or places where Securities are to be surrendered for tender pursuant to the Offer to Purchase; (7) that interest on any Security not tendered or tendered but not purchased by the Company pursuant to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date the Purchase Price will become due and payable upon each Security being accepted for payment pursuant to the Offer to Purchase and that interest thereon shall cease to accrue on and after the Purchase Date; (9) that each Holder electing to tender all or any portion of a Security pursuant to the Offer to Purchase will be required to surrender such Security at the place or places specified in the Offer prior to the close of business on the Expiration Date (such Security being, if the Company or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing); (10) that Holders will be entitled to withdraw all or any portion of Securities tendered if the Company (or its Paying Agent) receives, not later than the close of business on the fifth Business Day next preceding the Expiration Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Security the Holder tendered, the certificate number of the Security the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (11) that (a) if Securities in an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase all such Securities and (b) if Securities in an aggregate principal amount in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase Securities having an aggregate principal amount equal to the Purchase Amount on a PRO RATA basis (with such adjustments as may be deemed appropriate so that only Securities in 11 denominations of $1,000 principal amount or integral multiples thereof shall be purchased); and (12) that in the case of any Holder whose Security is purchased only in part, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unpurchased portion of the Security so tendered. An Offer to Purchase shall be governed by and effected in accordance with the provisions above pertaining to any Offer. "OFFICER" means the Chairman, any Vice Chairman, the President, any Vice President, the Chief Financial Officer, the Treasurer, or the Secretary of the Company. "OFFICERS' CERTIFICATE" means a certificate signed by two Officers or by an Officer and an Assistant Treasurer or Assistant Secretary of the Company complying with Sections 11.04 and 11.05. "144A GLOBAL SECURITY" means a permanent global security in registered form representing the aggregate principal amount of Securities sold in reliance on Rule 144A. "OPINION OF COUNSEL" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. Each such opinion shall include, if applicable, the statements provided for in TIA Section 314(c). "PARTICIPANT" has the meaning provided in Section 2.15. "PAYING AGENT" has the meaning provided in Section 2.03. "PERMITTED HOLDER" means Scott Rudolph and Arthur Rudolph and members of either of their immediate families and trusts of which such persons are the beneficiaries. "PERMITTED INDEBTEDNESS" has the meaning set forth in Section 4.04. "PERMITTED INVESTMENTS" means (a) Cash Equivalents; (b) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers' compensation, performance and other similar deposits; (c) Interest Rate Protection Obligations and Currency Agreements; (d) Investments received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers, in each case arising in the ordinary course of business; (e) Investments in the Company and direct or indirect loans, advances, guarantees or other extensions of credit in the ordinary course of business to or on behalf of a Subsidiary of the Company and cash Investments in a Person that, as a result of or in connection with such Investment, is merged with or into or consolidated with the Company or a Wholly Owned Subsidiary; (f) Investments paid for in Common Stock of the Company; and (g) loans or advances to officers or employees of the Company and its Subsidiaries in the ordinary course of business for bona fide business purposes of the Company and its Subsidiaries (including travel and moving expenses) not in excess of $1 million in the aggregate at any one time outstanding. "PERMITTED JUNIOR SECURITIES" means any securities of the Company or any other Person that are (i) equity securities without special covenants or (ii) debt securities expressly subordinated in right of payment to all Senior 11 Indebtedness that may at the time be outstanding, to substantially the same extent as, or to a greater extent than, the Securities are subordinated as provided in this Indenture, in any event pursuant to a court order so providing and as to which (a) the rate of interest on such securities shall not exceed the effective rate of interest on the Securities on the date of this Indenture, (b) such securities shall not be entitled to the benefits of covenants or defaults materially more beneficial to the holders of such securities than those in effect with respect to the Securities on the date of this Indenture and (c) such securities shall not provide for amortization (including sinking fund and mandatory prepayment provisions) commencing prior to the date six months following the final scheduled maturity date of the Senior Indebtedness (as modified by the plan of reorganization or readjustment pursuant to which such securities are issued). "PERMITTED LIENS" means (a) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company; PROVIDED, HOWEVER, that such Liens were in existence prior to the contemplation of such merger or consolidation and do not secure any property or assets of the Company or any Subsidiary of the Company other than the property or assets subject to the Liens prior to such merger or consolidation; (b) Liens imposed by law such as carriers', warehousemen's and mechanics' Liens and other similar Liens arising in the ordinary course of business which secure payment of obligations not more than 30 days past due or which are being contested in good faith and by appropriate proceedings; (c) Liens existing on the Issue Date and Liens in favor of the lenders under the Revolving Credit Facility; (d) Liens securing only the Securities; (e) Liens in favor of the Company or any Subsidiary of the Company; (f) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; PROVIDED, HOWEVER, that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (g) easements, reservation of rights of way, restrictions and other similar easements, licenses, restrictions on the use of properties, or minor imperfections of title that in the aggregate are not material in amount and do not in any case materially detract from the properties subject thereto or interfere with the ordinary conduct of the business of the Company and its Subsidiaries; (h) Liens resulting from the deposit of cash or notes in connection with contracts, tenders or expropriation proceedings, or to secure workers' compensation, surety or appeal bonds, costs of litigation when required by law and public and statutory obligations or obligations under franchise arrangements entered into in the ordinary course of business; (i) Liens securing Indebtedness consisting of Capitalized Lease Obligations, Purchase Money Indebtedness, mortgage financings, industrial revenue bonds or other monetary obligations, in each case incurred solely for the purpose of financing all or any part of the purchase price or cost of construction or installation of assets used in the business of the Company or its Subsidiaries, or repairs, additions or improvements to such assets; PROVIDED, HOWEVER, that (I) such Liens secure Indebtedness in an amount not in excess of the original purchase price or the original cost of any such assets or repair, addition or improvement thereto (plus an amount equal to the reasonable fees and expenses in connection with the incurrence of such Indebtedness), (II) such Liens do not extend to any other assets of the Company or its Subsidiaries (and, in the case of repair, addition or improvements to any such assets, such Lien extends only to the assets (and improvements thereto or thereon) repaired, added to or improved), (III) the Incurrence of such Indebtedness is permitted by Section 4.04 and (IV) such Liens attach within 90 days of such purchase, construction, installation, repair, addition or improvement; and (j) Liens to secure any refinancings, renewals, extensions, modifications or replacements (collectively, "REFINANCINGS") (or successive refinancings), in whole or in part, of any Indebtedness secured by Liens referred to in the clauses above so long as such Lien does not extend to any other property (other than improvements thereto). "PERSON" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, limited liability limited partnership, trust, unincorporated organization or government or any agency or political subdivision thereof. "PHYSICAL SECURITIES" means one or more certificated Securities in registered form. 12 "POST-PETITION INTEREST" means, with respect to any Indebtedness of any Person, all interest accrued or accruing on such Indebtedness after the commencement of any Insolvency or Liquidation Proceeding against such Person in accordance with and at the contract rate (including, without limitation, any rate applicable upon default) specified in the agreement or instrument creating, evidencing or governing such Indebtedness, whether or not, pursuant to applicable law or otherwise, the claim for such interest is allowed as a claim in such Insolvency or Liquidation Proceeding. "PREFERRED EQUITY INTEREST," in any Person, means an Equity Interest of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over Equity Interests of any other class in such Person. "PRINCIPAL" of a debt security means the principal of the security plus, when appropriate, the premium, if any, on the security. "PRIVATE EXCHANGE SECURITIES" has the meaning provided in Section 1 of the Registration Rights Agreement. "PRIVATE PLACEMENT LEGEND" means the legend initially set forth on the Initial Securities in the form set forth on EXHIBIT A hereto. "PROMISSORY NOTES" means the two promissory notes in the aggregate amount of approximately $169 million issued by the Company to Lloyds Chemists plc or its affiliates as consideration for the purchase by the Company of all of the outstanding capital stock of Holland & Barrett Holdings Ltd. "PUBLIC EQUITY OFFERING" means, with respect to the Company, an underwritten public offering of Qualified Equity Interests of the Company pursuant to an effective registration statement filed under the Securities Act (excluding registration statements filed on Form S-8). "PURCHASE AGREEMENT" means the Purchase Agreement dated as of September 17, 1997 by and between the Company and the Initial Purchaser. "PURCHASE AMOUNT" has the meaning set forth in the definition of "OFFER TO PURCHASE" above. "PURCHASE DATE" has the meaning set forth in the definition of "OFFER TO PURCHASE" above. "PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company or any Subsidiary of the Company Incurred for the purpose of financing in the ordinary course of business all or any part of the purchase price or the cost of construction or improvement of any property; PROVIDED, HOWEVER, that the aggregate principal amount of such Indebtedness does not exceed the lesser of the Fair Market Value of such property or such purchase price or cost, including any refinancing of such Indebtedness that does not increase the aggregate principal amount (or accreted amount, if less) thereof as of the date of refinancing. "PURCHASE PRICE" has the meaning set forth in the definition of "OFFER TO PURCHASE" above. "QUALIFIED EQUITY INTEREST" in any Person means any Equity Interest in such Person other than any Disqualified Equity Interest. "QUALIFIED INSTITUTIONAL BUYER" or "QIB" means a "qualified institutional buyer" as that term is defined in Rule 144A under the Securities Act. 13 "REDEMPTION DATE," when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture. "REDEMPTION PRICE," when used with respect to any Security to be redeemed, means the price fixed for such redemption pursuant to this Indenture as set forth in the form of Security annexed hereto as EXHIBIT A. "REGISTRAR" has the meaning provided in Section 2.03. "REGISTRATION" means a registered exchange offer for the Securities by the Company or other registration of the Securities under the Securities Act pursuant to and in accordance with the terms of the Registration Rights Agreement. "REGISTRATION RIGHTS AGREEMENT" means the Exchange and Registration Rights Agreement dated as of the Issue Date by and between the Company and the Initial Purchaser. "REPLACEMENT ASSETS" has the meaning provided in Section 4.05. "REQUIRED FILING DATES" has the meaning provided in Section 4.12. "RESTRICTED INVESTMENT" means any Investment other than a Permitted Investment. "RESTRICTED PAYMENTS" has the meaning provided in Section 4.06. "RESTRICTED SECURITY" has the meaning set forth in Rule 144(a)(3) under the Securities Act; PROVIDED, HOWEVER, that the Trustee shall be entitled to request and conclusively rely upon an Opinion of Counsel with respect to whether any Security is a Restricted Security. "REVOLVING CREDIT FACILITY" means the credit and guarantee agreement, dated as of the Issue Date, by and among the Company, the Subsidiaries of the Company identified on the signature pages thereof and any Subsidiary of the Company that is later added thereto, the lenders named therein, and The Chase Manhattan Bank, N.A. as Agent, as amended, including any deferrals, renewals, extensions, replacements, refinancings or refundings thereof, or amendments, modifications or supplements thereto and any agreement providing therefor, whether by or with the same or any other lender, creditor, group of lenders or group of creditors, and including related notes, guarantee and note agreements and other instruments and agreements executed in connection therewith. "RULE 144A" means Rule 144A under the Securities Act. "SALE AND LEASE-BACK TRANSACTION" means any arrangement with any Person providing for the leasing by the Company or any Subsidiary of the Company of any real or tangible personal property, which property has been or is to be sold or transferred by the Company or such Subsidiary to such Person in contemplation of such leasing. "SEC" or "COMMISSION" means the Securities and Exchange Commission. "SECURITIES" means, collectively, the Initial Securities, the Private Exchange Securities and the Unrestricted Securities treated as a single class of securities, as amended or supplemented from time to time in accordance with the terms of this Indenture. 14 "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations promulgated by the SEC thereunder. "SENIOR INDEBTEDNESS" means, at any date, (a) all Obligations of the Company under the Revolving Credit Facility; (b) all Interest Rate Protection Obligations of the Company and all Obligations of the Company under Currency Agreements; (c) all Obligations of the Company under stand-by letters of credit; and (d) all other Indebtedness of the Company, including principal, premium, if any, and interest (including Post-Petition Interest) on such Indebtedness, unless the instrument under which such Indebtedness of the Company is Incurred expressly provides that such Indebtedness for money borrowed is not senior or superior in right of payment to the Securities, and all renewals, extensions, modifications, amendments or refinancings thereof. Notwithstanding the foregoing, Senior Indebtedness shall not include (a) to the extent that it may constitute Indebtedness, any Obligation for Federal, state, local or other taxes; (b) any Indebtedness among or between the Company and any Subsidiary of the Company or any Affiliate of the Company or any of such Affiliate's Subsidiaries; (c) to the extent that it may constitute Indebtedness, any Obligation in respect of any trade payable Incurred for the purchase of goods or materials, or for services obtained, in the ordinary course of business; (d) that portion of any Indebtedness that is Incurred in violation of this Indenture; (e) Indebtedness evidenced by the Securities; (f) Indebtedness of the Company that is expressly subordinate or junior in right of payment to any other Indebtedness of the Company; (g) to the extent that it may constitute Indebtedness, any obligation owing under leases (other than Capitalized Lease Obligations) or management agreements; and (h) any obligation that by operation of law is subordinate to any general unsecured obligations of the Company. No Indebtedness shall be deemed to be subordinated to other Indebtedness solely because such other Indebtedness is secured. "SIGNIFICANT SUBSIDIARY" means, at any date of determination, (a) any Subsidiary of the Company that, together with its Subsidiaries (i) for the most recent fiscal year of the Company accounted for more than 10.0% of the consolidated revenues of the Company and its Subsidiaries or (ii) as of the end of such fiscal year, owned more than 10.0% of the consolidated assets of the Company and its Subsidiaries, all as set forth on the consolidated financial statements of the Company and its Subsidiaries for such year prepared in conformity with GAAP, and (b) any Subsidiary of the Company which, when aggregated with all other Subsidiaries of the Company that are not otherwise Significant Subsidiaries and as to which any event described in clause (h) or clause (i) of Section 6.01 has occurred, would constitute a Significant Subsidiary under clause (a) of this definition. "STATED MATURITY" means, when used with respect to any Security or any installment of interest thereon, the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable. "SUBORDINATED INDEBTEDNESS" means, with respect to the Company, any Indebtedness of the Company which is expressly subordinated in right of payment to the Securities. "SUBSIDIARY" means, with respect to any Person, (a) any corporation of which the outstanding Voting Equity Interests having at least a majority of the votes entitled to be cast in the election of directors shall at the time be owned, directly or indirectly, by such Person, or (b) any other Person of which at least a majority of Voting Equity Interests are at the time, directly or indirectly, owned by such first named Person. "SURVIVING PERSON" means, with respect to any Person involved in or that makes any Disposition, the Person formed by or surviving such Disposition or the Person to which such Disposition is made. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb), as amended, as in effect on the date of this Indenture (except as 15 provided in Section 10.03) until such time as this Indenture is qualified under the TIA, and thereafter as in effect on the date on which this Indenture is qualified under the TIA. "TRUSTEE" means the party named as such in the first paragraph of this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor, including, but not limited to, any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party as provided in Section 7.09. "TRUST OFFICER" means any officer within the corporate trust department (or any successor group of the Trustee) including any vice president, assistant vice president, assistant secretary or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at that time shall be such officers, and also means, with respect to a particular corporate trust matter, any other officer to whom such trust matter is referred because of his knowledge of and familiarity with the particular subject. "UNITED STATES GOVERNMENT OBLIGATIONS" means direct non-callable obligations of the United States of America for the payment of which the full faith and credit of the United States is pledged. "UNRESTRICTED SECURITIES" means one or more Securities that do not and are not required to bear the Private Placement Legend in the form set forth in EXHIBIT A hereto, including, without limitation, the Exchange Securities and any Securities registered under the Securities Act pursuant to and in accordance with the Registration Rights Agreement. "UNUTILIZED NET CASH PROCEEDS" has the meaning provided in Section 4.05(a). "VOTING EQUITY INTERESTS" means Equity Interests in a corporation or other Person with voting power under ordinary circumstances entitling the holders thereof to elect the Board of Directors or other governing body of such corporation or Person. "WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required scheduled payment of principal, including payment of final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding aggregate principal amount of such Indebtedness. "WHOLLY OWNED SUBSIDIARY" means any Subsidiary of the Company all of the outstanding Voting Equity Interests (other than directors' qualifying shares) of which are owned, directly or indirectly, by the Company. SECTION 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "COMMISSION" means the SEC. "INDENTURE SECURITIES" means the Securities. 16 "INDENTURE SECURITY HOLDER" means a Holder. "INDENTURE TO BE QUALIFIED" means this Indenture. "INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the Trustee. "OBLIGOR" on this Indenture securities means the Company or any other obligor on the Securities. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles in effect from time to time, and any other reference in this Indenture to "generally accepted accounting principles" refers to GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE TWO THE SECURITIES SECTION 2.01. FORM AND DATING. The Initial Securities and the Trustee's certificate of authentication thereof shall be substantially in the form of EXHIBIT A hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Exchange Securities and the Trustee's certificate of authentication thereof shall be substantially in the form of EXHIBIT B hereto, which is hereby incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. The Company and the Trustee shall approve the form of the Securities and any notation, legend or endorsement on them. Each Security shall be dated the date of its issuance and shall show the date of its authentication. Securities offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more Global Securities, substantially in the 17 form set forth in EXHIBIT A hereto, deposited with the Trustee, as custodian for the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legend set forth in EXHIBIT C hereto. The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. SECTION 2.02. EXECUTION AND AUTHENTICATION. Two Officers, or an Officer and an Assistant Secretary, shall sign, or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Securities for the Company by manual or facsimile signature. If an Officer or an Assistant Secretary whose signature is on a Security was an Officer or an Assistant Secretary, as the case may be, at the time of such execution but no longer holds that office at the time the Trustee authenticates the Security, the Security shall be valid nevertheless. A Security shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Security. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate (i) Initial Securities for original issue in an aggregate principal amount not to exceed $150,000,000, (ii) Private Exchange Securities from time to time only in exchange for a like principal amount of Initial Securities and (iii) Unrestricted Securities from time to time only in exchange for (A) a like principal amount of Initial Securities or (B) a like principal amount of Private Exchange Securities, in each case upon a written order of the Company in the form of an Officers' Certificate. Each such written order shall specify the amount of Securities to be authenticated and the date on which the Securities are to be authenticated, whether the Securities are to be Initial Securities, Private Exchange Securities or Unrestricted Securities and whether the Securities are to be issued as Physical Securities or Global Securities and such other information as the Trustee may reasonably request. The aggregate principal amount of Securities outstanding at any time may not exceed $150,000,000, except as provided in Sections 2.07 and 2.08. Notwithstanding the foregoing, all Securities issued under this Indenture shall vote and consent together on all matters (as to which any of such Securities may vote or consent) as one class and no series of Securities will have the right to vote or consent as a separate class on any matter. The Trustee may appoint an authenticating agent reasonably acceptable to the Company to authenticate Securities. Unless otherwise provided in the appointment, an authenticating agent may authenticate Securities whenever the Trustee may do so upon a written order of the Company in the form of an Officers' Certificate. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent shall have the same rights as an Agent to deal with the Company and Affiliates of the Company. The Securities shall be issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. SECTION 2.03. REGISTRAR AND PAYING AGENT. The Company shall maintain an office or agency, which may be in the Borough of Manhattan, The City of New York, where (a) Securities may be presented or surrendered for registration of transfer or for exchange (the "REGISTRAR"), (b) Securities may be presented or surrendered for payment (the "PAYING AGENT") and (c) notices and demands in respect of the Securities and this Indenture may be served. The Registrar shall keep a register of the 18 Securities and of their transfer and exchange. The Company, upon notice to the Trustee, may appoint one or more co-Registrars and one or more additional Paying Agents. The term "PAYING AGENT" includes any additional Paying Agent. Except as provided herein, the Company may act as Paying Agent, Registrar or co-Registrar. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall promptly notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such and shall be entitled to appropriate compensation and indemnification in accordance with Section 7.07. The Company initially appoints the Trustee as Registrar and Paying Agent until such time as the Trustee has resigned or a successor has been appointed pursuant to Section 7.08. SECTION 2.04. PAYING AGENT TO HOLD ASSETS IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Securities, and shall notify the Trustee of any Default by the Company in making any such payment. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent (if other than the Company), the Paying Agent shall have no further liability for such assets. If the Company or any of its Affiliates acts as Paying Agent, it shall, on or before each due date of the principal of or interest on the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. SECTION 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee before each Interest Record Date and at such other times as the Trustee may request in writing all information in the possession or control of the Company as to the names and addresses of Holders, which list may be conclusively relied upon by the Trustee. SECTION 2.06. TRANSFER AND EXCHANGE. Subject to the provisions of Sections 2.15 and 2.16, when Securities are presented to the Registrar or a co-Registrar with a request to register the transfer of such Securities or to exchange such Securities for an equal principal amount of Securities of other authorized denominations of the same series, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; PROVIDED, HOWEVER, that the Securities surrendered for transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's or co-Registrar's written request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to 19 cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or other governmental charge payable upon exchanges or transfers pursuant to Section 2.02, 2.10, 3.06, 4.05, 4.14, or 10.05). The Registrar or co-Registrar shall not be required to register the transfer or exchange of any Security (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Securities and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three hereof, except the unredeemed portion of any Security being redeemed in part. Prior to the registration of any transfer by a Holder as provided herein, the Company, the Trustee and any Agent of the Company shall treat the person in whose name the Security is registered as the owner thereof for all purposes whether or not the Security shall be overdue, and neither the Company, the Trustee nor any such Agent shall be affected by notice to the contrary. Any Holder of a beneficial interest in a Global Security shall, by acceptance of such beneficial interest in a Global Security, agree that transfers of beneficial interests in such Global Security may be effected only through a book-entry system maintained by the Depository (or its agent), and that ownership of a beneficial interest in a Global Security shall be required to be reflected in a book entry. SECTION 2.07. REPLACEMENT SECURITIES. If a mutilated Security is surrendered to the Trustee or if the Holder of a Security claims that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements for replacement of Securities are met. If required by the Company or the Trustee, such Holder must provide an indemnity bond or other indemnity, sufficient in the judgment of both the Company and the Trustee, to protect the Company, the Trustee and any Agent from any loss, liability, cost or expense which any of them may suffer if a Security is replaced. The Company may charge such Holder for its reasonable out-of-pocket expenses in replacing a Security, including reasonable fees and expenses of counsel. Every replacement Security is an additional obligation of the Company. SECTION 2.08. OUTSTANDING SECURITIES. Securities outstanding at any time are all the Securities that have been authenticated by the Trustee except those canceled by it, those delivered to it for cancellation and those described in this Section 2.08 as not outstanding. Subject to Section 2.09, a Security does not cease to be outstanding because the Company or any of its Affiliates holds the Security. If a Security is replaced pursuant to Section 2.07 (other than a mutilated Security surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Security is held by a BONA FIDE purchaser. A mutilated Security ceases to be outstanding upon surrender of such Security and replacement thereof pursuant to Section 2.07. If on a Redemption Date, Purchase Date or the Final Maturity Date the Paying Agent holds money sufficient to pay all of the principal and interest due on the Securities payable on that date, and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture, then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. 20 SECTION 2.09. TREASURY SECURITIES. In determining whether the Holders of the required principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or any of its Affiliates shall be disregarded, except that, for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that a Trust Officer of the Trustee actually knows are so owned by the Company or any of its Affiliates shall be disregarded. The Company shall promptly notify the Trustee, in writing, when it or any of its Affiliates repurchases or otherwise acquires Securities, and of the aggregate principal amount of such Securities so repurchased or otherwise acquired. SECTION 2.10. TEMPORARY SECURITIES. Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary (printed, typewritten or lithographed) Securities upon receipt of a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of temporary Securities to be authenticated and the date on which the temporary Securities are to be authenticated. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate upon receipt of a written order of the Company pursuant to Section 2.02 definitive Securities in exchange for temporary Securities. SECTION 2.11. CANCELLATION. The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel, and only at the written direction of the Company, destroy and deliver evidence of such destruction of all Securities surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.07, the Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation. If the Company shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. SECTION 2.12. DEFAULTED INTEREST. The Company shall pay interest on overdue principal from time to time on demand at the rate of interest then borne by the Securities. The Company shall, to the extent lawful, pay interest on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate of interest then borne by the Securities. If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest to the Persons who are Holders on a subsequent special record date, which date shall be the fifteenth day preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. Notwithstanding the foregoing, any interest which is paid prior to the expiration of the 30-day period set forth in Section 6.01(b) shall be paid to Holders as of the Interest Record Date for the Interest Payment Date for which interest has not been paid. 21 SECTION 2.13. CUSIP NUMBER. The Company in issuing the Securities will use a "CUSIP" number and the Trustee shall use the CUSIP number in notices of redemption or exchange solely as a convenience to Holders; PROVIDED, HOWEVER, that the Trustee may state in such notice that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee of any changes in CUSIP numbers. SECTION 2.14. DEPOSIT OF MONEYS. Prior to 12:00 noon New York City time on each Interest Payment Date, Redemption Date, Purchase Date and the Final Maturity Date, the Company shall deposit with the Paying Agent in immediately available funds money in U.S. legal tender sufficient to make cash payments, if any, due on such Interest Payment Date, Redemption Date, Purchase Date or Final Maturity Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date, Redemption Date, Purchase Date or Final Maturity Date, as the case may be. SECTION 2.15. BOOK-ENTRY PROVISIONS FOR GLOBAL SECURITIES. (a) The Global Securities initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in EXHIBIT C. Members of, or participants in, the Depository ("PARTICIPANTS") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Security, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and Participants, the operation of customary practices governing the exercise of the rights of a Holder of any Security. (b) Transfers of Global Securities shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Securities may be transferred or exchanged for Physical Securities in accordance with the rules and procedures of the Depository and the provisions of Section 2.16; PROVIDED, HOWEVER, that Physical Securities shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Securities if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for any Global Security and a successor Depository is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a request from the Depository to issue Physical Securities. (c) In connection with the transfer of Global Securities as an entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15, the Global Securities shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall upon written instructions 22 from the Company authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Securities, an equal aggregate principal amount of Physical Securities of authorized denominations. (d) Any Physical Security constituting a Restricted Security delivered in exchange for an interest in a Global Security pursuant to paragraph (c) of this Section 2.15 shall, except as otherwise provided by Section 2.16, bear the Private Placement Legend. (e) The Holder of any Global Security may grant proxies and otherwise authorize any Person, including Participants and Persons that may hold interests through Participants, to take any action which a Holder is entitled to take under this Indenture or the Securities and the Trustee is entitled to conclusively rely upon any electronic instructions from beneficial owners to the Holder of any Global Security. SECTION 2.16. REGISTRATION OF TRANSFERS AND EXCHANGES. (a) TRANSFER AND EXCHANGE OF PHYSICAL SECURITIES. When Physical Securities are presented to the Registrar or co-Registrar with a request: (i) to register the transfer of the Physical Securities; or (ii) to exchange such Physical Securities for an equal principal amount of Physical Securities of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if the requirements under this Indenture as set forth in this Section 2.16 for such transactions are met; PROVIDED, HOWEVER, that the Physical Securities presented or surrendered for Registration of transfer or exchange: (I) shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (II) in the case of Physical Securities the offer and sale of which have not been registered under the Securities Act, such Physical Securities shall be accompanied, in the sole discretion of the Company, by the following additional information and documents, as applicable: (A) if such Physical Security is being delivered to the Registrar or co-Registrar by a Holder for Registration in the name of such Holder, without transfer, a certification from such Holder to that effect (substantially in the form of EXHIBIT D hereto); or (B) if such Physical Security is being transferred to a QIB in accordance with Rule 144A, a certification to that effect (substantially in the form of EXHIBIT D hereto); or (C) if such Physical Security is being transferred to an Institutional Accredited Investor, delivery of a certification to that effect (substantially in the form of EXHIBIT D hereto) and a transferee letter of representation (substantially in the form of EXHIBIT E hereto) and, at the option of the Company, an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act; or (D) if such Physical Security is being transferred in reliance on Rule 144 under the Securities Act, delivery of a certification to that effect (substantially in the form of EXHIBIT D hereto) and, at the option of the Company, an Opinion of Counsel reasonably 23 satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act; or (E) if such Physical Security is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (substantially in the form of EXHIBIT D hereto) and, at the option of the Company, an Opinion of Counsel reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act. (b) RESTRICTIONS ON TRANSFER OF A PHYSICAL SECURITY FOR A BENEFICIAL INTEREST IN A GLOBAL SECURITY. A Physical Security the offer and sale of which has not been registered under the Securities Act may not be exchanged for a beneficial interest in a Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Registrar or co-Registrar of a Physical Security, duly endorsed or accompanied by appropriate instruments of transfer, in form satisfactory to the Registrar or co-Registrar, together with: (A) certification, substantially in the form of EXHIBIT D hereto, that such Physical Security is being transferred (I) to a QIB or (II) to an Accredited Investor and, with respect to (II), at the option of the Company, an Opinion of Counsel reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act; and (B) written instructions directing the Registrar or co-Registrar to make, or to direct the Depository to make, an endorsement on the applicable Global Security to reflect an increase in the aggregate amount of the Securities represented by the Global Security, then the Registrar or co-Registrar shall cancel such Physical Security and cause, or direct the Depository to cause, in accordance with the standing instructions and procedures existing between the Depository and the Registrar or co-Registrar, the principal amount of Securities represented by the applicable Global Security to be increased accordingly. If no 144A Global Security or IAI Global Security, as the case may be, is then outstanding, the Company shall, unless either of the events in the proviso to Section 2.15(b) have occurred and are continuing, issue and the Trustee shall, upon written instructions from the Company in accordance with Section 2.02, authenticate such a Global Security in the appropriate principal amount. (c) TRANSFER AND EXCHANGE OF GLOBAL SECURITIES. The transfer and exchange of Global Securities or beneficial interests therein shall be effected through the Depository in accordance with this Indenture (including the restrictions on transfer set forth herein) and the procedures of the Depository therefor. Upon receipt by the Registrar or Co-Registrar of written instructions, or such other instruction as is customary for the Depository, from the Depository or its nominee, requesting the Registration of transfer of an interest in a 144A Global Security or an IAI Global Security, as the case may be, to another type of Global Security, together with the applicable Global Securities (or, if the applicable type of Global Security required to represent the interest as requested to be obtained is not then outstanding, only the Global Security representing the interest being transferred), the Registrar or Co-Registrar shall reflect on its books and records (and the applicable Global Security) the applicable increase and decrease of the principal amount of Securities represented by such types of Global Securities, giving effect to such transfer. If the applicable type of Global Security required to represent the interest as requested to be obtained is not outstanding at the time of such request, the Company shall issue and the Trustee shall, upon written instructions from the Company in accordance with Section 2.02, authenticate a new Global Security of such type in principal amount equal to the principal amount of the interest requested to be transferred. (d) TRANSFER OF A BENEFICIAL INTEREST IN A GLOBAL SECURITY FOR A PHYSICAL SECURITY. 24 (i) If the Depository is at any time unwilling or unable to continue as a depositary for the Global Securities and a successor depositary is not appointed by the Company within 90 days, Physical Securities will be issued in exchange for the Global Securities. Upon receipt by the Registrar or co-Registrar of written instructions, or such other form of instructions as is customary for the Depository, from the Depository or its nominee on behalf of any Person (subject to the previous sentence) having a beneficial interest in a Global Security and upon receipt by the Trustee of a written order or such other form of instructions as is customary for the Depository or the Person designated by the Depository as having such a beneficial interest containing registration instructions and, in the case of any such transfer or exchange of a beneficial interest in Securities the offer and sale of which have not been registered under the Securities Act, the following additional information and documents: (A) if such beneficial interest is being transferred in reliance on Rule 144 under the Securities Act, delivery of a certification to that effect (substantially in the form of EXHIBIT D hereto) and, at the option of the Company, an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act; or (B) if such beneficial interest is being transferred in reliance on another exemption from the registration requirements of the Securities Act, a certification to that effect (substantially in the form of EXHIBIT D hereto) and, at the option of the Company, an Opinion of Counsel reasonably satisfactory to the Company to the effect that such transfer is in compliance with the Securities Act, then the Registrar or co-Registrar will cause, in accordance with the standing instructions and procedures existing between the Depository and the Registrar or co-Registrar, the aggregate principal amount of the applicable Global Security to be reduced and, following such reduction, the Company will execute and, upon receipt of an authentication order in the form of an Officers' Certificate in accordance with Section 2.02, the Trustee will authenticate and deliver to the transferee a Physical Security in the appropriate principal amount. (ii) Securities issued in exchange for a beneficial interest in a Global Security pursuant to this Section 2.16(d) shall be registered in such names and in such authorized denominations as the Depository, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Registrar or co-Registrar in writing. The Registrar or co-Registrar shall deliver such Physical Securities to the Persons in whose names such Physical Securities are so registered. (e) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL SECURITIES. Notwithstanding any other provisions of this Indenture, a Global Security may not be transferred as a whole except by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such successor Depository. (f) PRIVATE PLACEMENT LEGEND. Upon the transfer, exchange or replacement of Securities not bearing the Private Placement Legend, the Registrar or co-Registrar shall deliver Securities that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Securities bearing the Private Placement Legend, the Registrar or co-Registrar shall deliver only Securities that bear the Private Placement Legend unless, and the Trustee is hereby authorized to deliver Securities without the Private Placement Legend if, (i) there is delivered to the Trustee an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act; (ii) such Security has been sold pursuant to an effective registration statement under the Securities Act (including pursuant to a Registration); or (iii) the date of such transfer, exchange or replacement is two years after the later of 25 (x) the Issue Date and (y) the last date that the Company or any affiliate (as defined in Rule 144 under the Securities Act) of the Company was the owner of such Securities (or any predecessor thereto). (g) GENERAL. By its acceptance of any Security bearing the Private Placement Legend, each Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Security only as provided in this Indenture. The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Participants or beneficial owners of interests in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.15 or this Section 2.16. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. ARTICLE THREE REDEMPTION SECTION 3.01. NOTICES TO TRUSTEE. If the Company wants to redeem Securities pursuant to paragraph 5 or 6 of the Securities at the applicable redemption price set forth thereon, it shall notify the Trustee in writing of the Redemption Date and the principal amount of Securities to be redeemed. The Company shall give such notice to the Trustee at least 30 days before the Redemption Date (unless a shorter notice shall be agreed to by the Trustee in writing), together with an Officers' Certificate stating that such redemption will comply with the conditions contained herein. SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED. If less than all of the Securities are to be redeemed pursuant to paragraph 5 of the Securities, the Trustee shall select the Securities to be redeemed in compliance with the requirements of the national securities exchange, if any, on which the Securities are listed or, if the Securities are not then listed on a national securities exchange, on a PRO RATA basis, by lot or in such other manner as the Trustee in its sole discretion shall deem fair and appropriate. Selection of the Securities to be redeemed pursuant to paragraph 6 of the Securities shall be made by the Trustee only on a PRO RATA basis or on as nearly a PRO RATA basis as is practicable (subject to the procedures of the Depository) based on the aggregate principal amount of Securities held by each Holder. The Trustee shall make the selection from the Securities then outstanding, subject to redemption and not previously called for redemption. The Trustee may select for redemption pursuant to paragraph 5 or 6 of the Securities portions of the principal amount of Securities that have 26 denominations equal to or larger than $1,000 principal amount. Securities and portions of them that the Trustee so selects shall be in amounts of $1,000 principal amount or integral multiples thereof. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. SECTION 3.03. NOTICE OF REDEMPTION. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail a notice of redemption by first-class mail to each Holder whose Securities are to be redeemed at such Holder's registered address; PROVIDED, HOWEVER, that notice of a redemption pursuant to paragraph 6 of the Securities shall be mailed to each Holder whose Securities are to be redeemed no later than 60 days after the date of the Closing of the relevant Public Equity Offering of the Company. Each notice of redemption shall identify the Securities to be redeemed (including the CUSIP number thereon) and shall state: (1) the Redemption Date; (2) the redemption price; (3) the name and address of the Paying Agent to which the Securities are to be surrendered for redemption; (4) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (5) that, unless the Company defaults in making the redemption payment, interest on Securities called for redemption ceases to accrue on and after the Redemption Date and the only remaining right of the Holders is to receive payment of the redemption price upon surrender to the Paying Agent; (6) in the case of any redemption pursuant to paragraph 5 or 6 of the Securities, if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and that, after the Redemption Date, upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion thereof will be issued; (7) the section of the Indenture or the Securities pursuant to which they are being redeemed; and (8) that on the Redemption Date the Redemption Price will become due and payable upon each security, and that interest thereon shall cease to accrue from and after said date. At the Company's written request, the Trustee shall give the notice of redemption on behalf of the Company, in the Company's name and at the Company's expense; PROVIDED that such request by the Company to the Trustee is received by the Trustee at least ten (10) business days prior to the date the Trustee is requested to give notice to the Holders whose Securities are to be redeemed. SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION. Once a notice of redemption is mailed, Securities called for redemption become due and payable on the Redemption Date and at the redemption price. Upon 27 surrender to the Paying Agent, such Securities shall be paid at the redemption price, plus accrued interest thereon, if any, to the Redemption Date, but interest installments whose maturity is on or prior to such Redemption Date shall be payable to the Holders of record at the close of business on the relevant Interest Record Date. SECTION 3.05. DEPOSIT OF REDEMPTION PRICE. At least one Business Day before the Redemption Date, the Company shall deposit with the Paying Agent (or if the Company is its own Paying Agent, shall, on or before the Redemption Date, segregate and hold in trust) money in U.S. legal tender sufficient to pay the redemption price of and accrued interest, if any, on all Securities to be redeemed on that date other than Securities or portions thereof called for redemption on that date which have been delivered by the Company to the Trustee for cancellation. If any Security surrendered for redemption in the manner provided in the Securities shall not be so paid on the Redemption Date due to the failure of the Company to deposit with the Paying Agent money sufficient to pay the redemption price thereof, the principal and accrued and unpaid interest, if any, thereon shall, until paid or duly provided for, bear interest as provided in Sections 2.12 and 4.01 with respect to any payment default. SECTION 3.06. SECURITIES REDEEMED IN PART. Upon surrender of a Security that is redeemed in part, the Trustee shall authenticate for the Holder a new Security equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE FOUR COVENANTS SECTION 4.01. PAYMENT OF SECURITIES. The Company shall pay the principal of, premium, if any, and interest on the Securities in the manner provided in the Securities and the Registration Rights Agreement. An installment of principal or interest shall be considered paid on the date due if the Trustee or Paying Agent (other than the Company or any of its Affiliates) holds on that date money designated for and sufficient to pay the installment in full and is not prohibited from paying such money to the Holders of the Securities pursuant to the terms of this Indenture. The Company shall pay cash interest on overdue principal at the same rate per annum borne by the Securities. The Company shall pay cash interest on overdue installments of interest at the same rate per annum borne by the Securities, to the extent lawful, as provided in Section 2.12. SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11. The Company hereby initially designates the Trustee at its address set forth in Section 11.02 as its office or agency in The Borough of Manhattan, The City of New York, for such purposes. 28 SECTION 4.03. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not cause or permit any Subsidiary of the Company to, directly or indirectly, conduct any business or enter into any transaction (or series of related transactions) with or for the benefit of any of their respective Affiliates or any officer, director or employee of the Company or any Subsidiary of the Company (each an "AFFILIATE TRANSACTION"), unless (i) such Affiliate Transaction is on terms which are no less favorable to the Company or such Subsidiary of the Company, as the case may be, than would be available in a comparable transaction with an unaffiliated third party and (ii) if such Affiliate Transaction (or series of related Affiliate Transactions) involves aggregate payments or other consideration having a Fair Market Value in excess of $500,000, such Affiliate Transaction is in writing and a majority of the disinterested members of the Board of Directors of the Company shall have approved such Affiliate Transaction and determined that such Affiliate Transaction complies with the foregoing provisions. In addition, any Affiliate Transaction involving aggregate payments or other consideration having a Fair Market Value in excess of $2.5 million will also require a written opinion from an Independent Financial Advisor (filed with the Trustee) stating that the terms of such Affiliate Transaction are fair, from a financial point of view, to the Company or its Subsidiaries involved in such Affiliate Transaction, as the case may be. Notwithstanding the foregoing, the restrictions set forth in this covenant shall not apply to (i) transactions with or among the Company and any Wholly Owned Subsidiary of the Company or between or among Wholly Owned Subsidiaries; (ii) reasonable fees and compensation paid to and indemnity provided on behalf of, officers, directors, employees or agents of the Company or any Subsidiary of the Company as determined in good faith by the Company's Board of Directors; (iii) any transactions undertaken pursuant to any contractual obligations or rights in existence on the Issue Date (as in effect on the Issue Date) and (iv) any Restricted Payments made in compliance with Section 4.06. SECTION 4.04. LIMITATION ON INDEBTEDNESS. The Company shall not, and shall not cause or permit any Subsidiary to, directly or indirectly, Incur any Indebtedness (including Acquired Indebtedness), except for Permitted Indebtedness; PROVIDED, HOWEVER, that the Company may Incur Indebtedness if, at the time of and immediately after giving pro forma effect to such Incurrence of Indebtedness and the application of the proceeds therefrom, the Consolidated Coverage Ratio would be greater than (x) 2.375 to 1.00 if such Indebtedness is Incurred prior to the first anniversary of the Issue Date; (y) 2.5 to 1.00 if such Indebtedness is Incurred on or after the first anniversary of the Issue Date and prior to the second anniversary of the Issue Date; and (z) 2.625 to 1.00 if such Indebtedness is Incurred thereafter. Notwithstanding the foregoing, after October 17, 1997, the Company shall not permit to be outstanding the Promissory Notes or the letters of credit issued to collateralize such Promissory Notes. The limitations contained in the preceding paragraph will not apply to the Incurrence of any of the following (collectively, "PERMITTED INDEBTEDNESS"), each of which shall be given independent effect: (a) Indebtedness under the Securities; (b) Indebtedness of the Company Incurred under the Revolving Credit Facility in an aggregate principal amount at any one time outstanding not to exceed $60 million; (c) Indebtedness of any Subsidiary of the Company owed to and held by the Company or any Wholly Owned Subsidiary, and Indebtedness of the Company owed to and held by any Wholly Owned Subsidiary that is unsecured and subordinated in right of payment to the payment and performance of the Company's obligations under any Senior Indebtedness, this Indenture and the 29 Securities; PROVIDED, HOWEVER, that an Incurrence of Indebtedness that is not permitted by this clause (c) shall be deemed to have occurred upon (i) any sale or other disposition of any Indebtedness of the Company or any Subsidiary of the Company referred to in this clause (c) to a Person (other than the Company or a Wholly Owned Subsidiary) or (ii) any sale or other disposition of Equity Interests of any Subsidiary which holds Indebtedness of the Company or another Subsidiary; (d) Interest Rate Protection Obligations; PROVIDED, HOWEVER, that such Interest Rate Protection Obligations have been entered into for bona fide business purposes and not for speculation; (e) Purchase Money Indebtedness and Capitalized Lease Obligations of the Company or any Subsidiary of the Company and other Indebtedness of the Company, in an aggregate principal amount at any one time outstanding not to exceed $20 million; (f) Indebtedness of the Company under Currency Agreements; PROVIDED, HOWEVER, (i) that such Currency Agreements have been entered into for bona fide business purposes and not for speculation and (ii) that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and its Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (g) Indebtedness to the extent representing a replacement, renewal, refinancing or extension (collectively, a "refinancing") of outstanding Indebtedness (other than Indebtedness Incurred under clauses (b), (c), (d), (e), (f) or (h) of this covenant); PROVIDED, HOWEVER, that (i) any such refinancing shall not exceed the sum of the principal amount (or accreted amount (determined in accordance with GAAP), if less) of the Indebtedness being refinanced, plus the amount of accrued interest thereon, plus the amount of any reasonably determined prepayment premium necessary to accomplish such refinancing and such reasonable fees and expenses incurred in connection therewith, (ii) Indebtedness representing a refinancing of Indebtedness other than Senior Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being refinanced; (iii) Indebtedness that is PARI PASSU with the Securities may only be refinanced with Indebtedness that is made PARI PASSU with or subordinate in right of payment to the Securities and Subordinated Indebtedness may only be refinanced with Subordinated Indebtedness; and (iv) Indebtedness of the Company may only be refinanced by Indebtedness of the Company and Indebtedness of a Subsidiary of the Company may only be refinanced by Indebtedness of Subsidiaries or by the Company; and (h) guarantees by a Subsidiary of the Company of Senior Indebtedness Incurred by the Company so long as the Incurrence of such Indebtedness is otherwise permitted by the terms of this Indenture. SECTION 4.05. DISPOSITION OF PROCEEDS OF ASSET SALES. (a) The Company shall not, and shall not cause or permit any Subsidiary of the Company to, directly or indirectly, make any Asset Sale, unless (i) the Company or such Subsidiary of the Company, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets sold or otherwise disposed of and (ii) at least 85% of such consideration consists of (A) cash or Cash Equivalents, or (B) properties and capital assets that replace the properties and assets that were the subject of such Asset Sale or in properties and capital assets that will be used in the business of the Company and its Subsidiaries as existing on the Issue Date or in businesses reasonably related thereto (as determined in good faith by the Company's Board of Directors) ("REPLACEMENT ASSETS"), provided that if the property or assets subject to such Asset Sale were directly owned by the Company such Replacement Assets also shall be so directly owned. The amount of any Indebtedness (other than any Subordinated Indebtedness) of the Company or any Subsidiary of the Company that is actually assumed by the transferee in such 30 Asset Sale and from which the Company and its Subsidiaries are fully and unconditionally released shall be deemed to be cash for purposes of determining the percentage of cash consideration received by the Company or its Subsidiaries. The Company or such Subsidiary of the Company, as the case may be, may (i) apply the Net Cash Proceeds of any Asset Sale within 180 days of receipt thereof to repay Senior Indebtedness and permanently reduce any related commitment, or (ii) make an Investment in Replacement Assets; PROVIDED, HOWEVER, that such Investment occurs or the Company or a Subsidiary of the Company enters into contractual commitments to make such Investment, subject only to customary conditions (other than the obtaining of financing), on or prior to the 180th day following the receipt of such Net Cash Proceeds and Net Cash Proceeds contractually committed are so applied within 270 days following the receipt of such Net Cash Proceeds. To the extent all or part of the Net Cash Proceeds of any Asset Sale are not applied as described in clause (i) or (ii) of the immediately preceding paragraph within the time periods set forth therein (the "Net Proceeds Utilization Date") (such Net Cash Proceeds, the "UNUTILIZED NET CASH PROCEEDS"), the Company shall, within 20 days after such Net Proceeds Utilization Date, make an Offer to Purchase all outstanding Securities up to a maximum principal amount (expressed as a multiple of $1,000) of Securities equal to such Unutilized Net Cash Proceeds, at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the Purchase Date; PROVIDED, HOWEVER, that the Offer to Purchase may be deferred until there are aggregate Unutilized Net Cash Proceeds equal to or in excess of $5 million, at which time the entire amount of such Unutilized Net Cash Proceeds, and not just the amount in excess of $5 million, shall be applied as required pursuant to this paragraph. (b) With respect to any Offer to Purchase effected pursuant to this covenant, among the Securities, to the extent the aggregate principal amount of Securities tendered pursuant to such Offer to Purchase exceeds the Unutilized Net Cash Proceeds to be applied to the repurchase thereof, such Securities shall be purchased PRO RATA based on the aggregate principal amount of such Securities tendered by the Holders of the Securities pursuant to such Offer to Purchase. To the extent the Unutilized Net Cash Proceeds exceed the aggregate amount of Securities tendered by the Holders of the Securities pursuant to such Offer to Purchase, the Company may retain and utilize any portion of the Unutilized Net Cash Proceeds not required to be applied to repurchase the Securities for any purpose consistent with the other terms of this Indenture. (c) On or prior to the Purchase Date specified in the Offer to Purchase, the Company shall (i) subject to paragraph (b) of this Section 4.05, accept for payment all Securities validly tendered pursuant to the Offer, (ii) deposit with the Paying Agent or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 2.04, money sufficient to pay the Purchase Price of all Securities or portions thereof so accepted and (iii) deliver or cause to be delivered to the Trustee for cancellation all Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof accepted for payment by the Company. The Paying Agent (or the Company, if so acting) shall promptly mail or deliver to Holders of Securities so accepted, payment in an amount equal to the Purchase Price for such Securities, and the Trustee shall promptly authenticate and mail or deliver to each Holder of Securities a new Security or Securities equal in principal amount to any unpurchased portion of the Security surrendered as requested by the Holder. Any Security not accepted for payment shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Offer on or as soon as practicable after the Purchase Date. (d) In the event that the Company makes an Offer to Purchase the Securities, the Company shall comply with any applicable securities laws and regulations, including any applicable requirements of Section 14(e) of, and Rule 31 14e-1 under, the Exchange Act, and any violation of the provisions of this Indenture relating to such Offer to Purchase occurring as a result of such compliance shall not be deemed a Default or an Event of Default. (e) Each Holder shall be entitled to tender all or any portion of the Securities owned by such Holder pursuant to the Offer to Purchase, subject to the requirement that any portion of a Note tendered must be tendered in an integral multiple of $1,000 principal amount and subject to any proration among tendering Holders as described above. SECTION 4.06. LIMITATION ON RESTRICTED PAYMENTS. The Company shall not, and shall not cause or permit any Subsidiary of the Company to, directly or indirectly, (i) declare or pay any dividend or any other distribution on any Equity Interests of the Company or any Subsidiary of the Company or make any payment or distribution to the direct or indirect holders (in their capacities as such) of Equity Interests of the Company or any Subsidiary of the Company (other than any dividends, distributions and payments made to the Company or any Wholly Owned Subsidiary of the Company and dividends or distributions payable to any Person solely in Qualified Equity Interests of the Company or in options, warrants or other rights to purchase Qualified Equity Interests of the Company); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any Subsidiary of the Company (other than any such Equity Interests owned by the Company or any Subsidiary of the Company); or (iii) make any Investment in any Person (other than Permitted Investments) (any such payment or any other action (other than any exception thereto) described in (i), (ii) or (iii), a "RESTRICTED PAYMENT"), unless (a) no Default or Event of Default shall have occurred and be continuing at the time or immediately after giving effect to such Restricted Payment; (b) immediately after giving effect to such Restricted Payment, the Company would be able to Incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the Consolidated Coverage Ratio of the first paragraph of Section 4.04; and (c) immediately after giving effect to such Restricted Payment, the aggregate amount of all Restricted Payments declared or made on or after the Issue Date does not exceed an amount equal to the sum of (1) 50% of cumulative Consolidated Net Income determined for the period (taken as one period) from the beginning of the first fiscal quarter commencing after the Issue Date and ending on the last day of the most recent fiscal quarter immediately preceding the date of such Restricted Payment for which consolidated financial information of the Company is available (or if such cumulative Consolidated Net Income shall be a loss, minus 100% of such loss), PLUS (2) the aggregate net cash proceeds received by the Company either (x) as capital contributions to the Company after the Issue Date or (y) from the issue and sale (other than to a Subsidiary of the Company) of its Qualified Equity Interests after the Issue Date (excluding the net proceeds from any issuance and sale of Qualified Equity Interests financed, directly or indirectly, using funds borrowed from the Company or any Subsidiary of the Company until and to the extent such borrowing is repaid), PLUS (3) the principal amount (or accreted amount (determined in accordance with GAAP), if less) of any Indebtedness of the Company or any Subsidiary of the Company Incurred after the Issue Date which has been converted into or exchanged for Qualified Equity Interests of the Company (minus the amount of any cash or property distributed by the Company or any 32 Subsidiary of the Company upon such conversion or exchange), PLUS (4) in the case of the disposition or repayment of any Investment constituting a Restricted Payment made after the Issue Date, an amount equal to 100% of the net cash proceeds thereof (or dividends, distributions or interest payments received in cash thereon). The foregoing provisions will not prevent (i) the payment of any dividend or distribution on, or redemption of, Equity Interests within 60 days after the date of declaration of such dividend or distribution or the giving of formal notice of such redemption, if at the date of such declaration or giving of such formal notice such payment or redemption would comply with the provisions of this Indenture; (ii) the purchase, redemption, retirement or other acquisition of any Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent issue and sale (other than to a Subsidiary of the Company) of, Qualified Equity Interests of the Company; PROVIDED, HOWEVER, that any such net cash proceeds and the value of any Qualified Equity Interests issued in exchange for such retired Equity Interests are excluded from clause (c)(2) of the preceding paragraph (and were not included therein at any time) and are not used to redeem the Securities pursuant to paragraphs 5 or 6 of the Securities; (iii) the purchase, redemption or other acquisition for value of shares of capital stock of the Company (other than Disqualified Capital Stock) or options on such shares held by officers or employees or former officers or employees (or their estates or beneficiaries under their estates) upon the death, disability, retirement or termination of employment of such current or former officers or employees pursuant to the terms of an employee benefit plan or any other agreement pursuant to which such shares of capital stock or options were issued or pursuant to a severance, buy-sell or right of first refusal agreement with such current or former officer or employee; PROVIDED, HOWEVER, that the aggregate cash consideration paid, or distributions made, pursuant to this clause (iii) do not in any one fiscal year exceed $1 million; and (iv) Investments constituting Restricted Payments made as a result of the receipt of non-cash consideration from any Asset Sale made pursuant to and in compliance with Section 4.05; PROVIDED, HOWEVER, that in the case of each of clauses (ii), (iii) and (iv), no Default or Event of Default shall have occurred and be continuing or would arise therefrom. In determining the amount of Restricted Payments permissible under this Section, amounts expended pursuant to clauses (i) and (iv) of the immediately preceding paragraph shall be included as Restricted Payments. The amount of any non-cash Restricted Payment shall be deemed to be equal to the Fair Market Value thereof at the date of the making of such Restricted Payment. SECTION 4.07. CORPORATE EXISTENCE. Subject to Article Five, the Company shall do or shall cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate, partnership or other existence of each Subsidiary of the Company in accordance with the respective organizational documents of each such Subsidiary of the Company and the rights (charter and statutory) and material franchises of the Company and its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right or franchise, or the corporate existence of any Subsidiary of the Company, if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole; PROVIDED, FURTHER, HOWEVER, that a determination of the Board of Directors of the Company shall not be required in the event of a merger of one or more Wholly Owned Subsidiaries of the Company with or into another Wholly Owned Subsidiary of the Company or another Person, if the surviving Person is a Wholly Owned Subsidiary of the Company organized under the laws of the United States or a State thereof or of the District of Columbia or, in the case of a Foreign Subsidiary of the Company, the jurisdiction of incorporation or organization of such Foreign Subsidiary of the Company. This Section 4.07 shall not prohibit the Company from taking any other action otherwise permitted by, and made in accordance with, the provisions of this Indenture. 33 SECTION 4.08. LIMITATION ON THE SALE OR ISSUANCE OF EQUITY INTERESTS OF SUBSIDIARIES. The Company shall not sell any Equity Interest of a Subsidiary of the Company, and shall not cause or permit any Subsidiary of the Company, directly or indirectly, to issue or sell or have outstanding any Equity Interests, except to the Company or a Wholly Owned Subsidiary. Notwithstanding the foregoing, the Company is permitted to sell all the Equity Interests of a Subsidiary of the Company as long as the Company is in compliance with Section 4.05 and, if applicable, Article Five. SECTION 4.09. NOTICE OF DEFAULTS. (a) In the event that any Indebtedness of the Company or any of its Subsidiaries is declared due and payable before its maturity because of the occurrence of any default (or any event which, with notice or lapse of time, or both, would constitute such a default) under such Indebtedness, the Company shall promptly give written notice to the Trustee of such declaration, the status of such default or event and what action the Company is taking or proposes to take with respect thereto. (b) Upon becoming aware of any Default or Event of Default, the Company shall promptly deliver an Officers' Certificate to the Trustee specifying the Default or Event of Default. SECTION 4.10. LIMITATION ON LIENS. The Company shall not, and shall not cause or permit any Subsidiary of the Company to, directly or indirectly, Incur any Liens of any kind against or upon any of their respective properties or assets now owned or hereafter acquired, or any proceeds therefrom or any income or profits therefrom, to secure any Indebtedness unless contemporaneously therewith effective provision is made to secure the Securities and all other amounts due under this Indenture equally and ratably with such Indebtedness (or, in the event that such Indebtedness is subordinated in right of payment to the Securities, prior to such Indebtedness) with a Lien on the same properties and assets securing such Indebtedness for so long as such Indebtedness is secured by such Lien, except for (i) Liens securing Senior Indebtedness and (ii) Permitted Liens. SECTION 4.11. COMPLIANCE CERTIFICATE. The Company shall deliver to the Trustee within 120 days after the close of each fiscal year a certificate signed by the principal executive officer, principal financial officer or principal accounting officer stating that a review of the activities of the Company has been made under the supervision of the signing officers with a view to determining whether the Company is in compliance with each of its covenants and other obligations under the Indenture and the Securities and whether a Default or Event of Default has occurred and whether or not the signers know of any breach of covenant or other obligation or any Default or Event of Default by the Company that occurred during such fiscal year. If they do know of such a breach of covenant or other obligation or any Default or Event of Default, the certificate shall describe all such breaches of covenants, other obligations or Defaults or Events of Default, their status and the action the Company is taking or proposes to take with respect thereto. The first certificate to be delivered by the Company pursuant to this Section 4.11 shall be for the fiscal year ending September 30, 1997. SECTION 4.12. PROVISION OF FINANCIAL INFORMATION. Whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto, the Company shall file with the SEC (if permitted by SEC practice and applicable law and regulations) the 34 annual reports, quarterly reports and other documents which the Company would have been required to file with the SEC pursuant to such Section 13(a) or 15(d) or any successor provision thereto if the Company were so subject, such documents to be filed with the SEC on or prior to the respective dates (the "REQUIRED FILING DATES") by which the Company would have been required so to file such documents if the Company were so subject. The Company shall also in any event (a) within 15 days of each Required Filing Date (whether or not permitted or required to be filed with the SEC) (i) transmit (or cause to be transmitted) by mail to all Holders, as their names and addresses appear in the Security Register, without cost to such Holders, and (ii) file with the Trustee, copies of the annual reports, quarterly reports and other documents which the Company is required to file with the SEC pursuant to the preceding sentence, or, if such filing is not so permitted, information and data of a similar nature, and (b) if, notwithstanding the preceding sentence, filing such documents by the Company with the SEC is not permitted by SEC practice or applicable law or regulations, promptly upon written request supply copies of such documents to any Holder. In addition, for so long as any Securities remain outstanding and prior to the later of the consummation of the Exchange Offer and the filing of the Initial Shelf Registration Statement, if required, the Company will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any beneficial holder of Securities, if not obtainable from the SEC, information of the type that would be filed with the SEC pursuant to the foregoing provisions, upon the request of any such Holder. SECTION 4.13. LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. The Company shall not, and shall not cause or permit any Subsidiary of the Company to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary of the Company to (a) pay dividends or make any other distributions to the Company or any other Subsidiary of the Company on its Equity Interests or with respect to any other interest or participation in, or measured by, its profits, or pay any Indebtedness owed to the Company or any other Subsidiary of the Company, (b) make loans or advances to, or guarantee any Indebtedness or other obligations of, or make any Investment in, the Company or any other Subsidiary of the Company, or (c) transfer any of its properties or assets to the Company or any other Subsidiary of the Company, EXCEPT for such encumbrances or restrictions existing under or by reason of (i) the Revolving Credit Facility as in effect on the Issue Date, any other agreement of the Company or its Subsidiaries outstanding on the Issue Date as in effect on the Issue Date and any other agreement of the Company or its Subsidiaries outstanding from time to time governing Senior Indebtedness provided that such encumbrances or restrictions are no more adverse to the Company than those contained in the Revolving Credit Facility as in effect on the Issue Date, and any amendments, restatements, renewals, replacements or refinancings thereof; PROVIDED, HOWEVER, that any such amendment, restatement, renewal, replacement or refinancing is no more restrictive in the aggregate with respect to such encumbrances or restrictions than those contained in the agreement being amended, restated, reviewed, replaced or refinanced; (ii) applicable law; (iii) any instrument governing Indebtedness or Equity Interests of an Acquired Person acquired by the Company or any Subsidiary of the Company as in effect at the time of such acquisition (except to the extent such Indebtedness was Incurred by such Acquired Person in connection with, as a result of or in contemplation of such acquisition); PROVIDED, HOWEVER, that such encumbrances and restrictions are not applicable to the Company or any Subsidiary of the Company, or the properties or assets of the Company or any Subsidiary of the Company, other than the Acquired Person; (iv) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices; (v) Purchase Money Indebtedness for property acquired in the ordinary course of business that only imposes encumbrances and restrictions on the property so acquired; (vi) any agreement for the sale or disposition of the Equity Interests or assets of any Subsidiary of the Company; PROVIDED, HOWEVER, that such encumbrances and restrictions described in this clause (vi) are only applicable to such Subsidiary or assets, as applicable, and any such sale or disposition is made in compliance with Section 4.05 to the extent applicable thereto; (vii) refinancing Indebtedness permitted under clause (g) of the second paragraph of Section 4.04; PROVIDED, HOWEVER, that such encumbrances and restrictions contained in the agreements governing such Indebtedness are no more restrictive in the aggregate 35 than those contained in the agreements governing the Indebtedness being refinanced immediately prior to such refinancing; or (viii) this Indenture. SECTION 4.14. OFFER TO PURCHASE UPON CHANGE OF CONTROL. (a) Following the occurrence of a Change of Control (the date of such occurrence being the "CHANGE OF CONTROL DATE"), the Company shall notify the Holders of the Securities of such occurrence in the manner prescribed by this Indenture and shall, within 20 days after the Change of Control Date, make an Offer to Purchase all Securities then outstanding at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date (subject to the right of Holders of record on the relevant Interest Record Date to receive interest due on the relevant Interest Payment Date). Each Holder shall be entitled to tender all or any portion of the Securities owned by such Holder pursuant to the Offer to Purchase, subject to the requirement that any portion of a Security tendered must be tendered in an integral multiple of $1,000 principal amount. (b) On or prior to the Purchase Date specified in the Offer to Purchase, the Company shall (i) accept for payment all Securities or portions thereof validly tendered pursuant to the Offer, (ii) deposit with the Paying Agent or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 2.04, money sufficient to pay the Purchase Price of all Securities or portions thereof so accepted and (iii) deliver or cause to be delivered to the Trustee for cancellation all Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof accepted for payment by the Company. The Paying Agent (or the Company, if so acting) shall promptly mail or deliver to Holders of Securities so accepted, payment in an amount equal to the Purchase Price for such Securities, and the Trustee shall promptly authenticate and mail or deliver to each Holder of Securities a new Security or Securities equal in principal amount to any unpurchased portion of the Security surrendered as requested by the Holder. Any Security not accepted for payment shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Offer on or as soon as practicable after the Purchase Date. (c) If the Company makes an Offer to Purchase, the Company will comply with all applicable tender offer laws and regulations, including, to the extent applicable, Section 14(e) and Rule 14e-1 under the Exchange Act, and any other applicable Federal or state securities laws and regulations and any applicable requirements of any securities exchange on which the Securities are listed, and any violation of the provisions of this Indenture relating to such Offer to Purchase occurring as a result of such compliance shall not be deemed a Default or an Event of Default. SECTION 4.15. LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS. The Company shall not, directly or indirectly, Incur any Indebtedness that by its terms would expressly rank senior in right of payment to the Securities and subordinate in right of payment to any other Indebtedness of the Company. 36 ARTICLE FIVE MERGERS; SUCCESSOR CORPORATION SECTION 5.01. MERGERS, SALE OF ASSETS, ETC. The Company shall not consolidate with or merge with or into (whether or not the Company is the Surviving Person) any other entity and the Company shall not and shall not cause or permit any Subsidiary of the Company to, sell, convey, assign, transfer, lease or otherwise dispose of all or substantially all of the Company's and its Subsidiaries' properties and assets (determined on a consolidated basis for the Company and its Subsidiaries) to any entity in a single transaction or series of related transactions, unless: (i) either (x) the Company shall be the Surviving Person or (y) the Surviving Person (if other than the Company) shall be a corporation organized and validly existing under the laws of the United States of America or any State thereof or the District of Columbia and shall, in any such case, expressly assume by a supplemental indenture, the due and punctual payment of the principal of, premium, if any, and interest on all the Securities and the performance and observance of every covenant of this Indenture and the Registration Rights Agreement to be performed or observed on the part of the Company; and (ii) immediately thereafter, no Default or Event of Default shall have occurred and be continuing. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all the properties and assets of one or more Subsidiaries of the Company the Equity Interests of which constitutes all or substantially all the properties and assets of the Company shall be deemed to be the transfer of all or substantially all the properties and assets of the Company. SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. In the event of any transaction (other than a lease) described in and complying with the conditions listed in Section 5.01 in which the Company is not the Surviving Person and the Surviving Person is to assume all the Obligations of the Company under the Securities, this Indenture and the Registration Rights Agreement pursuant to a supplemental indenture, such Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of, the Company and the Company shall be discharged from its Obligations under this Indenture and the Securities. ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. EVENTS OF DEFAULT. Each of the following shall be an "Event of Default" for purposes of this Indenture: (a) failure to pay principal of (or premium, if any, on) any Security when due (whether or not prohibited by the provisions of Article Eight); (b) failure to pay any interest on any Security when due, continued for 30 days or more (whether or not prohibited by the provisions of Article Eight); 37 (c) default in the payment of principal of or interest on any Security required to be purchased pursuant to any Offer to Purchase required by this Indenture when due and payable or failure to pay on the Purchase Date the Purchase Price for any Security validly tendered pursuant to any Offer to Purchase (whether or not prohibited by the provisions of Article Eight); (d) failure to perform or comply with any of the provisions of Section 5.01; (e) failure to perform any other covenant, warranty or agreement of the Company under this Indenture or in the Securities continued for 30 days or more after written notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the outstanding Securities; (f) default or defaults under the terms of one or more instruments evidencing or securing Indebtedness of the Company or any of its Subsidiaries having an outstanding principal amount of $5.0 million or more individually or in the aggregate that has resulted in the acceleration of the payment of such Indebtedness or failure by the Company or any of its Subsidiaries to pay principal when due at the stated maturity of any such Indebtedness and such default or defaults shall have continued after any applicable grace period and shall not have been cured or waived; (g) the rendering of a final judgment or judgments (not subject to appeal) against the Company or any of its Subsidiaries in an amount of $5.0 million or more (net of any amounts covered by reputable and creditworthy insurance companies) which remains undischarged or unstayed for a period of 60 days after the date on which the right to appeal has expired; (h) the Company or any of its Significant Subsidiaries pursuant to or within the meaning of any Bankruptcy Law: (i) admits in writing its inability to pay its debts generally as they become due; (ii) commences a voluntary case or proceeding; (iii) consents to the entry of an order for relief against it in an involuntary case or proceeding; (iv) consents or acquiesces in the institution of a bankruptcy or insolvency proceeding against it; (v) consents to the appointment of a Custodian of it or for all or substantially all of its property; or (vi) makes a general assignment for the benefit of its creditors, or any of them takes any action to authorize or effect any of the foregoing; (i) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Company or any Significant Subsidiary of the Company in an involuntary case or proceeding; (ii) appoints a Custodian of the Company or any Significant Subsidiary of the Company for all or substantially all of its property; or (iii) orders the liquidation of the Company or any Significant Subsidiary of the Company; and in each case the order or decree remains unstayed and in effect for 60 days; PROVIDED, HOWEVER, that if the entry of such order or decree is appealed and dismissed on appeal, then the Event of Default hereunder by reason of the entry of such order or decree shall be deemed to have been cured. The term "BANKRUPTCY LAW" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. The term "CUSTODIAN" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. SECTION 6.02. ACCELERATION. If an Event of Default with respect to the Securities (other than an Event of Default specified in clause (h) or (i) of Section 6.01 with respect to the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the outstanding Securities by notice in writing to the Company (and to the Trustee if given by the Holders) may declare the unpaid principal of (and premium, if any) and accrued interest to the date 39 of acceleration on all outstanding Securities to be due and payable immediately and, upon any such declaration, such principal amount (and premium, if any) and accrued interest, notwithstanding anything contained in this Indenture or the Securities to the contrary, shall become immediately due and payable. If an Event of Default specified in clause (h) or (i) of Section 6.01 with respect to the Company occurs, all unpaid principal of and accrued interest on all outstanding Securities shall IPSO FACTO become immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. Any such declaration with respect to the Securities may be rescinded and annulled by the Holders of a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee if all existing Events of Default (other than the nonpayment of principal of and interest on the Securities which has become due solely by virtue of such acceleration) have been cured or waived and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. SECTION 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy maturing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 6.04. WAIVER OF PAST DEFAULT. Subject to Sections 2.09, 6.07 and 10.02, prior to the declaration of acceleration of the Securities, the Holders of not less than a majority in aggregate principal amount of the outstanding Securities by written notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of or interest on any Security as specified in clauses (a), (b) and (c) of Section 6.01 or a Default in respect of any term or provision of this Indenture that may not be amended or modified without the consent of each Holder affected as provided in Section 10.02. The Company shall deliver to the Trustee an Officers' Certificate stating that the requisite percentage of Holders have consented to such waiver and attaching copies of such consents. In case of any such waiver, the Company, the Trustee and the Holders shall be restored to their former positions and rights hereunder and under the Securities, respectively. This paragraph of this Section 6.04 shall be in lieu of Section 316(a)(1)(B) of the TIA and such Section 316(a) (1)(B) of the TIA is hereby expressly excluded from this Indenture and the Securities, as permitted by the TIA. Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured and not to have occurred for every purpose of this Indenture and the Securities, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. 39 SECTION 6.05. CONTROL BY MAJORITY. Subject to Section 2.09, the Holders of a majority in principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of another Holder, it being understood that the Trustee shall have no duty (subject to Section 7.01) to ascertain whether or not such actions or forebearances are unduly prejudicial to such Holders, or that may involve the Trustee in personal liability; PROVIDED, HOWEVER, that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. In the event the Trustee takes any action or follows any direction pursuant to this Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against any loss or expense caused by taking such action or following such direction. This Section 6.05 shall be in lieu of Section 316(a)(1)(A) of the TIA, and such ss. 316(a)(1)(A) of the TIA is hereby expressly excluded from this Indenture and the Securities, as permitted by the TIA. SECTION 6.06. LIMITATION ON SUITS. A Holder may not pursue any remedy with respect to this Indenture or the Securities unless: (i) the Holder gives to the Trustee written notice of a continuing Event of Default; (ii) the Holders of at least 25% in aggregate principal amount of the outstanding Securities make a written request to the Trustee to pursue a remedy; (iii) such Holder or Holders offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (iv) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (v) during such 60-day period the Holders of a majority in principal amount of the outstanding Securities do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, but subject in any event to the provisions of Article Eight, the right of any Holder to receive payment of principal of or interest on a Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder. SECTION 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default in payment of principal or interest specified in Section 6.01(a), (b) or (c) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Securities for the whole amount of principal and accrued interest remaining unpaid, together with interest overdue on principal 40 and to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate PER ANNUM borne by the Securities and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Securities), its creditors or its property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; PROVIDED, HOWEVER, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and may be a member of the creditors' committee. SECTION 6.10. PRIORITIES. If the Trustee collects any money or property pursuant to this Article Six, it shall pay out the money or property in the following order: First: to the Trustee for amounts due under Section 7.07; Second: subject to Article Eight, to Holders for amounts due and unpaid on the Securities for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal and interest, respectively; and Third: to the Company. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment to the Holders pursuant to this Section 6.10. SECTION 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 shall not apply to a suit by the Trustee, a suit by a Holder or group of Holders of more than 10% in aggregate principal amount of the outstanding Securities, or to any suit instituted by any Holder for the enforcement or the payment of the principal or interest on any Securities on or after the respective due dates expressed in the Security. 41 ARTICLE SEVEN TRUSTEE SECTION 7.01. DUTIES OF TRUSTEE. (a) If a Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of a Default: (1) The Trustee shall not be liable except for the performance of such duties as are specifically set forth herein and no implied covenants or obligations shall be read into this Indenture or the TIA against the Trustee; and (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions conforming to the requirements of this Indenture; however, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee shall not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01; (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or to take or omit to take any action under this Indenture or take any action at the request or direction of Holders if it shall have reasonable grounds for believing that repayment of such funds is not assured to it or it does not receive from such Holders an indemnity satisfactory to it in its sole discretion against such risk, liability, loss, fee or expense which might be incurred by it in compliance with such request or direction. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. 42 SECTION 7.02. RIGHTS OF TRUSTEE. Subject to Section 7.01: (a) The Trustee may rely on any document including, without limitation, any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, note or coupon, believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate and/or an Opinion of Counsel, which shall conform to the provisions of Section 11.05. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (c) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or through attorneys and agents of its selection and shall not be responsible for the misconduct or negligence of any agent or attorney (other than an agent who is an employee of the Trustee) appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers. (e) Before the Trustee acts or refrains from acting, it may consult with counsel and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (f) Any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution. (g) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. (h) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; PROVIDED, HOWEVER, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity from the Holders against such expenses or liabilities as a condition to so proceeding. The reasonable expenses of every such examination shall be paid by the Company, or, if paid by the Trustee, shall be repaid by the Company on demand. (i) The Trustee shall not be deemed to have notice of any Event of Default unless a Trust Officer of the Trustee has actual knowledge thereof or unless the Trustee shall have received written notice thereof at the Corporate 43 Trust Office of the Trustee, and such notice references the Securities and this Indenture. As used herein, the term "ACTUAL KNOWLEDGE" means the actual fact or statement of knowing, without any duty to make any investigation with regard thereto. (j) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. (k) The permissive rights of the Trustee to do things enumerated in this Indenture shall not be construed as a duty and the Trustee shall not be answerable for other than its negligence or willful misconduct. (l) The Trustee shall not be liable for any consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Trustee had been advised of the likelihood of such loss or damage and regardless of the form of action, other than losses or damages resulting from the Trustee's willful misconduct or gross negligence. (m) The Trustee may rely on the list of Holders provided to it by the Company and shall not be responsible for any information contained in any notice provision provided to the Trustee by the Company for distribution to the Holders. SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee, subject to Section 7.10 hereof. Any Agent may do the same with like rights. However, the Trustee is subject to Sections 7.10 and 7.11. SECTION 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement of the Company in this Indenture, the Securities or any document issued in connection with the sale of Securities other than the Trustee's certificate of authentication. SECTION 7.05. NOTICE OF DEFAULTS. If a Default or an Event of Default occurs and is continuing and the Trustee has actual knowledge of such Defaults or Events of Default, the Trustee shall mail to each Holder notice of the Default or Event of Default within 30 days after the occurrence thereof. Except in the case of a Default or an Event of Default in payment of principal of or interest on any Security or a Default or Event of Default in complying with Section 5.01, the Trustee may withhold the notice if and so long as its board of directors, executive committee or a trust committee of directors and/or responsible officers of the Trustee in good faith determines that withholding the notice is in the interest of Holders. This Section 7.05 shall be in lieu of the proviso to Section 315(b) of the TIA and such proviso to Section 315(b) of the TIA is hereby expressly excluded from this Indenture and the Securities, as permitted by the TIA. SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS. If required by TIA Section 313(a), within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, the Trustee shall mail to each Holder a report dated as of such May 15 that complies with TIA Section 313(a). The Trustee also shall comply with TIA Sections 313(b), (c) and (d). 44 A copy of each such report at the time of its mailing to Holders shall be filed with the SEC and each stock exchange, if any, on which the Securities are listed. The Company shall promptly notify the Trustee in writing if the Securities become listed on any stock exchange or of any delisting thereof. SECTION 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it in any capacity. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances, including all costs and expenses of collection (including reasonable fees, disbursements and expenses of its agents and outside counsel) incurred or made by it in addition to the compensation for its services except any such disbursements, expenses and advances as may be attributable to the Trustee's negligence or willful misconduct. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents, accountants, experts and outside counsel and any taxes or other expenses incurred by a trust created pursuant to Section 9.01 hereof. The Company shall indemnify the Trustee (including, for the purposes of the rest of this Section 7.07, its agents and any authenticating agent in any capacity under this Indenture) for, and hold it harmless against any and all loss, damage, claims, liability or expense, including taxes (other than franchise taxes imposed on the Trustee and taxes based upon, measured by or determined by the income of the Trustee), arising out of or in connection with the acceptance or administration of the trust or trusts hereunder or in any other capacity hereunder, including the costs and expenses of defending itself against or investigating any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent that such loss, damage, claim, liability or expense is due to its own negligence or willful misconduct. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. However, the failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim and the Trustee shall cooperate in the defense (and may employ its own counsel) at the Company's expense; PROVIDED, HOWEVER, that the Company's reimbursement obligation with respect to counsel employed by the Trustee will be limited to the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its written consent, which consent shall not be unreasonably withheld. The Company need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee as a result of its own negligence or willful misconduct. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a Lien prior to the Securities against all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay principal of or interest on particular Securities or the Purchase Price or redemption price of any Securities to be purchased pursuant to an Offer to Purchase or redeemed. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(h) or (i) occurs, the expenses (including the reasonable fees and expenses of its agents and counsel) and the compensation for the services shall be preferred over the status of the Holders in a proceeding under any Bankruptcy Law and are intended to constitute expenses of administration under any Bankruptcy Law. The Company's obligations under this Section 7.07 and any claim arising hereunder shall survive the resignation or removal of any Trustee, the discharge of the Company's obligations pursuant to Article Nine and any rejection or termination under any Bankruptcy Law. 45 SECTION 7.08. REPLACEMENT OF TRUSTEE. The Trustee may resign at any time by so notifying the Company in writing. The Holders of a majority in principal amount of the outstanding Securities may remove the Trustee by so notifying the Trustee and the Company in writing and may appoint a successor Trustee with the Company's consent. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10; (b) the Trustee is adjudged a bankrupt or an insolvent under any Bankruptcy Law; (c) a custodian or other public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason (the Trustee in such event being referred to herein as the retiring Trustee), the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. As promptly as practicable after that, the retiring Trustee shall transfer, after payment of all sums then owing to the Trustee pursuant to Section 7.07, all property held by it as Trustee to the successor Trustee, subject to the Lien provided in Section 7.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the outstanding Securities may petition, at the expense of the Company, any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or banking corporation, the resulting, surviving or transferee corporation or banking corporation without any further act shall be the successor Trustee. SECTION 7.10. ELIGIBILITY; DISQUALIFICATION. This Indenture shall always have a Trustee which shall be eligible to act as Trustee under TIA Sections 310(a)(1), 310(a)(2) and 310(a)(5). The Trustee shall have a combined capital and surplus of at least $500,000,000 as set forth 46 in its most recent published annual report of condition. If the Trustee has or shall acquire any "conflicting interest" within the meaning of TIA Sections 310(b), the Trustee and the Company shall comply with the provisions of TIA Section 310(b); PROVIDED, HOWEVER, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities or certificates of interest or participation in other securities of the Company are outstanding if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 7.10, the Trustee shall resign immediately in the manner and with the effect hereinbefore specified in this Article Seven. SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE EIGHT SUBORDINATION OF SECURITIES SECTION 8.01. SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS. The Company covenants and agrees, and the Trustee and each Holder of the Securities by his acceptance thereof likewise covenant and agree, that all Securities shall be issued subject to the provisions of this Article Eight; and each person holding any Security, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that all payments of the principal of and interest on the Securities by the Company shall, to the extent and in the manner set forth in this Article Eight, be subordinated and junior in right of payment to the prior payment in full in cash of all amounts payable under Senior Indebtedness. SECTION 8.02. PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC. (a) Upon any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities (excluding any payment or distribution of Permitted Junior Securities and excluding any payment from funds deposited in accordance with, and held in trust for the benefit of Holders pursuant to, Article Nine (a "DEFEASANCE TRUST PAYMENT")), upon any dissolution or winding up or total liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all Senior Indebtedness then due shall first be paid in full in cash before the Holders of the Securities or the Trustee on behalf of such Holders shall be entitled to receive any payment by the Company of the principal of, premium, if any, or interest on the Securities, or any payment by the Company to acquire any of the Securities for cash, property or securities, or any distribution by the Company with respect to the Securities of any cash, property or securities (excluding any payment or distribution of Permitted Junior Securities and excluding any Defeasance Trust Payment). Before any payment may be made by, or on behalf of, the Company of the principal of, premium, if any, or interest on the Securities upon any such dissolution or winding up or total liquidation or reorganization, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities (excluding any payment or distribution of Permitted Junior Securities and excluding any Defeasance Trust Payment), to which the Holders of the Securities or the Trustee on their behalf would be entitled, but for the subordination provisions of this Indenture, shall be made by the Company or by any receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, directly to the holders of the Senior Indebtedness (PRO RATA to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their representatives or to the trustee or trustees or agent or agents under any agreement or indenture pursuant to which 48 any of such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all such Senior Indebtedness in full in cash after giving effect to any prior or concurrent payment, distribution or provision therefor to or for the holders of such Senior Indebtedness. (b) In the event that, notwithstanding the foregoing provision prohibiting such payment or distribution, any payment or distribution of assets or securities of the Company of any kind or character, whether in cash, property or securities (excluding any payment or distribution of Permitted Junior Securities and excluding any Defeasance Trust Payment), shall be paid by the Company to the Trustee or any Holder of Securities at a time when such payment or distribution is prohibited by Section 8.02(a) and before all obligations then due in respect of Senior Indebtedness are paid in full in cash, such payment or distribution shall be received and held in trust for the benefit of, and shall be paid over or delivered by the Trustee (if the Notice required by Section 8.06 has been received by the Trustee) or the Holder to, the holders of Senior Indebtedness (PRO RATA to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders) or their respective representatives, or to the trustee or trustees or agent or agents under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of Senior Indebtedness remaining unpaid until all such Senior Indebtedness has been paid in full in cash after giving effect to any prior or concurrent payment, distribution or provision therefor to or for the holders of such Senior Indebtedness. The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided in Article Five shall not be deemed a dissolution, winding up, liquidation or reorganization for the purposes of this Section 8.02 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article Five. SECTION 8.03. NO PAYMENT ON SECURITIES IN CERTAIN CIRCUMSTANCES. (a) No direct or indirect payment (excluding any payment or distribution of Permitted Junior Securities and excluding any Defeasance Trust Payment) by or on behalf of the Company of principal of, premium, if any, or interest on the Securities, whether pursuant to the terms of the Securities, upon acceleration, pursuant to an Offer to Purchase or otherwise, shall be made if, at the time of such payment, there exists a default in the payment of all or any portion of the obligations on any Senior Indebtedness, whether at maturity, on account of mandatory redemption or prepayment, acceleration or otherwise, and such default shall not have been cured or waived or the benefits of this sentence waived by or on behalf of the holders of such Senior Indebtedness. In addition, during the continuance of any non-payment event of default with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be immediately accelerated, and upon receipt by the Trustee of written notice (a "PAYMENT BLOCKAGE NOTICE") from the holder or holders of such Designated Senior Indebtedness or the trustee or agent acting on behalf of such Designated Senior Indebtedness, then, unless and until such non-payment event of default has been cured or waived or has ceased to exist or such Designated Senior Indebtedness has been discharged or repaid in full in cash or the benefits of these provisions have been waived by the holders of such Designated Senior Indebtedness, no direct or indirect payment (excluding any payment or distribution of Permitted Junior Securities and excluding any Defeasance Trust Payment) shall be made by or on behalf of the Company of principal of, premium, if any, or interest on the Securities, whether pursuant to the terms of the Securities, upon acceleration, pursuant to an Offer to Purchase or otherwise, to such Holders, during a period (a "PAYMENT BLOCKAGE PERIOD") commencing on the date of receipt of such notice by the Trustee and ending 179 days thereafter. 48 Notwithstanding anything in this Article Eight or in the Securities to the contrary, (x) in no event shall a Payment Blockage Period extend beyond 179 days from the date the Payment Blockage Notice in respect thereof was given, (y) there shall be a period of at least 181 consecutive days in each 360-day period when no Payment Blockage Period is in effect and (z) not more than one Payment Blockage Period may be commenced with respect to the Securities during any period of 360 consecutive days. No event of default that existed or was continuing on the date of commencement of any Payment Blockage Period with respect to the Designated Senior Indebtedness initiating such Payment Blockage Period (to the extent the holder of Designated Senior Indebtedness, or trustee or agent, giving notice commencing such Payment Blockage Period had knowledge of such existing or continuing event of default) may be, or be made, the basis for the commencement of any other Payment Blockage Period by the holder or holders of such Designated Senior Indebtedness or the trustee or agent acting on behalf of such Designated Senior Indebtedness, whether or not within a period of 360 consecutive days, unless such event of default has been cured or waived for a period of not less than 90 consecutive days. (b) In the event that, notwithstanding the foregoing, the Company shall have made payment to the Trustee or any Holder when such payment is prohibited by Section 8.03(a), such payment shall be held in trust for the benefit of, and shall be paid over or delivered by the Trustee (if the Notice required by Section 8.06 has been received by the Trustee) or the Holder to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that, upon notice from the Trustee to the holders of Senior Indebtedness that such prohibited payment has been made, the holders of the Senior Indebtedness (or their representative or representatives or a trustee or trustees) notify the Trustee in writing of the amounts then due and owing on the Senior Indebtedness, if any, and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Indebtedness. SECTION 8.04. SUBROGATION. Upon the payment in full in cash of all Senior Indebtedness, or provision for payment, the Holders of the Securities shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company made on such Senior Indebtedness until the principal of and interest on the Securities shall be paid in full in cash; and, for the purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee on their behalf would be entitled except for the provisions of this Article Eight, and no payment over pursuant to the provisions of this Article Eight to the holders of Senior Indebtedness by Holders of the Securities or the Trustee on their behalf shall, as between the Company, its creditors other than holders of Senior Indebtedness, and the Holders of the Securities, be deemed to be a payment by the Company to or on account of the Senior Indebtedness. It is understood that the provisions of this Article Eight are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities, on the one hand, and the holders of the Senior Indebtedness, on the other hand. If any payment or distribution to which the Holders of the Securities would otherwise have been entitled but for the provisions of this Article Eight shall have been applied, pursuant to the provisions of this Article Eight, to the payment of all amounts payable under Senior Indebtedness, then and in such case, the Holders of the Securities shall be entitled to receive from the holders of such Senior Indebtedness any payments or distributions received by such holders of Senior Indebtedness in excess of the amount required to make payment in full in cash of such Senior Indebtedness. 49 SECTION 8.05. OBLIGATIONS OF COMPANY UNCONDITIONAL. Nothing contained in this Article Eight or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of and interest on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Securities and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Holder of any Security or the Trustee on their behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Eight of the holders of the Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. Without limiting the generality of the foregoing, nothing contained in this Article Eight shall restrict the right of the Trustee or the Holders of Securities to take any action to declare the Securities to be due and payable prior to their stated maturity pursuant to Section 6.01 or to pursue any rights or remedies hereunder; PROVIDED, HOWEVER, that all Senior Indebtedness then due and payable shall first be paid in full in cash before the Holders of the Securities or the Trustee are entitled to receive any direct or indirect payment from the Company of principal of or interest on the Securities. SECTION 8.06. NOTICE TO TRUSTEE. The Company shall give prompt written notice in the form of an Officers' Certificate to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities pursuant to the provisions of this Article Eight. The Trustee shall not be charged with knowledge of the existence of any event of default with respect to any Senior Indebtedness or of any other facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing at its Corporate Trust Office to that effect signed by an Officer of the Company, or by a holder of Senior Indebtedness or trustee or agent therefor (who shall have been certified by the Company or otherwise established to the reasonable satisfaction of the Trustee to be such holder or trustee); and prior to the receipt of any such written notice, the Trustee shall, subject to Article Seven, be entitled to assume that no such facts exist; PROVIDED, HOWEVER, that if the Trustee shall not have received the notice provided for in this Section 8.06 at least one full Business Day prior to the date upon which by the terms of this Indenture any moneys shall become payable for any purpose (including, without limitation, the payment of the principal of or interest on any Security), then, regardless of anything herein to the contrary, the Trustee shall have full power and authority to receive any moneys from the Company and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such prior date. Nothing contained in this Section 8.06 shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by Section 8.03. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or itself to be a holder of any Senior Indebtedness (or a trustee on behalf of, or other representative of, such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee or representative on behalf of any such holder. In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article Eight, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Eight, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. 50 SECTION 8.07. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT. Upon any payment or distribution of assets or securities referred to in this Article Eight, the Trustee and the Holders of the Securities shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which bankruptcy, dissolution, winding-up, liquidation or reorganization proceedings are pending, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, delivered to the Trustee or to the Holders of the Securities for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Eight. SECTION 8.08. TRUSTEE'S RELATION TO SENIOR INDEBTEDNESS. The Trustee and any Paying Agent shall be entitled to all the rights set forth in this Article Eight with respect to any Senior Indebtedness which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee or any Paying Agent of any of its rights as such holder. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Eight, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness (except as provided in Section 8.03(b)). The Trustee shall not be liable to any such holders if the Trustee shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article Eight or otherwise. SECTION 8.09. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF THE COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS. No right of any present or future holders of any Senior Indebtedness to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. The provisions of this Article Eight are intended to be for the benefit of, and shall be enforceable directly by, the holders of Senior Indebtedness. SECTION 8.10. HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE SUBORDINATION OF SECURITIES. Each Holder of Securities by his acceptance of such Securities authorizes and expressly directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Eight, and appoints the Trustee his attorney-in-fact for such purposes, including, in the event of any dissolution, winding up, total liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of the Company, the filing of a claim for the unpaid balance of its or his Securities in the form required in those proceedings. 51 SECTION 8.11. THIS ARTICLE NOT TO PREVENT EVENTS OF DEFAULT. The failure to make a payment or distribution for or on account of the Securities by reason of any provision of this Article Eight shall not be construed as preventing the occurrence of an Event of Default in respect of the Securities. SECTION 8.12. TRUSTEE'S COMPENSATION NOT PREJUDICED. Nothing in this Article Eight shall apply to amounts due to the Trustee pursuant to other sections in this Indenture. SECTION 8.13. NO WAIVER OF SUBORDINATION PROVISIONS. Without in any way limiting the generality of Section 8.09, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article Eight or the obligations hereunder of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (a) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Indebtedness or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding or secured; (b) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (c) release any Person liable in any manner for the collection of Senior Indebtedness; and (d) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 8.14. SUBORDINATION PROVISIONS NOT APPLICABLE TO MONEY HELD IN TRUST FOR HOLDERS; PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION. All money and United States Government Obligations deposited in trust with the Trustee pursuant to and in accordance with Article Nine shall be for the sole benefit of the Holders and shall not be subject to this Article Eight. Nothing contained in this Article Eight or elsewhere in this Indenture shall prevent (i) the Company, except under the conditions described in Sections 8.02 and 8.03, from making payments of principal of and interest on the Securities or from depositing with the Trustee any moneys for such payments or from effecting a termination of the Company's obligations under the Securities and this Indenture as provided in Article Nine, or (ii) the application by the Trustee of any moneys deposited with it for the purpose of making such payments of principal of and interest on the Securities, to the Holders entitled thereto unless at least one full Business Day prior to the date upon which such payment becomes due and payable, the Trustee shall have received the written notice provided for in Section 8.02(b) or in Section 8.06. The Company shall give prompt written notice to the Trustee of any dissolution, winding up, liquidation or reorganization of the Company. SECTION 8.15. ACCELERATION OF SECURITIES. If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of the Senior Indebtedness of the acceleration. 52 ARTICLE NINE DISCHARGE OF INDENTURE SECTION 9.01. TERMINATION OF COMPANY'S OBLIGATIONS. (a) Subject to the provisions of Article Eight, the Company may terminate its obligations in respect of the Securities by delivering all outstanding Securities to the Trustee for cancellation and paying all sums payable by it on account of principal of and interest on all Securities or otherwise. In addition to the foregoing, the Company may, at its option, at any time elect to have either paragraph (b) or (c) below be applied to all outstanding Securities, subject in either case to compliance with the conditions set forth in Section 9.02. (b) Upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (b), the Company shall, subject to the satisfaction of conditions set forth in Section 9.02, be deemed to have paid and discharged the entire indebtedness represented by the outstanding Securities, except for (i) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Securities when such payments are due, (ii) the Company's obligations with respect to the Securities under Sections 2.02 through 2.07, inclusive, 2.10, 2.13 and 4.02, (iii) the rights, powers, trust, duties and immunities of the Trustee under this Indenture and the Company's obligations in connection therewith and (iv) Article Nine of this Indenture (hereinafter, "LEGAL DEFEASANCE"). Subject to compliance with this Article Nine, the Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) hereof. (c) Upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (c), the Company shall, subject to the satisfaction of the conditions set forth in Section 9.02, be released from its obligations under the covenants contained in Sections 4.03 through 4.06, inclusive, 4.08 through 4.15, inclusive, and Article Five with respect to the outstanding Securities (hereinafter, "COVENANT DEFEASANCE") and thereafter any omission to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Securities. In addition, upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (c), subject to the satisfaction of the conditions set forth in Section 9.02, those events described in Section 6.01 (except those events described in Sections 6.01(a), (b), (f), (g), (h) and (i)) shall not constitute Events of Default. SECTION 9.02. CONDITIONS TO LEGAL DEFEASANCE OR COVENANT DEFEASANCE. In order to exercise either Legal Defeasance pursuant to Section 9.01(b) or Covenant Defeasance pursuant to Section 9.01(c): (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in U.S. dollars or United States Government Obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of premium, if any, and interest on the Securities on the stated date for payment thereof or on the applicable redemption date, as the case may be; (b) in the case of an election under Section 9.01(b), the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service 53 a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 9.01(c), the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the Securities will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Sections 6.01(h) and 6.01(i) are concerned, at any time in the period ending on the 91st day after the date of such deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of or constitute a Default under this Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (g) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; and (h) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that (i) the trust funds will not be subject to any rights of holders of Senior Indebtedness, including, without limitation, those arising under this Indenture, and (ii) assuming no intervening bankruptcy or insolvency of the Company between the date of deposit and the 91st day following the deposit and that no Holder is an insider of the Company, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable Bankruptcy Law. Notwithstanding the foregoing, the opinion of counsel required by clause (b) above need not be delivered if all Securities not theretofore delivered to the Trustee for cancellation (x) have become due and payable, (y) will become due and payable on the maturity date within one year or (z) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company. SECTION 9.03. APPLICATION OF TRUST MONEY; TRUSTEE ACKNOWLEDGMENT AND INDEMNITY. The Trustee shall hold in trust money or United States Government Obligations deposited with it pursuant to Section 9.02, and shall apply the deposited money and the money from United States Government Obligations in accordance with this Indenture solely to the payment of principal of and interest on the Securities. 54 After such delivery or irrevocable deposit and delivery of an Officers' Certificate and Opinion of Counsel, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Securities and this Indenture except for those surviving obligations specified above. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the United States Government Obligations deposited pursuant to Section 9.02 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of outstanding Securities. SECTION 9.04. REPAYMENT TO COMPANY. Subject to Sections 7.07 and 9.03, the Trustee shall promptly pay to the Company upon written request any excess money held by it at any time. The Trustee shall pay to the Company upon written request any money held by it for the payment of principal or interest that remains unclaimed for two years; PROVIDED, HOWEVER, that the Trustee before being required to make any payment may at the expense of the Company cause to be published once in a newspaper of general circulation in The City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that, after a date specified therein which shall be at least 30 days from the date of such publication or mailing, any unclaimed balance of such money then remaining shall be repaid to the Company. After payment to the Company, (i) Holders entitled to money must look solely to the Company for payment as general creditors unless an applicable abandoned property law designates another person, and (ii) all liability of the Trustee or Paying Agent with respect to such money shall thereupon cease. SECTION 9.05. REINSTATEMENT. If the Trustee is unable to apply any money or United States Government Obligations in accordance with Section 9.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 9.01 until such time as the Trustee is permitted to apply all such money or United States Government Obligations in accordance with Section 9.01; PROVIDED, HOWEVER, that if the Company has made any payment of interest on or principal of any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or United States Government Obligations held by the Trustee. ARTICLE TEN AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 10.01. WITHOUT CONSENT OF HOLDERS. The Company, when authorized by a resolution of the Board of Directors, and the Trustee may amend or supplement this Indenture or the Securities without notice to or consent of any Holder: (a) to cure any ambiguity, defect or inconsistency; PROVIDED, HOWEVER, that such amendment or supplement does not adversely affect the rights of any Holder; 55 (b) to effect the assumption by a successor Person of all obligations of the Company under the Securities and this Indenture in connection with any transaction complying with Article Five of this Indenture; (c) to provide for uncertificated Securities in addition to or in place of certificated Securities; (d) to comply with any requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (e) to make any change that would provide any additional benefit or rights to the Holders; (f) to make any other change that does not adversely affect the rights of any Holder under this Indenture; (g) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or (h) to secure the Securities pursuant to the requirements of Section 4.10 or otherwise; PROVIDED, HOWEVER, that the Company has delivered to the Trustee an Opinion of Counsel stating that such amendment or supplement complies with the provisions of this Section 10.01. SECTION 10.02. WITH CONSENT OF HOLDERS. Subject to Section 6.07, the Company, when authorized by a resolution of the Board of Directors, and the Trustee may modify, amend or supplement, or waive compliance by the Company with any provision of, this Indenture or the Securities with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities. However, without the consent of each Holder affected, no such modification, amendment, supplement or waiver, including a waiver pursuant to Section 6.04, may: (a) change the Stated Maturity of the principal of or any installment of interest on such Security or alter the optional redemption or repurchase provisions of any such Security or this Indenture in a manner adverse to the Holders of the Securities; (b) reduce the principal amount of (or the premium of) any such Security; (c) reduce the rate of or extend the time for payment of interest on any such Security; (d) change the place or currency of payment of principal of (or premium) or interest on any such Security; (e) modify any provisions of Section 6.04 (other than to add sections of this Indenture or the Securities subject thereto) or 6.07 or this Section 10.02 (other than to add sections of this Indenture or the Securities which may not be modified, amended, supplemented or waived without the consent of each Holder affected); (f) reduce the percentage of the principal amount of outstanding Securities necessary for amendment to or waiver of compliance with any provision of this Indenture or the Securities or for waiver of any Default in respect thereof; 56 (g) waive a Default in the payment of principal of, interest on, or redemption payment with respect to, the Securities (except a rescission of acceleration of the Securities by the Holders thereof as provided in Section 6.02 and a waiver of the payment default that resulted from such acceleration); (h) modify the ranking or priority of any Security or modify the definition of Senior Indebtedness or amend or modify any of the provisions of Article Eight in any manner adverse to the Holders of the Securities; or (i) modify the provisions of Section 4.05 or 4.14 (or the related definitions) in a manner materially adverse to the Holders of Securities affected thereby otherwise than in accordance with this Indenture. An amendment under this Section 10.02 may not make any change under Article Eight hereof that adversely affects in any material respect the rights of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or any representative thereof authorized to give a consent) shall have consented to such change. It shall not be necessary for the consent of the Holders under this Section 10.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 10.02 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment, supplement or waiver. SECTION 10.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment to or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 10.04. RECORD DATE FOR CONSENTS AND EFFECT OF CONSENTS. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders of Securities entitled to consent to any amendment, supplement or waiver. If a record date is fixed, then those persons who were Holders of Securities at such record date (or their duly designated proxies), and only those persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such persons continue to be Holders of such Securities after such record date. No such consent shall be valid or effective for more than 90 days after such record date. The Trustee is entitled to rely upon any electronic instruction from beneficial owners to the Holders of any Global Security. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in any of clauses (a) through (i) of Section 10.02. In that case the amendment, supplement or waiver shall bind each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security. SECTION 10.05. NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. 57 The Trustee may place an appropriate notation on the Security about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment, supplement or waiver. SECTION 10.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Ten is authorized or permitted by this Indenture and that such amendment, supplement or waiver constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms (subject to customary exceptions). The Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. In signing any amendment, supplement or waiver, the Trustee shall be entitled to receive an indemnity reasonably satisfactory to it. SECTION 10.07. CERTAIN AMENDMENTS. Without the consent of each holder of Senior Indebtedness of the Company affected, no amendment, modification, supplement or waiver may change the provisions of Article Eight in any manner adverse to such holders of Senior Indebtedness. ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. TRUST INDENTURE ACT CONTROLS. This Indenture is subject to the provisions of the TIA that are required to be a part of this Indenture, and shall, to the extent applicable, be governed by such provisions. If any provision of this Indenture modifies any TIA provision that may be so modified, such TIA provision shall be deemed to apply to this Indenture as so modified. If any provision of this Indenture excludes any TIA provision that may be so excluded, such TIA provision shall be excluded from this Indenture. The provisions of TIA Sections 310 through 317 that impose duties on any Person (including the provisions automatically deemed included unless expressly excluded by this Indenture) are a part of and govern this Indenture, whether or not physically contained herein. SECTION 11.02. NOTICES. Any notice or communication shall be sufficiently given if in writing and delivered in person, by facsimile and confirmed by overnight courier, or mailed by first-class mail addressed as follows: if to the Company: NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 58 Attention: Chief Financial Officer Facsimile: (516) 567-7148 Telephone: (516) 567-9500 with a copy, which shall not constitute notice, to: Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, NW Washington, D.C. 20036 Attention: Thomas F. Cooney, Esq. Facsimile: (202) 778-9100 Telephone: (202) 778-9076 if to the Trustee: IBJ Schroder Bank & Trust Company One State Street New York, NY 10004 Attention: Corporate Trust Department Facsimile: (212) 858-2952 Telephone: (212) 858-2000 The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed, first-class, postage prepaid, to a Holder including any notice delivered in connection with TIA Section 310(b), TIA Section 313(c), TIA Section 314(a) and TIA Section 315(b), shall be mailed to him at his address as set forth on the Security Register and shall be sufficiently given to him if so mailed within the time prescribed. To the extent required by the TIA, any notice or communication shall also be mailed to any Person described in TIA Section 313(c). Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. Except for a notice to the Trustee, which is deemed given only when received, if a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 11.03. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and any other person shall have the protection of TIA Section 312(c) with respect to the disclosure of any information as to the names and addresses of the Holders. The Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b). 59 SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take or refrain from taking any action under this Indenture, the Company shall furnish to the Trustee at the request of the Trustee: (1) an Officers' Certificate or opinion in form and substance satisfactory to the Trustee stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel in form and substance satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with; PROVIDED, HOWEVER, that with respect to matters of fact an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE. Each certificate with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the person making such certificate has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements contained in such certificate are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. SECTION 11.06. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 11.07. GOVERNING LAW. The laws of the State of New York shall govern this Indenture and the Securities without regard to principles of conflicts of law. SECTION 11.08. NO RECOURSE AGAINST OTHERS. A director, officer, employee or stockholder, as such, of the Company or any of its Affiliates shall not have any liability for any obligations of the Company or any of its Affiliates under the Securities or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 60 SECTION 11.09. SUCCESSORS. All agreements of the Company in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor. SECTION 11.10. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 11.11. SEVERABILITY. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby, and a Holder shall have no claim therefor against any party hereto. SECTION 11.12. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.13. LEGAL HOLIDAYS. If a payment date is a not a Business Day at a place of payment, payment may be made at that place on the next succeeding Business Day, and no interest shall accrue for the intervening period. [Signature Pages Follow] 61 S-1 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first written above. NBTY, INC. By:/s/ Harvey Kamil -------------------------------------- Name: Harvey Kamil Title: Executive Vice President, Chief Financial Officer and Secretary IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By:/s/ Luis Perez -------------------------------------- Name: Luis Perez Title: Assistant Vice President EXHIBIT A --------- [FORM OF SERIES A SECURITY] THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL, OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A. TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1),(2)(3) OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND, IN THE CASE OF THE FOREGOING CLAUSE (D), A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE ISSUER AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. A-1 NBTY, INC. 8 5/8% Senior Subordinate Note due September 15, 2007, Series A CUSIP No.:[ ] No. [ ] $[ ] NBTY, INC., a Delaware corporation (the "COMPANY", which term includes any successor corporation), for value received promises to pay to [ ] or registered assigns, the principal sum of [ ] Dollars, on September 15, 2007. Interest Payment Dates: March 15 and September 15, commencing on March 15, 1998. Interest Record Dates: March 1 and September 1. Reference is made to the further provisions of this security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this security to be signed manually or by facsimile by its duly authorized officer. NBTY, INC. By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: Dated: [ ] A-2 [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the 8 5/8% Senior Subordinated Notes due September 15, 2007, Series A, described in the within-mentioned Indenture. Dated: [ ] IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By: ------------------------------------- Authorized Signatory A-3 (REVERSE OF SECURITY) NBTY, INC. 8 5/8% Senior Subordinated Note due September 15, 2007, Series A 1. INTEREST. -------- NBTY, INC., a Delaware corporation (the "COMPANY"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. Cash interest on the Securities will accrue from and including the most recent date to which interest has been paid or, if no interest has been paid, from the Issue Date. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing March 15, 1998 to the stated payment date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal from time to time on demand and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful from time to time on demand, in each case at the rate borne by the Securities 2. METHOD OF PAYMENT. ----------------- The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Interest Record Date immediately preceding the Interest Payment Date even if the Securities are canceled on registration of transfer or registration of exchange after such Interest Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. LEGAL TENDER"). However, the Company may pay principal and interest by wire transfer of Federal funds (provided that the Paying Agent shall have received wire instructions on or prior to the relevant Interest Record Date), or interest by check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. PAYING AGENT AND REGISTRAR. -------------------------- Initially, IBJ Schroder Bank & Trust Company (the "TRUSTEE") will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Registrar. 4. INDENTURE. --------- The Company issued the Securities under an Indenture, dated as of September 23, 1997 (the "INDENTURE"), by and between the Company and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. This Security is one of a duly authorized issue of Securities of the Company designated as its 8 5/8% Senior Subordinated Notes due A-4 2007, Series A (the "INITIAL SECURITIES"), limited (except as otherwise provided in the Indenture) in aggregate principal amount to $150,000,000, which may be issued under the Indenture. The Securities include the Initial Securities, the Private Exchange Securities (as defined in the Indenture) and the Unrestricted Securities (as defined below) issued in exchange for the Initial Securities pursuant to the Registration Rights Agreement. The Initial Securities and the Unrestricted Securities are treated as a single class of securities under the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture (except as otherwise indicated in the Indenture) until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and holders of Securities are referred to the Indenture and the TIA for a statement of them. The Securities are general unsecured obligations of the Company. The Securities are subordinated in right of payment to all Senior Indebtedness of the Company to the extent and in the manner provided in the Indenture. Each Holder of a Security, by accepting a Security, agrees to such subordination, authorizes the Trustee to give effect to such subordination and appoints the Trustee as attorney-in-fact for such purpose. 5. OPTIONAL REDEMPTION. ------------------- The Securities will be redeemable at the option of the Company, in whole or in part, at any time on or after September 15, 2002, at the redemption prices (expressed as a percentage of principal amount) set forth below, plus accrued and unpaid interest thereon, if any, to the Redemption Date (subject to the right of holders of record on the relevant Interest Record Date to receive interest due on the relevant Interest Payment Date) if redeemed during the 12-month period commencing on September 15 of the years indicated below: YEAR PERCENTAGE ---- ---------- 2002 104.313% 2003 102.875% 2004 101.438% 2005 and thereafter 100.000% 6. OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. ------------------------------------------------ In addition, at any time and from time to time on or prior to September 15, 2000, the Company may redeem in the aggregate up to 33 1/3% of the originally issued aggregate principal amount of the Securities with the net cash proceeds of one or more Public Equity Offerings by the Company at a redemption price in cash equal to 108.625% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Redemption Date (subject to the right of Holders of record on the relevant Interest Record Date to receive interest due on the relevant Interest Payment Date); PROVIDED, HOWEVER, that at least 66 2/3% of the originally issued aggregate principal amount of the Securities must remain outstanding immediately after giving effect to each such redemption (excluding any Securities held by the Company or any of its Affiliates). Notice of any such redemption must be given within 60 days after the date of the closing of the relevant Public Equity Offering of the Company. 7. NOTICE OF REDEMPTION. -------------------- Notice of redemption will be mailed by first-class mail at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at its registered address. The Trustee may select for redemption portions of the principal amount of Securities that have denominations equal to or larger than $1,000 principal amount. Securities and portions of them the Trustee so selects shall be in amounts of $1,000 principal amount or integral multiples thereof. A-5 If any Security is to be redeemed in part only, the notice of redemption that relates to such Security shall state the portion of the principal amount thereof to be redeemed. A new Security in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Security. On and after the Redemption Date, interest will cease to accrue on Securities or portions thereof called for redemption so long as the Company has deposited with the Paying Agent for the Securities funds in satisfaction of the redemption price pursuant to the Indenture and the Paying Agent is not prohibited from paying such funds to the Holders pursuant to the terms of the Indenture. 8. CHANGE OF CONTROL OFFER. ----------------------- Following the occurrence of a Change of Control (the date of such occurrence being the "CHANGE OF CONTROL DATE"), the Company shall, within 20 days after the Change of Control Date, make an Offer to Purchase all Securities then outstanding at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date (subject to the right of Holders of record on the relevant Interest Record Date to receive interest due on the relevant Interest Payment Date). 9. LIMITATION ON DISPOSITION OF ASSETS. ----------------------------------- The Company is, subject to certain conditions and certain exceptions, obligated to make an Offer to Purchase Securities at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date (subject to the right of Holders of record on the Interest Relevant Record Date to receive interest due on the relevant Interest Payment Date) with the proceeds of certain asset dispositions. 10. DENOMINATIONS; TRANSFER; EXCHANGE. --------------------------------- The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption, except the unredeemed portion of any security being redeemed in part. 11. PERSONS DEEMED OWNERS. --------------------- The registered Holder of a Security shall be treated as the owner of it for all purposes. 12. UNCLAIMED FUNDS. --------------- If funds for the payment of principal or interest remain unclaimed for two years, the Trustee and the Paying Agent will repay the funds to the Company at its written request. After that, all liability of the Trustee and such Paying Agent with respect to such funds shall cease. A-6 13. LEGAL DEFEASANCE AND COVENANT DEFEASANCE. ---------------------------------------- The Company may be discharged from its obligations under the Indenture and the Securities, except for certain provisions thereof, and may be discharged from obligations to comply with certain covenants contained in the Indenture and the Securities, in each case upon satisfaction of certain conditions specified in the Indenture. 14. SUBORDINATION. ------------- All obligations of the Company under and in respect of the Securities are subordinated and junior in right of payment to the extent and in the manner provided in Article Eight of the Indenture, to the prior payment in full in cash of all amounts payable under Senior Indebtedness of the Company. 15. AMENDMENT; SUPPLEMENT; WAIVER. ----------------------------- Subject to certain exceptions, the Indenture and the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture and the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other change that does not materially adversely affect the rights of any Holder of a Security. 16. RESTRICTIVE COVENANTS. --------------------- The Indenture contains certain covenants that, among other things, limit the ability of the Company and its Subsidiaries to make restricted payments, to incur indebtedness, to create liens, to sell assets, to permit restrictions on dividends and other payments by Subsidiaries to the Company, to consolidate, merge or sell all or substantially all of its assets and to engage in transactions with affiliates. The limitations are subject to a number of important qualifications and exceptions. The Company must report annually to the Trustee on compliance with such limitations. 17. DEFAULTS AND REMEDIES. --------------------- If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of certain continuing Defaults or Events of Default if it determines that withholding notice is in their interest. A-7 18. TRUSTEE DEALINGS WITH COMPANY. ----------------------------- The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 19. NO RECOURSE AGAINST OTHERS. -------------------------- No director, officer, employee or stockholder, as such, of the Company or any of its Affiliates shall have any liability for any obligation of the Company or any of its Affiliates under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 20. AUTHENTICATION. -------------- This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. 21. ABBREVIATIONS AND DEFINED TERMS. ------------------------------- Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP NUMBERS. ------------- Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 23. REGISTRATION RIGHTS. ------------------- Pursuant to the Registration Rights Agreement, the Company will be obligated upon the occurrence of certain events to consummate an exchange offer pursuant to which the Holder of this Security shall have the right to exchange this Security for an 8 5/8% Senior Subordinated Note due 2007, Series B, of the Company (an "UNRESTRICTED SECURITY") which has been registered under the Securities Act, in like principal amount and having terms identical in all material respects to the Initial Securities. The Holders shall be entitled to receive certain Liquidated Damages payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 24. GOVERNING LAW. ------------- The laws of the State of New York shall govern the Indenture and this Security without regard to principles of conflicts of laws. A-8 ASSIGNMENT FORM I or we assign and transfer this Security to - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type name, address and zip code of assignee or transferee) - -------------------------------------------------------------------------------- (Insert Social Security or other identifying number of assignee or transferee) and irrevocably appoint --------------------------------------------------------- agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated: Signed: ----------------- ------------------------------------ (Signed exactly as name appears on the other side of this Security) Signature Guarantee: ---------------------------------------------------------- Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.05 or Section 4.14 of the Indenture, check the appropriate box: Section 4.05 [ ] Section 4.14 [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.05 or Section 4.14 of the Indenture, state the amount: $ ---------------- Dated: Signed: ----------------- ------------------------------------ (Signed exactly as name appears on the other side of this Security) Signature Guarantee: ---------------------------------------------------------- Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) EXHIBIT B --------- [FORM OF SERIES B SECURITY] NBTY, INC. 8 5/8% Senior Subordinated Note due September 15, 2007, Series B CUSIP No.:[ ] No. [ ] $[ ] NBTY, INC., a Delaware corporation (the "COMPANY", which term includes any successor corporation), for value received promises to pay to [ ] or registered assigns, the principal sum of [ ] Dollars, on September 15, 2007. Interest Payment Dates: March 15 and September 15, commencing on March 15, 1998. Interest Record Dates: March 1 and September 1. Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officer. NBTY, INC. By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: Dated: [ ] B-1 [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] This is one of the 8 5/8% Senior Subordinated Notes due September 15 , 2007, Series B, described in the within-mentioned Indenture. Dated: [ ] IBJ SCHRODER BANK & TRUST COMPANY, as Trustee By: ---------------------------------- Authorized Signatory B-2 (REVERSE OF SECURITY) NBTY, INC. 8 5/8% Senior Subordinated Note due September 15, 2007, Series B 1. INTEREST. -------- NBTY, INC., a Delaware corporation (the "COMPANY"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. Cash interest on the Securities will accrue from and including the most recent date to which interest has been paid or, if no interest has been paid, from the Issue Date to the stated payment date. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing March 15, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal from time to time on demand and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful from time to time on demand, in each case at the rate borne by the Securities 2. METHOD OF PAYMENT. ----------------- The Company shall pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders at the close of business on the Interest Record Date immediately preceding the Interest Payment Date even if the Securities are canceled on registration of transfer or registration of exchange after such Interest Record Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. LEGAL TENDER"). However, the Company may pay principal and interest by wire transfer of Federal funds (provided that the Paying Agent shall have received wire instructions on or prior to the relevant Interest Record Date), or interest by check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. PAYING AGENT AND REGISTRAR. -------------------------- Initially, IBJ Schroder Bank & Trust Company (the "TRUSTEE") will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to the Holders. The Company or any of its Subsidiaries may, subject to certain exceptions, act as Registrar. 4. INDENTURE. --------- The Company issued the Securities under an Indenture, dated as of September 23, 1997 (the "INDENTURE"), by and between the Company and the Trustee. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. This Security is one of a duly authorized issue of Securities of the Company designated as its 8 5/8% Senior Subordinated Notes due B-3 2007, Series B (the "UNRESTRICTED SECURITIES"), limited (except as otherwise provided in the Indenture) in aggregate principal amount to $150,000,000, which may be issued under the Indenture. The Securities include the 8 5/8% Senior Subordinated Notes due 2007, Series A (the "INITIAL SECURITIES"), the Private Exchange Securities (as defined in the Indenture) and the Unrestricted Securities. The Initial Securities and the Unrestricted Securities are treated as a single class of securities under the Indenture. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture (except as otherwise indicated in the Indenture) until such time as the Indenture is qualified under the TIA, and thereafter as in effect on the date on which the Indenture is qualified under the TIA. Notwithstanding anything to the contrary herein, the Securities are subject to all such terms, and holders of Securities are referred to the Indenture and the TIA for a statement of them. The Securities are general unsecured obligations of the Company. The Securities are subordinated in right of payment to all Senior Indebtedness of the Company to the extent and in the manner provided in the Indenture. Each Holder of a Security, by accepting a Security, agrees to such subordination, authorizes the Trustee to give effect to such subordination and appoints the Trustee as attorney-in-fact for such purpose. 5. OPTIONAL REDEMPTION. ------------------- The Securities will be redeemable at the option of the Company, in whole or in part, at any time on or after September 15, 2002, at the redemption prices (expressed as a percentage of principal amount) set forth below, plus accrued and unpaid interest thereon, if any, to the Redemption Date (subject to the right of holders of record on the relevant Interest Record Date to receive interest due on the relevant Interest Payment Date) if redeemed during the 12-month period commencing on September 15 of the years indicated below: YEAR PERCENTAGE ---- ---------- 2002 104.313% 2003 102.875% 2004 101.438% 2005 and thereafter 100.000% 6. OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. ------------------------------------------------ In addition, at any time and from time to time on or prior to September 15, 2000, the Company may redeem in the aggregate up to 33 1/3% of the originally issued aggregate principal amount of the Securities with the net cash proceeds of one or more Public Equity Offerings by the Company at a redemption price in cash equal to 108.625% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Redemption Date (subject to the right of Holders of record on the relevant Interest Record Date to receive interest due on the relevant Interest Payment Date); PROVIDED, HOWEVER, that at least 66 2/3% of the originally issued aggregate principal amount of the Securities must remain outstanding immediately after giving effect to each such redemption (excluding any Securities held by the Company or any of its Affiliates). Notice of any such redemption must be given within 60 days after the date of the closing of the relevant Public Equity Offering of the Company. 7. NOTICE OF REDEMPTION. -------------------- Notice of redemption will be mailed by first-class mail at least 30 days but not more than 60 days before the Redemption Date to each Holder of Securities to be redeemed at its registered address. The Trustee may select for redemption portions of the principal amount of Securities that have denominations equal to or larger than $1,000 principal amount. Securities and portions of them the Trustee so selects shall be in amounts of $1,000 principal amount or integral multiples thereof. B-4 If any Security is to be redeemed in part only, the notice of redemption that relates to such Security shall state the portion of the principal amount thereof to be redeemed. A new Security in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Security. On and after the Redemption Date, interest will cease to accrue on Securities or portions thereof called for redemption so long as the Company has deposited with the Paying Agent for the Securities funds in satisfaction of the redemption price pursuant to the Indenture and the Paying Agent is not prohibited from paying such funds to the Holders pursuant to the terms of the Indenture. 8. CHANGE OF CONTROL OFFER. ----------------------- Following the occurrence of a Change of Control (the date of such occurrence being the "CHANGE OF CONTROL DATE"), the Company shall, within 20 days after the Change of Control Date, make an Offer to Purchase all Securities then outstanding at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date (subject to the right of Holders of record on the relevant Interest Record Date to receive interest due on the relevant Interest Payment Date). 9. LIMITATION ON DISPOSITION OF ASSETS. ----------------------------------- The Company is, subject to certain conditions and certain exceptions, obligated to make an Offer to Purchase Securities at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date (subject to the right of Holders of record on the Interest Relevant Record Date to receive interest due on the relevant Interest Payment Date) with the proceeds of certain asset dispositions. 10. DENOMINATIONS; TRANSFER; EXCHANGE. --------------------------------- The Securities are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities or portions thereof selected for redemption, except the unredeemed portion of any security being redeemed in part. 11. PERSONS DEEMED OWNERS. --------------------- The registered Holder of a Security shall be treated as the owner of it for all purposes. 12. UNCLAIMED FUNDS. --------------- If funds for the payment of principal or interest remain unclaimed for two years, the Trustee and the Paying Agent will repay the funds to the Company at its written request. After that, all liability of the Trustee and such Paying Agent with respect to such funds shall cease. B-5 13. LEGAL DEFEASANCE AND COVENANT DEFEASANCE. ---------------------------------------- The Company may be discharged from its obligations under the Indenture and the Securities, except for certain provisions thereof, and may be discharged from obligations to comply with certain covenants contained in the Indenture and the Securities, in each case upon satisfaction of certain conditions specified in the Indenture. 14. SUBORDINATION. ------------- All obligations of the Company under and in respect of the Securities are subordinated and junior in right of payment to the extent and in the manner provided in Article Eight of the Indenture, to the prior payment in full in cash of all amounts payable under Senior Indebtedness of the Company. 15. AMENDMENT; SUPPLEMENT; WAIVER. ----------------------------- Subject to certain exceptions, the Indenture and the Securities may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default or compliance with any provision may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture and the Securities to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Securities in addition to or in place of certificated Securities or comply with any requirements of the SEC in connection with the qualification of the Indenture under the TIA, or make any other change that does not materially adversely affect the rights of any Holder of a Security. 16. RESTRICTIVE COVENANTS. --------------------- The Indenture contains certain covenants that, among other things, limit the ability of the Company and its Subsidiaries to make restricted payments, to incur indebtedness, to create liens, to sell assets, to permit restrictions on dividends and other payments by Subsidiaries to the Company, to consolidate, merge or sell all or substantially all of its assets and to engage in transactions with affiliates. The limitations are subject to a number of important qualifications and exceptions. The Company must report annually to the Trustee on compliance with such limitations. 17. DEFAULTS AND REMEDIES. --------------------- If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Securities then outstanding may declare all the Securities to be due and payable immediately in the manner and with the effect provided in the Indenture. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Securities unless it has received indemnity satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Securities then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Securities notice of certain continuing Defaults or Events of Default if it determines that withholding notice is in their interest. B-6 18. TRUSTEE DEALINGS WITH COMPANY. ----------------------------- The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 19. NO RECOURSE AGAINST OTHERS. -------------------------- No director, officer, employee or stockholder, as such, of the Company or any of its Affiliates shall have any liability for any obligation of the Company or any of its Affiliates under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 20. AUTHENTICATION. -------------- This Security shall not be valid until the Trustee or authenticating agent signs the certificate of authentication on this Security. 21. ABBREVIATIONS AND DEFINED TERMS. ------------------------------- Customary abbreviations may be used in the name of a Holder of a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP NUMBERS. ------------- Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Securities as a convenience to the Holders of the Securities. No representation is made as to the accuracy of such numbers as printed on the Securities and reliance may be placed only on the other identification numbers printed hereon. 23. GOVERNING LAW. ------------- The laws of the State of New York shall govern the Indenture and this Security without regard to principles of conflicts of laws. B-7 ASSIGNMENT FORM I or we assign and transfer this Security to - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type name, address and zip code of assignee or transferee) - -------------------------------------------------------------------------------- (Insert Social Security or other identifying number of assignee or transferee) and irrevocably appoint--------------------------------------------------------- agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Dated: Signed: ------------------- ------------------------------ (Signed exactly as name appears on the other side of this Security) Signature Guarantee: ------------------------------------------------------------ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 4.05 or Section 4.14 of the Indenture, check the appropriate box: Section 4.05 [ ] Section 4.14 [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 4.05 or Section 4.14 of the Indenture, state the amount: $ --------------- Dated: Your Signature: ---------------- ----------------------------------- (Signed exactly as name appears on the other side of this Security) Signature Guarantee:------------------------------------------------------------ Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Trustee) EXHIBIT C --------- FORM OF LEGEND FOR GLOBAL SECURITIES Any Global Security authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Security) in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.16 OF THE INDENTURE. C-1 EXHIBIT D --------- CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER OF SECURITIES Re: 8 5/8% Senior Subordinated Notes due 2007 (the "Securities") of NBTY, Inc. ----------------------------------------- This Certificate relates to $_______ principal amount of Securities held in the form of* ___ a beneficial interest in a Global Security or* _______ Physical Securities by ______ (the "TRANSFEROR"). The Transferor:* | | has requested by written order that the Registrar deliver in exchange for its beneficial interest in the Global Security held by the Depositary a Physical Security or Physical Securities in definitive, registered form of authorized denominations and an aggregate number equal to its beneficial interest in such Global Security (or the portion thereof indicated above); or | | has requested that the Registrar by written order exchange or register the transfer of a Physical Security or Physical Securities. | | In connection with such request and in respect of each such Security, the Transferor does hereby certify that the Transferor is familiar with the Indenture relating to the above captioned Securities and the restrictions on transfers thereof as provided in Section 2.16 of such Indenture, and that the transfer of the Securities does not require registration under the Securities Act of 1933, as amended (the "ACT"), because*: | | Such Security is being acquired for the Transferor's own account, without transfer (in satisfaction of Section 2.16 of the Indenture). | | Such Security is being transferred to a "qualified institutional buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A. | | Such Security is being transferred to an institutional "accredited investor" (within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Act) which delivers a certificate to the Trustee in the form of EXHIBIT E to the Indenture. | | Such Security is being transferred in reliance on Rule 144 under the Act. | | Such Security is being transferred in reliance on and in compliance with an exemption from the registration requirements of the Act other than Rule 144A or Rule 144 under the Act to a person other than an institutional "accredited investor." [An Opinion of Counsel to the effect that such transfer does not require Registration under the Securities Act accompanies this certification.] ------------------------------- [INSERT NAME OF TRANSFEROR] By: --------------------------- [Authorized Signatory] Date: ----------------------- *Check applicable box. D-1 EXHIBIT E --------- FORM OF TRANSFEREE LETTER OF REPRESENTATION IBJ Schroder Bank & Trust Company One State Street New York, NY 10004 Dear Sirs: This certificate is delivered to request a transfer of $________ principal amount of the 8 5/8% Senior Subordinated Notes due 2007 (the "SECURITIES") of NBTY, Inc. (the "COMPANY"). Upon transfer, the Securities would be registered in the name of the new beneficial owner as follows: Name: ------------------------------ Address: ------------------------------ Taxpayer ID Number: ------------------------------ The undersigned represents and warrants to you that: 1. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933 (the "SECURITIES ACT")) purchasing for our own account or for the account of such an institutional "accredited investor" at least $250,000 principal amount of the Securities, and we are acquiring the Securities not with a view to, or for offer or sale in connection with, any distribution in violation of the Securities Act. We have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risk of our investment in the Securities and we invest in or purchase securities similar to the Securities in the normal course of our business. We and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 2. We understand that the Securities have not been registered under the Securities Act and, unless so registered, may not be sold except as permitted in the following sentence. We agree on our own behalf and on behalf of any investor account for which we are purchasing Securities to offer, sell or otherwise transfer such Securities prior to the date which is two years after the later of the date of original issue and the last date on which the Company or any affiliate of the Company was the owner of such Securities (or any predecessor thereto) (the "RESALE RESTRICTION TERMINATION DATE") only (a) to the Company, (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) in a transaction complying with the requirements of Rule 144A under the Securities Act, to a person we reasonably believe is a qualified institutional buyer under Rule 144A (a "QIB") that purchases for its own account or for the account of a QIB and to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) to an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act that is purchasing for its own account or for the account of such an institutional "accredited investor," in each case in a minimum principal amount of Securities of $250,000 or (e) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of our property or the property of such investor account or accounts be at all times within our or their control and in compliance with any applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Securities is proposed to be made pursuant to clause (d) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee substantially in the form of this letter to E-1 the Company and the Trustee, which shall provide, among other things, that the transferee is an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act and that it is acquiring such Securities for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Company and the Trustee reserve the right prior to any offer, sale or other transfer prior to the Resale Restriction Termination Date of the Securities pursuant to clause (d) or (e) above to require the delivery of an opinion of counsel, certificates and/or other information satisfactory to the Company and the Trustee. Dated: TRANSFEREE: ----------------------- ------------------------------ By: -------------------------------------- E-2 EX-4.4 5 EX-4.4 NBTY, INC. $150,000,000 8-5/8% Senior Subordinated Notes due 2007 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT ------------------------------------------ September 23, 1997 CHASE SECURITIES INC. 270 Park Avenue, 4th floor New York, New York 10017 Ladies and Gentlemen: NBTY, Inc., a Delaware corporation (the "COMPANY"), proposes to issue and sell to Chase Securities Inc. (the "Initial Purchaser"), upon the terms and subject to the conditions set forth in a purchase agreement dated September 17, 1997 (the "PURCHASE AGREEMENT") between the Company and the Initial Purchaser $150,000,000 aggregate principal amount of its 8-5/8% Senior Subordinated Notes due 2007 (the "SECURITIES"). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Purchase Agreement. As an inducement to the Initial Purchaser to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Initial Purchaser thereunder, the Company agrees with the Initial Purchaser, for the benefit of the holders (including the Initial Purchaser) of the Securities, the Exchange Securities (as defined herein) and the Private Exchange Securities (as defined herein) (collectively, the "HOLDERS"), as follows: 1. REGISTERED EXCHANGE OFFER. The Company shall (i) prepare and, not later than 60 days following the date of original issuance of the Securities (the "ISSUE DATE"), file with the Commission a registration statement (the "EXCHANGE OFFER REGISTRATION STATEMENT") on an appropriate form under the Securities Act with respect to a proposed offer to the Holders of the Securities (the "REGISTERED EXCHANGE OFFER") to issue and deliver to such Holders, in exchange for the Securities, a like aggregate principal amount of debt securities of the Company that are identical in all material respects to the Securities (the "EXCHANGE SECURITIES"), except for the transfer restrictions relating to the Securities, (ii) use its reasonable best efforts to cause the Exchange Offer Registration Statement to become effective under the Securities Act no later than 150 days after the Issue Date and the Registered Exchange Offer to be consummated no later than 185 days after the Issue Date and (iii) keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "EXCHANGE OFFER REGISTRATION PERIOD"). The Exchange Securities will be issued under the Indenture or an indenture (the "EXCHANGE SECURITIES INDENTURE") between the Company and the Trustee or such other bank or trust company that is reasonably satisfactory to the Initial Purchaser, as trustee (the "EXCHANGE SECURITIES TRUSTEE"), such indenture to be identical in all material respects to the Indenture, except for the transfer restrictions relating to the Securities (as described above). Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder electing to exchange Securities for Exchange Securities (assuming that such Holder (a) is not an affiliate of the Company, or an Exchanging Dealer (as defined herein) not complying with the requirements of the next sentence, (b) is not the Initial Purchaser holding Securities that have, or that are reasonably likely to have, the status of an unsold allotment in an initial distribution, (c) acquires the Exchange Securities in the ordinary course of such Holder's business, and (d) has no arrangements or understandings with any person to participate in the distribution of the Exchange Securities) and to trade such Exchange Securities from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company, the Initial Purchaser and each Exchanging Dealer acknowledge that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, each Holder that is a broker-dealer electing to exchange Securities acquired for its own account as a result of market-making activities or other trading activities for Exchange Securities (an "EXCHANGING DEALER"), is required to deliver a prospectus containing substantially the information set forth in ANNEX A hereto on the cover of such prospectus, in ANNEX B hereto in the "Exchange Offer Procedures" and "Purpose of the Exchange Offer" sections of such prospectus, and in ANNEX C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Securities received by such Exchanging Dealer pursuant to the Registered Exchange Offer. If, prior to the consummation of the Registered Exchange Offer, any Holder holds any Securities acquired by it that have, or that are reasonably likely to be determined to have, the status of an unsold allotment in an initial distribution, or any Holder is not entitled to participate in the Registered Exchange Offer, the Company shall, upon the request of any such Holder, simultaneously with the delivery of the Exchange Securities in the Registered Exchange Offer, issue and deliver to any such Holder, in exchange for the Securities held by such Holder (the "PRIVATE EXCHANGE"), a like aggregate principal amount of debt securities of the Company that are identical in all material respects to the Exchange Securities (the "PRIVATE EXCHANGE SECURITIES"), except for the transfer restrictions relating to such Private Exchange Securities. The Private Exchange Securities will be issued under the same indenture as the Exchange Securities, and the Company shall use its reasonable best efforts to cause the Private Exchange Securities to bear the same CUSIP number as the Exchange Securities. In connection with the Registered Exchange Offer, the Company shall: 2 (a) mail to each Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York; (d) permit Holders to withdraw tendered Securities at any time prior to the close of business, New York City time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply in all respects with all laws that are applicable to the Registered Exchange Offer. As soon as practicable after the close of the Registered Exchange Offer and any Private Exchange, as the case may be, the Company shall: (a) accept for exchange all Securities tendered and not validly withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (b) deliver to the Trustee for cancellation all Securities so accepted for exchange; and (c) cause the Trustee or the Exchange Securities Trustee, as the case may be, promptly to authenticate and deliver to each Holder, Exchange Securities or Private Exchange Securities, as the case may be, equal in principal amount to the Securities of such Holder so accepted for exchange. The Company shall use its reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein in order to permit such prospectus to be used by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Securities; PROVIDED that (i) in the case where such prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer, such period shall be the lesser of 180 days and the date on which all Exchanging Dealers have sold all Exchange Securities held by them and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Securities for a period of not less than 180 days after the consummation of the Registered Exchange Offer. 3 The Indenture or the Exchange Securities Indenture, as the case may be, shall provide that the Securities, the Exchange Securities and the Private Exchange Securities shall vote and consent together on all matters as one class and that none of the Securities, the Exchange Securities or the Private Exchange Securities will have the right to vote or consent as a separate class on any matter. Interest on each Exchange Security and Private Exchange Security issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Securities surrendered in exchange therefor or, if no interest has been paid on the Securities, from the Issue Date. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Securities received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Securities or the Exchange Securities within the meaning of the Securities Act and (iii) such Holder is not an affiliate of the Company or, if it is such an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not, as of the consummation of the Registered Exchange Offer, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 2. SHELF REGISTRATION. If (i) because of any change in law or applicable interpretations thereof by the Commission's staff the Company is not permitted to effect the Registered Exchange Offer as contemplated by Section 1 hereof, or (ii) any Securities validly tendered pursuant to the Registered Exchange Offer are not exchanged for Exchange Securities within 300 days after the Issue Date, or (iii) the Initial Purchaser so requests with respect to Securities or Private Exchange Securities not eligible to be exchanged for Exchange Securities in the Registered Exchange Offer and held by it following the consummation of the Registered Exchange Offer, or (iv) any applicable laws or interpretations do not permit any Holder to participate in the Registered Exchange Offer, or (v) any Holder that participates in the Registered Exchange Offer does not receive freely transferable Exchange Securities in exchange for tendered Securities (other than due solely to the status of a Holder (other than the Initial Purchaser) as an affiliate of the Company within the meaning of the 4 Securities Act, and other than any state securities law restrictions which, individually or in the aggregate, do not materially adversely affect the ability of any such Holder to resell the securities held by such Holder), or (vi) the Company so elects, then the following provisions shall apply: (a) The Company shall use its reasonable best efforts to file as promptly as practicable (but in no event more than 30 days after so required or requested, in each case pursuant to this Section 2) with the Commission, and thereafter shall use its reasonable best efforts to cause to be declared effective, a shelf registration statement on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Securities (as defined below) by the Holders thereof from time to time in accordance with the methods of distribution set forth in such registration statement (hereafter, a "SHELF REGISTRATION STATEMENT" and, together with any Exchange Offer Registration Statement, a "REGISTRATION STATEMENT"). (b) The Company shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus forming part thereof to be used by Holders of Transfer Restricted Securities for a period ending on the earlier of (i) two years from the Issue Date or such shorter period that will terminate when all the Transfer Restricted Securities covered by the Shelf Registration Statement have been sold pursuant thereto and (ii) the date on which the Securities become eligible for resale without volume restrictions pursuant to Rule 144 under the Securities Act (in any such case, such period being called the "SHELF REGISTRATION PERIOD"). The Company shall be deemed not to have used its reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Transfer Restricted Securities covered thereby not being able to offer and sell such Transfer Restricted Securities during that period, unless such action is required by applicable law; PROVIDED, HOWEVER, that the foregoing shall not apply to actions taken by the Company in good faith and for valid business reasons (not including avoidance of their obligations hereunder), including, without limitation, the acquisition or divestiture of assets, so long as the Company within 60 days thereafter complies with the requirements of Section 4(j) hereof. Any such period during which the Company fails to keep the registration statement effective and usable for offers and sales of Securities and Exchange Securities is referred to as a "SUSPENSION PERIOD." A Suspension Period shall commence on and include the date that the Company gives notice to the Holders to the effect that, in the reasonable judgment of the Company, the use of the Shelf Registration Statement would materially interfere with a valid business purpose of the Company and that the Shelf Registration Statement is no longer effective or the prospectus included therein is no longer usable for offers and sales of Securities and Exchange Securities and shall end on the date when each Holder of Securities and Exchange Securities covered by such registration statement either receives the copies of the supplemented or amended prospectus contemplated by Section 4(j) hereof or is advised in writing by the Company that use of the prospectus may be resumed. If one or more Suspension Periods occur, the two year time period referenced above shall be extended by the number of days included in each such Suspension Period; 5 PROVIDED that the aggregate number of days of any Suspension Periods shall not exceed 60 days in any 12-month period. (c) The Company will ensure that (i) any Shelf Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Shelf Registration Statement and any amendment thereto (in either case, other than with respect to information included therein in reliance upon or in conformity with written information furnished to the Company by or on behalf of any Holder specifically for use therein (the "HOLDERS' INFORMATION")) does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) any prospectus forming part of any Shelf Registration Statement, and any supplement to such prospectus (in either case, other than with respect to Holders' Information), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 3. LIQUIDATED DAMAGES. (a) The parties hereto agree that the Holders of Transfer Restricted Securities will suffer damages if the Company fails to fulfill its obligations under Section 1 or Section 2, as applicable, and that it would not be feasible to ascertain the extent of such damages. Accordingly, if (i) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not filed with the Commission on or prior to 60 days after the Issue Date, (ii) the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is not declared effective on or prior to 150 days after the Issue Date, (iii) the Registered Exchange Offer is not consummated on or prior to 185 days after the Issue Date, or (iv) the Shelf Registration Statement is filed and declared effective on or prior to 150 days after the Issue Date but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being succeeded within 60 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), the Company will be obligated to pay liquidated damages to each Holder of Transfer Restricted Securities, during the period of one or more such Registration Defaults, in an amount equal to $ 0.192 per week per $1,000 principal amount of Transfer Restricted Securities held by such Holder until (a) the applicable Registration Statement is filed, (b) the Exchange Offer Registration Statement is declared effective and the Registered Exchange Offer is consummated, (c) the Shelf Registration Statement is declared effective or (d) the Shelf Registration Statement again becomes effective, as the case may be. Following the cure of all Registration Defaults, the accrual of liquidated damages will cease. As used herein, the term "TRANSFER RESTRICTED SECURITIES" means (i) each Security until the date on which such Security has been exchanged for a freely transferable Exchange Security in the Registered Exchange Offer, (ii) each Security or Private Exchange Security until the date on which it has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) each Security or Private Exchange Security until the date on which it is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary in this Section 3(a), the Company shall not be required to pay 6 liquidated damages to a Holder of Transfer Restricted Securities if such Holder failed to comply with its obligations to make the representations set forth in the second to last paragraph of Section 1 or failed to provide the information required to be provided by it, if any, pursuant to Section 4(n). Liquidated damages shall not accrue during any Suspension Period permitted pursuant to Section 2(b). (b) The Company shall notify the Trustee and the Paying Agent under the Indenture immediately upon the happening of each and every Registration Default. The Company shall pay the liquidated damages due on the Transfer Restricted Securities by depositing with the Paying Agent (which may not be the Company for these purposes), in trust, for the benefit of the Holders thereof, prior to 10:00 a.m., New York City time, on the next interest payment date specified by the Indenture and the Securities, sums sufficient to pay the liquidated damages then due. The liquidated damages due shall be payable on each interest payment date specified by the Indenture and the Securities to the record holder entitled to receive the interest payment to be made on such date. Each obligation to pay liquidated damages shall be deemed to accrue from and including the date of the applicable Registration Default. (c) The parties hereto agree that the liquidated damages provided for in this Section 3 constitute a reasonable estimate of and are intended to constitute the sole damages that will be suffered by Holders of Transfer Restricted Securities by reason of the failure of (i) the Shelf Registration Statement or the Exchange Offer Registration Statement to be filed, (ii) the Shelf Registration Statement to remain effective or (iii) the Exchange Offer Registration Statement to be declared effective and the Registered Exchange Offer to be consummated, in each case to the extent required by this Agreement. 4. REGISTRATION PROCEDURES. In connection with any Registration Statement, the following provisions shall apply: (a) The Company shall (i) furnish to each Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and shall use its reasonable best efforts to reflect in each such document, when so filed with the Commission, such comments as the Initial Purchaser may reasonably propose; (ii) include the information set forth in ANNEX A hereto on the cover, in ANNEX B hereto in the "Exchange Offer Procedures" and "Purpose of the Exchange Offer" sections and in ANNEX C hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement, and include the information set forth in ANNEX D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; and (iii) if requested by the Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement. 7 (b) The Company shall advise the Initial Purchaser, each Exchanging Dealer and the Holders (if applicable) and, if requested by any such person, confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when any Registration Statement and any amendment thereto has been filed with the Commission and when such Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to any Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities, the Exchange Securities or the Private Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the making of any changes in any Registration Statement or the prospectus included therein in order that the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (c) The Company will make every reasonable effort to obtain the withdrawal at the earliest possible time of any order suspending the effectiveness of any Registration Statement. (d) The Company will, during the Shelf Registration Period, furnish to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, at least one conformed copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company will, during the Shelf Registration Period, promptly deliver to each Holder of Transfer Restricted Securities included within the coverage of any Shelf Registration Statement, without charge, as many copies of the prospectus (including each preliminary prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and the Company consents (except during the continuance of any event described in Sections 4(b)(ii) through and including (v)) to the use of such prospectus or any amendment or supplement thereto by each of the 8 selling Holders of Transfer Restricted Securities in connection with the offer and sale of the Transfer Restricted Securities covered by such prospectus or any amendment or supplement thereto. (f) The Company will furnish to the Initial Purchaser and each Exchanging Dealer, and to any other Holder who so requests, without charge, at least one conformed copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if the Initial Purchaser or Exchanging Dealer or any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (g) The Company will, during the Exchange Offer Registration Period or the Shelf Registration Period, as applicable, promptly deliver to the Initial Purchaser, each Exchanging Dealer and such other persons that are required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement or the Shelf Registration Statement and any amendment or supplement thereto as such Initial Purchaser, Exchanging Dealer or other persons may reasonably request; and the Company consents (except during the continuance of any event described in Sections 4(b)(ii) through and including (v))to the use of such prospectus or any amendment or supplement thereto by the Initial Purchaser or such Exchanging Dealer or other persons, as applicable, as aforesaid. (h) Prior to the effective date of any Registration Statement, the Company will use its reasonable best efforts to register or qualify, or cooperate with the Holders of Securities, Exchange Securities or Private Exchange Securities included therein and their respective counsel in connection with the registration or qualification of, such Securities, Exchange Securities or Private Exchange Securities for offer and sale under the securities or blue sky laws of such jurisdictions as any such Holder reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Securities, Exchange Securities or Private Exchange Securities covered by such Registration Statement; PROVIDED that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. (i) The Company will cooperate with the Holders of Securities, Exchange Securities or Private Exchange Securities to facilitate the timely preparation and delivery of certificates representing Securities, Exchange Securities or Private Exchange Securities to be sold pursuant to any Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders thereof may request in writing prior to sales of Securities, Exchange Securities or Private Exchange Securities pursuant to such Registration Statement. 9 (j) If any event contemplated by Section 4(b)(ii) through (v) occurs during the period for which the Company is required to maintain an effective Registration Statement, the Company will promptly prepare and file with the Commission a post-effective amendment to the Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to purchasers of the Securities, Exchange Securities or Private Exchange Securities from a Holder, the prospectus will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Securities, the Exchange Securities and the Private Exchange Securities, as the case may be, and provide the applicable trustee with printed certificates for the Securities, the Exchange Securities or the Private Exchange Securities, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all applicable rules and regulations of the Commission and will make generally available to its security holders as soon as practicable after the effective date of the applicable Registration Statement an earning statement satisfying the provisions of Section 11(a) of the Securities Act; PROVIDED that in no event shall such earning statement be delivered later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the applicable Registration Statement, which statement shall cover such 12-month period. (m) The Company will cause the Indenture or the Exchange Securities Indenture, as the case may be, to be qualified under the Trust Indenture Act as required by applicable law in a timely manner. (n) The Company may require each Holder of Transfer Restricted Securities to be registered pursuant to any Shelf Registration Statement to furnish to the Company such information concerning the Holder and the distribution of such Transfer Restricted Securities as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement, and the Company may exclude from such registration the Transfer Restricted Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) In the case of a Shelf Registration Statement, each Holder of Transfer Restricted Securities to be registered pursuant thereto agrees by acquisition of such Transfer Restricted Securities that, upon receipt of any notice from the Company pursuant to Section 4(b)(ii) through (v), such Holder will discontinue disposition of such Transfer Restricted Securities until such Holder's receipt of copies of the supplemental or amended prospectus 10 contemplated by Section 4(j) or until advised in writing (the "ADVICE") by the Company that the use of the applicable prospectus may be resumed. If the Company shall give any notice under Section 4(b)(ii) through (v) during the period that the Company is required to maintain an effective Registration Statement (the "EFFECTIVENESS PERIOD"), such Effectiveness Period shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Transfer Restricted Securities covered by such Registration Statement shall have received (x) the copies of the supplemental or amended prospectus contemplated by Section 4(j) (if an amended or supplemental prospectus is required) or (y) the Advice (if no amended or supplemental prospectus is required). (p) In the case of a Shelf Registration Statement, the Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold or the managing underwriters (if any) shall reasonably request in order to facilitate any disposition of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement. (q) In the case of a Shelf Registration Statement, the Company shall (i) make reasonably available for inspection by a representative of, and Special Counsel (as defined below) acting for, Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold and any underwriter participating in any disposition of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement, all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries and (ii) use its reasonable best efforts to have its officers, directors, employees, accountants and counsel supply all relevant information reasonably requested by such representative, Special Counsel or any such underwriter (an "INSPECTOR") in connection with such Shelf Registration Statement; PROVIDED, HOWEVER, that any information that is designated in writing by the Company, in good faith, as confidential at the time of delivery of such information shall be kept confidential by such Holders or any such underwriter, attorney, accountant or agent, unless such disclosure is made in connection with a court proceeding or required by law, or such information becomes available to the public generally or through a third party without an accompanying obligation of confidentiality and the Company may require that such Holders or any such underwriter, attorney, accountant and agent execute a confidentiality agreement with respect to such information. (r) In the case of a Shelf Registration Statement, the Company shall, if requested by Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold, their Special Counsel or the managing underwriters (if any) in connection with such Shelf Registration Statement, use its reasonable best efforts to cause (i) its counsel to deliver an opinion relating to the Shelf Registration Statement and the Securities, Exchange Securities or Private Exchange Securities, as applicable, in customary form, (ii) its officers to execute and deliver all customary documents and certificates requested by Holders of a majority in aggregate principal amount of the Securities, Exchange Securities and Private Exchange Securities being sold, their Special Counsel or the managing 11 underwriters (if any) and (iii) its independent public accountants to provide a comfort letter or letters in customary form, in form and substance reasonably satisfactory to the managing underwriters subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. 5. REGISTRATION EXPENSES. The Company will bear all expenses incurred in connection with the performance of its obligations under Sections 1, 2, 3 and 4 and the Company will reimburse the Initial Purchaser and the Holders for the reasonable fees and disbursements of one firm of attorneys (in addition to any local counsel) chosen by the Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities to be sold pursuant to each Registration Statement (the "SPECIAL COUNSEL") acting for the Initial Purchaser or Holders in connection therewith. 6. INDEMNIFICATION. (a) In the event of a Shelf Registration Statement or in connection with any prospectus delivery pursuant to an Exchange Offer Registration Statement by the Initial Purchaser or an Exchanging Dealer, as applicable, the Company shall indemnify and hold harmless each Holder (including, without limitation, the Initial Purchaser or any such Exchanging Dealer), its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6 and Section 7 as a Holder) from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of Securities, Exchange Securities or Private Exchange Securities), to which that Holder may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Holder promptly upon demand for any legal or other expenses reasonably incurred by that Holder in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; PROVIDED, HOWEVER, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with any Holders' Information; and PROVIDED, FURTHER, that with respect to any such untrue statement in or omission from any related preliminary prospectus, the indemnity agreement contained in this Section 6(a) shall not inure to the benefit of any Holder from whom the person asserting any such loss, claim, damage, liability or action received Securities, Exchange Securities or Private Exchange Securities to the extent that such loss, claim, damage, liability or action of or with respect to such Holder results 12 from the fact that both (A) a copy of the final prospectus was not sent or given to such person at or prior to the written confirmation of the sale of such Securities, Exchange Securities or Private Exchange Securities to such person and (B) the untrue statement in or omission from the related preliminary prospectus was corrected in the final prospectus unless, in either case, such failure to deliver the final prospectus was a result of non-compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g). (b) In the event of a Shelf Registration Statement, each Holder, severally and not jointly, shall indemnify and hold harmless the Company, its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6(b) and Section 7 as the Company), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Holders' Information furnished to the Company by such Holder, and shall reimburse the Company promptly upon demand for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; PROVIDED, HOWEVER, that no such Holder shall be liable for any indemnity claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Securities, Exchange Securities or Private Exchange Securities pursuant to such Shelf Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying party in writing of the claim or the commencement of that action; PROVIDED, HOWEVER, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and PROVIDED, FURTHER, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the 13 indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than the reasonable costs of investigation; PROVIDED, HOWEVER, that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based upon advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the immediately preceding sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for the fees, disbursements and other charges of counsel as contemplated by the third sentence of this paragraph (c), the indemnifying party agrees that it shall be liable for any settlement of any action without its written consent if (i) such settlement is entered into more than 30 days after receipt of such indemnifying party of the aforesaid request for reimbursement and (ii) such indemnifying party shall not have reimbursed the indemnified party in accordance with such request prior to the date of such settlement; PROVIDED, HOWEVER, that such indemnifying party shall not be liable for any settlement effected without its consent pursuant to this sentence if such indemnifying party is contesting, in good faith, the request for reimbursement. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified 14 party from all liability on claims that are the subject matter of such proceeding. 7. CONTRIBUTION. If the indemnification provided for in Section 6 is unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company from the offering and sale of the Securities, on the one hand, and a Holder with respect to the sale by such Holder of Securities, Exchange Securities or Private Exchange Securities, on the other, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and such Holder on the other with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and a Holder on the other with respect to such offering and such sale shall be deemed to be in the same proportion as the total net proceeds from the offering of the Securities (before deducting expenses) received by or on behalf of the Company as set forth in the table on the cover of the Offering Memorandum, on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Securities, Exchange Securities or Private Exchange Securities, on the other. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to the Company or information supplied by the Company on the one hand or to any Holders' Information supplied by such Holder on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 7 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7 shall be deemed to include, for purposes of this Section 7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 7, an indemnifying party that is a Holder of Securities, Exchange Securities or Private Exchange Securities shall not be required to contribute any amount in excess of the amount by which the total price at which the Securities, Exchange Securities or Private Exchange Securities sold by such indemnifying party to any purchaser exceeds the amount of any damages which such indemnifying party has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 15 8. RULES 144 AND 144A. The Company shall use its reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it shall, upon the written request of any Holder of Transfer Restricted Securities, provide other information so long as necessary to permit sales of such Holder's securities pursuant to Rules 144 and 144A. The Company covenants that it will take such further reasonable action as any Holder of Transfer Restricted Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Transfer Restricted Securities without registration under the Securities Act within the limitation of the exemptions provided by Rules 144 and 144A (including, without limitation, the requirements of Rule 144A(d)(4)). Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 9. UNDERWRITTEN REGISTRATIONS. If any of the Transfer Restricted Securities covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Securities included in such offering, subject to the consent of the Company (which shall not be unreasonably withheld or delayed), and such Holders shall be responsible for all underwriting commissions and discounts in connection therewith. No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 10. MISCELLANEOUS. (a) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities, taken as a single class. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose Securities, Exchange Securities or Private Exchange Securities are being sold pursuant to a Registration Statement and that does not directly or indirectly materially affect the rights of other Holders may be given by Holders of a majority in aggregate principal amount of the Securities, the Exchange Securities and the Private Exchange Securities being sold by such Holders pursuant to such Registration Statement. 16 (b) NOTICES. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail, telecopier or air courier guaranteeing next-day delivery: (1) if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 10(b), which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar under the Indenture, with a copy in like manner to Chase Securities Inc.; (2) if to the Initial Purchaser, initially at its address set forth in the Purchase Agreement; and (3) if to the Company, initially at the address of the Company set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being delivered to a next-day air courier; five business days after being deposited in the mail; and when receipt is acknowledged by the recipient's telecopier machine, if sent by telecopier. (c) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company, the Initial Purchaser and the Holders and their respective successors and assigns. (d) COUNTERPARTS. This Agreement may be executed in any number of counterparts (which may be delivered in original form or by telecopier) and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) DEFINITION OF TERMS. For purposes of this Agreement, (a) the term "business day" means any day on which the New York Stock Exchange, Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (c) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. (f) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (g) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (h) REMEDIES. In the event of a breach by the Company or by any Holder of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law, including recovery of damages (other than the recovery of damages for a breach by the Company of its obligations under Sections 1 or 2 hereof for which 17 liquidated damages have been paid pursuant to Section 3 hereof), will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (i) NO INCONSISTENT AGREEMENTS. The Company represents, warrants and agrees that (i) it has not entered into, and shall not, on or after the date of this Agreement, enter into any agreement that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof, (ii) it has not previously entered into any agreement which remains in effect granting any registration rights with respect to any of its debt securities to any person and (iii) without limiting the generality of the foregoing, without the written consent of the Holders of a majority in aggregate principal amount of the then outstanding Transfer Restricted Securities, it shall not grant to any person the right to request the Company to register any debt securities of the Company under the Securities Act unless the rights so granted are not in conflict or inconsistent with the provisions of this Agreement. (j) NO PIGGYBACK ON REGISTRATIONS. Neither the Company nor any of its security holders (other than the Holders of Transfer Restricted Securities in such capacity) shall have the right to include any securities of the Company in any Shelf Registration or Registered Exchange Offer other than Transfer Restricted Securities. (k) SEVERABILITY. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. 18 S-1 Please confirm that the foregoing correctly sets forth the agreement between the Company and the Initial Purchaser. Very truly yours, NBTY, INC. By: /s/ Harvey Kamil ----------------------------- Name: Harvey Kamil Title: Executive Vice President, Chief Financial Officer and Secretary Accepted: CHASE SECURITIES INC. By: /s/ James P. Casey ------------------------------ Name: James P. Casey Title: Managing Director ANNEX A ------- Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." ANNEX B ------- Each broker-dealer that receives Exchange Securities for its own account in exchange for Securities, where such Securities were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." ANNEX C ------- PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Securities for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until _______________, 199_, all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of Exchange Securities by broker-dealers. Exchange Securities received by broker-dealers for their own account pursuant to the Registered Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Securities. Any broker-dealer that resells Exchange Securities that were received by it for its own account pursuant to the Registered Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Registered Exchange Offer (including the expenses of one counsel for the Holders of the Securities) other than commissions or concessions of any broker-dealers and will indemnify the Holders of the Securities (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. The Company will be indemnified by the Holders, severally, against certain liabilities, including liabilities under the Securities Act. ANNEX D ------- o CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: Address: If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Securities. If the undersigned is a broker-dealer that will receive Exchange Securities for its own account in exchange for Securities that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Securities; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EX-5.1 6 EX-5.1 Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, N.W. Second Floor Washington, D.C. 20036-1800 November 5, 1997 NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 Ladies and Gentlemen: You have requested our opinion as special securities counsel to NBTY, Inc., a Delaware corporation (the "Company"), in connection with the preparation and filing of the Company's Registration Statement on Form S-4 (the "Registration Statement") relating to the proposed offer to exchange (the "Exchange Offer") the Company's 8-5/8% Senior Subordinated Notes due 2007, Series B (the "Exchange Notes"), for all outstanding 8-5/8% Senior Subordinated Notes due 2007 (the "Original Notes") of the Company, to be issued pursuant to an Indenture, dated as of September 23, 1997, by and between the Company and IBJ Schroder Bank & Trust Company (the "Trustee"). We have participated in the preparation of the Registration Statement and, in connection therewith, have examined and relied upon the originals or copies of such records, agreements, documents and other instruments, including the Restated Certificate of Incorporation, the Bylaws of the Company, the minutes of the meetings of the Company's Board of Directors to date relating to the authorization and issuance of the Exchange Notes and have made such inquiries of such officers and representatives as we have deemed relevant and necessary as the basis for the opinion hereinafter set forth. In such examination, we have assumed, without independent verification, the genuineness of all signatures (whether original or photostatic), the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, and the conformity to authentic original documents of all documents submitted to us as certified or photostatic copies. We have assumed, without independent verification, the accuracy of the relevant facts stated therein. NBTY, Inc. November 5, 1997 Page 2 As to any other facts material to the opinion expressed herein that were not independently established or verified, we have relied upon statements and representations of officers and employees of the Company. Based upon the foregoing and subject to the qualifications set forth below, we are of the opinion that: The Exchange Notes have been duly authorized, executed and delivered by the Company, authenticated in accordance with the terms of the Indenture, and when issued in the manner described in the Registration Statement against payment therefor, the Exchange Notes will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, reorganization or other laws relating to or affecting enforcement of creditors' rights or by general equity principles. To the extent that the obligations of the Company under the Indenture may be dependent upon such matters, we assume for purposes of this opinion that the Trustee is duly organized, validly existing and in good standing under the applicable laws of the jurisdiction of organization of the Trustee; that the Trustee is in compliance generally with respect to acting as a trustee under the Indenture, and with all applicable laws and regulations; and that the Trustee has the requisite organizational and legal power and authority to perform its obligation under the Indenture. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm and this opinion under the heading "Legal Matters" in the prospectus comprising a part of such Registration Statement and any amendment thereto. In giving such consent, we do not hereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. Very truly yours, KIRKPATRICK & LOCKHART LLP By: /S/ SIMON M. NADLER ----------------------- Simon M. Nadler EX-10.1 7 EX-10.1 Execution Copy ================================================================================ CREDIT AND GUARANTEE AGREEMENT Dated as of September 23, 1997 among NBTY, INC., A BORROWER, HOLLAND & BARRETT HOLDINGS LIMITED, AS FOREIGN SUBSIDIARY BORROWER, The Several Lenders from Time to Time Parties Hereto, and THE CHASE MANHATTAN BANK, AS ADMINISTRATIVE AGENT ------------------------------------ CHASE SECURITIES INC., AS ARRANGER ================================================================================ [LOGO] CHASE TABLE OF CONTENTS Page SECTION 1. DEFINITIONS...................................................... 1 1.1 Defined Terms.................................................. 1 1.2 Other Definitional Provisions.................................. 18 SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS.............................................. 19 2.1 Revolving Credit Commitments................................... 19 2.2 Procedure for Revolving Credit Borrowing....................... 19 2.3 Repayment of Revolving Credit Loans; Evidence of Debt....................................... 20 2.4 Termination or Reduction of Revolving Credit Commitments..................................... 21 2.5 Swing Line Commitment.......................................... 21 SECTION 3. AMOUNT AND TERMS OF POUNDS STERLING COMMITMENT............................................... 23 3.1 Pounds Sterling Commitments.................................... 23 3.2 Making the Pounds Sterling Loans............................... 23 3.3 Repayment of Pounds Sterling Loans; Evidence of Debt....................................... 24 SECTION 4. LETTERS OF CREDIT................................................ 25 4.1 Letters of Credit.............................................. 25 4.2 Procedure for Issuance of Letters of Credit.................... 26 4.3 Participating Interests........................................ 26 4.4 Payments....................................................... 26 4.5 Further Assurances............................................. 27 4.6 Obligations Absolute........................................... 27 4.7 Letter of Credit Application................................... 28 4.8 Purpose of Letters of Credit................................... 28 SECTION 5. GENERAL PROVISIONS............................................... 28 5.1 Interest Rates and Payment Dates............................... 28 5.2 Conversion and Continuation Options............................ 29 5.3 Minimum Amounts of Tranches.................................... 30 5.4 Optional and Mandatory Prepayments............................. 30 5.5 Commitment Fees; Other Fees.................................... 31 5.6 Computation of Interest and Fees............................... 32 5.7 Inability to Determine Interest Rate........................... 32 5.8 Pro Rata Treatment and Payments................................ 33 5.9 Illegality..................................................... 35 5.10 Requirements of Law........................................... 35 5.11 Indemnity..................................................... 36 5.12 Taxes......................................................... 37 -i- 5.13 Use of Proceeds............................................... 39 5.14 Change in Lending Office; Replacement of Lender................................................. 39 SECTION 6. REPRESENTATIONS AND WARRANTIES................................... 39 6.1 Financial Condition............................................ 39 6.2 No Change...................................................... 40 6.3 Corporate Existence; Compliance with Law....................... 40 6.4 Corporate Power; Authorization; Enforceable Obligations................................ 41 6.5 No Legal Bar................................................... 41 6.6 No Material Litigation......................................... 41 6.7 No Default..................................................... 41 6.8 Ownership of Property; Liens................................... 41 6.9 Intellectual Property.......................................... 42 6.10 No Burdensome Restrictions.................................... 42 6.11 Taxes......................................................... 42 6.12 Federal Regulations........................................... 42 6.13 ERISA......................................................... 43 6.14 Investment Company Act; Other Regulations..................... 43 6.15 Subsidiaries.................................................. 43 6.16 Environmental Matters......................................... 43 6.17 Solvency...................................................... 44 6.18 Security Documents............................................ 44 6.19 Accuracy of Information....................................... 45 SECTION 7. CONDITIONS PRECEDENT............................................. 45 7.1 Conditions to Closing Date..................................... 45 7.2 Conditions to Each Extension of Credit......................... 48 7.3 Conditions to Initial Extension of Credit to the Foreign Subsidiary Borrower..................... 49 SECTION 8. AFFIRMATIVE COVENANTS............................................ 50 8.1 Financial Statements........................................... 50 8.2 Certificates; Other Information................................ 51 8.3 Payment of Obligations......................................... 52 8.4 Maintenance of Existence....................................... 52 8.5 Maintenance of Property; Insurance............................. 52 8.6 Inspection of Property; Books and Records; Discussions............................................ 52 8.7 Notices........................................................ 52 8.8 Environmental Laws ............................................ 53 8.9 Additional Subsidiaries........................................ 53 SECTION 9. NEGATIVE COVENANTS............................................... 54 9.1 Financial Condition Covenants.................................. 54 9.2 Limitation on Indebtedness..................................... 56 9.3 Limitation on Liens............................................ 57 9.4 Limitation on Guarantee Obligations............................ 58 -ii- 9.5 Limitation on Fundamental Changes.............................. 59 9.6 Limitation on Sale of Assets................................... 59 9.7 Limitation on Dividends and Other Restricted Payments.................................... 59 9.8 Limitation on Capital Expenditures............................. 60 9.9 Limitation on Investments, Loans and Advances............................................... 60 9.10 Limitation on Optional Payments and Modifications of Debt Instruments...................... 60 9.11 Limitation on Transactions with Affiliates.................... 60 9.12 Limitation on Sales and Leasebacks............................ 61 9.13 Limitation on Changes in Fiscal Year.......................... 61 9.14 Limitation on Negative Pledge Clauses......................... 61 9.15 Limitation on Lines of Business............................... 61 SECTION 10. GUARANTEE....................................................... 61 10.1 Guarantee..................................................... 61 10.2 No Subrogation................................................ 62 10.3 Amendments, etc. with respect to the Foreign Subsidiary Obligations; Waiver of Rights....................................... 62 10.4 Guarantee Absolute and Unconditional.......................... 63 10.5 Reinstatement................................................. 64 10.6 Payments...................................................... 64 SECTION 11. EVENTS OF DEFAULT............................................... 64 SECTION 12. THE ADMINISTRATIVE AGENT AND THE ARRANGER....................... 68 12.1 Appointment................................................... 68 12.2 Delegation of Duties.......................................... 68 12.3 Exculpatory Provisions........................................ 68 12.4 Reliance by Administrative Agent.............................. 68 12.5 Notice of Default............................................. 69 12.6 Non-Reliance on Administrative Agent and Other Lenders.......................................... 69 12.7 Indemnification............................................... 70 12.8 Administrative Agent in Its Individual Capacity............................................... 70 12.9 Successor Administrative Agent................................ 70 12.10 Issuing Lender and Collateral Agent.......................... 71 SECTION 13. MISCELLANEOUS................................................... 71 13.1 Amendments and Waivers........................................ 71 13.2 Notices....................................................... 72 13.3 No Waiver; Cumulative Remedies................................ 73 13.4 Survival of Representations and Warranties.................... 73 13.5 Payment of Expenses and Taxes................................. 73 13.6 Successors and Assigns; Participation and Assignments............................................ 74 13.7 Adjustments; Set-off.......................................... 76 13.8 Counterparts.................................................. 77 13.9 Severability.................................................. 77 -iii- 13.10 Integration.................................................. 77 13.11 GOVERNING LAW................................................ 77 13.12 Submission to Jurisdiction; Waivers.......................... 77 13.13 Acknowledgements............................................. 78 13.14 WAIVERS OF JURY TRIAL........................................ 78 13.15 Power of Attorney............................................ 78 13.16 Judgment..................................................... 79 13.17 Confidentiality.............................................. 79 -iv- SCHEDULES: I Commitments; Addresses II Domestic Subsidiaries; Foreign Subsidiaries 6.1 Contingent Liabilities 6.6 Litigation 6.8 Real Property Owned and Leased 9.2 Existing Indebtedness 9.3 Existing Liens 9.4 Existing Guarantee Obligations EXHIBITS: A-1 Form of Revolving Credit Note A-2 Form of Swing Line Note B Form of Guarantee and Collateral Agreement C Form of Swing Line Loan Participation Certificate E Form of Assignment and Acceptance F-1 Form of Opinion of Michael C. Duban F-2 Form of Opinion of Allen and Overy G Form of Closing Certificate H Form of Tax Certificate I Form of Solvency Certificate v CREDIT AND GUARANTEE AGREEMENT, dated as of September 23, 1997, among NBTY, INC., a Delaware corporation (the "COMPANY"), HOLLAND & BARRETT HOLDINGS LIMITED (the "FOREIGN SUBSIDIARY BORROWER" and together with the Company, the "BORROWERS"), the several banks and other financial institutions from time to time parties hereto (the "LENDERS") and THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Lenders hereunder (as hereinafter defined, the "ADMINISTRATIVE AGENT"). W I T N E S S E T H : - - - - - - - - - - WHEREAS, on August 7, 1997, the Company acquired (the "HOLLAND & BARRETT ACQUISITION") all of the outstanding capital stock of Holland & Barrett Holdings Limited; and WHEREAS, the Borrowers have requested the Lenders to establish a $50,000,000 revolving credit facility (the "REVOLVING CREDIT FACILITY") pursuant to which revolving credit loans may be made, subject to the limits set forth herein, to the Borrowers and letters of credit may be issued under the Revolving Credit Facility for the account of the Borrowers; and WHEREAS, the proceeds of the Revolving Credit Facility will be used to refinance a portion of the interim indebtedness incurred in connection with the Holland & Barrett Acquisition and to finance the continuing operations of the Borrowers; and WHEREAS, the Lenders are willing to provide such Revolving Credit Facility but only on the terms and conditions hereof; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties hereto agree as follows: SECTION 1. DEFINITIONS 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "ABR LOANS": Loans, the rate of interest applicable to which is based upon the Alternate Base Rate. "ACQUISITION": any transaction or series of related transactions by which the Company or any of its Subsidiaries (a) acquires any going business or all or substantially all of the assets of any Person, whether through purchase of assets, merger or otherwise or (b) directly or indirectly acquires (in one transaction or in a series of related transactions) at least (i) a majority (in number of votes) of the Capital Stock having ordinary voting power for the election of directors (or other managers) of any Person or (ii) a majority of the ownership interests in any Person. "ACQUISITION DOCUMENTS": all agreements, instruments or certificates delivered in connection with the Holland & Barrett Acquisition. "AFFILIATE": of any Person, (a) any other Person (other than a wholly owned Subsidiary of such Person) which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person or (b) any other Person who is a director or officer of (i) such Person, (ii) any Subsidiary of such Person or (iii) any Person described in clause (a) above. For purposes of this definition, a Person shall be deemed to be "controlled by" such other Person if such other Person possesses, directly or indirectly, power either to (A) vote 10% or more of the securities having ordinary voting power for the election of directors of such first Person or (B) direct or cause the direction of the management and policies of such first Person whether by contract or otherwise. "AGGREGATE AVAILABLE REVOLVING CREDIT COMMITMENTS": as at any date of determination with respect to all Lenders, an amount in U.S. Dollars equal to the Available Revolving Credit Commitments of all Lenders on such date. "AGGREGATE POUNDS STERLING OUTSTANDING": as at any date of determination with respect to any Lender, an amount in Pounds Sterling equal to the aggregate unpaid principal amount of such Lender's Pounds Sterling Loans. "AGGREGATE REVOLVING CREDIT COMMITMENTS": the aggregate amount of the Revolving Credit Commitments of all the Lenders. "AGGREGATE REVOLVING CREDIT OUTSTANDING": as at any date of determination with respect to any Lender, the sum of (a) the aggregate unpaid principal amount of such Lender's Revolving Credit Loans on such date and (b) such Lender's Revolving Credit Commitment Percentage of the aggregate Letter of Credit Obligations and Swing Line Loans on such date and (c) the U.S. Dollar Equivalent of the Aggregate Pounds Sterling Outstanding of such Lender. "AGREEMENT": this Credit and Guarantee Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "AGREEMENT CURRENCY": as defined in subsection 13.16(b). "ALTERNATE BASE RATE": for any day, a rate of interest per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of Federal Funds Effective Rate for such day plus 1/2% per annum. For purposes hereof: "PRIME RATE" means a rate per annum equal to the prime rate of interest announced by Chase from time to time, changing when and as said prime rate changes; and "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "ANNUALIZED": with respect to the determination of any financial results for any period (a) if such period is the period ending on September 30, 1997, the applicable financial result for the fiscal quarter ended on such date multiplied by four (4), (b) if such period is the period ending on December 31, 1997, the applicable financial result for the two fiscal quarters ended on such date multiplied by two (2), (c) if such period is the period ending on March 31, 1998, the applicable financial result for the three fiscal quarters ended on such date multiplied by four-thirds (4/3) and (d) for any period ending thereafter, the applicable financial result for the four fiscal quarters ended on such date. "APPLICABLE MARGIN": for each Type of Loan and for purposes of Section 5.5, the rate per annum set forth under the relevant column heading below: 2 Applicable Margin for Applicable Margin Eurodollar Loans and for Alternate Base Applicable Pounds Sterling Loans Rate Loans Commitment Fee --------------------- ------------------ -------------- 1.50% .50% 0.375% ; PROVIDED that in the event that the ratio of Consolidated Indebtedness of the Company and its Subsidiaries to Consolidated EBITDA of the Company and its Subsidiaries, as most recently determined in accordance with subsection 8.1(a) or (b), is as set forth in the relevant column heading below for any quarterly period, any such Applicable Margin with respect to Loans and the commitment fee shall be as provided in the relevant column heading below, but in no event shall any such reductions be effective prior to December 31, 1997: Relevant Ratio Applicable Applicable Applicable of Consolidated Margin For Margin for Margin for Indebtedness to Eurodollar Loans Alternate Base Commitment Fee Consolidated and Pounds Sterling Rate Loans EBITDA Loans ---------------- ------------------- --------------- -------------- Greater than or equal 1.75% 0.75% 0.375% to 3.50x Less than 3.50x but greater 1.50% 0.50% 0.375% than or equal to 3.00x Less than 3.00x but greater 1.25% 0.25% 0.250% than or equal to 2.50x Less than 2.50x 1.00% -0- 0.250% if and in the event the financial statements required to be delivered pursuant to subsection 8.1(a) or 8.1(b), as applicable, and the related compliance certificate required to be delivered pursuant to subsection 8.2(b), are delivered on or prior to the date when due (or, in the case of the fourth quarterly period of each fiscal year of the Company, if financial statements which satisfy the requirements of, and are delivered within the time period specified in, subsection 8.1(b) and a related compliance certificate which satisfies the requirements of, and is delivered within the time period specified in, subsection 8.2(b), with respect to any such quarterly period are so delivered within such time periods), then the Applicable Margin during the period from the date that is five Business Days later than the date upon which such financial statements were due to be delivered shall be the Applicable Margin as set forth in the relevant column heading above; PROVIDED, HOWEVER, that in the event that the financial statements delivered pursuant to subsection 8.1(a) or 8.1(b), as applicable, and the related compliance certificate required to be delivered pursuant to subsection 8.2(b), are not delivered when due, then: (a) if such financial statements and certificate are delivered after the date such financial statements and certificate were required to be delivered (without giving effect to any applicable cure period) and the Applicable Margin increases from that previously in effect as a result of the delivery of such financial statements, then the Applicable Margin during the period from the date upon which such financial statements were required to be delivered (without giving effect to any applicable cure period) until the date upon which they actually are delivered shall, except 3 as otherwise provided in clause (c) below, be the Applicable Margin as so increased; (b) if such financial statements and certificate are delivered after the date such financial statements and certificate were required to be delivered and the Applicable Margin decreases from that previously in effect as a result of the delivery of such financial statements, then such decrease in the Applicable Margin shall not become applicable until the date upon which the financial statements and certificate actually are delivered; and (c) if such financial statements and certificate are not delivered prior to the expiration of the applicable cure period, then, effective upon such expiration, for the period from the date upon which such financial statements and certificate were required to be delivered (after the expiration of the applicable cure period) until two Business Days following the date upon which they actually are delivered, the Applicable Margin in respect of Revolving Credit Loans shall be 2-1/2%, in the case of Eurodollar Loans, and 1-1/2%, in the case of Alternate Base Rate Loans, and 1/2%, in the case of subsection 5.5 (it being understood that the foregoing shall not limit the rights of the Administrative Agent and the Lenders set forth in Section 11). "ASSET SALE": any sale, sale-leaseback, or other disposition by the Company or any Subsidiary thereof of any of its property or assets, including the stock of any Subsidiary, other than any sale, sale-leaseback or other disposition permitted under subsections 9.6(a) through (d) or subsection 9.12. "ASSIGNEE": as defined in subsection 13.6(c). "AVAILABLE REVOLVING CREDIT COMMITMENT": as at any date of determination with respect to any Lender, an amount in U.S. Dollars equal to the excess, if any, of (a) the amount of such Lender's Revolving Credit Commitment in effect on such date OVER (b) the Aggregate Revolving Credit Outstanding of such Lender on such date. "BENEFITTED LENDER": as defined in subsection 13.7. "BOARD": the Board of Governors of the Federal Reserve System (or any successor thereto). "BORROWERS": as defined in the preamble hereto. "BORROWING DATE": any Business Day specified in a notice pursuant to subsection 2.2, 2.5(a) 3.2 or 4.2 as a date on which a Borrower requests the Lenders to make Loans hereunder or issue a Letter of Credit. "BUSINESS DAY": (a) for all purposes other than as covered by clause (b) below, a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans and Loans in Pounds Sterling, any day which is a Business Day, described in clause (a) and which is also a London Banking Day. "CAPITAL EXPENDITURES": direct or indirect (by way of the acquisition of securities of a Person or the expenditure of cash or the incurrence of 4 Indebtedness) expenditures (other than expenditures in connection with Acquisitions permitted hereunder) in respect of the purchase or other acquisition of fixed or capital assets. "CAPITAL STOCK": any and all shares, interests, participation or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants or options to purchase any of the foregoing. "CASH EQUIVALENTS": (a) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition and overnight bank deposits of any Lender or of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-2 by Standard and Poor's Rating Group ("S&P") or P-2 by Moody's Investors Service, Inc. ("MOODY'S"), (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's (or the equivalent rating by either such rating agency for such type of securities), (f) securities with maturities of one year or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. "CHASE": The Chase Manhattan Bank. "CLASS": the classification of loans as Revolving Credit Loans, Swing Line Loans or Pounds Sterling Loans, each of which categories shall be deemed to be a "Class" of Loans. "CLOSING DATE": the date on or before October 31, 1997 on which all of the conditions precedent set forth in subsection 7.1 shall have been met or waived. "CODE": the Internal Revenue Code of 1986, as amended from time to time. "COMMERCIAL LETTERS OF CREDIT": as defined in subsection 4.1(ii). "COMMITMENTS": the collective reference to the Revolving Credit Commitments, Swing Line Commitment and the Pounds Sterling Commitments. "COMMONLY CONTROLLED ENTITY": an entity, whether or not incorporated, which is under common control with the Company within the meaning of Section 4001 of ERISA or is part of a group which includes the Company and which is treated as a single employer under Section 414 of the Code. "CONSOLIDATED DEBT SERVICE": for any period, the sum of (a) the Annualized Consolidated Interest Expense of the Company for such period, PLUS (b) the principal amounts of all long-term indebtedness payable by the 5 Company and its Subsidiaries during the next succeeding twelve-month period determined in accordance with GAAP, excluding, however, from such indebtedness the Loans during the final twelve months of the Revolving Credit Commitment Period. "CONSOLIDATED EBITDA": for any period, the sum of (i) Annualized Consolidated Net Income for such period, (ii) Annualized Consolidated Interest Expense for such period, (iii) the Annualized amount of taxes, depreciation and amortization deducted from earnings in determining such Consolidated Net Income and (iv) to the extent deducted in determining such Consolidated Net Income, Annualized extraordinary charges of the Company relating to the Holland & Barrett Acquisition arising during the fourth fiscal quarter of 1997, not to exceed $6,000,000. "CONSOLIDATED FIXED CHARGE COVERAGE RATIO": for any period, the ratio of (i) the result of (A) the Consolidated EBITDA of the Company and its Subsidiaries minus (B) their Annualized Capital Expenditures to (ii) the Consolidated Debt Service of the Company and its Subsidiaries, in the case of clause (i) and (ii), for such period. "CONSOLIDATED INDEBTEDNESS": at a particular date, all Indebtedness of the Company and its Subsidiaries, determined on a consolidated basis. "CONSOLIDATED INTEREST EXPENSE": for any fiscal period, the amount which would, in conformity with GAAP, be set forth opposite the caption "interest expense" (or any like caption) on a consolidated income statement of the Company and its Subsidiaries for such period. "CONSOLIDATED NET INCOME": for any fiscal period, the consolidated net income (or deficit) of the Company and its Subsidiaries for such period (taken as a cumulative whole), determined on a consolidated basis in accordance with GAAP; PROVIDED, that any non-cash extraordinary gains and losses shall be excluded in determining Consolidated Net Income. "CONSOLIDATED NET WORTH": at a particular date, all amounts which would, in conformity with GAAP, be included on a consolidated balance sheet of the Company and its Subsidiaries under "stockholders' equity" (or any like caption) as of such date. "CONTINUING DIRECTORS": the directors of the Company on the Closing Date and each other director, if such other director's nomination for election to the Board of Directors of the Company is recommended by a majority of the then Continuing Directors. "CONTRACTUAL OBLIGATION": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "DEFAULT": any of the events specified in Section 11, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "DOLLARS", "U.S. DOLLARS" and "$": dollars in lawful currency of the United States of America. "DOMESTIC SUBSIDIARY": any Subsidiary other than a Foreign Subsidiary. "ENGLISH SECURITY DOCUMENTS": the collective reference to (i) a Debenture by the Company in favor of the Administrative Agent for the 6 benefit of the Lenders of 65% of the Capital Stock of Holland & Barrett and 65% of the Capital Stock of Vitamin World Limited in form and substance reasonably satisfactory to the Administrative Agent and (ii) Agreements in form and substance satisfactory to the Administrative Agent providing for a lien on the material assets of the Foreign Subsidiary Borrower securing its Obligations. "ENVIRONMENTAL COMPLAINT": any complaint, order, citation, notice or other written communication from any Person with respect to the existence or alleged existence of a violation of any Environmental Laws or legal liability resulting from air emissions, water discharges, noise emissions, Hazardous Material or any other environmental, health or safety matter. "ENVIRONMENTAL LAWS": any and all applicable Federal, foreign, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority and any and all common law requirements, rules and bases of liability regulating, relating to or imposing liability or standards of conduct concerning pollution or protection of the environment or the Release or threatened Release of Hazardous Materials, as now or hereafter in effect. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "EUROCURRENCY LIABILITIES": at any time, all reserve requirements in effect at such time (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "EUROCURRENCY RATE": with respect to any Pounds Sterling Loan for the relevant Interest Period, the rate determined by the Administrative Agent to be the rate at which Chase offers to place deposits in Pounds Sterling with first-class banks in the London interbank market at approximately 11 A.M. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of Chase's relevant Pounds Sterling Loan and having a maturity approximately equal to such Interest Period. The Eurocurrency Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "EURODOLLAR BASE RATE": with respect to a Eurodollar Loan for the relevant Interest Period, the applicable London interbank offered rate for deposits in U.S. Dollars appearing on Telerate Page 3750 as of 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period, and having a maturity approximately equal to such Interest Period. If no London interbank offered rate of such maturity then appears on Telerate Page 3750, then the Eurodollar Base Rate shall be equal to the London interbank offered rate for deposits in U.S. Dollars maturing immediately before or immediately after such maturity, whichever is higher, as determined by the Administrative Agent from Telerate Page 3750. If Telerate Page 3750 is not available, the applicable Eurodollar Base Rate for the relevant Interest Period shall be the rate determined by the Administrative Agent to be the rate at which Chase offers to place deposits in U.S. Dollars with first-class banks in the London interbank market at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of Chase's relevant portion of the Eurodollar Loan and having a maturity approximately equal to such Interest Period. 7 "EURODOLLAR LOANS": Revolving Credit Loans the rate of interest applicable to which is based upon the Eurodollar Rate. "EURODOLLAR RATE": with respect to a Eurodollar Loan for the relevant Interest Period, the quotient of (a) the Eurodollar Base Rate applicable to such Interest Period, divided by (b) one minus the Eurocurrency Liabilities (expressed as a decimal) applicable to such Interest Period. The Eurodollar Rate shall be rounded to the next higher multiple of 1/16 of 1% if the rate is not such a multiple. "EVENT OF DEFAULT": any of the events specified in Section 11, PROVIDED that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "EXCHANGE ACT": the Securities Exchange Act of 1934, as amended. "EXTENSION OF CREDIT": as to any Lender, the making of a Loan by such Lender and, with respect to any Lender, the issuance of any Letter of Credit. "FINANCING LEASE": (a) any lease of property, real or personal, the obligations under which are capitalized on a consolidated balance sheet of the Company and its Subsidiaries and (b) any other such lease to the extent that the then present value of the minimum rental commitment thereunder should, in accordance with GAAP, be capitalized on a balance sheet of the lessee. "FOREIGN SUBSIDIARY": as to any Person, any Subsidiary of such Person which is organized under the laws of any jurisdiction outside of the country of the jurisdiction of organization of such Person. "FOREIGN SUBSIDIARY BORROWER": as defined in the preamble hereto. "GAAP": generally accepted accounting principles in the United States of America in effect from time to time. "GEL CAP FACILITY": the soft gelatin capsule manufacturing facility located at Cartwright Loop Industrial Park, Church Street, Bayport, New York. "GOVERNMENTAL AUTHORITY": any nation or government, any state, province or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GUARANTEE AND COLLATERAL AGREEMENT": the Guarantee and Collateral Agreement, substantially in the form of Exhibit B, to be executed and delivered on the Closing Date by the Company and each of its Domestic Subsidiaries, as the same may be amended, supplemented or otherwise modified. "GUARANTEE OBLIGATION": as to any Person, any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS") of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor 8 or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation shall be deemed to be an amount equal to the value as of any date of determination of the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made (unless such Guarantee Obligation shall be expressly limited to a lesser amount, in which case such lesser amount shall apply) or, if not stated or determinable, the value as of any date of determination of the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith. "HAZARDOUS MATERIALS": any solid wastes, toxic or hazardous substances, materials or wastes, defined, listed, classified or regulated as such in or under any Environmental Laws, including, without limitation, asbestos, petroleum or petroleum products (including gasoline, crude oil or any fraction thereof), polychlorinated biphenyls, and urea-formaldehyde insulation, and any other substance the presence of which may give rise to liability under any Environmental Law. "HEDGE AGREEMENT": any interest rate protection agreement, interest rate swap or other interest rate hedge arrangement, or currency swap or other currency hedge arrangement (other than any interest rate cap or other similar agreement or arrangement pursuant to which the Company has no credit exposure), to or under which the Company or any of its Subsidiaries is a party or a beneficiary. "HEDGE AGREEMENT OBLIGATIONS": all obligations of the Company under any one or more Hedge Agreements to make payments to the counterparties thereunder upon the occurrence of a termination event or similar event thereunder. "HOLLAND & BARRETT": Holland & Barrett Holdings Limited. "HOLLAND & BARRETT ACQUISITION": as defined in the recitals hereto. "INDEBTEDNESS": of a Person, at a particular date, the sum (without duplication) at such date of (a) indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which such Person is liable as obligor (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices), (b) indebtedness secured by any Lien on any property or asset owned or held by such Person regardless of whether the indebtedness secured thereby shall have been assumed by or is a primary liability of such Person, (c) obligations of such Person under Financing Leases, (d) the face amount of all letters of credit issued for the account of such person and, without duplication, the unreimbursed amount of all drafts drawn thereunder and (e) obligations (in the nature of principal or interest) of such Person in respect of acceptances or similar obligations issued or created for the account of such Person. "INSOLVENCY": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "INSOLVENT": pertaining to a condition of Insolvency. "INTEREST PAYMENT DATE": (a) as to any ABR Loan, the last day of each March, June, September and December to occur while such Loan is 9 outstanding, (b) as to any Eurodollar Loan or Pounds Sterling Loan having an Interest Period of three months or less, the last day of such Interest Period and (c) as to any Eurodollar Loan or Pounds Sterling Loan having an Interest Period longer than three months, (i) each day which is three months after the first day of such Interest Period and (ii) the last day of such Interest Period. "INTEREST PERIOD": with respect to any Eurodollar Loan or Pounds Sterling Loan: (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan or Pounds Sterling Loan and ending one, two, three or six months thereafter, as selected by the relevant Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan or Pounds Sterling Loan and ending one, two, three or six months thereafter, as selected by the relevant Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; PROVIDED that, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period pertaining to a Eurodollar Loan or Pounds Sterling Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period applicable to a Eurodollar Loan or Pounds Sterling Loan that would otherwise extend beyond the Revolving Credit Termination Date shall end on the Revolving Credit Termination Date; and (iii) any Interest Period pertaining to a Eurodollar Loan or Pounds Sterling Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month. "ISSUING LENDER": Chase or any of its Affiliates, in its capacity as issuer of the Letters of Credit and any other Lender which the Company, the Administrative Agent and the Majority Lenders shall have approved, in its capacity as issuer of the Letters of Credit. "JUDGMENT CURRENCY": as defined in subsection 13.16(b). "LENDERS": as defined in the preamble hereto. "LETTER OF CREDIT APPLICATIONS": (a) in the case of Standby Letters of Credit, a letter of credit application for a Standby Letter of Credit on the standard form of the applicable Issuing Lender for standby letters of credit, and (b) in the case of Commercial Letters of Credit, a letter of credit application for a Commercial Letter of Credit on the standard form of the applicable Issuing Lender for commercial letters of credit. 10 "LETTER OF CREDIT OBLIGATIONS": at any particular time, all liabilities of the Company with respect to Letters of Credit, whether or not any such liability is contingent, including (without duplication) the sum of (a) the aggregate undrawn face amount of all Letters of Credit then outstanding plus (b) the aggregate amount of all unpaid Reimbursement Obligations. "LETTERS OF CREDIT": as defined in subsection 4.1(ii). "LIEN": any mortgage, pledge, hypothecation, assignment, deposit arrangement (other than a bank or similar deposit account), encumbrance, lien (statutory or other), or preference, priority or other security agreement or similar preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any Financing Lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). "LOAN DOCUMENTS": the collective reference to this Agreement, any Notes, any documents or instruments evidencing or governing the Security Documents. "LOAN PARTIES": the collective reference to the Company, the Foreign Subsidiary Borrower and each guarantor or grantor party to any Security Document. "LOANS": the collective reference to the Revolving Credit Loans, the Swing Line Loans and the Pounds Sterling Loans. "LONDON BANKING DAY": any day on which banks in London are open for general banking business, including dealings in foreign currency and exchange. "MAJORITY LENDERS": at any time, Lenders the Revolving Credit Commitment Percentages of which aggregate more than 50%. "MATERIAL ADVERSE EFFECT": a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole or (b) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder. "MATERIAL ENVIRONMENTAL AMOUNT": $500,000. "MATERIAL FOREIGN SUBSIDIARY": any Foreign Subsidiary accounting for 5% or more of the assets or revenues of the Company and its consolidated Subsidiaries, taken as a whole. "MOODY'S": Moody's Investors Service, Inc. or any successor thereto. "MULTIEMPLOYER PLAN": a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "NON-EXCLUDED TAXES": as defined in subsection 5.12(a). "NOTES": the collective reference to the Revolving Credit Notes, Swing Line Notes and any note delivered pursuant to subsection 7.3(e). 11 "OBLIGATIONS": collectively, the unpaid principal of and interest on the Loans, the Reimbursement Obligations and all other obligations and liabilities of the Company and the Foreign Subsidiary Borrower to the Administrative Agent, the Issuing Lender and the Lenders under or in connection with this Agreement, the other Loan Documents and any Hedge Agreement with any Lender (including in each case, without limitation, interest accruing at the then applicable rate provided in this Agreement or any other applicable Loan Document or Hedge Agreement after the maturity of the Loans and interest accruing at the then applicable rate provided in this Agreement or any other applicable Loan Document or Hedge Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Company, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, the Notes, the Letters of Credit, the Letter of Credit Applications, the other Loan Documents or any Hedge Agreement with a Lender or any other document made, delivered or given in connection therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agents or to the Lenders). "PARTICIPANTS": as defined in subsection 13.6(b). "PARTICIPATING INTEREST": with respect to any Letter of Credit (a) in the case of the Issuing Lender, its interest in such Letter of Credit and any Letter of Credit Application relating thereto after giving effect to the granting of any participating interests therein pursuant hereto and (b) in the case of each Participating Lender, its undivided participating interest in such Letter of Credit and any Letter of Credit Application relating thereto. "PARTICIPATING LENDER": any Lender (other than the Issuing Lender) with respect to its Participating Interest in a Letter of Credit. "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. "PERSON": an individual, partnership, corporation, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "PLAN": at a particular time, any employee benefit plan which is covered by ERISA and in respect of which the Company or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "PLEDGED STOCK": as defined in the Guarantee and Collateral Agreement or any other Security Document. "POUNDS STERLING": pounds sterling in lawful currency of the United Kingdom. "POUNDS STERLING COMMITMENT": any Lender's obligation to make Pounds Sterling Loans pursuant to subsection 3.1. "POUNDS STERLING LOANS": as defined in subsection 3.1. 12 "PROPERTY": each parcel of real property owned or operated by the Company and its Subsidiaries. "REGISTER": as defined in subsection 13.6(d). "REIMBURSEMENT OBLIGATION": the obligation of the Company to reimburse the Issuing Lender in accordance with the terms of this Agreement and the related Letter of Credit Application for any payment made by the Issuing Lender under any Letter of Credit. "RELEASE" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, escaping, leaking, dumping, disposing, spreading, depositing or dispersing of any Hazardous Materials in, unto or onto the environment. "REORGANIZATION": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "REPORTABLE EVENT": any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty day notice period is waived under any of subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. ss. 4043 or any successor regulation thereto. "REQUIREMENT OF LAW": as to (a) any Person, the certificate of incorporation and by-laws or the partnership or limited partnership agreement or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject, and (b) any property, any law, treaty, rule, regulation, requirement, judgment, decree or determination of any Governmental Authority applicable to or binding upon such property or to which such property is subject, including, without limitation, any Environmental Laws. "RESPONSIBLE OFFICER": with respect to any Loan Party, the chief executive officer, the president, the chief financial officer, any vice president, the treasurer or the assistant treasurer of such Loan Party. "RESTRICTED PAYMENTS": as defined in subsection 9.7. "REVOLVING CREDIT COMMITMENT": as to any Lender at any time, its obligation to make Revolving Credit Loans to, and/or participate in Letters of Credit issued for the account of or Swing Line Loans to, the Company in an aggregate amount not to exceed at any time outstanding the U.S. Dollar amount set forth opposite such Lender's name in Schedule I under the heading "Revolving Credit Commitment", as such amount may be reduced from time to time pursuant to subsection 2.4 and the other applicable provisions hereof. "REVOLVING CREDIT COMMITMENT PERCENTAGE": as to any Lender at any time, the percentage which such Lender's Revolving Credit Commitment then constitutes of the Aggregate Revolving Credit Commitments (or, if the Revolving Credit Commitments have terminated or expired, the percentage which (a) the Aggregate Revolving Credit Outstanding of such Lender at such time then constitutes of (b) the Aggregate Revolving Credit Outstanding of all Lenders at such time). 13 "REVOLVING CREDIT COMMITMENT PERIOD": the period from and including the Closing Date to but not including the Revolving Credit Termination Date, or such earlier date on which the Revolving Credit Commitments shall terminate as provided herein. "REVOLVING CREDIT LOAN": as defined in subsection 2.1. "REVOLVING CREDIT NOTE": as defined in subsection 2.3(e). "REVOLVING CREDIT TERMINATION DATE": September 30, 2003. "SECURITIES ACT": the Securities Act of 1933, as amended. "SECURITY DOCUMENTS": the collective reference to the Guarantee and Collateral Agreement and the English Security Documents and each other pledge agreement, security document or similar agreement that may be delivered to the Administrative Agent as collateral security for any or all of the Obligations, in each case as amended, supplemented or otherwise modified from time to time. "SINGLE EMPLOYER PLAN": any Plan which is covered by Title IV of ERISA, but which is not a Multiemployer Plan. "SOLVENT": with respect to any Person on a particular date, the condition that on such date, (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and mature, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small amount of capital. "STANDBY LETTERS OF CREDIT": as defined in subsection 4.1(i). "SUBORDINATED DEBT": up to $150,000,000 in aggregate principal amount of 8.625% Senior Subordinated Notes of the Company due 2007 having terms and conditions satisfactory to the Lenders. "SUBSIDIARY": as to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries, or both, by such Person (exclusive of any Affiliate in which such Person has a minority ownership interest). Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. "SWING LINE COMMITMENT": the Swing Line Lender's obligation to make Swing Line Loans pursuant to subsection 2.5. "SWING LINE LENDER": Chase, in its capacity as lender of the Swing Line Loans. 14 "SWING LINE LOAN PARTICIPATION CERTIFICATE": a certificate in substantially the form of Exhibit C, as the same may be amended, supplemented or otherwise modified from time to time. "SWING LINE LOANS": as defined in subsection 2.5(a). "SWING LINE NOTE": as defined in subsection 2.3(e). "TRANCHE": the collective reference to Eurodollar Loans or Pounds Sterling Loans the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day). "TRANSFEREE": as defined in subsection 13.6(f). "TYPE": as to any Loan, its nature as an ABR Loan, a Eurodollar Loan or a Pounds Sterling Loan. "UK GAAP": generally accepted accounting principles in the United Kingdom in effect from time to time. "U.S. DOLLAR EQUIVALENT": with respect to an amount denominated in any currency other than U.S. Dollars, the equivalent in U.S. Dollars of such amount, calculated on the basis of the arithmetical mean of the buy and sell spot rates of exchange of the Administrative Agent for such currency in the London market at 11:00 a.m. London time, two Business Days prior to the date on which such amount is to be determined. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Notes, the other Loan Documents or any certificate or other document made or delivered pursuant hereto. (b) As used herein and in the Notes and any other Loan Document, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Company and its Subsidiaries not defined in subsection 1.1 and accounting terms partly defined in subsection 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP PROVIDED that, if the Company notifies the Administrative Agent that the Company requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Company that the Majority Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. 15 SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS 2.1 REVOLING CREDIT COMMITMENTS. (a) Subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans (each, a "REVOLVING CREDIT LOAN") in U.S. Dollars to the Company from time to time during the Revolving Credit Commitment Period so long as after giving effect thereto (i) the Available Revolving Credit Commitment of each Lender is greater than or equal to zero and (ii) the Aggregate Revolving Credit Outstanding of all Lenders do not exceed the Aggregate Revolving Credit Commitments. During the Revolving Credit Commitment Period the Company may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. (b) The Revolving Credit Loans may from time to time be (i) Eurodollar Loans, (ii) ABR Loans or (iii) a combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with subsections 2.2 and 5.2, PROVIDED that no Revolving Credit Loan shall be made as a Eurodollar Loan after the day that is one month prior to the Revolving Credit Termination Date. 2.2 PROCEDURE FOR REVOLVING CREDIT BORROWING. The Company may borrow under the Revolving Credit Commitments during the Revolving Credit Commitment Period on any Business Day, PROVIDED that the Company shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 11:00 A.M. (New York time) at least (a) three Business Days prior to the requested Borrowing Date, if all or any part of the requested Revolving Credit Loans are to be initially Eurodollar Loans, or (b) one Business Day prior to the requested Borrowing Date, otherwise), specifying in each case (i) the amount to be borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the borrowing is to be entirely or partly of Eurodollar Loans, the amount of such Type of Loan and the length of the initial Interest Periods therefor. Each borrowing under the Revolving Credit Commitments shall be in an amount equal to (A) in the case of ABR Loans, $1,000,000 or a whole multiple of $1,000,000 in excess thereof (or, if the then Aggregate Available Revolving Credit Commitments are less than $1,000,000, such lesser amount) and (B) in the case of Eurodollar Loans, $5,000,000 or a whole multiple of $5,000,000 in excess thereof. Upon receipt of any such notice from the Company, the Administrative Agent shall promptly notify each Lender thereof. Not later than 12:00 Noon, New York City time, on each requested Borrowing Date each Lender shall make an amount equal to its Revolving Credit Commitment Percentage of the principal amount of the Revolving Credit Loans requested to be made on such Borrowing Date available to the Administrative Agent at its office specified in subsection 13.2 in U.S. Dollars and in immediately available funds. The Administrative Agent shall on such date credit the account of the Company on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Lenders and in like funds as received by the Administrative Agent. 2.3 REPAYMENT OF REVOLVING CREDIT LOANS; EVIDENCE OF DEBT. (a) The Company hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Credit Loan of such Lender (whether made before or after the termination or expiration of the Revolving Credit Commitments) on the Revolving Credit Termination Date and on such other dates and in such other amounts as may be required from time to time pursuant to this Agreement. The Company hereby further agrees to pay interest on the unpaid principal amount of the Revolving Credit Loans from time to time outstanding until payment thereof in full at the rates per annum, and on the dates, set forth in subsection 5.1. 16 (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Company to such Lender resulting from each Revolving Credit Loan of such Lender from time to time, including the amounts of principal and interest payable thereon and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to subsection 13.6(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Revolving Credit Loan made hereunder, the Type thereof and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to each Lender hereunder in respect of the Revolving Credit Loans and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Company in respect of the Revolving Credit Loans and each Lender's share thereof. (d) The entries made in the Register and the accounts of each Lender maintained pursuant to subsection 2.3(b) shall, to the extent permitted by applicable law, be PRIMA FACIE evidence of the existence and amounts of the obligations of the Company therein recorded; PROVIDED, HOWEVER, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Company to repay (with applicable interest) the Revolving Credit Loans made to the Company by such Lender in accordance with the terms of this Agreement. (e) The Company agrees that it will execute and deliver to such Lender (i) a promissory note of the Company evidencing the Revolving Credit Loans of such Lender, substantially in the form of Exhibit A-1 with appropriate insertions as to date and principal amount (each, a "REVOLVING CREDIT NOTE") and/or (ii) a promissory note of the Company evidencing the Swing Line Loans of such Lender, substantially in the form of Exhibit A-2 with appropriate insertions as to date and principal amount; PROVIDED, that the delivery of such Revolving Credit Notes and such Swing Line Notes shall not be a condition precedent to the Closing Date. 2.4 TERMINATION OR REDUCTION OF REVOLVING CREDIT COMMITMENTS. The Company shall have the right, upon not less than five Business Days' notice to the Administrative Agent, to terminate the Revolving Credit Commitments or, from time to time, to reduce the amount of the Revolving Credit Commitments; PROVIDED that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments of the Loans made on the effective date thereof, the Available Revolving Credit Commitment of any Lender would not be greater than or equal to zero. Any such reduction shall be in an amount equal to $1,000,000 or a whole multiple of $1,000,000 in excess thereof and shall reduce permanently the Revolving Credit Commitments then in effect. 2.5 SWING LINE COMMITMENT. (a) Subject to the terms and conditions hereof, the Swing Line Lender agrees to make swing line loans (individually, a "SWING LINE LOAN"; collectively, the "SWING LINE LOANS") to the Company from time to time during the Revolving Credit Commitment Period in an aggregate principal amount at any one time outstanding not to exceed $5,000,000; PROVIDED that the Swing Line Lender shall not make any Swing Line Loan if, after giving effect thereto, the sum of the Swing Line Loans, the Revolving Credit Loans and Letter of Credit Obligations (in each case after giving effect to the Loans requested to be made and the Letters of Credit requested to be issued on such date) exceed the Revolving Credit Commitments. During the Revolving Credit Commitment Period, the Company may use the Swing Line Commitment by borrowing, prepaying the Swing Line loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. All Swing Line Loans shall be made as ABR Loans and shall not be entitled to be converted into Eurodollar Loans. The Company shall give the Swing Line Lender irrevocable notice (which notice must be received by the Swing Line Lender prior to 12:00 Noon, New York City time) on the requested Borrowing Date specifying the amount of the requested Swing Line Loan which shall be in a minimum amount of $100,000 or a 17 whole multiple of $100,000 in excess thereof. The proceeds of the Swing Line Loan will be made available by the Swing Line Lender to the Company at the office of the Swing Line Lender by 3:00 p.m. on the Borrowing Date by crediting the account of the Company at such office with such proceeds. The Company may at any time and from time to time prepay the Swing Line Loans, in whole or in part, without premium or penalty, by notifying the Swing Line Lender prior to 12:00 Noon on any Business Day of the date and amount of prepayment. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. Partial prepayments shall be in an aggregate principal amount of $100,000 or a whole multiple of $100,000 in excess thereof. (b) The Swing Line Lender, at any time in its sole and absolute discretion may, on behalf of the Company (which hereby irrevocably directs the Swing Line Lender to act on its behalf) request each Lender, including the Swing Line Lender, to make a Revolving Credit Loan in an amount equal to such Lender's Commitment Percentage of the amount of the Swing Line Loans outstanding on the date such notice is given (the "REFUNDED SWING LINE LOANS"). Unless any of the events described in paragraph (h) of Section 11 shall have occurred with respect to the Company (in which event the procedures of paragraph (d) of this subsection 2.5 shall apply) each Lender shall make the proceeds of its Revolving Credit Loan available to the Administrative Agent for the account of the Swing Line Lender at the office of the Administrative Agent specified in subsection 13.2 prior to 12:00 Noon (New York City time) in funds immediately available on the Business Day next succeeding the date such notice is given. The proceeds of such Revolving Credit Loans shall be immediately applied to repay the Refunded Swing Line Loans. Effective on the day such Revolving Credit Loans are made, the portion of the Swing Line Loans so paid shall no longer be outstanding as Swing Line Loans, shall no longer be due under any Swing Line Note and shall be due under the respective Revolving Credit Loans made by the Lenders in accordance with their respective Revolving Credit Commitment Percentages. (c) Notwithstanding anything herein to the contrary, the Swing Line Lender shall not be obligated to make any Swing Line Loans if the conditions set forth in subsection 7.2 have not been satisfied. (d) If prior to the making of a Revolving Credit Loan pursuant to paragraph (b) of this subsection 2.5 one of the events described in paragraph (h) of Section 11 shall have occurred and be continuing with respect to the Company, each Lender will, on the date such Revolving Credit Loan was to have been made pursuant to the notice in subsection 2.5, purchase an undivided participating interest in the Refunded Swing Line Loans in an amount equal to (i) its Revolving Credit Commitment Percentage TIMES (ii) the Refunded Swing Line Loans. Each Lender will immediately transfer to the Swing Line Lender, in immediately available funds, the amount of its participation, and upon receipt thereof the Swing Line Lender will deliver to such Lender a Swing Line Loan Participation Certificate dated the date of receipt of such funds and in such amount. (e) Whenever, at any time after any Lender has purchased a participating interest in a Swing Line Loan, the Swing Line Lender receives any payment on account thereof, the Swing Line Lender will distribute to such Lender its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded); PROVIDED, HOWEVER, that in the event that such payment received by the Swing Line Lender is required to be returned, such Lender will return to the Swing Line Lender any portion thereof previously distributed by the Swing Line Lender to it. (f) Each Lender's obligation to make the Loans referred to in subsection 2.5(b) and to purchase participating interests pursuant to subsection 18 2.5(d) shall be absolute, irrevocable and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which such Lender or the Company may have against the Swing Line Lender, the Company or any other Person for any reason whatsoever, (ii) the occurrence or continuance of a Default or an Event of Default; (iii) any adverse change in the condition (financial or otherwise) of the Company or any other Loan Party; (iv) any breach of this Agreement or any other Loan Document by the Company or any of its Subsidiaries or any other Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. SECTION 3. AMOUNT AND TERMS OF POUNDS STERLING COMMITMENT 3.1 POUNDS STERLING COMMITMENTS. Subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans (each, a "POUNDS STERLING LOAN") in Pounds Sterling to the Company or the Foreign Subsidiary Borrower from time to time during the Revolving Credit Commitment Period so long as after giving effect thereto (a) the Available Revolving Credit Commitment of each Lender is greater than or equal to zero, (b) the Aggregate Revolving Credit Outstanding of all Lenders do not exceed the Aggregate Revolving Credit Commitments and (c) the aggregate principal amount of all Pounds Sterling Loans shall not exceed Pound Sterling equivalent of $10,000,000. During the Revolving Credit Commitment Period, the Company or the Foreign Subsidiary Borrower may use the Revolving Credit Commitments by borrowing, repaying the Pounds Sterling Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. For the purpose of determining the Aggregate Revolving Credit Outstanding on the date of a requested Pounds Sterling Loan, the U.S. Dollar Equivalent of the Pounds Sterling Loan then being requested shall be aggregated with the U.S. Dollar Equivalents of all Pounds Sterling Loans then outstanding (the U.S. Dollar Equivalent of each such outstanding Pounds Sterling Loan to be calculated as of the date of the most recent continuation of such Pounds Sterling Loan pursuant to subsection 3.2(d) or, if not previously continued, the date of the initial Pounds Sterling Loan). 3.2 MAKING THE POUNDS STERLING LOANS. (a) Each Pounds Sterling Loan shall be made on notice, given by the Company to the Administrative Agent not later than 11:00 A.M. (London time) on the third Business Day prior to the date of the proposed Pounds Sterling Loan. Each such notice shall specify therein (i) the name of the Borrower, (ii) the date of such proposed Pounds Sterling Loan, (iii) the aggregate amount of such proposed Pounds Sterling Loan and (iv) the initial Interest Period for such Pounds Sterling Loan. (b) The Administrative Agent shall give to each Lender prompt notice of the Administrative Agent's receipt of the notice referred to in subsection 3.2(a). Each Lender shall, before 11:00 A.M. (London time) on the date of the proposed Pounds Sterling Loan, make available to the account of the Administrative Agent's office located at Trinity Tower, 9 Thomas Moore Street, London, England E1 9YT, in immediately available funds, such Lender's Revolving Credit Commitment Percentage of such proposed Pounds Sterling Loan in Pounds Sterling of such Pounds Sterling Loan. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Section 7, the Administrative Agent will make such funds available to the applicable Borrower at the Administrative Agent's aforesaid addresses. (c) Each Pounds Sterling Loan shall be in an amount in Pounds Sterling of which the U.S. Dollar Equivalent is equal to at least $1,000,000 (or, if the then Aggregate Available Revolving Credit Commitments are less than $1,000,000, such lesser amount). (d) At least three Business Days' prior to the end of each Interest Period, the Company shall give the Administrative Agent notice (a "Notice of 19 Continuation"), not later than 11:00 A.M. (New York time) specifying the duration of the next succeeding Interest Period. The Administrative Agent shall promptly notify each Lender of its receipt of a Notice of Continuation and the contents thereof. If, within the time period required under the terms of this subsection 3.2(d), the Administrative Agent does not receive a Notice of Continuation from the Company, then, upon the expiration of the Interest Period therefor, the applicable Interest Period in respect of such Pounds Sterling Loans shall be automatically deemed to be a period of one month commencing on the last day of the immediately preceding Interest Period and ending one month thereafter. Notwithstanding the first sentence of this subsection 3.2(d), no Pounds Sterling Loans shall be continued in accordance with a Notice of Continuation given if, on the date of the Notice of Continuation, the Borrowers are not in compliance with subsection 3.1, unless, one or more of the Borrowers shall repay the Pounds Sterling Loans, together with all accrued interest on the amount prepaid, such that the Borrowers are in compliance with subsection 3.1. Notwithstanding the foregoing, upon the expiration of any Interest Period with respect to any Pounds Sterling Loan at any time at which a Default or Event of Default shall have occurred and be continuing, the applicable Interest Period in respect of such Pounds Sterling Loans shall be automatically deemed to be a period of one month commencing on the last day of the immediately preceding Interest Period and ending one month thereafter. Each Notice of Continuation shall be irrevocable. 3.3 REPAYMENT OF POUNDS STERLINING LOANS; EVIDENCE OF DEBT. (a) The Company and the Foreign Subsidiary Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Pounds Sterling Loan of such Lender to the Company or the Foreign Subsidiary Borrower on the Revolving Credit Termination Date and on such other date(s) and in such other amounts as may be required from time to time pursuant to this Agreement. Each of the Company and the Foreign Subsidiary Borrower hereby further agrees to pay interest on the unpaid principal amount of the Pounds Sterling Loans advanced to it and from time to time outstanding until payment thereof in full at the rates per annum, and on the dates, set forth in subsection 5.1. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Company and the Foreign Subsidiary Borrower to such Lender resulting from each Pounds Sterling Loan of such Lender from time to time, including the amounts of principal and interest payable thereon and paid to such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain the Register pursuant to subsection 13.6(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Pounds Sterling Loan made hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company and the Foreign Subsidiary Borrower to each Lender hereunder in respect of the Pounds Sterling Loans and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Company and the Foreign Subsidiary Borrower in respect of the Pounds Sterling Loans and each Lender's share thereof. (d) The entries made in the Register and the accounts of each Lender maintained pursuant to subsection 3.3(b) shall, to the extent permitted by applicable law, be PRIMA FACIE evidence of the existence and amounts of the obligations of the Company and the Foreign Subsidiary Borrower therein recorded; PROVIDED, however, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Company or the Foreign Subsidiary Borrower to repay (with applicable interest) the Pounds Sterling Loans made to the Company or the Foreign Subsidiary Borrower by such Lender in accordance with the terms of this Agreement. 20 SECTION 4. LETTERS OF CREDIT 4.1 LETTERS OF CREDIT. Subject to the terms and conditions of this Agreement, the Issuing Lender, agrees, on behalf of the Lenders, and in reliance on the agreement of the Lenders set forth in subsection 4.3, to issue for the account of the Company letters of credit in an aggregate face amount, together with any unpaid Reimbursement Obligations, not to exceed $5,000,000 at any time outstanding, as follows: (i) standby letters of credit (collectively, the "STANDBY LETTERS OF CREDIT") in a form reasonably satisfactory to the Issuing Lender and in favor of such beneficiaries as the Company shall specify from time to time (which shall be reasonably satisfactory to the Issuing Lender); and (ii) commercial letters of credit in the form of the Issuing Lender's standard commercial letters of credit ("COMMERCIAL LETTERS OF CREDIT") in favor of sellers of goods or services to the Company or its Subsidiaries (the Standby Letters of Credit and Commercial Letters of Credit being referred to collectively as the "LETTERS OF CREDIT"); PROVIDED that on the date of the issuance of any Letter of Credit, and after giving effect to such issuance, the Aggregate Revolving Credit Outstanding of all Lenders do not exceed the Aggregate Revolving Credit Commitments at such time. Each Standby Letter of Credit shall (i) have an expiry date no later than one year from the date of issuance thereof or, if earlier, five Business Days prior to the Revolving Credit Termination Date, (ii) be denominated in U.S. Dollars and (iii) be in a minimum face amount of $100,000. Each Commercial Letter of Credit shall (i) provide for the payment of sight drafts when presented for honor thereunder, or of time drafts, in each case in accordance with the terms thereof and when accompanied by the documents described or when such documents are presented, as the case may be, (ii) be denominated in U.S. Dollars and (iii) have an expiry date no later than six months from the date of issuance thereof or, if earlier, five Business Days prior to the Revolving Credit Termination Date. 4.2 PROCEDURE FOR ISSUANCE OF LETTERS OF CREDIT. The Company may from time to time request, upon at least three Business Days' notice, the Issuing Lender to issue a Letter of Credit by delivering to the Issuing Lender at its address specified in subsection 13.2 a Letter of Credit Application, completed to the satisfaction of such Issuing Lender, together with such other certificates, documents and other papers and information as such Issuing Lender may reasonably request. Upon receipt of any Letter of Credit Application, the Issuing Lender will process such Letter of Credit Application, and the other certificates, documents and other papers delivered in connection therewith, in accordance with its customary procedures and shall promptly issue such Letter of Credit (but in no event earlier than three Business Days after receipt by the Issuing Lender of the Letter of Credit Application relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof and by furnishing a copy thereof to the Company. Prior to the issuance of any Letter of Credit, the Issuing Lender will confirm with the Administrative Agent that the issuance of such Letter of Credit is permitted pursuant to Section 4 and subsection 7.2. Additionally, the Issuing Lender and the Company shall inform the Administrative Agent of any modifications made to outstanding Letters of Credit, of any payments made with respect to such Letters of Credit, and of any other information regarding such Letters of Credit as may be reasonably requested by the Administrative Agent, in each case pursuant to procedures established by the Administrative Agent. 4.3 PARTICIPATING INTERESTS. Effective as of the date of the issuance of each Letter of Credit, the Issuing Lender agrees to allot, and does allot, to each other Lender, and each such Lender severally and irrevocably agrees to take and does take, a Participating Interest in such Letter of Credit and the related Letter of Credit Application in a percentage equal to such Lender's Revolving 21 Credit Commitment Percentage. On the date that any Participating Lender becomes a party to this Agreement in accordance with subsection 13.6, Participating Interests in any outstanding Letter of Credit held by the Lender from which such Participating Lender acquired its interest hereunder shall be proportionately reallotted between such Participating Lender and such transferor Lender. Each Participating Lender hereby agrees that its obligation to participate in each Letter of Credit issued in accordance with the terms hereof and to pay or to reimburse the Issuing Lender in respect of such Letter of Credit for its participating share of the drafts drawn thereunder shall be irrevocable and unconditional; PROVIDED that no Participating Lender shall be liable for the payment of any amount under subsection 4.4(b) resulting solely from the Issuing Lender's gross negligence or willful misconduct. 4.4 PAYMENTS. (a) The Company agrees (i) to reimburse the Administrative Agent for the account of the Issuing Lender, forthwith upon its demand and otherwise in accordance with the terms of the Letter of Credit Application, if any, relating thereto, for any payment made by the Issuing Lender under any Letter of Credit and (ii) to pay to the Administrative Agent for the account of such Issuing Lender, interest on any unreimbursed portion of any such payment from the date of such payment until reimbursement in full thereof at a fluctuating rate per annum equal to the rate then borne by Revolving Credit Loans that are ABR Loans pursuant to subsection 5.1(b) plus 2%. (b) In the event that the Issuing Lender makes a payment under any Letter of Credit and is not reimbursed in full therefor, forthwith upon demand of the Issuing Lender, and otherwise in accordance with the terms hereof or of the Letter of Credit Application, if any, relating to such Letter of Credit, the Issuing Lender will promptly through the Administrative Agent notify each Participating Lender that acquired its Participating Interest in such Letter of Credit from the Issuing Lender. No later than the close of business on the date such notice is given, each such Participating Lender will transfer to the Administrative Agent, for the account of the Issuing Lender, in immediately available funds, an amount equal to such Participating Lender's pro rata share of the unreimbursed portion of such payment. (c) Whenever, at any time, after the Issuing Lender has made payment under a Letter of Credit and has received from any Participating Lender the Participating Lender's pro rata share of the unreimbursed portion of such payment, the Issuing Lender receives any reimbursement on account of such unreimbursed portion or any payment of interest on account thereof, the Issuing Lender will distribute to the Administrative Agent, for the account of such Participating Lender, its pro rata share thereof; PROVIDED, HOWEVER, that in the event that the receipt by the Issuing Lender of such reimbursement or such payment of interest (as the case may be) is required to be returned, such Participating Lender will promptly return to the Administrative Agent, for the account of the Issuing Lender, any portion thereof previously distributed by the Issuing Lender to it. 4.5 FURTHER ASSURANCES. The Company hereby agrees, from time to time, to do and perform any and all acts and to execute any and all further instruments reasonably requested by the Issuing Lender more fully to effect the purposes of this Agreement and the issuance of the Letters of Credit issued hereunder. 4.6 OBLIGATIONS ABSOLUTE. The payment obligations of the Company and each Participating Lender under subsection 4.4 shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including, without limitation, the following circumstances: (a) the existence of any claim, set-off, defense or other right which the Company may have at any time against any beneficiary, or any transferee, of any Letter of Credit (or any Persons for whom any such 22 beneficiary or any such transferee may be acting), the Issuing Lender or any Participating Lender, or any other Person, whether in connection with this Agreement, the transactions contemplated herein, or any unrelated transaction; (b) any statement or any other document presented under any Letter of Credit opened for its account proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (c) payment by the Issuing Lender under any Letter of Credit against presentation of a draft or certificate which does not comply with the terms of such Letter of Credit, except payment resulting solely from the gross negligence or willful misconduct of the Issuing Lender; or (d) any other circumstances or happening whatsoever, whether or not similar to any of the foregoing, except circumstances or happenings resulting from the gross negligence or willful misconduct of the Issuing Lender. 4.7 LETTER OF CREDIT APPLICATION. To the extent not inconsistent with the terms of this Agreement (in which case the provisions of this Agreement shall prevail), provisions of any Letter of Credit Application related to any Letter of Credit are supplemental to, and not in derogation of, any rights and remedies of the Issuing Lender and the Participating Lenders under this Section 4 and applicable law. The Company acknowledges and agrees that all rights of the Issuing Lender under any Letter of Credit Application shall inure to the benefit of each Participating Lender to the extent of its Revolving Credit Commitment Percentage as fully as if such Participating Lender was a party to such Letter of Credit Application. 4.8 PURPOSE OF LETTERS OF CREDIT. Each Standby Letter of Credit shall be used by the Company solely (a) to provide credit support for borrowings by the Company or its Subsidiaries, or (b) for other working capital purposes of the Company and Subsidiaries in the ordinary course of business. Each Commercial Letter of Credit will be used by the Company and Subsidiaries solely to provide the primary means of payment in connection with the purchase of goods or services by the Company and Subsidiaries in the ordinary course of business. SECTION 5. GENERAL PROVISIONS 5.1 INTEREST RATES AND PAYMENT DATES. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such Interest Period plus the Applicable Margin. (b) Each ABR Loan shall bear interest for each day on which it is outstanding at a rate per annum equal to the Alternate Base Rate for such day plus the Applicable Margin. (c) Each Pounds Sterling Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurocurrency Rate determined for such Interest Period plus the Applicable Margin. (d) If all or a portion of (i) the principal amount of any Loan, (ii) any interest payable thereon or (iii) any fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such amount shall bear interest for each day after the due date until such amount is paid in full at a rate per annum equal to (x) in the case of principal, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection plus 2% or (y) in the case of any such overdue interest, fee or other amount, the rate described in paragraph (b) of this subsection plus 2%. If any Event of Default other than as described in the preceding sentence shall occur and be continuing, and the Majority Lenders shall give notice to the Company that this sentence shall apply, then, until 23 such Event of Default shall be cured or waived or such notice shall be withdrawn, the outstanding principal amount of all Loans shall bear interest at 2% above the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this subsection (other than the first sentence of this paragraph (d)). (e) Interest shall be payable in arrears on each Interest Payment Date, PROVIDED that interest accruing pursuant to paragraph (d) of this subsection shall be payable from time to time on demand. 5.2 CONVERSION AND CONTINUATION OPTIONS. (a) The Company may elect from time to time to convert outstanding Eurodollar Loans (in whole or in part) to ABR Loans by giving the Administrative Agent at least two Business Days' prior irrevocable notice of such election, PROVIDED that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto. The Company may elect from time to time to convert outstanding ABR Loans (in whole or in part) to Eurodollar Loans by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election. Any such notice of conversion to Eurodollar Loans shall specify the length of the initial Interest Period or Interest Periods therefor. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. All or any part of outstanding Eurodollar Loans and ABR Loans may be converted as provided herein, PROVIDED that (i) no ABR Loan may be converted into a Eurodollar Loan when any Default or Event of Default has occurred and is continuing and the Administrative Agent or Lenders holding the majority of the outstanding principal amount of Loans have determined that such conversion is not appropriate, (ii) any such conversion may only be made if, after giving effect thereto, subsection 5.3 shall not have been violated, (iii) no ABR Loan may be converted into a Eurodollar Loan after the date that is one month prior to the Revolving Credit Termination Date. (b) Any Eurodollar Loans may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Company giving notice to the Administrative Agent of the length of the next Interest Period to be applicable to such Loans determined in accordance with the applicable provisions of the term "Interest Period" set forth in subsection 1.1, PROVIDED that no Eurodollar Loan may be continued as such (i) when any Default or Event of Default has occurred and is continuing and the Administrative Agent or Lenders holding the majority of the outstanding principal amount of Loans of such Class have determined that such continuation is not appropriate, (ii) if, after giving effect thereto, subsection 5.3 would be contravened or (iii) after the date that is one month prior to the Revolving Credit Termination Date, and PROVIDED, FURTHER, that if the Company shall fail to give such notice or if such continuation is not permitted pursuant to the preceding proviso such Eurodollar Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period. (c) Any Pounds Sterling Loans may be continued as set forth in subsection 3.2(d). 5.3 MINIMUM AMOUNTS OF TRANCHES. All borrowings, conversions and continuations of Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, (i) the aggregate principal amount of the Eurodollar Loans comprising each Tranche shall be equal to $1,000,000 or a whole multiple of $1,000,000 in excess thereof, (ii) the aggregate principal amount of the Pounds Sterling Loans comprising each Tranche shall be in an amount of which the U.S. Dollar Equivalent is at least $1,000,000 and (iii) there shall not be more than (ten) 10 Tranches at any one time outstanding. 5.4 OPTIONAL AND MANDATORY PREPAYMENTS. (a) The Company may at any time and from time to time prepay Revolving Credit Loans, in whole or in part, upon 24 at least three Business Days' irrevocable notice to the Administrative Agent (in the case of Eurodollar Loans) and at least one Business Day's irrevocable notice to the Administrative Agent (in the case of ABR Loans), specifying the date and amount of prepayment and whether the prepayment is (i) of Revolving Credit Loans and (ii) of Eurodollar Loans, ABR Loans or a combination thereof, and, in each case if a combination thereof, the amount allocable to each. Upon the receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. Partial prepayments of the Loans shall be in an aggregate principal amount of $1,000,000 or a whole multiple of $1,000,000 in excess thereof. (b) The Company or the Foreign Subsidiary Borrower, as the case may be, may at any time and from time to time prepay, without premium or penalty, the Pounds Sterling Loans, in whole or in part, upon at least three Business Days' irrevocable notice to the Administrative Agent specifying the date and amount of prepayment. Upon the receipt of any such notice, the Administrative Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein. Partial prepayments of Pounds Sterling Loans shall be in an aggregate principal amount of which the U.S. Dollar Equivalent is at least $1,000,000. (c) If, at any time during the Revolving Credit Commitment Period, for any reason the Aggregate Revolving Credit Outstanding of all Lenders exceed the Aggregate Revolving Credit Commitments then in effect, or the Aggregate Revolving Credit Outstanding of any Lender exceeds the Revolving Credit Commitment of such Lender then in effect, (i) the Company shall, without notice or demand, immediately prepay the Revolving Credit Loans and/or (ii) the Company or the Foreign Subsidiary Borrower shall, without notice or demand, immediately prepay the Pounds Sterling Loans, in an aggregate principal amount at least sufficient to eliminate any such excess. Notwithstanding the foregoing, mandatory prepayments of Revolving Credit Loans or Pounds Sterling Loans that would otherwise be required pursuant to this subsection 5.4(c) solely as a result of currency fluctuations from time to time shall only be required to be made pursuant to this subsection 5.4 on the last Business Day of each month on the basis of the U.S. Dollar Equivalent in effect on such Business Day. (d) Each prepayment of Loans pursuant to this subsection 5.4 shall be accompanied by accrued and unpaid interest on the amount prepaid to the date of prepayment and any amounts payable under subsection 5.11 in connection with such prepayment. (e) The Revolving Credit Loans shall be prepaid and the Letters of Credit shall be cash collateralized or replaced to the extent such extensions of credit exceed the amount of the Revolving Credit Facility. 5.5 COMMITMENT FEES; OTHER FEES. (a) The Company agrees to pay to the Administrative Agent for the account of each Lender (other than any Lender which has defaulted in its obligation to fund a Loan under this Agreement), a commitment fee for the period from and including the Closing Date to but excluding the Revolving Credit Termination Date (or such earlier date on which the Revolving Credit Commitments shall terminate as provided herein) computed at the rate per annum set forth in the definition of "Applicable Margin" on the average daily Available Revolving Credit Commitment of such Lender during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Revolving Credit Termination Date or such earlier date on which the Revolving Credit Commitments shall terminate as provided herein, commencing on the first such date to occur after the date hereof. For purposes of the commitment fee calculations only, Swing Line loans shall be deemed to be not outstanding. 25 (b) The Company shall pay (without duplication of any other fee payable under this subsection 5.5) to the Administrative Agent all fees separately agreed to by the Company and the Administrative Agent. (c) In lieu of any letter of credit commissions and fees provided for in any Letter of Credit Application relating to a Standby Letter of Credit (other than any standard issuance, amendment and negotiation fees), the Company will pay the Administrative Agent, (i) for the account of the Issuing Lender, a non-refundable fronting fee equal to _ of 1% per annum and (ii) for the account of the Participating Lenders, a non-refundable Standby Letter of Credit fee equal to the Applicable Margin in respect of Eurodollar Loans, in each case on the amount available to be drawn under such Standby Letter of Credit. Such fee shall be payable quarterly in arrears on the last Business Day of each calendar quarter, and shall be calculated on the average daily amount available to be drawn under the Standby Letters of Credit. (d) In lieu of any letter of credit commissions and fees provided for in any Letter of Credit Application relating to a Commercial Letter of Credit (other than any standard issuance, amendment and negotiation fees), the Company will pay the Administrative Agent, (i) for the account of the Issuing Lender, a non-refundable fronting fee equal to 1/16 of 1% of the amount of such Commercial Letter of Credit, (ii) for the account of the Participating Lenders, a non-refundable Commercial Letter of Credit fee equal to 1/4 of 1% of the amount of such Letter of Credit. Such fee shall be payable to the Administrative Agent on the date of issuance and shall be distributed by the Administrative Agent to the Participating Lenders promptly thereafter and (iii) for the account of the Administrative Agent, the normal and customary Letter of Credit application and processing fees. (e) The Company agrees to pay the Issuing Lender for its own account its customary administration, amendment, transfer and negotiation fees charged by the Issuing Lender in connection with its issuance and administration of Letters of Credit. 5.6 COMPUTATION OF INTEREST AND FEES. (a) Interest and fees shall be calculated on the basis of a 360-day year for the actual days elapsed; provided that interest calculated at Alternate Base Rate (based on the Prime Rate included therein) shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Company and the relevant Lenders of each determination of a Eurodollar Rate or a Eurocurrency Rate. Any change in the interest rate on a Loan resulting from a change in the Alternate Base Rate shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Company and the relevant Lenders of the effective date and the amount of each such change in the Alternate Base Rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrowers and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of a Borrower, deliver to such Borrower a statement showing in reasonable detail the calculations used by such Administrative Agent in determining any interest rate pursuant to subsection 5.1(a). 5.7 INABILITY TO DETERMINE INTEREST RATE. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrowers) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate or the Eurocurrency Rate, as the case may be, for such Interest Period, or 26 (b) the Administrative Agent has received notice from the Majority Lenders, as the case may be, that the Eurodollar Rate or Eurocurrency Rate, as the case may be, determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Eurodollar Loans or Pounds Sterling Loans, as the case may be, during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Company and the Lenders as soon as practicable thereafter. If such notice is given (i) any Eurodollar Loans or Pounds Sterling Loans, as the case may be, requested to be made on the first day of such Interest Period shall be made as ABR Loans in U.S. Dollars, (ii) any Revolving Credit that were to have been converted on the first day of such Interest Period to or continued as Eurodollar Loans shall be converted to or continued as ABR Loans, (iii) any outstanding Eurodollar Loans shall be converted on the last day of such Interest Period to ABR Loans and (iv) any Pounds Sterling Loans to which such Interest Period relates shall be repaid on the last day of such Interest Period. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans or Pounds Sterling Loans shall be made or continued as such, nor shall the Company have the right to convert ABR Loans to Eurodollar Loans. 5.8 PRO RATA TREATMENT AND PAYMENTS. (a) (i) Each borrowing of Revolving Credit Loans by the Company from the Lenders hereunder shall be made pro rata according to the Revolving Credit Commitment Percentages of the Lenders in effect on the date of such borrowing. Each payment by the Company on account of any commitment fee hereunder shall be allocated by the Administrative Agent among the Lenders in accordance with the respective amounts which such Lenders are entitled to receive pursuant to subsection 5.5(a). Any reduction of the Revolving Credit Commitments, as the case may be, of the Lenders shall be allocated by the Administrative Agent among the Lenders pro rata according to the Revolving Credit Commitment Percentages of such Lenders. Each payment by the Company on account of principal of or interest in respect of Revolving Credit Loans shall be allocated by the Administrative Agent pro rata according to the respective principal amounts thereof then due and owing to each Lender. All payments (including prepayments) to be made by the Company in respect of Revolving Credit Loans hereunder, whether on account of principal, interest, fees or otherwise, shall be made without set-off or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders entitled thereto, at the Administrative Agent's office specified in subsection 13.2, in U.S. Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders entitled to receive the same promptly upon receipt in like funds as received. (ii) Each borrowing of Pounds Sterling Loans by the Company or the Foreign Subsidiary Borrower shall be made pro rata according to the Revolving Credit Commitment Percentages of the Lenders. Each payment (including each prepayment) by the Company or the Foreign Subsidiary Borrower on account of principal of and interest on Pounds Sterling Loans shall be allocated by the Administrative Agent pro rata according to the respective principal amounts of the Pounds Sterling Loans then due and owing by the Company or the Foreign Subsidiary Borrower to each Lender. All payments (including prepayments) to be made by the Company or the Foreign Subsidiary Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without set-off or counterclaim and shall be made at or before 11:00 A.M. London Time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Administrative Agent's office located at Trinity Tower, 9 Thomas Moore Street, London, England E1 9YT, in Pounds Sterling Loan and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders entitled to receive the same promptly upon receipt in like funds as received. (iii) If any payment hereunder (other than payments on the Eurodollar Loans and the Pounds Sterling Loans) becomes due and payable on a day other than 27 a Business Day, the maturity of such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a Eurodollar Loan or a Pounds Sterling Loan becomes due and payable on a day other than a Business Day, the maturity of such payment shall be extended to the next succeeding Business Day (and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension) unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. (b) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a Borrowing Date that such Lender will not make the amount that would constitute its share of such borrowing available to such Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate per annum equal to (i) the daily average Federal Funds Effective Rate (in the case of a borrowing of Revolving Credit Loans) and (ii) the Administrative Agent's reasonable estimate of its average daily cost of funds (in the case of a borrowing of Pounds Sterling Loans), in each case for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. If such Lender's share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the applicable Borrower shall repay such Lender's share of such borrowing (together with interest thereon from the date such amount was made available to such Borrower (i) at the rate per annum applicable to ABR Loans hereunder (in the case of amounts made available in U.S. Dollars) and (ii) the Administrative Agent's reasonable estimate of its average daily cost of funds PLUS the Applicable Margin applicable to Pounds Sterling Loans (in the case of a borrowing of Pounds Sterling Loans)) to the Administrative Agent not later than three Business Days after receipt of written notice from the Administrative Agent specifying such Lender's share of such borrowing that was not made available to such Administrative Agent, and the Borrower shall have the right to pursue any remedies against such Lender for its failure to make its portion of such borrowing available. (c) Unless the Administrative Agent shall have been notified in writing by any Borrower prior to a date on which a payment is due from such Borrower hereunder that such Borrower will not make such payment available to such Administrative Agent, the Administrative Agent may assume that such Borrower is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the applicable Lenders a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the due date therefor, the applicable Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate per annum equal to (i) the daily average Federal Funds Effective Rate (in the case of a borrowing of Revolving Credit Loans) and (ii) the Administrative Agent's reasonable estimate of its average daily cost of funds (in the case of a borrowing of Pounds Sterling Loans), in each case for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this subsection shall be conclusive in the absence of manifest error. 5.9 ILLEGALITY. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans or Pounds Sterling Loans as contemplated by this Agreement, (a) 28 the commitment of such Lender hereunder to make Eurodollar Loans or Pounds Sterling Loans, continue Eurodollar Loans or Pounds Sterling Loans as such and convert ABR Loans to Eurodollar Loans shall forthwith be cancelled until such time as it shall no longer be unlawful for such Lender to make or maintain the affected Loans, (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to ABR Loans on the respective last days of the then current Interest Periods with respect to such Eurodollar Loans or within such earlier period as may be required by law and (c) such Lender's Pounds Sterling Loans shall be prepaid on the last day of the then current Interest Period with respect thereto or within such earlier period or may be required by law. If any such conversion of a Eurodollar Loan or repayment of a Pounds Sterling Loan occurs on a day which is not the last day of the then current Interest Period Interest Period with respect thereto, the Company shall pay to such Lender such amounts, if any, as may be required pursuant to subsection 5.11. 5.10 REQUIREMENTS OF LAW. (a) In the event that the adoption of or any change in any Requirement of Law (or in the interpretation or application thereof) or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority: (i) does or shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Note, any Loans made by it or any Letter of Credit, or change the basis of taxation of payments to such Lender of principal, fees, interest or any other amount payable hereunder (except for changes in the rate of tax on the overall net income of such Lender); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender which are not otherwise included in the determination of the Eurodollar Rate or Eurocurrency Rate; or (iii) does or shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by any amount which such Lender deems to be material, of making, renewing or maintaining advances or extensions of credit or to reduce any amount receivable hereunder, in each case in respect of its Loans or Letters of Credit which it issues or in which it holds Participating Interests, then, in any such case, the applicable Borrower shall promptly pay such Lender, upon receipt of its demand setting forth in reasonable detail, any additional amounts necessary to compensate such Lender for such additional cost or reduced amount receivable, such additional amounts together with interest on each such amount from the date two Business Days after the date demanded until payment in full thereof at the ABR. A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by such Lender, through the Administrative Agent, to the applicable Borrower shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and payment of all amounts outstanding hereunder for a period of one year. (b) In the event that any Lender shall have determined that the adoption of any law, rule, regulation or guideline regarding capital adequacy (or any change therein or in the interpretation or application thereof) or compliance by any Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or Governmental Authority, including, without limitation, the issuance of any final rule, regulation or guideline, does or shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or 29 such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Company (with a copy to the Administrative Agent) of a written request therefor, the Company shall promptly pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) Any request by any Lender for compensation under this subsection 5.10 shall be accompanied by a certificate of a duly authorized officer of such Lender setting for such information and calculations supporting such request as such Lender shall customarily provide in similar situations. 5.11 INDEMNITY. Each Borrower agrees to indemnify each Lender and to hold each Lender harmless from any loss or expense which such Lender may sustain or incur as a consequence of (a) default by such Borrower in payment when due of the principal amount of or interest on any Loans of such Lender, (b) default by such Borrower in making a borrowing or conversion after such Borrower has given a notice of borrowing or a notice of conversion in accordance with this Agreement, (c) default by such Borrower in making any prepayment after such Borrower has given a notice in accordance with this Agreement or (d) the making of a prepayment of a Eurodollar Loan or Pounds Sterling Loan on a day which is not the last day of an Interest Period with respect thereto, including, without limitation, in each case, any such loss or expense arising from the reemployment of funds obtained by it to maintain its Eurodollar Loans or Pounds Sterling Loans hereunder or from fees payable to terminate the deposits from which such funds were obtained, but excluding, in each case, lost profit. This covenant shall survive termination of this Agreement and payment of all amounts outstanding hereunder. 5.12 TAXES. (a) All payments made by any Borrower under this Agreement shall be made free and clear of, and without reduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority excluding, in the case of the Administrative Agent and each Lender, income or franchise taxes imposed on the Administrative Agent or such Lender by the jurisdiction under the laws of which the Administrative Agent or such Lender is organized or any political subdivision or taxing authority thereof or therein or by any jurisdiction in which such Lender's lending office is located or any political subdivision or taxing authority thereof or therein or as a result of a connection between such Lender and any jurisdiction other than a connection resulting solely from entering into this Agreement (all such non-excluded taxes, levies, imposts, deductions, charges or withholdings being thereinafter called "NON-EXCLUDED TAXES"). Subject to the provisions of subsection 5.12(c), if any Non-Excluded Taxes are required to be withheld from any amounts payable by such Borrower to the Administrative Agent or any Lender hereunder or under the Notes, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement and the Notes. Whenever any Non-Excluded Taxes are paid by any Borrower with respect to payments made in connection with this Agreement, as promptly as possible thereafter, such Borrower shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by such Borrower showing payment thereof. Subject to the provisions of subsection 5.12(c), if any Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, such Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lenders as a result of any such failure. 30 (b) Each Lender that is not incorporated or organized under the laws of the United States of America or a state thereof agrees that, prior to the first date any payment is due to be made to it hereunder or under any Note, it will deliver to the Company and the Administrative Agent (A) if such Lender is a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (i) two valid, duly completed copies of United States Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the case may be, certifying in each case that such Lender is entitled to receive payments by the Borrower under this Agreement and the Notes payable to it, without deduction or withholding of any United States federal income taxes, and (ii) a valid, duly completed Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax or (B) if such Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224, (i) a certificate substantially in the form of Exhibit H (a "TAX STATUS CERTIFICATE") and (ii) two completed and signed copies of Internal Revenue Service Form W-8 or successor applicable form, to establish in each case that such Lender is entitled to receive payments by the Borrowers under this Agreement and the other Loan Documents without deduction or withholding of any United States federal income taxes. Each Lender which delivers to the Company and the Administrative Agent a Form 1001 or 4224 and Form W-8 or W-9 pursuant to the next preceding sentence further undertakes to deliver to the Company and the Administrative Agent two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms, or other manner or certification, as the case may be, on or before the date that any such form expires or becomes obsolete or otherwise is required to be resubmitted as a condition to obtaining an exemption from withholding tax, or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Company, and such extensions or renewals thereof as may reasonably be requested by the Company, certifying in the case of a Form 1001 or 4224 that such Lender is entitled to receive payments by the Company under this Agreement without deduction or withholding of any United States federal income taxes, unless any change in treaty, law or regulation or official interpretation thereof has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Lender from duly completing and delivering any such letter or form with respect to it and such Lender advises the Company that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Form W-8 or W-9, establishing an exemption from United States backup withholding tax. (c) The Company shall not be required to pay any additional amounts to the Administrative Agent or any Lender (or Transferee except to the extent such Transferee's transferor was entitled, at the time of transfer, to receive additional amounts from the Company) in respect of United States withholding tax pursuant to subsection 5.12(a) if the obligation to pay such additional amounts would not have arisen but for a failure by the Administrative Agent or such Lender (or Transferee) to comply with the requirements of subsection 5.12(b) (or in the case of a Transferee, the requirements of subsection 13.6(h)). (d) Each Lender that is not incorporated or organized under the laws of the jurisdiction under which the Foreign Subsidiary Borrower is incorporated or organized shall, upon request by the Foreign Subsidiary Borrower, within a reasonable period of time after such request, deliver to the Foreign Subsidiary Borrower or the applicable governmental or taxing authority, as the case may be, any form or certificate required in order that any payment by the Foreign Subsidiary Borrower under this Agreement to such Lender may be made free and clear of, and without deduction or withholding for or on account of any Non-Excluded Taxes (or to allow any such deduction or withholding to be at a reduced rate) imposed on such payment under the laws of the jurisdiction under which the Foreign Subsidiary Borrower is incorporated or organized, PROVIDED that such Lender is legally entitled to complete, execute and deliver such form or certificate and such completion, execution or submission would not materially prejudice the legal position of such Lender. 31 (e) Except as otherwise provided in subsection 5.14(a), each Lender agrees to use reasonable efforts (including reasonable efforts to change its lending office) to avoid or to minimize any amounts which might otherwise be payable pursuant to this subsection 5.12; PROVIDED, HOWEVER, that such efforts shall not impose on such Lender any additional costs or legal or regulatory burdens deemed by such Lender in its sole judgment to be material. (f) The agreements in subsection 5.12(a) shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder until the expiration of the applicable statute of limitations for such taxes. 5.13 USE OF PROCEEDS. The proceeds of the Revolving Credit Loans and the Pounds Sterling Loans shall be used for the general working capital and general corporate purposes of the Company and its Subsidiaries. The Letters of Credit shall be used for the general working capital purposes of the Company and its Subsidiaries. 5.14 CHANGE IN LENDING OFFICE; REPLACEMENT OF LENDER. (a) Each Lender agrees that if it makes any demand for payment under subsection 5.10 or 5.12(a), or if any adoption or change of the type described in subsection 5.9 shall occur with respect to it, it will use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, as determined in its sole discretion) to designate a different lending office if the making of such a designation would reduce or obviate the need for any Borrower to make payments under subsection 5.10 or 5.12(a), or would eliminate or reduce the effect of any adoption or change described in subsection 5.9. (b) If any Lender requests any payment under subsection 5.10 or 5.12(a), the Borrower shall have the right (i) to replace such Lender with one or more replacement lenders, each of which shall be reasonably acceptable to the Administrative Agent, or (ii) to replace only the Revolving Credit Commitments (and outstanding Extensions of Credit thereunder) with identical Commitments and/or Loans of one or more replacement lenders, each of which shall be reasonably acceptable to the Administrative Agent. SECTION 6. REPRESENTATIONS AND WARRANTIES To induce the Lenders to enter into this Agreement and to make the Loans, and to induce the Issuing Lender to issue Letters of Credit, each Borrower hereby represents and warrants to the Administrative Agent and to each Lender that: 6.1 FINANCIAL CONDITION. (a) The consolidated balance sheet of the Company and its consolidated Subsidiaries as at September 30, 1996 and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, reported on by Coopers & Lybrand L.L.P., copies of which have heretofore been furnished to each Lender, are complete and correct in all material respects and present fairly the consolidated financial condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the fiscal year then ended. The unaudited consolidated balance sheets of the Company and its consolidated Subsidiaries as at June 30, 1997 and the related unaudited consolidated statements of income and of cash flows for the nine-month period ended on such date, certified by the chief financial officer of the Company, copies of which have heretofore been furnished to each Lender, are complete and correct in all material respects and present fairly the consolidated financial 32 condition of the Company and its consolidated Subsidiaries as at such date, and the consolidated results of their operations and their consolidated cash flows for the respective nine-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or chief financial officer, as the case may be, and as disclosed therein). Except as set forth on Schedule 6.1, neither the Company nor any of its consolidated Subsidiaries had, at the date of the most recent balance sheet referred to above, any material Guarantee Obligation, contingent liability or liability for taxes, or any long-term lease or unusual forward or long-term commitment, including, without limitation, any interest rate or foreign currency swap or exchange transaction, which is not reflected in the foregoing statements or in the notes thereto. Except for the Holland & Barrett Acquisition, during the period from September 30, 1996 to and including the date hereof there has been no sale, transfer or other disposition by the Company or any of its consolidated Subsidiaries of any material part of its business or property and no purchase or other acquisition of any business or property (including any capital stock of any other Person) material in relation to the consolidated financial condition of the Company and its consolidated Subsidiaries at September 30, 1996, other than the sale of inventory in the ordinary course of business. (b) The unaudited PRO FORMA balance sheets of the Company and its consolidated Subsidiaries as at June 30, 1997, certified by a Responsible Officer of the Company (collectively, the "PRO FORMA BALANCE Sheet"), copies of which have been furnished to each Lender, are the unaudited consolidated and consolidating balance sheets of the Company and its consolidated Subsidiaries, adjusted to give effect (as if such events had occurred on such date) to the Holland and Barrett Acquisition, the incurrence of the Loans and the Subordinated Debt and the use of the proceeds thereof. The Pro Forma Balance Sheet, together with the notes thereto, was prepared in accordance with GAAP and reflects on a pro forma basis the financial position of the Company and its consolidated Subsidiaries as of June 30, 1997, as adjusted as described above, assuming that the events specified in the preceding sentence had actually occurred at such date. 6.2 NO CHANGE. Since September 30, 1996 there has been no development or event which has had or could reasonably be expected to have a Material Adverse Effect. 6.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each Loan Party and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign entity and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification except to the extent that the failure to be so qualified in any such jurisdiction could not, in the aggregate, reasonably be expected to have a Material Adverse Effect, and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Each Loan Party has the power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and to borrow hereunder and has taken all necessary action to authorize the borrowings on the terms and conditions of this Agreement and any Notes and to authorize the execution, delivery and performance of the Loan Documents to which it is a party. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of the Loan Documents. This Agreement has been, and each other Loan Document to which it is a party will be, duly executed and delivered on behalf of each Loan Party that is a party hereto or thereto. This Agreement constitutes, and each other Loan Document to which it is a party when executed and delivered will constitute, a legal, valid and binding obligation of each Loan Party that is a party hereto or thereto enforceable against such Loan Party in accordance with its terms, subject to the effects of 33 bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 6.5 NO LEGAL BAR. The execution, delivery and performance of the Loan Documents, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or Contractual Obligation of any Loan Party or of any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues pursuant to any such Requirement of Law or Contractual Obligation. 6.6 NO MATERIAL LITIGATION. Except as set forth on Schedule 6.6, no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Loan Parties, threatened by or against any Loan Party or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby, or (b) which could reasonably be expected to have a Material Adverse Effect. 6.7 NO DEFAULT. No Loan Party nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 6.8 OWNERSHIP OF PROPERTY; LIENS. Each of the Loan Parties and its Subsidiaries has good record and marketable title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other property, except to the extent that the failure to have such title would not have a Material Adverse Effect, and none of such property is subject to any Lien except as permitted by subsection 9.3. With respect to real property or interests in real property, as of the Closing Date, the Company has (i) fee title to all of the real property listed on Schedule 6.8 under the heading "Fee Properties" (each, a "FEE PROPERTY"), and (ii) good and valid title to the leasehold estates in all of the real property leased by it and listed on Schedule 6.8 under the heading "Leased Properties" (each, a "LEASED PROPERTY"), in each case free and clear of all mortgages, liens, security interests, easements, covenants, rights-of-way and other similar restrictions of any nature whatsoever, except (A) Liens permitted pursuant to subsection 9.3, (B) as to Leased Property, the terms and provisions of the respective lease therefor and any matters affecting the fee title and any estate superior to the leasehold estate related thereto, and (C) title defects, or leases or subleases granted to others, which are not material to the Fee Properties or the Leased Properties, as the case may be, taken as a whole. The Fee Properties and the Leased Properties constitute, as of the Closing Date, all of the real property owned in fee or leased by the Company. 6.9 INTELLECTUAL PROPERTY. Each Loan Party and each of its Subsidiaries owns, or is licensed to use or otherwise has the right to use, all trademarks, tradenames, copyrights, patents, trade secrets and other proprietary information that it uses in the conduct of its business as currently conducted except for those the failure to own or license which could not reasonably be expected to have a Material Adverse Effect (the "INTELLECTUAL PROPERTY"). To the knowledge of each Loan Party, no claim has been asserted and is pending by any Person challenging or questioning the use of any such Intellectual Property or the validity or enforceability of any such Intellectual Property, nor does any Loan Party know of any valid basis for any such claim. The use of such Intellectual Property by each Loan Party and its Subsidiaries does not infringe on the rights of any Person, except for such claims and infringements that, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 34 6.10 NO BURDENSOME RESTRICTIONS. No Contractual Obligation of any Loan Party or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. 6.11 TAXES. Each Loan Party and each of its Subsidiaries has filed or caused to be filed all material tax returns which, to the knowledge of the Loan Parties, are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of such Loan Party or its Subsidiaries, as the case may be); no tax Lien has been filed, and, to the knowledge of the Loan Parties, no claim is being asserted, with respect to any such tax, fee or other charge. 6.12 FEDERAL REGULATIONS. No part of the proceeds of any Loans will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation G or Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-1 or FR Form U-1 referred to in said Regulation G or Regulation U, as the case may be. 6.13 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plan) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by an amount which has resulted or could result in any material liability to any Loan Party or Commonly Controlled Entity. No Loan Party nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan which has resulted or which could result in any material liability of any Loan Party or Commonly Controlled Entity, and no Loan Party nor any Commonly Controlled Entity would become subject to any material liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. The Company has adopted FASB 106. 6.14 INVESTMENT COMPANY ACT; OTHER REGULATIONS. The Company is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. The Company is not subject to regulation under any Federal or State statute or regulation (other than Regulation X of the Board of Governors of the Federal Reserve System) which limits its ability to incur Indebtedness. 6.15 SUBSIDIARIES. Schedule II sets forth all Subsidiaries of the Company as of the Closing Date. 6.16 ENVIRONMENTAL MATTERS. Except to the extent that all of the following, taken together, could not reasonably be expected to result in a Material Adverse Effect or to result in the payment of Material Environmental Amount: (a) The facilities and properties owned, leased or operated by each Loan Party or any of its Subsidiaries (the "PROPERTIES") do not contain, 35 and have not previously contained, any Materials of Environmental Concern in amounts or concentrations which (i) constitute or constituted a violation of, or (ii) could reasonably be expected to give rise to liability under, any Environmental Law. (b) The Properties and all operations at the Properties are in compliance, and have in the last five years been in compliance, in all material respects with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the business operated by any Loan Party or any of its Subsidiaries (the "BUSINESS") which could materially interfere with the continued operation of the Properties or materially impair the fair saleable value thereof. (c) Neither any Loan Party nor any of its Subsidiaries has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the Business, nor does any Loan Party have knowledge or reason to believe that any such notice will be received or is being threatened. (d) Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location which could reasonably be expected to give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties or elsewhere in violation of, or in a manner that could reasonably be expected to give rise to liability under, any applicable Environmental Law. (e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Loan Parties, threatened, under any Environmental Law to which any Loan Party or any Subsidiary thereof is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business. (f) There has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of any Loan Party or any Subsidiary thereof in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could reasonably give rise to liability under Environmental Laws. 6.17 SOLVENCY. Each Loan Party is, and after giving effect to the consummation of any Acquisition and to the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent. 6.18 SECURITY DOCUMENTS. (a) The Guarantee and Collateral Agreement is effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral described, and as defined, therein and proceeds thereof, and, after taking the actions described in Schedule 3 thereto, the Guarantee and Collateral Document shall at all times constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral located in the State of New York and the proceeds thereof, as security for the Secured Obligations (as defined in the Guarantee and Collateral Document), in each case prior and superior in right to any other Person, other than with respect to Liens expressly permitted by subsection 9.3. 36 (b) The English Security Documents are or will be effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral described, and as defined, therein and proceeds thereof, and, after taking the actions described therein, the English Security Documents shall at all times constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the proceeds thereof, as security for the Secured Obligations (as defined in the English Security Documents), in each case prior and superior in right to any other Person, other than with respect to Liens expressly permitted by subsection 9.3. 6.19 ACCURACY OF INFORMATION . No statement or information contained in this Agreement, any other Loan Document or any other document, certificate or statement furnished in writing to the Administrative Agent or the Lenders or any of them, by or on behalf of any Loan Party for use in connection with the transactions contemplated by this Agreement or the other Loan Documents, taken as a whole together with all other information provided in this Agreement, the other Loan Documents or any other such document, certificate or statement, contained as of the date such statement, information, document or certificate was so furnished any untrue statement of any fact material to the interests of the Administrative Agent or any Lender, or omitted to state a fact necessary in order to make the statements contained herein or therein not misleading in any respect material to the interests of the Administrative Agent or any Lender. There is no fact known to any Loan Party that could reasonably be expected to have a Material Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents or in such other documents, certificates and statements furnished to the Administrative Agent and the Lenders for use in connection with the transactions contemplated hereby and by the other Loan Documents. SECTION 7. CONDITIONS PRECEDENT 7.1 CONDITIONS TO CLOSING DATE. The Closing Date shall occur on the date of satisfaction of the following conditions precedent: (a) LOAN DOCUMENTS. The Administrative Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of the Borrowers, with a counterpart for each Lender, (ii) the Guarantee and Collateral Agreement, executed and delivered by a duly authorized officer of the parties thereto, with a counterpart or a conformed copy for each Lender and (iii) the English Security Document described in clause (i) of the definition thereof, executed and delivered by a duly authorized officer of the Loan Party party thereto, with a counterpart or a conformed copy for each Lender. (b) CLOSING CERTIFICATE. The Administrative Agent shall have received, with a copy for each Lender, a certificate of the Company and the other domestic Loan Parties, dated the Closing Date, substantially in the form of Exhibit G with appropriate insertions and attachments, satisfactory in form and substance to the Administrative Agent, executed by the President or any Vice President and the Secretary or any Assistant Secretary of the Company and the domestic Loan Parties. (c) CORPORATE PROCEEDINGS OF THE COMPANY. The Administrative Agent shall have received, with a counterpart for each Lender, a copy of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Board of Directors of the Company authorizing (i) the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party, (ii) the borrowings contemplated hereunder and (iii) the granting by it of the Liens created pursuant to the Security Documents to which the Company is a party, certified by the Secretary or an Assistant Secretary of the Company as of the Closing Date, which certificate shall be in form and substance satisfactory to the 37 Administrative Agent and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (d) COMPANY INCUMBENCY CERTIFICATE. The Administrative Agent shall have received, with a counterpart for each Lender, a Certificate of the Company, dated the Closing Date, as to the incumbency and signature of the officers of the Company executing any Loan Document satisfactory in form and substance to the Administrative Agent, executed by the President or any Vice President and the Secretary or any Assistant Secretary of the Company. (e) CORPORATE PROCEEDINGS OF SUBSIDIARIES. The Administrative Agent shall have received, with a counterpart for each Lender, a copy of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Board of Directors of each Subsidiary of the Company which is a party to a Loan Document authorizing (i) the execution, delivery and performance of the Loan Documents to which it is a party and (ii) the granting by it of the Liens created pursuant to the Security Documents to which it is a party, certified by the Secretary or an Assistant Secretary of each such Subsidiary as of the Closing Date, which certificate shall be in form and substance satisfactory to the Administrative Agent and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (f) SUBSIDIARY INCUMBENCY CERTIFICATES. The Administrative Agent shall have received, with a counterpart for each Lender, a certificate of each Domestic Subsidiary of the Borrower which is a Loan Party, dated the Closing Date, as to the incumbency and signature of the officers of such Subsidiaries executing any Loan Document, satisfactory in form and substance to the Administrative Agent, executed by the President or any Vice President and the Secretary or any Assistant Secretary of each such Subsidiary. (g) CORPORATE DOCUMENTS. The Administrative Agent shall have received, with a counterpart for each Lender, true and complete copies of the certificate of incorporation and by-laws of each Loan Party, certified as of the Closing Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of such Loan Party. (h) FEES. The Administrative Agent and the Lenders shall have received all invoiced fees and expenses required to be paid on the Closing Date. (i) LEGAL OPINIONS. The Administrative Agent shall have received, with a counterpart for each Lender, the following executed legal opinions: (i) the executed legal opinion of Michael C. Duban, counsel to the Company and the other Loan Parties, substantially in the form of Exhibit F-1; (ii) the executed legal opinion of Allen & Overy, special English counsel to the Company and the other Loan Parties, substantially in the form of Exhibit F-2; and each such legal opinion to cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. (j) FINANCIAL STATEMENTS. The Administrative Agent shall have received, with a copy for each Lender, (i) audited consolidated financial statements of the Company and its consolidated Subsidiaries for the two most recent fiscal years ended prior to the Closing Date and unaudited consolidated 38 financial statements of the Company and its consolidated Subsidiaries, reasonably satisfactory to the Lenders and certified by the chief financial officer of the Company, for the nine months ended June 30, 1997, (ii) unaudited interim consolidated financial statements of the Company and its consolidated Subsidiaries for each quarterly period ended subsequent to the date of the latest financial statements delivered pursuant to clause (i) of this paragraph as to which such financial statements are available, reasonably satisfactory to the Lenders and certified by the chief financial officer of the Company, all such financial statements, including the related schedules and notes thereto, having been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by such accountants or chief financial officer, as the case may be, and as disclosed therein), (iii) audited consolidated financial statements of Holland & Barrett for the two most recent fiscal years ended prior to the Closing Date, (iv) unaudited interim consolidated financial statements of Holland & Barrett for each quarterly period ended subsequent to the date of the latest financial statements delivered pursuant to clause (iii) of this paragraph as to which such financial statements are available, reasonably satisfactory to the Lenders and certified by the chief financial officer of the Company, all such financial statements, including the related schedules and notes thereto, having been prepared in accordance with UK GAAP applied consistently throughout the periods involved (except as approved by such accountants or chief financial officer, as the case may be, and as disclosed therein). (k) PRO FORMA BALANCE SHEET. The Administrative Agent shall have received, with a copy for each Lender, the Pro Forma Balance Sheet described in subsection 6.1(b). (l) BUSINESS PLAN. The Administrative Agent shall have received, with a copy for each Lender, a business plan for fiscal years 1997 - 2003 reasonably satisfactory to the Lenders. (m) PLEDGED STOCK; STOCK POWERS. The Administrative Agent shall have received the certificates representing the shares pledged pursuant to the Guarantee and Collateral Agreement and the English Security Documents, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof. All actions required to perfect the security interest in the pledged stock of the Foreign Subsidiary Borrower created pursuant to the English Security Documents shall have been taken. (n) ACTIONS TO PERFECT LIENS. The Administrative Agent shall have received evidence in form and substance satisfactory to it that all filings, recordings, registrations and other actions, including, without limitation, the filing of duly executed financing statements on form UCC-1, necessary or, in the opinion of the Administrative Agent, desirable to perfect the Liens created by the Security Documents shall have been completed. (o) LIEN SEARCHES. The Administrative Agent shall have received the results of a recent search by a Person satisfactory to the Administrative Agent, of the Uniform Commercial Code, judgment and tax lien filings which may have been filed with respect to personal property of the Company and its Subsidiaries in each of the jurisdictions and offices where assets of the Company and its Subsidiaries are located or recorded, and such search shall reveal no material liens on any of the assets of the Borrower or its Subsidiaries except for liens permitted by the Loan Documents. (p) SOLVENCY. The Administrative Agent shall have received, with a copy for each Lender a certificate substantially in the form of Exhibit I which shall document the solvency of the Company on a consolidated basis after giving effect to the Holland & Barrett Acquisition and the other transactions contemplated hereby. 39 (q) CONSENTS, LICENSES AND APPROVALS. (i) All governmental and material third party approvals (including material landlords' and other consents) necessary or advisable in connection with the execution, delivery and performance of the Loan Documents and the Acquisition Documents and the continuing operation of the business of the Company and its Subsidiaries shall have been obtained and be in full force and effect, and (ii) all applicable waiting periods shall have expired without any action being taken or threatened by any competent Governmental Authority which would restrain, prevent or otherwise impose adverse conditions on the Company, any of its Subsidiaries or the Holland & Barrett Acquisition. (r) SUBORDINATED DEBT. The Company shall have received at least $148,750,000 gross proceeds from the issuance of the Subordinated Debt and deposited such gross proceeds in an escrow account maintained by Chase, such proceeds to be used to refinance short term indebtedness incurred to finance the Holland & Barrett Acquisition. 7.2 CONDITIONS TO EACH EXTENSION OF CREDIT. The agreement of each Lender to make any Extension of Credit requested to be made by it on any date (including, without limitation, the Closing Date), is subject to the satisfaction of the following conditions precedent as of the date such Extension of Credit is requested to be made: (a) REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties made by each of the Loan Parties in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date. (b) NO DEFAULT. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Extension of Credit requested to be made on such date. (c) INTERIM FINANCING. Prior to the date upon which the Company shall have repaid (or arrangements satisfactory to the Administrative Agent have been made to repay) all obligations owing and outstanding under, and terminated (or arrangements satisfactory to the Administrative Agent have been made to terminate), the Reimbursement and Guarantee Agreement, dated as of August 7, 1997, between the Company and The Chase Manhattan Bank, the aggregate outstanding Loans and Letter of Credit Obligations shall not exceed $20,000,000. Each Extension of Credit made to a Borrower hereunder shall constitute a representation and warranty by such Borrower as of the date of such Extension of Credit that the conditions contained in this subsection 7.2 have been satisfied. 7.3 CONDITIONS TO INITIAL EXTENSION OF CREDIT TO THE FOREIGN SUBSIDIARY. The agreement of each Lender to make its initial Extension of Credit requested to be made by it to the Foreign Subsidiary Borrower, in addition to the satisfaction with the condition in Section 7.1 and 7.2, is subject to the satisfaction of the following conditions precedent as of the date such initial Extension of Credit is requested to be made: (a) ENGLISH SECURITY DOCUMENTS. The Administrative Agent shall have received each English Security Document referred to in clause (ii) of the definition thereof, executed and delivered by a duly authorized officer of the Loan Party party thereto, with a counterpart or a conformed copy for each Lender. (b) CORPORATE PROCEEDINGS OF THE FOREIGN SUBSIDIARY BORROWER. The Administrative Agent shall have received, with a counterpart for each 40 Lender, a copy of the resolutions, in form and substance satisfactory to the Administrative Agent, of the Board of Directors of the Foreign Subsidiary Borrower authorizing (i) the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party, (ii) the borrowings contemplated hereunder and (iii) the granting by it of the Liens created pursuant to the Security Documents to which the Foreign Subsidiary Borrower is a party, certified by the Secretary or an Assistant Secretary (or like official) of the Foreign Subsidiary Borrower as of such initial date, which certificate shall be in form and substance satisfactory to the Administrative Agent and shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded. (c) LEGAL OPINIONS. The Administrative Agent shall have received, with a counterpart for each Lender, the executed legal opinion of Allen & Overy, special English counsel to the Company and the other Loan Parties covering customary matters as the Administrative Agent may reasonably require. (d) ACTIONS TO PERFECT LIENS. The Administrative Agent shall have received evidence in form and substance satisfactory to it that all filings, recordings, registrations and other actions necessary or, in the opinion of the Administrative Agent, desirable to perfect the Liens created by the English Security Documents shall have been completed. (e) HOLLAND & BARRETT NOTES. The Administrative Agent shall have received, for the account of each Lender that shall so request, a promissory note of the Foreign Subsidiary Borrower reasonably satisfactory to the Administrative Agent and substantially similar to the form of Revolving Credit Note in Exhibit A--1 with appropriate changes, executed by a duly authorized officer of the Foreign Subsidiary Borrower. SECTION 8. AFFIRMATIVE COVENANTS The Company hereby agrees that, so long as the Commitments (or any of them) remain in effect, any Loan or Reimbursement Obligation remains outstanding and unpaid or any other amount is owing to any Lender or either Administrative Agent hereunder or under any other Loan Document, the Company shall and shall cause each of its Subsidiaries to: 8.1 FINANCIAL STATEMENTS. Furnish to each Lender: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Company, copies of the consolidated and consolidating balance sheets of the Company and its consolidated Subsidiaries as at the end of such year and the related consolidated and consolidating statements of income and retained earnings and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Coopers & Lybrand L.L.P. or other independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Company, the unaudited consolidated and consolidating balance sheets of the Company and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated and consolidating statements of income and retained earnings and of cash flows of the Company and its consolidated Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a 41 Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); all such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein and except that interim statements may exclude detailed footnote disclosure in accordance with standard practice). 8.2 CERTIFICATES; OTHER INFORMATION. Furnish to each Lender: (a) concurrently with the delivery of the financial statements referred to in subsection 8.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate; (b) concurrently with the delivery of the financial statements referred to in subsections 8.1(a) and 8.1(b), a certificate of a Responsible Officer (i) stating that, to the best of such officer's knowledge, each Loan Party during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to be observed, performed or satisfied by it, and that such officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate; and (ii) in the case of financial statements referred to in subsections 8.1(a) and 8.1(b), including calculations and information demonstrating in reasonable detail compliance with the requirements of subsection 9.1; (c) not later than 90 days following the end of each fiscal year of the Company, a copy of the projections by the Company of the operating budget of the Company and its Subsidiaries for the succeeding fiscal year, such projections to be accompanied by a certificate of a Responsible Officer to the effect that such projections have been prepared on the basis of sound financial planning practice and that such officer has no reason to believe they are incorrect or misleading in any material respect; (d) within five Business Days after the same are filed, copies of all financial statements and reports which the Company may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; (e) concurrently with the delivery of the financial statements referred to in subsections 8.1(a) and 8.1(b), to the extent not included in the financial statements and reports referred to in subsection 8.2(d), a management narrative report explaining all significant variances from forecasts, projections and previous results and all significant current developments in staffing, marketing, sales and operations; and (f) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 8.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or its Subsidiaries, as the case may be. 42 8.4 MAINTENANCE OF EXISTENCE. Preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business except as otherwise permitted pursuant to subsection 9.5; and comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, be reasonably expected to have a Material Adverse Effect. 8.5 MAINTENANCE OF PROPERTY; INSURANCE. Keep all property useful and necessary in its business in good working order and condition; maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to each Lender, upon written request, full information as to the insurance carried. 8.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS. Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities; and, upon prior written notice, permit representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Company and its Subsidiaries with officers and employees of the Company and its Subsidiaries and, in the presence of an officer of the Company, with its independent certified public accountants. 8.7 NOTICES. Promptly give notice to the Administrative Agent (who shall promptly notify each Lender) of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of the Company or any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between the Company or any of its Subsidiaries and any Governmental Authority, which in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) any litigation or proceeding (including without limitation any notice of violation, alleged violation, liability or potential liability under any Environmental Law) affecting the Company or any of its Subsidiaries in which the amount involved is $500,000 or more and not covered by insurance or in which injunctive or similar relief is sought; (d) the following events, as soon as possible and in any event within 30 days after any Loan Party knows or has reason to know thereof: (i) the occurrence or expected occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the terminating, Reorganization or Insolvency of, any Plan; and (e) any development or event which has had or could reasonably be expected to have a Material Adverse Effect. 43 Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Borrower proposes to take with respect thereto. 8.8 ENVIRONMENTAL LAWS. (a) Comply with, and ensure compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply in all respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws, except to the extent that any failures could not, in the aggregate, reasonably be expected to have a Material Adverse Effect or to result in the payment of Material Environmental Amount. (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws except to the extent that the same are being contested in good faith by appropriate proceedings and the pendency of such proceedings could not be reasonably expected to have a Material Adverse Effect. 8.9 ADDITIONAL SUBSIDIARIES. (a) With respect to any Domestic Subsidiary of the Company created or acquired after the Closing Date by the Company, promptly (i) cause such Subsidiary to become a party to the Guarantee and Collateral Agreement, (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, executed in blank, securing such Subsidiary's obligations under such guarantee and covering the types of assets covered by the Guarantee and Collateral Agreement, (iii) take all required actions to perfect the security interests created by the Guarantee and Collateral Agreement in the assets of such Subsidiary and (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described in the preceding clauses (i) through (iii) which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (b) With respect to each direct Material Foreign Subsidiary of the Company or any Domestic Subsidiary acquired or formed after the Closing Date, promptly after the acquisition or formation thereof, execute and deliver and cause each such Foreign Subsidiary to execute and deliver to the Administrative Agent, in form and substance reasonably satisfactory to the Administrative Agent, such documents and instruments (including, without limitation, pledge agreements) and take such action (including, without limitation, the delivery of stock certificates and instruments) as the Administrative Agent may reasonably request in order to grant to the Administrative Agent, for the ratable benefit of the Lenders, as collateral security for the Obligations, a first priority perfected security interest in 65% of the voting Capital Stock and 100% of the non-voting Capital Stock of, or equivalent ownership interests in, such Foreign Subsidiary, along with any warrants, options, or other rights to acquire the same, in all cases to the extent legally permissible and practicable and deliver to the Administrative Agent such legal opinions as it shall reasonably request with respect thereto. (c) If requested by the Administrative Agent, grant in favor of the Administrative Agent, for the benefit of the Lenders, Liens on any other assets other than real property hereafter acquired by the Company or any Domestic Subsidiary and on previously encumbered assets which become unencumbered, to the extent such Liens are then permissible under applicable law and pursuant to any agreements to which the Company or its Subsidiaries are a party, pursuant to documentation in form and substance satisfactory to the Administrative Agent. 44 SECTION 9. NEGATIVE COVENANTS The Company hereby agrees that, so long as the Commitments (or any of them) remain in effect, any Loan or Reimbursement Obligation remains outstanding and unpaid or any other amount is owing to any Lender or either Administrative Agent hereunder or under any other Loan Document, the Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: 9.1 FINANCIAL CONDITION COVENANTS (a) Maintain at the end of each fiscal quarter of the Company a Consolidated Fixed Charge Coverage Ratio of less than the ratio set forth below opposite the period in which such date occurs: PERIOD RATIO ------ ----- Closing Date through September 29, 1998 1.50 September 30, 1998 through September 29, 1999 1.65 September 30, 1999 through September 29, 2000 2.25 September 30, 2000 - Thereafter 3.00 (b) MAINTENANCE OF CONSOLIDATED INDEBTEDNESS TO CONSOLIDATED EBITDA RATIO. Permit the ratio of (i) Consolidated Indebtedness on any date during any test period set forth below to (ii) Consolidated EBITDA for the four fiscal quarters most recently ended prior to such date, to be greater than the amount set forth opposite such test period below: TEST PERIOD RATIO ----------- ----- Closing Date through September 29, 1998 3.75 September 30, 1998 through September 29, 1999 3.50 September 30, 1999 - Thereafter 3.00 (c) CONSOLIDATED NET WORTH. Permit Consolidated Net Worth on any date during any test period set forth below to be less than the amount set forth opposite such test period below for such fiscal year: 45 TEST PERIOD AMOUNT - ----------- ------ Closing Date through September 29, 1998 $110,000,000 September 30, 1998 through September 29, 1999 $120,000,000 September 30, 1999 through September 29, 2000 $135,000,000 September 30, 2000 through September 29, 2001 $160,000,000 September 30, 2001 through September 29, 2002 $190,000,000 September 30, 2002 through September 29, 2003 $230,000,000 September 30, 2003 - Thereafter $275,000,000 9.2 LIMITATION ON INDEBTEDNESS. Create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness of the Borrowers under this Agreement; (b) Subordinated Debt in an aggregate principal amount not to exceed $150,000,000 less all repayments of principal thereof; (c) existing Indebtedness of the Company listed on Schedule 9.2; (d) Indebtedness of the Company to any Subsidiary of the Company and of any Domestic Subsidiary to the Company or to any other Subsidiary of the Company; (e) Indebtedness under sale and leaseback transactions permitted by subsection 9.12; (f) Indebtedness of the Company under Hedge Agreements entered into solely to hedge interest rate exposure and not for speculative purposes; (g) Indebtedness of the Company or any Subsidiary incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including obligations under Financing Leases and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; PROVIDED that (A) such Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (B) the aggregate principal amount of Indebtedness permitted by this paragraph (g), and the aggregate amount of sale-leaseback transactions permitted under subsection 9.12 theretofore consummated, shall not exceed $10,000,000 at any time outstanding; 46 (h) Indebtedness of any Person that becomes a Subsidiary after the date hereof; PROVIDED that (A) such Indebtedness exists at the time such Person becomes a Subsidiary and is not created in contemplation of or in connection with such Person becoming a Subsidiary and (B) the aggregate principal amount of Indebtedness permitted by this paragraph (h) not exceed $1,000,000 at any time outstanding; (i) Indebtedness of any Foreign Subsidiaries, in addition to Indebtedness permitted by paragraph (j), in an aggregate amount not in excess of $1,000,000 at any time outstanding; and (j) Indebtedness of any Foreign Subsidiary to any other Foreign Subsidiary. 9.3 LIMITATION ON LIENS. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, PROVIDED that adequate reserves with respect thereto are maintained on the books of such Person in conformity with GAAP (or, in the case of Foreign Subsidiaries, generally accepted accounting principles in effect from time to time in their respective jurisdictions of incorporation); (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of such Person; (f) Existing Liens listed on Schedule 9.3; (g) Liens securing Indebtedness of the Borrower permitted by subsection 9.2(g) incurred to finance the acquisition of fixed or capital assets (whether pursuant to a loan, a Financing Lease or otherwise), PROVIDED that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness, (iii) the amount of Indebtedness secured thereby is not increased and (iv) the principal amount of Indebtedness secured by any such Lien shall at no time exceed the original purchase price of such property at the time it was acquired; (h) Liens on current assets of any Foreign Subsidiary securing Indebtedness of such Foreign Subsidiary permitted under subsection 9.2(i); (i) Liens (not otherwise permitted hereunder) which secure obligations in aggregate amount at any time outstanding not exceeding (as to the Borrower and all Subsidiaries), and on property with an aggregate value not exceeding, $1,000,000; and 47 (j) Liens created pursuant to the Security Documents. 9.4 LIMITATION ON GUARANTEE OBLIGATIONS. Create, incur, assume or suffer to exist any Guarantee Obligation except: (a) Guarantee Obligations in existence on the date hereof and listed on Schedule 9.4; (b) Guarantee Obligations incurred after the date hereof in an aggregate amount not to exceed $1,000,000 at any one time outstanding; (c) guarantees made in the ordinary course of its business by the Company of obligations (other than Indebtedness) of any of its Domestic Subsidiaries, which obligations are otherwise permitted under this Agreement; (d) the guarantee by the Company under this Agreement and guarantee by the Domestic Subsidiaries under the Guarantee and Collateral Agreement; (e) guarantees of any Foreign Subsidiary of the obligations of any other Foreign Subsidiary; and (f) guarantees by the Company of obligations of Foreign Subsidiaries in an aggregate amount not in excess of $1,000,000 at any one time outstanding. 9.5 LIMITATION ON FUNDAMENTAL CHANGES. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer or otherwise dispose of, all or substantially all of its property, business or assets, or make any material change in its present method of conducting business, except: (a) any Subsidiary of the Company may be merged or consolidated with or into the Company (PROVIDED that the Company shall be the continuing or surviving corporation) or with or into any one or more wholly owned Subsidiaries of the Company (PROVIDED that if a Domestic Subsidiary is a party to such transaction, such Domestic Subsidiary shall be the continuing or surviving corporation); and (b) any wholly owned Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or any other wholly owned Domestic Subsidiary of the Company. 9.6 LIMITATION ON SALE OF ASSETS. Convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person other than the Company or any wholly owned Domestic Subsidiary, except: (a) the sale or other disposition of obsolete or worn out property in the ordinary course of business; (b) the sale of inventory in the ordinary course of business; (c) as permitted by subsection 9.5(b); and 48 (d) the sale or other disposition of any other property at fair market value for consideration not in excess of $1,000,000 in the aggregate in any fiscal year. 9.7 LIMITATION ON DIVIDENDS AND OTHER RESTRICTED PAYMENTS. Declare or pay any dividend (other than dividends payable solely in common stock of the Company) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of the Company or any Subsidiary or any warrants or options to purchase any such Capital Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Company or any Subsidiary thereof (such declarations, payments, setting apart, purchases, redemptions, defeasances, retirements, acquisitions and distributions being herein called "RESTRICTED PAYMENTS") except (a) as permitted by subsections 9.5 and 9.9, and (b) any Subsidiary may pay dividends to the Company or any other Subsidiary. 9.8 LIMITATION ON CAPITAL EXPENDITURES. Make any Capital Expenditure except for Capital Expenditures by the Company and its Subsidiaries in the ordinary course of business not exceeding, in the aggregate during any fiscal year of the Company $40,000,000. 9.9 LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Make any advance, loan, extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or other securities of or any assets constituting a business unit of, or make any other investment in, any Person, except: (a) extensions of trade credit in the ordinary course of business; (b) investments in Cash Equivalents; (c) loans and advances to employees of the Company or its Subsidiaries for travel, entertainment and relocation expenses in the ordinary course of business in an aggregate amount for the Company and its Subsidiaries not to exceed $100,000 at any one time outstanding; (d) investments by the Company or its Subsidiaries in any wholly-owned Subsidiary of the Company which has complied with the conditions set forth in subsection 8.9(a) or any wholly-owned Foreign Subsidiary which has complied with the conditions set forth in subsection 8.9(b); PROVIDED that the aggregate amount of all such advances, loans, investments, transfers or guarantees outstanding at any time made to or on behalf of the Foreign Subsidiaries shall not exceed $10,000,000; (e) Acquisitions; PROVIDED, the aggregate amount of investments (whether cash, securities or other consideration) permitted each year pursuant to this paragraph (f) shall not exceed, in the aggregate in any fiscal year, the sum of $3,000,000; and (f) additional investments not to exceed $1,000,000 in the aggregate while this Agreement is outstanding. 9.10 LIMITATION ON OPTIONAL PAYMENTS AND MODIFICATIONS OF DEBT INSTRUMENTS. (a) Make any optional payment or prepayment on or redemption or purchase of any Indebtedness (other than the Loans), (b) amend, modify or change, or consent or agree to any amendment, modification or change to any of the terms of any Indebtedness (excluding the Loans) (other than any such amendment, modification or change which would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or 49 extend the date for payment of interest thereon), or (c) amend, modify or change the subordination provisions of any Subordinated Debt. 9.11 LIMITATION ON TRANSACTIONS WITH AFFILIATES. Enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate unless such transaction is (a) otherwise permitted under this Agreement and (b) upon fair and reasonable terms no less favorable to the Company or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate. 9.12 LIMITATION ON SALES AND LEASEBACKS. Enter into any arrangement with any Person providing for the leasing by the Company or any Subsidiary of real or personal property which has been or is to be sold or transferred by the Company or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Company or such Subsidiary; provided, that such sale leaseback transactions in an amount of, together with the aggregate principal amount of Indebtedness permitted under subsection 9.2(g) and (h) then outstanding, up to $10,000,000 in the aggregate while this Agreement is in effect may be consummated by the Company, provided that the Company will not mortgage any existing Real Property (including the Gel-Cap Facility). 9.13 LIMITATION ON CHANGES IN FISCAL YEAR. Permit the fiscal year of the Company to end on a day other than September 30. 9.14 LIMITATION ON NEGATIVE PLEDGE CLAUSES. Enter into with any Person any agreement, other than (a) this Agreement, (b) the Subordinated Debt and (c) any industrial revenue bonds, purchase money mortgages or Financing Leases permitted by this Agreement (in which cases, any prohibition or limitation shall only be effective against the assets financed thereby), which prohibits or limits the ability of the Company or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired. 9.15 LIMITATION ON LINES OF BUSINESS. Enter into any business, either directly or through any Subsidiary, except for the vitamins and healthfood businesses. SECTION 10. GUARANTEE 10.1 GUARANTEE. (a) The Company hereby unconditionally and irrevocably guarantees to the Administrative Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance by the Foreign Subsidiary Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations owed by it (the "FOREIGN SUBSIDIARY OBLIGATIONS"). (b) The Company further agrees to pay any and all expenses (including, without limitation, all reasonable fees and disbursements of counsel), which may be paid or incurred by the Administrative Agent or any Lender in enforcing, or obtaining advice of counsel in respect of, any rights with respect to, or collecting, any or all of the Foreign Subsidiary Obligations and/or enforcing any rights with respect to, or collecting against, the Company under this Section. This Section shall remain in full force and effect until the Foreign Subsidiary Obligations are paid in full and the Commitments are terminated, notwithstanding that from time to time prior thereto the Borrowers may be free from any Foreign Subsidiary Obligations. (c) No payment or payments made by any Borrower or any other Person or received or collected by the Administrative Agent or any Lender from any 50 Borrower or any other Person by virtue of any action or proceeding or any set-off or appropriation or application, at any time or from time to time, in reduction of or in payment of the Foreign Subsidiary Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of the Company hereunder which shall, notwithstanding any such payment or payments, remain liable hereunder for the Foreign Subsidiary Obligations until the Foreign Subsidiary Obligations are paid in full and the Commitments are terminated. (d) The Company agrees that whenever, at any time, or from time to time, it shall make any payment to the Administrative Agent or any Lender on account of its liability hereunder, it will notify the Administrative Agent and such Lender in writing that such payment is made under this Section for such purpose. 10.2 NO SUBROGATION. Notwithstanding any payment or payments made by the Company hereunder, or any set-off or application of funds of the Company by the Administrative Agent or any Lender, the Company shall not be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against the Borrowers or against any collateral security or guarantee or right of offset held by the Administrative Agent or any Lender for the payment of the Foreign Subsidiary Obligations, nor shall the Company seek or be entitled to seek any contribution or reimbursement from the Borrowers in respect of payments made by the Company hereunder, until all amounts owing to the Administrative Agent and the Lenders by the Borrowers on account of the Foreign Subsidiary Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to the Company on account of such subrogation rights at any time when all of the Foreign Subsidiary Obligations shall not have been paid in full, such amount shall be held by the Company in trust for the Administrative Agent and the Lenders, segregated from other funds of the Company, and shall, forthwith upon receipt by the Company, be turned over to the Administrative Agent in the exact form received by the Company (duly indorsed by the Company to the Administrative Agent, if required), to be applied against the Foreign Subsidiary Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. The provisions of this paragraph shall be effective notwithstanding the termination of this Agreement and the payment in full of the Foreign Subsidiary Obligations and the termination of the Commitments. 10.3 AMENDMENTS, ETC. WITH RESPECT TO THE FOREIGN SUBSIDIARY OBLIGATIONS; WAIVER OF RIGHTS. The Company shall remain obligated hereunder notwithstanding that, without any reservation of rights against the Company, and without notice to or further assent by the Company, any demand for payment of any of the Foreign Subsidiary Obligations made by the Administrative Agent or any Lender may be rescinded by the Administrative Agent or such Lender, and any of the Foreign Subsidiary Obligations continued, and the Obligations, or the liability of any other party upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any Lender, and any Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, in accordance with the provisions thereof as the Administrative Agent (or the requisite Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any Lender for the payment of the Foreign Subsidiary Obligations may be sold, exchanged, waived, surrendered or released. None of the Administrative Agent or any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Foreign Subsidiary Obligations or for this Agreement or any property subject thereto. When making any demand hereunder against the Company, the Administrative Agent or any Lender may, but shall be under no obligation to, make a similar demand on the Borrowers or any other guarantor, and any failure by the Administrative Agent or any Lender to make any such demand or to collect any payments from the Borrower or any such other guarantor or any release of the Borrowers or such other guarantor shall not 51 relieve the Company of its obligations or liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of the Administrative Agent or any Lender against the Company. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 10.4 GUARANTEE ABSOLUTE AND UNCONDITIONAL. The Company waives any and all notice of the creation, renewal, extension or accrual of any of the Foreign Subsidiary Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon this Agreement or acceptance of this Agreement; the Foreign Subsidiary Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this Agreement; and all dealings between the Borrowers and the Company, on the one hand, and the Administrative Agent and the Lenders, on the other, shall likewise be conclusively presumed to have been had or consummated in reliance upon this Agreement. The Company waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Foreign Subsidiary Borrower and the Company with respect to the Foreign Subsidiary Obligations. This Section 10 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity, regularity or enforceability of this Agreement, any other Loan Document, any of the Foreign Subsidiary Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the Company against the Administrative Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Borrowers or the Company) which constitutes, or might be construed to constitute, an equitable or legal discharge of the Foreign Subsidiary Borrower for the Foreign Subsidiary Obligations, or of the Company under this Section 10, in bankruptcy or in any other instance. When pursuing its rights and remedies hereunder against the Company, the Administrative Agent and any Lender may, but shall be under no obligation to, pursue such rights and remedies as it may have against the Borrowers or any other Person or against any collateral security or guarantee for the Foreign Subsidiary Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Lender to pursue such other rights or remedies or to collect any payments from the Borrowers or any such other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of the Borrowers or any such other Person or of any such collateral security, guarantee or right of offset, shall not relieve the Company of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent or any Lender against the Company. This Section 10 shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Company and its successors and assigns, and shall inure to the benefit of the Administrative Agent and the Lenders, and their respective successors, indorsees, transferees and assigns, until all the Foreign Subsidiary Obligations and the obligations of the Company under this Agreement shall have been satisfied by payment in full and the Commitments shall be terminated, notwithstanding that from time to time during the term of this Agreement the Borrowers may be free from any Foreign Subsidiary Obligations. 10.5 REINSTATEMENT. This Section 10 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Foreign Subsidiary Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Borrower or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any Borrower or any substantial part of its property, or otherwise, all as though such payments had not been made. 52 10.6 PAYMENTS. The Company hereby agrees that all payments required to be made by it hereunder will be made to the Administrative Agent without set-off or counterclaim in accordance with the terms of the Foreign Subsidiary Obligations, including, without limitation, in the currency in which payment is due. SECTION 11. EVENTS OF DEFAULT Upon the occurrence of any of the following events: (a) Any Borrower shall fail to pay (i) any principal of any Loans or any Reimbursement Obligations when due (whether at the stated maturity, by acceleration or otherwise) in accordance with the terms thereof or hereof or (ii) any interest on any Loans, or any fee or other amount payable hereunder, within five days after any such interest, fee or other amount becomes due in accordance with the terms hereof; or (b) Any representation or warranty made or deemed made by the Company or any other Loan Party herein or in any other Loan Document or which is contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement or any other Loan Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; or (c) The Company or any other Loan Party shall default in the observance or performance of any negative covenant contained in Section 9 or in any Security Document to which it is a party; or (d) The Company or any other Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document other than as provided in (a) through (c) above, and such default shall continue unremedied for a period of 30 days; or (e) Any Loan Document shall cease, for any reason, to be in full force and effect, or the Company or any other Loan Party shall so assert; or any security interest created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; or (f) The subordination provisions contained in any instrument pursuant to which the Subordinated Debt was created or in any instrument evidencing such Subordinated Debt shall cease, for any reason, to be in full force and effect or enforceable in accordance with their terms; or (g) The Company or any of its Subsidiaries shall (i) default in any payment of principal of or interest on any Indebtedness (other than Indebtedness under this Agreement), in the payment of any Guarantee Obligation or in the payment of any Hedge Agreement Obligation, where, in any case or in the aggregate, the principal amount thereof then outstanding exceeds $1,000,000, beyond the period of grace (not to exceed 30 days), if any, provided in the instrument or agreement under which such Indebtedness, Guarantee Obligation or Hedge Agreement Obligation was created; or (ii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness, Guarantee Obligation or Hedge Agreement Obligation or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness or Hedge Agreement Obligation or, beneficiary or beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf of such holder or holders or 53 beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or such Guarantee Obligation to become payable; or (h) (i) The Company, any Domestic Subsidiary or any Material Foreign Subsidiary shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its assets, or the Company, any Domestic Subsidiary or any Material Foreign Subsidiary shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company, any Domestic Subsidiary or any Material Foreign Subsidiary any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against the Company, any Domestic Subsidiary or any Material Foreign Subsidiary any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company, any Domestic Subsidiary or any Material Foreign Subsidiary shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company, any Domestic Subsidiary or any Material Foreign Subsidiary shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (i) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Single Employer Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Majority Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Company or any Commonly Controlled Entity shall, or in the reasonable opinion of the Majority Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist, with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could subject the Company or any of its Subsidiaries to any tax, penalty or other liabilities in the aggregate material in relation to the business, operations, property or financial or other condition of the Company and its Subsidiaries taken as a whole; or (j) One or more judgments or decrees shall be entered against the Company or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of $1,000,000 or more and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or 54 (k) (i) Any Person or "group" (within the meaning of Section 13(d) or 15(d) of the Exchange Act), other than any Person or group owning 20% or more of the Capital Stock of the Company on the date hereof (A) shall have acquired, combined with previous holdings, beneficial ownership of 25% or more of any outstanding class of capital stock of the Company having ordinary voting power in the election of directors or (B) shall obtain the power (whether or not exercised) to elect a majority of the Company's directors or (ii) the Board of Directors of the Company shall not consist of a majority of Continuing Directors; then, and in any such event, (A) if such event is an Event of Default specified in clause (h) or (ii) of paragraph (i) above with respect to the Company or if such event is an Event of Default specified in clause (g) above resulting from the acceleration of the Subordinated Debt automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including, without limitation, all Reimbursement Obligations, regardless of whether or not such Reimbursement Obligations are then due and payable) shall immediately become due and payable, and (B) if such event is any other Event of Default, any of the following actions may be taken: (i) with the consent of the Majority Lenders, the Administrative Agent may, or upon the request of the Majority Lenders, the Administrative Agent shall, by notice to the Company declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; (ii) with the consent of the Majority Lenders, the Administrative Agent may, or upon the direction of the Majority Lenders, the Administrative Agent shall, by notice of default to the Company, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement (including all amounts payable in respect of Letters of Credit whether or not the beneficiaries thereof shall have presented the drafts and other documents required thereunder) and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable and (iii) the Administrative Agent may, and upon the direction of the Majority Lenders shall, exercise any and all remedies and other rights provided pursuant to this Agreement and/or the other Loan Documents. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, the Company shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. The Company hereby grants to the Administrative Agent, for the benefit of the Issuing Lender and the Participating Lenders, a security interest in such cash collateral to secure all obligations of the Company under this Agreement and the other Loan Documents. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Company hereunder and under the Notes. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Company hereunder and under the Notes shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Company. The Company shall execute and deliver to the Administrative Agent, for the account of the Issuing Lender and the Participating Lenders, such further documents and instruments as the Administrative Agent may request to evidence the creation and perfection of the within security interest in such cash collateral account. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. 55 SECTION 12. THE ADMINISTRATIVE AGENT AND THE ARRANGER 12.1 APPOINTMENT. Each Lender hereby irrevocably designates and appoints Chase as the Administrative Agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. 12.2 DELEGATION OF DUTIES. The Administrative Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 12.3 EXCULPATORY PROVISIONS. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of the Borrower to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Borrower. 12.4 RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Lenders as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Majority Lenders, and such request 56 and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 12.5 NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received notice from a Lender or the Borrowers referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Majority Lenders; PROVIDED that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 12.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS. Each Lender expressly acknowledges that none of the Administrative Agent or any of its respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Borrowers, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrowers and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent, the Arranger or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of the Borrowers which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates. 12.7 INDEMNIFICATION. The Lenders agree to indemnify the Administrative Agent in its capacity as such (to the extent not reimbursed by the Borrowers and without limiting the obligation of the Company to do so), ratably according to their respective Aggregate Revolving Credit Outstanding in effect on the date on which indemnification is sought (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with their Aggregate Revolving Credit Outstanding immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; PROVIDED that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the 57 Administrative Agent's gross negligence or willful misconduct. The agreements in this subsection shall survive the payment of the Loans and all other amounts payable hereunder. 12.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. The Administrative Agent and its Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrowers as though the Administrative Agent were not the Administrative Agent hereunder and under the other Loan Documents. With respect to the Loans made by it, the Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 12.9 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Lenders. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Majority Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall be approved by the Company, such approval not to be unreasonably withheld whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Section 12 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents. 12.10 ISSUING LENDER AND COLLATERAL AGENT. Each Lender hereby acknowledges that the provisions of this Section 12 shall apply to the Issuing Lender, in its capacity as issuer of any Letter of Credit, and the Collateral Agent, in its capacity under the other Loan Documents, in the same manner as such provisions are expressly stated to apply to the Administrative Agent. SECTION 13. MISCELLANEOUS 13.1 AMENDMENTS AND WAIVERS. (a) Neither this Agreement or any other Loan Document, nor any terms hereof or thereof may be amended, supplemented, waived or modified except in accordance with the provisions of this subsection 13.1. The Majority Lenders may, or, with the written consent of the Majority Lenders, the Administrative Agent may, from time to time, (i) enter into with the Borrowers written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights or obligations of the Lenders or of the Borrowers hereunder or thereunder or (ii) waive at the Company's request, on such terms and conditions as the Majority Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; PROVIDED, HOWEVER, that no such waiver and no such amendment, supplement or modification shall: (A) reduce the amount or extend the scheduled date of maturity of any Loan, or reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Lender's Commitments, in each case without the consent of each Lender affected thereby; 58 (B) amend, supplement, modify or waive any provision of this subsection 13.1 or reduce the percentages specified in the definition of "Majority Lenders" or consent to the assignment or transfer by the Company of any of its rights and obligations under this Agreement and the other Loan Documents, in each case without the consent of all the Lenders; (C) amend, supplement, modify or waive any provision of Section 12 or any other provision of this Agreement governing the rights or obligations of the Administrative Agent without the consent of the then Administrative Agent; (D) extend the expiring date on any Letter of Credit beyond the Revolving Credit Termination Date without the consent of each Lender; or (E) release the guarantee contained in Section 10 or, except as permitted under subsection 9.6, the Guarantee and Collateral Agreement or all or a substantial portion of the Collateral under, and as defined in, the Security Documents without the consent of each Lender. Any waiver and any amendment, supplement or modification pursuant to this subsection 13.1 shall apply to each of the Lenders and shall be binding upon the Borrowers, the Lenders, the Administrative Agent and all future holders of the Loans and the Reimbursement Obligations. In the case of any waiver, the Borrowers, the Lenders and the Administrative Agent shall be restored to their former positions and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 13.2 NOTICES. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by facsimile transmission) and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made (a) in the case of delivery by hand, when delivered, (b) in the case of delivery by mail, three days after being deposited in the mails, postage prepaid, or (c) in the case of delivery by facsimile transmission, when sent and receipt has been confirmed, addressed as follows in the case of the Borrowers, the Issuing Lender and the Administrative Agent, and as set forth in Schedule I in the case of the other parties hereto, or to such other address as may be hereafter notified by the respective parties hereto: The Borrowers: c/o NBTY, Inc. 90 Orville Drive Bohemia, New York 11716-2510 Attention: Harvey Kamil Fax: (516) 567-7148 The Administrative Agent, the Issuing Lender or SwingLine Lender: The Chase Manhattan Bank Loan & Agency Services Group One Chase Manhattan Plaza, 8th Floor New York, New York 10081 Attention: Janet Belden Fax: (212) 552-5658 59 PROVIDED that any notice, request or demand to or upon the Administrative Agent, the Issuing Lender or the Lenders pursuant to subsection 2.2, 2.4, 2.5, 3.2, 4.2 or 5.2 shall not be effective until received. 13.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 13.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans hereunder until all obligations hereunder and under the other Loan Documents have been paid in full and the Commitments hereunder have been terminated. 13.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to pay or reimburse the Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the development, preparation, syndication and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent, (b) to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred during the continuance of any Default or Event of Default in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including, without limitation, the fees and disbursements of counsel to each Lender and of counsel to the Administrative Agent, (c) to pay, indemnify, and hold each Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender and the Administrative Agent harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents and related documents or the use of the proceeds of the Loans, including, without limitation, any of the foregoing relating to the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Company, any of its Subsidiaries or any of the Properties (all the foregoing in this clause (d), collectively, the "indemnified liabilities"), PROVIDED, that the Company shall have no obligation hereunder to the Administrative Agent or any Lender with respect to indemnified liabilities solely arising from the gross negligence or willful misconduct of the Administrative Agent or any such Lender. The agreements in this subsection shall survive repayment of the Loans and all other amounts payable hereunder for a period of one year. 13.6 SUCCESSORS AND ASSIGNS; PARTICIPATION AND ASSIGNMENTS. (a) This Agreement shall be binding upon and inure to the benefit of the Borrowers, the Lenders, the Administrative Agent and their respective successors and assigns, 60 except that the Borrowers may not assign or transfer any of their rights or obligations under this Agreement without the prior written consent of each Lender. (b) Any Lender may, in the ordinary course of its commercial banking or lending business and in accordance with applicable law, at any time sell to one or more banks or other entities ("PARTICIPANTS") participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents, and the Borrowers and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. The Company agrees that if amounts outstanding under this Agreement are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, PROVIDED that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in subsection 13.7(a) as fully as if it were a Lender hereunder. The Company also agrees that each Participant shall be entitled to the benefits of subsections 5.9, 5.10, 5.11 and 5.12 with respect to its participation in the Commitments and the Loans outstanding from time to time as if it was a Lender; PROVIDED that, in the case of subsection 5.12, such Participant shall have complied with the requirements of said subsection and PROVIDED, FURTHER, that no Participant shall be entitled to receive any greater amount pursuant to any such subsection than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender may, in the ordinary course of its commercial banking or lending business and in accordance with applicable law, at any time and from time to time assign to any Lender or any affiliate thereof or to an additional bank or financial institution (an "ASSIGNEE"), in the case of any assignment relating to Loans to such an additional bank or financial institution with the consent of the Company and the Administrative Agent (which consents in each case shall not be unreasonably withheld), all or any part of its rights and obligations under this Agreement and the other Loan Documents pursuant to an Assignment and Acceptance, substantially in the form of Exhibit E, executed by such Assignee, such assigning Lender (and, to the extent required, by the Company and the Administrative Agent) and delivered to the Administrative Agent for its acceptance and recording in the Register, PROVIDED that, in the case of any such assignment to an additional bank or financial institution, the sum of the aggregate principal amount of the Loans and the aggregate amount of the Available Revolving Credit Commitment being assigned and, if such assignment is of less than all of the rights and obligations of the assigning Lender, the sum of the aggregate principal amount of the Loans and the aggregate amount of the Available Revolving Credit Commitment remaining with the assigning Lender are each not less than $5,000,000. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with Commitments as set forth therein, and (y) the assigning Lender thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto). Notwithstanding any provision of this subsection and subsection 13.6(e), the consent of the Company shall not be required, and, unless requested by the Assignee and/or the 61 assigning Lender, new Notes shall not be required to be executed and delivered by the Company, for any assignment which occurs at any time when any of the events described in clause (h) of Section 11 shall have occurred and be continuing. (d) The Administrative Agent shall, on behalf of the Company, maintain at the address of the Administrative Agent referred to in subsection 13.2 a copy of each Assignment and Acceptance delivered to it and a register (the "REGISTER") for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amounts of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register as the owner of a Loan or other obligation hereunder or under any Note as the owner thereof for all purposes of this Agreement and the other Loan Documents, notwithstanding any notice to the contrary. Any assignment of any Loan or other obligation hereunder or under any Note shall be effective only upon appropriate entries with respect thereto being made in the Register. The Register shall be available for inspection by the Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Assignee (and, in the case of any assignment relating to Revolving Credit Loans to an Assignee that is not then a Lender or an affiliate thereof, by the Company and the Administrative Agent, to the extent required by subsection 13.6(c)) together with payment to the Administrative Agent by the assigning Lender or Assignee of a registration and processing fee of $3,500 (except that no such registration and processing fee shall be payable in the case of an Assignee which is already a Lender or is an Affiliate of a Lender), the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Lenders and the Company. (f) The Company authorizes each Lender to disclose to any Participant or Assignee (each, a "TRANSFEREE") and any prospective Transferee, subject to the provisions of subsection 13.18, any and all financial information in such Lender's possession concerning the Company and its Affiliates which has been delivered to such Lender by or on behalf of the Company pursuant to this Agreement or which has been delivered to such Lender by or on behalf of the Company in connection with such Lender's credit evaluation of the Company and its Affiliates prior to becoming a party to this Agreement. (g) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this subsection concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. (h) If, pursuant to this subsection 13.6, any interest in this Agreement or any Note or Letter of Credit is transferred to any Transferee which is not incorporated or organized under the laws of the United States of America or a state thereof, the assigning Lender shall cause such Transferee, concurrently with the effectiveness of such transfer, (i) to represent to the assigning Lender (for the benefit of the assigning Lender, the Administrative Agent and the Borrowers) that under applicable law and treaties no Non-Excluded Taxes will be required to be withheld by the Administrative Agent, any Borrower or the assigning Lender with respect to any payments to be made to such Transferee in respect of the Loans or Participating Interests, (ii) to furnish to the assigning Lender, the Administrative Agent and the Company, such forms and certificates required to be furnished pursuant to subsection 5.12(b) and (iii) to agree (for the benefit of the assigning Lender, the Administrative Agent and the Borrowers) to be bound by the provisions of subsections 5.12(b) and (c). 62 13.7 ADJUSTMENTS; SET-OFF. (a) If any Lender (a "BENEFITTED LENDER") shall at any time receive any payment of all or part of its Loans owing to it by any Borrower, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in clause (h) of Section 11 or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans owing to it by such Borrower, or interest thereon, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loan owing to it by such Borrower, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Company, any such notice being expressly waived by the Company to the extent permitted by applicable law, upon any amount becoming due and payable by the Company hereunder (whether at the stated maturity, by acceleration or otherwise) to set-off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Company. Each Lender agrees promptly to notify the Company and the Administrative Agent after any such set-off and application made by such Lender, PROVIDED that the failure to give such notice shall not affect the validity of such set-off and application. 13.8 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by facsimile transmission), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be delivered to the Company and the Administrative Agent. 13.9 SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 13.10 INTEGRATION. This Agreement and the other Loan Documents represent the agreement of the Borrowers, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Borrowers, the Administrative Agent or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 13.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 63 13.12 SUBMISSION TO JURISDICTION; WAIVERS. (a) Each Borrower hereby irrevocably and unconditionally: (i) submits for itself and its property in any legal action or proceeding relating to this Agreement or any other Loan Document to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (ii) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (iii) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Borrower at its address set forth in subsection 13.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; and (iv) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction. (b) The Foreign Subsidiary Borrower hereby irrevocably appoints the Company as its agent for service of process in any proceeding referred to in subsection 13.12(a) and agrees that service of process in any such proceeding may be made by mailing or delivering a copy thereof to it care of Company at its address for notice set forth in subsection 13.2. 13.13 ACKNOWLEDGEMENTS. Each Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) none of the Administrative Agent or any Lender has any fiduciary relationship with or duty to such Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Administrative Agents and the Lenders, on the one hand, and the Company's, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrowers and the Lenders. 13.14 WAIVERS OF JURY TRIAL. EACH OF THE BORROWERS, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 13.15 POWER OF ATTORNEY. The Foreign Subsidiary Borrower hereby grants to Company an irrevocable power of attorney to act as its attorney-in-fact with regard to matters relating to this Agreement and each other Loan Document, including, without limitation, execution and delivery of any amendments, supplements, waivers or other modifications hereto or thereto, receipt of any notices hereunder or thereunder and receipt of service of process in connection herewith or therewith. The Foreign Subsidiary Borrower hereby explicitly acknowledges that the Administrative Agent and each Lender have executed and delivered this Agreement and each other Loan Document to which it is a party, 64 and has performed its obligations under this Agreement and each other Loan Document to which it is a party, in reliance upon the irrevocable grant of such power of attorney pursuant to this subsection. The power of attorney granted by the Foreign Subsidiary Borrower hereunder is coupled with an interest. 13.16 JUDGMENT. (a) If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in one currency into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the first currency with such other currency in the city in which it normally conducts its foreign exchange operation for the first currency on the Business Day preceding the day on which final judgment is given. (b) The obligation of each Borrower in respect of any sum due from it to any Lender hereunder shall, notwithstanding any judgment in a currency (the "JUDGMENT CURRENCY") other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the "AGREEMENT CURRENCY"), be discharged only to the extent that on the Business Day following receipt by such Lender of any sum adjudged to be so due in the Judgment Currency such Lender may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency; if the amount of Agreement Currency so purchased is less than the sum originally due to such Lender in the Agreement Currency, such Borrower agrees notwithstanding any such judgment to indemnify such Lender against such loss, and if the amount of the Agreement Currency so purchased exceeds the sum originally due to any Lender, such Lender agrees to remit to such Borrower such excess. 13.17 CONFIDENTIALITY. Each Lender agrees to take normal and reasonable precautions to maintain the confidentiality of information designated in writing as confidential and provided to it by the Company or any Subsidiary in connection with this Agreement; PROVIDED, HOWEVER, that any Lender may disclose such information (a) at the request of any regulatory authority having supervisory jurisdiction over it or in connection with an examination of such Lender by any such authority, (b) pursuant to subpoena or other court process, (c) when required to do so in accordance with the provisions of any applicable law, (d) at the direction of any other Governmental Authority, (e) to such Lender's Affiliates, independent auditors and other professional advisors or (f) to any Transferee or potential Transferee; PROVIDED that such Transferee agrees in writing to comply with the provisions of this subsection 13.17. 65 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. NBTY, INC. By: /s/ Harvey Kamil ------------------------------------------ Title: Executive Vice President HOLLAND & BARRETT HOLDINGS LIMITED By: /s/ Harvey Kamil ------------------------------------------ Title: Director THE CHASE MANHATTAN BANK, as Administrative Agent and as a Lender, and as Swing Line Lender and as Issuing Lender By: /s/ Barbara G. Bertschi ------------------------------------------ Title: Vice President KEYBANK NATIONAL ASSOCIATION By: /s/ Joseph F. Burns ------------------------------------------ Title: Vice President THE BANK OF NOVA SCOTIA By: /s/ J. Alan Edwards ------------------------------------------ Title: Authorized Signatory EUROPEAN AMERICAN BANK By: /s/ Stewart N. Berman ------------------------------------------ Title: Vice President IBJ SCHRODER BANK & TRUST COMPANY By: /s/ Mary McLaughlin ------------------------------------------ Title: Vice President SCHEDULE I ---------- COMMITMENTS; ADDRESSES ================================================================================ Lender Revolving Credit Commitment - -------------------------------------------------------------------------------- The Chase Manhattan Bank $13,000,000 760 Jericho Turnpike, Suite 306 Woodbury, New York 11797 Telecopy: (516) 364-3307 Attention: Barbara G. Bertschi - -------------------------------------------------------------------------------- KeyBank National Association $10,000,000 1377 Motor Parkway Islandia, New York 11788 Telecopy: (516) 233-4048 Attention: Joseph F. Burns - -------------------------------------------------------------------------------- Bank of Nova Scotia $9,000,000 One Liberty Plaza New York, New York 10006 Telecopy: (212) 225-5145 Attention: Tilsa Cora - -------------------------------------------------------------------------------- European American Bank $9,000,000 730 Veterans Memorial Highway Hauppauge, New York 11788-2780 Telecopy: (516) 360-7112 Attention: Stuart N. Berman - -------------------------------------------------------------------------------- I.B.J. Schroder Bank & Trust Company $9,000,000 1 State Street, 9th Floor New York, New York 10004 Telecopy: (212) 858-2768 Attention: Mark Weitekamp TOTAL $50,000,000 ================================================================================ EXHIBIT A-1 FORM OF REVOLVING CREDIT NOTE $ New York, New York --------- September __ , 1997 FOR VALUE RECEIVED, the undersigned, NBTY, INC., a Delaware corporation (the "Company"), hereby unconditionally promises to pay to the order of ________ (the "LENDER") at the office of THE CHASE MANHATTAN BANK, located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, on the Revolving Credit Termination Date the principal amount of (a) __________ DOLLARS ($__), or, if less, (b) the aggregate unpaid principal amount of all Revolving Credit Loans made by the Lender to the Company pursuant to subsection 2.1 of the Credit Agreement, as hereinafter defined. The Company further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in subsection 6.1 of such Credit Agreement. The holder of this Note is authorized to endorse on the schedules annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date, Type and amount of each Revolving Credit Loan made pursuant to the Credit Agreement and the date and amount of each payment or prepayment of principal thereof, each continuation thereof, each conversion of all or a portion thereof to another Type and, in the case of Eurodollar Loans, the length of each Interest Period with respect thereto. Each such endorsement shall constitute PRIMA FACIE evidence of the accuracy of the information endorsed. The failure to make any such endorsement shall not affect the obligations of the Company in respect of such Revolving Credit Loan. This Note (a) is one of the Revolving Credit Notes referred to in the Credit and Guarantee Agreement dated as of September , 1997 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Company, the Foreign Subsidiary Borrower, the Lender, the other banks and financial institutions from time to time parties thereto and The Chase Manhattan Bank, as Administrative Agent, (b) is subject to the provisions of the Credit Agreement and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement. This Note is secured and guaranteed as provided in the Loan Documents. Reference is hereby made to the Loan Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this Note in respect thereof. Upon the occurrence of any one or more of the Events of Default, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. NBTY, INC. By: ----------------------------------- Name: --------------------------------- Title: --------------------------------
Schedule A to Revolving Credit Note ------------------------ LOANS, CONVERSIONS AND REPAYMENTS OF ABR LOANS - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- Amount Amount of ABR Loans Converted to Amount of Principal of Converted to Unpaid Principal Date Amount of ABR Loans ABR Loans ABR Loans Repaid Eurodollar Loans Balance of ABR Loans Notation Made By - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- - -------- --------------------- --------------- ------------------------ --------------------- --------------------- ---------------- ======== ===================== =============== ======================== ===================== ===================== ================
Schedule B to Revolving Credit Note ------------------------ LOANS, CONTINUATIONS, CONVERSIONS AND REPAYMENTS OF EURODOLLAR LOANS - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- Amount Interest Period and Amount of Principal Amount of Eurodollar Unpaid Principal Amount of Converted to Eurodollar Rate with of Eurodollar Loans Loans Converted to Balance of Notation Date Eurodollar Loans Eurodollar Loans Respect Thereto Repaid ABR Loans Eurodollar Loans Made By - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- - ----- ---------------- ---------------- ---------------------- -------------------- --------------------- ---------------- -------- ===== ================ ================ ====================== ==================== ===================== ================ ========
EXHIBIT A-2 ----------- FORM OF SWING LINE NOTE $ -------- New York, New York September , 1997 --- FOR VALUE RECEIVED, the undersigned, NBTY, INC., a Delaware corporation (the "COMPANY"), hereby unconditionally promises to pay to the order of _________ (the "LENDER") at the office of THE CHASE MANHATTAN BANK, located at 270 Park Avenue, New York, New York 10017, in lawful money of the United States of America and in immediately available funds, on the Revolving Credit Termination Date the principal amount of (a) ___________ DOLLARS ($___ ), or, if less, (b) the aggregate unpaid principal amount of all Swing Line Loans made by the Lender to the Company pursuant to subsection ____ of the Credit Agreement, as hereinafter defined. The Company further agrees to pay interest in like money at such office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified in subsection 6.1 of such Credit Agreement. The holder of this Note is authorized to endorse on the schedules annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date and amount of each Swing Line Loan made pursuant to the Credit Agreement and the date and amount of each payment or prepayment of principal thereof. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. The failure to make any such endorsement shall not affect the obligations of the Company in respect of such Swing Line Loan. This Note (a) is the Swing Line Notes referred to in the Credit and Guarantee Agreement dated as of September , 1997 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among the Company, the Foreign Subsidiary Borrower, the Lender, the other banks and financial institutions from time to time parties thereto and The Chase Manhattan Bank, as Administrative Agent, (b) is subject to the provisions of the Credit Agreement and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement. This Note is secured and guaranteed as provided in the Loan Documents. Reference is hereby made to the Loan Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this Note in respect thereof. Upon the occurrence of any one or more of the Events of Default, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. NBTY, INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- EXHIBIT B TO CREDIT AND GUARANTEE AGREEMENT -------------------- ================================================================================ GUARANTEE AND COLLATERAL AGREEMENT made by NBTY, INC. and the other Grantors parties hereto in favor of THE CHASE MANHATTAN BANK, as Administrative Agent Dated as of September [ ], 1997 ================================================================================ TABLE OF CONTENTS Page ---- SECTION 1. DEFINED TERMS.................................................... 1 1.1 Definitions....................................................... 1 1.2 Other Definitional Provisions..................................... 5 SECTION 2. GUARANTEE........................................................ 6 2.1 Guarantee........................................................ 6 2.2 Right of Contribution............................................ 6 2.3 No Subrogation................................................... 7 2.4 Amendments, etc. with respect to the Borrower Obligations........ 7 2.5 Guarantee Absolute and Unconditional............................. 7 2.6 Reinstatement.................................................... 8 2.7 Payments......................................................... 8 SECTION 3. GRANT OF SECURITY INTEREST....................................... 8 SECTION 4. REPRESENTATIONS AND WARRANTIES................................... 9 4.1 Representations in Credit Agreement.............................. 9 4.2 Title; No Other Liens............................................ 9 4.3 Perfected First Priority Liens................................... 10 4.4 Chief Executive Office........................................... 10 4.5 Inventory and Equipment.......................................... 10 4.6 Farm Products.................................................... 10 4.7 Pledged Securities............................................... 10 4.8 Receivables...................................................... 11 4.9 Intellectual Property............................................ 11 SECTION 5. COVENANTS........................................................ 11 5.1 Covenants in Credit Agreement.................................... 11 5.2 Delivery of Instruments and Chattel Paper........................ 11 5.3 Maintenance of Insurance......................................... 12 5.4 Payment of Obligations........................................... 12 5.5 Maintenance of Perfected Security Interest; Further Documentation.12 5.6 Changes in Locations, Name, etc.................................. 13 5.7 Notices.......................................................... 13 5.8 Pledged Securities............................................... 13 5.9 Receivables...................................................... 14 5.10 Intellectual Property........................................... 14 SECTION 6. REMEDIAL PROVISIONS.............................................. 16 6.1 Certain Matters Relating to Receivables.......................... 16 6.2 Communications with Obligors; Grantors Remain Liable............. 16 6.3 Pledged Stock.................................................... 17 i 6.4 Proceeds to be Turned Over To Administrative Agent............... 18 6.5 Application of Proceeds.......................................... 18 6.6 Code and Other Remedies.......................................... 18 6.7 Private Sales.................................................... 19 6.8 Waiver; Deficiency............................................... 19 SECTION 7. THE ADMINISTRATIVE AGENT......................................... 20 7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc...... 20 7.2 Duty of Administrative Agent..................................... 21 7.3 Execution of Financing Statements................................ 22 7.4 Authority of Administrative Agent................................ 22 SECTION 8. MISCELLANEOUS.................................................... 22 8.1 Amendments in Writing............................................ 22 8.2 Notices.......................................................... 22 8.3 No Waiver by Course of Conduct; Cumulative Remedies.............. 22 8.4 Enforcement Expenses; Indemnification............................ 23 8.5 Successors and Assigns........................................... 23 8.6 Set-Off.......................................................... 23 8.7 Counterparts..................................................... 24 8.8 Severability..................................................... 24 8.9 Section Headings................................................. 24 8.10 Integration..................................................... 24 8.11 GOVERNING LAW................................................... 24 8.12 Submission To Jurisdiction; Waivers............................. 24 8.13 Acknowledgements................................................ 25 8.14 WAIVER OF JURY TRIAL............................................ 25 8.15 Additional Grantors............................................. 25 8.16 Judgment........................................................ 25 8.17 Releases........................................................ 26 ii SCHEDULES Schedule 1 Notice Addresses of Guarantors Schedule 2 Description of Pledged Securities Schedule 3 Filings and Other Actions Required to Perfect Security Interests Schedule 4 Location of Jurisdiction of Organization and Chief Executive Office Schedule 5 Location of Inventory and Equipment Schedule 6 Copyrights and Copyright Licenses; Patents and Patent Licenses; Trademark and Trademark Licenses Schedule 7 Existing Prior Liens iii GUARANTEE AND COLLATERAL AGREEMENT, dated as of September __, 1997, made by each of the signatories hereto (together with any other entity that may become a party hereto as provided herein, the "GRANTORS"), in favor of THE CHASE MANHATTAN BANK, as Administrative Agent (in such capacity, the "ADMINISTRATIVE AGENT") for the banks and other financial institutions (the "LENDERS") from time to time parties to the Credit and Guarantee Agreement, dated as of September , 1997 (as amended, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), among NBTY, INC., a Delaware corporation (the "COMPANY"), the Foreign Subsidiary Borrower parties thereto (together with the Company, the "BORROWERS"), the Lenders and the Administrative Agent. W I T N E S S E T H: ------------------- WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to make extensions of credit to the Borrowers upon the terms and subject to the conditions set forth therein; WHEREAS, each Borrower is a member of an affiliated group of companies that includes each other Grantor; WHEREAS, the proceeds of the extensions of credit under the Credit Agreement will be used in part to enable the Borrowers to make valuable transfers to one or more of the other Grantors in connection with the operation of their respective businesses; WHEREAS, the Borrowers and the other Grantors are engaged in related businesses, and each Grantor will derive substantial direct and indirect benefit from the making of the extensions of credit under the Credit Agreement; and WHEREAS, it is a condition precedent to the obligation of the Lenders to make their respective extensions of credit to the Borrowers under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Administrative Agent for the ratable benefit of the Lenders; NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower thereunder, each Grantor hereby agrees with the Administrative Agent, for the ratable benefit of the Lenders, as follows: SECTION 1. DEFINED TERMS 1.1 DEFINITIONS. (a) Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement, and the following terms which are defined in the Uniform Commercial Code in effect in the State of New York on the date hereof are used herein as so defined: Accounts, Chattel Paper, Documents, Equipment, Farm Products, Instruments and Inventory. (b) The following terms shall have the following meanings: "AGREEMENT": this Guarantee and Collateral Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "BORROWER OBLIGATIONS": in respect of any Borrower, the collective reference to the unpaid principal of and interest on the Loans made to such 2 Borrower, the Reimbursement Obligations of such Borrower and all other obligations and liabilities of such Borrower (including, without limitation, interest accruing at the then applicable rate provided in the Credit Agreement after the maturity of such Loans and Reimbursement Obligations and interest accruing at the then applicable rate provided in the Credit Agreement after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to such Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding, and including, with respect to the Company, its guarantee obligations pursuant to Section 12 of the Credit Agreement) to the Administrative Agent or any Lender (or, in the case of any Hedge Agreement referred to below, any Affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, the Credit Agreement, this Agreement, the other Loan Documents, any Letter of Credit or any Hedge Agreement entered into by such Borrower with any Lender (or any Affiliate of any Lender) or any other document made, delivered or given in connection therewith, in each case whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or to the Lenders that are required to be paid by such Borrower pursuant to the terms of any of the foregoing agreements). "COLLATERAL": as defined in Section 3. "COLLATERAL ACCOUNT": any collateral account established by the Administrative Agent as provided in Section 6.1 or 6.4. "COPYRIGHTS": (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished (including, without limitation, those listed in Schedule 6), all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, and (ii) the right to obtain all renewals thereof. "COPYRIGHT LICENSES": any written agreement naming any Grantor as licensor or licensee (including, without limitation, those listed in Schedule 6), granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright, to the extent the grant by such Grantor of a security interest pursuant to this Agreement in its right, title and interest in such Copyright License is not prohibited by such Copyright License without the consent of any other party thereto, would not give any other party to such Copyright License the right to terminate its obligations thereunder, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from the other parties thereto (it being understood that the foregoing shall not be deemed to obligate such Grantor to obtain such consents); provided, that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any money or other amounts due or to become due under any such Copyright License. "GENERAL INTANGIBLES": all "general intangibles" as such term is defined in Section 9-106 of the Uniform Commercial Code in effect in the State of New York on the date hereof and, in any event, including, without limitation, with respect to any Grantor, all contracts, agreements, instruments and indentures in any form, and portions thereof, to which such 3 Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same may from time to time be amended, supplemented or otherwise modified, including, without limitation, (i) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith, (ii) all rights of such Grantor to damages arising thereunder and (iii) all rights of such Grantor to perform and to exercise all remedies thereunder, in each case to the extent the grant by such Grantor of a security interest pursuant to this Agreement in its right, title and interest in such contract, agreement, instrument or indenture is not prohibited by such contract, agreement, instrument or indenture without the consent of any other party thereto, would not give any other party to such contract, agreement, instrument or indenture the right to terminate its obligations thereunder, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from the other parties thereto (it being understood that the foregoing shall not be deemed to obligate such Grantor to obtain such consents); provided, that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any Receivable or any money or other amounts due or to become due under any such contract, agreement, instrument or indenture. "GUARANTOR OBLIGATIONS": with respect to any Guarantor, the collective reference to (i) the Borrower Obligations of all Borrowers and (ii) all obligations and liabilities of such Guarantor which may arise under or in connection with this Agreement or any other Loan Document to which such Guarantor is a party, in each case whether on account of guarantee obligations, reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including, without limitation, all fees and disbursements of counsel to the Administrative Agent or to the Lenders that are required to be paid by such Guarantor pursuant to the terms of this Agreement or any other Loan Document). "GUARANTORS": the collective reference to each Grantor other than the Company. "HEDGE AGREEMENTS": as to any Person, all interest rate swaps, caps or collar agreements or similar arrangements entered into by such Person providing for protection against fluctuations in interest rates or currency exchange rates or the exchange of nominal interest obligations, either generally or under specific contingencies. "INTELLECTUAL PROPERTY": the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks and the Trademark Licenses, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "INTERCOMPANY NOTE": any promissory note evidencing loans made by any Grantor to the Company or any of its Subsidiaries. "ISSUERS": the collective reference to each issuer of a Pledged Security. "NEW YORK UCC": the Uniform Commercial Code as from time to time in effect in the State of New York. "OBLIGATIONS": (i) in the case of each Borrower, its Borrower 4 Obligations, and (ii) in the case of each Guarantor, its Guarantor Obligations. "PATENTS": (i) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof and all goodwill associated therewith, including, without limitation, any of the foregoing referred to in Schedule 6, (ii) all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, including, without limitation, any of the foregoing referred to in Schedule 6, and (iii) all rights to obtain any reissues or extensions of the foregoing. "PATENT LICENSE": all agreements, whether written or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent, including, without limitation, any of the foregoing referred to in SCHEDULE 6, to the extent the grant by such Grantor of a security interest pursuant to this Agreement in its right, title and interest in such Patent License is not prohibited by such Patent License without the consent of any other party thereto, would not give any other party to such Patent License the right to terminate its obligations thereunder, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from the other parties thereto (it being understood that the foregoing shall not be deemed to obligate such Grantor to obtain such consents); provided, that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any money or other amounts due or to become due under any such Patent License. "PLEDGED NOTES": all Intercompany Notes at any time issued to any Grantor and all other promissory notes issued to or held by any Grantor (other than promissory notes issued in connection with extensions of trade credit by any Grantor in the ordinary course of business). "PLEDGED SECURITIES": the collective reference to the Pledged Notes and the Pledged Stock. "PLEDGED STOCK": the shares of Capital Stock listed on Schedule 2, together with any other shares, stock certificates, options or rights of any nature whatsoever pledged pursuant to subsection 8.9 of the Credit Agreement. "PROCEEDS": all "proceeds" as such term is defined in Section 9-306(1) of the Uniform Commercial Code in effect in the State of New York on the date hereof and, in any event, shall include, without limitation, all dividends or other income from the Pledged Securities, collections thereon or distributions or payments with respect thereto. "RECEIVABLE": any right to payment for goods sold or leased or for services rendered, whether or not such right is evidenced by an Instrument or Chattel Paper and whether or not it has been earned by performance (including, without limitation, any Account). "SECURITIES ACT": the Securities Act of 1933, as amended. "TRADEMARKS": (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all 5 common-law rights related thereto, including, without limitation, any of the foregoing referred to in Schedule 6, and (ii) the right to obtain all renewals thereof. "TRADEMARK LICENSE": any agreement, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark, including, without limitation, any of the foregoing referred to in Schedule 6, to the extent the grant by such Grantor of a security interest pursuant to this Agreement in its right, title and interest in such Trademark License is not prohibited by such Trademark License without the consent of any other party thereto, would not give any other party to such Trademark License the right to terminate its obligations thereunder, or is permitted with consent if all necessary consents to such grant of a security interest have been obtained from the other parties thereto (it being understood that the foregoing shall not be deemed to obligate such Grantor to obtain such consents); provided, that the foregoing limitation shall not affect, limit, restrict or impair the grant by such Grantor of a security interest pursuant to this Agreement in any money or other amounts due or to become due under any such Trademark License. "VEHICLES": all cars, trucks, trailers, construction and earth moving equipment and other vehicles covered by a certificate of title law of any state. 1.2 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof," "herein", "hereto" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section and Schedule references are to this Agreement unless otherwise specified. (b) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (c) Where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor's Collateral or the relevant part thereof. SECTION 2. GUARANTEE 2.1 GUARANTEE. (a) Each of the Guarantors hereby, jointly and severally, unconditionally and irrevocably, guarantees to the Administrative Agent, for the ratable benefit of the Lenders and their respective successors, indorsees, transferees and assigns, the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations of all Borrowers. (b) Anything herein or in any other Loan Document to the contrary notwithstanding, the maximum liability of each Guarantor hereunder and under the other Loan Documents shall in no event exceed the amount which can be guaranteed by such Guarantor under applicable federal and state laws relating to the insolvency of debtors (after giving effect to the right of contribution established in Section 2.2). 6 (c) Each Guarantor agrees that the Borrower Obligations of one or more Borrowers may at any time and from time to time exceed the amount of the liability of such Guarantor hereunder without impairing the guarantee contained in this Section 2 or affecting the rights and remedies of the Administrative Agent or any Lender hereunder. (d) The guarantee contained in this Section 2 shall remain in full force and effect until all the Borrower Obligations and the obligations of each Guarantor under the guarantee contained in this Section 2 shall have been satisfied by payment in full, no Letter of Credit shall be outstanding and the Commitments shall be terminated, notwithstanding that from time to time during the term of the Credit Agreement the Borrowers may be free from any Borrower Obligations. (e) No payment made by any Borrower, any of the Guarantors, any other guarantor or any other Person or received or collected by the Administrative Agent or any Lender from any Borrower, any of the Guarantors, any other guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of any of the Borrower Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment (other than any payment made by such Guarantor in respect of such Borrower Obligations or any payment received or collected from such Guarantor in respect of such Borrower Obligations), remain liable for the Borrower Obligations of all Borrowers up to the maximum liability of such Guarantor hereunder until all Borrower Obligations are paid in full, no Letter of Credit shall be outstanding and the Commitments are terminated. 2.2 RIGHT OF CONTRIBUTION. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor's right of contribution shall be subject to the terms and conditions of Section 2.3. The provisions of this Section 2.2 shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent and the Lenders, and each Guarantor shall remain liable to the Administrative Agent and the Lenders for the full amount guaranteed by such Guarantor hereunder. 2.3 NO SUBROGATION. Notwithstanding any payment made by any Guarantor hereunder or any set-off or application of funds of any Guarantor by the Administrative Agent or any Lender, no Guarantor shall be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against any Borrower or any other Guarantor or any collateral security or guarantee or right of offset held by the Administrative Agent or any Lender for the payment of the Borrower Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from any Borrower or any other Guarantor in respect of payments made by such Guarantor hereunder, until all amounts owing to the Administrative Agent and the Lenders by the Borrowers on account of the Borrower Obligations are paid in full, no Letter of Credit shall be outstanding and the Commitments are terminated. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Borrower Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Administrative Agent, if required), to be applied against the Borrower Obligations, whether matured or unmatured, in such order as the Administrative Agent may determine. 7 2.4 AMENDMENTS, ETC. WITH RESPECT TO THE BORROWER OBLIGATIONS. Each Guarantor shall remain obligated hereunder notwithstanding that, without any reservation of rights against any Guarantor and without notice to or further assent by any Guarantor, any demand for payment of any of the Borrower Obligations made by the Administrative Agent or any Lender may be rescinded by the Administrative Agent or such Lender and any of the Borrower Obligations continued, and the Borrower Obligations, or the liability of any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Administrative Agent or any Lender, and the Credit Agreement and the other Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the Required Lenders or all Lenders, as the case may be) may deem advisable from time to time, and any collateral security, guarantee or right of offset at any time held by the Administrative Agent or any Lender for the payment of the Borrower Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any Lien at any time held by it as security for the Borrower Obligations or for the guarantee contained in this Section 2 or any property subject thereto. 2.5 GUARANTEE ABSOLUTE AND UNCONDITIONAL. Each Guarantor waives any and all notice of the creation, renewal, extension or accrual of any of the Borrower Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon the guarantee contained in this Section 2 or acceptance of the guarantee contained in this Section 2; the Borrower Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon the guarantee contained in this Section 2; and all dealings between the Borrowers and any of the Guarantors, on the one hand, and the Administrative Agent and the Lenders, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon the guarantee contained in this Section 2. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon any Borrower or any of the Guarantors with respect to the Borrower Obligations. Each Guarantor understands and agrees that the guarantee contained in this Section 2 shall be construed as a continuing, absolute and unconditional guarantee of payment without regard to (a) the validity or enforceability of the Credit Agreement or any other Loan Document, any of the Borrower Obligations or any other collateral security therefor or guarantee or right of offset with respect thereto at any time or from time to time held by the Administrative Agent or any Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by any Borrower or any other Person against the Administrative Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of any Borrower or such Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of any Borrower for the Borrower Obligations, or of such Guarantor under the guarantee contained in this Section 2, in bankruptcy or in any other instance. When making any demand hereunder or otherwise pursuing its rights and remedies hereunder against any Guarantor, the Administrative Agent or any Lender may, but shall be under no obligation to, make a similar demand on or otherwise pursue such rights and remedies as it may have against any Borrower, any other Guarantor or any other Person or against any collateral security or guarantee for the Borrower Obligations or any right of offset with respect thereto, and any failure by the Administrative Agent or any Lender to make any such demand, to pursue such other rights or remedies or to collect any payments from any Borrower, any other Guarantor or any other Person or to realize upon any such collateral security or guarantee or to exercise any such right of offset, or any release of any Borrower, any other Guarantor or any other Person or any such collateral security, guarantee or right of offset, shall not relieve any Guarantor of any obligation or liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Administrative Agent or any Lender against any Guarantor. 8 For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 2.6 REINSTATEMENT. The guarantee contained in this Section 2 shall continue to be effective, or be reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Borrower Obligations is rescinded or must otherwise be restored or returned by the Administrative Agent or any Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 2.7 PAYMENTS. Each Guarantor hereby guarantees that payments hereunder will be paid to the Administrative Agent without set-off or counterclaim in the currency in which such payment is due pursuant to the Credit Agreement at the relevant payment office specified in the Credit Agreement. SECTION 3. GRANT OF SECURITY INTEREST Each Grantor hereby assigns and transfers to the Administrative Agent, and hereby grants to the Administrative Agent, for the ratable benefit of the Lenders, a security interest in, all of the following property now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest (collectively, the "COLLATERAL"), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of such Grantor's Obligations,: (a) all Accounts; (b) all Chattel Paper; (c) all Documents; (d) all Equipment; (e) all General Intangibles; (f) all Instruments; (g) all Intellectual Property; (h) all Inventory; (i) all Pledged Securities; (j) all books and records pertaining to the Collateral; and (k) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing. SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective extensions of credit to the Borrower thereunder, each Grantor hereby represents and warrants to the Administrative Agent and each Lender that: 4.1 REPRESENTATIONS IN CREDIT AGREEMENT. In the case of each Guarantor, the representations and warranties set forth in Section 8 of the Credit Agreement as they relate to such Guarantor or to the Loan Documents to which such Guarantor is a party, each of which is hereby incorporated herein by reference, are true and correct, and the Administrative Agent and each Lender shall be entitled to rely on each of them as if they were fully set forth herein, provided that each reference in each such representation and warranty to the Company knowledge shall, for the purposes of this Section 4.1, be deemed to be a reference to such Guarantor's knowledge. 4.2 TITLE; NO OTHER LIENS. Except for the security interest granted to the Administrative Agent for the ratable benefit of the Lenders pursuant to this Agreement and the other Liens permitted to exist on the Collateral by the Credit Agreement, such Grantor owns each item of the Collateral free and clear of any and all Liens or claims of others except Liens permitted to exist pursuant to the Credit Agreement. No financing statement or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Administrative Agent, for the ratable benefit of the Lenders, pursuant to this Agreement or as are permitted by the Credit Agreement. 4.3 PERFECTED FIRST PRIORITY LIENS. The security interests granted pursuant to this Agreement (a) upon completion of the filings and other actions specified on Schedule 3 (which, in the case of all filings and other documents referred to on said Schedule, have been delivered to the Administrative Agent in completed and duly executed form) will constitute valid perfected security interests in all of the Collateral located in New York State in favor of the Administrative Agent, for the ratable benefit of the Lenders, as collateral security for such Grantor's Obligations, enforceable in accordance with the terms hereof against all creditors of such Grantor and any Persons purporting to purchase any Collateral from such Grantor and (b) are prior to all other Liens on the Collateral in existence on the date hereof except for (i) unrecorded Liens permitted by the Credit Agreement which have priority over the Liens on the Collateral by operation of law and (ii) Liens described on Schedule 7 and except to the extent that filings outside the United States might be required to perfect such security interest in non-U.S. intellectual property. 4.4 CHIEF EXECUTIVE OFFICE. On the date hereof, such Grantor's jurisdiction of organization and the location of such Grantor's chief executive office or sole place of business are specified on Schedule 4. 4.5 INVENTORY AND EQUIPMENT. On the date hereof, the Inventory and the Equipment (other than mobile goods) are kept at the locations listed on SCHEDULE 5. 4.6 FARM PRODUCTS. None of the Collateral constitutes, or is the Proceeds of, Farm Products. 4.7 PLEDGED SECURITIES. (a) The shares of Pledged Stock pledged by such 10 Grantor hereunder constitute all the issued and outstanding shares of all classes of the Capital Stock of each Issuer owned by such Grantor, except that the shares of Pledged Stock of any Issuer which is a Foreign Subsidiary constitute no more than 65% of all the issued and outstanding Capital Stock of such Issuer. (b) All the shares of the Pledged Stock have been duly and validly issued and, to the extent the same are shares of Capital Stock of a corporation, are fully paid and nonassessable. (c) Each of the Pledged Notes constitutes the legal, valid and binding obligation of the obligor with respect thereto, enforceable in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. (d) Such Grantor is the record and beneficial owner of, and has good and marketable title to, the Pledged Securities pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except the security interest created by this Agreement. 4.8 RECEIVABLES. (a) No amount payable to such Grantor under or in connection with any Receivable is evidenced by any Instrument or Chattel Paper which has not been delivered to the Administrative Agent. (b) Receivables in respect of which a Governmental Authority is the obligor do not constitute more than 5%, in face amount, of all Receivables. (c) The amounts represented by such Grantor to the Lenders from time to time as owing to such Grantor in respect of the Receivables will at such times be accurate. 4.9 INTELLECTUAL PROPERTY. (a) Schedule 6 lists all Intellectual Property owned by such Grantor in its own name on the date hereof. (b) On the date hereof, to the best of such Grantor's knowledge, all material Intellectual Property is valid, subsisting, unexpired and enforceable, has not been abandoned and does not infringe the intellectual property rights of any other Person. (c) Except as set forth in SCHEDULE 6, on the date hereof, none of the Intellectual Property is the subject of any licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor. (d) No holding, decision or judgment has been rendered by any Governmental Authority which would limit, cancel or question the validity of, or such Grantor's rights in, any Intellectual Property in any respect that could reasonably be expected to have a Material Adverse Effect. (e) No action or proceeding is pending, or, to the knowledge of such Grantor, threatened, on the date hereof (i) seeking to limit, cancel or question the validity of any Intellectual Property or such Grantor's ownership interest therein, or (ii) which, if adversely determined, could reasonably be expected to have a Material Adverse Effect. 11 SECTION 5. COVENANTS Each Grantor covenants and agrees with the Administrative Agent and the Lenders that, from and after the date of this Agreement until the Obligations shall have been paid in full, no Letter of Credit shall be outstanding and the Commitments shall have terminated: 5.1 COVENANTS IN CREDIT AGREEMENT. In the case of each Guarantor, such Guarantor shall comply with and perform each covenant set forth in the Credit Agreement applicable thereto as if such Guarantor were a party to the Credit Agreement. 5.2 DELIVERY OF INSTRUMENTS AND CHATTEL PAPER. If any amount payable under or in connection with any of the Collateral in excess of $1,000,000 shall be or become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be immediately delivered to the Administrative Agent, duly indorsed in a manner satisfactory to the Administrative Agent, to be held as Collateral pursuant to this Agreement. 5.3 MAINTENANCE OF INSURANCE. (a) Such Grantor will maintain, with financially sound and reputable companies, insurance policies (i) insuring the Inventory, Equipment and Vehicles against loss by fire, explosion, theft and such other casualties as may be reasonably satisfactory to the Administrative Agent and (ii) insuring such Grantor, the Administrative Agent and the Lenders against liability for personal injury and property damage relating to such Inventory, Equipment and Vehicles, such policies to be in such form and amounts and having such coverage as may be reasonably satisfactory to the Administrative Agent and the Lenders. (b) All such insurance shall (i) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by the Administrative Agent of written notice thereof, (ii) name the Administrative Agent as insured party or loss payee, (iii) if reasonably requested by the Administrative Agent, include a breach of warranty clause and (iv) be reasonably satisfactory in all other respects to the Administrative Agent. (c) The Borrower shall deliver to the Administrative Agent and the Lenders a report of a reputable insurance broker with respect to such insurance during the month of February in each calendar year and such supplemental reports with respect thereto as the Administrative Agent may from time to time reasonably request. 5.4 PAYMENT OF OBLIGATIONS. Such Grantor will pay and discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if the amount or validity thereof is currently being contested in good faith by appropriate proceedings, reserves in conformity with GAAP with respect thereto have been provided on the books of such Grantor and such proceedings could not reasonably be expected to result in the sale, forfeiture or loss of any material portion of the Collateral or any interest therein. 5.5 MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER DOCUMENTATION. (a) Such Grantor shall maintain the security interest created by this Agreement as a perfected security interest having at least the priority described in Section 4.3 and shall defend such security interest against the claims and 12 demands of all Persons whomsoever. (b) Such Grantor will furnish to the Administrative Agent and the Lenders from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Administrative Agent may reasonably request, all in reasonable detail. (c) At any time and from time to time, upon the written request of the Administrative Agent, and at the sole expense of such Grantor, such Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Administrative Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby. 5.6 CHANGES IN LOCATIONS, NAME, ETC. Such Grantor will not, except upon 15 days' prior written notice to the Administrative Agent and delivery to the Administrative Agent of (a) all additional executed financing statements and other documents reasonably requested by the Administrative Agent to maintain the validity, perfection and priority of the security interests provided for herein and (b) if applicable, a written supplement to Schedule 5 showing any additional location at which Inventory or Equipment shall be kept: (i) permit any of the Inventory or Equipment to be kept at a location other than those listed on SCHEDULE 5; (ii) change the location of its chief executive office or sole place of business from that referred to in Section 4.4; or (iii) change its name, identity or corporate structure to such an extent that any financing statement filed by the Administrative Agent in connection with this Agreement would become misleading. 5.7 NOTICES. Such Grantor will advise the Administrative Agent and the Lenders promptly, in reasonable detail, of: (a) any Lien (other than security interests created hereby or Liens permitted under the Credit Agreement) on any of the Collateral which would adversely affect the ability of the Administrative Agent to exercise any of its remedies hereunder; and (b) of the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the security interests created hereby. 5.8 PLEDGED SECURITIES. (a) If such Grantor shall become entitled to receive or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the Capital Stock of any Issuer, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of the Pledged Stock, or 13 otherwise in respect thereof, such Grantor shall accept the same as the agent of the Administrative Agent and the Lenders, hold the same in trust for the Administrative Agent and the Lenders and deliver the same forthwith to the Administrative Agent in the exact form received, duly indorsed by such Grantor to the Administrative Agent, if required, together with an undated stock power covering such certificate duly executed in blank by such Grantor and with, if the Administrative Agent so requests, signature guaranteed, to be held by the Administrative Agent, subject to the terms hereof, as additional collateral security for the Obligations, provided that the foregoing shall not require any Grantor to so deliver any such Capital Stock of any Issuer which is a Foreign Subsidiary if, as a result thereof, the Capital Stock of such Foreign Subsidiary pledged hereunder would exceed 65% of all Capital Stock of such Foreign Subsidiary. Any sums paid upon or in respect of the Pledged Securities upon the liquidation or dissolution of any Issuer shall be paid over to the Administrative Agent to be held by it hereunder as additional collateral security for the Obligations, and in case any distribution of capital shall be made on or in respect of the Pledged Securities or any property shall be distributed upon or with respect to the Pledged Securities pursuant to the recapitalization or reclassification of the capital of any Issuer or pursuant to the reorganization thereof, the property so distributed shall, unless otherwise subject to a perfected security interest in favor of the Administrative Agent, be delivered to the Administrative Agent to be held by it hereunder as additional collateral security for the Obligations. If any sums of money or property so paid or distributed in respect of the Pledged Securities shall be received by such Grantor, such Grantor shall, until such money or property is paid or delivered to the Administrative Agent, hold such money or property in trust for the Lenders, segregated from other funds of such Grantor, as additional collateral security for the Obligations. (b) Without the prior written consent of the Administrative Agent, such Grantor will not (i) vote to enable, or take any other action to permit, any Issuer to issue any stock or other equity securities of any nature or to issue any other securities convertible into or granting the right to purchase or exchange for any stock or other equity securities of any nature of any Issuer, (ii) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Pledged Securities or Proceeds thereof (except pursuant to a transaction expressly permitted by the Credit Agreement), (iii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Pledged Securities or Proceeds thereof, or any interest therein, except for the security interests created by this Agreement or (iv) enter into any agreement or undertaking restricting the right or ability of such Grantor or the Administrative Agent to sell, assign or transfer any of the Pledged Securities or Proceeds thereof. (c) In the case of each Grantor which is an Issuer, such Issuer agrees that (i) it will be bound by the terms of this Agreement relating to the Pledged Securities issued by it and will comply with such terms insofar as such terms are applicable to it, (ii) it will notify the Administrative Agent promptly in writing of the occurrence of any of the events described in Section 5.8(a) with respect to the Pledged Securities issued by it and (iii) the terms of Section 6.3(c) shall apply to it, mutatis mutandis, with respect to all actions that may be required of it pursuant to Section 6.3(c) with respect to the Pledged Securities issued by it. 5.9 RECEIVABLES. (a) Other than in the ordinary course of business consistent with its past practice, such Grantor will not (i) grant any extension of the time of payment of any Receivable, (ii) compromise or settle any Receivable for less than the full amount thereof, (iii) release, wholly or partially, any Person liable for the payment of any Receivable, (iv) allow any credit or discount whatsoever on any Receivable or (v) amend, supplement or modify any Receivable in any manner that could adversely affect the value thereof. (b) Such Grantor will deliver to the Administrative Agent a copy of each material demand, notice or document received by it that questions or calls 14 into doubt the validity or enforceability of more than 5% of the aggregate amount of the then outstanding Receivables. 5.10 INTELLECTUAL PROPERTY. (a) Such Grantor (either itself or through licensees) will (i) continue to use each material Trademark on each and every trademark class of goods applicable to its current line as reflected in its current catalogs, brochures and price lists in order to maintain such Trademark in full force free from any claim of abandonment for non-use, (ii) maintain as in the past the quality of products and services offered under such Trademark, (iii) use such Trademark with any appropriate notice of registration and all other notices and legends required by applicable Requirements of Law, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Administrative Agent, for the ratable benefit of the Lenders, shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark may become invalidated or impaired in any way. (b) Such Grantor (either itself or through licensees) will not do any act, or omit to do any act, whereby any material Patent may become forfeited, abandoned or dedicated to the public. (c) Such Grantor (either itself or through licensees) (i) will employ each material Copyright and (ii) will not (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any material portion of such Copyrights may become invalidated or otherwise impaired. Such Grantor will not (either itself or through licensees) do any act whereby any material portion of such Copyrights may fall into the public domain. (d) Such Grantor (either itself or through licensees) will not do any act that knowingly uses any material Intellectual Property to infringe the intellectual property rights of any other Person. (e) Such Grantor will notify the Administrative Agent and the Lenders immediately if it knows, or has reason to know, that any application or registration relating to any material Intellectual Property may become forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Grantor's ownership of, or the validity of, any material Intellectual Property or such Grantor's right to register the same or to own and maintain the same. (f) Whenever such Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any State of the United States, such Grantor shall report such filing to the Administrative Agent within five Business Days after the last day of the fiscal quarter in which such filing occurs. Upon request of the Administrative Agent, such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents, and papers as the Administrative Agent may reasonably request to evidence the Administrative Agent's and the Lenders' security interest in any Copyright, Patent or Trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby. (g) Such Grantor will take all reasonable and necessary steps, including, without limitation, in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any State of the United States, to maintain and pursue each 15 application (and to obtain the relevant registration) and to maintain each registration of the material Intellectual Property, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability. (h) In the event that any material Intellectual Property is infringed, misappropriated or diluted by a third party, such Grantor shall (i) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property and (ii) if such Intellectual Property is of material economic value, promptly notify the Administrative Agent after it learns thereof and sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution. SECTION 6. REMEDIAL PROVISIONS 6.1 CERTAIN MATTERS RELATING TO RECEIVABLES. (a) The Administrative Agent shall have the right to make test verifications of the Receivables in any manner and through any medium that it reasonably considers advisable, and each Grantor shall furnish all such assistance and information as the Administrative Agent may require in connection with such test verifications. At any time and from time to time (but not more frequently than once per fiscal quarter), upon the Administrative Agent's request and at the expense of the relevant Grantor, such Grantor shall cause independent public accountants or others satisfactory to the Administrative Agent to furnish to the Administrative Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Receivables. (b) The Administrative Agent hereby authorizes each Grantor to collect such Grantor's Receivables, subject to the Administrative Agent's direction and control, and the Administrative Agent may curtail or terminate said authority at any time and only at any time after the occurrence and during the continuance of an Event of Default. If required by the Administrative Agent at any time after the occurrence and during the continuance of an Event of Default, any payments of Receivables, when collected by any Grantor, (i) shall be forthwith (and, in any event, within two Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Administrative Agent if required, in a Collateral Account maintained under the sole dominion and control of the Administrative Agent, subject to withdrawal by the Administrative Agent for the account of the Lenders only as provided in Section 0, and (ii) until so turned over, shall be held by such Grantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Grantor. Each such deposit of Proceeds of Receivables shall be accompanied by a report identifying in reasonable detail the nature and source of the payments included in the deposit. (c) At the Administrative Agent's request, at any time after the occurrence and during the continuance of an Event of Default, each Grantor shall deliver to the Administrative Agent all original and other documents evidencing, and relating to, the agreements and transactions which gave rise to the Receivables, including, without limitation, all original orders, invoices and shipping receipts. 6.2 COMMUNICATIONS WITH OBLIGORS; GRANTORS REMAIN LIABLE. (a) The Administrative Agent in its own name or in the name of others may at any time after the occurrence and during the continuance of an Event of Default communicate with obligors under the Receivables to verify with them to the Administrative Agent's satisfaction the existence, amount and terms of any Receivables. (b) Upon the request of the Administrative Agent at any time after the occurrence and during the continuance of an Event of Default, each Grantor shall 16 notify obligors on the Receivables that the Receivables have been assigned to the Administrative Agent for the ratable benefit of the Lenders and that payments in respect thereof shall be made directly to the Administrative Agent. (c) Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each of the Receivables to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. Neither the Administrative Agent nor any Lender shall have any obligation or liability under any Receivable (or any agreement giving rise thereto) by reason of or arising out of this Agreement or the receipt by the Administrative Agent or any Lender of any payment relating thereto, nor shall the Administrative Agent or any Lender be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any Receivable (or any agreement giving rise thereto), to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. 6.3 PLEDGED STOCK. (a) Unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have given notice to the relevant Grantor of the Administrative Agent's intent to exercise its corresponding rights pursuant to Section 6.3(b), each Grantor shall be permitted to receive all cash dividends paid in respect of the Pledged Stock and all payments made in respect of the Pledged Notes, in each case paid in the normal course of business of the relevant Issuer and consistent with past practice, to the extent permitted in the Credit Agreement, and to exercise all voting and corporate rights with respect to the Pledged Securities; provided, however, that no vote shall be cast or corporate right exercised or other action taken which, in the Administrative Agent's reasonable judgment, would impair the Collateral or which would be inconsistent with or result in any violation of any provision of the Credit Agreement, this Agreement or any other Loan Document. (b) If an Event of Default shall occur and be continuing and the Administrative Agent shall give notice of its intent to exercise such rights to the relevant Grantor or Grantors, (i) the Administrative Agent shall have the right to receive any and all cash dividends, payments or other Proceeds paid in respect of the Pledged Securities and make application thereof to the Obligations in such order as the Credit Agreement shall prescribe, and (ii) any or all of the Pledged Securities shall be registered in the name of the Administrative Agent or its nominee, and the Administrative Agent or its nominee may thereafter exercise (x) all voting, corporate and other rights pertaining to such Pledged Securities at any meeting of shareholders of the relevant Issuer or Issuers or otherwise and (y) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Pledged Securities as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Pledged Securities upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of any Issuer, or upon the exercise by any Grantor or the Administrative Agent of any right, privilege or option pertaining to such Pledged Securities, and in connection therewith, the right to deposit and deliver any and all of the Pledged Securities with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Administrative Agent may determine), all without liability except to account for property actually received by it, but the Administrative Agent shall have no duty to any Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. (c) Each Grantor hereby authorizes and instructs each Issuer of any 17 Pledged Securities pledged by such Grantor hereunder to comply with any instruction received by it from the Administrative Agent in writing that (i) states that an Event of Default has occurred and is continuing and (ii) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and each Grantor agrees that each Issuer shall be fully protected in so complying. 6.4 PROCEEDS TO BE TURNED OVER TO ADMINISTRATIVE AGENT. In addition to the rights of the Administrative Agent and the Lenders specified in Section 6.1 with respect to payments of Receivables, if an Event of Default shall occur and be continuing, all Proceeds received by any Grantor consisting of cash, checks and other near-cash items shall be held by such Grantor in trust for the Administrative Agent and the Lenders, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to the Administrative Agent in the exact form received by such Grantor (duly indorsed by such Grantor to the Administrative Agent, if required). All Proceeds received by the Administrative Agent hereunder shall be held by the Administrative Agent in a Collateral Account maintained under its sole dominion and control. All Proceeds while held by the Administrative Agent in a Collateral Account (or by such Grantor in trust for the Administrative Agent and the Lenders) shall continue to be held as collateral security for all the Obligations and shall not constitute payment thereof until applied as provided in Section 0. 6.5 APPLICATION OF PROCEEDS. At such intervals as may be agreed upon by the Company and the Administrative Agent, or, if an Event of Default shall have occurred and be continuing, at any time at the Administrative Agent's election, the Administrative Agent may apply all or any part of Proceeds held in any Collateral Account in payment of the Obligations in such order as the Credit Agreement prescribes, and any part of such funds which the Credit Agreement does not require to be applied in payment of the Obligations and which Administrative Agent deems not required as collateral security for the Obligations shall be paid over from time to time by the Administrative Agent to the Company or to whomsoever may be lawfully entitled to receive the same. Any balance of such Proceeds remaining after the Obligations shall have been paid in full, no Letters of Credit shall be outstanding and the Commitments shall have terminated shall be paid over to the Company or to whomsoever may be lawfully entitled to receive the same. 6.6 CODE AND OTHER REMEDIES. If an Event of Default shall occur and be continuing, the Administrative Agent, on behalf of the Lenders, may exercise, in addition to all other rights and remedies granted to them in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the New York UCC or any other applicable law. Without limiting the generality of the foregoing, the Administrative Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of the Administrative Agent or any Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Administrative Agent or any Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released. Each Grantor further agrees, at the Administrative Agent's request, to assemble the Collateral and make it available to the Administrative Agent at places which the Administrative Agent shall reasonably select, whether at such Grantor's premises 18 or elsewhere. The Administrative Agent shall apply the net proceeds of any action taken by it pursuant to this Section 6.6, after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Administrative Agent and the Lenders hereunder, including, without limitation, reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Obligations, in such order as the Credit Agreement shall prescribe, and only after such application and after the payment by the Administrative Agent of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the New York UCC, need the Administrative Agent account for the surplus, if any, to any Grantor. To the extent permitted by applicable law, each Grantor waives all claims, damages and demands it may acquire against the Administrative Agent or any Lender arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 Business Days before such sale or other disposition. 6.7 PRIVATE SALES. (a) Each Grantor recognizes that the Administrative Agent may be unable to effect a public sale of any or all the Pledged Stock, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Administrative Agent shall be under no obligation to delay a sale of any of the Pledged Stock for the period of time necessary to permit the Issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree to do so. (b) Each Grantor agrees to use its best efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Pledged Stock pursuant to this Section 6.7 valid and binding and in compliance with any and all other applicable Requirements of Law. Each Grantor further agrees that a breach of any of the covenants contained in this Section 6.7 will cause irreparable injury to the Administrative Agent and the Lenders, that the Administrative Agent and the Lenders have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 6.7 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred under the Credit Agreement. 6.8 WAIVER; DEFICIENCY. Each Grantor waives and agrees not to assert any rights or privileges which it may acquire under Section 9-112 of the New York UCC. Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the fees and disbursements of any attorneys employed by the Administrative Agent or any Lender to collect such deficiency. SECTION 7. THE ADMINISTRATIVE AGENT 7.1 ADMINISTRATIVE AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT, ETC. (a) 19 Each Grantor hereby irrevocably constitutes and appoints the Administrative Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Administrative Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do any or all of the following: (i) in the name of such Grantor or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Receivable or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise reasonably deemed appropriate by the Administrative Agent for the purpose of collecting any and all such moneys due under any Receivable or with respect to any other Collateral whenever payable; (ii) in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Administrative Agent may reasonably request to evidence the Administrative Agent's and the Lenders' security interest in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby; (iii) pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof; (iv) execute, in connection with any sale provided for in Section 6.6 or 6.7, any indorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and (v) (i) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Administrative Agent or as the Administrative Agent shall direct; (ii) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (iii) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (iv) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (v) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (vi) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Administrative Agent may deem appropriate; (vii) assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains), throughout the world for such term or terms, on such conditions, and in such manner, as the Administrative Agent shall in its sole discretion determine; and (viii) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Administrative Agent were the absolute owner thereof for all purposes, and do, at the Administrative Agent's option and such Grantor's expense, at any time, or from time to 20 time, all acts and things which the Administrative Agent reasonably deems necessary to protect, preserve or realize upon the Collateral and the Administrative Agent's and the Lenders' security interests therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do. Anything in this Section 7.1(a) to the contrary notwithstanding, the Administrative Agent agrees that it will not exercise any rights under the power of attorney provided for in this Section 7.1(a) unless an Event of Default shall have occurred and be continuing. (b) If any Grantor fails to perform or comply with any of its agreements contained herein, the Administrative Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement. (c) The expenses of the Administrative Agent incurred in connection with actions undertaken as provided in this Section 7.1, together with interest thereon at a rate per annum equal to the rate per annum at which interest would then be payable on past due Revolving Credit Loans that are ABR Loans under the Credit Agreement, from the date of payment by the Administrative Agent to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Administrative Agent on demand. (d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released. 7.2 DUTY OF ADMINISTRATIVE AGENT. The Administrative Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the New York UCC or otherwise, shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account. Neither the Administrative Agent, any Lender nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Administrative Agent and the Lenders hereunder are solely to protect the Administrative Agent's and the Lenders' interests in the Collateral and shall not impose any duty upon the Administrative Agent or any Lender to exercise any such powers. The Administrative Agent and the Lenders shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct. 7.3 EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the New York UCC and any other applicable law, each Grantor authorizes the Administrative Agent to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of such Grantor in such form and in such offices as the Administrative Agent reasonably determines appropriate to perfect the security interests of the Administrative Agent under this Agreement. A photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction. 21 7.4 AUTHORITY OF ADMINISTRATIVE AGENT. Each Grantor acknowledges that the rights and responsibilities of the Administrative Agent under this Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Grantors, the Administrative Agent shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority. SECTION 8. MISCELLANEOUS 8.1 AMENDMENTS IN WRITING. None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by each affected Grantor and the Administrative Agent, provided that any provision of this Agreement imposing obligations on any Grantor may be waived by the Administrative Agent in a written instrument executed by the Administrative Agent of the Credit Agreement, subject to the terms of the Credit Agreement. 8.2 NOTICES. All notices, requests and demands to or upon the Administrative Agent or any Grantor hereunder shall be effected in the manner provided for in subsection 13.2 of the Credit Agreement; provided that any such notice, request or demand to or upon any Guarantor shall be addressed to such Guarantor at its notice address set forth on Schedule 1. 8.3 NO WAIVER BY COURSE OF CONDUCT; CUMULATIVE REMEDIES. Neither the Administrative Agent nor any Lender shall by any act (except by a written instrument pursuant to Section 8.1), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in exercising, on the part of the Administrative Agent or any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Administrative Agent or any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent or such Lender would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 8.4 ENFORCEMENT EXPENSES; INDEMNIFICATION. (a) Each Guarantor agrees to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in collecting against such Guarantor under the guarantee contained in Section 2 or otherwise enforcing or preserving any rights under this Agreement and the other Loan Documents to which such Guarantor is a party, including, without limitation, the fees and disbursements of counsel to each Lender and of counsel to the Administrative Agent. (b) Each Guarantor agrees to pay, and to save the Administrative Agent and the Lenders harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Agreement. 22 (c) Each Guarantor agrees to pay, and to save the Administrative Agent and the Lenders harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement to the extent the Borrower would be required to do so pursuant to subsection 13.5 of the Credit Agreement. (d) The agreements in this Section 8.4 shall survive repayment of the Obligations and all other amounts payable under the Credit Agreement and the other Loan Documents. 8.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of the Administrative Agent and the Lenders and their successors and assigns; provided that no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of each Lender. 8.6 SET-OFF. Each Grantor hereby irrevocably authorizes the Administrative Agent and each Lender at any time and from time to time while an Event of Default shall have occurred and be continuing, without notice to such Grantor or any other Grantor, any such notice being expressly waived by each Grantor, to set-off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by the Administrative Agent or such Lender to or for the credit or the account of such Grantor, or any part thereof in such amounts as the Administrative Agent or such Lender may elect, against and on account of the obligations and liabilities of such Grantor to the Administrative Agent or such Lender hereunder and claims of every nature and description of the Administrative Agent or such Lender against such Grantor, in any currency, whether arising hereunder, under the Credit Agreement, any other Loan Document or otherwise, as the Administrative Agent or such Lender may elect, whether or not the Administrative Agent or any Lender has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured. The Administrative Agent and each Lender shall notify such Grantor promptly of any such set-off and the application made by the Administrative Agent or such Lender of the proceeds thereof, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Administrative Agent and each Lender under this Section 8.6 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Administrative Agent or such Lender may have. 8.7 COUNTERPARTS. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. 8.8 SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 8.9 SECTION HEADINGS. The Section headings used in this Agreement are for convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 23 8.10 INTEGRATION. This Agreement and the other Loan Documents represent the agreement of the Grantors, the Administrative Agent and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof and thereof not expressly set forth or referred to herein or in the other Loan Documents. 8.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 8.12 SUBMISSION TO JURISDICTION; WAIVERS. Each Grantor hereby irrevocably and unconditionally: (a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to such Grantor at its address referred to in Section 8.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any consequential damages. 8.13 ACKNOWLEDGEMENTS. Each Grantor hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party; (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Grantors, on the one hand, and the Administrative Agent and Lenders, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents 24 or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Grantors and the Lenders. 8.14 WAIVER OF JURY TRIAL. EACH GRANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 8.15 ADDITIONAL GRANTORS. Each Subsidiary of the Borrower that is required to become a party to this Agreement pursuant to subsection 8.9 of the Credit Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of an Assumption Agreement in the form of Annex 1 hereto. 8.16 JUDGMENT. (a) If for the purpose of obtaining judgment in any court it is necessary to convert a sum due hereunder in one currency into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the first currency with such other currency in the city in which it normally conducts its foreign exchange operation for the first currency on the Business Day preceding the day on which final judgment is given. (b) The obligation of each Grantor in respect of any sum due from it to the Administrative Agent or any Lender hereunder shall, notwithstanding any judgment in a currency (the "JUDGMENT CURRENCY") other than that in which such sum is denominated in accordance with the applicable provisions of the Loan Documents (the "AGREEMENT CURRENCY"), be discharged only to the extent that on the Business Day following receipt by the Administrative Agent or such Lender of any sum adjudged to be so due in the Judgment Currency, the Administrative Agent or such Lender may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency; if the amount of Agreement Currency so purchased is less than the sum originally due to such Lender in the Agreement Currency, such Grantor agrees notwithstanding any such judgment to indemnify such Lender against such loss, and if the amount of the Agreement Currency so purchased exceeds the sum originally due to the Administrative Agent or any Lender the Administrative Agent or, such Lender agrees to remit to such Borrower such excess. 8.17 RELEASES. (a) At such time as the Loans, the Reimbursement Obligations and the other Obligations shall have been paid in full, the Commitments have been terminated and no Letters of Credit shall be outstanding, the Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent and each Grantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors. At the request and sole expense of any Grantor following any such termination, the Administrative Agent shall deliver to such Grantor any Collateral held by the Administrative Agent hereunder, and execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination. (b) If any of the Collateral shall be sold, transferred or otherwise disposed of by any Grantor in a transaction permitted by the Credit Agreement, then the Administrative Agent, at the request and sole expense of such Grantor, shall execute and deliver to such Grantor all releases or other documents reasonably necessary or desirable for the release of the Liens created hereby on 25 such Collateral. At the request and sole expense of the Company, a Subsidiary Guarantor shall be released from its obligations hereunder in the event that all the Capital Stock of such Subsidiary Guarantor shall be sold, transferred or otherwise disposed of in a transaction permitted by the Credit Agreement; provided that the Company shall have delivered to the Administrative Agent, at least ten Business Days prior to the date of the proposed release, a written request for release identifying the relevant Subsidiary Guarantor and the terms of the sale or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a certification by the Company stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents. 26 IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee and Collateral Agreement to be duly executed and delivered as of the date first above written. NBTY, INC. By: Title: --------------------------- NATURE'S BOUNTY INC., NATURE'S BOUNTY, INC., VITAMIN WORLD, INC., PURITAN'S PRIDE, INC. ARCO PHARMACEUTICALS, INC. NATURAL WEALTH NUTRITION CORPORATION, FOUNTAIN PUBLISHING, INC. OMNI VITAMIN AND NUTRITION CORP., UNITED VITAMIN MANUFACTURING CORP., THE HUDSON CORPORATION, GOOD'N NATURAL MANUFACTURING CORP., BEAUTIFUL VISIONS, NEW YORK CORP., PRIME NATURAL HEALTH LABORATORIES, INC., AMERICAN HEALTH, INC., NATURE'S BOUNTY MANUFACTURING CORP., NABARCO ADVERTISING ASSOCIATES, INC., HERBAL HARVEST, INC. By: Title: ---------------------------- THE CHASE MANHATTAN BANK, as Administrative Agent By: Title: ---------------------------- STATE OF NEW YORK ) ss: COUNTY OF ) On August __, 1997, before me personally came ____________, to me known, who, by me duly sworn, did depose and say that deponent resides at _____________________________, deponent is ______________________ of each of Nature's Bounty Inc., Nature's Bounty, Inc., Vitamin World, Inc., Puritan's Pride, Inc., Arco Pharmaceuticals, Inc., Natural Wealth Nutrition Corporation, Fountain Publishing, Inc., Omni Vitamin and Nutrition Corp., United Vitamin Manufacturing Corp., The Hudson Corporation, Good 'N Natural Manufacturing Corp., Beautiful Visions, New York Corp., Prime Natural Health Laboratories, Inc., American Health, Inc., Nature's Bounty Manufacturing Corp., Nabarco Advertising Associates, Inc., Herbal Harvest, Inc., the corporations described in and which executed the foregoing instrument; that the seal affixed to said instrument is the corporate seal of such corporation and that it was so affixed by order to the Board of Directors of such corporation; and that deponent signed deponent's name thereto by like order. --------------------- Notary Public Schedule 1 ---------- NOTICE ADDRESSES OF GUARANTORS c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 Telecopy: 516-567-7148 Attn: Harvey Kamil Schedule 2 ---------- DESCRIPTION OF PLEDGED SECURITIES PLEDGED STOCK: Issuer Class of Stock Certificate No. of % of Stock* No. Shares Pledged - ------------------- -------- ----------------- ------ ------- Nature's Bounty Inc. 1 1 100% Nature's Bounty, Inc. 100% Vitamin World, Inc. 1 1,000 100% Puritan's Pride, Inc. 1 1,000 100% Arco Pharmaceuticals, Inc. 1 1 100% Nature Wealth Nutrition 1 1 100% Corporation Fountain Publishing, Inc. 1 1 100% Omni Vitamin and 1 1 100% Nutrition Corp. United Vitamin 1 1 100% Manufacturing Corp. The Hudson Corporation 2 1 100% Good `N Natural 3 1 100% Manufacturing Corp. Beautiful Visions, 1 1 100% New York Corp. Prime Natural Health 1 1 100% Laboratories, Inc. American Health, Inc. 01 1 100% Nature's Bounty 1 1 100% Manufacturing Corp. Nabarco Advertising 3 1 100% Associates, Inc. Herbal Harvest, Inc. 1 1 100% Vitamin World Limited [ ] [ ] 65% Holland & Barrett [ ] [ ] 65% * Common, unless otherwise indicated. Schedule 3 ---------- FILINGS AND OTHER ACTIONS REQUIRED TO PERFECT SECURITY INTERESTS Uniform Commercial Code Filings ------------------------------- Suffolk County, New York Secretary of State of New York Patent and Trademark Filings ---------------------------- United States Patent and Trademark Office Actions with respect to Pledged Stock ------------------------------------- None Other Actions ------------- None Schedule 4 LOCATION OF JURISDICTION OF ORGANIZATION AND CHIEF EXECUTIVE OFFICE Grantor Jurisdiction Location ------- ------------ -------- Nature's Bounty Inc., Nature's Bounty Inc., 90 Orville Drive Vitamin World, Inc., Bohemia, NY 11716 Puritan's Pride, Inc. Arco Pharmaceuticals, Inc. Natural Wealth Nutrition Corporation, Fountain Publishing, Inc., Omni Vitamin and Nutrition Corp., United Vitamin Manufacturing Corp., The Hudson Corporation, Good 'N Natural Manufacturing Corp., Beautiful Visions, New York Corp., Prime Natural Health Laboratories, Inc., American Health, Inc., Nature's Bounty Manufacturing Corp., Nabarco Advertising Associates, Inc., Herbal Harvest, Inc. Schedule 5 ---------- LOCATION OF INVENTORY AND EQUIPMENT Grantor Locations ------- --------- Schedule 6 ---------- COPYRIGHTS AND COPYRIGHT LICENSES PATENTS AND PATENT LICENSES TRADEMARKS AND TRADEMARK LICENSES Schedule 7 ---------- EXISTING PRIOR LIENS ACKNOWLEDGEMENT AND CONSENT The undersigned hereby acknowledges receipt of a copy of the Guarantee and Collateral Agreement dated as of September [ ], 1997 (the "AGREEMENT"), made by the Grantors parties thereto for the benefit of The Chase Manhattan Bank, as Administrative Agent. The undersigned agrees for the benefit of the Administrative Agent and the Lenders as follows: 1. The undersigned will be bound by the terms of the Agreement and will comply with such terms insofar as such terms are applicable to the undersigned. 2. The undersigned will notify the Administrative Agent promptly in writing of the occurrence of any of the events described in Section 5.8(a) of the Agreement. 3. The terms of Sections 6.3(a) and 6.7 of the Agreement shall apply to it, mutatis mutandis, with respect to all actions that may be required of it pursuant to Section 6.3(a) or 6.7 of the Agreement. [NAME OF ISSUER] By --------------------------------------- Title ----------------------------------- Address for Notices: -------------------- ---------------------------------------- ---------------------------------------- Fax: ------------------------------------- Annex 1 to Guarantee and Collateral Agreement ---------------------------------- ASSUMPTION AGREEMENT, dated as of _____________, made by ______________________________, a ______________ corporation (the "Additional Grantor"), in favor of The Chase Manhattan Bank, as administrative agent (in such capacity, the "Administrative Agent") for the banks and other financial institutions (the "Lenders") parties to the Credit Agreement referred to below. All capitalized terms not defined herein shall have the meaning ascribed to them in such Credit Agreement. W I T N E S S E T H: - - - - - - - - - - WHEREAS, NBTY, Inc. (the "Company"), certain of its Foreign Subsidiaries, the Lenders and the Administrative Agent have entered into a Credit Agreement, dated as of September [ ], 1997 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"); WHEREAS, in connection with the Credit Agreement, the Company and certain of its Subsidiaries (other than the Additional Grantor) have entered into the Guarantee and Collateral Agreement, dated as of September [ ], 1997 (as amended, supplemented or otherwise modified from time to time, the "Guarantee and Collateral Agreement") in favor of the Administrative Agent for the benefit of the Lenders; WHEREAS, the Credit Agreement requires the Additional Grantor to become a party to the Guarantee and Collateral Agreement; and WHEREAS, the Additional Grantor has agreed to execute and deliver this Assumption Agreement in order to become a party to the Guarantee and Collateral Agreement; NOW, THEREFORE, IT IS AGREED: 1. Guarantee and Collateral Agreement. By executing and delivering this Assumption Agreement, the Additional Grantor, as provided in Section 8.15 of the Guarantee and Collateral Agreement, hereby becomes a party to the Guarantee and Collateral Agreement as a Grantor thereunder with the same force and effect as if originally named therein as a Grantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Grantor thereunder. In furtherance of the foregoing, the Additional Grantor hereby assigns and transfers to the Administrative Agent, and hereby grants to the Administrative Agent, for the ratable benefit of the Lenders, a security interest in, all of the Collateral now owned or at any time hereafter acquired by the Additional Grantor or in which the Additional Grantor now has or at any time in the future may acquire any right, title or interest, as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Additional Grantor's Obligations. The information set forth in Annex 1-A hereto is hereby added to the information set forth in Schedules ____________* to the Guarantee and Collateral Agreement. The Additional Grantor hereby represents and warrants that each of the representations and warranties contained in Section 3 of the - ------------------------ * Refer to each Schedule which needs to be supplemented. 2 Guarantee and Collateral Agreement is true and correct on and as the date hereof (after giving effect to this Assumption Agreement) as if made on and as of such date. 2. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written. [ADDITIONAL GRANTOR] By: ----------------------------- Name: Title: EXHIBIT C TO CREDIT AND GUARANTEE AGREEMENT [FORM OF SWING LINE LOAN PARTICIPATION CERTIFICATE] , 199 --------- - [Name of Lender] [Address of Lender] Ladies and Gentlemen: Pursuant to subsection 2.5(d) of the Credit and Guarantee Agreement, dated as of September , 1997 (as amended, supplemented or otherwise modified from time to time, the "Credit and Guarantee Agreement"; unless otherwise defined herein, terms defined in the Credit and Guarantee Agreement are used herein as therein defined), among NBTY, Inc. (the "Company"), the Foreign Subsidiary Borrower (together with the Company, the "Borrowers"), the Lenders named therein and The Chase Manhattan Bank, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"), the undersigned, as Swing Line Lender under the Credit and Guarantee Agreement hereby acknowledges receipt from you on the date hereof of ______________ DOLLARS ($______) as payment for a participating interest in the following Swing Line Loan: Date of Swing Line Loan: -------------- Principal Amount of Swing Line Loan Participating Interest: -------------- Very truly yours, THE CHASE MANHATTAN BANK By: ------------------ Title: 1 EXHIBIT E --------- FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the Credit and Guarantee Agreement, dated as of September , 1997 (as amended, supplemented or otherwise modified from time to time, the "Credit and Guarantee Agreement"), among NBTY, Inc. (the "Company"), the Foreign Subsidiary Borrower (together with the Company, the "Borrowers"), the Lenders named therein and The Chase Manhattan Bank, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. The Assignor identified on Schedule l hereto (the "Assignor") and the Assignee identified on Schedule l hereto (the "Assignee") agree as follows: (1) The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date (as defined below), the interest described in Schedule 1 hereto (the "Assigned Interest") in and to the Assignor's rights and obligations under the Credit Agreement with respect to those credit facilities contained in the Credit Agreement as are set forth on Schedule 1 hereto (individually, an "Assigned Facility"; collectively, the "Assigned Facilities"), in a principal amount for each Assigned Facility as set forth on Schedule 1 hereto. (2) The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement, any other Loan Document or any other instrument or document furnished pursuant thereto, other than that the Assignor has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim; (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers, any of their Subsidiaries or any other obligor or the performance or observance by the Borrowers, any of their Subsidiaries or any other obligor of any of their respective obligations under the Credit Agreement or any other Loan Document or any other instrument or document furnished pursuant hereto or thereto; and (c) attaches any Notes held by it evidencing the Assigned Facilities and (i) requests that the Administrative Agent, upon request by the Assignee, exchange the attached Notes for a new Note or Notes payable to the Assignee and (ii) if the Assignor has retained any interest in the Assigned Facility, requests that the Administrative Agent exchange the attached Notes for a new Note or Notes payable to the Assignor, in each case in amounts which reflect the assignment being made hereby (and after giving effect to any other assignments which have become effective on the Effective Date). 2 (3) The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance; (b) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements delivered pursuant to subsection 7.1 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon the Assignor, the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (d) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto as are delegated to the Administrative Agent by the terms thereof, together with such powers as are incidental thereto; and (e) agrees that it will be bound by the provisions of the Credit Agreement and will perform in accordance with its terms all the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender including, if it is organized under the laws of a jurisdiction outside the United States, its obligation pursuant to subsection 6.12(b) of the Credit Agreement. (4) The effective date of this Assignment and Acceptance shall be the Effective Date of Assignment described in Schedule 1 hereto (the "Effective Date"). Following the execution of this Assignment and Acceptance, it will be delivered to the Administrative Agent for acceptance by it and recording by the Administrative Agent pursuant to the Credit Agreement, effective as of the Effective Date (which shall not, unless otherwise agreed to by the Administrative Agent, be earlier than five Business Days after the date of such acceptance and recording by the Administrative Agent). (5) Upon such acceptance and recording, from and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to the Effective Date and to the Assignee for amounts which have accrued subsequent to the Effective Date. The Assignor and the Assignee shall make all appropriate adjustments in payments by the Administrative Agent for periods prior to the Effective Date or with respect to the making of this assignment directly between themselves. (6) From and after the Effective Date, (a) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and under the other Loan Documents and shall be bound by the provisions thereof and (b) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. (7) This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers on Schedule 1 hereto. Schedule 1 to Assignment and Acceptance Name of Assignor: -------------------------- Name of Assignee: -------------------------- Effective Date of Assignment: ------------- Credit Principal Commitment Percentage Assigned Facility Assigned Amount Assigned $__________ __.________% ----------------- ----------------- -------------------------------- [Name of Assignee] [Name of Assignor] By: By: Title: Title: ------------------------------ ---------------------------- 2 Consented to: Consented To: The Chase Manhattan Bank, as Administrative NBTY, INC. Agent By: By: Title: Title: ------------------------------ ---------------------------- Accepted: The Chase Manhattan Bank, as Administrative Agent By: Title: ------------------------------ EXHIBIT F-1 TO CREDIT AND GUARANTEE AGREEMENT FORM OF OPINION OF MICHAEL C. DUBAN September ___, 1997 The Chase Manhattan Bank, as Issuer 270 Park Avenue New York, New York 10017 We have acted as counsel to NBTY, Inc., a Delaware corporation (the "Borrower") and its Subsidiaries, in connection with (a) the Credit and Guarantee Agreement, dated as of September __, 1997 (the "Credit Agreement"), among the Borrower, Holland & Barrett Holdings Limited, as Foreign Subsidiary Borrower, the lenders named therein and The Chase Manhattan Bank, as Administrative Agent and (b) the other Loan Documents referred to in the Credit Agreement. The opinions expressed below are furnished to you pursuant to subsection 7.1(i)(i) of the Credit Agreement. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. In arriving at the opinions expressed below, (a) we have examined and relied on the originals, or copies certified or otherwise identified to our satisfaction, of each of (1) the Credit Agreement and (2) the other Loan Documents listed on Schedule 1 attached hereto (the Credit Agreement and such other documents being hereinafter referred to collectively as the "Transaction Documents"); (b) we have examined unfiled copies of the financing statements listed on Schedule 2 (collectively, the "Financing Statements") naming the Borrower or one of its Subsidiaries as Debtor and the The Chase Manhattan Bank, as Administrative Agent as Secured Party and describing the Collateral (as defined in the Guarantee & Collateral Agreement) as to which security interests may be perfected by filing under the Uniform Commercial Code of the State of New York (the "Filing Collateral"), which we understand will be filed in the filing offices listed on Schedule 2 (the "Filing Offices"); and (c) we have examined such corporate documents and records of the Borrower and its Subsidiaries and such other instruments and certificates of public officials, officers and representatives of the Borrower and its Subsidiaries and other Persons as we have deemed necessary or appropriate for the purposes of this opinion. In arriving at the opinions expressed below, we have made such investigations of law, in each case as we have deemed appropriate as a basis for such opinions. In rendering the opinions expressed below, we have assumed, with your permission, without independent investigation or inquiry, (a) the authenticity of all documents submitted to us as originals, (b) the genuineness of all signatures on all documents that we examined and (c) the conformity to authentic originals of documents submitted to us as certified, conformed or photostatic The Chase Manhattan Bank 2 September __, 1997 copies. When our opinions expressed below are stated "to the best of our knowledge," we have made reasonable and diligent investigation of the subject matters of such opinions and have no reason to believe that there exist any facts or other information that would render such opinions incomplete or incorrect. Based upon and subject to the foregoing, we are of the opinion that: 1. Each of the Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority and the legal right to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged and (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, except to the extent that the failure to be so qualified could not, in the aggregate, have a Material Adverse Effect. 2. The Borrower and each other Loan Party has the corporate power and authority, and the legal right, to make, deliver and perform its obligations under the Credit Agreement and each of the other Transaction Documents to which it is a party. The Borrower and each other Loan Party has taken all necessary corporate action to authorize the borrowing under the Credit Agreement on the terms and conditions of the Credit Agreement and the other Transaction Documents, to grant the security interests contemplated by the Security Documents to which it is a party and to authorize the execution, delivery and performance of the Credit Agreement and the other Transaction Documents to which it is a party. Except for (a) consents, authorizations, approvals, notices and filings described on Schedule 3 attached hereto, all of which have been obtained, made or waived and are in full force and effect, and (b) the filings and recordings described on Schedule 2 attached hereto, no consent or authorization of, approval by, notice to, filing with or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the borrowing under the Credit Agreement or with the execution, delivery, performance, validity or enforceability of the Credit Agreement and the other Transaction Documents or the perfection of the security interests created by the Security Documents (other than the performance and validity of the English Security Documents as to which we express no opinion). 3. Each of the Credit Agreement and the other Transaction Documents (other than the English Security Documents) to which any Loan Party is a party has been duly executed and delivered on behalf of the Borrower and the other Loan Parties and constitutes a legal, valid and binding obligation of the Borrower or such Loan Party, enforceable against the Borrower in accordance with its terms. 4. The execution and delivery of the Credit Agreement and the other Transaction Documents to which the Borrower and the other Loan Parties is a party, the performance by the Borrower and the other Loan Parties of its obligations thereunder, the consummation of the transactions contemplated thereby, the compliance by the Borrower and the other Loan Parties and each of its Subsidiaries with any of the provisions thereof, all as provided therein, (a) will not violate, or constitute a default under, any Requirement of Law or, to the best of our knowledge, any Contractual Obligations of the Borrower or of any of its Subsidiaries and (b) will not result in, or require, the creation or imposition of any Lien on any of its or their respective properties or revenues, except the security interests created pursuant to the Loan Documents. 5. To the best of our knowledge, no litigation, investigation or The Chase Manhattan Bank 3 September __, 1997 proceeding of or before any arbitrator or Governmental Authority is pending or threatened by or against the Borrower or any of its Subsidiaries or against any of its or their respective properties or revenues (a) with respect to the Credit Agreement or any of the other Transaction Documents, or (b) which could reasonably be expected to have adversely determined a Material Adverse Effect. 6. The Borrower is not (i) an "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended, or (ii) a "holding company" as defined in, or otherwise subject to regulation under, the Public Utility Holding Company Act of 1935. The Borrower is not subject to regulation under any Federal or state statute or regulation which limits its ability to incur Indebtedness. 7.(a) The provisions of the Guarantee and Collateral Agreement create in favor of the Administrative Agent for the benefit of the Lenders a legal, valid and enforceable security interest in the Pledged Stock and the Pledged Notes and the Proceeds (as those terms are defined in the Guarantee and Collateral Agreement). (b) The actions specified in subsections 7.1(m) and 7.1(t) of the Credit Agreement are all the actions necessary to perfect the security interest of the Administrative Agent for the benefit of the Lenders on the Pledged Stock and the Pledged Notes, and the security interest of the Administrative Agent for the benefit of the Lenders on the Pledged Stock and the Pledged Notes is a perfected security interest. Assuming the Administrative Agent acquired its interest in the Pledged Stock in good faith and without notice of any adverse claims and that each certificate evidencing shares of Pledged Stock is either in bearer form or registered form, issued or indorsed in the name of the Administrative Agent or in blank, the Administrative Agent acquired its security interest in the Pledged Stock free of adverse claims. (c) All of the shares of capital stock described on Schedule 2 to the Guarantee and Collateral Agreement have been duly authorized and validly issued, and are fully paid and nonassessable and represent the percentages of the issued and outstanding capital stock of the issuers thereof specified on Schedule 2 to the Guarantee and Collateral Agreement. 8.(a) The provisions of the Guarantee and Collateral Agreement create in favor of the Issuer a legal, valid and enforceable security interest in the Collateral (as defined in the Guarantee and Collateral Agreement). (b) The Administrative Agent upon filing of the Financing Statements in the Filing Offices will have a perfected security interest in the Filing Collateral for the benefit of the Lenders. Our opinions set forth in paragraphs 3, 7, and 8 above are subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. We are members of the bar of the State of New York and we express no opinion as to the laws of any jurisdiction other than the law of the State of New York, the General Corporate Law of the State of Delaware and the Federal laws of the United States of America. This opinion has been rendered solely for your benefit and for the benefit the Lenders pursuant to Section 7.1(i)(i) of the Credit Agreement in connection with the Credit Agreement and the transactions contemplated thereby and may not be used, circulated, quoted, relied upon or otherwise referred to for any other purpose without our prior written consent; provided, however, that this opinion may be delivered to your regulators, accountants, attorneys and other professional advisers and may be used in connection with any legal or The Chase Manhattan Bank 4 September __, 1997 regulatory proceeding relating to the subject matter of this opinion. Very truly yours, Schedule 1 ---------- TRANSACTION DOCUMENTS 1) Guarantee and Collateral Agreement 2) Notes 3) English Security Documents Schedule 2 ---------- FINANCING STATEMENTS State Filing Office ----- ------------- New York Suffolk County Secretary of State Schedule 3 ---------- CONSENTS, AUTHORIZATIONS, APPROVALS, NOTICES AND FILINGS [NONE] EXHIBIT G --------- FORM OF CLOSING CERTIFICATE Pursuant to subsection 7.1 of the Credit and Guarantee Agreement, dated as of September __, 1997 (as the same may be amended, supplemented or otherwise modified from time to time, the "Credit Agreement"), among NBTY, Inc., a Delaware corporation (the "Company"), the Foreign Subsidiary Borrower and the Lenders named therein and The Chase Manhattan Bank as Administrative Agent, the undersigned, Executive Vice President of each Loan Party, hereby certifies as follows: 1. The representations and warranties of each Loan Party set forth in the Credit Agreement and each of the other Loan Documents to which it is a party or which are contained in any certificate, document or financial or other statement furnished pursuant to or in connection with the Credit Agreement or any Loan Document are true and correct in all material respects on and as of the date hereof with the same effect as if made on the date hereof, except for representations and warranties expressly stated to relate to a specific earlier date, in which case such representations and warranties are true and correct in all material respects as of such earlier date; 2. No Default or Event of Default has occurred and is continuing as of the date hereof or will occur after giving effect to the extensions of credit requested to be made on the date hereof or the consummation of each of the transactions contemplated by the Loan Documents; and 3. Harvey Kamil is and at all times since _______________, 199_, has been the duly elected and qualified [Assistant] Secretary of the each Loan Party and the signature set forth on the signature line for such officer below is such officer's true and genuine signature; and the undersigned Secretary of each Loan Party hereby certifies as follows: 4. There are no liquidation or dissolution proceedings pending or to my knowledge threatened against the Company or any of its Subsidiaries, nor has any other event occurred affecting or threatening the corporate existence of the Company or any of its Subsidiaries; 5. Each Loan Party is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation; 6. (_) Attached hereto as Exhibit A is a true and complete copy of resolutions duly adopted by the Board of Directors of each Loan Party on September __, 1997; such resolutions have not in any way been amended, modified, revoked or rescinded and have been in full force and effect since their adoption to and including the date hereof and are now in full force and effect; such resolutions are the only corporate proceedings of the Loan Parties now in force relating to or affecting the matters referred to therein; (_) attached hereto as Exhibit B is a true and complete copy of the By-laws of the Company and the other Loan Parties as in effect at all times since April 3, 1996, to and including the date hereof; and (_) attached hereto as Exhibit C is a true and complete copy of the Certificate of Incorporation of the Company and the other Loan Parties as in effect at all times since April 3, 1996, to and including the date 2 hereof; and 7. The following persons are now duly elected and qualified officers of the Company and the other Loan Parties, holding the offices indicated next to their respective names below, and such officers have held such offices with the Company and the other Loan Parties at all times since __________ __, 199_, to and including the date hereof, and the signatures appearing opposite their respective names below are the true and genuine signatures of such officers, and each of such officers is duly authorized to execute and deliver on behalf of the Company, the Credit Agreement and the other Loan Documents to which it is a party and any certificate or other document to be delivered by the Company pursuant to the Credit Agreement or any such Loan Document: Name Office Signature ---- ------ --------- Harvey Kamil Executive Vice President _______________ Unless otherwise defined herein, capitalized terms which are defined in the Credit Agreement and used herein are so used as so defined. IN WITNESS WHEREOF, the undersigned have hereunto set our names and affixed the corporate seal. NBTY, INC. NBTY, INC. NATURE'S BOUNTY INC. NATURE'S BOUNTY INC. NATURE'S BOUNTY, INC. NATURE'S BOUNTY, INC. VITAMIN WORLD, INC. VITAMIN WORLD, INC. PURITAN'S PRIDE, INC. PURITAN'S PRIDE, INC. ARCO PHARMACEUTICALS, INC. ARCO PHARMACEUTICALS, INC. NATURAL WEALTH NUTRITION NATURAL WEALTH NUTRITION CORPORATION CORPORATION FOUNTAIN PUBLISHING, INC. FOUNTAIN PUBLISHING, INC. OMNI VITAMIN AND NUTRITION OMNI VITAMIN AND NUTRITION CORP. CORP. UNITED VITAMIN MANUFACTURING CORP. UNITED VITAMIN MANUFACTURING CORP. THE HUDSON CORPORATION THE HUDSON CORPORATION GOOD'N NATURAL MANUFACTURING CORP. GOOD'N NATURAL MANUFACTURING CORP. BEAUTIFUL VISIONS, NEW YORK CORP. BEAUTIFUL VISIONS, NEW YORK CORP. PRIME NATURAL HEALTH LABORATORIES PRIME NATURAL HEALTH LABORATORIES AMERICAN HEALTH, INC. AMERICAN HEALTH, INC. NATURE'S BOUNTY MANUFACTURING NATURE'S BOUNTY MANUFACTURING CORP. CORP. NABARCO ADVERTISING ASSOCIATES, INC. NABARCO ADVERTISING ASSOCIATES, INC. HERBAL HARVEST, INC. HERBAL HARVEST, INC. By: By: -------------------------------- --------------------------------- Name: Name: Title: Executive Vice President Title: Secretary Date: September __, 1997 ______________________, The undersigned [President] of each Loan Party hereby certifies the signature set forth on the signature line above for Harvey Kamil is such officer's true and genuine signature. By: ----------------------- Name: Title: President EXHIBIT H --------- FORM OF TAX CERTIFICATE Reference is hereby made to the Credit and Guarantee Agreement, dated as of September __, 1997, among NBTY, INC, the Foreign Subsidiary Borrower (as defined therein), the lenders parties thereto and The Chase Manhattan Bank, as administrative agent (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"). Pursuant to the provisions of Section 4.11(b)(i)(B) of the Credit Agreement, the undersigned hereby certifies that it is not a "bank" as such term is defined in Section 881(c)(3)(A) of the Internal Revenue Code of 1986, as amended. [NAME OF LENDER] By: ------------------------- Title: Date: _________, 19___ EXHIBIT I TO CREDIT AGREEMENT ---------------- SOLVENCY CERTIFICATE OF NBTY Pursuant to subsection ____________ of the Credit Agreement dated as of September __, 1997 among NBTY, Inc., a Delaware corporation (the "Borrower"), the Foreign subsidiary Borrower and The Lenders named therein and The Chase Manhattan Bank, as Administrative Agent (the "Credit Agreement"; terms defined therein being used herein as therein defined), the undersigned Responsible Officer on behalf of the Borrower hereby, in his/her capacity as such and not individually, certifies as follows: I have undertaken certain analyses and procedures relating to the preparation of this Certificate. The procedures undertaken consisted of the following which, in my view, are sufficient for the purposes of rendering this Certificate. (i) Read the Credit Agreement and the accompanying schedules and annexes thereto. (ii) Read the other Loan Documents and the Acquisition Documents. (iii) Read the Indenture for the Subordinated Debt and the related Purchase Agreement with Chase Securities Inc, as Initial Purchaser. (iv) Read the Confidential Information Memorandum dated August 1997 relating to the $50,000,000 Senior Secured Revolving Credit Facility. (v) Read the Confidential Offering Memorandum dated September __ 1997 relating to the Subordinated Debt. (vi) Performed a valuation using current standards of valuation including discounted free cash flow and comparable market multiples approaches, as a going concern after giving effect to the Holland & Barrett Acquisition and the other transactions contemplated by the Credit Agreement and the other Loan Documents, and the other Acquisition Documents. (vii) Read historical audited consolidated financial statements of the Company, for the fiscal year ended September 30, 1996 and of Holland & Barrett for the fiscal year ended June 30, 1997. (viii)Read unaudited consolidated interim financial results and the balance sheet and cash flow statement of each of NBTY for the fiscal periods ended March 31, 1997 and June 30, 1997. (ix) Caused to be visited by representatives of the Borrower, all of the facilities of the Borrower, Holland & Barrett and their Subsidiaries and discussed the results of such visits with such representatives, and spoke with operating and technical management. Based upon the foregoing, on the Closing Date and after giving effect to the Holland & Barrett Acquisition and to all indebtedness to be incurred or refinanced in connection therewith, including indebtedness incurred under the Credit Agreement and the Subordinated Debt, I am of the opinion, with respect to the Borrower, on a consolidated basis, that: 2 (1) the aggregate value of the Borrower's assets, at fair value and present fair saleable value exceeds (i) its total liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) and (ii) the amount required to pay such liabilities as they become absolute and mature; (2) the Borrower has the ability to pay its debts and liabilities (including contingent, subordinated, unmatured and unliquidated liabilities) as they become absolute and mature; and (3) the Borrower does not have an unreasonably small amount of capital with which to conduct its business. In evaluating the foregoing, the subject phrases and the definitions ascribed thereto are as follows: "AGGREGATE VALUE OF THE BORROWER'S ASSETS" - All assets of the Borrower recorded on a consolidated basis. Such assets shall include all current assets, all fixed assets such as property, plant, and equipment and all intangible assets including contracts, tradenames, trademarks, patents, non-compete agreements and other intangible assets including those in the nature of goodwill and going concern value. "FAIR VALUE" - The total amount at which the property of the Borrower recorded on a consolidated basis, would likely sell as part of a going concern and for continued use as part of a going concern, within a commercially reasonable period of time, between one or more willing buyers and a willing seller with neither party being under any compulsion to buy or sell and with all parties having reasonable knowledge of all facts. "PRESENT FAIR SALEABLE VALUE" - The price that could be obtained by an independent willing seller from an independent willing buyer with reasonable promptness in an arms-length transaction under present conditions for the sale of comparable business enterprises. "DEBTS AND LIABILITIES (INCLUDING CONTINGENT, SUBORDINATED, UNMATURED AND UNLIQUIDATED LIABILITIES)" - The pro forma debts and liabilities of the Borrower, as of June 30, 1997, including all fees and expenses and the principal amount of all indebtedness being incurred in connection with the Holland & Barrett Acquisition (including indebtedness incurred under the Credit Agreement and the Subordinated Debt) and the Borrower's estimated amount of reasonably anticipated liabilities that may result from contingencies, which liabilities may or may not meet the criteria for accrual under FAS No. 5 and, therefore, may not be included in liabilities under GAAP, including (i) pending litigation, asserted claims and assessments, guarantees and other contingent liabilities, including employee benefit plan liabilities relating to retiree benefits identified to us by Responsible Officers of the Borrower, as well as (ii) contingent liabilities relating to environmental matters identified to us by Responsible Officers of the Borrower. 3 IN WITNESS WHEREOF, the undersigned has hereunto set his name on behalf of the Borrower this ____ day of September, 1997. NBTY, INC. By: ----------------------------- Name: Title: EX-12.1 8 Exhibit 12.1 NBTY, INC. Computation of Ratio of Earnings to Fixed Charges (Dollars in Millions, Except Ratios)
Pro forma Nine Months Pro forma Year Ended Ended Nine Months Ended Year Ended June 30, September 30, June 30, September 30, ----------- ------------ ------------------ ---------------------------------------- 1997 1996 1997 1996 1996 1995 1994 1993 1992 -------- ------ ----- ----- ---- ---- ---- ---- ---- EARNINGS: Income before income taxes $21.6 $13.4 $26.8 $13.6 $22.4 $8.4 $12.6 $15.6 $ 5.8 Add: Interest expense 12.8 16.8 1.3 1.0 1.4 1.1 0.9 1.2 1.3 Interest component of rent 6.6 7.6 0.7 0.4 0.7 0.4 0.4 0.4 0.3 ------ ------ ------ ------ ------ ------ ----- ----- ----- Earnings $41.0 $37.8 $28.8 $15.0 $24.5 $9.9 $13.9 $17.2 $ 7.4 ====== ====== ====== ====== ====== ====== ===== ===== ===== FIXED CHARGES: Interest expense $12.8 $16.8 $ 1.3 $ 1.0 $ 1.4 $1.1 $ 0.9 $1.2 $ 1.3 Interest component of rent expense 6.6 7.6 0.7 0.4 0.7 0.4 0.4 0.4 0.3 ------ ------ ------ ------ ------ ------- ----- ----- ----- Fixed Charges $19.4 $24.4 $ 2.0 $ 1.4 $ 2.1 $1.5 $ 1.3 $1.6 $ 1.6 ====== ====== ====== ====== ====== ====== ===== ===== ===== Ratio of earnings to fixed charges 2.1 1.5 14.4 10.7 11.7 6.6 10.7 10.8 4.6 ====== ====== ====== ====== ====== ====== ===== ===== =====
EX-23.2 9 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this Registration Statement on Form S-4 (File No.____) of our report, dated November 5, 1996, on our audits of the consolidated financial statements of NBTY, Inc. and Subsidiaries as of September 30, 1996 and 1995, and for each of the three years in the period ended September 30, 1996. We also consent to the reference to our firm under the caption "Experts." /s/ Coopers & Lybrand L.L.P. ------------------------------ COOPERS & LYBRAND L.L.P. Melville, New York November 4, 1997. EX-23.3 10 KPMG 2 Cornwall Street Tel +44(0) 121 232 3000 Birmingham Fax + 44 (0) 121 232 3500 B3 2DL DX 709850 Birmingham 26 United Kingdom The Directors Holland & Barrett Holdings Limited Dodwells Bridge Industrial Estate Hinckley Our ref dm/1/bsm/sew.3 LEICESTERSHIRE LE10 3BZ 5 November 1997 Dear Sirs We consent to the inclusion of our report dated August 1997, with respect to the consolidated balance sheets of Holland & Barrett Holdings Limited (formerly Holland & Barrett Retail Limited), as of 30 June 1996 and 1997 and the related profit and loss accounts, cash flow statements, statements of recognised gains and losses and reconciliation of movement in shareholders' funds for each of the years in the three year period ended 30 June 1997, which report appears in the Registration Statement on Form S-4 of NBTY Inc dated 5 November 1997. We also consent to the reference to our firm under the heading "Independent Accountants" in the Prospectus. Yours faithfully /s/ KPMG - ------------------ KPMG EX-25.1 11 EX-25.1 ---------------- SECURITIES AND EXCHANGE COMMISSION ---------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)_ ------------------ IBJ SCHRODER BANK & TRUST COMPANY (Exact name of trustee as specified in its charter) New York 13-5375195 (State of Incorporation if not a (I.R.S. Employer Identification No.) U.S. national bank) One State Street, New York, New York 10004 (Address of principal executive offices) (Zip code) Terence Rawlins, Assistant Vice President IBJ Schroder Bank & Trust Company One State Street New York, New York 10004 (212) 858-2000 (Name, Address and Telephone Number of Agent for Service) NBTY, INC. (Exact name of obligor as specified in its charter) Delaware 11-2228617 (State of jurisdiction of incorporation (I.R.S. Employer Identification No.) or organization) 90 Orville Drive 11716 Bohemia, NY (Zip code) (Address of principal executive office) ---------- (Title of Indenture Securities) NBTY, INC. 8 5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B Item 1 General information Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. New York State Banking Department Two Rector Street New York, New York Federal Deposit Insurance Corporation Washington, D.C. Federal Reserve Bank of New York Second District 33 Liberty Street New York, New York (b) Whether it is authorized to exercise corporate trust powers. Yes Item 2. Affiliations with the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. The obligator is not an affiliate of the trustee. Item 3. Voting securities of the trustee. Furnish the following information as to each class of voting securities of the trustee: As of October 30, 1997 Col. A Col. B Title of class Amount Outstanding Not Applicable Item 4. Trusteeships under other indentures. If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, furnish the following information: (a) Title of the securities outstanding under each such other indenture Not Applicable (b) A brief statement of the facts relied upon as a basis for the claim that no conflicting interest within the meaning of Section 310(b)(1) of the Act arises as a result of the trusteeship under any such other indenture, including a statement as to how the indenture securities will rank as compared with the securities issued under such other indenture. Not Applicable 2 Item 5. Interlocking directorates and similar relationships with the obligor or underwriters. If the trustee or any of the directors or executive officers of the trustee is a director, officer, partner, employee, appointee, or representative of the obligor or any of any underwriter for the obligor, identify each such person having any such connection and state the nature of each such connection. Not Applicable Item 6. Voting securities of the trustee owned by the obligor or its officials. Furnish the following information as to the voting securities of the trustee owned beneficially by the obligor and each director, partner, and executive officer of the obligor: As of October 30, 1997
- ------------------------------ -------------------------- ----------------------------- ----------------------------- Col A Col B Col. C Col. D Name of Owner Title of class Amount owned Percent of voting securities beneficially represented by amount given in Col. C -------------------- -------------------- -------------------- ------------------------- - ------------------------------ -------------------------- ----------------------------- -----------------------------
Not Applicable Item 7. Voting securities of the trustee owned by underwriters or their officials. Furnish the following information as to the voting securities of the trustee owned beneficially by each underwriter for the obligor and each director, partner and executive officer of each such underwriter: As of October 30, 1997
- ------------------------------ -------------------------- ----------------------------- ----------------------------- Col A Col B Col. C Col. D Name of Owner Title of class Amount owned Percent of voting securities beneficially represented by amount given in Col. C -------------------- -------------------- -------------------- ------------------------- - ------------------------------ -------------------------- ----------------------------- -----------------------------
Not Applicable Item 8. Securities of the obligor owned or held by the trustee Furnish the following information as to securities of the obligor owned beneficially or held as collateral security for obligations in default by the trustee: As of October 30, 1997 3
- ------------------------------ -------------------------- ----------------------------- ----------------------------- Col A Col B Col. C Col. D Name of Owner Title of class Amount owned Percent of voting securities beneficially or held as represented by amount collateral security for given in Col. C obligations in default -------------------- -------------------- ------------------------ --------------------------- - ------------------------------ -------------------------- ----------------------------- -----------------------------
Not Applicable Item 9. Securities of underwriters owned or held by the trustee. If the trustee owns beneficially or holds as collateral security for obligations in default any securities of an underwriter for the obligor, furnish the following information as to each class of securities of such underwriter any of which are so owned or held by the trustee: As of October 30, 1997
- ------------------------------ -------------------------- ----------------------------- ----------------------------- Col A Col B Col. C Col. D Name of Owner Title of class Amount owned Percent of voting securities beneficially or held as represented by amount collateral security for given in Col. C obligations in default -------------------- -------------------- ------------------------ --------------------------- - ------------------------------ -------------------------- ----------------------------- -----------------------------
Not Applicable Item 10. Ownership or holdings by the trustee of voting securities of certain affiliates or securityholders of the obligor. If the trustee owns beneficially or holds as collateral security for obligations in default voting securities of a person who, to the knowledge of the trustee (1) owns 10 percent or more of the voting securities of the obligor or (2) is an affiliate, other than a subsidiary, of the obligor, furnish the following information as to the voting securities of such person: As of October 30, 1997
- ------------------------------ -------------------------- ----------------------------- ----------------------------- Col A Col B Col. C Col. D Name of Owner Title of class Amount owned Percent of voting securities beneficially or held as represented by amount collateral security for given in Col. C obligations in default -------------------- -------------------- ------------------------ --------------------------- - ------------------------------ -------------------------- ----------------------------- -----------------------------
Not Applicable Item 11. Ownership or holdings by the trustee of any securities of a person owning 50 percent or more of the voting securities of the obligor. If the trustee owns beneficially or holds as collateral security for obligations in default any securities of a person who, to the knowledge 4 of the trustee, owns 50 percent or more of the voting securities of the obligor, furnish the following information as to each class of securities of such any of which are so owned or held by the trustee: As of October 30, 1997 - ---------------------------- ---------------------------- --------------------- Col. A Col. B Col. C. Nature of Indebtedness Amount Outstanding Date Due -------------------- -------------------- --------------- - ---------------------------- ---------------------------- ---------------------- Not Applicable Item 12. Indebtedness of the Obligor to the Trustee. Except as noted in the instructions, if the obligor is indebted to the trustee, furnish the following information: As of October 30, 1997
- ------------------------------ -------------------------- ----------------------------- ----------------------------- Col A Col B Col. C Col. D Name of Owner Title of class Amount owned Percent of voting securities beneficially or held as represented by amount collateral security for given in Col. C obligations in default -------------------- -------------------- ------------------------ --------------------------- - ------------------------------ -------------------------- ----------------------------- -----------------------------
Not Applicable Item 13. Defaults by the Obligor. (a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. Not Applicable (b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, or is trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. Not Applicable Item 14. Affiliations with the Underwriters If any underwriter is an affiliate of the trustee, describe each such affiliation. Not Applicable Item 15. Foreign Trustees. Identify the order or rule pursuant to which the foreign trustee is authorized to act as sole trustee under indentures qualified or to be qualified under the Act. 5 Not Applicable Item 16. List of Exhibits. List below all exhibits filed as part of this statement of eligibility. *1. A copy of the Charter of IBJ Schroder Bank & Trust Company as amended to date. (See Exhibit 1A to Form T-1, Securities and Exchange Commission File No. 22-18460). *2. A copy of the Certificate of Authority of the Trustee to Commence Business. (Included in Exhibit I above). *3. A copy of the Authorization of the Trustee, as amended to date. (See Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 221 9146). *4. A copy of the existing By-Laws of the Trustee, as amended to date. (See Exhibit 4 to Form T-1, Securities and Exchange Commission File No. 22-19146). 5. A copy of each Indenture referred to in Item 4, if the Obligor is in default. Not Applicable. 6. The consent of the United States institutional trustee required by Section 321 (b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. * The Exhibits thus designated are incorporated herein by reference as exhibits hereto. Following the description of such Exhibits is a reference to the copy of the Exhibit heretofore filed with the Securities and Exchange Commission, to which there have been no amendments or changes. NOTE ---- In answering any item in this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligor and its directors or officers, the trustee has relied upon information furnished to it by the obligor. Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of all facts on which to base responsive answers to Item 2, the answer to said Item are based on incomplete information. Item 2, may, however, be considered as correct unless amended by an amendment to this Form T-1. Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and 16 of this form since to the best knowledge of the trustee as indicated in Item 13, the obligor is not in default under any indenture under which the applicant is trustee. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility & qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 30th day of October, 1997. IBJ SCHRODER BANK & TRUST COMPANY By: /s/ Terence Rawlins ------------------------------- Terence Rawlins Assistant Vice President EXHIBIT 6 CONSENT OF TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the issue by NBTY, INC. of its 8 5/8% Senior Subordinated Notes due 2007, Series B, we hereby consent that reports of examinations by Federal, State, Territorial, or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. IBJ SCHRODER BANK & TRUST COMPANY By: /s/ Terence Rawlins ----------------------------- Terence Rawlins Assistant Vice President Dated: As of October 30, 1997 EXHIBIT 7 CONSOLIDATED REPORT OF CONDITION OF IBJ SCHRODER BANK & TRUST COMPANY of New York, New York And Foreign and Domestic Subsidiaries Report as of June 30, 1997 Dollar Amounts in Thousands ------------ ASSETS ------ Cash and balance due from depository institutions: Noninterest-bearing balances and currency and coin........ $ 41,319 Interest-bearing balances................................. $ 314,579 Securities: Held-to-maturity securities....................... $ 180,111 Available-for-sale securities..................... $ 47,600 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and of its Edge and Agreement subsidiaries and in IBFs: Federal Funds sold and Securities purchased under agreements to resell..................................... $ 694,850 Loans and lease financing receivables: Loans and leases, net of unearned income................. $1,955,686 LESS: Allowance for loan and lease losses............... $ 62,876 LESS: Allocated transfer risk reserve................... $ -0- Loans and leases, net of unearned income, allowance and reserve.................................... $1,892,810 Trading assets held in trading accounts....................... $ 603 Premises and fixed amounts (including capitalized leases)..... 3,709 Other real estate owned....................................... $ 202 Investments in unconsolidated subsidiaries and associated companies..................................................... $ -0- Customers' liability to this bank on acceptances outstanding.. $ 81 Intangible assets............................................. $ -0- Other assets.................................................. $ 67,902 TOTAL ASSETS.................................................. $3,242,965 LIABILITIES ----------- Deposits: In domestic offices...................................... $1,694,675 Noninterest-bearing................................... $ 263,641 Interest-bearing...................................... $1,431,023 11 Dollar Amounts in Thousands ------------ In foreign offices, Edge and Agreement subsidiaries, and IBFs................................................ $1,121,075 Noninterest-bearing................................... $ 17,535 Interest-bearing...................................... $1,103,540 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs: Federal Funds purchased and Securities sold under agreements to repurchase................................. $ 25,000 Demand notes issued to the U.S. Treasury...................... $ 60,000 Trading Liabilities........................................... $ 140 Other borrowed money: a) With a remaining maturity of one year or less........ $ 38,369 b) With a remaining maturity of more than one year...... $ 1,763 c) With a remaining maturity of more than three years... $ 2,242 Bank's liability on acceptances executed and outstanding...... $ 81 Subordinated notes and debentures............................. $ -0- Other liabilities............................................. $ 69,908 TOTAL LIABILITIES............................................. $3,013,253 Limited-life preferred stock and related surplus.............. $ -0- EQUITY CAPITAL Perpetual preferred stock and related surplus.................. $ -0- Common Stock................................................... $ 29,649 Surplus (exclude all surplus related to preferred stock)....... $ 217,008 Undivided profits and capital reserves......................... $ (17,000) Net unrealized gains (losses) on available-for-sale securities. $ 55 Cumulative foreign currency translation adjustments............ $ -0- TOTAL EQUITY CAPITAL........................................... $ 229,712 TOTAL LIABILLITIES AND EQUITY CAPITAL.......................... $3,242,965 12 EX-99.1 12 EX-99.1 LETTER OF TRANSMITTAL NBTY, INC. OFFER TO EXCHANGE ANY AND ALL OUTSTANDING 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007 FOR 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B PURSUANT TO THE PROSPECTUS, DATED - -------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ____________, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. - --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: BY OVERNIGHT DELIVERY: BY MAIL: BY HAND: IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company One State Street P.O. Box 84 One State Street New York, NY 10004 Bowling Green Station New York, NY 10004 Attn: Securities Processing Window New York, NY 10274-0084 Attn: Securities Processing Window Subcellar One (SC-1) Attn: Reorganization Operations Subcellar One (SC-1) Department
FACSIMILE TRANSMISSION NUMBER: (212) 858-2611 CONFIRM BY TELEPHONE: (212) 858-2103 ------------- FOR INFORMATION CALL: (212) 858-2103 ------------- DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. The undersigned acknowledges that it has received and reviewed the Prospectus, dated ______________ (the "Prospectus"), of NBTY, Inc., a Delaware corporation (the "Company"), and this Letter of Transmittal (the "Letter of Transmittal"), which together constitute the Company's offer to exchange any and all outstanding 8-5/8% Senior Subordinated Notes Due 2007, Series A (the "Original Notes"), of the Company for a like aggregate principal amount of 8-5/8% Senior Subordinated Notes Due 2007, Series B (the "Exchange Notes," and, together with the Original Notes, the "Notes"), of the Company from the holders ("Holders") thereof (the "Exchange Offer"). The Original Notes were issued on September 23, 1997 (the "Issue Date"). For each Original Note accepted for exchange, the Holder of such Original Note will receive an Exchange Note having a principal amount equal to that of the surrendered Original Note. The terms of the Exchange Notes are identical in all material respects to the Original Notes, except that (i) the Exchange Notes will bear a Series B designation and a different CUSIP Number from the Original Notes, (ii) the issuance of the Exchange Notes will have been registered under the Securities Act of 1933, as amended (the "Securities Act"), and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof, and (iii) holders of the Exchange Notes will not be entitled to certain registration rights relating to the Original Notes. The Exchange Notes, and the Original Notes remaining outstanding after the Exchange Offer, mature on September 15, 2007. Interest on the Exchange Notes issued pursuant to the Exchange Offer will accrue from the last interest payment date on which interest was paid on the Original Notes surrendered in exchange therefor or, if no interest has been paid on the Original Notes, from the Issue Date, and is payable semi-annually in arrears on March 15 and September 15 of each year, commencing March 15, 1998, at the rate of 8-5/8% per annum. Holders whose Original Notes are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the Original Notes. The Exchange Notes will be redeemable, in whole or in part, at the option of the Company, on or after September 15, 2002 at the redemption prices set forth in the Prospectus, plus accrued interest to the date of redemption. See "Description of the Exchange Notes" section of the Prospectus. The Company reserves the right, at any time or from time to time, to extend the Exchange Offer at its discretion, in which event the term "Expiration Date" shall mean the latest time and date to which the Exchange Offer is extended. The Company will notify the Exchange Agent (as defined) of any extension by written notice and will mail to the registered holders of Original Notes an announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Original Notes being tendered or accepted for exchange. However, the Exchange Offer is subject to certain conditions. Please see the Prospectus under the section entitled "The Exchange Offer - Conditions." The Exchange Offer is not being made to, nor will tenders be accepted from or on behalf of, Holders of Original Notes in any jurisdiction in which the making or acceptance of the Exchange Offer would not be in compliance with the laws of such jurisdiction. 2 This Letter of Transmittal is to be completed by a Holder of Original Notes either if certificates are to be forwarded herewith or if a tender of certificates for Original Notes, if available, is to be made by book-entry transfer to the account maintained by IBJ Schroder Bank & Trust Company (the "Exchange Agent") at the Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth in "The Exchange Offer - Procedures for Tendering" section of the Prospectus. Holders of Original Notes whose certificates are not immediately available, or who are unable to deliver their certificates or confirmation of the book-entry tender of their Original Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other documents required by this Letter of Transmittal to the Exchange Agent on or prior to the Expiration Date, must tender their Original Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer - Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. The undersigned has completed the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. 3 List below the Original Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the Certificate numbers and principal amount of Original Notes should be listed on a separate signed schedule affixed hereto. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DESCRIPTION OF ORIGINAL 1 2 3 NOTES - ------------------------------- ------------- -------------------- ------------- Aggregate Principal Name(s) and Address(es) Certificate Principal Amount Amount of Registered Holder(s) Number(s)* of Original Note(s) Tendered** - ------------------------------- ------------- -------------------- ------------- - ------------------------------- ------------- -------------------- ------------- - ------------------------------- ------------- -------------------- ------------- - ------------------------------- ------------- -------------------- ------------- - ------------------------------- Total-------- -------------------- ------------- - -------------------------------------------------------------------------------- * Need not be completed if Original Notes are being tendered by book-entry transfer. ** Unless otherwise indicated in this column, a holder will be deemed to have tendered ALL of the Original Notes represented by the Original Notes indicated in column 2. See Instruction 2. - -------------------------------------------------------------------------------- | | CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution: --------------------------------------------- DTC Participant Number: ---------------------------------------------------- Account Number: Transaction Code Number: ---------------- --------------- | | CHECK HERE IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s): ------------------------------------------- Window Ticket Number (if any): --------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: ------------------------ Name of Institution that Guaranteed Delivery: ------------------------------ If Delivered by Book-Entry Transfer, Complete the Following: Account Number: Transaction Code Number: ---------------- --------------- 4 | | CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO: Name: ---------------------------------------------------------------------- Address: ------------------------------------------------------------------- ------------------------------------------------------------------- 5 PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the aggregate principal amount of Original Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the Original Notes tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Original Notes as are being tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent its agent and attorney-in-fact (with full knowledge that the Exchange Agent also acts as the agent of the Company) with respect to the tendered Original Notes with the full power of substitution to (i) deliver certificates for such Original Notes to the Company and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Company, (ii) present such Original Notes for transfer on the books of the Company, and (iii) receive for the account of the Company all benefits and otherwise exercise all rights of beneficial ownership of such Original Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed to be irrevocable from and after the Expiration Date and coupled with an interest. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Original Notes tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Company. The undersigned hereby further represents that any Exchange Notes to be received by the undersigned will be acquired in the ordinary course of business of the undersigned, that at the time of the commencement of the Exchange Offer, the undersigned has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes in violation of the Securities Act and that the undersigned is not an "affiliate" (as defined in Rule 405 under the Securities Act) of the Company. The undersigned agrees that acceptance of any tendered Original Notes by the Company and the issuance of Exchange Notes in exchange therefor will constitute performance in full by the Company of its obligations under the Exchange and Registration Rights Agreement (as defined in the Prospectus) and that the Company will have no further obligations or liabilities thereunder (except in limited circumstances). The undersigned also acknowledges as follows: This Exchange Offer is being made in reliance on interpretations by the staff of the Securities and Exchange Commission (the "Commission") set forth in certain "no-action" letters issued to third parties and unrelated to the Company and the Exchange Offer, and based on such interpretations, the Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement or understanding with any person to participate in the distribution of such Exchange Notes in violation of the provisions of the Securities Act. Any Holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Exchange Notes could not rely on the position of the staff of the Commission enunciated in such "no-action" letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Failure to comply with such requirements in such instance may result in such Holder incurring liability under the Securities Act for which the Holder is not indemnified by the Company. The undersigned acknowledges, however, that the Company has not sought its own no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer as in such other circumstances. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market making or other trading activities, the undersigned represents that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes, the undersigned is not deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The above-referenced prospectus may be the Prospectus relating to the Exchange Offer only if it contains a plan of distribution with respect to such resale transactions (but need not name the undersigned or disclose the amount of Exchange Notes held by the undersigned). The undersigned will, upon request, execute and deliver any additional documents deemed by the Company or the Exchange Agent to be necessary or desirable to complete the sale, assignment and transfer of the Original Notes tendered hereby. All authority conferred or agreed to be conferred in this Letter of Transmittal and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in "The Exchange Offer - Withdrawal of Tenders" section of the Prospectus. For purposes of this Exchange Offer, the Company shall be deemed to have accepted validly tendered Original Notes when, as and if the Company has given oral and written notice thereof to the Exchange Agent. The undersigned understands that tenders of the Original Notes pursuant to any one of the procedures described under "The Exchange Offer - Procedures for 7 Tendering" in the Prospectus and in the Instructions hereto will constitute a binding agreement between the undersigned and the Company in accordance with the terms and subject to the conditions set forth herein and in the Prospectus. The undersigned recognizes that under certain circumstances set forth in the Prospectus under "The Exchange Offer - Conditions" the Company will not be required to accept for exchange any of the Original Notes tendered. Original Notes not accepted for exchange or withdrawn will be returned (or, in the case of Original Notes tendered by book-entry transfer through the Book-Entry Transfer Facility, will promptly be credited to an account maintained at the Book-Entry Transfer Facility), without expense, to the undersigned at the address set forth below unless otherwise indicated under "Special Delivery Instructions" below as promptly as practicable after the Expiration Date. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, please deliver the Exchange Notes (and, if applicable, substitute certificates representing Original Notes for any Original Notes not exchanged) in the name of the undersigned or, in the case of a book-entry delivery of Original Notes, please credit the account indicated above maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" below, please send the Exchange Notes (and, if applicable, substitute certificates representing Original Notes for any Original Notes not exchanged) to the undersigned at the address shown above in the box entitled "Description of Original Notes." THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF ORIGINAL NOTES" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE TENDERED THE ORIGINAL NOTES AS SET FORTH IN SUCH BOX ABOVE. 8 - -------------------------------------------------------------------------------- PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING HOLDERS) (Complete Accompanying Substitute Form W-9) Dated: ................................. .................................. ...................................... .................................. ...................................... .................................. Signature(s) by Owner Date Area Code and Telephone Number: ................................................ If a holder is tendering any Original Notes, this Letter of Transmittal must be signed by the registered holder(s) as the name(s) appear(s) on the certificate(s) for the Original Notes or by any person(s) authorized to become registered holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please set forth full title. See Instruction 3. Name(s): ....................................................................... ................................................................................ (Please Type or Print) Capacity: ...................................................................... Address: ....................................................................... ................................................................................ (Including Zip Code) SIGNATURE GUARANTEE (if required by Instruction 3) Signature(s) Guaranteed by an Eligible Institution:........................................................ (Authorized Signature) ................................................................................ (Title) ................................................................................ (Name and Firm) ................................................................................ (Date) - -------------------------------------------------------------------------------- 9
- ----------------------------------------------------- --------------------------------------------------- SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS (See Instructions 3 and 4) (See Instructions 3 and 4) To be completed ONLY if certificates for To be completed ONLY if certificates for Original Notes not exchanged and/or Exchange Notes Original Notes not exchanged and/or Exchange are to be issued in the name of and sent to someone Notes are to be sent to someone other than the other than the person or persons whose signature(s) person or persons whose signature(s) appear(s) appear(s) on this Letter of Transmittal above, or on this Letter of Transmittal above or to such if Original Notes delivered by book-entry transfer person or persons at an address other than shown that are not accepted for exchange are to be in the box entitled "Description of Original Notes" returned by credit to an account maintained at the on this Letter of Transmittal above. Book-Entry Transfer Facility other than the account indicated above. Issue: Exchange Notes and/or Original Notes to: Issue: Exchange Notes and/or Original Notes to: Name(s): ......................................... Name(s): ......................................... (Please Type or Print) (Please Type or Print) .................................................. .................................................. (Please Type or Print) (Please Type or Print) Address:.......................................... Address:.......................................... .................................................. .................................................. (Zip Code) (Zip Code) (Complete Substitute Form W-9) Taxpayer Identification Number:................... Credit unexchanged Original Notes delivered by book-entry transfer to the Book-Entry Transfer Facility account set forth below at the Depository Trust Company. - -------------------------------------------------- (Book-Entry Transfer Facility Account Number, if applicable) - -------------------------------------------------- ---------------------------------------------------
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR ORIGINAL NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX ABOVE. 10 INSTRUCTIONS Forming Part of the Terms and Conditions of the Exchange Offer for any and all outstanding 8-5/8% Senior Subordinated Notes Due 2007 in Exchange for 8-5/8% Senior Subordinated Notes Due 2007, Series B of NBTY, Inc. 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by Holders either if certificates are to be forwarded herewith or if tenders are to be made pursuant to the procedures for delivery by book-entry transfer set forth in "The Exchange Offer - Procedures for Tendering" section of the Prospectus. Certificates for all physically tendered Original Notes, or Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed Letter of Transmittal (or manually signed facsimile hereof) and any other documents required by this Letter of Transmittal, must be received by the Exchange Agent at the address set forth herein on or prior to the Expiration Date, or the tendering holder must comply with the guaranteed delivery procedures set forth below. Holders whose certificates for Original Notes are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date, or who cannot complete the procedure for book-entry transfer on a timely basis, may tender their Original Notes pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer - Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to such procedures (i) such entry must be made through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent must receive from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by telegram, telex, facsimile transmission, mail or hand delivery), setting forth the name and address of the holder of Original Notes and the amount of Original Notes tendered, setting forth the tender is being made thereby and guaranteeing that within three New York Stock Exchange ("NYSE") trading days after the Expiration Date, the certificates for all physically tendered Original Notes, or a Book-Entry Confirmation, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Original Notes, in proper form for transfer, or Book-Entry Confirmation as the case may be, and all other documents required by this Letter of Transmittal, are received by the Exchange Agent within three NYSE trading days after the Expiration Date. The method of delivery of this Letter of Transmittal, the Original Notes and all other required documents is at the election and risk of the tendering holders, but the delivery will be deemed made only when actually 11 received or confirmed by the Exchange Agent. If Original Notes are sent by mail, it is suggested that the mailing be made sufficiently in advance of the Expiration Date to permit delivery to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer" section of the Prospectus. 2. TENDER BY HOLDER; PARTIAL TENDERS. Only a Holder of Original Notes may tender such Original Notes in the Exchange Offer. Any beneficial owner whose Original Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered Holder promptly and instruct such registered Holder to tender on behalf of such beneficial owner. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing this Letter of Transmittal and delivering such owner's Original Notes, either make appropriate arrangements to register ownership of the Original Notes in such owner's name or obtain a properly completed bond power from the registered Holder. The transfer of registered ownership may take considerable time. Tenders of Original Notes will be accepted only in denominations of $1,000 or integral multiples thereof. If less than all of the Original Notes evidenced by a submitted certificate are to be tendered, the tendering holder(s) should fill in the aggregate principal amount of Original Notes to be tendered in the box above entitled "Description of Original Notes - Principal Amount Tendered." A reissued certificate representing the balance of nontendered Original Notes will be sent to such tendering Holder (except in the case of book-entry tenders), unless otherwise provided in the appropriate box on this Letter of Transmittal promptly after the Expiration Date. All of the Original Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. 3. SIGNATURES OF THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder of the Original Notes tendered hereby, the signature must correspond exactly with the name as written on the face of the certificates without any change whatsoever. If any tendered Original Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any tendered Original Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of certificates. When this Letter of Transmittal is signed by the registered holder or holders of the Original Notes specified herein and tendered hereby, no 12 endorsements of certificates or separate bond powers are required. If, however, the Exchange Notes are to be issued, or any untendered Original Notes are to be reissued, to a person other than the registered holder, then endorsements of any certificates transmitted hereby or separate bond powers are required. Signatures on such certificate(s) must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder or holders of any certificate(s) specified herein, such certificate(s) must be endorsed or accompanied by appropriate bond powers, in either case signed exactly as the name or names of the registered holder or holders appear(s) on the certificate(s) and signatures on such certificate(s) must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. ENDORSEMENTS ON CERTIFICATES FOR ORIGINAL NOTES OR SIGNATURES ON BOND POWERS REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM THAT IS A MEMBER OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES (AN "ELIGIBLE INSTITUTION"). SIGNATURES ON THIS LETTER OF TRANSMITTAL NEED NOT BE GUARANTEED BY AN ELIGIBLE INSTITUTION, PROVIDED THE ORIGINAL NOTES ARE TENDERED: (i) BY A REGISTERED HOLDER OF ORIGINAL NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A SECURITY POSITION LISTING AS THE HOLDER OF SUCH ORIGINAL NOTES TENDERED) WHO HAS NOT COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY INSTRUCTIONS" ON THIS LETTER OF TRANSMITTAL, OR (ii) FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Original Notes should indicate in the applicable box the name and address to which Exchange Notes issued pursuant to the Exchange Offer and/or substitute certificates evidencing Original Notes not exchanged are to be issued or sent, if different from the name or address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. Holders tendering Original Notes by book-entry transfer may request that Original Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such holder may designate hereon. If no such instructions are given, such Original Notes not exchanged will be returned to the name or address of the person signing this Letter of Transmittal. 13 5. TAX IDENTIFICATION NUMBER Federal income tax law generally requires that a tendering holder whose Original Notes are accepted for exchange must provide the Company (as payor) with such holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9 below, which, in the case of a tendering holder who is an individual, is his or her social security number. If the Company is not provided with the current TIN or an adequate basis for exemption, such tendering holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, delivery to such tendering holder of Exchange Notes may be subject to backup withholding in an amount equal to 31% of all reportable payments made after the exchange. If withholding results in an overpayment of taxes, a refund may be obtained. Exempt holders of Original Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed Guidelines of Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for additional instructions. To prevent backup withholding, each tendering holder of Original Notes must provide its correct TIN by completing the "Substitute Form W-9" set forth below, certifying that the TIN provided is correct (or that such holder is awaiting a TIN) and that (i) the holder is exempt from backup withholding, or (ii) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the tendering holder of Original Notes is a nonresident alien or foreign entity not subject to backup withholding, such holder must give the Company a completed Form W-8, Certificate of Foreign Status. These forms may be obtained from the Exchange Agent. If the Original Notes are in more than one name or are not in the name of the actual owner, such holder should consult the W-9 Guidelines for information on which TIN to report. If such holder does not have a TIN, such holder should consult the W-9 Guidelines for instructions on applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note: Checking this box and writing "applied for" on the form means that such holder has already applied for a TIN or that such holder intends to apply for one in the near future. If such holder does not provide its TIN to the Company within 60 days, backup withholding will begin and continue until such holder furnishes its TIN to the Company. 6. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the transfer of Original Notes to it or its order pursuant to the Exchange Offer. If, however, Exchange Notes and/or substitute Original Notes not exchanged are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Original Notes tendered hereby, or if tendered Original Notes are registered in the name of any person other than the 14 person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the transfer of Original Notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE ORIGINAL NOTES SPECIFIED IN THIS LETTER OF TRANSMITTAL. 7. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive satisfaction of any or all conditions enumerated in the Prospectus. 8. NO CONDITIONAL TENDERS; WITHDRAWAL OF TENDERS. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of Original Notes, by execution of this Letter of Transmittal, shall waive any right to receive notice of the acceptance of their Original Notes for exchange. Neither the Company, the Exchange Agent nor any other person is obligated to give notice of any defect or irregularity with respect to any tender of Original Notes, nor shall any of them incur any liability for failure to give any such notice. Tenders of Original Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer -- Withdrawal of Tenders" in the Prospectus for a description of the procedures to be followed in such a situation. 9. MUTILATED, LOST, STOLEN OR DESTROYED ORIGINAL NOTES. Any holder whose Original Notes have been mutilated, lost, stolen, or destroyed should contact the Exchange Agent at the address indicated above for further instructions. 10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent, at the address and telephone number indicated above. 15
- --------------------------------------- ----------------------------------------- ------------------------------------ Part 1-PLEASE PROVIDE YOUR TIN IN THE SUBSTITUTE BOX AT RIGHT AND CERTIFY BY SIGNING --------------------- AND DATING BELOW Social Security Number FORM W-9 Department of the Treasury or ------------------- Employer Identification Number or -------------------- Individual Taxpayer Identification Number ----------------------------------------- ---------------------------------------- Payer's Request for Taxpayer PART 2-Check the box if you are NOT subject to backup withholding under the Identification Number (TIN) provisions of Section 3406(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified that you are subject to backup withholding as a result of failure to report all interest or dividends or (2) the IRS has notified you that you are no longer subject to backup withholding. ---------------------------------------------------------------------------------- CERTIFICATION-UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS Part 3 | | FORM IS TRUE, CORRECT AND COMPLETE. Awaiting TIN - | | SIGNATURE DATE ---------------- ------------- - --------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACK-UP WITHHOLDING OF 31% OF ALL REPORTABLE PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 - -------------------------------------------------------------------------------- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number to the payor, 31% of all payments made to me pursuant to the Exchange Offer shall be retained until I provide a taxpayer identification number to the payor and that, if I do not provide my taxpayer identification number within sixty (60) days, such retained amounts shall be remitted to the Internal Revenue Service as a backup withholding and 31% of all reportable payments made to me thereafter will be withheld and remitted to the Internal Revenue Service until I provide a number. DATE: - -------------------------------------- ------------------------------- Signature - -------------------------------------------------------------------------------- 16 OFFER FOR ANY AND ALL OUTSTANDING 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007 IN EXCHANGE FOR 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B OF NBTY, INC. PURSUANT TO THE PROSPECTUS DATED ------------------ - -------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. - -------------------------------------------------------------------------------- - -------------------------- To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We are enclosing herewith the materials listed below relating to the offer by NBTY, Inc. (the "Company") to exchange, upon the terms and subject to the conditions set forth in the Prospectus dated ____________ (the "Prospectus), and in the related Letter of Transmittal (the "Letter of Transmittal," together with the Prospectus, the "Exchange Offer"), any and all outstanding 8-5/8% Senior Subordinated Notes Due 2007 (the "Original Notes"), of the Company for a like aggregate principal amount of 8-5/8% Senior Subordinated Notes Due 2007, Series B (the "Exchange Notes"), of the Company. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. Enclosed herewith are copies of the following documents: 1. The Prospectus; 2. The Letter of Transmittal for your use and for the information of your clients, together with guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup federal income tax withholding; 3. Notice of Guaranteed Delivery to be used to accept the Exchange Offer if the Original Notes and all other required documents cannot be delivered on or prior to the Expiration Date; 4. Instruction to Registered Holder and/or Book-Entry Transfer Participant from Beneficial Owner; and 5. A form of letter that may be sent to your clients for whose account you hold the Original Notes in your name or in the name of a nominee, accompanying the instruction form referred to above, for obtaining such clients' instructions with regard to the Exchange Offer. The Exchange Offer is not conditioned upon any minimum number of Original Notes being tendered. Pursuant to the Letter of Transmittal, each holder of Original Notes will represent to the Company that (i) any Exchange Notes acquired by it will be acquired in the ordinary course of its business, (ii) at the time of the commencement of the Exchange Offer, it has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act of 1933, as amended (the "Securities Act")), of the Exchange Notes in violation of the Securities Act, (iii) it is not an "affiliate" (as defined in Rule 405 promulgated under the Securities Act) of the Company, (iv) if such holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of Exchange Notes, and (v) if such holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market making or other trading activities, that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. Very truly yours, ------------------------- Harvey Kamil Secretary GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Guidelines for Determining the Proper Identification Number to Give the Payor - Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. Individual Taxpayer Identification numbers have nine digits and are used solely for tax purposes by individuals who are required to have a taxpayer identification number but who do not have one and are not eligible to obtain a Social Security number. The table below will help determine the number to give the Payor. - ------------------------------------------------------------------------------------------------------------------------------------ Give the Give the IDENTIFICATION IDENTIFICATION For this type of account number of For this type of account number of - ------------------------------------------------------------------------------------------------------------------------------------ 1. An individual's account The individual 8. Sole proprietorship account The Owner (4) 2. Two or more individuals The actual owner of the 9. A valid trust, estate, or Legal entity (Do not (joint account) account or, if combined funds, pension trust furnish the identifying any one of the individuals (1) funds, any one of the number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 3. Husband and wife (joint The actual owner of the 10. Corporate account The Corporation account) account or, if joint funds, either person (1) 4. Custodian account of a The minor (2) 11. Religious,charitable, or The organization a minor (Uniform Gift to educational organization Minors Act) account 5. Adult and minor (joint The adult or, if the minor is the 12. Partnership account held in The partnership account) only contributor, the minor (1) the name of the business 6. Account in the name of The ward, minor, or 13. Association, club or other The organization guardian or committee for incompetent person (3) tax-exempt organization a designated ward, minor, or incompetent person 7. a. The usual revocable The grantor-trustee (1) 14. A broker or registered The broker or nominee savings trust account nominee (grantor is also trustee) b. So-called trust account The actual owner (1) 15. Account with the The public entity that is not a legal or Department of Agriculture valid trust under State in the name of a public law entity (such as a State or local governmental school district or prison) that receives agricultural program payments - ------------------------------------------------------------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate or pension trust. Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
Obtaining a Number If you don't have a taxpayer identification number or you . Payments of tax-exempt interest (including exempt interest don't know your number, obtain Form SS-5, Application for dividends under section 852). Social Security Number Card, Form W-7, Application for Individual Taxpayer Identification Number, or Form SS-4, . Payments described in section 6049(b)(5) to nonresident Application for Employer Identification Number, at the aliens. local office of the Social Security Administration or the Internal Revenue Service and apply for a number. . Payments on tax-free covenant bonds under section 1451. Payees Exempt from Backup Withholding . Payments made to a nominee. Payees specifically exempted from backup withholding on ALL payments include the following: Exempt payees described above should file Form W-9 to avoid possible . A corporation. erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH . A financial institution. YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE . An organization exempt from tax under section FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, 501(a), or an individual retirement plan. DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. . The United States or any agency or instrumentality thereof. Certain payments other than interest, dividends, and patronage dividends that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. Privacy Act Notice. - Section 6109 requires most recipients of dividend interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Beginning January 1, 1993, payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. . A State, the District of Columbia, a possession Penalties of the United States, or any subdivision or (1) Penalty for Failure to Furnish Taxpayer instrumentality thereof. Identification Number. - If you fail to furnish your . A foreign government, a political subdivision of taxpayer identification number to a payer, you are a foreign government, or any agency or subject to a penalty of $50 for each such failure unless instrumentality Thereof. your failure is due to reasonable cause and not to willful neglect. (2) Civil Penalty for False Information With Respect to Withholding. - If you make a false statement with no . An international organization or any agency, or reasonable basis which results in no imposition of backup instrumentality thereof. withholding, you are subject to a penalty of $500. (3) Criminal Penalty for Falsifying Information. - Falsifying certifications or affirmations may subject you . A registered dealer in securities or commodities to criminal penalties including fines and/or imprisonment. registered in the U.S. or a possession of the U.S. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. . A real estate investment trust. . A common trust fund operated by a bank under section 584(a). . An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). . An entity registered at all times under the Investment Company Act of 1940. . A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to Partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. . Payments of patronage dividends where the account received is not paid in money. . Payments made by certain foreign organizations. . Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer.
NOTICE OF GUARANTEED DELIVERY NBTY, INC. OFFER FOR ANY AND ALL OUTSTANDING 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007 IN EXCHANGE FOR 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B PURSUANT TO THE PROSPECTUS DATED --------- As set forth in the Prospectus ______________ dated (as the same may be amended from time to time, the "Prospectus") of NBTY, Inc. (the "Company") under the caption "The Exchange Offer - Guaranteed Delivery Procedures," and in the accompanying Letter of Transmittal (the "Letter of Transmittal") and Instruction 1 thereto, this form or one substantially equivalent hereto must be used to accept the Company's offer (the "Exchange Offer") to exchange any and all outstanding 8-5/8% Senior Subordinated Notes due 2007 (the "Original Notes"), of the Company for a like aggregate principal amount of 8-5/8% Senior Subordinated Notes Due 2007, Series B (the "Exchange Notes"), of the Company from the holders ("Holders") thereof if (i) certificates representing the Original Notes to be exchanged are not immediately available or (ii) the procedures for book-entry transfer cannot be completed prior to the Expiration Date (as defined below). This form, properly completed and duly executed, may be delivered by mail or hand delivery or transmitted, via facsimile, to IBJ Schroder Bank & Trust Company (the "Exchange Agent") as set forth below. All capitalized terms used herein but not defined herein shall have the meanings ascribed to them in the Prospectus. ------------------------------------------------------------------------------ | | |THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _________ | | UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR | | TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. | ------------------------------------------------------------------------------ THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
BY OVERNIGHT DELIVERY: BY MAIL: BY HAND: IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company IBJ Schroder & Trust Company One State Street P.O. Box 84 One State Street New York, NY 10004 Bowling Green Station New York, NY 10004 Attn: Securities Processing Window New York, NY 10274-0084 Attn: Securities Processing Subcellar One (SC-1) Attn: Reorganization Operations Window Department Subcellar One (SC-1)
FACSIMILE TRANSMISSION NUMBER: (212) 858-2611 CONFIRM BY TELEPHONE: (212) 858-2103 FOR INFORMATION CALL: (212) 858-2103 Delivery of this instrument to an address other than as set forth above, or transmission of instructions via facsimile other than as set forth above, will not constitute a valid delivery. This form is not to be used to guarantee signatures. If a signature on the Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tender(s) to the Company, upon the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount of Original Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption "The Exchange Offer - Guaranteed Delivery Procedures." All authority herein conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall survive the death or incapacity of the undersigned, and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned. PLEASE SIGN AND COMPLETE
- --------------------------------------------------------------------------------------------------------------------- Signatures of Registered Holder(s) or Authorized Date:..................................... Signatory: ........................................ ................................................... Address: ................................. ................................................... .......................................... Name(s) of Registered Holder(s):................... Area Code and Telephone No.:.............. ................................................... If Notes will be delivered by book-entry transfer, check trust company below: ................................................... ................................................... _ Principal Amount of Original Notes Tendered:....... | | The Depository Trust Company - Depository Account No.:........................... - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- The Notice of Guaranteed Delivery must be signed by the Holder(s) exactly as their name(s) appear on certificates for Original Notes or on a security position listing as the owner of Original Notes, or by person(s) authorized to become Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information: PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- Capacity: ------------------------------------------------------------------------ Address(es): -------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Do not send Original Notes with this form. Original Notes should be sent to the Exchange Agent together with a properly completed and duly executed Letter of Transmittal. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GUARANTEE (Not to be used for signature guarantee) The undersigned, a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office or a correspondent in the United States, hereby guarantees that, within three New York Stock Exchange trading days from the date of this Notice of Guaranteed Delivery, a properly completed and duly executed letter of Transmittal (or a facsimile thereof), together with certificates representing the Original Notes tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Original Notes into the Exchange Agent's account at a Book-Entry Transfer Facility, pursuant to the procedure for book-entry transfer set forth in the Prospectus under the caption "The Exchange Offer - Procedures for Tendering"), and required documents will be deposited by the undersigned with the Exchange Agent. Name of Firm: -------------------------- -------------------------------- Authorized Signature Address: Name: ------------------------------- ---------------------------- Title: --------------------------- Area Code and Telephone No. Date: ----------- --------------------------- - -------------------------------------------------------------------------------- DO NOT SEND ORIGINAL NOTES WITH THIS FORM. ACTUAL SURRENDER OF ORIGINAL NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND VALIDLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS. INSTRUCTION TO REGISTERED HOLDER AND/OR BOOK- ENTRY TRANSFER PARTICIPANT FROM BENEFICIAL OWNER FOR TENDER OF 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007 IN EXCHANGE FOR 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B OF NBTY, INC. - -------------------------------------------------------------------------------- THE EXCHANGE OFFER WIL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ______________ UNLESS EXTENDED (THE "EXPIRATION DATE"). ORIGINAL NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE. - -------------------------------------------------------------------------------- Registered Holder and/or Participant of the Book-Entry Transfer Facility: The undersigned hereby acknowledges receipt of the Prospectus dated ______________ (the "Prospectus") of NBTY, Inc., a Delaware corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer") to exchange any and all outstanding 8-5/8% Senior Subordinated Notes Due 2007 (the "Original Notes"), of the Company for a like aggregate principal amount of 8-5/8% Senior Subordinated Notes Due 2007, Series B (the "Exchange Notes"), of the Company. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. This will instruct you, the registered holder and/or book-entry transfer facility participant, as to the action to be taken by you relating to the Exchange Offer with respect to the Original Notes held by you for the account of the undersigned. The aggregate face amount of the Original Notes held by you for the account of the undersigned is (FILL IN AMOUNT): $________________ of the 8-5/8% Senior Subordinated Notes Due 2007. With respect to the Exchange Offer, the undersigned hereby instructs you (CHECK THE APPROPRIATE BOX): | | To TENDER the following Original Notes held by you for the account of the undersigned (INSERT PRINCIPAL AMOUNT OF ORIGINAL NOTES TO BE TENDERED (IF ANY): $______________________ | | NOT TO TENDER any Original Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Original Notes held by you for the account of the undersigned, it is understood that you are authorized to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including, but not limited to, the representations that (i) any Exchange Notes to be received by the undersigned will be acquired in the ordinary course of business of the undersigned, (ii) at the time of commencement of the Exchange Offer, the undersigned had no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act of 1933, as amended (the "Securities Act")) of the Exchange Notes in violation of the Securities Act, (iii) the undersigned is not an "affiliate" (as defined in Rule 405 promulgated under the Securities Act) of the Company, (iv) if the undersigned is not a broker-dealer, the undersigned is not engaged in, and does not intend to engage in, the distribution of Exchange Notes, and (v) if the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market making or other trading activities, that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes, the undersigned is not deemed to admit that it is an "underwriter" within the meaning of the Securities Act. SIGN HERE Name of beneficial owner(s): ---------------------------------------------------- Signature(s): ------------------------------------------------------------------- Name(s) (please print): --------------------------------------------------------- Address: ------------------------------------------------------------------------ Telephone Number: --------------------------------------------------------------- Taxpayer Identification or Social Security Number: ------------------------------ Date: -------------------------------------------------------------------------- OFFER FOR ANY AND ALL OUTSTANDING 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007 IN EXCHANGE FOR 8-5/8% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B OF NBTY, INC. --------------- TO OUR CLIENTS: Enclosed for your consideration is the Prospectus dated __________ (as the same may be amended from time to time, the "Prospectus") and a related Letter of Transmittal (the "Letter of Transmittal," together with the Prospectus, the "Exchange Offer") relating to the offer by NBTY, Inc. (the "Company") to exchange any and all outstanding 8-5/8% Senior Subordinated Notes Due 2007 (the "Original Notes"), of the Company for a like aggregate principal amount of 8-5/8% Senior Subordinated Notes Due 2007, Series B (the "Exchange Notes"), of the Company. Please Note that the Exchange Offer will expire at 5:00 p.m., New York City time, on ________________ unless extended. The Exchange Offer is not conditioned upon any minimum number of Original Notes being tendered. We are the registered holder of the Original Notes held by us for your account. A tender of any such Original Notes can be made only by us as the registered holder and pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender Original Notes held by us for your account. Accordingly, we request instructions as to whether you wish us to tender any or all of the Original Notes held by us for your account, pursuant to the terms and conditions set forth in the Exchange Offer. We also request that you confirm that we may on your behalf make the representations contained in the Letter of Transmittal that are to be made with respect to you as beneficial owner. Pursuant to the Letter of Transmittal, each holder of Original Notes will represent to the Company that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business, (ii) at the time of the commencement of the Exchange Offer, it has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act of 1933, as amended (the "Securities Act")), of the Exchange Notes in violation of the Securities Act, (iii) it is not an "affiliate" (as defined in Rule 405 promulgated under the Securities Act) of the Company, (iv) if such holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of Exchange Notes, and (v) if such holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market making or other trading activities, that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes. By acknowledging that it will deliver and by delivering a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes, such broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Very truly yours, -----END PRIVACY-ENHANCED MESSAGE-----