-----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, OkU1Suc4+s7nq6j3OWEiIUJKcYDN/hI2mcWIfzADFLmYzgsyWnOjFqS/k6gZYrto LsOE+tzdmiSug7SGKoql2w== 0000910647-02-000252.txt : 20021220 0000910647-02-000252.hdr.sgml : 20021220 20021220141121 ACCESSION NUMBER: 0000910647-02-000252 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021220 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: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10666 FILM NUMBER: 02864566 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 10-K 1 nbty-10k.txt FORM 10-K FOR SEPTEMBER 30, 2002 ========================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended September 30, 2002. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _______ to _____ Commission file number 0-10666 NBTY, INC. (Exact name of registrant as specified in charter) DELAWARE 11-2228617 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 90 Orville Drive 11716 Bohemia, New York (Zip Code) (Address of principal executive offices) (631) 567-9500 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.008 per share Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] Indicate by check mark whether the Registrant is an accelerated filer. YES [X] NO [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant on March 28, 2002, was approximately $930,000,000. For purposes of the foregoing calculation only, all directors and executive officers of the Registrant have been deemed affiliates. The number of shares of Common Stock of the Registrant outstanding at March 28, 2002, was approximately 65,984,000. The number of shares of Common Stock of the Registrant outstanding at December 9, 2002, was approximately 66,293,500. Documents Incorporated by Reference: None =========================================================================== NBTY, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002 TABLE OF CONTENTS Caption Page Forward Looking Statements 1 PART I ITEM 1 BUSINESS 2 General 2 Business Strategy 3 Operating Segments 5 Employees and Advertising 7 Manufacturing, Distribution and Quality Control 7 Research and Development 9 Competition; Customers 9 Government Regulation 9 International Operations 14 Trademarks 15 Raw Materials 15 Seasonality 15 ITEM 2 PROPERTIES 15 ITEM 3 LEGAL PROCEEDINGS 18 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19 PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 20 Dividend Policy 20 Price Range for Common Stock 20 ITEM 6 SELECTED FINANCIAL DATA 21 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 22 Background 22 Critical Accounting Policies and Estimates 23 Results of Operations 27 Seasonality 31 Liquidity and Capital Resources 31 Related Party Transactions 34 Inflation 35 Financial Covenants and Credit Rating 35 New Accounting Developments 35 i ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 36 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 36 ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 37 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 38 Compensation of Directors 40 Section 16(a) Beneficial Ownership Reporting Compliance 40 ITEM 11 EXECUTIVE COMPENSATION 41 Summary Compensation Table 41 Option Value at the End of Fiscal 2002 42 Employment Agreements with Executive Officers and Directors 43 ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 45 Securities Authorized For Issuance Under Equity Compensation Plans 48 NBTY, Inc. Employees' Stock Ownership Plan 49 Eligibility; Trustee 49 Contributions 49 Vesting 49 Distribution; Voting 49 ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 50 ITEM 14 CONTROLS AND PROCEDURES 50 PART IV ITEM 15 EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K 52 Index to Consolidated Financial Statements and Schedule 54 Financial Statements F-1 Financial Statement Schedule S-1 Signatures Certifications Exhibits ii PART I Forward Looking Statements This Annual Report on Form 10-K (the "Report") contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing such forward-looking statements may be found in Items 1, 2, 3, 7 and 7A hereof, as well as within this Report generally. In addition, when used in this Report, the words "subject to," "believe," "expect," "plan," "estimate," "intend," "may," "will," "should," or "anticipate," or the negative thereof, or variations thereon, or similar expressions are intended to identify forward-looking statements. Similarly, discussions of strategy, although believed to be reasonable, are also forward-looking statements and are inherently uncertain. All forward- looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from projected results. Factors which may materially affect such forward-looking statements include: (i) slow or negative growth in the nutritional supplement industry; (ii) interruption of business or negative impact on sales and earnings due to acts of war, terrorism, bio-terrorism, civil unrest or disruption of mail service; (iii) adverse publicity regarding the consumption of nutritional supplements; (iv) inability to retain customers of companies (or mailing lists) recently acquired; (v) increased competition; (vi) increased costs; (vii) loss or retirement of key members of management; (viii) increases in the cost of borrowings and unavailability of additional debt or equity capital; (ix) unavailability of, or inability to consummate, advantageous acquisitions in the future, including those that may be subject to bankruptcy approval or the inability of the Company (as defined below) to integrate acquisitions into the mainstream of its business; (x) changes in general worldwide economic and political conditions in the markets in which the Company may compete from time to time; (xi) the inability of the Company to gain and/or hold market share of its wholesale and retail customers; (xii) loss or reduction in ephedra sales; (xiii) unavailability of electricity in certain geographical areas; (xiv) exposure to and expense of defending and resolving, product liability claims and other litigation; (xv) the ability of the Company to successfully implement its business strategy; (xvi) the inability of the Company to manage its retail, wholesale, manufacturing and other operations efficiently; (xvii) consumer acceptance of the Company's products; (xviii) the inability of the Company to renew leases on its retail locations; (xix) inability of the Company's retail stores to attain or maintain profitability; (xx) the absence of clinical trials for many of the Company's products; (xxi) sales and earnings volatility and/or trends; (xxii) the effect on Company sales of the rapidly changing nature of the Internet and on-line commerce; (xxiii) fluctuations in foreign currencies, and more particularly the British Pound; (xxiv) import-export controls on sales to foreign countries; (xxv) the inability of the Company to secure favorable new sites for, and delays in opening, new retail locations; (xxvi) introduction of new federal, state, local or foreign legislation or regulation or adverse determinations by regulators, and more particularly the Food Supplements Directive and the Traditional Herbal Medicinal Products Directive in Europe; (xxvii) the mix of the Company's products and the profit margins thereon; (xxviii) the availability and pricing of raw materials; (xxix) risk factors discussed in the Company's filings with the U.S. Securities and Exchange Commission (the "SEC"); and (xxx) other factors beyond the Company's control. 1 Consequently, such forward-looking statements should be regarded solely as the Company's current plans, estimates and beliefs. Readers are cautioned not to place undue reliance on forward-looking statements. The Company cannot guarantee future results, events, and levels of activity, performance or achievements. The Company does not undertake and specifically declines any obligation to update, republish or revise forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrences of unanticipated events. Industry data used throughout this Report was obtained from industry publications and internal Company estimates. While the Company believes such information to be reliable, its accuracy has not been independently verified and cannot be guaranteed. Item 1. BUSINESS General NBTY, Inc. (the "Company", "NBTY", "we" or "us") is a leading vertically integrated manufacturer, marketer and retailer of a broad line of high quality, value-priced nutritional supplements in the United States, the United Kingdom, Ireland and internationally. Under a number of brands, the Company offers over 1,000 products, including vitamins, minerals, herbs, amino acids, sports nutrition products, diet aids and other nutritional supplements. The Company is vertically integrated in that it purchases raw materials, formulates and manufactures its products and then markets its products through its four channels of distribution: (i) Puritan's Pride/direct response, the leading U.S. nutritional supplement e- commerce/direct response program under the Puritan's Pride(R) brand in catalogs and through the Internet; (ii) 544 Vitamin World(R) and Nutrition Warehouse(R) retail stores, operating throughout the U.S. in 46 states, Guam and Puerto Rico; (iii) 468 Holland & Barrett(R) and Nature's Way(R) retail stores, operating throughout the United Kingdom and Ireland; and (iv) wholesale distribution to mass merchandisers, drug store chains, supermarkets, independent pharmacies and health food stores under various brand names, including the Nature's Bounty(R) brand. At September 30, 2002, the Company manufactured over 90% of the nutritional supplements it sold. The Company was incorporated in Delaware in 1979 under the name Nature's Bounty, Inc. On March 26, 1995, the Company changed its name to NBTY, Inc. The Company's principal executive offices are located at 90 Orville Drive, Bohemia, New York 11716 and its telephone number is (631) 567-9500. The Company's Internet address is www.nbty.com. The Company's United Kingdom subsidiary, Holland & Barrett, has its principal executive offices in Nuneaton, United Kingdom. The Company makes available, free of charge, on the Company's web site, the Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as is reasonably practicable, after the Company electronically files such materials with the SEC. 2 Business Strategy The Company targets the growing value-conscious consumer segment by offering high-quality products at a value price. The Company's objective is to increase sales, improve manufacturing efficiencies, increase profitability and strengthen its market position through the following key strategies: Expand Existing Channels of Distribution. The Company plans to continue expanding and improving its existing channels of distribution through aggressive marketing and synergistic acquisitions in order to increase sales and profitability and enhance overall market share. * Increase Puritan's Pride direct response sales. NBTY expects to continue strengthening its leading position in the e- commerce/direct response business by: (i) improving automated picking and packing to fulfill sales order requests with greater speed and accuracy; (ii) increasing manufacturing capability to quickly introduce and deliver new products in response to customer demand; (iii) testing new and more frequent promotions to further improve response rates; and (iv) promoting its Internet web sites. The Company also intends to continue its strategy of acquiring the customer lists, brand names and inventory of other mail order companies which have similar or complementary products which the Company believes can be efficiently integrated into its own operations without adding substantial overhead expenses. * Increase Retail Sales in the U.S. Over the last several years, the Company's strategy has focused on the development of a nationwide chain of retail stores in the United States. To that end, at September 30, 2002, the Company operated 544 Vitamin World(R) and Nutrition Warehouse(R) retail stores located in regional and outlet malls. The Company has added approximately 218 retail stores in the past three fiscal years or approximately 40% of the total number of stores in operation at September 30, 2002. New stores historically do not have the same high customer traffic as more mature stores. During the fiscal year ended September 30, 2002 (the "fiscal 2002"), the Company opened 24 Vitamin World stores. The Company plans to open approximately 25 new stores in the next fiscal year. In an effort to increase customer traffic, the Company successfully introduced its Savings Passport Card, a customer loyalty program, which provides incentives for the consumer to purchase at Vitamin World(R). It is an additional tool for the Company to track customer preferences and purchasing trends. At the end of fiscal 2002, there were over 2.8 million Savings Passport Card members. * Increase Wholesale Sales in the U.S. and in Foreign Markets. The Company expects to strengthen its wholesale business by continuing to increase its sales in food, drug and mass merchandising channels by (i) increasing revenues derived from existing customers through strong promotional activities and the aggressive introduction of new and innovative products; (ii) increasing shelf 3 space in major retailers; (iii) leveraging the advertising and promotion of its major specialty brands, such as Flex-A-Min(R) and Knox(R) and; (iv) continuing to grow its private label revenue with new customers and timely product introductions. The Company also seeks increased sales in the health food store distribution channel by (a) adding new customers and growing sales to existing customers through the strategic use of advertising and promotion of core products; and (b) the introduction of unique new products such as CardioSmart, a special formulation to support cardiovascular health. In addition, the Company continues to form new distribution alliance throughout the world for its products. A new sales division in the U.K. has recently been established to take advantage of wholesale sales opportunities in the U.K. and the European continent. * Increase Retail Sales in the U.K. and Ireland. The Company continues its strategy of selectively expanding the number of its Holland & Barrett stores located throughout the U.K. At September 30, 2002, there were 468 Holland & Barrett(R) and Nature's Way(R) stores in the U.K. and Ireland. In fiscal 2002, Holland & Barrett opened 7 new stores in the U.K. and Ireland. The Company projects that, during the next fiscal year, the Company will open 28 new retail stores in the U.K. and Ireland. Introduce New Products. The Company has consistently been among the first in the industry to introduce innovative products in response to new studies, research and consumer preferences. Given the changing nature of consumer demands for new products and the growing publicity over the importance of vitamins, minerals and nutritional supplements in the promotion of general health, management believes that NBTY will continue to maintain its core customer base and attract new customers based upon its ability to rapidly respond to consumer demands with high quality, value- oriented products. Enhance Vertical Integration. The Company believes that its vertical integration gives it a significant competitive advantage by allowing the Company to: (i) maintain higher quality standards while lowering product costs, a portion of which are passed on to the customer as lower prices; (ii) more quickly respond to scientific and popular reports and consumer buying trends; (iii) more effectively meet customer delivery schedules; (iv) reduce dependence upon outside suppliers; and (v) improve overall operating margins. The Company continually evaluates ways to further enhance its vertical integration by leveraging manufacturing, distribution, purchasing and marketing capabilities, and otherwise improve its operations. Build Infrastructure to Support Growth. NBTY has technologically advanced, state-of-the-art manufacturing and production facilities, with total production capacity of approximately thirty billion tablets and capsules per year. The Company regularly evaluates its operations and makes investments in building infrastructure, as necessary, to support its continuing growth. 4 Strategic Acquisitions. The Company seeks acquisition opportunities, both in the U.S. and internationally, of companies which complement or extend its existing product lines, increase the Company's market presence, expand its distribution channels, and/or are compatible with its business philosophy. In fiscal 2002, NBTY completed three acquisitions: (i) the mail order operation of HealthCentral.com; (ii) the Knox(R) gelatine nutritional supplement business of Kraft Foods; and (iii) the Synergy Plus(R) product line of nutritional supplements. Experienced Management Team. The Company's management team has extensive experience in the nutritional supplement industry and has developed long-standing relationships with its suppliers and its customers. The executive officers of the Company have an average of approximately 20 years with the Company. Operating Segments NBTY and its subsidiaries operate in the nutritional supplement industry, focusing their products and services on four segments of this industry: Puritan's Pride/direct response, U.S. retail, U.K./Ireland retail, and wholesale (which includes network marketing). The following table sets forth the percentage of net sales for each of the Company's operating segments:
Fiscal Years Ended September 30, -------------------------------- 2002 2001 2000 ---- ---- ---- Puritan's Pride/direct response 19% 21% 25% Retail: U.S. 21% 22% 21% U.K./Ireland. 30% 33% 34% Wholesale 30% 24% 20% -- -- -- 100% 100% 100%
Further information about the financial results of each of these segments is found in Note 17 to the Consolidated Financial Statements in this Report. Puritan's Pride/direct response. The Company offers, through mail order and e-commerce, a full line of vitamins and other nutritional supplement products as well as selected personal care items under its Puritan's Pride(R) brand names at prices which are usually at a discount from those of similar products sold in retail stores. Through its Puritan's Pride(R) brand, NBTY is the leader in the U.S. direct response nutritional supplement industry with over four million active customers and with response rates which management believes to be above the industry average. NBTY intends to continue to appeal to new customers in its direct response operation through aggressive marketing techniques both in the U.S. and the U.K., and through selective acquisitions. 5 In order to maximize sales per catalog and reduce mailing and printing costs, the Company regularly updates its mail order list to include new customers and to eliminate those who have not placed an order within a designated period of time. In addition, in order to add new customers to its mailing lists and web sites and to increase average order sizes, the Company places advertisements in newspaper supplements and conducts insert programs with other mail order companies. The Company's use of state-of-the-art equipment in its direct response operations, such as computerized mailing, bar-coded addresses and automated picking and packing systems enables the Company to fill orders typically within 24 hours of their receipt. This allows the Company to lower its per customer distribution costs, thereby enhancing margins and enabling the Company to offer its products at lower prices than its competitors. The Company's www.puritan.com and www.vitamins.com web sites provide a practical and convenient method for consumers wishing to purchase products to promote healthy living. By using these web sites, consumers have access to the full line of more than 1,000 products which are offered through the Company's Puritan's Pride(R) mail order catalog. Consumer orders are processed with the speed, economy and efficiency of the Company's automated picking and packing system. The Company maintains another web site, www.vitaminworld.com, to accommodate customers who wish to purchase nutritional supplements on the Internet, or to find a conveniently located store to make purchases in person. This web site provides the consumer with information concerning the products offered in the Company's stores and with information about store locations. Retail U.S. At the end of fiscal 2002, the Company leased and operated 544 retail stores located in 46 states, Guam and Puerto Rico, under the Vitamin World(R) and Nutrition Warehouse(R) names. Each location carries a full line of the Company's products under the Company's brand names as well as products manufactured by others. Through direct interaction between the Company's personnel and the public, the Company is able to identify buying trends, customer preferences or dislikes, acceptances of new products and price trends in various regions of the country. This information is useful in initiating sales programs for all divisions of the Company. Retail U.K./Ireland Holland & Barrett ("H&B") is one of the leading nutritional supplement retailers in the United Kingdom, with 468 locations in the United Kingdom and Ireland at September 30, 2002. H&B markets a broad line of nutritional supplement products, including vitamins, minerals and other nutritional supplements (approximately 65% of H&B's revenues) as well as food products, including fruits and nuts, confectionery and other items (approximately 35% of H&B's revenues). Nutritional supplement products manufactured by NBTY accounted for approximately 45% of H&B's total sales in fiscal 2002. Wholesale/Mass Marketing. The Company markets its products under various brand names to many stores, including leading drug store chains and supermarkets, independent pharmacies, health food stores, health food store wholesalers and other retailers such as mass merchandisers. The Nature's Bounty(R) brand is sold to drug store chains and drug wholesalers. The Company sells a full line of products to supermarket 6 chains and wholesalers under the brand name Natural Wealth(R) at prices designed for the "price conscious" consumer. The Company sells directly to health food stores under the brand name Good 'N Natural(R) and sells products, including a specialty line of vitamins, to health food wholesalers under the brand name American Health(R). The Company has expanded sales of various products to many countries throughout Europe, Asia and Latin America. For additional information regarding financial information about the geographic areas in which the Company and its subsidiaries conduct their business, see Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Notes to the Company's Consolidated Financial Statements contained in this Report. Employees and Advertising As of September 30, 2002, the Company employed approximately 8,100 persons, which included: (i) 2,586 sales associates located throughout the U.S. in its Vitamin World(R) and Nutrition Warehouse(R) retail stores; (ii) 1,610 manufacturing, shipping and packaging associates throughout the U.S.; (iii) 632 associates in administration throughout the U.S.; (iv) 68 associates who sell to NBTY's wholesale distributors and customers; (v) 34 in-house advertising associates; and (vi) 3,157 associates in its H&B operations, including: (A) 2,885 retail associates, (B) 149 associates in distribution, and (C) 123 associates in administration. In addition, NBTY sells through commissioned sales representative organizations. The Company believes it has satisfactory employee and labor relations. For the fiscal years ended September 30, 2000, 2001 and 2002, NBTY spent approximately $34 million, $49 million and $48 million, respectively, on advertising and promotions, including print, media and cooperative advertising. NBTY creates its own advertising materials through its in- house staff of associates. In the U.K., H&B runs advertisements in national newspapers, conducts sales promotions and publishes a glossy magazine with articles and promotional materials. Manufacturing, Distribution and Quality Control The Company employs approximately 1,600 manufacturing, shipping and packaging associates throughout the United States. The Company's manufacturing facilities are located in New York, California, Colorado, New Jersey and Illinois and is conducted in accordance with good manufacturing practice standards promulgated by the United States Food and Drug Administration ("the FDA") and other applicable regulatory 7 standards. The Company manufactures products for its four operating segments as well as for third parties. The Company 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 sales. The Company places special emphasis on quality control. All raw materials used in production initially are held in quarantine during which time the Company's laboratory technicians assay the raw materials and the results are compared with 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, compressing and sometimes coating operations. After the tablet or capsule is manufactured, laboratory technicians test its weight, purity, potency, dissolution and stability. When products such as vitamin tablets are ready for bottling, the Company's automated equipment counts the tablets, inserts them into bottles, adds a tamper-resistant cap with an inner safety seal and affixes a label. The Company uses computer-generated documentation for picking and packing for order fulfillment. The Company's manufacturing operations are designed to allow low cost production of a wide variety of products of different quantities, sizes and packaging while maintaining a high level of customer service and quality. Flexible production line changeover capabilities and reduced cycle times allow the Company to respond quickly to changes in manufacturing schedules. Inventory Control. The Company has installed inventory control systems at its facilities that enable it to track each product as it is received from its supply sources through manufacturing and shipment to its customers. To facilitate this tracking, a significant number of products sold by the Company are bar coded. The Company's inventory control systems report shipping, sales and individual SKU level inventory information. The Company manages the retail sales process by monitoring customer sales and inventory levels by product category. The Company believes that its distribution capabilities enable it to increase flexibility in responding to the delivery requirements of its customers. Information from the Company's point-of-sale computer system is regularly reviewed and analyzed by the purchasing staff to assist in making merchandise allocation and markdown decisions. The Company uses an automated reorder system to maintain in-stock positions on key items. These systems provide management with the information needed to determine the proper timing and quantity of reorders. Financial Reporting. The Company's financial reporting systems provide management with detailed financial reporting to support management's operating decisions and cost control efforts. These systems provide functions such as scheduling of payments, receiving of payments, general ledger interface, vendor tracking and flexible reporting options. 8 Research and Development In the last three fiscal years, the Company did not expend any significant amounts for basic research and development of new products. Competition; Customers The market for nutritional supplement products is highly competitive. Competition is based primarily on price, quality and assortment of products, customer service, marketing support, and availability of new products. The Company believes it competes favorably in all of these areas. The Company's direct competition consists primarily of publicly and privately owned companies, highly fragmented in terms of both geographical market coverage and product categories. The Company also competes in the nutritional supplement area with companies which may have broader product lines and/or larger sales volumes. The Company's products also compete with nationally advertised brand name products. Most of the national brand companies have resources substantially greater than those of the Company. There are numerous companies in the vitamin and nutritional supplement industry selling products to retailers, including mass merchandisers, drug store chains, independent drug stores, supermarkets and health food stores. Many companies within the industry are privately held. Therefore, the Company is unable to precisely assess the size of all of its competitors or where the Company ranks in comparison to such privately held competitors with respect to sales to retailers. Two customers of the wholesale division represented, individually, more than 10% of this segment's sales in fiscal 2002. However, the Company does not believe that the loss of either of these customers or any other any single customer of the Company would have a material adverse effect on the Company's consolidated financial condition or results of operations. Government Regulation United States. The formulation, manufacturing, packaging, labeling, advertising and distribution of NBTY's products are subject to regulation by one or more federal agencies, including the FDA, the Federal Trade Commission ("FTC"), the Postal Service, the Consumer Product Safety Commission, the Department of Agriculture, the Environmental Protection Agency, and also by various agencies of the states, 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 formulation, manufacturing, packaging, labeling and distribution of dietary supplements, including vitamins, minerals and herbs, and of over- the-counter ("OTC") drugs, while the FTC has jurisdiction to regulate advertising of these products, and the Postal Service regulates advertising claims with respect to such products sold by mail order. 9 The FDCA has been amended several times with respect to dietary supplements, in particular by the Dietary Supplement Health and Education Act of 1994 ("DSHEA"). DSHEA established a new framework governing the composition and labeling of dietary supplements. With respect to composition, DSHEA defined "dietary supplements" as vitamins, minerals, herbs, other botanicals, amino acids and other dietary substances for human use to supplement the diet, as well as concentrates, metabolites, constituents, extracts or combinations of such dietary ingredients. Generally, under DSHEA, dietary ingredients that were on the market before October 15, 1994 may be used in dietary supplements without notifying the FDA. However, a "new" dietary ingredient (i.e., a dietary ingredient that was "not marketed in the United States before October 15, 1994") must be the subject of a new dietary ingredient notification submitted to the FDA unless the ingredient has been "present in the food supply as an article used for food" without being "chemically altered." A new dietary ingredient notification must provide the FDA evidence of a "history of use or other evidence of safety" establishing that use of the dietary ingredient "will reasonably be expected to be safe." A new dietary ingredient notification must be submitted to the FDA at least 75 days before the initial marketing of the 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 want to market, and the FDA's refusal to accept such evidence could prevent the marketing of such dietary ingredients. The botanical ingredient ephedra is currently used in several of the Company's dietary supplement products, comprising approximately 4 percent of the Company's sales during fiscal 2002 in the United States. The Company believes the ingredient is safe for use under the conditions set forth in the labeling of these products. However, there is a possibility that the FDA or one or more states or local governments may impose restrictions that would require the Company to cease sale of some or all of these products. There can be no assurance that such restrictions would not have a material adverse effect upon the Company's consolidated financial position or results of operations. DSHEA permits "statements of nutritional support" to be included in labeling for dietary supplements without the FDA pre-approval. Such statements may describe how a particular dietary ingredient affects 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, cure, mitigate, treat, or prevent a disease). A company that uses a statement of nutritional support in labeling must possess evidence substantiating that the statement is truthful and not misleading, must disclose on the label that the FDA has not "evaluated" the statement, must also disclose on the label that the product is not intended for use for a disease, and must notify the FDA about the company's use of the statement within 30 days after its initial use. However, there can be no assurance that the FDA will not determine that a particular statement of nutritional support that a company wants to use is an unacceptable drug claim or an unauthorized version of a "health claim." Such a determination might prevent a company from using the claim. In addition, DSHEA provides that certain so-called "third party literature," e.g., a reprint of a peer-reviewed scientific publication linking a particular dietary ingredient with health benefits, may be used "in connection with the sale of a dietary supplement to 10 consumers" without the literature being subject to regulation as labeling. Such literature must not be false or misleading; the literature may not "promote" a particular manufacturer or brand of dietary supplement; and a balanced view of the available scientific information on the subject matter must be presented. There can be no assurance, however, that all third party literature that NBTY would like to disseminate in connection with its products will satisfy each of these requirements, and failure to satisfy all requirements could prevent use of the literature or subject the product involved to regulation as an illegal drug. Management expects that the FDA soon will propose "good manufacturing practice" ("GMP") regulations, authorized by DSHEA, specifically for dietary supplements. GMP regulations would require dietary supplements to be prepared, packaged and held in compliance with certain rules, and might require quality control provisions similar to those in the GMP regulations for drugs. There can be no assurance that, if the FDA adopts GMP regulations for dietary supplements, NBTY will be able to comply with the new rules without incurring substantial expenses. The FDA generally prohibits the use in labeling for a dietary supplement of any "health claim" (that is not authorized as a "statement of nutritional support" permitted by DSHEA) unless the claim is pre-approved by the FDA. There can be no assurance that some of the labeling statements that NBTY would like to use will not be deemed by the FDA to be "unauthorized health claims" that are not permitted to be used. Although the regulation of dietary supplements is in some respects less restrictive than the regulation of drugs, there can be no assurance that dietary supplements will continue to be subject to less restrictive regulation. Further, there can be no assurance that, if more stringent statutes are enacted for dietary supplements, or if more stringent regulations are promulgated, NBTY will be able to comply with such statutes or regulations without incurring substantial expense, or that it will be able to comply at all. The FDA regulates the formulation, manufacturing, packaging, labeling and distribution of OTC drug products pursuant to a "monograph" system that specifies active drug ingredients that are generally recognized as safe and effective for particular uses. If an OTC drug is not in compliance with an applicable the FDA monograph, the product generally cannot be sold without first obtaining the FDA approval of a new drug application, a long and expensive procedure. The FDA has broad authority to enforce the provisions of the FDCA applicable to dietary supplements, including powers to issue a public "warning letter" to a company, to publicize information about illegal products, to request a recall of illegal products from the market, and to request the Department of Justice to initiate a seizure action, an injunction action, or a criminal prosecution in the United States courts. FTC exercises jurisdiction over the advertising of dietary supplements. In recent years, FTC has instituted numerous enforcement actions against dietary supplement companies for failure to have adequate substantiation for claims made in advertising or for the use of false or misleading advertising claims. These enforcement actions have often resulted in consent decrees and the payment of civil penalties by the companies 11 involved. NBTY is currently subject to a FTC consent decree resulting from past advertising claims for certain of its products, and is required to maintain compliance with this decree and is subject to substantial civil monetary penalties if there should be any failure to comply. Further, the 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 the order applicable to it, subject to civil monetary penalties for any noncompliance. Violations of these orders could result in substantial monetary penalties, which could have a material adverse effect on NBTY's consolidated financial position or results of operations. NBTY is also subject to regulation under various state, local, and international laws that include provisions governing, among other things, the formulation, manufacturing, packaging, labeling, advertising and distribution of dietary supplements and OTC drugs. Government regulations in foreign countries may prevent or delay the introduction, or require the reformulation, of certain of NBTY's products. Compliance with such foreign governmental regulations is generally the responsibility of NBTY's distributors in those countries. These distributors are independent contractors over whom the Company has only limited or minimal control. In addition, from time to time in the future, NBTY may become subject to additional laws or regulations administered by the FDA or by other federal, state, local or foreign regulatory authorities, to the repeal of laws or regulations that the Company considers favorable, such as DSHEA, or to more stringent interpretations of current laws or regulations. The Company is not able to predict the nature of such future laws, regulations, repeals or interpretations, and it cannot predict what effect additional governmental regulation, when and if it occurs, would have on its business in the future. Such developments could, however, require reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, or other new requirements. Any such developments could have a material adverse effect on NBTY. United Kingdom. In the United Kingdom, the two laws that affect the operations of H&B are the Medicines Act 1968, which regulates the licensing and sale of medicines, and the Food Safety Act 1990 which provides for the safety of food products. A large volume of Secondary Legislation in the form of Statutory Instruments adds the detail to the main provisions of the above Acts. In the U.K. regulatory system a product intended to be taken orally will fall within the category of food or the category of medicine. There is no special category of dietary supplement as provided for in the US by DSHEA. Some products which are intended to be applied externally, for example creams and ointments, may be classified as medicines and others as cosmetics. The Medicines Control Agency ("MCA") has responsibility for the implementation and enforcement of the Medicines Act, and is the licensing authority for medicinal products. The MCA directly employs enforcement officers from a wide range 12 of backgrounds, including the police, and with a wide range of skills, including recently information technology. The MCA answers to Government Ministers in the Department of Health. The MCA decides whether a product is a medicine or not, and if so, considers whether it can be licensed. It determines the status of a product by considering whether it is medicinal by "presentation" or by "function". Many, though not all, herbal remedies are considered "medicinal" by nature of these two tests. The Food Standards Agency ("FSA") deals with legislation, policy and oversight of food products, with enforcement action in most situations being handled by local authority Trading Standards Officers. The FSA answers primarily to Ministers at the Department of Health, and the Department of Environment Food and Rural Affairs. Most vitamin and mineral supplements, and some products with herbal ingredients are considered to be food supplements and fall under general food law which requires them to be safe. In July 2002, the European Union ("EU") published in its Official Journal the final text of a Food Supplements Directive which came into EU law on that date, and which sets out a process and timetable by which the (currently 15) Member States of Europe must bring their domestic legislation in line with its provisions. It seeks to harmonise the regulation of the composition, labeling and marketing of food supplements (at this stage only vitamins and minerals) throughout the EU. It does this by specifying what nutrients and nutrients sources may be used (and by interpretation the rest which may not), the level at which those nutrients may be present in a supplement, and the labeling and other information which must be provided on packaging. By harmonising the legislation, the Food Supplements Directive should provide opportunities for businesses to market one product or range of products to a larger number of potential consumers without having to reformulate or repackage it. This development may lead to some liberalising of the more restrictive regimes in France and Germany, providing new business opportunities. Conversely, however, it may substantially limit the range of nutrients and nutrient sources, and the potencies at which some nutrients may be marketed by the Company in the more liberal countries, such as the U.K., which may lead to some reformulation costs and loss of some specialist products. The provisions of the Food Supplements Directive will be turned into U.K. domestic law through Statutory Instruments. The EU is also considering a Traditional Herbal Medicinal Products Directive which would allow a traditional herbal medicine to be licensed without having to demonstrate its efficacy in the way that pharmaceutical products have to do, provided that it is safe, is manufactured to high standards, and has been on the market for 30 years. This Directive is intended to provide a safe home in EU law for a number of categories of herbal remedies, which may otherwise be found to fall outside EU law. It does not, however, provide a mechanism for new product development, and would entail some compliance costs in registering the many herbal products already on the market. 13 Additional EU legislation is anticipated in the near future to further regulate the composition, labeling and marketing of other products including sports nutrition products, fortified foods, very low calorie diets, and foods for particular nutritional purposes. Further progress is expected with legislative initiatives to permit, but closely regulate, the use of health claims made for products. The EU has now established a new European Food Safety Authority, which will have an important role to play in focusing attention on food standards in Europe. Its new Executive Director, due to take up his position early in 2003, is Mr. Geoffrey Podger, until recently the Chief Executive of the U.K.'s Food Standards Agency. Ireland. The legislative and regulatory situation in the Republic of Ireland is similar, but not identical to that in the United Kingdom. The Irish Medicines Board has a similar role to that of the U.K. MCA, and the Food Safety Authority of Ireland is analogous to the U.K. FSA. Like the U.K., Ireland will be required to bring its domestic legislation into line with the provisions of the Food Supplements Directive and the Traditional Herbal Medicinal Products Directive when the latter is finalised, and, indeed, with the other forthcoming EU legislation mentioned above. Thus the market prospects for Ireland are, in general, similar to those outlined for the U.K. International Operations In addition to the U.K. and Ireland, the Company markets its nutritional supplement products through distributors, retailers and direct mail in more than 70 countries throughout Europe, North America, South America, Asia, the Pacific Rim countries, Africa and the Caribbean Islands. The Company's international operations are conducted in a manner to conform to local variations, economic realities, market customs, consumer habits and regulatory environments. The Company's products (including labeling of such products) and the distribution and marketing programs of the Company are modified in response to local and foreign legal requirements and customer preferences. The Company's international operations are subject to many of the same risks faced by the Company's domestic operations. These include competition and the strength of the relevant economy. In addition, international operations are subject to certain risks inherent in conducting business abroad, including foreign regulatory restrictions, fluctuations in monetary exchange rates, import-export controls and the economic and political policies of foreign governments. The importance of these risks increases as the Company's international operations grow and expand. Virtually all of the Company's international operations are affected by foreign currency fluctuations, and, more particularly, changes in the value of the British Pound as compared to the U.S. Dollar. For additional information regarding financial information about the geographic areas in which the Company and its subsidiaries conduct their business, see Item 7 14 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Notes to the Company's Consolidated Financial Statements contained in this Report. Trademarks U.S. The Company and its subsidiaries have applied for or registered more than 1,000 trademarks with the United States Patent and Trademark Office and many other major jurisdictions throughout the world for its Nature's Bounty(R), Holland & Barrett(R), Good' N Natural(R), American Health(R), Puritan's Pride(R), Vitamin World(R), Natural Wealth(R), Nutrition Headquarters(R) and Nutrition Warehouse(R) trademarks, among others, and has rights to use other names essential to its business. Federally registered trademarks have a perpetual life, as long as they are maintained and 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. U.K./Ireland. H&B owns trademarks registered in the United Kingdom and/or throughout the European community for its Holland & Barrett and Nature's Way trademarks and has rights to use other names essential to its business. Raw Materials In fiscal 2002, the Company spent approximately $196 million on raw materials. The principal raw materials required in the Company's operations are vitamins, minerals, herbs, gel caps, and bottling materials. The Company purchases its vitamins, minerals and herbs from bulk manufacturers in the United States, Japan and Europe. The Company believes that there are adequate sources of supply for all of its principal raw materials, and that the Company's relationships with its suppliers yield improved quality, pricing and overall service to its customers. Although there can be no assurance that the Company's sources of supply for its principal raw materials will be adequate in all circumstances, in the event that such sources are not adequate, the Company believes that alternate sources can be developed in a timely manner. During fiscal 2002, one supplier accounted for approximately 10% of the Company's raw material purchases. However, the Company does not believe that the loss of this or any other single supplier would have a material adverse effect on the Company's consolidated financial results of operations. Seasonality The Company's business is not seasonal in nature. Item 2. PROPERTIES U.S. At September 30, 2002, the Company owned a total of approximately 1,400,000 square feet of plant and administrative facilities. The Company also leased approximately 637,000 square feet of administrative, manufacturing, warehouse and 15 distribution space in various locations at the end of fiscal 2002. The Company leases and operates approximately 544 retail locations under the name Vitamin World(R) and Nutrition Warehouse(R) in 46 states in the U.S., Guam and Puerto Rico. Generally, the Company leases the properties for three to ten years at varying annual base rents and percentage rents in the event sales exceed a specified amount. The retail stores have an average selling area of approximately 1,070 square feet. U.K./Ireland. Holland & Barrett owns a 178,000 square foot administrative, manufacturing and distribution facility (which includes a 42,500 square foot mezzanine) in Burton, and leases a 9,300 square foot administrative building in Nuneaton. Additionally, H&B leases all but three of the locations of its 468 retail stores for terms varying between 10 and 35 years at varying annual base rents. Eight of H&B's stores are subject to percentage rents in the event sales exceed a specified amount. The stores have an average selling area of 935 square feet. The following is a listing of all material properties (excluding retail locations) owned or leased by the Company, which are used in all four of the Company's business segments:
Type of Approx. Leased Location Facility Sq. Feet or Owned - -------- -------- -------- -------- UNITED STATES: Bohemia, NY Administration & Manufacturing 169,000 Owned Bohemia, NY Manufacturing 80,000 Owned Bohemia, NY (1) Manufacturing 75,000 Owned Bohemia, NY Leased to tenant 62,000 Owned (term-2003) Holbrook, NY (1) Distribution 230,000 Owned Holbrook, NY Distribution 108,000 Owned Ronkonkoma, NY Administration & Distribution 110,000 Owned Ronkonkoma, NY Warehouse 75,000 Leased (term-2005) Bayport, NY IT Services 12,000 Owned Bayport, NY Manufacturing 131,000 Owned Mineola, NY Administrative 13,000 Owned Reno, NV Distribution 25,000 Leased (term-2006) Carbondale, IL Administration, Manufacturing 77,000 Owned and Distribution Carbondale, IL Administration 15,000 Owned Murphysboro, IL Manufacturing 62,000 Owned Murphysboro, IL Warehouse 30,000 Leased (term-2003) South Plainfield, NJ Manufacturing 68,000 Owned South Plainfield, NJ Manufacturing and Distribution 60,000 Leased (term-2006) 16 North Glenn, CO Administration 4,900 Leased (term-2004) Thornton, CO Manufacturing 72,000 Leased (term-2006) Anaheim, CA Manufacturing and Distribution 286,140 Leased (term-2006) Anaheim, CA Manufacturing 64,000 Leased (term-2003) Anaheim, CA Administration & Manufacturing 20,000 Owned Lake Mary, FL Administration (term-2008) 10,850 Leased UNITED KINGDOM: Nuneaton Administration 9,300 Leased (term-2012) Burton Administration, Manufacturing 178,000 Owned and Distribution - -------------------- The property is subject to a first mortgage. For additional information regarding the mortgage, see the Company's Consolidated Financial Statements contained in this Report.
Warehousing and Distribution The Company has dedicated approximately 1,200,000 square feet to warehousing and distribution in its Long Island, NY; Carbondale, IL; Murphysboro, IL; Reno, NV; Anaheim, CA; Thornton, CO; South Plainfield, NJ and Burton, U.K. facilities. The Company's warehouse and distribution centers are efficiently integrated with the Company's order entry systems to enable the Company to ship out mail orders typically within 24 hours of their receipt. Once a customer's telephone, mail or Internet order is completed, the Company's computer system forwards the order to the Company's distribution center, where all necessary distribution and shipping documents are printed to facilitate processing. Thereafter, the orders are prepared, picked, packed and shipped continually throughout the day. The Company operates a proprietary, state-of-the-art, automated picking and packing system for frequently shipped items. The Company is capable of fulfilling 15,000 orders daily. A system of conveyors automatically routes boxes carrying merchandise throughout the distribution center for fulfillment of orders. Completed orders are bar-coded and scanned and the merchandise and ship date are verified and entered automatically into the customer order file for access by sales associates prior to being shipped. The Company currently ships its mail orders primarily through the United Parcel Service, Inc. (UPS), serving domestic and international markets. The Company currently distributes its products from its distribution centers through contract and common carriers in the U.S. and by Company- owned trucks in both 17 the U.S. and the U.K. Deliveries are made directly to the Vitamin World(R) and Nutrition Warehouse(R) stores once per week. In addition, the Company ships products overseas by container loads. The Company also operates additional distribution centers in Burton, U.K. Deliveries are made directly to Company owned and operated Holland & Barrett(R) stores once or twice per week, depending on the store's inventory requirements. All of the Company's properties are covered by all-risk and liability insurance, which the Company believes is customary for the industry. Management believes that these properties, taken as a whole, are generally well-maintained, and are adequate for current and reasonably foreseeable business needs. Management also believes that substantially all of the Company's properties are being utilized to a significant degree. Item 3. LEGAL PROCEEDINGS A consolidated stockholder derivative action, which was filed in 2000 in the Chancery Court in Delaware against certain officers and directors of the Company, was voluntarily dismissed in December 2002. The derivative claim alleged that the named officers and directors failed to disclose material facts during the period from January 27, 2000 to June 15, 2000, which purportedly resulted in a decline in the price of the Company's stock after June 15, 2000. A consolidated stockholder class action complaint, which was filed in the Eastern District of New York in 2000, predicated on the same allegations, was dismissed by that court on September 28, 2002, and the case formally closed on October 31, 2002. On July 25, 2002, a purported consumer class action was filed in New York state court against several manufacturers and retailers of so-called prohormone supplements including Vitamin World. Prohormones are substitutes such as androstenedione that plaintiffs allege are hormone precursors ingested to promote muscle growth. Plaintiffs allege that the advertising and labeling of certain prohormone supplements overstate their efficacy and do not fully disclose their risks, and seek class certification and injunctive and monetary relief. The action was severed into separate class actions against each of the defendants. On December 6, 2002, an amended class action complaint was filed against Vitamin World that purported to elaborate on the claims initially alleged. The Company believes that this action is without merit, and intends to move to dismiss the amended pleading and to vigorously defend against the claims asserted. However, because this action is in its early stages, no determination can be made at this time as to the final outcome of this action. On August 28, 2001, the Company was also named as a defendant, along with other companies, in a purported class action commenced in an Alabama state court. Plaintiffs allege that NBTY manufactured and marketed misbranded nutrition bars and seek class certification, injunctive, declaratory, and monetary relief. Class discovery is being taken, and a hearing is currently scheduled for the spring of 2003 to determine whether a class should be certified. NBTY is vigorously defending class certification on the basis that the plaintiffs were not damaged as alleged as a result of any action by NBTY. In addition, NBTY contends that this matter is not appropriate for class 18 certification because the named plaintiffs are inadequate class representatives and not typical of persons who purchased the nutrition bars in these proceedings. On October 3, 2002, the Company was named as a defendant in a second purported class action commenced in the same Alabama state court as the above-identified litigation. Plaintiffs, in an attempt to pursue several retailers, including NBTY, and not manufacturers of nutrition bars, allege that NBTY marketed misbranded nutrition bars. In November 2002, NBTY filed a motion to dismiss or abate the lawsuit based on the principle that the court lacks subject-matter jurisdiction because the earlier-filed lawsuit, which seeks identical relief for the same purported class action against the manufacturers, preempts this second attempt to certify a class against NBTY. The Company believes that both Alabama suits are without merit. However, no determination can be made as of the date of this Report as to the final outcome of these suits. In addition to the foregoing, other claims, suits and complaints arise in the ordinary course of the Company's business. The Company believes that such other claims, suits and complaints would not have a material adverse effect on the Company's consolidated financial condition or results of operations, if adversely determined against the Company. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 19 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS DIVIDEND POLICY Since its incorporation in 1979, the Company has not paid any cash dividends on its Common Stock. On April 24, 1992, the Company effected a two-for-one stock split in the form of a 100% stock dividend to stockholders of record on May 8, 1992. On September 25, 1992, the Company effected a three-for-one stock split in the form of a 200% stock dividend to stockholders of record on November 2, 1992. On August 3, 1993, the Company effected a two-for-one stock split in the form of a 100% stock dividend to stockholders of record on August 13, 1993. In addition, in March 1998, the Company effected a three-for-one stock split in the form of a 200% stock dividend. Future determination as to the payment of cash or stock dividends will depend upon the Company's results of operations, financial condition, capital requirements, restrictions contained in the Company's Third Amended and Restated Credit and Guarantee Agreement ("CGA"), limitations contained in the indenture governing the 8 5/8% Senior Subordinated Notes due 2007 of the Company, and such other factors as the Company's Board of Directors considers appropriate. The CGA prohibits the Company from paying dividends or making any other distributions (other than dividends payable solely in shares of the Company's common stock) to its stockholders. The Company's Indenture governing its 8 5/8% Senior Subordinated Notes due 2007 also prohibits the Company from paying dividends or making any other distributions to its stockholders. In addition, except as specifically permitted in the CGA, the CGA does not allow the Company's subsidiaries to advance or loan money to, or make a capital contribution to or invest in, the Company. Furthermore, except as expressly permitted in the Indenture, the Company's subsidiaries are not permitted to invest in the Company. However, the CGA and the Indenture do permit the Company's subsidiaries to pay dividends to the Company. For additional information regarding these lending arrangements and securities, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" and the Notes to the Consolidated Financial Statements in this Report. PRICE RANGE OF COMMON STOCK The Common Stock is traded in the over-the-counter market and is included for quotation on the National Association of Securities Dealers National Market System ("NASDAQ/NMS")under the trading symbol "NBTY". The following table sets forth, for the periods indicated, the high and low closing sale prices for the Common Stock, as reported on NASDAQ/NMS: 20
Fiscal year ended September 30, 2002 ------------------------------------ High Low ---- --- First Quarter ended December 31, 2001 $13.50 $ 7.20 Second Quarter ended March 31, 2002 $17.45 $10.70 Third Quarter ended June 30, 2002 $19.07 $14.96 Fourth Quarter ended September 30, 2002 $17.07 $12.57 Fiscal year ended September 30, 2001 ------------------------------------ High Low ---- --- First Quarter ended December 31, 2000 $ 6.97 $ 3.94 Second Quarter ended March 31, 2001 $ 8.50 $ 4.38 Third Quarter ended June 30, 2001 $13.40 $ 8.00 Fourth Quarter ended September 30, 2001 $17.76 $10.55
On December 9, 2002, the closing sale price of the Common Stock was $16.53. There were approximately 690 record holders of Common Stock as of December 9, 2002. The Company believes that there were approximately 13,600 beneficial holders of Common Stock as of December 9, 2002. For additional information regarding the Company's securities authorized for issuance under the Company's equity compensation plans, see Item 12. "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters." Item 6. SELECTED FINANCIAL DATA The following table sets forth the selected financial data derived from the audited financial statements of the Company. For additional information, see the consolidated financial statements of the Company and the notes thereto. The selected historical financial data of the Company should also be read in conjunction with Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations". 21
(Dollars and shares in thousands, except per share amounts) 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- Selected Income Statement Data: Net sales $964,083 $806,898 $720,856 $630,894 $572,124 Costs & expenses: Cost of sales 433,611 355,167 312,960 293,521 271,233 Catalog printing, postage & promotion 47,846 49,410 33,709 32,895 32,176 Selling, general & administrative 348,334 315,228 279,379 236,367 190,276 Recovery of raw material costs (21,354) (2,511) Litigation settlement costs 4,952 Merger costs 3,528 ------------------------------------------------------------ Income from operations 155,646 87,093 97,319 63,159 74,911 Interest, net (18,499) (21,958) (18,858) (18,945) (16,518) Miscellaneous, net 1,560 2,748 4,491 1,388 3,921 ------------------------------------------------------------ Income before income taxes 138,707 67,883 82,952 45,602 62,314 Provision for income taxes 42,916 25,958 31,444 18,323 23,474 ------------------------------------------------------------ Net income $ 95,791 $ 41,925 $ 51,508 $ 27,279 $ 38,840 ============================================================ Per Share Data: Net income per common share: Basic $ 1.45 $ 0.64 $ 0.77 $ 0.39 $ 0.59 Diluted $ 1.41 $ 0.62 $ 0.74 $ 0.39 $ 0.56 Weighted average common shares outstanding: Basic 65,952 65,774 67,327 69,640 65,563 Diluted 67,829 67,125 69,318 70,826 69,847 Selected Balance Sheet Data: Working capital $185,710 $131,108 $100,114 $121,103 $ 89,106 Total assets 734,677 708,462 603,613 539,384 500,457 Long-term debt, capital lease obligations and promissory notes payable, less current portion 163,874 237,236 200,478 219,508 173,531 Total stockholders' equity 419,257 302,406 272,443 223,949 230,339
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Readers are cautioned that forward-looking statements contained herein should be read in conjunction with the Company's disclosures under the heading "Forward Looking Statements" on page 1. This discussion should also be read in conjunction with the Notes to the Company's Consolidated Financial Statements contained in this Report. Dollar amounts are in thousands, unless otherwise noted. Background NBTY is a leading vertically integrated manufacturer, marketer and retailer of a broad line of high quality, value-priced nutritional supplements. NBTY has continued to grow through its marketing practices and through a series of strategic acquisitions. Since 1986, the Company has acquired and integrated approximately 30 companies and/or 22 businesses engaged in the direct response, retail and manufacturing of nutritional supplements sector, including Holland & Barrett in fiscal 1997, Nutrition Headquarters Group in fiscal 1998, Nutrition Warehouse Group in fiscal 2000, Global Health Sciences and NatureSmart in fiscal 2001, and Healthcentral.com, Knox(R), and Synergy Plus(R) product lines/operations in fiscal 2002. NBTY markets its products through four distribution channels: (i) Puritan's Pride/direct response, (ii) Vitamin World and Nutrition Warehouse retail stores in the U.S., (iii) Holland & Barrett retail stores in the U.K. and Ireland, and (iv) wholesale distribution to drug store chains, supermarkets, discounters, independent pharmacies, and health food stores. NBTY's net sales from Puritan's Pride/direct response, Vitamin World, Nutrition Warehouse, Holland & Barrett and wholesale operations were approximately 19%, 21%, 30% and 30%, respectively, for the year ended September 30, 2002. The Company recognizes revenues from products shipped when risk of loss and title transfers to its customers, and with respect to its own retail stores, upon the sale of products. Net sales are net of all discounts, allowances, returns and credits. Cost of sales includes the cost of raw materials and all labor and overhead associated with the manufacturing and packaging of the products. Gross margins are affected by, among other things, changes in the relative sales mix among the Company's four distribution channels. Historically, gross margins from the Company's direct response/e-commerce and retail sales have typically been higher than gross margins from wholesale sales. Critical Accounting Policies and Estimates: Financial Reporting Release No. 60, which was recently released by the Securities and Exchange Commission, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates include the valuation of inventories, the allowance for doubtful accounts receivable and the recoverability of long-lived assets. Actual results could differ from those estimates. Significant accounting policies are described in Note 1 to the consolidated financial statements, which are included in Item 8 in this Form 10-K filing. Certain accounting policies are deemed "critical", as they require management's highest degree of judgment, estimates and assumptions. A discussion of critical accounting policies, the judgments and uncertainties affecting their application, and the likelihood that materially different amounts could be reported under different conditions or using different assumptions follows: Revenue Recognition: The Company applies the provisions of Staff Accounting Bulletin 101 "Revenue Recognition". The Company recognizes revenue from products shipped when title and risk of loss has passed to its customers, and with respect to its own retail store operations, upon sale of products. The Company's net sales represent gross 23 sales invoiced to customers, less certain related charges, including discounts, returns, rebates and other allowances. Accounts Receivable: The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer's current credit worthiness, as determined by the review of their current credit information. Collections and payments from customers are continuously monitored and an allowance for doubtful accounts is maintained which is based upon historical experience and any specific customer collection issues that have been identified. While such bad debt expenses have historically been within expectations and allowances established, the Company cannot guarantee that it will continue to experience the same credit loss rates that it has in the past. At September 30, 2002, and September 30, 2001, one customer accounted for 21% and 16%, respectively, of the Company's accounts receivable. Inventories: Inventories are stated at the lower of cost or market. The cost elements of inventory include materials, labor and overhead. The Company regularly reviews inventory quantities on hand and records a provision for excess and obsolete inventory based primarily on estimated forecasts of product demand and production requirements for the next twelve months. Goodwill and Intangible assets: On October 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142 "Goodwill and Intangible Assets" (SFAS 142). SFAS 142 includes requirements to annually test goodwill and indefinite lived intangible assets for impairment rather than amortize them; accordingly, the Company no longer amortizes goodwill and indefinite lived intangibles, thereby eliminating an annual amortization charge of approximately $6,100, which is not deductible for tax purposes. Definite lived intangibles are amortized on a straight-line basis over periods not exceeding 15 years. Goodwill represents the excess of purchase price over the fair value of identifiable net assets of companies acquired. The Company currently has unamortized goodwill remaining from the acquisition of Holland & Barrett ($113,089), NatureSmart ($15,164), Nutrition Warehouse ($7,510), Nature's Way ($4,234), Feeling Fine ($3,069), Global Health Sciences ($1,640), and other ($293). Impairment of Long-Lived Assets: The Company follows the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of." This statement requires that certain assets be reviewed for impairment and, if impaired, remeasured at fair 24 value whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. During fiscal 2002 and 2001, the Company recognized impairment losses of $700 and $500, respectively, on assets to be held and used. The Company did not recognize an impairment loss during fiscal 2000. The impairment losses related primarily to leasehold improvements and furniture and fixtures for retail operations and were recorded in selling, general and administrative expense. In August 2001, the Financial Accounting Standards Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 144 supersedes FASB Statement No. 121, and addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company does not expect the adoption of SFAS No. 143 and 144, effective October 1, 2002, to have a material impact on its consolidated financial position or results of operations. Foreign Currency: Foreign subsidiaries account for approximately 30% of net revenues, 31% of assets and 13% of total liabilities as of September 30, 2002. In preparing the consolidated financial statements, the financial statements of the foreign subsidiaries are translated from the currency in which they keep their accounting records, generally the local currency, into United States Dollars. This process results in exchange gains and losses, which, under the relevant accounting guidance, are either included within the statement of operations or as a separate component of stockholders' equity under the caption "Accumulated other comprehensive income (loss)." Under the relevant accounting guidance, the treatment of these translation gains or losses is dependent upon management's determination of the functional currency of each subsidiary. The functional currency is determined based on management's judgment and involves consideration of all relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary transacts a majority of its transactions, including billings, financing, payroll and other expenditures would be considered the functional currency but any dependency upon the parent and the nature of the subsidiary's operations must also be considered. If any subsidiary's functional currency is deemed to be the local currency, then any gain or loss associated with the translation of that subsidiary's financial statements is included in accumulated other comprehensive income (loss). However, if the functional currency is deemed to be the United States Dollar, then any gain or loss associated with the translation of these financial statements would be included within the statement of operations. If the Company disposes of 25 subsidiaries, then any cumulative translation gains or losses would be recorded into the statement of operations. If the Company determines that there has been a change in the functional currency of a subsidiary to the United States Dollar, any translation gains or losses arising after the date of change would be included within the statement of operations. Based on an assessment of the factors discussed above, the Company considers the relevant subsidiary's local currency to be the functional currency for each of its foreign subsidiaries. Accordingly, cumulative translation gains (losses) of approximately $4,625 and ($12,978) were included as part of accumulated other comprehensive income (loss) within the balance sheet at September 30, 2002 and September 30, 2001, respectively. During the fiscal years of 2002 and 2001, translation gains (losses) of $17,603 and ($126), respectively, were included under accumulated other comprehensive income (loss). Had the Company determined that the functional currency of its subsidiaries was the United States dollar, these gains (losses) would have increased (reduced) net income for each of the periods presented. The magnitude of these gains or losses is dependent upon movements in the exchange rates of the foreign currencies against the United States dollar. These currencies include the Euro and the United Kingdom Pound Sterling. Any future translation gains or losses could be significantly higher than those noted in each of these years. In addition, if a change in the functional currency of a foreign subsidiary has occurred at any point in time, then the Company would be required to include any translation gains or losses from the date of change in the statement of operations. General Operating results in all periods presented reflect the impact of acquisitions. The timing of those acquisitions and the changing mix of businesses as acquired companies are integrated into the Company may affect the comparability of results from one period to another. 26 Results of Operations The following table sets forth income statement data of the Company as a percentage of net sales for the periods indicated:
Fiscal years Ended September 30, ---------------------------- 2002 2001 2000 ---- ---- ---- Net sales 100.0% 100.0% 100.0% --------------------------- Costs and expenses: Cost of sales 45.0% 44.0% 43.3% Catalog printing, postage and promotion 5.0% 6.1% 4.7% Selling, general and administrative 36.1% 39.1% 38.8% Recovery of raw material costs -2.2% -0.3% --------------------------- 83.9% 89.2% 86.5% --------------------------- Income from operations 16.1% 10.8% 13.5% --------------------------- Other income (expense): Interest -1.9% -2.7% -2.6% Miscellaneous, net 0.2% 0.3% 0.6% --------------------------- -1.7% -2.4% -2.0% --------------------------- Income before income taxes 14.4% 8.4% 11.5% Income taxes 4.5% 3.2% 4.4% --------------------------- Net income 9.9% 5.2% 7.1% ===========================
Fiscal Year Ended September 30, 2002 Compared to Year Ended September 30, 2001 Net Sales. Net sales for fiscal 2002 were $964,083, an increase of $157,185 or 19.5% compared with net sales of $806,898 in fiscal 2001. Of the $157,185 increase, $94,455 was attributable to wholesale, $23,615 was attributable to US retail sales, $28,005 was attributable to U.K./Ireland retail sales, and $11,110 was attributable to Puritan's Pride direct response/e-commerce. The increase in wholesale segment sales was primarily due to an increase in sales of its core products to the mass market, drug chains and supermarkets and newly acquired businesses ($39,489, of which $35,522 was attributable to Global Health Sciences). Products such as Apple Cider Vinegar, Flex-a-min(R), and the Knox NutraJoint(R) products continue to help the Company strengthen its leading market position. By obtaining new customer accounts, the Company has expanded its distribution channel for its products. Sales growth in the US retail channel reflected an increase in same store sales for stores open more than one year (8.5% or 27 $13,485) and the greater number of stores compared to last year (24 new stores contributed $4,001). U.K./Ireland retail sales increases were attributable to an increase in same store sales for stores open more than one year (7% or $18,035) and the opening of 7 new U.K. stores (contributed $1,056). Puritan's Pride direct response/e-commerce sales increased as a result of increased mailing distribution from customer lists acquired and as a result of an increase in the number of products available via catalog and website. At September 30, 2002, 544 retail stores in the U.S. and 468 retail stores in the U.K./Ireland were operated under the NBTY/Holland & Barrett banner, compared to 525 stores in the U.S. and 461 in the U.K./Ireland as of September 30, 2001. Cost of Sales. Cost of sales for fiscal 2002 was $433,611, an increase of $78,444 compared with the cost of sales of $355,167 for fiscal 2001. As a percentage of sales, cost of sales increased and, correspondingly, gross profit decreased to 55% for 2002 from 56% for 2001. Such decrease was primarily due to the Puritan's Pride direct response segment's gross profit, which decreased from 66.3% to 61.5% as a percentage of sales. Reduced gross margins associated with price reductions on certain products and the type of catalog promotions the Company ran in fiscal 2002 versus fiscal 2001 were major factors in such decrease. This gross profit decrease was mitigated by gross profit increases in the Company's other segments. The wholesale segment's gross profit increased from 38.7% to 40.8% as a percentage of sales, primarily due to higher gross margins on new product introductions. The U.S. retail gross profit increased as a percentage of sales from 58% to 58.5%. The U.K./Ireland retail gross profit increased from 60.8% to 62.9% as a percentage of sales. The Company's strategy is to improve margins by continuing to increase in- house manufacturing while decreasing the use of outside suppliers in both the U.S. and the U.K. In fiscal 2001, cost of sales included a year end adjustment to inventory of approximately $3,900, which was principally the result of the Company utilizing the gross profit method for interim reporting, and the year-end valuation of the Company's annual physical inventory. Included in fiscal 2002 and fiscal 2001 costs of sales was under-absorbed factory overhead of $11,375 and $5,752, respectively. Catalog, Printing, Postage and Promotion. Catalog, printing, postage and promotion expenses were $47,846 and $49,410 for fiscal 2002 and 2001, respectively. Such costs as a percentage of net sales were 5% for 2002 and 6.1% for 2001. The $1,564 decrease was primarily attributable to a decrease in direct response advertising promotion and media ($1,080) and catalog printing ($1,183). Such decrease was offset by an increase in wholesale advertising for new products introduced and existing core products ($603). The Company also had a small increase in retail advertising and promotion ($51). Selling, General and Administrative. Selling, general and administrative expenses for fiscal 2002 were $348,334, an increase of $33,106, compared with $315,228 for fiscal 2001. As a percentage of sales, selling, general and administrative expenses were 36.1% and 39.1% in 2002 and 2001, respectively. Of the $33,106 increase, $4,489 was attributable to increase in rent expense, $14,880 to increase in payroll costs mainly associated with business acquisitions and the Vitamin World expansion program, $5,871 to increased insurance costs mainly associated with an increase in general insurance rates, $4,186 to increased freight and $3,418 to increased broker commissions, which was 28 directly associated with the increase in wholesale sales, and $1,259 was attributable to increased depreciation expense as a result of an increase in capital expenditures. Such expenses were offset by a $5,624 decrease in selling, general, and administrative goodwill amortization expense resulting from the Company's adoption of SFAS 142, effective October 1, 2001. Recovery of Raw Materials Costs. In fiscal 2002, the Company received $21,354 in partial settlement of ongoing price fixing litigation brought by the Company against certain raw material vitamin suppliers. Interest Expense. Interest expense was $18,499 in fiscal 2002, a decrease of $3,459, compared with interest expense of $21,958 in fiscal 2001. Interest expense decreased due to the Company repaying bank debt during the year. The major components are interest on Senior Subordinated Notes associated with the Holland & Barrett acquisition, and the CGA used for acquisitions and capital expenditures. Miscellaneous, Net. Miscellaneous, net was $1,560 and $2,748 for fiscal 2002 and 2001, respectively. The $1,188 decrease was primarily attributable to exchange rate fluctuations ($1,074). Income Taxes. The Company's income tax expense is impacted by a number of factors, including the amount of taxable earnings derived in foreign jurisdictions with tax rates that are lower than the federal statutory rate, state tax rates in the jurisdictions where the Company conducts business, and the Company's ability to utilize various tax credits and foreign tax credits. The effective income tax rate for fiscal 2002 was 30.9%, compared to 38.2% for fiscal 2001. The change in the effective rate was due to tax saving strategies implemented in fiscal 2002, primarily the one-time recognition of a foreign tax credit. In addition, the effective rate decreased due to ceasing the amortization of goodwill in fiscal 2002, most of which was not deductible for income tax purposes, and lower overall effective tax rates in foreign jurisdictions (approximately 30%). Net Income. Net income for fiscal 2002 was $95,791, compared with $41,925 in fiscal 2001, an increase of $53,866, of which $21,354 was attributable to the partial settlement of ongoing price fixing litigation against certain raw material vitamin suppliers. Fiscal Year Ended September 30, 2001 Compared to Year Ended September 30, 2000 Net Sales. Net sales for fiscal 2001 were $806,898, an increase of $86,042 or 11.9% compared with net sales of $720,856 in fiscal 2000. Of the $86,042 increase, $25,932 was attributable to U.S. retail sales, $14,274 was attributable to U.K./Ireland retail sales, and $56,326 was attributable to wholesale, offset by a decrease of $10,490 in Puritan's Pride direct response/e-commerce. During 2001, the Company opened 50 stores, which contributed $8,393 in increased sales in the U.S., and 26 stores in the U.K., which contributed $2,294 in sales. The acquisition of Global Health Sciences and NatureSmart accounted for $29,415 of the increase in sales. 29 Cost of Sales. Cost of sales for fiscal 2001 was $355,167, an increase of $42,207 compared with the cost of sales of $312,960 for fiscal 2000. As a percentage of sales, cost of sales increased and, correspondingly, gross profit decreased to 56% for 2001 from 56.7% for 2000. Such decrease was primarily due to Global Health Sciences' cost of sales of $18,017 on sales of $16,765. The increase was mitigated by a decrease in the Puritan's Pride direct response/e-commerce segment's cost of sales, which decreased from 36.4% to 33.7% as a percentage of sales, primarily due to higher gross margins on new product introductions and improvements in manufacturing efficiencies. The increase was also mitigated by the U.S. retail segment's cost of sales decreasing as a percentage of sales from 43% to 41.6%, primarily due to sales price increases on all product lines during the current year. The Company's strategy is to continue to increase in-house manufacturing while decreasing the use of outside suppliers in both the U.S. and the U.K. In addition, cost of sales includes a year end adjustment to inventory of approximately $3,900 for 2001 and $5,400 for 2000, which is principally the result of the Company utilizing the gross profit method for interim reporting, and the year-end valuation of the Company's annual physical inventory. Catalog, Printing, Postage and Promotion. Catalog, printing, postage and promotion expenses were $49,410 and $33,709 for fiscal 2001 and 2000, respectively. Such costs as a percentage of net sales were 6.1% for 2001 and 4.7% for 2000. The increased percentage was due to an increase in printing and mailing costs per catalog, resulting from an increase in postage costs, and the change to a larger catalog order size and for radio and television advertisements relating to the Flex-a-min(R) advertising campaign. Selling, General and Administrative. Selling, general and administrative expenses for fiscal 2001 were $315,228, an increase of $35,849, compared with $279,379 for fiscal 2000. As a percentage of sales, selling, general and administrative expenses were 39.1% and 38.8% in 2001 and 2000, respectively. Of the $35,849 increase, $6,846 was attributable to rent expense, $18,814 to payroll costs mainly associated with the Vitamin World expansion program and $4,386 was attributable to increased depreciation expense as a result of an increase in capital expenditures. Recovery of raw materials costs. In fiscal 2000, the Company received $2,511 in partial settlement of ongoing price fixing litigation brought by the Company against certain raw material vitamin suppliers. Interest Expense. Interest expense was $21,958 in fiscal 2001, an increase of $3,100, compared with net interest expense of $18,858 million in fiscal 2000. Interest expense increased due to the additional borrowings to fund the two acquisitions completed in the third quarter of 2001. The major components are interest on Senior Subordinated Notes associated with the Holland & Barrett acquisition, and the CGA Agreement used for acquisitions and capital expenditures. Miscellaneous, Net. Miscellaneous, net was $2,748 and $4,491 for fiscal 2001 and 2000, respectively. The $1,743 decrease was primarily attributable to exchange rate 30 fluctuations ($897), and a gain on disposal of certain businesses and related fixed assets ($577) in 2000. Income Taxes. The Company's effective income tax rate was approximately 38% for fiscal years 2001 and 2000. Net Income. Net income for fiscal 2001 was $41,925, compared with $51,508 in fiscal 2000, a decrease of $9,583. Seasonality The Company's business is not seasonal in nature. Liquidity and Capital Resources The Company's primary sources of liquidity and capital resources are cash generated from operations and borrowings under its Credit & Guarantee Agreement ("CGA"). Cash and cash equivalents totaled $26,229 and $34,434 at September 30, 2002 and 2001, respectively. The Company generated cash from operating activities of $103,531, $62,785, and $123,418 in fiscal 2002, 2001 and 2000, respectively. The overall increase in cash from operating activities during fiscal 2002 was mainly attributable to an increase in earnings. The increase in earnings was a result of increased sales, continued effort to control selling, general and administrative expenses, the recovery of raw material costs, lower interest expense due to the pay down of debt, and a decrease in income tax expense as a result of tax planning strategies implemented during the current year. Such increase was offset slightly by the Company experiencing an increase in its accounts receivable and inventory levels over the prior year. The increase in accounts receivable was primarily due to increased sales, offset by an increase in collections. Inventory increased due to the Company trying to respond to customer orders quickly, thereby eliminating and/or decreasing the number of products on backorder. For additional information regarding the ability of the Company's subsidiaries to transfer funds or assets to the Company, see Item 5. "Market for Registrant's Common Equity and Related Stockholder Matters" above. The overall decline in cash from operating activities during fiscal 2001 was attributable to a significant increase in inventories, accounts receivable and deferred tax assets, which were offset by an increase in non-cash charges for depreciation and amortization, and an increase in accounts payable. Cash used in investing activities was $36,376, $96,134, and $96,649 in fiscal 2002, 2001 and 2000, respectively. Fiscal 2002 cash flows used in investing activities consisted primarily of the purchase of property, plant and equipment ($21,489), cash paid for asset acquisitions ($7,702), offset by proceeds from the sale of property, plant and equipment and intangibles ($1,057). In addition, the Company made a strategic investment in high yield, less than investment grade corporate bonds ($8,242). There is only a thinly traded market for such securities and recent market ratings of such debt are Caa2 from Moody's Investors Service, Inc. and CCC- from Standard & Poor's. Both credit agencies' ratings remained unchanged from the prior period. Market quotes may 31 not represent firm bids of such dealers or prices for actual sales. The estimated fair value for these debt securities at September 30, 2002 was $8,194. Cash used in investing activities in fiscal 2001 primarily related to the cash paid for the business acquisitions of Global Health Sciences and NatureSmart ($63,010), and the purchase of property, plant and equipment ($37,197), offset by proceeds from the sale of property, plant and equipment ($4,232). Fiscal 2000 net cash used in investing activities consisted primarily of cash paid for business acquisitions and a mailing list and the purchase of property and equipment. Net cash paid for business acquisitions/mailing list and property, plant and equipment in fiscal 2000 were ($51,786) and ($45,119), respectively. Cash (used in) provided by financing activities was ($78,854), $35,627 and ($11,971) in fiscal 2002, 2001 and 2000, respectively. Fiscal 2002 net cash flows used in financing activities included principal payments under long-term debt agreements ($85,353), offset by proceeds from the exercise of stock options ($1,899), and cash received that was previously held in escrow for the acquisition of Global Health Sciences ($4,600). Net cash provided by financing activities during fiscal 2001 included borrowings under the CGA of $71,502, proceeds from the exercise of stock options of $2,604, which were offset by principal payments under long-term debt agreements ($12,780), purchase of treasury stock ($15,699) and cash held in escrow ($10,000). Net cash used in financing activities during fiscal 2000 included principal payments under long-term debt agreements ($17,667) and the purchase of treasury stock ($1,512) offset by borrowings under the CGA ($2,800) and proceeds from the exercise of stock options ($4,408). The Company's financial position continues to be solid. Working capital increased $54,602 to $185,710 in fiscal 2002. This increase was primarily attributable to the Company repaying its bank debt under the CGA and increasing its current assets, specifically accounts receivable and inventories. Continued growth of the Company's principal promoted products during the period, as noted above, contributed to such increases in accounts receivable and inventories. Presently, the CGA is comprised of one term loan and a revolving credit facility. At September 30, 2002, there were borrowings of $31,188 under the term loan. This term loan has an annual borrowing rate of 4.422% and is payable in quarterly installments of $5,563. The current portion of this term loan at September 30, 2002 was $22,250. The Company repaid the other term loan during the third quarter 2002. The $50,000 revolving credit facility expires on September 30, 2003 and was unused at September 30, 2002. A stand-by letter of credit of $600 was outstanding under such facility at September 30, 2002. The Company is required to pay a commitment fee, which varies between .25% and .50% per annum, depending on the Company's ratio of Debt to EBITDA (each as defined in the CGA), on any unused portion of the revolving credit facility. The CGA provides that loans be made under a selection of rate formulas, including prime or Euro currency rates. Virtually all of the Company's assets are collateralized under the CGA. In addition, the Company is subject to the maintenance of various financial ratios and covenants. In connection with the August 1997 acquisition of Holland & Barrett, the Company issued $150,000 of 8-5/8% Senior Subordinated Notes (the "Notes") due in 32 2007. The Notes are unsecured and subordinated in right of payment to all existing and future senior indebtedness of the Company. Interest expense relating to such debt during fiscal 2002 amounted to $13,819. A summary of contractual cash obligations as of September 30, 2002 is as follows:
Payments Due By Period ------------------------------------------------------------- Less Than 1-3 4-5 After 5 Total 1 Year Years Years Years ----- --------- ----- ----- ------- Long-term debt $186,676 $ 22,806 $ 10,193 $150,849 $ 2,828 Operating leases 351,422 52,173 89,089 73,306 136,854 Purchase commitments 13,304 13,304 Capital commitments 16,544 12,594 3,950 Employment & consulting agreements 6,650 1,970 2,340 2,340 Standby letter of credit 600 600 Capital leases 242 238 4 ------------------------------------------------------------- Total contractual cash obligations $575,438 $103,685 $105,576 $226,495 $139,682 =============================================================
The Company conducts retail operations under operating leases, which expire at various dates through 2029. Some of the leases contain renewal options and provide for contingent rent based upon sales plus certain tax and maintenance costs. Future minimum rental payments (excluding real estate tax and maintenance costs) for retail locations and other leases that have initial or noncancelable lease terms in excess of one year at September 30, 2002 are noted in the above table. The Company was committed to make future purchases under various purchase arrangements with fixed price provisions aggregating approximately $13,304 at September 30, 2002. The Company had approximately $744 in open capital commitments at September 30, 2002, primarily related to manufacturing equipment as well as to computer hardware and software. Also, the Company has a $15,800 commitment for the construction of an automated warehouse over the next 18 months. The Company has employment agreements with two of its executive officers. The agreements, initially entered into in October 2002, have a term of 5 years and are automatically renewed each year thereafter unless either party notifies the other to the contrary. These agreements provide for minimum salary levels and contain provisions regarding severance and changes in control of the Company. The annual commitment for salaries to these two officers as of September 30, 2002 was approximately $1,170. In addition, four members of Holland & Barrett's senior executive staff have service contracts terminable by the Company upon twelve months notice. The annual aggregate commitment for such H&B executive staff as of September 30, 2002 was approximately $700. 33 The Company maintains a consulting agreement with Rudolph Management Associates, Inc. for the services of Arthur Rudolph, a director of the Company. See "Related Party Transactions" below for further discussion of such agreement. The Company believes that existing cash balances, internally- generated funds from operations, and amounts available under the CGA will provide sufficient liquidity to satisfy the Company's required interest payments, working capital needs for the next 12 months and to finance anticipated capital expenditures incurred in the normal course of business and potential acquisitions. NBTY has grown through acquisitions, and expects to continue seeking to acquire entities in similar or complementary businesses. Such acquisitions are likely to require the incurrence and/or assumption of indebtedness and/or obligations, the issuance of equity securities or some combination thereof. In addition, NBTY may from time to time determine to sell or otherwise dispose of certain of its existing businesses. NBTY cannot predict if any such transactions will be consummated, nor the terms or forms of consideration which might be required in any such transactions. Related Party Transactions The Company has had, and in the future may continue to have, business transactions with individuals and firms affiliated with certain of the Company's directors. Each such transaction has been in the ordinary course of the Company's business. During the fiscal year ended September 30, 2002, the following transactions occurred: A. Gail Radvin, Inc., a corporation wholly-owned by Gail Radvin, received commissions from the Company totaling approximately $585 on account of sales in certain foreign countries and had trade receivable balances of approximately $3,632 as of September 30, 2002. Gail Radvin is the sister of Arthur Rudolph (a director of the Company) and the aunt of Scott Rudolph (Chairman and Chief Executive Officer). B. The Company paid $400 to Rudolph Management Associates, Inc., pursuant to the Consulting Agreement between the Company and Rudolph Management Associates, Inc. Mr. Arthur Rudolph, a director of the Company, is the President of Rudolph Management Associates, Inc. See "Employment Agreements with Executive Officers and Directors" below. C. Glenn-Scott Landscaping & Design, a company owned by the brother of Glenn Cohen, a director of the Company, performed landscaping and maintenance on the Company's properties and received approximately $93 in compensation during fiscal 2002. D. Certain members of the immediate families (as defined in Rule 404 of Regulation S-K) of Arthur Rudolph, Scott Rudolph and Michael Slade 34 (each a director of the Company) are employed by the Company. During fiscal 2002, these immediate family members received aggregate compensation from the Company totaling approximately $937 for services rendered by them as employees of the Company. Inflation Inflation has not had a significant impact on the Company in the past three years nor is it expected to have a significant impact in the foreseeable future. Financial Covenants and Credit Rating The Company's credit arrangements impose certain restrictions on the Company regarding capital expenditures and limit the Company's ability to: incur additional indebtedness, dispose of assets, make repayments of indebtedness or amendments of debt instruments, pay distributions, create liens on assets and enter into sale and leaseback transactions, investments, loans or advances and acquisitions. 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. Moody's Investors Service, Inc. currently rates the Notes as a B1, and the CGA has an implied rating of Ba2. Standard & Poor's currently rates the Notes as a B+, the CGA as a BB+, and gives the Company an overall corporate credit rating as BB. Both credit agencies' ratings remained unchanged from the prior period. New Accounting Developments In February 2002, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)" effective no later than periods beginning after December 15, 2001. EITF Issue No. 01-09 addresses the following items: 1) The income statement characterization of consideration given by a vendor to a customer, specifically whether that consideration should be presented in the vendor's income statement as a reduction of revenue or as a cost or expense. 2) Whether a vendor should recognize consideration given to a customer as an asset in certain circumstances rather than as an immediate charge in the income statement. 3) When to recognize the "cost" of a sales incentive and how to measure it. The Company has determined that the impact of adoption and subsequent application of EITF Issue No. 01-09 did not have a material effect on its consolidated financial position or results of operations. In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Under SFAS 145, gains and losses on extinguishments of debt are to be classified as income or loss from continuing operations rather than extraordinary items. 35 Adoption of this statement is required for fiscal years beginning after May 15, 2002. The Company does not expect the adoption of this statement to have a material impact on its consolidated financial position or results of operations. In July 2002, the FASB issued Statement 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. This Statement also establishes that fair value is the objective for initial measurement of the liability. Severance pay under SFAS 146, in many cases, would be recognized over time rather than up front. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to currency fluctuations, primarily with respect to the British Pound, and interest rate risks that arise from normal business operations. The Company regularly assesses these risks. As of September 30, 2002, the Company had not entered into any hedging transactions. To manage the potential loss arising from changing interest rates and its impact on long-term debt, the Company's policy is to manage interest rate risks by maintaining a combination of fixed and variable rate financial instruments. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements, notes thereto, supplementary schedule, and the related independent auditors' report contained on page F-1 to NBTY's consolidated financial statements, are herein incorporated: Consolidated Balance Sheets - As of September 30, 2002 and 2001 Consolidated Statements of Income - Fiscal years ended September 30, 2002, 2001 and 2000 Consolidated Statements of Shareholder's Equity and Comprehensive Income - Fiscal years ended September 30, 2002, 2001 and 2000. Consolidated Statements of Cash Flows - Fiscal years ended September 30, 2002, 2001 and 2000. Notes to Consolidated Financial Statements. 36 All other schedules have been omitted as not required or not applicable or because the information required to be presented is included in the consolidated financial statements and related notes. For more information, see Part IV, Item 15, Exhibits, below. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 37 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The directors and executive officers of NBTY, all of whom are U.S. citizens, and their ages as of December 9, 2002, are as follows:
Year Commenced first term of elected office as Name Age Position Director Officer ---- --- -------- -------- --------- Scott Rudolph 45 Chairman of the Board and Chief Executive Officer 1986 1986 Harvey Kamil 58 President and Chief Financial Officer - 1982 Michael C. Slade 53 Senior Vice President Director and Corporate Secretary 1998 1999 James P. Flaherty 45 Senior Vice President-Marketing and Advertising - 1988 William J. Shanahan 44 Vice President-Information Systems - 1988 Arthur Rudolph 74 Director 1979 - Aram G. Garabedian 67 Director 1979 - Bernard G. Owen 74 Director 1979 - Alfred Sacks 75 Director 1979 - Murray Daly 75 Director 1979 - Glenn Cohen 43 Director 1988 - Nathan Rosenblatt 46 Director 1994 - Michael L. Ashner 50 Director 1998 - Peter J.White 48 Director 2001 -
Certain information regarding each person listed above, including such person's principal occupation during the past five years and current directorships, is set forth below. Unless indicated otherwise, all directors and executive officers have had the indicated principal occupations for the past five years. Scott Rudolph is the Chairman of the Board of Directors, Chief Executive Officer and a more than 5% stockholder of the Company. He served as the Chairman of the Board of Directors of Dowling College, Long Island, New York, from 1997 through 38 2000, and is currently the Vice Chairman of Dowling College Board. He joined the Company in 1986. He is the son of Arthur Rudolph. Harvey Kamil is the President and Chief Financial Officer of the Company. He is on the Board of Directors of the Council for Responsible Nutrition and is on the Board of Directors of the National Nutritional Food Association. He joined the Company in 1982. Michael C. Slade is the Senior Vice President, Director and Corporate Secretary of the Company. He previously was an owner and Chief Executive Officer of Nutrition Headquarters, Inc. and Nutro Laboratories, Inc. before their acquisition by the Company in 1998. Mr. Slade is a member of the Board of Trustees of North Shore-LIJ Health System and Franklin Hospital. He is also a member of the Board of Directors of North Shore - LIJ Research Institute. James P. Flaherty is the Senior Vice President-Marketing and Advertising. He joined the Company in 1979. William J. Shanahan is the Vice President-Information Systems. He joined the Company in 1980. Arthur Rudolph founded Arco Pharmaceuticals, Inc., the Company's predecessor, in 1960 and founded the Company in 1979. He served as the Company'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 is a consultant to the Company. He is the father of Scott Rudolph. Aram G. Garabedian was elected a State Senator of the State of Rhode Island in 2000 and had been a representative in that State's legislature from 1972 through 1978, and 1998 through 2000. Since 1988, he has been a real estate property manager and developer in Rhode Island and is the President of Bliss Properties, Inc. He was associated with the Company and its predecessor, Arco Pharmaceuticals, Inc., for more than 20 years in a sales capacity and as an officer. Bernard G. Owen is retired, having been previously associated with Cafiero, Cuchel and Owen Insurance Agency, Pitkin, Owen Insurance Agency and Wood-HEW Travel Agency. Alfred Sacks has been President of Al Sacks, Inc., an insurance consulting firm, for the past 40 years. Murray Daly, formerly a Vice President of J. P. Egan Office Equipment Co., is a consultant to the office equipment industry. Glenn Cohen is the President of Save-On Sprinkler Co. Nathan Rosenblatt is the President and Chief Executive Officer of Ashland Maintenance Corp., a commercial maintenance organization located in Long Island City, New York. 39 Michael L. Ashner is President and Chief Executive Officer of Winthrop Financial Associates, a real estate investment banking firm affiliated with Apollo Real Estate, since 1995. Mr. Ashner serves on the Board of Directors of Shelbourne Properties I, Shelbourne Properties II, Shelbourne Properties III and Greate Bay Hotel and Casino, Inc. Peter J. White is President of I.J. White Corporation, a company based in Farmingdale, New York, engaged in the worldwide engineering and manufacturing of conveying systems for the food industry. The directors of the Company are divided into three classes, designated as Class I, Class II and Class III. Each class consists, as nearly as possible, of one third of the total number of directors constituting the entire Board of Directors. After their initial term, the directors of each class serve for a term of three years and until their successors are elected and qualified and subject to prior death, resignation, retirement, disqualification or removal. Currently, the Class I directors are Messrs. Garabedian, Owen and Sacks; the Class II directors are Messrs. Scott Rudolph, Daly, Rosenblatt and White; and the Class III directors are Messrs. Arthur Rudolph, Cohen, Ashner and Slade. The current terms of the Class I, Class II and Class III directors expire at the annual meetings of the Company's stockholders in 2003, 2005, and 2004, respectively. At each annual meeting of stockholders, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional directors of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. The term of office of each executive officer is until the organizational meeting of the Board of Directors of the Company following the next annual meeting of the Company's stockholders and until such officer's successor is elected and qualified or until such officer's prior death, resignation, retirement, disqualification or removal. Compensation of Directors Directors of the Company who are also executive officers of the Company or its subsidiaries do not receive any additional compensation for service as a member of the Board of Directors of the Company or any of its committees. For information relating to compensation of the Company's management directors, see "Employment Agreements with Executive Officers and Directors" below. All other directors of the Company are paid an annual fee of $30,000 for serving on the Board of Directors. See also "Employment Agreements with Executive Officers and Directors" below for a discussion of the Company's consulting agreement with Rudolph Management Associates, Inc. for the services of Arthur Rudolph. Section 16(a) Beneficial Ownership Reporting Compliance 40 Section 16(a) of the Exchange Act, requires NBTY's directors, executive officers, and persons who own more than ten percent of NBTY's Common Stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and NASDAQ. Directors, executive officers and greater than ten percent stockholders are required by the SEC regulations to furnish NBTY with copies of all Forms 3, 4 and 5 they file with the SEC. Based solely on NBTY's review of the copies of the SEC filings it has received, or written representations from certain reporting person that no Form 5's were required for these persons, NBTY believes that all its directors, executive officers and greater than ten percent beneficial owners complied with all filing requirements applicable to them with respect to fiscal 2002. Item 11. EXECUTIVE COMPENSATION The following table sets forth information concerning compensation paid by the Company in respect of fiscal years ended September 30, 2000, 2001 and 2002 to the Company's Chairman and Chief Executive Officer and to each of the other four (4) most highly paid executive officers of the Company (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
Long Term Compensation Annual Compensation Awards ---------------------------------- ------------ Other Securities Annual Underlying Name and Fiscal Compen- Options/ All Other Principal Position Year Salary($) Bonus($) sation($) SARs(#)(1) Compensation($)(2) ------------------ ------ --------- -------- --------- ------------ ------------------ Scott Rudolph 2002 710,197 600,000 (3) - 6,428 Chairman and 2001 634,024 500,000 (3) 500,000 6,748 Chief Executive Officer 2000 621,792 425,000 (3) 1,000,000 7,311 Harvey Kamil 2002 383,656 250,000 (3) - 6,440 President and 2001 317,012 225,000 (3) 125,000 6,741 Chief Financial Officer 2000 310,896 200,000 (3) 250,000 7,311 Michael C. Slade 2002 322,692 70,000 (3) - 6,428 Senior Vice President and 2001 306,346 50,000 (3) 70,000 6,741 Corporate Secretary 2000 291,341 50,000 (3) 30,000 7,311 James Flaherty - 2002 212,692 65,000 (3) - 3,740 Senior Vice President 2001 194,519 75,000 (3) - 4,841 Marketing and Advertising 2000 185,000 75,000 (3) 30,000 7,311 William Shanahan 2002 181,711 75,000 (3) - 6,428 Vice President - 2001 171,981 75,000 (3) - 6,748 Information Systems 2000 165,000 70,000 (3) 20,000 7,311 - -------------------- 41 All stock option grants were made pursuant to the NBTY, Inc. Year 2000 Incentive Stock Option Plan (the "2000 Plan"). Represents amounts contributed by the Company to 401(k) plan and the NBTY, Inc. Employees' Stock Ownership Plan on behalf of the Named Executive Officer. Perquisites and other personal benefits did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported under the headings of "Salary" and "Bonus".
The Company did not grant any stock appreciation rights or stock options during fiscal 2002. Option Value at the End of Fiscal 2002 The following table sets forth certain information concerning the number and the value at the end of fiscal 2002 of unexercised in-the-money options to purchase Common Stock granted to the Named Executive Officers as of the end of fiscal 2002. No stock appreciation rights have been granted to any of the Named Executive Officers. 42 Aggregated Option Exercises in Last Fiscal Year And Fiscal Year-End Option Values
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Fiscal 2002 End(#) Fiscal 2002 End($) Shares ------------------ ------------------ Acquired on Value Exercisable/ Exercisable/ Name Exercise(#) Realized($) Unexercisable Unexercisable(1) ---- ----------- ----------- ------------------ ------------------ Scott Rudolph 0 0 2,810,000/0 20,134,150/0 Harvey Kamil 0 0 525,000/0 3,818,413/0 Michael C. Slade 0 0 100,000/0 738,941/0 James Flaherty 30,000 257,250 0/0 0/0 William Shanahan 0 0 70,000/0 525,490/0 - -------------------- Based on the closing price of $12.98 of NBTY's Common Stock on September 30, 2002, the last trading day of fiscal 2002, less the exercise price payable for such Common Stock.
Employment Agreements with Executive Officers and Directors Scott Rudolph Employment Agreement. The Company has entered into an employment agreement with Mr. Scott Rudolph (the "Rudolph Agreement"), superseding Mr. Scott Rudolph's prior employment agreement with the Company. The Rudolph Agreement was effective October 1, 2002. Pursuant to the Rudolph Agreement, Mr. Scott Rudolph currently serves as Chairman of the Board and Chief Executive Officer of the Company. The initial term of the Rudolph Agreement is five years, subject to automatic one-year extensions, unless either the Company or Mr. Rudolph provides specified notice to the contrary. Mr. Rudolph is required to devote to the Company substantially all of his working time, attention and efforts. Under the Rudolph Agreement, Mr. Rudolph currently receives a base salary of $750,000 and certain fringe benefits accorded to the other senior executives of NBTY. Mr. Rudolph is also eligible to earn an annual bonus targeted at not less than 50% of his base salary, as determined by the Compensation Committee of the Board, taking into account the achievement by the Company of certain performance goals. Mr. Rudolph has the right to terminate the Rudolph Agreement in the event of a material breach by the Company or for other "good reason" (as defined in the Rudolph Agreement). In such event, or if the Company terminates Mr. Rudolph's employment without cause (as defined in the Rudolph Agreement), (i) Mr. Rudolph will be entitled to receive a lump sum amount equal to the greater of: (1) the base salary, automobile allowance and annual bonus (in the amount of 50% of his then base salary) that would be payable for the remaining term of the Rudolph Agreement had such termination not taken place, and (2) three times the sum of (x) his then base salary plus (y) the annual bonus Mr. Rudolph received in the year preceding such termination, (ii) all outstanding equity incentive awards (including stock options) will immediately vest and remain exercisable 43 for a period of one year following the date of such termination (or, if earlier, until the end of the option term), and (iii) Mr. Rudolph would be entitled to receive a payment sufficient to offset the effects of any excise tax ("Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended, if a Change of Control (as defined in the Rudolph Agreement) of the Company occurs after such termination of employment. Upon termination of Mr. Rudolph's employment with the Company, following a "Change of Control" of the Company, Mr. Rudolph would (i) be entitled to receive a lump sum amount equal to 2.99 times the average compensation received by Mr. Rudolph during the five years immediately preceding such termination, (ii) become vested in all outstanding equity incentive awards (including stock options), (iii) have the right to receive a cash payment equal to the "spread" on all outstanding stock options, and (iv) be entitled to a payment sufficient to offset the effects of any Excise Tax. During the term of the Rudolph Agreement (and, in the event Mr. Rudolph terminates his employment other than for good reason or the Company terminates Mr. Rudolph's employment for cause, for a period of one year beyond the expiration of the employment term), Mr. Rudolph will be subject to certain non-competition requirements. Harvey Kamil Employment Agreement. The Company has entered into an employment agreement with Mr. Harvey Kamil (the "Kamil Agreement"), superseding Mr. Kamil's prior employment agreement with the Company. The Kamil Agreement was effective October 1, 2002. Pursuant to the Kamil Agreement, Mr. Kamil currently serves as President and Chief Financial Officer of the Company. The initial term of the Kamil Agreement is five years, subject to automatic one-year extensions, unless either the Company or Mr. Kamil provides specified notice to the contrary. Mr. Kamil is required to devote to the Company substantially all of his working time, attention and efforts. Under the Kamil Agreement, Mr. Kamil currently receives a base salary of $420,000 and certain fringe benefits accorded to the other senior executives of NBTY. Mr. Kamil is also eligible to earn an annual bonus targeted at not less than 50% of his base salary, as determined by the Compensation Committee of the Board, taking into account the achievement by the Company of certain performance goals. Mr. Kamil has the right to terminate the Kamil Agreement in the event of a material breach by the Company or for other "good reason" (as defined in the Kamil Agreement). In such event, or if the Company terminates Mr. Kamil's employment without cause (as defined in the Kamil Agreement), (i) Mr. Kamil will be entitled to receive a lump sum amount equal to the greater of: (1) the base salary, automobile allowance and annual bonus (in the amount of 50% of his then base salary) that would be payable for the remaining term of the Kamil Agreement had such termination not taken place, and (2) three times the sum of (x) his then base salary plus (y) the annual bonus Mr. Kamil received in the year preceding such termination, (ii) all outstanding equity incentive awards (including stock options) will immediately vest and remain exercisable for a period of one year following the date of such termination (or, if earlier, until the end of the option term), and (iii) Mr. Kamil would be entitled to receive a payment sufficient to offset the effects of any Excise Tax, if a Change of Control (as defined in the Kamil Agreement) of the Company occurs after such termination of employment. 44 Upon termination of Mr. Kamil's employment with the Company, following a "Change of Control" of the Company, Mr. Kamil would (i) be entitled to receive a lump sum amount equal to 2.99 times the average compensation received by Mr. Kamil during the five years immediately preceding such termination, (ii) become vested in all outstanding equity incentive awards (including stock options), (iii) have the right to receive a cash payment equal to the "spread" on all outstanding stock options, and (iv) be entitled to a payment sufficient to offset the effects of any Excise Tax. During the term of the Kamil Agreement (and, in the event Mr. Kamil terminates his employment other than for good reason or the Company terminates Mr. Kamil's employment for cause, for a period of one year beyond the expiration of the employment term), Mr. Kamil will be subject to certain non-competition requirements. Arthur Rudolph Consulting Agreement. Effective January 1, 2002, the Company entered into a consulting agreement with Rudolph Management Associates, Inc. for the services of Arthur Rudolph, a director and founder of the Company. The consulting fee (which is paid monthly) is fixed by the Board of Directors of the Company, provided that in no event will the consulting fee be at a rate lower than $400,000 per year. In addition, Mr. Arthur Rudolph receives certain fringe benefits accorded to other executives of NBTY. The Company currently intends to renew this consulting agreement for a period of one year on substantially similar terms. Four members of Holland & Barrett's senior executive staff have service contracts, terminable by the Company upon twelve months' notice. The aggregate commitment for these salaries as of September 30, 2002, was approximately $700,000 per year. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth the beneficial ownership as of December 9, 2002 by each person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock (constituting the only class of voting stock of the Company), each director of the Company, each Named Executive Officer, and all directors and executive officers as a group.
Shares Benefically Owned ------------------------------- Amount and Nature Percent Name and Address of of Beneficial of Beneficial Owner Ownership (a) Class (a) Scott Rudolph (b) 8,941,929 12.94% c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 45 Morgan Stanley Dean Witter & Co. (c) 4,353,099 6.57% 1585 Broadway New York, NY 10036 Barclays Global Investors, 3,913,339 5.90% N.A. (c) 45 Fremont Street San Francisco, CA 94105 NBTY, Inc. 2,934,614 4.43% Employees' Stock Ownership Plan Arthur Rudolph (d)(e) 2,156,893 3.25% c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 Harvey Kamil (f) 1,817,344 2.72% c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 Michael Slade (g) 2,295,698 3.46% c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 James Flaherty 101,750 * c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 William Shanahan (h) 177,000 * c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 Aram G. Garabedian 3,000 * c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 46 Bernard G. Owen (e) 68,500 * c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 Alfred Sacks (e) 60,500 * c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 Murray Daly (i) 35,000 * c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 Glenn Cohen -- -- c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 Nathan Rosenblatt (j) 75,000 * c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 Michael Ashner 25,000 * c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 Peter J. White (k) 3,000 * c/o NBTY, Inc. 90 Orville Drive Bohemia, NY 11716 All Directors & 15,760,614 22.51% Executive Officers as a group (14 persons) - -------------------- * Less than one percent (a) This column includes shares which directors and executive officers have the right to acquire within 60 days. Except as otherwise indicated, each person and entity has the sole voting and investment power with respect to the shares set forth in the table. (b) Includes shares held in a Trust created by Arthur Rudolph for the benefit of Scott Rudolph and others and options to purchase 2,810,000 shares of common stock which are presently exercisable. 47 (c) Information is based solely upon the stockholder's Schedule 13G filings with the SEC. (d) Includes 40,000 shares owned by Mr. Arthur Rudolph's wife, as to which Mr. Arthur Rudolph disclaims beneficial ownership. (e) Includes options to purchase 60,000 shares of common stock which are presently exercisable. (f) Includes options to purchase 525,000 shares of common stock which are presently exercisable. (g) Includes (i) options to purchase 100,000 shares of common stock which are presently exercisable and (ii) 530,847 shares of common stock held in a trust for the benefit of Mr. Slade's wife, as to which Mr. Slade disclaims beneficial ownership. (h) Includes options to purchase 70,000 shares of common stock which are presently exercisable. (i) Includes options to purchase 10,000 shares of common stock which are presently exercisable. (j) Represents options to purchase 30,000 shares of common stock which are presently exercisable and 45,000 shares owned by Mr. Rosenblatt's wife, as to which Mr. Rosenblatt disclaims beneficial ownership. (k) Includes 1,000 shares of common stock owned by Mr. White's wife, as to which Mr. White disclaims beneficial ownership.
Securities Authorized for Issuance Under Equity Compensation Plans - ------------------------------------------------------------------ The following table summarizes the Company's equity compensation plans as of September 30, 2002.
Number of securities to be Weighted- Number of securities issued upon average exercise remaining available for exercise of price of future issuance under outstanding outstanding equity compensation options, options, plans (excluding warrants and warrants and securities reflected in rights rights column (a)) Plan Category (a) (b) (c) ------------- ---------------- ---------------- ----------------------- Equity compensation plans approved by security holders 4,372,343 $5.77 2,487,500 Equity compensation plans not approved by security holders -- -- -- Total: 4,372,343 $5.77 2,487,500
48 NBTY, Inc. Employees' Stock Ownership Plan (the "ESOP") - ------------------------------------------------------- The ESOP provides as follows: Eligibility; Trustee All associates of the Company, including officers, over the age of 20 1/2 and who have been employed by the Company for at least one year and completed at least 1,000 hours of employment are eligible to participate in the ESOP. Mr. Arthur Rudolph is the Trustee of the ESOP. Contributions Contributions of either cash or Company common stock are made on a voluntary basis by the Company, as authorized and directed by the Board of Directors. There is no contribution required to be made by the Company in any one year. The ESOP is maintained on a calendar year basis. There are no contributions required or permitted to be made by an associate of the Company. All contributions, if any, made by the Company in any plan year may not exceed 15% of the aggregate compensation of all participants during such plan year. Each eligible associate receives an account or share in the ESOP, and the cash and/or shares of stock contributed to the ESOP each year are credited to his or her account. Vesting Once an associate is eligible, a portion of the stock in his or her account becomes "vested", as follows:
Number of Years Percentage of Shares of Service earned each year --------------- -------------------- Less than 5 0% 5 or more 100%
Distribution; Voting If an associate retires, is disabled, dies or his or her employment is otherwise terminated, that associate or that associate's estate will receive the vested portion of such associate's account. Each participant directs the Trustee as to the manner in which the Company's common stock represented by such participant's account is to be voted and as to the manner in which rights other than voting rights are to be exercised. Distribution is to be made only upon a participant's retirement, termination of employment, death or disability (as defined in the ESOP). All distributions are made only in the shares of the Company's common stock. 49 Distribution of shares of the Company's common stock are not taxable to a participant at the time of distribution. Instead, a participant is taxed at the time the participant sells such shares. If the distribution is a lump sum distribution, the amount of gain subject to tax is equal to the amount received upon the sale of the stock less the amount contributed to the plan in exchange for such stock. Any unrealized appreciation inherent in the stock at the time of distribution will be taxed at long- term capital gains rates. Any subsequent appreciation in the stock will be capital gains, and will be long-term capital gains if the participant owns the stock for at least one year at the time of sale. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has had, and in the future may continue to have, business transactions with individuals and firms affiliated with certain of the Company's directors. Each such transaction has been in the ordinary course of the Company's business. During the fiscal year ended September 30, 2002, the following transactions occurred: A. Gail Radvin, Inc., a corporation wholly-owned by Gail Radvin, received commissions from the Company totaling approximately $585,000 on account of sales in certain foreign countries and had trade receivable balances of approximately $3,632,000 as of September 30, 2002. Gail Radvin is the sister of Arthur Rudolph (a director of the Company) and the aunt of Scott Rudolph (Chairman and Chief Executive Officer). B. The Company paid $400,000 to Rudolph Management Associates, Inc., pursuant to the Consulting Agreement between the Company and Rudolph Management Associates, Inc. Mr. Arthur Rudolph, a director of the Company, is the President of Rudolph Management Associates, Inc. See "Employment Agreements with Executive Officers and Directors" above. C. Glenn-Scott Landscaping & Design, a company owned by the brother of Glenn Cohen, a director of the Company, performed landscaping and maintenance on the Company's properties and received approximately $93,000 in compensation during fiscal 2002. D. Certain members of the immediate families (as defined in Rule 404 of Regulation S-K) of Arthur Rudolph, Scott Rudolph and Michael Slade (each a director of the Company) are employed by the Company. During fiscal 2002, these immediate family members received aggregate compensation from the Company totaling approximately $937,000 for services rendered by them as employees of the Company. Item 14. CONTROLS AND PROCEDURES The Company's chief executive officer and chief financial officer have concluded, based on their evaluation as of a date within 90 days of the filing date of this report, that the Company's disclosure controls and procedures (as defined in Rules 13a- 50 14(c) and 15d-14(c) under the Exchange Act) are effective for recording, processing, summarizing and reporting, within the time periods specified in the SEC's rules and forms, the information required to be disclosed in the reports filed by the Company under the Exchange Act. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the previously mentioned evaluation. 51 PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Financial Statements. Reference is made to the financial statements listed in Section 1 of the Index to Consolidated Financial Statements and Schedules in this Report. (a)(2) Financial Statement Schedules. Reference is made to the financial statement schedules listed in Section 2 of the Index to Consolidated Financial Statements and Schedules in this Report. All other schedules have been omitted as not required, not applicable or because the information required to be presented is included in the financial statements and related notes. (a)(3) Exhibits. The following exhibits are filed as a part of this Report or incorporated by reference and will be furnished to any security holder upon request for such exhibit and payment of any reasonable expenses incurred by the Company. A security holder should send requests for any of the exhibits set forth below to the Company, 90 Orville Drive, Bohemia, New York, 11716; Attention: General Counsel.
Exhibit No. Description ----------- ----------- 3.1 Restated Certificate of Incorporation of NBTY, Inc., as amended* 3.2 Amended and Restated By-Laws of NBTY, Inc. (1) 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. (1) 10.1 Third Amended and Restated Credit and Guarantee Agreement, dated as of April 27, 2001, among NBTY, Inc., as Borrower, Holland & Barrett Holdings Limited, as Foreign Subsidiary Borrower, the several lenders from time to time parties thereto, and The Chase Manhattan Bank, as Administrative Agent. * 10.2 Amended and Restated Guarantee and Collateral Agreement, dated as of April 16, 1999, by NBTY 52 and its subsidiary guarantors party thereto in favor of The Chase Manhattan Bank.* 10.3 Employment Agreement, effective October 1, 2002, by and between NBTY, Inc. and Scott Rudolph.* 10.4 Employment Agreement, effective October 1, 2002, by and between NBTY, Inc. and Harvey Kamil.* 10.5 Consulting Agreement, effective January 1, 2002, by and between NBTY, Inc. and Rudolph Management Associates, Inc.* 10.6 NBTY, Inc. Employees' Stock Ownership Plan, dated December 28, 1999.* 10.7 Amendment to the NBTY, Inc. Employees' Stock Ownership Plan, effective January 1, 2000* 10.8 NBTY, Inc. Year 2002 Stock Option Plan (2) 21.1 Subsidiaries of NBTY, Inc.* 23.1 Consent of Independent Accountants* 99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* 99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* - -------------------- * Filed herewith Incorporated by reference to NBTY, Inc.'s Registration Statement on Form S-4, filed on November 5, 1997 (Registration No. 333-39527). Incorporated by reference to NBTY, Inc. Proxy Statement, dated March 25, 2002 (File # 0-10666)
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company during the fourth quarter of the fiscal year ended September 30, 2002. (c) The exhibits required by Item 601 of Regulation S-K to be filed as part of this Report or incorporated herein by reference are listed in Item 15(a)(3) above. (d) See Item 15(a)(2) of this Report. 53 NBTY, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page Number ------ 1. Financial Statements Report of Independent Accountants F-1 Consolidated Balance Sheets as of September 30, 2002 and 2001 F-2 Consolidated Statements of Income for the years ended September 30, 2002, 2001 and 2000 F-3 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended September 30, 2002, 2001 and 2000 F-4 Consolidated Statements of Cash Flows for the years ended September 30, 2002, 2001 and 2000 F-5 Notes to Consolidated Financial Statements F-7 2. Financial Statement Schedule Schedule II S-1
54 Report of Independent Accountants To the Board of Directors and Stockholders of NBTY, Inc. and Subsidiaries: In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) on page 54 present fairly, in all material respects, the financial position of NBTY, Inc. and its subsidiaries at September 30, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2002 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) on page 54 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1, the Company changed the manner in which it accounts for goodwill and other intangible assets upon adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", on October 1, 2001. PricewaterhouseCoopers LLP New York, New York November 5, 2002, except as to Notes 16 and 20, which are as of December 11, 2002 F-1 NBTY, Inc. and Subsidiaries Consolidated Balance Sheets September 30, 2002 and 2001 (Dollars and shares in thousands) - ---------------------------------------------------------------------------
2002 2001 ---- ---- Assets Current assets: Cash and cash equivalents $ 26,229 $ 34,434 Investments in bonds 8,194 Accounts receivable, less allowance for doubtful accounts of $4,194 in 2002 and $3,222 in 2001 41,362 34,730 Inventories 204,402 184,745 Deferred income taxes 11,206 5,318 Prepaid expenses and other current assets 24,691 21,341 --------- --------- Total current assets 316,084 280,568 Property, plant and equipment, net 216,245 229,216 Goodwill, net 144,999 137,818 Intangible assets, net 48,413 47,910 Other assets 8,936 12,950 --------- --------- Total assets $ 734,677 $ 708,462 ========= ========= Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt and capital lease obligations $ 23,044 $ 34,911 Accounts payable 48,616 50,673 Accrued expenses and other current liabilities 58,714 63,876 --------- --------- Total current liabilities 130,374 149,460 Long-term debt 163,874 237,236 Deferred income taxes 16,928 16,761 Other liabilities 4,244 2,599 --------- --------- Total liabilities 315,420 406,056 --------- --------- Commitments and contingencies (Notes 12 and 16) Stockholders' equity: Common stock, $.008 par; authorized 175,000 shares in 2002 and 2001; issued and outstanding 66,133 shares in 2002 and 65,724 shares in 2001 529 526 Capital in excess of par 126,283 122,513 Retained earnings 287,868 193,184 --------- --------- 414,680 316,223 Stock subscriptions receivable - (839) Accumulated other comprehensive income (loss) 4,577 (12,978) --------- --------- Total stockholders' equity 419,257 302,406 --------- --------- Total liabilities and stockholders' equity $ 734,677 $ 708,462 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-2 NBTY, Inc. and Subsidiaries Consolidated Statements of Income Years ended September 30, 2002, 2001 and 2000 (Dollars and shares in thousands, except per share amounts) - ---------------------------------------------------------------------------
2002 2001 2000 ---- ---- ---- Net sales $ 964,083 $ 806,898 $ 720,856 --------- --------- --------- Costs and expenses: Cost of sales 433,611 355,167 312,960 Catalog printing, postage and promotion 47,846 49,410 33,709 Selling, general and administrative 348,334 315,228 279,379 Recovery of raw material costs (21,354) (2,511) --------- --------- --------- 808,437 719,805 623,537 --------- --------- --------- Income from operations 155,646 87,093 97,319 --------- --------- --------- Other income (expense): Interest, net (18,499) (21,958) (18,858) Miscellaneous, net 1,560 2,748 4,491 --------- --------- --------- (16,939) (19,210) (14,367) --------- --------- --------- Income before income taxes 138,707 67,883 82,952 Provision for income taxes 42,916 25,958 31,444 --------- --------- --------- Net income $ 95,791 $ 41,925 $ 51,508 ========= ========= ========= Net income per share: Basic $ 1.45 $ 0.64 $ 0.77 Diluted $ 1.41 $ 0.62 $ 0.74 Weighted average common shares outstanding: Basic 65,952 65,774 67,327 Diluted 67,829 67,125 69,318
The accompanying notes are an integral part of these consolidated financial statements. F-3 NBTY, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity and Comprehensive Income Years ended September 30, 2002, 2001 and 2000 (Dollars and shares in thousands) - ---------------------------------------------------------------------------
Accumulated Other Common Stock Treasury Stock Compre- Total ----------------- Capital ----------------- Stock hensive Total Compre- Number of in Excess Retained Number of Subscriptions Income Stockholders' hensive Shares Amount of Par Earnings Shares Amount Receivable (Loss) Equity Income --------- ------ --------- -------- --------- ------ ------------- ----------- ------------- ------- Balance, September 30, 1999 66,096 $529 $106,332 $111,792 - $ - $(839) $ 6,135 $ 223,949 $ 22,101 ======== Components of com- prehensive income: Net income 51,508 51,508 $ 51,508 Foreign currency translation adjustment (18,987) (18,987) (18,987) Purchase of treasury shares, at cost 288 (2,511) (2,511) Acquisition of Nutrition Warehouse 1,059 8 12,235 12,243 Treasury stock retired (53) (999) (53) 999 - Exercise of stock options 1,422 11 4,397 4,408 Tax benefit from exercise of stock options 1,833 1,833 ------ ---- -------- -------- ------ ------- ----- -------- --------- -------- Balance, September 30, 2000 68,524 548 123,798 163,300 235 (1,512) (839) (12,852) 272,443 $ 32,521 ======== Components of com- prehensive income: Net income 41,925 41,925 $ 41,925 Foreign currency translation adjustment (126) (126) (126) Purchase of treasury shares, at cost 3,023 (15,699) (15,699) Treasury stock retired (3,258) (26) (5,144) (12,041) (3,258) 17,211 - Exercise of stock options 458 4 2,600 2,604 Tax benefit from exercise of stock options 1,259 1,259 ------ ---- -------- -------- ------ ------- ----- -------- --------- -------- Balance, September 30, 2001 65,724 526 122,513 193,184 - - (839) (12,978) 302,406 $ 41,799 ======== Components of com- prehensive income: Net income 95,791 95,791 $ 95,791 Foreign currency translation adjustment 17,603 17,603 17,603 Change in net un- realized gain on available-for- sale investments (48) (48) (48) Treasury stock retired (71) (1) (113) (1,107) (1,221) Exercise of stock options 480 4 2,068 2,072 Repayment of stock subscriptions receivable 839 839 Tax benefit from exercise of stock options 1,815 1,815 - ------ ---- -------- -------- ------ ------- ----- -------- --------- -------- Balance, September 30, 2002 66,133 $529 $126,283 $287,868 - $ - $ - $ 4,577 $ 419,257 $113,346 ====== ==== ======== ======== ====== ======= ===== ======== ========= ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 NBTY, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years ended September 30, 2002, 2001 and 2000 (Dollars and shares in thousands) - ---------------------------------------------------------------------------
2002 2001 2000 ---- ---- ---- Cash flows from operating activities Net income $ 95,791 $ 41,925 $ 51,508 Adjustments to reconcile net income to net cash provided by operating activities: Loss on disposal/sale of property, plant and equipment 102 385 1,119 Depreciation and amortization 42,192 44,946 38,501 Amortization of deferred financing costs 782 782 787 Amortization of bond discount 124 124 124 Allowance for doubtful accounts 972 1,995 21 Deferred income taxes (5,829) (2,036) 4,827 Tax benefit from exercise of stock options 1,815 1,259 1,833 Changes in assets and liabilities, net of acquisitions: Accounts receivable (7,011) (3,652) 5,803 Inventories (14,277) (34,723) 8,039 Prepaid expenses and other current assets (3,432) 343 1,914 Other assets (586) 119 417 Accounts payable (3,442) (11,959) 6,093 Accrued expenses and other current liabilities (3,891) 23,500 2,643 Other liabilities 221 (223) (211) -------- -------- -------- Net cash provided by operating activities 103,531 62,785 123,418 -------- -------- -------- Cash flows from investing activities: Cash paid for acquisitions, net of cash acquired (7,702) (63,010) (45,119) Purchase of property, plant and equipment (21,489) (37,197) (51,786) Purchase of short-term investments (8,242) - - Proceeds from sale of property, plant and equipment 1,004 4,232 256 Proceeds from sale of intangibles 53 - - Increase in intangible assets - (159) - -------- -------- -------- Net cash used in investing activities (36,376) (96,134) (96,649) -------- -------- -------- Cash flows from financing activities: Principal payments under long-term debt agreements and capital leases (85,353) (12,780) (17,667) Net borrowings under Credit & Guarantee Agreement - 71,502 2,800 Cash held in escrow - (10,000) - Release of cash held in escrow 4,600 - - Purchase of treasury stock - (15,699) (1,512) Proceeds from stock options exercised 1,899 2,604 4,408 -------- -------- -------- Net cash (used in) provided by financing activities (78,854) 35,627 (11,971) -------- -------- -------- Effect of exchange rate changes on cash and cash equivalents 3,494 692 (1,603) -------- -------- -------- Net (decrease) increase in cash and cash equivalents (8,205) 2,970 13,195 Cash and cash equivalents at beginning of year 34,434 31,464 18,269 -------- -------- -------- Cash and cash equivalents at end of year $ 26,229 $ 34,434 $ 31,464 ======== ======== ========
Continued The accompanying notes are an integral part of these consolidated financial statements. F-5 NBTY, Inc. and Subsidiaries Consolidated Statements of Cash Flows, continued Years ended September 30, 2002, 2001 and 2000 (Dollars and shares in thousands) - ---------------------------------------------------------------------------
2002 2001 2000 ---- ---- ---- Supplemental disclosure of cash flow information: Cash paid during the period for interest $18,513 $23,019 $20,224 Cash paid during the period for income taxes $55,101 $22,269 $16,116
Non-cash investing and financing information: During fiscal 2002, certain officers surrendered 61 shares as consideration for stock subscriptions receivable plus interest, aggregating $1,048. Such shares were retired by the Company during 2002. During fiscal 2001, the Company adjusted its goodwill related to the acquisition of Feeling Fine LLC (September 2000) for the write-off of uncollectible accounts receivable amounting to $1,144. In connection with the acquisition of Nutrition Warehouse, Inc. and its affiliated companies, on January 1, 2000, the Company issued 1,059 shares of NBTY stock having a total then market value of approximately $12,200 (Note 2). During fiscal 2000, the Company entered into capital leases for computer equipment for approximately $1,000. In July 2000, the Company sold certain assets for approximately $650 in exchange for a note to be paid over five years. The accompanying notes are an integral part of these consolidated financial statements. F-6 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- 1. Business Operations and Summary of Significant Accounting Policies Business operations The Company (as defined below) manufactures and sells vitamins, food supplements, and health and beauty aids primarily in the United States, the United Kingdom and Ireland. 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. Within the United Kingdom and Ireland, the manufacturing, advertising, sales and marketing of food products is regulated by a number of governmental agencies, including the Ministry of Agriculture, Fisheries and Food, the Department of Health, the Food Advisory Committee and the Committee on Toxicity. In addition, there are various statutory instruments and European Community ("E.C.") 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 where food is produced and sold. Food that has medicinal properties may fall under the jurisdiction of the Medicine 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 E.C. regulations and directives established by the European Union. The latter take precedence over national laws. 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 is responsible, for example, for licensing, inspection and enforcement to ensure that legal requirements concerning manufacture, distribution, sale, labeling, advertising and promotion are upheld. In Ireland, the sale of nutritional supplements and herbal products falls under the jurisdiction of the Irish Medicines Board ("IMB"). Its role is similar in nature, but not identical to that of the MCA in the U.K. as described above. Principles of consolidation and basis of presentation The consolidated financial statements of NBTY, Inc. and Subsidiaries (the "Company" or "NBTY") include the accounts of the Company and its wholly owned subsidiaries. The Company's fiscal year ends on September 30. All intercompany accounts and transactions have been eliminated. Revenue recognition The Company recognizes revenue from products shipped when risk of loss and title transfers to its customers, and 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 of the Company for the fiscal years ended September 30, 2002, 2001 and 2000. One customer accounted for 21% and 16% of the Company's accounts receivable at September 30, 2002 and 2001, respectively. In December 1999, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," ("SAB 101"). SAB 101 does not change existing revenue recognition rules, but rather addresses and clarifies existing rules and their F-7 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- application. The Company adopted SAB 101, effective October 1, 2000. The impact of SAB 101 for the year ended September 30, 2001 resulted in a reduction of sales of approximately $4 million and net income of approximately $1.4 million. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. The most significant estimates include the valuation of inventories, the allowance for doubtful accounts receivable and the recoverability of long-lived assets. Actual results could differ from those estimates. Concentration of credit risk Financial instruments which potentially subject the Company to credit risk consist primarily of cash and cash equivalents and accounts receivable. Cash balances may, at times, exceed FDIC limits on insurable amounts. The Company mitigates its risk by investing in or through major financial institutions. To manage credit risk with regard to trade accounts receivable, the Company performs ongoing credit evaluations of its customers' financial condition. Inventories Inventories are stated at the lower of cost or market. Cost is primarily determined on the first-in, first-out (FIFO) method. The cost elements of inventory include materials, labor and overhead. In fiscal 2002, 2001 and 2000, no one supplier provided more than 10% of the Company's overall purchases. Prepaid catalog costs Mail order production and mailing costs are capitalized as prepaid catalog costs and charged to expense over the catalog period, which typically approximates two months. Advertising All media and advertising costs are generally expensed as incurred. Total expenses relating to advertising and promotion for fiscal 2002, 2001 and 2000 were $26,019, $28,747 and $17,046, respectively. Included in prepaid expenses and other current assets is approximately $1,044 and $417 relating to prepaid advertising at September 30, 2002 and 2001, respectively. 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. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the estimated useful lives of the related assets or lease term. 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 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- Goodwill and intangible assets Goodwill represents the excess of purchase price over the fair value of identifiable net assets of companies acquired. The Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Intangible Assets" ("SFAS 142") as of October 1, 2001. This statement requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. Prior to fiscal 2002, goodwill was amortized over periods not exceeding 40 years. Other definite lived intangibles are amortized on a straight-line basis over periods not exceeding 15 years. Impairment of long-lived assets The Company follows the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of." This statement requires that certain assets be reviewed for impairment and, if impaired, remeasured at fair value whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. During fiscal 2002 and 2001, the Company recognized impairment losses of $700 and $500, respectively, on assets to be held and used. The Company did not recognize an impairment loss during fiscal 2000. The impairment losses related primarily to leasehold improvements and furniture and fixtures for retail operations and were recorded in selling, general and administrative expense. In August 2001, the SFAS issued SFAS No. 143, "Accounting for Asset Retirement Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company does not expect the adoption of SFAS No. 143 and 144, effective October 1, 2002, to have a material impact on its consolidated financial position or results of operations. Stock-based compensation The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Foreign currency The financial statements of international subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and an average exchange rate for each period for revenues, expenses, gains and losses. Where the local currency is the functional currency, translation adjustments are recorded as a separate component of stockholders' equity. During fiscal 2002, 2001 and 2000, the Company recognized foreign currency transaction gains (losses) of $(1,556), $(481) and $415, respectively. Comprehensive income Comprehensive income represents the change in stockholders' equity resulting from transactions other than stockholder investments and distributions. Included in accumulated other comprehensive income (loss) are net gains on foreign currency translation of $4,625 and unrealized holding losses of $48 on available-for-sale securities. F-9 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- 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 basis 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 The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Shipping and handling costs The Company incurs shipping and handling costs in all divisions of its operations. These costs are included in selling, general and administrative costs and are $23,985, $19,799 and $19,277 for the fiscal years ended September 30, 2002, 2001 and 2000, respectively. Change in accounting estimate During fiscal 2001, the Company changed its accounting estimate for the useful lives of certain long-lived assets, primarily leasehold improvements and furniture and fixtures, based upon the terms of the lease agreements which approximate the useful lives of the assets. The effect of this change in estimate has been accounted for on a prospective basis and resulted in a decrease in depreciation and amortization expense of approximately $1,248 for the year ended September 30, 2001. Reclassifications Certain reclassifications have been made to conform prior year amounts to the current year presentation. New accounting developments In February 2002, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)," effective no later than periods beginning after December 15, 2001. EITF Issue No. 01-09 addresses the following items: a. The income statement characterization of consideration given by a vendor to a customer, specifically whether that consideration should be presented in the vendor's income statement as a reduction of revenue or as a cost or expense. b. Whether a vendor should recognize consideration given to a customer as an asset in certain circumstances rather than as an immediate charge in the income statement. c. When to recognize the "cost" of a sales incentive and how to measure it. The Company has determined that the impact of adoption and subsequent application of EITF Issue No. 01-09 did not have a material effect on its consolidated financial position or results of operations. In April 2002, the FASB issued Statement No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Under SFAS 145, gains and losses on extinguishments of debt are to be classified as income or loss from continuing operations rather than extraordinary items. Adoption of this statement is required for fiscal years beginning after May 15, 2002. The Company does not expect the adoption of this statement to have a material impact on its consolidated financial position or results of operations. F-10 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- In July 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which requires that a liability for a cost associated with an exit or disposal activity be recognized when incurred. This Statement also establishes that fair value is the objective for initial measurement of the liability. Severance pay under SFAS 146, in many cases, would be recognized over time rather than up-front. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. 2. Acquisitions Fiscal 2002 acquisitions: On December 6, 2001, the Company acquired out of bankruptcy certain assets of HealthCentral.com for approximately $2,800 in cash. The assets include the customer list of the mail order operation, L&H Vitamins, and the customer list and URLs of Vitamins.com and WebRx.com. Assets acquired were classified as intangibles, specifically as a customer list ($2,800) which is being amortized over 15 years. These operations had sales for the 12 month period ended November 2001 of approximately $15,000 and a combined customer list of approximately 1.8 million names, which has been merged into the existing customer base of the Puritan's Pride/Direct Response business. On December 13, 2001, the Company acquired certain assets of the Knox NutraJoint(R) and Knox for Nails nutritional supplement business from Kraft Foods North America, Inc. for approximately $4,500 in cash. Assets acquired include inventory ($2,456) and intangibles ($2,000). Approximately $1,800 of the $2,000 has been classified as a trademark with an indefinite life. Kraft's revenues for these brands were approximately $15,000 in 2001. NBTY has licensed the Knox trademark at no charge to Kraft Foods North America, Inc. for use in the Knox gelatine business, which was not part of the acquisition. All 2002 acquisitions were funded with internally generated cash. Fiscal 2001 acquisitions: Global Group On May 25, 2001, the Company acquired certain assets and liabilities of the business of Global Health Sciences, Inc. and certain of its affiliated companies ("Global Group"). NBTY was the successful bidder in an auction ordered by a bankruptcy court in California. The purchase price was approximately $40 million in cash, less adjustments. The Global Group is located in Anaheim, California and is a leading manufacturer of nutritional powders used for meal replacements, weight control and protein powders formulated to improve physical performance. Global Group also produces formulations for herbal, vitamin and mineral tablets. Assets acquired and liabilities assumed include cash ($1,427), accounts receivable ($8,569), inventory ($7,894), other current assets ($1,663), property, plant and equipment ($14,000) and current liabilities ($241). Global Group had sales of $171 million for the 12-month period ended April 2001. The excess cost of investment over the net book value of Global Group at the date of acquisition amounted to $6,923 of which $6,681 was classified by the Company as other long-term assets in 2001. In fiscal 2002, the Company received $4,600 from an escrow account and anticipates approximately $1,850 to be received. The remaining excess has been classified as goodwill. NatureSmart On May 15, 2001, the Company acquired certain assets and liabilities of NatureSmart, LLC from F-11 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- Whole Foods Market, Inc. for approximately $29 million in cash. NatureSmart, through its four divisions, manufactures and markets nutritional supplements, including vitamins, minerals, herbs and personal care products through mail order operations having approximately 350,000 active customers. It also manufactures private label vitamins for mass market, specialty retailers and healthcare professionals. Assets acquired and liabilities assumed include accounts receivable ($607), inventory ($10,882), other current assets ($618), property, plant and equipment ($3,462), intangibles ($1,893), and current liabilities ($4,487). The excess cost of investment over the net book value of NatureSmart at the date of acquisition resulted in an increase in goodwill of $16,395. NatureSmart's annual sales for the year ended September 24, 2000 were approximately $59 million. Both 2001 transactions were funded by borrowings under the Credit and Guarantee Agreement ("CGA"). These two acquisitions contributed $29 million of sales and a marginal operating profit for the Company's 2001 fiscal year. Fiscal 2000 acquisitions: In September 2000, the Company acquired certain assets and liabilities of Feeling Fine Company LLC for $2,964. In June 2000, the Company acquired certain assets and liabilities of Longevity Formulas, Inc. (also known as "Healthwatchers System") and Martin Health Systems, Inc. for $5,150. In April 2000, the Company acquired the mailing list of Rexall Sundown's SDV vitamin catalog and mail order list for $16,500. On January 1, 2000, the Company acquired Nutrition Warehouse, Inc. and its affiliated companies ("NW") for $20,000 in cash and approximately 1,059 shares of NBTY stock having a total then market value of $12,200. NW operated a direct response/e-commerce business as well as 14 retail stores in various locations in New York State. The e-commerce business has been combined with the Company's Puritan.com operations and the retail stores have been merged into the Company's U.S. retail operations. Annual revenues approximated $14,000 for the e-commerce/direct response business as well as $14,000 in retail sales for the year ended December 31, 1999. The cash portion of the acquisition was funded with $20,000 in borrowings under the CGA. 3. Divestitures In July 2000, the Company sold certain assets of Bio Nutritional Formulas, Inc. for a note in principal amount of approximately $650 which is being repaid over five years. No gain or loss was recognized on the sale. 4. Investments in bonds The Company classifies its debt securities as available for sale and are reported at fair market value (based on quoted market prices), with net unrealized gains or losses on the securities recorded as accumulated other comprehensive income (loss) in stockholders' equity. Unrealized losses are charged against income when a decline in the fair market value of an individual security is determined to be other-than-temporary. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of the securities. There were no realized gains or losses in fiscal 2002. F-12 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- At September 30, 2002, the Company held $8,242, net of reserves, of high yield, less than investment grade corporate debt securities with an aggregate market value of $8,194. Investments in less than investment grade corporate debt securities have greater risks than other investments in corporate debt securities rated investment grade. Risk of loss upon default by the borrower is significantly greater with respect to such corporate debt securities than with other corporate debt securities because these securities are generally unsecured and are often subordinated to other creditors of the issuer. Further, issuers of less than investment grade securities usually have high levels of indebtedness and are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than are investment grade issuers. There is only a thinly traded market for such securities and recent market ratings of such debt are as follows: Moody's Investors Service, Inc. currently rates these debt securities as Caa2 and Standard & Poor's currently rates these debt securities as a CCC-. Both credit agencies' ratings remained unchanged from the prior period. Market quotes may not represent firm bids of such dealers or prices for actual sales. The cost and estimated fair value for these available-for-sale investments in debt securities at September 30, 2002 by contractual maturity was $8,242 and $8,194, respectively, due beyond 1 year and within 5 years. 5. Inventories
September 30, ----------------------- 2002 2001 ---- ---- Raw materials $ 77,051 $ 66,519 Work-in-process 8,527 4,558 Finished goods 118,824 113,668 -------- -------- $204,402 $184,745 ======== ========
6. Property, Plant and Equipment
Depreciation September 30, and ---------------------- Amortization 2002 2001 Period (Years) ---- ---- -------------- Land $ 10,781 $ 10,549 Buildings and leasehold improvements 94,360 87,627 5 - 40 Machinery and equipment 95,961 91,651 3 - 10 Furniture and fixtures 142,026 140,627 5 - 10 Transportation equipment 5,411 5,013 4 Computer equipment 43,494 37,376 5 -------- -------- 392,033 372,843 Less accumulated depreciation and amortization 175,788 143,627 -------- -------- $216,245 $229,216 ======== ========
Depreciation and amortization of property, plant and equipment for the fiscal years ended September 30, 2002, 2001 and 2000 was approximately $37,863, $34,866 and $29,275, respectively. F-13 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- Property, plant and equipment includes approximately $6,010 for assets recorded under capital leases at September 30, 2002 and 2001. Accumulated depreciation of these capital leases at September 30, 2002 and 2001 was approximately $3,541 and $2,808, respectively. 7. Goodwill and Intangible Assets The carrying amount of acquired intangible assets is as follows:
September 30, 2002 September 30, 2001 ----------------------- ----------------------- Gross Gross carrying Accumulated carrying Accumulated Amortization amount amortization amount amortization period (years) -------- ------------ -------- ------------ -------------- Amortized intangible assets: Customer lists $64,283 $18,668 $61,511 $15,107 6 - 15 Trademark and licenses 2,429 2,188 2,404 1,763 2 - 3 Covenants not to compete 2,605 1,848 2,405 1,540 5 - 7 ------- ------- ------- ------- 69,317 22,704 66,320 18,410 Unamortized intangible asset: Trademark 1,800 - - - ------- ------- ------- ------- Total intangible assets $71,117 $22,704 $66,320 $18,410 ======= ======= ======= =======
The changes in the carrying amount of goodwill by segment for the fiscal year ended September 30, 2002 are as follows:
Retail Retail Puritan's Pride/ United United Kingdom/ Direct Response States Ireland Wholesale Consolidated ---------------- ------ --------------- --------- ------------ Balance at September 30, 2001 $16,202 $7,588 $110,536 $3,492 $137,818 Purchase price adjustments (1,005) - - 1,400 395 Foreign currency translation - - 6,786 - 6,786 ------- ------ -------- ------ -------- Balance at September 30, 2002 $15,197 $7,588 $117,322 $4,892 $144,999 ======= ====== ======== ====== ========
The Company currently has unamortized goodwill remaining from the acquisition of Holland & Barrett ($113,089), NatureSmart ($15,164), NW ($7,510), Nature's Way ($4,234), Feeling Fine ($3,069), Global Group ($1,640), and other ($293), and the Company currently owns one trademark, Knox ($1,800), all of which are subject to the provisions of SFAS 142. The Company did not record any transition intangible asset impairment loss upon adoption of SFAS 142. The changes in the carrying amount of goodwill for the year ended September 30, 2002 primarily related to the translation of the Company's international subsidiaries into U.S. dollars. Aggregate amortization expense of definite lived intangible assets included in the consolidated statements of income under the caption "selling, general and administrative expenses" in fiscal 2002, 2001 and 2000 was approximately $4,329, $3,862 and $2,932, respectively. F-14 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- Estimated amortization expense for the next five fiscal years is as follows: For the fiscal year ending September 30, 2003 $4,140 2004 $3,862 2005 $3,714 2006 $3,656 2007 $3,594
As required by SFAS 142, the results of prior fiscal years have not been restated. A reconciliation of net income, as if SFAS 142 had been adopted, is presented below for the fiscal years ended September 30, 2002, 2001 and 2000, exclusive of amortization expense that is related to goodwill that is not being amortized:
Fiscal year ended September 30, --------------------------------- 2002 2001 2000 ---- ---- ---- Reported net income $95,791 $41,925 $51,508 Addback: goodwill amortization - 6,082 6,294 ------- ------- ------- Adjusted net income $95,791 $48,007 $57,802 ======= ======= ======= Basic earnings per share Reported net income $ 1.45 $ 0.64 $ 0.77 Addback: goodwill amortization - 0.09 0.09 ------- ------- ------- Adjusted net income $ 1.45 $ 0.73 $ 0.86 ======= ======= ======= Diluted earnings per share Reported net income $ 1.41 $ 0.62 $ 0.74 Addback: goodwill amortization - 0.09 0.09 ------- ------- ------- Adjusted net income $ 1.41 $ 0.71 $ 0.83 ======= ======= =======
8. Accrued Expenses and Other Current Liabilities
September 30, -------------------- 2002 2001 ---- ---- Payroll and related taxes $11,117 $ 7,713 Customer deposits 10,114 13,220 Accrued purchases 12,770 4,206 Accrued interest 970 983 Income taxes payable 7,525 20,568 Other 16,218 17,186 ------- ------- $58,714 $63,876 ======= =======
F-15 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- 9. Long-Term Debt
September 30, ---------------------- 2002 2001 ---- ---- Senior debt: 8-5/8% Senior subordinated notes due 2007, net of unamortized discount of $624 in 2002 and $748 in 2001 (a) $149,376 $149,252 Note payable due in monthly payments of $2, including interest at 4%, maturing May 2009 142 162 Mortgages: First mortgage payable in monthly principal and interest (9.73%) installments of $25, maturing November 2009 1,555 1,713 First mortgage payable in monthly principal and interest (7.375%) installments of $55, maturing May 2011 4,232 4,569 First mortgage payable in monthly principal and interest (9.0%) installments of $3, maturing June 2011 183 197 Credit and Guarantee Agreement (b): Term loan payable in quarterly principal and interest installments of $2,700 - 31,200 Term loan payable in quarterly principal and interest installments of $5,563, maturing June 2005 31,188 83,438 -------- -------- 186,676 270,531 Less current portion 22,806 33,564 -------- -------- $163,870 $236,967 ======== ======== (a) The 8-5/8% Senior Subordinated Notes (the "Notes") are unsecured and subordinated in right of payment for all existing and future indebtedness of the Company. The Notes provide for the payment of interest semi-annually at the rate of 8-5/8% per annum. (b) The CGA is comprised of two term loans and a revolving credit facility. At September 30, 2002, there were borrowings of $31,188 under one term loan. This term loan has an annual borrowing rate of 4.422% and is payable in quarterly installments of $5,563. The current portion of this term loan at September 30, 2002 was $22,250. The Company repaid the other term loan during the third quarter 2002. The $50,000 revolving credit facility expires on September 30, 2003 and was unused at September 30, 2002. A stand-by letter of credit of $600 was outstanding under such facility at September 30, 2002. The Company is required to pay a commitment fee, which varies between .25% and .50% per annum, depending on the Company's ratio of debt to EBITDA, on any unused portion of the revolving credit facility. The CGA provides that loans be made under a selection of rate formulas, including prime or Euro currency rates. Virtually all of the Company's assets are collateralized under the CGA. In addition, the Company is subject to the maintenance of various financial ratios and covenants.
F-16 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- Required principal payments of long-term debt are as follows:
Fiscal year ending September 30, - ------------------ 2003 $ 22,806 2004 9,540 2005 653 2006 707 2007 150,142 Thereafter 2,828 -------- $186,676 ========
The fair value of the Company's long-term debt at September 30, 2002 and 2001, based upon current market rates, approximates the amounts disclosed above. 10. Capital Lease Obligations The Company enters into various capital leases for machinery and equipment, which 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, 2002 are as follows:
Fiscal year ending September 30, - ------------------ 2003 $242 2004 4 2005 1 ---- 247 Less, amount representing interest 5 ---- Present value of minimum lease payments (including $238 due within one year) $242 ====
F-17 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- 11. Income Taxes Provision for income taxes consists of the following:
Fiscal year ended September 30, --------------------------------- 2002 2001 2000 ---- ---- ---- Federal Current $26,835 $14,713 $12,640 Deferred (4,386) (1,682) 4,551 State Current 2,760 1,513 1,300 Deferred (451) (172) 468 Foreign provision 18,158 11,586 12,485 ------- ------- ------- Total provision $42,916 $25,958 $31,444 ======= ======= =======
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.
Fiscal year ended September 30, -------------------------------------------------------------------------- 2002 2001 2000 ---------------------- ---------------------- ---------------------- Percent Percent Percent of pretax of pretax of pretax Amount income Amount income Amount income ------ --------- ------ --------- ------ --------- Income tax expense at statutory rate $ 48,548 35.0% $ 23,759 35.0% $ 29,033 35.0% State income taxes, net of federal income tax benefit 1,501 1.1% 2,444 3.6% 2,986 3.6% Amortization of goodwill - 2,277 3.3% 2,155 2.6% Foreign income taxed at different rates (4,411) (3.2%) (1,596) (2.4%) (1,443) (1.7%) Foreign tax credit (12,975) (9.4%) - - - Valuation allowance 8,275 6.0% - - - Other, individually less than 5% 1,978 1.4% (926) (1.3%) (1,287) (1.6%) -------- ---- -------- ---- -------- ---- $ 42,916 30.9% $ 25,958 38.2% $ 31,444 37.9% ======== ==== ======== ==== ======== ====
F-18 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- The components of deferred tax assets and liabilities are as follows as of September 30:
2002 2001 ---- ---- Current Inventory capitalization $ 954 $ 770 Accrued expenses and reserves not currently deductible 6,316 4,394 Intangibles - 13 Tax credits 13,375 13,375 Valuation allowance (8,275) (12,975) -------- -------- Total deferred income tax assets 12,370 5,577 -------- -------- Deferred tax liabilities: Property, plant and equipment (17,731) (17,020) Intangibles (361) - -------- -------- Total deferred income tax liabilities (18,092) (17,020) -------- -------- Total net deferred income tax liabilities (5,722) (11,443) Less current deferred income tax assets (11,206) (5,318) -------- -------- Long-term deferred income taxes $(16,928) $(16,761) ======== ========
Deferred tax assets, net of valuation allowances, have been recognized to the extent that, as of September 30, 2002, the likelihood of their realization is more likely than not. The valuation allowance of $8,275 relates to foreign tax credits, which are not more likely than not realizable. The decrease in the valuation allowance during fiscal 2002 resulted from the realization of foreign tax credits due to tax planning strategies identified in fiscal 2002. The amount of deferred tax assets considered realizable could be adjusted in the future as further tax planning strategies are identified. The change in the valuation allowance for the fiscal years ended September 30, 2002 and 2001 is as follows:
Fiscal year ended September 30, ----------------------- 2002 2001 ---- ---- Balance at October 1 $(12,975) $(12,975) Utilization of foreign tax credit carryforwards 4,700 - -------- -------- Balance at September 30 $ (8,275) $(12,975) ======== ========
F-19 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- 12. Commitments Operating leases The Company conducts retail operations under operating leases, which expire at various dates through 2029. Some of the leases contain renewal options and provide for contingent rent based upon sales plus certain tax and maintenance costs. Future minimum rental payments (excluding real estate tax and maintenance costs) for retail locations and other leases that have initial or noncancelable lease terms in excess of one year at September 30, 2002 are as follows:
Fiscal year ending September 30, ------------------ 2003 $ 52,173 2004 47,024 2005 42,065 2006 38,715 2007 34,591 Thereafter 136,854 -------- $351,422 ========
Operating lease rental expense (including real estate taxes and maintenance costs) and leases on a month to month basis were approximately $68,104, $62,355 and $54,749 for the years ended September 30, 2002, 2001 and 2000, respectively. Purchase commitments The Company was committed to make future purchases under various purchase arrangements with fixed price provisions aggregating approximately $13,304 at September 30, 2002. Capital commitments The Company had approximately $744 in open capital commitments at September 30, 2002, primarily related to manufacturing equipment as well as to computer hardware and software. Also, the Company has a $15,800 commitment for the construction of an automated warehouse over the next 18 months. Employment and consulting agreements The Company has employment agreements with two of its executive officers. The agreements, initially entered into in October 2002, have a term of 5 years and are automatically renewed each year thereafter unless either party notifies the other to the contrary. These agreements provide for minimum salary levels and contain provisions regarding severance and changes in control of the Company. The annual commitment for salaries to these two officers as of September 30, 2002 was approximately $1,170. The Company maintains a consulting agreement with Rudolph Management Associates, Inc. for the services of Arthur Rudolph, a director of the Company. The agreement requires Mr. Rudolph to provide consulting services to the Company through December 31, 2002, in exchange for a consulting F-20 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- fee of $400 per year, payable monthly. In addition, Mr. Rudolph receives certain fringe benefits accorded to other executives of the Company. The Company currently intends to renew this consulting agreement for a period of one year on substantially similar terms. Four members of H&B's senior executive staff have service contracts terminable by the Company upon twelve months notice. The annual aggregate commitment for such H&B executive staff as of September 30, 2002 was approximately $700. Other In the ordinary course of business, the Company has entered into a $600 stand-by letter of credit agreement under the CGA. 13. Earnings Per Share Basic earnings per share ("EPS") computations are calculated utilizing the weighted average number of common shares outstanding during the fiscal years. Diluted EPS include the weighted average number of common shares outstanding and the effect of common stock equivalents. The following is a reconciliation between basic and diluted EPS:
Fiscal year ended September 30, --------------------------------- 2002 2001 2000 ---- ---- ---- Numerator: Numerator for basic EPS - income available to common stockholders $95,791 $41,925 $51,508 ======= ======= ======= Numerator for diluted EPS - income available to common stockholders $95,791 $41,925 $51,508 ======= ======= ======= Fiscal year ended September 30, --------------------------------- 2002 2001 2000 ---- ---- ---- Denominator: Denominator for basic EPS - weighted-average shares 65,952 65,774 67,327 Effect of dilutive securities: Stock options 1,877 1,351 1,991 ------- ------- ------- Denominator for diluted EPS - weighted-average shares 67,829 67,125 69,318 ======= ======= ======= Net EPS: Basic EPS $ 1.45 $ 0.64 $ 0.77 ======= ======= ======= Diluted EPS $ 1.41 $ 0.62 $ 0.74 ======= ======= =======
14. Stock Option Plans On March 11, 1992, the Board approved the issuance of an aggregate of 5,400 stock options to directors and officers, exercisable at $0.31 per share and expiring on March 10, 2002. During fiscal 1999, the Board approved the issuance of 3,000 options expiring at varying dates in 2008 and 2009 F-21 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- with exercise prices ranging from $4.75 to $6.19 per share. During fiscal 2000, the Board approved the issuance of 2,288 options expiring in 2010 with an exercise price of $5.88 per share. During fiscal 2001, the Board approved the issuance of 805 options expiring in 2011 with an exercise price of $5.47 per share. The exercise price of each of the aforementioned issuances was at or in excess of the closing price on NASDAQ at the date such options were granted. Stock options granted under the plans generally become exercisable on grant date and have a maximum term of ten years. The Company did not grant any stock options during fiscal 2002. During fiscal 2002, options for 480 shares of common stock were exercised, with an aggregate exercise price of $2,072 for which the Company received cash proceeds of $1,899 and surrendered shares with a fair value of $173. As a result of the exercise of those options, the Company received a compensation deduction for tax purposes of approximately $3,882. Accordingly, a tax benefit of approximately $1,409 was credited to capital in excess of par. Also during fiscal 2002, the Company received an additional compensation deduction of approximately $1,118 due to the early disposition of certain incentive stock options exercised by employees. Accordingly, a tax benefit of approximately $406 was credited to capital in excess of par. During fiscal 2001, options for 458 shares of common stock were exercised, with an aggregate exercise price of $2,604. As a result of the exercise of those options, the Company received a compensation deduction for tax purposes of approximately $1,990. Accordingly, a tax benefit of approximately $759 was credited to capital in excess of par. Also during fiscal 2001, the Company received an additional compensation deduction of approximately $1,299 due to the early disposition of certain incentive stock options exercised by employees. Accordingly, a tax benefit of approximately $500 was credited to capital in excess of par. During fiscal 2000, options for 1,422 shares of common stock were exercised, with an aggregate exercise price of $4,408. As a result of the exercise of those options, the Company received a compensation deduction for tax purposes of approximately $4,700. Accordingly, a tax benefit of approximately $1,833 was credited to capital in excess of par. A summary of stock option activity is as follows:
Fiscal Year Ended September 30, --------------------------------------------------------------------- 2002 2001 2000 --------------------- --------------------- --------------------- Weighted Weighted Weighted average average average Number exercise Number exercise Number exercise of shares price of shares price of shares price --------- -------- --------- -------- --------- -------- Outstanding at beginning of year 4,853 $5.62 4,536 $5.71 3,720 $4.53 Exercised (480) $4.32 (458) $5.67 (1,422) $2.87 Forfeited (30) $5.13 (50) $4.75 Granted 805 $5.47 2,288 $5.88 ----- ----- ----- ----- ------ ----- Outstanding at end of year 4,373 $5.77 4,853 $5.62 4,536 $5.71 ===== ===== ===== ===== ====== ===== Exercisable at end of year 4,373 $5.77 4,853 $5.62 4,536 $5.71 ===== ===== ===== ===== ====== ===== Fair value of options granted during year $3.80 $3.64 ===== =====
F-22 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- The following table summarizes information about stock options outstanding at September 30, 2002:
Options Outstanding Options Exercisable -------------------------------------- ----------------------- Weighted Average Weighted Weighted Remaining Average Average Range of Shares Contractual Exercise Shares Exercise Exercise Prices Outstanding Life Price Exercisable Price - --------------- ----------- ----------- -------- ----------- -------- $4.75 - $6.19 4,373 7.2 years $5.77 4,373 $5.77
The Company applies APB Opinion 25 and related interpretations in accounting for stock options; accordingly, no compensation cost has been recognized in the year of grant. Had compensation cost been determined based upon the fair value of the stock options at grant date, consistent with the method under SFAS No. 123, the Company's net income and earnings per share for fiscal 2001 and 2000 would have been reduced to the following pro forma amounts indicated. There were no grants during fiscal 2002. Therefore, the pro forma and actual net income and related EPS are the same as amounts reported.
Fiscal year ended September 30, --------------------------------- 2002 2001 2000 ---- ---- ---- Net income attributable to common stockholders as reported $95,791 $41,925 $51,508 Pro forma net income $95,791 $40,034 $46,428 Basic EPS as reported $ 1.45 $ .64 $ .77 Diluted EPS as reported $ 1.41 $ .62 $ .74 Pro forma basic EPS $ 1.45 $ .61 $ .69 Pro forma diluted EPS $ 1.41 $ .60 $ .67
Under SFAS No. 123, the fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 2000 and 2001: (a) expected life of option of 4.8 years and 6.7 years; (b) dividend yield of 0%; (c) expected volatility of 70%; and (d) risk-free interest rate of 6% and 5%, respectively. 15. Employee Benefit Plans The Company sponsors a 401(k) plan covering substantially all employees with more than 6 months of service. As allowed under Section 401(k) of the Internal Revenue Code, the Plan provides tax-deferred salary deductions for eligible employees. Employees may contribute from 1% to 50% of their annual compensation to the Plan, limited to a maximum annual amount as set periodically by the Internal Revenue Service. Company contributions are 2% of the participant's gross earnings to an annual maximum contribution of $4 per participant. Employees become fully vested in employer contributions after 3 years of service. The Company also sponsors an Employee Stock Ownership Plan and Trust (ESOP) which covers substantially all employees who are employed at calendar year end and have completed one year of service (providing they worked at least 1,000 hours during such plan year). The ESOP is designed to comply with Section 4975(e)(7) and the regulations thereunder of the Internal Revenue Code of 1986, as amended (Code) and is subject to the applicable provisions of the Employee Retirement Income F-23 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- Security Act of 1974 (ERISA). Contributions are made on a voluntary basis by the Company. There is no minimum contribution required in any one year. There are no contributions required or permitted to be made by an employee. All contributions are allocated to participant accounts as defined. Employees become vested in their respective accounts after 5 years of service, provided the Plan is not considered top-heavy. If the Plan is considered top-heavy, employees will become vested after 3 years of service. For more information regarding the plan, please refer to the Company's annual Form 11-K filings of the Plan. The accompanying financial statements reflect contributions to these plans in the approximate amount of $1,429, $1,480 and $1,670 for the fiscal years ended September 30, 2002, 2001 and 2000, respectively. 16. Litigation A consolidated stockholder derivative action was filed in 2000 in the Chancery Court in Delaware against certain officers and directors of the Company. The derivative claim alleged that the named officers and directors failed to disclose material facts during the period from January 27, 2000 to June 15, 2000, which purportedly resulted in a decline in the price of the Company's stock after June 15, 2000. The derivative action was voluntarily dismissed in December 2002. A consolidated stockholder class action complaint filed in the Eastern District of New York in 2000, predicated on the same facts, was dismissed by that court on September 28, 2002, and the case formally closed on October 31, 2002. On July 25, 2002, a purported consumer class action was filed in New York State Court against several manufacturers and retailers of so-called prohormone supplements including the U.S. retail subsidiary of the Company. Prohormones are substitutes such as androstenedione that plaintiffs allege are hormone precursors ingested to promote muscle growth. Plaintiffs allege that the advertising and labeling of certain pro hormone supplements overstate their efficacy and do not fully disclose their risks, and seek class certification and injunctive and monetary relief. The action was severed into separate class actions against each of the defendants. On December 6, 2002, an amended class action complaint was filed against the U.S. retail subsidiary of the Company that purported to elaborate on the claims initially alleged. The Company believes that this action is without merit, and intends to move to dismiss the amended pleading and to vigorously defend against the claims asserted. However, because this action is in its early stages, no determination can be made at this time as to the final outcome. On August 28, 2001, the Company was also named as a defendant, along with other companies, in a purported class action commenced in an Alabama state court. Plaintiffs allege that NBTY manufactured and marketed misbranded nutrition bars and seek class certification, injunctive declaratory, and monetary relief. Class discovery is being taken, and a hearing is currently scheduled for the spring of 2003 to determine whether a class should be certified. NBTY is vigorously defending class certification on the basis that the plaintiffs were not damaged as alleged as a result of any action by NBTY. In addition, NBTY contends that this matter is not appropriate for class certification because the named plaintiffs are inadequate class representatives and not typical of persons who purchased the nutrition bars in these proceedings. On October 3, 2002, the Company was named as a defendant in a second purported class action commenced in the same Alabama state court as the above-identified litigation. Plaintiffs, in an attempt to pursue several retailers, including NBTY, and not manufacturers of nutrition bars, allege F-24 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- that NBTY marketed misbranded nutrition bars. In November 2002, NBTY filed a motion to dismiss or abate the lawsuit based on the principle that the court lacks subject-matter jurisdiction because the earlier-filed lawsuit, which seeks identical relief for the same purported class action against the manufacturers, preempts this second attempt to certify a class against NBTY. The Company believes that both Alabama suits are without merit. However, no determination can be made as of the date of this report as to the final outcome of these suits. In addition to the foregoing, other claims, suits and complaints arise in the ordinary course of the Company's business. The Company believes that such other claims, suits and complaints would not have a material adverse effect on the Company's consolidated financial condition or results of operations, if adversely determined against the Company. The Company is a plaintiff in a vitamin antitrust litigation brought in the United States District Court in the District of Columbia against F. Hoffman-La Roche Ltd. and others for alleged price fixing. Certain of the defendants have pleaded guilty in criminal proceedings arising from the same set of facts. Partial settlements with certain defendants have been made and negotiations with other defendants are currently being held. In fiscal 2002 and 2000, the Company received $21,354 and $2,511, respectively, in partial settlement of ongoing price fixing litigation. 17. Segment Information The Company's segments are organized by sales market on a worldwide basis. The Company's management reporting system evaluates performance based on a number of factors; however, the primary measure of performance is the pre- tax operating income or loss (prior to corporate allocations) of each segment. The Company's segment reporting disclosures have been changed to exclude corporate general and administrative allocations, as this is the key performance indicator reviewed by management. Prior periods presented have been reclassified to conform to the current year presentation. Operating income or loss for each segment does not include corporate general and administrative expenses, interest expense and other miscellaneous income/expense items. Such unallocated expenses remain in the corporate segment. The U.K./Ireland retail operations do not include any transfer pricing absorption. The Company reports four worldwide segments: Puritan's Pride/Direct Response, Retail: United States, Retail: United Kingdom/Ireland, and Wholesale. All of the Company's products fall into one of these four segments. The Puritan's Pride/Direct Response segment generates revenue through the sale of its products primarily through mail order catalog and the Internet. Catalogs are strategically mailed to customers who order by mail or phoning customer service representatives in New York, Illinois or the United Kingdom. The Retail United States segment generates revenue through the sale of proprietary brand and third-party products through its 544 Company-operated stores. The Retail United Kingdom/Ireland segment generates revenue through the sale of proprietary brand and third-party products in 468 Company-operated stores. The Wholesale segment (including Network Marketing) is comprised of several divisions each targeting specific market groups. These market groups include wholesalers, distributors, chains, pharmacies, health food stores, bulk and international customers. F-25 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- The following table represents key financial information of the Company's business segments (in thousands, except for number of locations):
Fiscal Year Ended September 30, ------------------------------------- 2002 2001 2000 ---- ---- ---- Puritan's Pride/Direct Response Revenue $ 183,313 $ 172,203 $ 182,693 Operating income 66,273 67,264 67,714 Depreciation and amortization 5,347 4,991 4,019 Identifiable assets 67,337 71,821 69,513 Capital expenditures 925 407 1,980 Retail: United States Revenue $ 198,602 $ 174,987 $ 149,055 Operating loss (4,975) (12,737) (7,722) Depreciation and amortization 13,235 13,820 11,314 Identifiable assets 73,278 79,401 78,672 Capital expenditures 4,633 9,118 25,173 Locations open at end of year 544 525 476 United Kingdom/Ireland Revenue $ 290,881 $ 262,876 $ 248,602 Operating income 79,420 59,654 45,459 Depreciation and amortization 8,295 12,564 12,282 Identifiable assets 225,471 220,662 200,373 Capital expenditures 3,773 7,829 13,949 Locations open at end of year 468 461 427 Wholesale: Revenue $ 291,287 $ 196,832 $ 140,506 Operating income 60,197 27,234 31,060 Depreciation and amortization 1,155 1,434 1,100 Identifiable assets 36,123 51,451 17,003 Capital expenditures 1,370 1,310 1,486 Corporate: Recovery of raw material costs $ 21,354 $ - $ 2,511 Corporate expenses (66,623) (54,322) (41,703) Depreciation and amortization - manufacturing 9,909 8,291 6,950 Depreciation and amortization - other 4,251 3,846 2,836 Corporate manufacturing identifiable assets 332,468 285,127 238,052 Capital expenditures - manufacturing 5,677 9,916 4,439 Capital expenditures - other 5,111 8,617 4,759
F-26 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - ---------------------------------------------------------------------------
Fiscal Year Ended September 30, ------------------------------------ 2002 2001 2000 ---- ---- ---- Consolidated totals: Revenue $964,083 $806,898 $720,856 Operating income 155,646 87,093 97,319 Depreciation and amortization 42,192 44,946 38,501 Identifiable assets 734,677 708,462 603,613 Capital expenditures 21,489 37,197 51,786 Revenue by location of customer United States $658,732 $530,361 $458,543 United Kingdom/Ireland 290,881 262,876 248,602 Other foreign countries 14,470 13,661 13,711 -------- -------- -------- Consolidated totals $964,083 $806,898 $720,856 ======== ======== ======== Long-lived assets United States $257,308 $267,690 $238,019 United Kingdom 152,349 147,254 148,269 -------- -------- -------- Consolidated totals $409,657 $414,944 $386,288 ======== ======== ========
18. Related Party Transactions An entity owned by a relative of a director received sales commissions of $585, $501 and $520 in fiscal 2002, 2001 and 2000, respectively, and had trade receivable balances approximating $3,632 and $3,142 at September 30, 2002 and 2001, respectively. An entity owned by a relative of a director performed landscaping and maintenance on the Company's properties and received compensation of $93, $128 and $80 in 2002, 2001 and 2000, respectively. F-27 NBTY, Inc. and Subsidiaries Notes to Consolidated Financial Statements (in thousands, except per share amounts) - --------------------------------------------------------------------------- 19. Quarterly Results of Operations (Unaudited) The following is a summary of the unaudited quarterly results of operations for fiscal 2002 and 2001:
Quarter ended ------------------------------------------------------- December 31, March 31, June 30, September 30, ------------ --------- -------- ------------- 2002: Net sales $215,090 $251,544 $251,987 $245,462 Gross profit 114,180 138,555 140,080 137,657 Income before income taxes 18,153 41,581 49,286 29,687 Net income 11,164 25,571 29,707 29,349 Net income per diluted share $ .17 $ .38 $ .44 $ .43 (b) 2001: Net sales $166,829 $224,775 $203,926 $211,368 Gross profit 92,324 126,971 116,466 115,970 Income before income taxes 1,038 29,183 21,734 15,928 (a) Net income 639 17,948 13,366 9,972 Net income per diluted share $ .01 $ .27 $ .20 $ .15 (b) (a) A year-end inventory adjustment resulted in an increase to pre-tax income of approximately $3,900 in 2001. This adjustment was due to the Company utilizing the gross profit method to value inventory during interim periods and the year-end valuation of the Company's annual physical inventory. (b) Amounts may not equal fiscal year totals due to rounding.
20. Subsequent Event On December 11, 2002, the Company signed a letter of intent to purchase a chain of health food stores located throughout the Netherlands for approximately [Euro] 16,500 (approximately $16,620) in cash. The chain has annual net sales of approximately $30,219. The transaction, which is subject to certain Dutch approvals, is expected to be completed in the first quarter of 2003. F-28 SCHEDULE II NBTY, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts For the years ended September 30, 2002, 2001 and 2000
(Dollars in thousands) Column A Column B Column C Column D Column E Additions Balance at Charged to Charged to Balance at beginning costs and Other end of Description of period expenses Accounts Deductions period ----------- ---------- ---------- ---------- ---------- ---------- Fiscal year ended September 30, 2002: Allowance for doubtful accounts $ 3,222 $1,064 $ (92)(a) $ 4,194 Valuation allowance for deferred tax assets $12,975 $(4,700)(b) $ 8,275 Fiscal year ended September 30, 2001 Allowance for doubtful accounts $ 1,227 $2,014 $ (19)(a) $ 3,222 Valuation allowance for deferred tax assets $12,975 $12,975 Fiscal year ended September 30, 2000 Allowance for doubtful accounts $ 1,248 $ 6 $ (27)(a) $ 1,227 Valuation allowance for deferred tax assets $12,975 $12,975 - -------------------- (a) Uncollectible accounts written off. (b) Utilization of foreign tax credits.
S-1 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NBTY, Inc. (Registrant) By: /s/ Scott Rudolph ------------------------------------ Scott Rudolph Chairman and Chief Executive Officer Dated: December 18, 2002 Pursuant to the requirements of the Exchange Act, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Scott Rudolph Chairman and - -------------------------- Chief Executive Officer Scott Rudolph (Principal Executive Officer) December 18, 2002 /s/ Harvey Kamil President and Chief - -------------------------- Financial Officer Harvey Kamil (Principal Operating Officer, Principal Financial and Accounting Officer) December 18, 2002 /s/ Arthur Rudolph Director December 18, 2002 - -------------------------- Arthur Rudolph /s/ Aram Garabedian Director December 18, 2002 - -------------------------- Aram Garabedian /s/ Bernard G. Owen Director December 18, 2002 - -------------------------- Bernard G. Owen Signature Title Date --------- ----- ---- /s/ Alfred Sacks Director December 18, 2002 - -------------------------- Alfred Sacks /s/ Murray Daly Director December 18, 2002 - -------------------------- Murray Daly /s/ Glenn Cohen Director December 18, 2002 - -------------------------- Glenn Cohen /s/ Nathan Rosenblatt Director December 18, 2002 - -------------------------- Nathan Rosenblatt /s/ Michael L. Ashner Director December 18, 2002 - -------------------------- Michael L. Ashner /s/ Michael C. Slade Director December 18, 2002 - -------------------------- Michael C. Slade /s/ Peter White Director December 18, 2002 - -------------------------- Peter White
CERTIFICATIONS -------------- I, Scott Rudolph, certify that: 1. I have reviewed this annual report on Form 10-K of NBTY, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to name the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of , and for, the periods presented in the annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions); (a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective action with regard to significant deficiencies and material weaknesses. Dated: December 19, 2002 -- Signature: /s/ Scott Rudolph ------------------------------------ Scott Rudolph Principal Executive Officer 2 CERTIFICATIONS -------------- I, Harvey Kamil, certify that: 1. I have reviewed this annual report on Form 10-K of NBTY, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to name the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of , and for, the periods presented in the annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: (a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions); (a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective action with regard to significant deficiencies and material weaknesses. Dated: December 19, 2002 -- Signature: /s/ Harvey Kamil ------------------------------------ Harvey Kamil Principal Financial Officer 2 EX-3 3 nbtyk-x3.txt EXHIBIT 3.1 Exhibit 3.1 RESTATED CERTIFICATE OF INCORPORATION NATURE'S BOUNTY, 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 Nature's Bounty, Inc., a resolution was adopted in accordance with Section 245 of the General Corporation Law of 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 NATURE'S BOUNTY, 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 purposed to be transacted, promoted and carried on are to do any or 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 2 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 omission 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 3 (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 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 (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. (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 5 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 public stockholders 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 6 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 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 7 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 8 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 written consent of holders of not less than seventy-five (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 meeting 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 9 the outstanding shares of stock of the corporation entitled to vote in elections of directors, considered for 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. 10 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 NATURE'S BOUNTY, 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 ------------------------------------ Scott Rudolph, President /s/ Harvey Kamil ------------------------------------ Harvey Kamil, Secretary 11 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION NATURE'S BOUNTY, INC., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: That at a meeting of the Board of Directors of NATURE'S BOUNTY, INC. resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Restated Certificate of Incorporation of this corporation be amended by changing the name of the corporation from NATURE'S BOUNTY, INC. to NBTY, INC. This amendment was approved by the majority vote of stockholders at a meeting thereof on April 7, 1995. That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said NATURE'S BOUNTY, 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 25th day of May 1995. /s/ Scott Rudolph ------------------------------------ Scott Rudolph, President /s/ Harvey Kamil ------------------------------------ Harvey Kamil, Secretary CERTIFICATE OF AMENDMENT OF 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, FIRST: That at a meeting of the Board of Directors of NBTY, INC., resolutions were duly adopted setting forth a proposed amendment of the Restated Certificate of Incorporation of said Corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said Corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this Corporation be amended by changing the Article thereof numbered "Fourth" so that, as amended said Article shall be and read as follows: "Fourth: The Corporation shall be authorized to issue 75,000,000 shares of Common Stock, all of which shall have a par value of $.008." SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special 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. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. FOURTH: That the capital of said Corporation shall not be reduced under or by reason of said amendment. 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 10th day of March, 1998. By: /s/ Scott Rudolph By:/s/ Harvey Kamil - ----------------------------------- ------------------------------------ Scott Rudolph, President Harvey Kamil, Secretary (Corporate Seal) CERTIFICATE OF AMENDMENT OF 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. resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Fourth Article of the Restated Certificate of Incorporation of NBTY Inc., as heretofore amended, is further amended to read as follows: FOURTH: The total number of shares of stock which this Corporation is authorized to issue is ONE HUNDRED SEVENTY-FIVE MILLION (175,000,000) shares of common stock of the par value of $.008 per share. No stockholder as such shall be entitled as a matter of right to subscribe for, purchase or receive any shares of the stock of any class or any rights or options of the Corporation which, it may issue or sell, whether out of the number of shares authorized by this Certificate of Incorporation or by amendment thereof or out of the shares of the stock of the Corporation acquired by it after the issuance thereof, nor shall any stockholder be entitled as a matter of right to subscribe for, purchase or receive any bonds, debentures or other securities which the Corporation may issue or sell that shall be convertible into or exchangeable for stock of any class or to which shall be attached or appertain any warrant or warrants or other instrument or instruments that shall confer upon the holder or owner of such obligation the right to subscribe for, purchase or receive from the Corporation any shares of its capital stock. But all such additional issues of stock, rights and options, or of bonds, debentures or other securities convertible into or exchangeable for stock or to which warrants shall be attached or appertain or which shall confer upon the holder the right to subscribe for, purchase or receive any shares or stock, may be issued and disposed of by the Board of Directors to such person, firms or corporations and upon such terms as in their absolute discretion they may deem advisable. This amendment was approved by the majority vote or stockholders at a meeting thereof on April 12, 1999. That said amendment was duly adopted in accordance with the provisions of Section 242 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 12th day of April, 1999. /s/ Scott Rudolph ------------------------------------ Scott Rudolph, President /s/ Harvey Kamil ------------------------------------ Harvey Kamil, Secretary EX-10 4 nbtk-101.txt EXHIBIT 10.1 Exhibit 10.1 EXECUTION COPY -------------- =============================================================================== THIRD AMENDED AND RESTATED CREDIT AND GUARANTEE AGREEMENT Dated as of April 27, 2001 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 _______________________________________ JPMORGAN, a division of Chase Securities Inc., as Bookrunner and Lead Arranger =============================================================================== JPMorgan [LOGO] Table of Contents Page ---- SECTION 1. DEFINITIONS 1 1.1. Defined Terms 1 1.2. Other Definitional Provisions 22 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 22 2.1. Revolving Credit Commitments 22 2.2. Procedure for Revolving Credit Borrowing 23 2.3. Repayment of Revolving Credit Loans; Evidence of Debt 23 2.4. Termination or Reduction of Revolving Credit Commitments 24 2.5. Swing Line Commitment 25 2.6. Term Loan Commitments 26 2.7. Procedure for Term Loan Borrowing 26 2.8. Repayment of Term Loans; Evidence of Debt 27 2.9. Termination or Reduction of Term Loan Commitments 29 2.10. New Revolving Credit Commitments 29 2.11. Procedure for New Revolving Credit Borrowing 30 2.12. Repayment of New Revolving Credit Loans; Evidence of Debt 30 2.13. Termination or Reduction of New Revolving Credit Commitments 32 SECTION 3. AMOUNT AND TERMS OF POUNDS STERLING COMMITMENT 32 3.1. Pounds Sterling Commitments 32 3.2. Making the Pounds Sterling Loans 33 3.3. Repayment of Pounds Sterling Loans; Evidence of Debt 34 SECTION 4. LETTERS OF CREDIT 34 4.1. Letters of Credit 34 4.2. Procedure for Issuance of Letters of Credit 35 4.3. Participating Interests 36 4.4. Payments 36 4.5. Further Assurances 37 4.6. Obligations Absolute 37 4.7. Letter of Credit Application 37 4.8. Purpose of Letters of Credit 38 SECTION 5. GENERAL PROVISIONS 38 5.1. Interest Rates and Payment Dates 38 5.2. Conversion and Continuation Options 38 5.3. Minimum Amounts of Tranches 39 i Page ---- 5.4. Optional and Mandatory Prepayments 39 5.5. Commitment Fees; Other Fees 41 5.6. Computation of Interest and Fees 43 5.7. Inability to Determine Interest Rate 43 5.8. Pro Rata Treatment and Payments 44 5.9. Illegality 46 5.10. Requirements of Law 47 5.11. Indemnity 48 5.12. Taxes 48 5.13. Use of Proceeds 50 5.14. Change in Lending Office; Replacement of Lender 51 SECTION 6. REPRESENTATIONS AND WARRANTIES 51 6.1. Financial Condition 51 6.2. No Change 52 6.3. Corporate Existence; Compliance with Law 52 6.4. Corporate Power; Authorization; Enforceable Obligations 52 6.5. No Legal Bar 53 6.6. No Material Litigation 53 6.7. No Default 53 6.8. Ownership of Property; Liens 53 6.9. Intellectual Property 54 6.10. No Burdensome Restrictions 54 6.11. Taxes 54 6.12. Federal Regulations 54 6.13. ERISA 55 6.14. Investment Company Act; Other Regulations 55 6.15. Subsidiaries 55 6.16. Environmental Matters 55 6.17. Solvency 56 6.18. Security Documents 56 6.19. Accuracy of Information 57 SECTION 7. CONDITIONS PRECEDENT 57 7.1. Conditions to Closing Date 57 7.2. Conditions to Each Extension of Credit 60 7.3. Conditions to Initial Extension of Credit to the Foreign Subsidiary Borrower 60 7.4. Conditions to Each Extension of Credit under the New Revolving Credit Commitments 61 SECTION 8. AFFIRMATIVE COVENANTS 62 8.1. Financial Statements 62 ii Page ---- 8.2. Certificates; Other Information 63 8.3. Payment of Obligations 64 8.4. Maintenance of Existence 64 8.5. Maintenance of Property; Insurance 64 8.6. Inspection of Property; Books and Records; Discussions 64 8.7. Notices 65 8.8. Environmental Laws 65 8.9. Additional Subsidiaries 66 SECTION 9. NEGATIVE COVENANTS 67 9.1. Financial Condition Covenants 67 9.2. Limitation on Indebtedness 68 9.3. Limitation on Liens 69 9.4. Limitation on Guarantee Obligations 70 9.5. Limitation on Fundamental Changes 70 9.6. Limitation on Sale of Assets 71 9.7. Limitation on Dividends and Other Restricted Payments 71 9.8. Limitation on Capital Expenditures 71 9.9. Limitation on Investments, Loans and Advances 71 9.10. Limitation on Optional Payments and Modifications of Debt Instruments 72 9.11. Limitation on Transactions with Affiliates 72 9.12. Limitation on Sales and Leasebacks 73 9.13. Limitation on Changes in Fiscal Year 73 9.14. Limitation on Negative Pledge Clauses 73 9.15. Limitation on Lines of Business 73 SECTION 10. GUARANTEE 73 10.1. Guarantee 73 10.2. No Subrogation 74 10.3. Amendments, etc. with respect to the Foreign Subsidiary Obligations; Waiver of Rights 74 10.4. Guarantee Absolute, Irrevocable and Unconditional 75 10.5. Reinstatement 76 10.6. Payments 76 SECTION 11. EVENTS OF DEFAULT 76 SECTION 12. THE ADMINISTRATIVE AGENT AND THE ARRANGER 80 12.1. Appointment 80 12.2. Delegation of Duties 80 12.3. Exculpatory Provisions 80 12.4. Reliance by Administrative Agent 81 iii Page ---- 12.5. Notice of Default 81 12.6. Non-Reliance on Administrative Agent and Other Lenders 81 12.7. Indemnification 82 12.8. Administrative Agent in Its Individual Capacity 82 12.9. Successor Administrative Agent 83 12.10. Issuing Lender and Collateral Agent 83 SECTION 13. MISCELLANEOUS 83 13.1. Amendments and Waivers 83 13.2. Notices 84 13.3. No Waiver; Cumulative Remedies 85 13.4. Survival of Representations and Warranties 85 13.5. Payment of Expenses and Taxes 85 13.6. Successors and Assigns; Participation and Assignments 86 13.7. Adjustments; Set-off 89 13.8. Counterparts 89 13.9. Severability 90 13.10. Integration 90 13.11. GOVERNING LAW 90 13.12. Submission to Jurisdiction; Waivers 90 13.13. Acknowledgements 91 13.14. WAIVERS OF JURY TRIAL 91 13.15. Power of Attorney 91 13.16. Judgment 92 13.17. Confidentiality 92 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 A-3 Form of Term Note A-4 Form of New Revolving Credit Note B 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 counsel to the Foreign Subsidiary Borrower G Form of Closing Certificate H Form of Tax Certificate I Form of Acknowledgment and Consent v THIRD AMENDED AND RESTATED CREDIT AND GUARANTEE AGREEMENT, dated as of April 27, 2001, 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 (in such capacity, the "Administrative Agent"). W I T N E S S E T H : - - - - - - - - - - - WHEREAS, the Borrowers, certain lenders and the Administrative Agent are parties to that certain Second Amended and Restated Credit and Guarantee Agreement, dated as of July 17, 2000 (the "Existing Credit Agreement"); and WHEREAS, the Company intends to acquire from Whole Foods Market, Inc. and from its wholly-owned subsidiary, Whole Foods Market Group, Inc., all of the membership interests in WFM NatureSmart, LLC, BioSmart Direct Sales, LLC and Physiologics, LLC (collectively, "NatureSmart") and substantially all of the assets of Global Health Sciences, Inc., Global Health Sub, Inc., Raven Industries, Inc. (dba Omni-Pak Industries) and D&F Industries, Inc. (collectively, "Global Health"); and WHEREAS, the Borrowers have requested the Lenders to amend and restate the Existing Credit Agreement to provide, among other things, for the financing of the Global Health Acquisition (as defined below) and the NatureSmart Acquisition (as defined below), and to continue to provide financing for the working capital and general corporate purposes of the Company and its Subsidiaries; and WHEREAS, the Lenders are willing to enter into this Agreement to amend and restate the Existing Credit Agreement but only on the terms and conditions hereof, including the condition precedent that this Agreement be executed and delivered by each Lender hereunder; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties hereto agree to amend and restate the Existing Credit Agreement in its entirety to read 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. "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 New Revolving Credit Commitments": as at any date of determination with respect to all New Revolving Credit Lenders, an amount in U.S. Dollars equal to the Available New Revolving Credit Commitments of all New Revolving Credit Lenders on such date. "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 Available Term Loan Commitments": as at any date of determination with respect to all Lenders, an amount in U.S. Dollars equal to the Available Term Loan Commitments of all Lenders on such date. "Aggregate Existing New Revolving Credit Commitments": the aggregate amount of the Existing New Revolving Credit Commitments of all New Revolving Credit Lenders. "Aggregate New Revolving Credit Commitments": the aggregate amount of the New Revolving Credit Commitments of all New Revolving Credit Lenders. "Aggregate New Revolving Credit Commitment Increases": the aggregate amount of the New Revolving Credit Commitment Increases of all New Revolving Credit Lenders. "Aggregate New Revolving Credit Outstanding": as at any date of determination with respect to any New Revolving Credit Lender, the aggregate unpaid principal amount of such New Revolving Credit Lender's New Revolving Credit Loans 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. 2 "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. "Aggregate Term Loan Commitments": the aggregate amount of the Term Loan Commitments of all the Lenders. "Agreement": this Third Amended and Restated 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. "Amendment Fee": as defined in subsection 5.5(c). "Annualized": with respect to the determination of any financial results for any period, 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 based on 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), for any quarterly period: 3
Applicable Margin Relevant Ratio of For Eurodollar Applicable Margin Applicable Consolidated Indebtedness Loans and Pounds for Alternate Margin for to Consolidated EBITDA Sterling Loans Base Rate Loans Commitment Fee - ------------------------- ----------------- ----------------- -------------- Greater than or equal to 2.50% 1.50% 0.50% 2.50x ("Level I") Less than 2.50x but greater 2.25% 1.25% 0.375% than or equal to 2.00x ("Level II") Less than 2.00x but greater 2.00% 1.00% 0.375% than or equal to 1.50x ("Level III") Less than 1.50x but greater 1.50% 0.50% 0.25% than or equal to 1.00x ("Level IV") Less than 1.00x ("Level V") 1.00% -0- 0.25%
Up to and including March 31, 2002, notwithstanding the relevant ratio of Consolidated Indebtedness to Consolidated EDITDA, the applicable pricing shall not be lower than the pricing set forth in Level II, but may be as set forth in Level I. 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 after 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 4 delivered (without giving effect to any applicable cure period) until the date upon which they actually are delivered shall, except 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 such 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, New Revolving Credit Loans and Term Loans shall be 3.00%, in the case of Eurodollar Loans, and 2.00%, 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 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 New Revolving Credit Commitment": as at any date of determination with respect to any New Revolving Credit Lender, an amount in U.S. Dollars equal to the excess, if any, of (a) the amount of such New Revolving Credit Lender's New Revolving Credit Commitment in effect on such date over (b) the Aggregate New Revolving Credit Outstanding of such New Revolving Credit Lender on such date. "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. "Available Term Loan 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 Term Loan Commitment in effect on such date over (b) the aggregate principal amount of Term Loans theretofore made hereunder by such Lender. "Benefitted Lender": as defined in subsection 13.7. 5 "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), 2.7, 2.11, 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 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, participations 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 Ratings Group ("S&P") or P-2 by 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. 6 "Chase": The Chase Manhattan Bank. "Class": the classification of loans as New Revolving Credit Loans, Revolving Credit Loans, Term 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 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 New Revolving Credit Commitments, Revolving Credit Commitments, the Term Loan Commitments, the 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 Company and its Subsidiaries during the next succeeding twelve-month period determined in accordance with GAAP, excluding, however, from such indebtedness the Revolving Credit Loans, the Swing Line Loans and the Pounds Sterling 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 and (iii) the Annualized amount of taxes, depreciation and amortization deducted from earnings in determining such Consolidated Net Income. "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 clauses (i) and (ii), for such period; provided that, to the extent included in determining such Annualized Capital Expenditures, Capital Expenditures made by the Foreign Subsidiary Borrower during the fiscal year ended September 30, 1998 relating to point of sale equipment, not exceeding, in the aggregate, $10,000,000, shall be excluded from such Annualized Capitalized Expenditures. "Consolidated Indebtedness": at a particular date, all Indebtedness of the Company and its Subsidiaries, determined on a consolidated basis. 7 "Consolidated Interest Expense": for any fiscal period, the amount which would, in conformity with GAAP, be set forth opposite the caption "interest expense" (or any like caption) on a consolidated income statement of the Company and its Subsidiaries for such period. "Consolidated Net Income": for any fiscal period, the consolidated net income (or deficit) of the Company and its Subsidiaries for such period (taken as a cumulative whole), determined on a consolidated basis in accordance with GAAP; provided, that any non-cash extraordinary gains and losses shall be excluded in determining Consolidated Net Income. "Consolidated Net Worth": at a particular date, all amounts which would, in conformity with GAAP, be included on a consolidated balance sheet of the Company and its Subsidiaries under "stockholders' equity" (or any like caption) as of such date. "Continuing Directors": the directors of the Company on the Existing Closing Date and each other director, if such other director's nomination for election to the Board of Directors of the Company is recommended by a majority of the then Continuing Directors. "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound. "Default": any of the events specified in Section 11, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Dollars", "U.S. Dollars" and "$": dollars in lawful currency of the United States of America. "Domestic Subsidiary": any Subsidiary other than a Foreign Subsidiary. "Drawdown Fee": as defined in subsection 5.5(c). "English Security Documents": the collective reference to (i) a Debenture by the Company in favor of the Administrative Agent for the 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. 8 "Environmental Laws": any and all applicable Federal, foreign, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, and 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. "Eurodollar Loans": Revolving Credit Loans and Term 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, 9 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. "Existing Closing Date": July 17, 2000. "Existing New Revolving Credit Commitment": as to any New Revolving Credit Lender at any time, its obligation to make New Revolving Credit Loans to the Company in an aggregate amount not to exceed at any time outstanding the U.S. Dollar amount set forth opposite such New Revolving Credit Lender's name in Schedule I under the heading "Existing New Revolving Credit Commitments", as such amount may be changed from time to time pursuant to subsection 2.13 and the other applicable provisions hereof. "Existing New Revolving Credit Commitment Percentage": as to any New Revolving Credit Lender at any time, the percentage which such New Revolving Credit Lender's Existing New Revolving Credit Commitment then constitutes of the Aggregate Existing New Revolving Credit Commitments. "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. "Global Health": as defined in the recitals hereto. 10 "Global Health Acquisition": the acquisition by the Company of substantially all of the assets of Global Health pursuant to an asset purchase agreement entered into among the Company and Global Health. "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 Amended and Restated Guarantee and Collateral Agreement, attached hereto as Exhibit B, executed and delivered 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 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. 11 "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. "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 or upon the application 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 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; 12 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 date final payment is due on such Loan shall end on such date of final payment; 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. "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 13 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, the Security Documents and 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 New Revolving Credit Loans, Revolving Credit Loans, the Term 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 Total Loan 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 (computed for the most recent fiscal year) 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. "NatureSmart": as defined in the recitals hereto. "NatureSmart Acquisition": the acquisition by the Company of all of the membership interests in NatureSmart pursuant to a certain purchase agreement to be entered into among the Company and Whole Foods Market, Inc. "Net Cash Proceeds": (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of attorneys' fees, 14 accountants' fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset that is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Security Document) and other customary fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements) and (b) in connection with any issuance or sale of Capital Stock or any incurrence of Indebtedness, the cash proceeds received from such issuance or incurrence, net of attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. "New Loan Party": each Subsidiary of the Company that becomes a Loan Party as of the Closing Date. "New Revolving Credit Commitment": as to any New Revolving Credit Lender at any time, its obligation to make New Revolving Credit Loans to the Company in an aggregate amount not to exceed at any time outstanding the sum of the U.S. Dollar amounts set forth opposite such New Revolving Credit Lender's name in Schedule I under the headings "Existing New Revolving Credit Commitments" and "New Revolving Credit Commitment Increases", as such amount may be changed from time to time pursuant to subsection 2.13 and the other applicable provisions hereof. "New Revolving Credit Commitment Increase": as to any New Revolving Credit Lender at any time, its obligation to make New Revolving Credit Loans to the Company in an aggregate amount not to exceed at any time outstanding the U.S. Dollar amount set forth opposite such New Revolving Credit Lender's name in Schedule I under the heading "New Revolving Credit Commitment Increases", as such amount may be changed from time to time pursuant to subsection 2.13 and the other applicable provisions hereof. "New Revolving Credit Commitment Increase Percentage": as to any New Revolving Credit Lender at any time, the percentage which such New Revolving Credit Lender's New Revolving Credit Commitment Increase then constitutes of the Aggregate New Revolving Credit Commitment Increases. "New Revolving Credit Commitment Percentage": as to any New Revolving Credit Lender at any time, the percentage which such New Revolving Credit Lender's New Revolving Credit Commitment then constitutes of the Aggregate New Revolving Credit Commitments (or, after the New Revolving Credit Conversion Date, or if the New Revolving Credit Commitments have terminated, the percentage which (a) the Aggregate New Revolving Credit Outstanding of such New Revolving Credit Lender at such time then constitutes of (b) the Aggregate New Revolving Credit Outstanding of all New Revolving Credit Lenders at such time). "New Revolving Credit Commitment Period": the period from and including the Closing Date to but not including the New Revolving Credit Conversion Date, or such 15 earlier date on which the New Revolving Credit Commitments shall terminate as provided herein. "New Revolving Credit Conversion Date": August 31, 2001. "New Revolving Credit Lender": any Lender with a New Revolving Credit Commitment hereunder or any New Revolving Credit Loans outstanding; collectively, the "New Revolving Credit Lenders". "New Revolving Credit Loan": as defined in subsection 2.10. "New Revolving Credit Note": as defined in subsection 2.12(f). "Non-Excluded Taxes": as defined in subsection 5.12(a). "Notes": the collective reference to the New Revolving Credit Notes, the Revolving Credit Notes, the Term Notes, the Swing Line Notes and any note delivered pursuant to subsection 7.3(e). "Nutrition Warehouse": Nutrition Warehouse, Inc. "Nutrition Warehouse Acquisition": the acquisition by the Company of Nutrition Warehouse and its Affiliates pursuant to a certain stock purchase agreement to be entered into among Jeffrey Schneider, Franca Schneider, Glenn Schneider, Darren Schneider, Nutrition Warehouse Acquisition Corp. and the Company. "Nutrition Warehouse Purchase Amount": the total amount expended for the Nutrition Warehouse Acquisition to finance the cash portion of the purchase price and the refinancing of the Indebtedness of Nutrition Warehouse, its Affiliates and its Subsidiaries. "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, 16 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 or any successor thereto. "Person": an individual, partnership, corporation, business trust, joint stock company, limited liability 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. "Property": each parcel of real property owned or operated by the Company and its Subsidiaries. "Recovery Event": any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of the Company or any of 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 17 Credit Application for any payment made by the Issuing Lender under any Letter of Credit. "Reinvestment Deferred Amount": with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by the Company or any of its Subsidiaries in connection therewith that are not applied to prepay the Term Loans and, after the New Revolving Credit Conversion Date, the New Revolving Credit Loans, pursuant to subsection 5.4(e) as a result of the delivery of a Reinvestment Notice. "Reinvestment Event": any Asset Sale or Recovery Event in respect of which the Company has delivered a Reinvestment Notice. "Reinvestment Notice": a written notice executed by a Responsible Officer of the Company stating that no Event of Default has occurred and is continuing and that the Company (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or Recovery Event to acquire assets useful in its business. "Reinvestment Prepayment Amount": with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire assets useful in the Company's business. "Reinvestment Prepayment Date": with respect to any Reinvestment Event, the earlier of (a) the date occurring six months after such Reinvestment Event and (b) the date on which the Company shall have determined not to, or shall have otherwise ceased to, acquire assets useful in the Company's business with all or any portion of the relevant Reinvestment Deferred Amount. "Release": 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. [SECTION] 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, 18 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 and/or Pounds Sterling 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 changed 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). "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. "SDV Vitamins": SDV Vitamins, a mail order division of Rexall Sundown, Inc. "SDV Vitamins Acquisition": the acquisition by the Company of substantially all of the assets of SDV Vitamins pursuant to an asset purchase agreement entered into by the Company and Rexall Sundown, Inc. "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. 19 "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": $150,000,000 in aggregate principal amount of 8.625% Senior Subordinated Notes of the Company due 2007. "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. "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). "Term Loan": as defined in subsection 2.6. "Term Loan Commitment": as to any Lender at any time, its obligation to make Term Loans to the Company during the Term Loan Commitment Period in an aggregate amount not to exceed at any time outstanding the U.S. Dollar amount set forth opposite 20 such Lender's name in Schedule I to the Existing Credit Agreement under the heading "Term Loan Commitment", as such amount may be changed from time to time pursuant to subsection 2.9 and the other applicable provisions hereof. "Term Loan Commitment Percentage": as to any Lender at any time, the percentage which such Lender's Term Loan Commitment then constitutes of the Aggregate Term Loan Commitments (or, if the Term Loan Commitments have terminated or expired, the percentage which such Lender's aggregate principal amount of Term Loans outstanding then constitutes of the aggregate principal amount of Term Loans outstanding for all Lenders). "Term Loan Commitment Period": the period from and including April 16, 1999 to but not including the Term Loan Termination Date, or such earlier date on which the Term Loan Commitments shall terminate as provided herein. "Term Loan Termination Date": April 16, 2000. "Term Note": as defined in subsection 2.8(f). "Total Loan Percentage": as to any Lender at any time, the percentage which (i) the sum of (x) such Lender's Revolving Credit Commitment (or, if the Revolving Credit Commitments have terminated or expired, the Aggregate Revolving Credit Outstanding of such Lender) plus (y) the sum of such Lender's Available Term Loan Commitment and the aggregate principal amount of Term Loans outstanding for such Lender plus (z) such Lender's New Revolving Credit Commitment (or, after the New Revolving Credit Conversion Date, or if the New Revolving Credit Commitments have terminated, the Aggregate New Revolving Credit Outstanding of such Lender) then constitutes of (ii) the sum of (x) the Aggregate Revolving Credit Commitments (or, if the Revolving Credit Commitments have terminated or expired, the Aggregate Revolving Credit Outstanding of all Lenders) plus (y) the sum of the Aggregate Available Term Loan Commitments and the aggregate principal amount of Term Loans outstanding for all Lenders plus (z) the Aggregate New Revolving Credit Commitments (or, after the New Revolving Credit Conversion Date, or if the New Revolving Credit Commitments have terminated, the Aggregate New Revolving Credit Outstanding of all Lenders). "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. 21 "UP-Front Fee": as defined in subsection 5.5(c). "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. SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 2.1. Revolving 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 does 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. 22 (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 9:00 A.M., New York City time, on the requested Borrowing Date. 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. (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. 23 (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, upon the request of any Lender, execute and deliver to each 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 (each, a "Swing Line Note"); provided, that any Revolving Credit Note or Swing Line Note previously delivered to such Lender (or predecessor thereof) has been returned to the Company and marked canceled. 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 (which shall promptly notify each Lender thereof), 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 Revolving Credit 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, the Pounds Sterling Loans and the 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 24 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 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 which is an ABR Loan in an amount equal to such Lender's Revolving Credit 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. 25 (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 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. 2.6. Term Loan Commitments. On and as of the date hereof, each Lender has made term loans to the Company (each, a "Term Loan") from time to time during the Term Loan Commitment Period in an aggregate principal amount set forth opposite such Lender's name on Schedule I under the heading "Term Loans". The Term Loans may from time to time be (a) Eurodollar Loans, (b) ABR Loans or (c) a combination thereof, as determined by the Company and notified to the Administrative Agent in accordance with subsections 2.9 and 5.2. 2.7. Procedure for Term Loan Borrowing. The Company may borrow under the Term Loan Commitments during the Term Loan 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 City time) at least (a) three Business Days prior to the requested Borrowing Date, if all or any part of the requested Term 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 Term Loan 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 Term Loan 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 9:00 A.M., New York City time, on the requested Borrowing Date. Not later than 12:00 Noon, New York City time, on each requested Borrowing Date, each Lender shall make an amount equal to its Term Loan Commitment Percentage of the principal amount of the Term 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. 26 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. 2.8. Repayment of Term Loans; Evidence of Debt. (a) The aggregate Term Loans of all the Lenders outstanding on the Term Loan Termination Date shall be payable in 20 equal consecutive quarterly installments on the dates set forth below in a principal amount equal to the percentage set forth opposite such date multiplied by the aggregate amount of the Term Loans outstanding on the Term Loan Termination Date (or, if less, the aggregate amount of the Term Loans then outstanding):
Dates Percentage ----- ---------- June 30, 2000 5.0% September 30, 2000 5.0% December 31, 2000 5.0% March 31, 2001 5.0% June 30, 2001 5.0% September 30, 2001 5.0% December 31, 2001 5.0% March 31, 2002 5.0% June 30, 2002 5.0% September 30, 2002 5.0% December 31, 2002 5.0% March 31, 2003 5.0% June 30, 2003 5.0% September 30, 2003 5.0% December 31, 2003 5.0% March 31, 2004 5.0% June 30, 2004 5.0% September 30, 2004 5.0% December 31, 2004 5.0% March 31, 2005 5.0%
(b) The Company hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the amounts specified in subsection 2.8(a) (or if less, the aggregate amount of the Term Loans then outstanding) on the dates specified in subsection 2.8(a) 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 Term 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. (c) 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 Term 27 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. (d) 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 Term 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 Term Loans and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Company in respect of the Term Loans and each Lender's share thereof. (e) The entries made in the Register and the accounts of each Lender maintained pursuant to subsection 2.8(c) 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 Term Loans made to the Company by such Lender in accordance with the terms of this Agreement. (f) The Company agrees that it will, upon the request of any Lender, execute and deliver to each Lender a promissory note of the Company evidencing the Term Loans of such Lender, substantially in the form of Exhibit A-3 with appropriate insertions as to date and principal amount (each, a "Term Note"); provided, that any Term Note previously delivered to such Lender (or any predecessor thereof) has been returned to the Company and marked cancelled. 2.9. Termination or Reduction of Term Loan Commitments. The Company shall have the right, upon not less than five Business Days' notice to the Administrative Agent (which shall promptly notify each Lender thereof), to terminate the Term Loan Commitments or, from time to time, to reduce the amount of the Term Loan Commitments. 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 Term Loan Commitments then in effect. 2.10. New Revolving Credit Commitments. (a) Subject to the terms and conditions hereof, each New Revolving Credit Lender severally agrees to make revolving credit loans (each, a "New Revolving Credit Loan") in U.S. Dollars to the Company from time to time during the New Revolving Credit Commitment Period so long as after giving effect thereto (i) the Available New Revolving Credit Commitment of each New Revolving Credit Lender is greater than or equal to zero and (ii) the Aggregate New Revolving Credit Outstanding of all New Revolving Credit Lenders does not exceed the Aggregate New Revolving Credit Commitments. During the New Revolving Credit Commitment Period, the Company may use the New Revolving Credit Commitments by borrowing, prepaying the New Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. (b) During the New Revolving Credit Commitment Period, the Company shall fully borrow under the Existing New Revolving Credit Commitments prior to making any 28 borrowing under the New Revolving Credit Commitment Increases. On the New Revolving Credit Conversion Date, any Interest Period then applicable to the New Revolving Credit Loans then outstanding shall be terminated and such New Revolving Credit Loans shall be continued with new Interest Periods commencing on such date so that all New Revolving Credit Lenders will be ratable as to each Interest Period based upon their pro rata share of New Revolving Credit Loans then outstanding on such date. Such continuation shall be subject to the provisions of subsection 5.11. (c) The New 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 2.11 and 5.2. 2.11. Procedure for New Revolving Credit Borrowing. The Company may borrow under the New Revolving Credit Commitments during the New 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 New 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 New 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 New 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 New Revolving Credit Lender thereof not later than 9:00 A.M., New York City time, on the requested Borrowing Date. Not later than 12:00 Noon, New York City time, on each requested Borrowing Date each New Revolving Credit Lender shall make an amount equal to its Existing New Revolving Credit Commitment Percentage and/or its New Revolving Credit Commitment Increase Percentage, as the case may be, of the principal amount of the relevant New 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 New Revolving Credit Lenders and in like funds as received by the Administrative Agent. 2.12. Repayment of New Revolving Credit Loans; Evidence of Debt. (a) The aggregate New Revolving Credit Loans of all the New Revolving Credit Lenders outstanding on the New Revolving Credit Conversion Date shall be payable in 16 consecutive quarterly installments on the dates set forth below in a principal amount equal to the percentage set forth opposite such date multiplied by the aggregate amount of the New Revolving Credit Loans outstanding on the New Revolving Credit Conversion Date (or, if less, 29 in a principal amount equal to the aggregate amount of the New Revolving Credit Loans then outstanding):
Dates Percentage ----- ---------- September 30, 2001 6.25% December 31, 2001 6.25% March 31, 2002 6.25% June 30, 2002 6.25% September 30, 2002 6.25% December 31, 2002 6.25% March 31, 2003 6.25% June 30, 2003 6.25% September 30, 2003 6.25% December 31, 2003 6.25% March 31, 2004 6.25% June 30, 2004 6.25% September 30, 2004 6.25% December 31, 2004 6.25% March 31, 2005 6.25% June 30, 2005 6.25%
(b) The Company hereby unconditionally promises to pay to the Administrative Agent for the account of each New Revolving Credit Lender the amounts specified in subsection 2.12(a) (or if less, the aggregate amount of the New Revolving Credit Loans then outstanding) on the dates specified in subsection 2.12(a) 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 New 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. (c) Each New Revolving Credit Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Company to such New Revolving Credit Lender resulting from each New Revolving Credit Loan of such New Revolving Credit Lender from time to time, including the amounts of principal and interest payable thereon and paid to such New Revolving Credit Lender from time to time under this Agreement. (d) The Administrative Agent shall maintain the Register pursuant to subsection 13.6(d), and a subaccount therein for each New Revolving Credit Lender, in which shall be recorded (i) the amount of each New Revolving Credit Loan made hereunder, the Type thereof, whether such New Revolving Credit Loan is made under the Existing New Revolving Credit Commitments or under the New Revolving Credit Commitment Increases, 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 New Revolving Credit Lender hereunder in respect of the New Revolving Credit Loans and (iii) both the amount of any sum received by the 30 Administrative Agent hereunder from the Company in respect of the New Revolving Credit Loans and each New Revolving Credit Lender's share thereof. (e) The entries made in the Register and the accounts of each New Revolving Credit Lender maintained pursuant to subsection 2.12(c) 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 New Revolving Credit 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 New Revolving Credit Loans made to the Company by such New Revolving Credit Lender in accordance with the terms of this Agreement. (f) The Company agrees that it will execute and deliver (i) to each New Revolving Credit Lender that has a New Revolving Credit Commitment Increase and (ii) to each remaining New Revolving Credit Lender that so requests a promissory note of the Company evidencing the New Revolving Credit Loans of such New Revolving Credit Lender, substantially in the form of Exhibit A-4 with appropriate insertions as to date and principal amount (each, a "New Revolving Credit Note"); provided, that the delivery of such New Revolving Credit Notes shall not be a condition precedent to the Closing Date. 2.13. Termination or Reduction of New Revolving Credit Commitments. The Company shall have the right, upon not less than five Business Days' notice to the Administrative Agent (which shall promptly notify each New Revolving Credit Lender thereof), to terminate the New Revolving Credit Commitments or, from time to time, to reduce the amount of the New Revolving Credit Commitments; provided that no such termination or reduction shall be permitted if, after giving effect thereto and to any prepayments of the New Revolving Credit Loans made on the effective date thereof, the Available New Revolving Credit Commitment of any New Revolving Credit 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 New Revolving Credit Commitments then in effect. No such reduction shall be made in the Existing Revolving Credit Commitments while any New Revolving Credit Commitment Increases are in effect. 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 does 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 31 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) not later than 9:00 A.M., New York City time, on the requested Borrowing Date. 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. 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 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 32 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 Sterling Loans; Evidence of Debt. (a) The Company and the Foreign Subsidiary Borrower hereby jointly and severally unconditionally promise 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. 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 continue outstanding or 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 33 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 does 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. Upon the issuance of any Letter of Credit, the Administrative Agent shall promptly notify each Lender thereof. 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 hereof (in the case of outstanding Letters of Credit on such date) or the date of the issuance of each Letter of Credit (in the case of a Letter of Credit issued after the date hereof, 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 Credit Commitment Percentage. 34 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 or pursuant to an assignment as provided in subsection 13.6(c). 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 such 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. 35 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 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 its 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. 36 (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 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 of such Class 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, and (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 or, as the case may be, the date on which the Term Loans and New Revolving Credit Loans mature. (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 37 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 or, as the case may be, the date on which the Term Loans and New Revolving Credit Loans mature, 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. Upon receipt of any notice pursuant to this subsection 5.2(b), the Administrative Agent shall promptly notify each Lender thereof. (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 $5,000,000 or a whole multiple of $5,000,000 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 New Revolving Credit Loans, Revolving Credit Loans or Term Loans, in whole or in part, upon 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 New Revolving Credit Loans, Revolving Credit Loans or Term 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. 38 (c) If, at any time during the Revolving Credit Commitment Period, for any reason the Aggregate Revolving Credit Outstanding of all Lenders exceeds 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) If any Capital Stock or Indebtedness shall be issued or incurred by the Company or any of its Subsidiaries (excluding any Indebtedness incurred in accordance with subsection 9.2 as such subsection is in effect on the date of this Agreement), an amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the date of such issuance or incurrence ratably toward the prepayment of the Term Loans and, after the New Revolving Credit Conversion Date, to the prepayment of the New Revolving Credit Loans. This subsection 5.4(d) shall not affect any rights and remedies that the Administrative Agent or the Lenders may otherwise have under Section 11. (e) If on any date the Company or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment Notice shall be delivered in respect thereof, such Net Cash Proceeds shall be applied on such date, as set forth in subsection 5.8(a)(i), ratably toward the prepayment of the Term Loans and, after the New Revolving Credit Conversion Date, to the prepayment of the New Revolving Credit Loans; provided, that, notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of Asset Sales and Recovery Events that may be excluded from the foregoing requirement pursuant to a Reinvestment Notice shall not exceed $1,000,000 in any fiscal year of the Company and (ii) on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied, as set forth in subsection 5.8(a)(i), ratably toward the prepayment of the Term Loans and, after the New Revolving Credit Conversion Date, to the prepayment of the New Revolving Credit Loans. (f) Amounts prepaid on account of Term Loans pursuant to subsections 5.4(a), 5.4(d) or 5.4(e) may not be reborrowed. Amounts prepaid on account of New Revolving Credit Loans pursuant to subsection 5.4(a) may be reborrowed during the New Revolving Credit Commitment Period. After the New Revolving Credit Conversion Date, amounts prepaid on account of New Revolving Credit Loans pursuant to subsections 5.4(a), 5.4(d) or 5.4(e) may not be reborrowed. (g) 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. 39 (h) 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 Commitments. 5.5. Commitment Fees; Other Fees. (a) The Company agrees to pay to the Administrative Agent (i) 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; (ii) 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 Term Loan Termination Date (or such earlier date on which the Term Loan 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 Term Loan 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 Term Loan Termination Date or such earlier date on which the Term Loan 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; and (iii) for the account of each New Revolving Credit Lender (other than any New Revolving Credit Lender which has defaulted in its obligation to fund a New Revolving Credit Loan under this Agreement), a commitment fee for the period from and including the Closing Date to but excluding the New Revolving Credit Conversion Date (or such earlier date on which the New 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 New Revolving Credit Commitment of such New Revolving Credit 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 New Revolving Credit Conversion Date or such earlier date on which the New Revolving Credit Commitments shall terminate as provided herein, commencing on the first such date to occur after the date hereof. (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) The Company shall pay to the Administrative Agent (i) on the Closing Date (A) for the account of the Lenders, an amendment fee (the "Amendment Fee") in an amount equal to 0.10% of the sum of each Lender's Term Loans, Revolving Credit Commitments and Existing New Revolving Credit Commitments and (B) for the account of the New Revolving Credit Lenders, an up-front fee (the "Up-Front Fee") in an amount equal to 0.25% of each New Revolving Credit Lender's New Revolving Credit Commitment Increase, and (ii) on the date of 40 each borrowing made under the New Revolving Credit Commitment Increase, for the account of the New Revolving Credit Lenders, a drawdown fee (the "Drawdown Fee") in an amount equal to 0.25% of each incremental borrowing made under the New Revolving Credit Commitment Increase. (d) 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 Issuing Lender (with respect to its Participating Interest) and 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 fees 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. (e) 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 Issuing Lender (with respect to its Participating Interest) and 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 fees shall be payable to the Administrative Agent on the date of issuance and shall be distributed by the Administrative Agent to the Issuing Lender or the Participating Lenders, as applicable, promptly thereafter and (iii) for the account of the Administrative Agent, the normal and customary Letter of Credit application and processing fees. (f) The Company agrees to pay the Issuing Lender for its own account the 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 41 Borrower, deliver to such Borrower a statement showing in reasonable detail the calculations used by the 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 (b) the Administrative Agent has received notice from the Majority Lenders 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 Loans, New Revolving Credit Loans or Term Loans 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 or Term Loans, as the case may be, by the Company from the Lenders hereunder shall be made pro rata according to the Revolving Credit Commitment Percentages or the Term Loan Commitment Percentages, as the case may be, of the Lenders in effect on the date of such borrowing. Subject to subsection 2.10(b), each borrowing of New Revolving Credit Loans by the Company from the New Revolving Credit Lenders made (A) under the Existing New Revolving Credit Commitments shall be made pro rata according to the Existing New Revolving Credit Commitment Percentages of the New Revolving Credit Lenders in effect on the date of such borrowing and (B) under the New Revolving Credit Commitment Increases shall be made pro rata according to the New Revolving Credit Commitment Increase Percentages of the New Revolving Credit Lenders in effect on the date of such borrowing. Each payment by the Company on account of any commitment fee or letter of credit 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. Subject to subsection 2.13, any reduction of the Existing New Revolving Credit Commitments, New Revolving Credit Commitment Increases, Revolving Credit Commitments or the Term Loan Commitments, as the case may be, of the Lenders shall be allocated by the Administrative Agent among the Lenders 42 pro rata according to the Existing New Revolving Credit Commitment Percentages, New Revolving Credit Commitment Increase Percentages, Revolving Credit Commitment Percentages or the Term Loan Commitment Percentages, as the case may be, of such Lenders. Each payment by the Company on account of principal of or interest in respect of Revolving Credit Loans, Term Loans or, after the New Revolving Credit Conversion Date, New Revolving Credit Loans shall be allocated by the Administrative Agent pro rata according to the respective amounts thereof then due and owing to each Lender. During the New Revolving Credit Commitment Period, each payment by the Company on account of principal of or interest in respect of New Revolving Credit Loans made under the Existing New Revolving Credit Commitments or under the New Revolving Credit Commitment Increases shall be allocated by the Administrative Agent to the New Revolving Credit Lenders under the Existing New Revolving Credit Commitments or the New Revolving Credit Commitment Increases, as the case may be, pro rata according to the respective amounts of such principal or interest then due and owing such New Revolving Credit Lenders; provided that during the New Revolving Credit Commitment Period, no payment of principal shall be made on the New Revolving Credit Loans made under the Existing New Revolving Credit Commitments at any time when any New Revolving Credit Loans made under the New Revolving Credit Commitment Increases are outstanding. Prepayments of Term Loans or New Revolving Credit Loans pursuant to subsections 5.4(a), 5.4(d) and 5.4(e) shall be applied (x) pro rata according to the respective principal amounts thereof then due and owing to each Lender and (y) to the respective installments of principal thereof in inverse order of maturity. All payments (including prepayments) to be made by the Company in respect of New Revolving Credit Loans, Revolving Credit Loans or Term 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 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 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. 43 (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 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 the 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, New Revolving Credit Loans or Term 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 the 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, each applicable Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate per 44 annum equal to (i) the daily average Federal Funds Effective Rate (in the case of a borrowing of Revolving Credit Loans, New Revolving Credit Loans or Term 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) 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 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, maintaining or participating in 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 45 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, 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 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 or such corporation for such reduction. A certificate as to any additional amounts payable pursuant to this subsection 5.10(b), submitted by a Lender to the Company, shall be conclusive in the absence of manifest error. The provisions of this subsection 5.10(b) shall survive the termination of this Agreement and the payment of all amounts outstanding hereunder. (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, continuation or conversion after such Borrower has given a notice of borrowing, a notice of continuation 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, continuation or conversion 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. A certificate as to any amounts payable pursuant to this subsection 5.11, submitted by a Lender to the Company, shall be conclusive in 46 the absence of manifest error. 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 hereinafter 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. (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 or successor applicable form, (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 47 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, or successor applicable forms, 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 or successor applicable form 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 or successor applicable form, 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, if applicable, 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. (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; 48 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. If, and so long as, the New Revolving Credit Loans are fully drawn, a portion of the proceeds of the Revolving Credit Loans not in excess of $14,000,000 may be used to finance the Global Health Acquisition and the NatureSmart Acquisition, provided that the New Revolving Credit Loans have been fully utilized. The proceeds of the New Revolving Credit Loans after the Closing Date shall be used to finance Acquisitions, including the Global Health Acquisition and the NatureSmart Acquisition, permitted under this Agreement. The Letters of Credit shall be used for the purposes specified in subsection 4.8. 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 to replace such Lender with one or more replacement lenders, each of which shall be reasonably acceptable to the Administrative Agent; provided that (i) the Borrower shall repay (or the replacement lender shall purchase) all Loans and other amounts owing hereunder to such replaced Lender prior to the date of replacement, (ii) until such time as such replacement shall be consummated, the Borrower shall pay additional amounts (if any) required pursuant to subsection 5.10 or 5.12 for the period prior to replacement and (iii) any such replacement shall not be deemed to be a waiver of any rights which the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender. 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, 2000 and the related consolidated statements of income and of cash flows for the fiscal year ended on such date, reported on by PricewaterhouseCoopers LLP, copies of which have heretofore been furnished to each Lender, 49 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 sheet of the Company and its consolidated Subsidiaries as at December 31, 2000 and the related unaudited consolidated statements of income and of cash flows for the three-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 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 three-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. During the period from September 30, 2000 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, 2000, other than the sale of inventory in the ordinary course of business and as otherwise permitted hereunder. (b) The financial projections of the Company and its Subsidiaries described in subsection 7.1(k), copies of which have been furnished to each Lender, have been prepared in good faith based upon reasonable assumptions. 6.2. No Change. Since September 30, 2000 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 50 Documents to which it is a party and to borrow and obtain other extensions of credit hereunder and has taken all necessary action to authorize the borrowings and other extensions of credit hereunder 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 or other extensions of credit 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 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 and other extensions of credit 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 or 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) 51 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. 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); and 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, and no Letter of Credit, will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U of the Board 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-3 or FR Form U-1 referred to in said 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 52 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 or 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 or 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) 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, 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 53 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 Agreement 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 Agreement), in each case prior and superior in right to any other Person, other than with respect to Liens expressly permitted by subsection 9.3. (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, 54 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, and (ii) the Acknowledgment and Consent to the Guarantee and Collateral Agreement, substantially in the form of Exhibit I hereto, executed and delivered by a duly authorized officer of the parties 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 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. 55 (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 party to a Loan Document, 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 including, but not limited to, the Amendment Fee and the Up-Front Fee. (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; and (ii) the executed legal opinion of counsel to the Foreign Subsidiary Borrower, substantially in the form of Exhibit F-2; each such legal opinion to cover such other matters incident to the transactions contemplated by this Agreement and the other Loan Documents as the Administrative Agent may reasonably require. (j) Financial Statements. The Administrative Agent shall have received, with a copy for each Lender, audited consolidated financial statements of the Company and its 56 consolidated Subsidiaries for the two most recent fiscal years ended prior to the Closing Date and unaudited consolidated 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 three months ended December 31, 2000, 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). (k) Projections. The Administrative Agent shall have received, with a copy for each Lender, financial projections of the Company and its Subsidiaries for the period from the Closing Date through September 30, 2002. (l) Pledged Stock; Stock Powers. The Administrative Agent shall have received the certificates representing the shares of each New Loan Party pledged pursuant to the Guarantee and Collateral Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof. (m) 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. (n) 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 each New Loan Party in each of the jurisdictions and offices where assets of such New Loan Party are located or recorded, and such search shall reveal no material liens on any of the assets of such New Loan Party except for liens permitted by the Loan Documents. (o) 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 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. (p) Designated Senior Indebtedness. (i) The Indebtedness under this Agreement shall be designated by the Company as "Designated Senior Indebtedness" pursuant to, and as defined under, the Indenture, dated as of September 23, 1997, among the Company, as issuer, and IBJ Whitehall Bank & Trust Company (formerly IBJ Schroder Bank & Trust Company), as trustee, relating to the Company's 8 5/8% Senior Subordinated Notes due 2007, and (ii) the Administrative Agent shall have received a 57 reaffirmation of the Company satisfactory to the Administrative Agent reaffirming such designation by the Company. 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. 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 Borrower. 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 conditions in subsections 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 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 a special English counsel to the Company and the other Loan Parties, satisfactory to the Administrative Agent, covering customary matters as the Administrative Agent may reasonably require. 58 (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. 7.4. Conditions to Each Extension of Credit under the New Revolving Credit Commitments. The agreement of each New Revolving Credit Lender to make any Extension of Credit under its New Revolving Credit Commitment on or after the Closing Date requested to be made by it, in addition to the satisfaction with the conditions in subsections 7.1 and 7.2, is subject to the satisfaction of the following conditions precedent as of the date such Extension of Credit is requested to be made (a "Drawdown Date"): (a) 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 each entity to be acquired by the Company in whole or in part with the proceeds of such Extension of Credit, including, to the extent relevant, Global Health and NatureSmart, in each of the jurisdictions and offices where assets of each such entity are located or recorded, and such search shall reveal no material liens on any of the assets of each such entity except for liens permitted by the Loan Documents or liens to be discharged on or prior to such Drawdown Date pursuant to documentation satisfactory to the Administrative Agent. (b) Consents, Licenses and Approvals. (i) All governmental and material third party approvals (including material landlords' and other consents) necessary or advisable in connection with any Acquisition to be financed in whole or in part with the proceeds of such Extension of Credit, including, to the extent relevant, the Global Health Acquisition and the NatureSmart Acquisition, 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 any such Acquisition. (c) Purchase Agreements. The Administrative Agent shall have received copies of the executed purchase agreement entered into by the Company in connection with any Acquisition being financed in whole or in part with the proceeds of such Extension of Credit and such agreement shall be reasonably satisfactory to the Administrative Agent. (d) Purchase Price. The aggregate amount of cash consideration paid or to be paid for (i) the Global Health Acquisition shall not exceed $60,000,000 and (ii) the NatureSmart Acquisition shall not exceed $45,000,000. Notwithstanding the foregoing, 59 the sum of the aggregate amount of cash consideration paid or to be paid for both the Global Health Acquisition and the NatureSmart Acquisition shall not exceed $90,000,000. (e) Fees. The Administrative Agent shall have received from the Company any applicable Drawdown Fee. 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 the 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 as of the end of and 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 PricewaterhouseCoopers LLP 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 as of the end of and for the corresponding period in the previous year, certified by a Responsible Officer of the Company 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 60 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 of the Company 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 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 and determining the Applicable Margins; (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 of the Company 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 (including taxes), 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. 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 61 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 Company or any of its Subsidiaries 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 62 (e) any development or event which has had or could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this subsection shall be accompanied by a statement of a Responsible Officer of the Company setting forth details of the occurrence referred to therein and stating what action the Company 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 a 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 created or acquired after the Closing Date by the Company (including NatureSmart and any entity formed to acquire any assets in the NatureSmart Acquisition or the Global Health Acquisition), promptly cause such Subsidiary to become a party to the Guarantee and Collateral Agreement, deliver to the Administrative Agent the certificates representing the Capital Stock of such Subsidiary, together with undated stock powers, executed in blank, securing the Obligations as described in the Guarantee and Collateral Agreement and covering the types of assets covered by the Guarantee and Collateral Agreement, take all required actions to perfect the security interests created by the Guarantee and Collateral Agreement in the assets of such Subsidiary and 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 63 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. (d) In connection with any Acquisition, to the extent not otherwise provided for in this subsection 8.9, take all action necessary to assure that security interests and Liens for the benefit of the Lenders are granted and perfected in all material assets acquired in such Acquisition (including assets of Subsidiaries acquired in such Acquisition). 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 the 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) Permit 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 - Thereafter 1.00
(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 - September 29, 2002 2.75 September 30, 2002 - Thereafter 2.50
(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: 64
Test Period Amount ----------- ------ Closing Date through September 29, 2001 $250,000,000 September 30, 2001 through September 29, 2002 $280,000,000 September 30, 2002 through September 29, 2003 $320,000,000 September 30, 2003 through September 29, 2004 $365,000,000 September 30, 2004 and Thereafter $410,000,000
9.2. Limitation on Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness of the Borrowers under this Agreement; (b) existing Indebtedness of the Company listed on Schedule 9.2; (c) 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; (d) Indebtedness under sale and leaseback transactions permitted by subsection 9.12; (e) Indebtedness of the Company under Hedge Agreements entered into solely to hedge interest rate exposure and not for speculative purposes; (f) 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 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 (f), 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; (g) 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 65 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 (g) shall not exceed $1,000,000 at any time outstanding; (h) Indebtedness of any Foreign Subsidiaries, in addition to Indebtedness permitted by paragraph (i), in an aggregate amount not in excess of $1,000,000 at any time outstanding; and (i) 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(f) 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; 66 (h) Liens on current assets of any Foreign Subsidiary securing Indebtedness of such Foreign Subsidiary permitted under subsection 9.2(h); (i) Liens (not otherwise permitted hereunder) which secure obligations in aggregate amount at any time outstanding not exceeding (as to the Company and all Subsidiaries), and on property with an aggregate value not exceeding, $1,000,000; and (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. 67 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 (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 the amount set forth opposite such fiscal year below:
Fiscal Year Amount ----------- ------ 2001 $42,500,000 2002 and each year thereafter $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; 68 (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) the Nutrition Warehouse Acquisition, the SDV Vitamins Acquisition, the Global Health Acquisition, the NatureSmart Acquisition and other Acquisitions; provided, (i) such Acquisitions permitted pursuant to this paragraph (e) shall be non-hostile acquisitions and (ii) the aggregate amount of investments (whether cash, securities or other consideration) permitted each fiscal year pursuant to this paragraph (e), except in the case of the Nutrition Warehouse Acquisition, the SDV Vitamins Acquisition, the Global Health Acquisition and the NatureSmart Acquisition, shall not exceed, in the aggregate in any fiscal year, the sum of $10,000,000; 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 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(f) then outstanding, up to $10,000,000 in the 69 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 absolutely, 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 10. This Section 10 shall remain in full force and effect until (subject to reinstatement as provided in subsection 10.5) the Foreign Subsidiary Obligations are paid in full and the Commitments are terminated, notwithstanding that from time to time prior thereto the Foreign Subsidiary Borrower 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 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 (subject to reinstatement as provided in subsection 10.5) 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 70 hereunder, it will notify the Administrative Agent and such Lender in writing that such payment is made under this Section 10 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 Foreign Subsidiary Borrower 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 Foreign Subsidiary Borrower in respect of payments made by the Company hereunder, until all amounts owing to the Administrative Agent and the Lenders by the Foreign Subsidiary Borrower 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 such 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 Foreign 71 Subsidiary Borrower 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 Foreign Subsidiary Borrower or any such other guarantor or any release of the Foreign Subsidiary Borrower or such other guarantor shall not 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, Irrevocable 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 Foreign Subsidiary Borrower 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, irrevocable 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 or any other Loan Party against the Administrative Agent or any Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the Foreign Subsidiary Borrower 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 Foreign Subsidiary Borrower 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 Foreign Subsidiary Borrower 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 Foreign Subsidiary Borrower 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 (subject to reinstatement as provided in subsection 10.5) all the Foreign Subsidiary Obligations and the obligations of the Company under this Agreement shall have been satisfied by payment in full and the 72 Commitments shall be terminated, notwithstanding that from time to time during the term of this Agreement the Foreign Subsidiary Borrower 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. 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 furnished; 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 73 (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 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 74 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 (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 (i) or (ii) of paragraph (h) 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 75 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. 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 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. 76 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 any 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 any 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 any 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 (or, to the extent provided in subsection 13.1, all of the 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 (or, to the extent provided in subsection 13.1, all of the Lenders), and such request 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 any of 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 77 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 hereafter 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 Borrowers. 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 Borrowers to do so), ratably according to their respective Total Loan Percentages 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 Total Loan Percentages 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, 78 costs, expenses or disbursements resulting solely from the 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 entity which is 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 entity which is the Administrative Agent were not the Administrative Agent hereunder and under the other Loan Documents. With respect to the Loans made by it, the entity which is 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 entity which is 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 applicable Loan Parties 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 79 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; (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 any Loan Party 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; (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 or any Guarantor under, and as defined in, the Guarantee and Collateral Agreement, without the consent of each Lender; or (F) increase the Aggregate Revolving Credit Commitments, the Aggregate Term Loan Commitments or the Aggregate New Revolving Credit Commitments, in each case without the consent of all the Lenders. 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 applicable other Loan Parties, 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 80 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: (631) 567-7148 The Administrative Agent, the Issuing Lender or Swing Line Lender: The Chase Manhattan Bank Loan & Agency Services Group One Chase Manhattan Plaza, 8th Floor New York, New York 10081 Attention: Jesus Sang Fax: (212) 552-5650 With a copy to: The Chase Manhattan Bank 395 North Service Road, Suite 302 Melville, New York 11747 Attention: Barbara Bertschi Fax: (631) 755-5184 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, 2.7, 2.9, 2.10, 2.13, 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 81 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 harmless each Lender and the Administrative Agent 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 harmless each Lender and the Administrative Agent 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 the termination of this Agreement and the repayment of the Loans and all other amounts payable hereunder. 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, 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 82 Lender's rights and obligations under this Agreement and the other Loan Documents. No Participant shall have any right to vote on, consent to or approve any matter relating to this Agreement or any other Loan Document except for those specified in clauses (A), (B), (D) or (E) of the proviso to the second sentence of subsection 13.1. Each Borrower 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. Each Borrower 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 were 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 partial assignment of its rights and obligations, the Assignee's Revolving Credit Commitment Percentage shall equal its Term Loan Percentage after giving effect to such assignment, and provided, further, 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 Letter of Credit Obligations and the aggregate amount of the Available Revolving Credit Commitment, Available Term Loan Commitment and Available New 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 Letter of Credit Obligations and the aggregate amount of the Available Revolving Credit Commitment, Available Term Loan Commitment and Available New 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 83 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 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, New Revolving Credit Loans and Term 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 13.17, 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. 84 (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). 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, except for payments pursuant to the operation of subsections 5.14(b) or 13.6), 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. 85 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 entire agreement of the Borrowers, 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 Borrowers, the Administrative Agent or any Lender relative to the subject matter hereof or thereof 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. 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. 86 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 Borrowers, 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 each of the Administrative Agent and each Lender has executed and delivered this Agreement and each other Loan Document to which it is a party, 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 87 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. The obligation of each Borrower under this subsection 13.16 shall survive the termination of this Agreement and repayment of the Loans and all other amounts payable hereunder. A certificate as to any amounts payable pursuant to this subsection 13.16, submitted by a Lender to a Borrower, shall be conclusive in the absence of manifest error. 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, (f) which has become generally available to the public, other than as a result of a disclosure by such Lender or agent of such Lender or a disclosure known to such Lender or agent of such Lender to have been made by any person or entity to which such Lender or agent has delivered such confidential information, (g) which becomes available to such Lender from a source other than the Company or any Subsidiary (provided that such source is not known to such Lender to be bound by a duty of confidentiality to the Company or any Subsidiary) or (h) to any Transferee or potential Transferee; provided that such Transferee agrees in writing to comply with the provisions of this subsection 13.17. 88 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 -------------------------------- Harvey Kamil Executive Vice President HOLLAND & BARRETT HOLDINGS LIMITED By: /s/ Harvey Kamil -------------------------------- Harvey Kamil Executive Vice President 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 -------------------------------- Barbara G. Bertschi Vice President THE DIME SAVINGS BANK OF NEW YORK, FSB By: /s/ Brian Stone -------------------------------- Brian Stone Senior Vice President THE BANK OF NOVA SCOTIA By: /s/ Philip N. Adsetts -------------------------------- Philip N. Adsetts Director EUROPEAN AMERICAN BANK By: /s/ Stephen Kelly -------------------------------- Stephen Kelly Vice President THE BANK OF NEW YORK By: /s/ Gerard Waters -------------------------------- Gerard Waters Vice President FLEET NATIONAL BANK By: /s/ Alice Adelberg -------------------------------- Alice Adelberg Vice President MELLON BANK, N.A. By: /s/ Peter A Dorbas -------------------------------- Peter A. Dorbas Senior Vice President HSBC BANK USA By: /s/ Gary Sarro -------------------------------- Gary Sarro Vice President ISRAEL DISCOUNT BANK By: /s/ Alan Lefkowitz -------------------------------- Alan Lefkowitz First Vice President By: /s/ Gary Harkins -------------------------------- Gary Harkins Vice President EX-10 5 nbtk-102.txt EXHIBIT 10.2 Exhibit 10.2 =========================================================================== AMENDED AND RESTATED 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 April 16, 1999 =========================================================================== TABLE OF CONTENTS Page ---- SECTION 1 DEFINED TERMS 1 1.1 Definitions 1 1.2 Other Definitional Provisions 6 SECTION 2 GUARANTEE 6 2.1 Guarantee 6 2.2 Right of Contribution 7 2.3 No Subrogation 7 2.4 Amendments, etc. with respect to the Borrower Obligations 7 2.5 Guarantee Absolute, Irrevocable and Unconditional 8 2.6 Reinstatement 9 2.7 Payments 9 SECTION 3 GRANT OF SECURITY INTEREST 9 SECTION 4 REPRESENTATIONS AND WARRANTIES 10 4.1 Representations in Credit Agreement 10 4.2 Title; No Other Liens 10 4.3 Perfected First Priority Liens 10 4.4 Chief Executive Office 11 4.5 Inventory and Equipment 11 4.6 Farm Products 11 4.7 Pledged Securities 11 4.8 Receivables 11 4.9 Intellectual Property 12 SECTION 5 COVENANTS 12 5.1 Covenants in Credit Agreement 12 5.2 Delivery of Instruments and Chattel Paper 12 5.3 Maintenance of Insurance 13 5.4 Payment of Obligations 13 5.5 Maintenance of Perfected Security Interest; Further Documentation 13 5.6 Changes in Locations, Name, etc. 14 5.7 Notices 14 5.8 Pledged Securities 14 5.9 Receivables 16 5.10 Intellectual Property 16 SECTION 6 REMEDIAL PROVISIONS 17 6.1 Certain Matters Relating to Receivables 17 6.2 Communications with Obligors; Grantors Remain Liable 18 6.3 Pledged Stock 18 6.4 Proceeds to be Turned Over To Administrative Agent 19 6.5 Application of Proceeds 20 6.6 Code and Other Remedies 20 6.7 Private Sales 21 6.8 Waiver; Deficiency 21 SECTION 7 THE ADMINISTRATIVE AGENT 22 7.1 Administrative Agent's Appointment as Attorney-in-Fact, etc. 22 7.2 Duty of Administrative Agent 23 7.3 Execution of Financing Statements 24 7.4 Authority of Administrative Agent 24 SECTION 8 MISCELLANEOUS 24 8.1 Amendments in Writing 24 8.2 Notices 24 8.3 No Waiver by Course of Conduct; Cumulative Remedies 25 8.4 Enforcement Expenses; Indemnification 25 8.5 Successors and Assigns 25 8.6 Set-Off 26 8.7 Counterparts 26 8.8 Severability 26 8.9 Section Headings 26 8.10 Integration 27 8.11 GOVERNING LAW 27 8.12 Submission To Jurisdiction; Waivers. Each Grantor hereby irrevocably and unconditionally: 27 8.13 Acknowledgements. Each Grantor hereby acknowledges that: 27 8.14 WAIVER OF JURY TRIAL 28 8.15 Additional Grantors 28 8.16 Judgment 28 8.17 Releases 29 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 ANNEXES Annex 1 Assumption Agreement AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT, dated as of April 16, 1999, made by each of the signatories hereto, other than the Administrative Agent (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 Amended and Restated Credit and Guarantee Agreement, dated as of April 16, 1999 (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 party thereto (together with the Company, the "Borrowers"), the Lenders and the Administrative Agent. W I T N E S S E T H: WHEREAS, the Borrowers, the Administrative Agent and certain grantors are parties to that certain Guarantee and Collateral Agreement, dated as of September 23, 1997 (as in effect on the date hereof prior to the effectiveness of this Agreement, the "Existing Guarantee Agreement"); WHEREAS, pursuant to the Credit Agreement, the Lenders have severally agreed to amend and restate the Existing Credit Agreement and 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 to amend and restate the Existing Guarantee Agreement; 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 Borrowers thereunder, each Grantor hereby agrees with the Administrative Agent, for the ratable benefit of the Lenders, to amend and restate the Existing Guarantee Agreement in its entirety to read 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 Amended and Restated 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 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 10 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. 2 "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 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). 3 "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 (other than the promissory note, dated as of October 18, 1997, evidencing the 9.5% loan made by the Company to Holland & Barrett Holdings Limited in the amount of [POUND]53,000,000). "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 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. 4 "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 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. 5 "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, absolutely, 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). (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) Subject to reinstatement as provided in Section 2.6, 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 6 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 (subject to reinstatement as provided in Section 2.6) 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. 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, 7 modified, supplemented or terminated, in whole or in part, as the Administrative Agent (or the Majority 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, Irrevocable 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, irrevocable 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. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 8 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, for the ratable benefit of the Lenders, 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. 9 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 6 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's 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 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 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. 10 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 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. No obligor with respect to any Pledged Note has any defense or counterclaim with respect to such Pledged Note or any payment thereunder. (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. 11 (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. 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. 12 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 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. 13 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 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 14 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 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 15 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 application (and to obtain the relevant registration) and to maintain each registration of 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 16 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 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 17 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 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 19 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 or elsewhere. The Administrative Agent shall apply the 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. 20 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) 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; 22 (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 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 22 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. 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 (acting with the required consent, if any, of the Lenders as provided in the Credit Agreement), 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 (acting with the required consent, if any, of the Lenders as provided in the Credit Agreement) 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. 23 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. (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 Borrowers 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 termination of the Loan Documents and 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 24 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. 8.10 Integration.This Agreement and the other Loan Documents represent the entire 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: 25 (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 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 26 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. A certificate as to any amount payable pursuant to this Section 8.16, submitted by a Lender to a Grantor, shall be conclusive in the absence of manifest error. The obligations of each Grantor under this Section 8.16 shall survive the termination of the Loan Documents and repayment of the Obligations and all other amounts payable under the Credit Agreement and the Loan Documents. 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 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 27 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. 28 IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be duly executed and delivered as of the date first above written. NBTY, INC. By:/s/ Harvey Kamil --------------------------- Harvey Kamil Executive Vice President 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., PRIME NATURAL HEALTH LABORATORIES, INC., AMERICAN HEALTH, INC., NATURE'S BOUNTY MANUFACTURING CORP., NABARCO ADVERTISING ASSOCIATES, INC., HERBAL HARVEST, INC., NUTRITION HEADQUARTERS (DE), INC., HOLLAND & BARRETT, LTD. By:/s/ Harvey Kamil --------------------------- Harvey Kamil Executive Vice President THE CHASE MANHATTAN BANK, as Administrative Agent By:/s/ Barbara G. Bertschi --------------------------- Barbara G. Bertschi Vice President 1 STATE OF NEW YORK ) ) ss: COUNTY OF SUFFOLK ) On April 15, 1999, before me personally came Harvey Kamil, to me known, who, by me duly sworn, did depose and say that deponent resides at Bohemia, NY, deponent is Executive Vice President 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., Prime Natural Health Laboratories, Inc., American Health, Inc., Nature's Bounty Manufacturing Corp., Nabarco Advertising Associates, Inc., Herbal Harvest, Inc., Nutrition Headquarters (DE), Inc., and Holland & Barrett, Ltd., 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. /s/ Robin L. Kornfeld ------------------------------ Notary Public 2 EX-10 6 nbtk-103.txt EXHIBIT 10.3 Exhibit 10.3 EMPLOYMENT AGREEMENT AGREEMENT, dated as of October 1, 2002, by and between NBTY, Inc., a Delaware corporation (the "Company"), and SCOTT RUDOLPH (the "Executive"). WHEREAS, the Company recognizes that the Executive's talents and abilities are unique, and have been integral to the success of the Company and thus wishes to secure the ongoing services of the Executive on the terms and conditions set forth herein and to prevent any other competitive business from securing his services, and in utilizing his experience, background and know how; and WHEREAS, the Executive desires to continue his employment on the terms and conditions set forth in this Agreement; and WHEREAS, the Board of Directors of the Company ("Board") recognizes that the possibility of an unsolicited tender offer or other takeover bid for the Company is unsettling to senior executives of the Company. Therefore, these arrangements are being made to help assure a continuing dedication by such senior executives to their duties to the Company notwithstanding the possibility of a tender offer or takeover bid. In particular, the Board and the Compensation Committee of the Board (the "Committee") believe it important, should the Company receive proposals from third parties with respect to its future, to enable senior executives, without being influenced by the uncertainties of their own situation, to assess and advise the Board whether such proposals would be in the best interests of the Company and its shareholders and to take such other action regarding such proposals as the Board might determine to be appropriate. The Board and the Committee also wish to demonstrate to executives of the Company that the Company is concerned with the welfare of its executives and intends to see that loyal executives are treated fairly. NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth below, the parties hereby agree as follows: 1. Employment. The Company hereby employs the Executive as Chairman of the Board and Chief Executive Officer of the Company, and the Executive hereby accepts such employment, on the terms and conditions set forth below. 2. Term. Unless earlier terminated in accordance with Section 6 hereof, the Executive shall be employed by the Company on the terms and conditions hereof pursuant to this Agreement for a period beginning on the date hereof (the "Effective Date") and ending on the fifth (5th) anniversary of the date hereof (the "Employment Period"); provided, however, that the Employment Period shall automatically be extended on each anniversary of the Effective Date for an additional one year period unless the Executive or the Company shall give the other at least thirty (30) days' written notice to the contrary. 3. Position and Duties. During the Employment Period, the Executive shall serve as Chairman of the Board and Chief Executive Officer of the Company, with such duties, authority and responsibilities as are normally associated with and appropriate for such positions. The Executive shall report directly to the Board or any committees thereof at the request of the Board. The Executive shall devote substantially all of his working time, attention and energies during normal business hours (other than absences due to illness or vacation) to the performance of his duties for the Company. The Executive shall comply fully and promptly with the various policies, procedures and rules governing employees promulgated and/or as amended from time to time by the Company. Notwithstanding the above, the Executive shall be permitted, to the extent such activities do not substantially interfere with his performance of his duties and responsibilities hereunder or violate Section 10 of this Agreement, to (i) manage his personal, financial and legal affairs, (ii) with the approval of the Board, serve on civic or charitable boards or committees; (iii) with the approval of the Board, serve on boards of other companies, and the Executive shall be entitled to receive and retain all remuneration received by him from the items listed in clauses (i) through (iii) of this paragraph. 4. Place of Performance. During the Employment Period, the Company shall maintain executive offices for the Executive in Bohemia, New York and the Executive shall not be required to relocate to any other location beyond a twenty-five (25) mile radius surrounding Bohemia, New York. During the Employment Period, the Company shall provide the Executive with an office and appropriate staff. 5. Compensation and Related Matters. (a) Base Salary. During the Employment Period, the Company shall pay the Executive an annual base salary at the rate of not less than Seven Hundred Fifty Thousand Dollars ($750,000) per year ("Base Salary"). The Executive's Base Salary shall be paid in approximately equal installments in accordance with the Company's customary payroll practices, less all applicable tax withholdings for state and federal income taxes, FICA and other deductions as required by law and/or authorized by the Executive. Each year during the Employment Period, pursuant to the Company's policy for senior executives, the Company shall effect a performance and salary review of the Executive and may increase (but not decrease) the Base Salary in such amount as the Committee, in its sole discretion, determines, but in no event shall the increase over the prior Base Salary be less than the percentage increase in the Consumer Price Index published by the Bureau of Labor Statistics of the United States Department of Labor for each twelve (12) month period beginning on January 1 of such year. January 2002 shall be the "Base Year" and the corresponding Index number for the month of January on each anniversary of the Effective Date shall be the current Index number. If the Executive's Base Salary is increased by the Company, such increased Base Salary shall then constitute the Base Salary for all purposes of this Agreement. (b) Annual Bonus. For each full fiscal year of the Company that begins and ends during the Employment Period, the Executive shall be eligible to earn an annual cash bonus in such amount as shall be determined by the Compensation Committee, in its sole discretion (the "Annual Bonus"), taking into account such factors as the achievement by the Company of performance goals established by the Compensation Committee for each such fiscal year (or portion of each fiscal year), which may include targets related to the earnings before interest, taxes, depreciation and amortization ("EBITDA") of the Company, and other relevant factors; 2 provided, however, that the Annual Bonus shall be no less than fifty percent (50%) of the then Base Salary. (c) Automobile Allowance; Driver. The Company shall provide the Executive with an automobile allowance to cover the cost of purchasing or leasing of a suitable vehicle in the amount of Two Thousand Dollars ($2,000) per month. Such automobile allowance shall be paid monthly, and may be increased pursuant to procedures set forth in Section 5(a) below (as so increased from time to time, the "Auto Allowance"). The Company shall also reimburse the Executive for all costs incurred by the Executive to insure and maintain such vehicle. During the Employment Period, the Company shall provide the Executive with access to a driver to drive the Executive, as appropriate to enable the Executive to comply with his obligations under this Agreement. (d) Business, Travel and Entertainment Expenses. The Company shall promptly reimburse the Executive for all business, travel and entertainment expenses consistent with the Executive's titles including, without limitation, first class transportation or travel on a private plane. (e) Vacation. The Executive shall be entitled to six (6) weeks of vacation per year. Vacation not taken during the applicable fiscal year (but not in excess of three weeks) shall be carried over to the next following fiscal year. (f) Welfare, Pension and Incentive Benefit Plans. During the Employment Period and subject to his fulfillment of the applicable eligibility requirements of the various welfare benefit plans and programs, the Executive (and his eligible spouse and dependents) shall be entitled to participate in all the welfare benefit plans and programs maintained by the Company from time to time for the benefit of its senior executives including, without limitation, all medical, hospitalization, dental, disability, accidental death and dismemberment and travel accident insurance plans and programs. In addition, during the Employment Period and subject to his fulfillment of the applicable eligibility requirements of such employee benefit plans and programs, the Executive shall be eligible to participate in all pension, retirement, savings and other employee benefit plans and programs maintained from time to time by the Company for the benefit of its senior executives, other than any annual cash incentive plan. The Executive shall pay for the portion of the cost of such benefits as established by the Company to be paid by its senior executives. (g) Stock Options. (i) The Executive shall be eligible to receive incentive stock options, non-qualified stock options and other equity awards (collectively, the "Options"), as determined and granted to the Executive from time to time by the Board and/or the Committee; provided that the Options shall become 100% vested and exercisable upon a Change in Control (as defined below); and the Options shall expire upon the earlier to occur of (i) ten (10) years from the date of grant (the "Option Term") or (ii) except as otherwise provided in Section 8, ninety (90) days following the termination of Executive's employment with the Company. (ii) If the Company shall receive any tax benefits from the failure of any Options granted hereunder to qualify as incentive 3 stock options other than because of the limitation contained in Section 422(d) of the Internal Revenue Code of 1986, as amended, or any successor thereto, or because of Executive's failure to exercise such Options in a timely way or to hold the shares of Common Stock acquired pursuant thereto for a sufficient period of time after the grant or exercise of the Options, the Company shall pay to the Executive the amount of such benefits within ten (10) business days of the receipt of such benefit by the Company. (h) Private Clubs. The Company shall pay for the costs and expenses of maintaining a membership at one (1) private country club and one (1) health club suitable to the Executive's position. 6. Termination. The Executive's employment hereunder may be terminated during the Employment Period under the following circumstances: (a) Death. This Agreement and the Employment Period shall terminate upon the Executive's death. (b) Disability. If, as a result of the Executive's incapacity due to physical or mental illness as determined by a physician selected by the Executive, and reasonably acceptable to the Company, (i) the Executive shall have been substantially unable to perform his duties hereunder for six consecutive months, or for an aggregate of 180 days during any period of twelve consecutive months and (ii) within thirty days after written Notice of Termination (as defined in Section 7 below) is given to the Executive after such six- or twelve-month period, the Executive shall not have returned to the substantial performance of his duties on a full-time basis, the Company shall have the right to terminate the Executive's employment hereunder for "Disability" and this Agreement shall be terminated if the Company chooses to exercise such a right. (c) Cause. The Company shall have the right to terminate the Executive's employment for "Cause." For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment only upon the Executive's: (i) conviction of a felony (or entered a plea of nolo contender to a crime that constitutes a felony) or willful gross misconduct that, in either case, results in material and demonstrable damage to the business or reputation of the Company; or (ii) willful and continued failure by Executive to perform his duties hereunder (other than such failure resulting from the Executive's incapacity due to physical or mental illness or after the issuance of a Notice of Termination by the Executive for Good Reason, as defined below) within ten business days after the Company delivers to him a written demand for performance that specifically identifies the actions to be performed; or (iii) the breach by the Executive of any term of this Agreement. For purposes of this Section 6(c), no act or failure to act by the Executive shall be considered "willful" if such act is done by the Executive in the good faith belief that such act is or was to be beneficial to the Company or one or more of its businesses, or such failure to act is 4 due to the Executive's good faith belief that such action would be materially harmful to the Company or one of its businesses. "Cause" shall not exist unless and until the Company has delivered to the Executive a copy of a resolution duly adopted by a majority of the entire membership of the Board (excluding the Executive for purposes of determining such majority) at a meeting of the Board called and held for such purpose after reasonable (but in no event less than thirty days') notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board, finding that in the good faith opinion of the Board that "Cause" exists, and specifying the particulars thereof in detail. This Section 6(c) shall not prevent the Executive from challenging in any court of competent jurisdiction the Board's determination that Cause exists or that the Executive has failed to cure any act (or failure to act) that purportedly formed the basis for the Board's determination. However, after giving notice to the Executive and complying with the procedures set forth in this Section 6(c), the Company may relieve the Executive of his duties on an interim basis. (d) Good Reason. The Executive may terminate his employment for "Good Reason" after giving the Company detailed written notice thereof, if the Company shall have failed to cure the event or circumstance constituting "Good Reason" within ten business days after receiving such notice. Good Reason shall mean the occurrence of any of the following without the written consent of the Executive: (i) the assignment to the Executive of duties inconsistent with this Agreement and his position (including the office to which he reports, status, offices and title), a change in his titles or authority or other action by the Company which results in a diminution of such position, authority, duties or responsibilities; (ii) any reduction by the Company of, or the Company's failure to pay, the Executive's Base Salary or Annual Bonus in breach of Sections 5(a) and (b) above; (iii) any failure by the Company to provide benefits required by Section 5; (iv) the requirement of the Executive to relocate to locations other than that provided in Section 4 hereof; (v) the failure of the Company to comply with and satisfy Section 13(a) of this Agreement; (vi) as a result of a Change in Control (as defined below) and a change in circumstances thereafter significantly affecting the Executive's position, including, without limitation, a change in scope of the business or other activities for which he was responsible immediately prior to the Change in Control, Executive has been rendered substantially unable to carry out, or has been substantially hindered in the performance of, any of the authority, duties and responsibilities contemplated by Section 3 above; or (vii) any material breach of this Agreement by the Company. The Executive's right to terminate his employment hereunder for Good Reason shall not be affected by his incapacity due to physical or mental 5 illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (e) Without Cause. So long as the Company complies in full with all of its obligations set forth in Section 8 below, the Company shall have the right to terminate the Executive's employment hereunder without Cause by providing the Executive with a Notice of Termination to that effect. (f) Without Good Reason. The Executive shall have the right to terminate his employment hereunder without Good Reason by providing the Company with a Notice of Termination to that effect. (g) Upon a Change in Control. The Company shall have the right to terminate the Executive's employment hereunder as a result of a Change in Control by providing the Executive with a Notice of Termination to that effect. For purposes of this Agreement, "Change in Control" shall mean the happening of any of the following: (i) The members of the Board at the beginning of any consecutive twenty-four calendar month period, but not including any period prior to the Effective Date (the "Incumbent Directors"), cease for any reason other than due to death or such director's desire to not stand for re-election to the Board to constitute at least a majority of the members of the Board; provided that any director whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the members of the Board then still in office who were members of the Board at the beginning of such twenty-four calendar month period shall be deemed an Incumbent Director; (ii) any "person", including a "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934), but excluding the Company, any of its affiliates or any employee benefit plan of the Company is or becomes after the Effective Date a "beneficial owner" (as such term is used in Section 13(d) and 14 of the Securities Exchange Act of 1934) directly or indirectly of securities of the Company (not including in the securities beneficially owned by such person any securities acquired directly from the Company) representing 15% or more of the combined voting power of the Company's then outstanding securities; (iii) the stockholders of the Company approve a definitive agreement (1) for the merger or other business combination of the Company with or into another entity if (A) a majority of the directors of the surviving entity were not directors of the Company immediately prior to the effective date of such merger or combination, or (B) the stockholders of the Company immediately prior to the effective date of such merger or combination own less than 50% of the combined voting power of the then outstanding securities in such surviving entity or (2) for the sale or other disposition of all or substantially all of the assets of the Company; or (iv) the purchase of 15% or more of the Company's then outstanding securities pursuant to any tender or exchange offer made by any "person", including a "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934), 6 other than the Company, any of its affiliates or any employee benefit plan of the Company. 7. Termination Procedure. (a) Notice of Termination. Any termination of the Executive's employment by the Company or by the Executive during the Employment Period (other than pursuant to Section 6(a)) shall be communicated by written Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a notice indicating the specific termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under that provision. (b) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated pursuant to Section 6(b), thirty (30) days after the date of receipt of the Notice of Termination (provided that the Executive does not return to the substantial performance of his duties on a full-time basis during such thirty (30) day period), and (iii) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given or any later date (within thirty (30) days after the giving of such notice) set forth in such Notice of Termination. Notwithstanding the foregoing, in the event that the Executive has given the Company his Notice of Termination for Good Reason or otherwise, the Board may elect to have such resignation become effective immediately or at such other date, not later than the effective date specified in the Notice of Termination, as the Board may determine. (c) Resignation. Upon termination of the Executive's employment, Executive (unless otherwise requested by the Board) concurrently shall resign any directorships which he holds with the Company and all affiliates of the Company. 8. Compensation Upon Termination or During Disability. In the event the Executive's employment terminates during the Employment Period, the Company shall provide the Executive with the payments and benefits set forth below within 10 business days following the Date of Termination (except for the payment set forth in Section 8 (a)(vi), which shall be paid as provided in such Section). (a) Termination By Company without Cause or By Executive for Good Reason. If the Executive's employment is terminated by the Company without Cause (other than Disability) or by the Executive for Good Reason, in each case before a Change in Control has occurred: (i) the Company shall pay to the Executive, on or before the Date of Termination, a lump sum payment equal to the greater of: (1) the sum of (A) Base Salary, accrued vacation pay and Auto Allowance, in each case through the Date of Termination, (B) Base Salary and Auto Allowance that would have been payable for the remaining term of the Employment Period had such termination not taken place, and (C) Annual Bonus in the amount of fifty percent (50%) of the then Base Salary that would have been payable for the remaining term of the Employment Period had such termination not taken place, and 7 (2) the sum of (A) Base Salary, accrued vacation pay and Auto Allowance, in each case through the Date of Termination, (B) three (3) times the Executive's Base Salary and (C) three (3) times the Annual Bonus paid with respect to the fiscal year ended immediately preceding the date of such termination; (ii) the Company shall continue to provide the Executive and his eligible spouse and dependents for a period equal to the greater of (A) the remaining term of the Employment Period, or (B) three (3) years following the Date of Termination, the medical, hospitalization, dental and life insurance program and other benefits provided for in Section 5(f), as if he had remained employed; provided, that if the Executive, his spouse or his eligible dependents cannot continue to participate in the Company programs providing such benefits, the Company shall arrange to provide the Executive and his spouse and dependents with the economic equivalent of the benefits they otherwise would have been entitled to receive under such plans and programs; and provided, further, that such benefits shall terminate on the date or dates the Executive becomes eligible to receive equivalent coverage and benefits under the plans and programs of a subsequent employer at an equivalent cost to the Executive (such coverage and benefits to be determined on a coverage- by-coverage, or benefit-by-benefit, basis); (iii) all outstanding equity incentive awards (including, without limitation, stock options granted under the Stock Option Plan) shall immediately vest and, if such termination occurs prior to a Change in Control, any then outstanding stock options or similar awards held by Executive shall remain exercisable for a period of one year from the date of such termination or, if earlier, until the end of the Option Term and, if such termination occurs after a Change in Control, Executive shall be entitled to receive from the Company a lump sum amount equal to the "spread" (i.e., the closing price of one share of common stock of the Company on the Date of Termination minus the exercise price set forth in the stock option agreement or other agreement governing the option or similar award, multiplied by the number of shares of common stock of the Company that are subject to such stock option agreement or other agreement governing the option or similar award) on any then outstanding stock options or similar awards held by Executive in exchange for the surrender and cancellation of such awards; (iv) the Company shall, consistent with past practice, reimburse the Executive pursuant to Section 5 for business expenses incurred but not paid prior to such Date of Termination; (v) the Executive shall be entitled to any other rights, compensation and/or benefits as may be due to the Executive in accordance with the terms and provisions of any agreements, plans or programs of the Company (other than any severance-based plan or program); and (vi) If (x) a Change in Control shall occur following such Date of Termination and (y) it shall be determined that a Payment (as defined in Section 9(d) below) would be subject to Excise Tax (as defined in Section 9(d)), then the Executive shall be entitled to 8 receive a Gross-Up Payment (as defined in Section 9(d)), as provided in Section 9(d) and Exhibit A hereto. The Gross-Up Payment shall be paid pursuant to Exhibit A hereto. The payments and benefits provided for as subclause (A) of clause (i) above and in clause (iv) above are hereinafter referred to as the "Accrued Obligations". The receipt of any amounts to be paid under this subsection (a) is conditioned upon the Executive or his personal representative's execution and delivery of a general release reasonably satisfactory to the Company releasing the Company, its officers, agents, stockholders and affiliates from any liability for any matter in law or equity concerning any aspect of his employment. (b) Cause or By Executive Without Good Reason. If the Executive's employment is terminated by the Company for Cause or by the Executive other than for Good Reason, then the Company shall provide the Executive with his Accrued Obligations and shall have no further obligation to the Executive hereunder. (c) Disability. During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("Disability Period"), the Executive shall continue to receive his full Base Salary set forth in Section 5(a) until his employment is terminated pursuant to Section 6(b). In the event the Executive's employment is terminated for Disability pursuant to Section 6(b): (i) the Company shall provide the Executive with the excess, if any, of his Base Salary over the amount of any long-term disability benefits that he receives under the Company's welfare benefit plans and programs, payable in accordance with the normal payroll practices of the Company, for the remainder of the Employment Period; (ii) all outstanding equity incentive awards (including without limitation stock options granted under the Stock Option Plan) shall immediately vest and any then outstanding stock options or similar awards held by Executive shall remain exercisable for a period of one year from the date of such termination or, if earlier, until the end of the Option Term; (iii) the Company shall, consistent with past practice, reimburse the Executive pursuant to Section 5 hereof for business expenses incurred but not paid prior to such Date of Termination; and (iv) the Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive in accordance with the terms and provisions of any agreements, plans or programs of the Company (other than any severance-based plan or program). Following the Company's payments and provisions of all of the foregoing, the Company shall have no further obligations to the Executive hereunder. (d) Death. If the Executive's employment is terminated by his death, the Company shall provide to the Executive's beneficiary, legal representatives or estate, as the case may be, the Executive's Base Salary, payable in accordance with the normal payroll practices of the Company, for a period equal to the remaining term of the Employment Period and the 9 Company shall have no further obligations to the Executive's beneficiary, legal representative or estate hereunder. (e) Mitigation. The Executive shall not be required to mitigate damages with respect to the termination of his employment under this Agreement by seeking other employment or otherwise, and there shall be no offset against amounts due the Executive under this Agreement on account of subsequent employment except as specifically provided in this Section 8. Additionally, amounts owed to the Executive under this Agreement shall not be offset by any claims the Company may have against the Executive, and the Company's obligation to make the payments provided for in this Agreement, and otherwise to perform its obligations hereunder, shall not be affected by any other circumstances, including, without limitation, any counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. 9. Change in Control Benefits. (a) In the event the Executive's employment is terminated by the Company for any reason other than Cause or Disability, or in the event the Executive resigns for Good Reason, in each case after a Change in Control has occurred, the Company shall pay Executive, as liquidated damages, a lump sum cash payment in lieu of all severance benefits provided under Section 8 (a)(i) above, equal to two and ninety-nine hundredths (2.99) times the average compensation received by the Executive during the five years immediately preceding the Date of Termination. (b) The Company shall, consistent with past practice, reimburse the Executive pursuant to Section 5 for business expenses incurred but not paid prior to such Date of Termination; (c) All outstanding equity incentive awards (including, without limitation, stock options granted under the Stock Option Plan) shall immediately vest, and the Executive Shall be entitled to receive a lump sum amount equal to the "spread" on any then outstanding stock options or similar awards held by the Executive, as provided in Section 8(a)(iii) above; (d) Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 (or any successor provision) of the Internal Revenue Code of 1986, as amended, or any successor thereto, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest or penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including interest and penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the Payment, in accordance with the procedures set forth in Exhibit A hereto; 10 (e) Mitigation. The Executive shall not be required to mitigate damages with respect to the termination of his employment under this Agreement by seeking other employment or otherwise, and there shall be no offset against amounts due the Executive under this Agreement on account of subsequent employment except as specifically provided in this Section 9. Additionally, amounts owed to the Executive under this Agreement shall not be offset by any claims the Company may have against the Executive, and the Company's obligation to make the payments provided for in this Agreement, and otherwise to perform its obligations hereunder, shall not be affected by any other circumstances, including, without limitation, any counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. 10. Confidential Information; Non-Competition. (a) Executive acknowledges that in his employment hereunder he will occupy a position of trust and confidence. (b) Except as may be required or appropriate in connection with his carrying out his duties under this Agreement, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or any legal process, or as is necessary in connection with any adversarial proceeding against the Company (in which case the Executive shall cooperate with the Company, at the Company's expense, in obtaining a protective order against disclosure by a court of competent jurisdiction), communicate, to anyone other than the Company and those designated by the Company or on behalf of the Company in the furtherance of its business or to perform his duties hereunder, any of the following, in each case without limitation in time: any trade secrets, confidential information, knowledge or data relating to the Company and its businesses, operations, inventions, products, strategies, and investments, obtained by the Executive during the Executive's employment by the Company that is not generally available public knowledge (other than by acts by the Executive in violation of this Agreement). Executive acknowledges that such confidential information is specialized, unique in nature and of great value to the Company, and that such confidential information gives the Company a competitive advantage. The Executive agrees to deliver or return to the Company, at the Company's request at any time or upon termination or expiration of his employment or as soon thereafter as possible, all documents, computer tapes and disks, records, lists, data, drawings, prints, notes and written information (and all copies thereof) furnished by or on behalf of the Company or prepared by the Executive in the course of his employment by the Company. (c) The obligations contained in this Section 10 shall survive the termination or expiration of Executive's employment with the Company and shall be fully enforceable thereafter in accordance with its terms. (d) During the Employment Period (and, in the event Executive terminates his employment hereunder other than for Good Reason or Executive's employment is terminated by the Company for cause, for a period of one (1) year beyond the expiration of the Term), Executive shall not, directly or indirectly, without the prior written consent of the Company, provide services to (whether as an employee or a consultant, with or without pay), own, manage, operate, join, control, participate in, or be connected with (as a stockholder, partner, or otherwise), any business, individual, partner, firm, corporation, or other entity that is then a direct competitor of the Company or its subsidiaries (each such competitor 11 a "Competitor of the Company"); provided, however, that the "beneficial ownership" by Executive, either individually or as a member of a "group," as such terms are used in Rule 13d of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, of not more than five percent (5%) of the voting stock of any publicly held corporation shall not alone constitute a violation of this Agreement and provided further that, with the consent of the Company (which consent shall not be unreasonably withheld or delayed), the foregoing shall not prohibit Executive from rendering services to an entity that conducts a business that is a "Competitor of the Company" if such business does not contribute a material portion of such entity's revenues. It is further expressly agreed that the Company will or would suffer irreparable injury if Executive were to compete with the Company or any subsidiary thereof in violation of this Agreement, and that the Company would by reason of such competition be entitled to injunctive relief in a court of appropriate jurisdiction, and Executive further consents and stipulates to the entry of such injunctive relief in such a court prohibiting Executive from competing with the Company or any subsidiary of the Company in violation of this Agreement. Executive and the Company acknowledge and agree that the business of the Company is national in nature, and that the terms of the non-competition agreement set forth herein shall apply on a nation-wide basis. 11. Indemnification. (a) General. The Company agrees that if the Executive is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that the Executive is or was a trustee, director or officer of the Company, or any predecessor to the Company or any of their affiliates or is or was serving at the request of the Company, or any of their affiliates as a trustee, director, officer, member, employee or agent of another corporation or a partnership, joint venture, limited liability company, trust or other enterprise, including, without limitation, service with respect to employee benefit plans, whether or not the basis of such Proceeding is alleged action in an official capacity as a trustee, director, officer, member, employee or agent while serving as a trustee, director, officer, member, employee or agent, the Executive shall be indemnified and held harmless by the Company to the fullest extent authorized by Delaware law, as the same exists or may hereafter be amended, against all Expenses (as defined below) incurred or suffered by the Executive in connection therewith, and such indemnification shall continue as to the Executive even if the Executive has ceased to be an officer, director, trustee or agent, or is no longer employed by the Company and shall inure to the benefit of his heirs, executors and administrators. (b) Expenses. As used in this Agreement, the term "Expenses" shall include, without limitation, damages, losses, judgments, liabilities, fines, penalties, excise taxes, settlements, and costs, attorneys' fees, accountants' fees, and disbursements and costs of attachment or similar bonds, investigations, and any expenses of establishing a right to indemnification under this Agreement. (c) Enforcement. If a claim or request under this Section 11 is not paid by the Company or on its behalf, within thirty (30) days after a written claim or request has been received by the Company, the Executive may at any time thereafter bring suit against the Company to recover the 12 unpaid amount of the claim or request and if successful in whole or in part, the Executive shall be entitled to be paid also the expenses of prosecuting such suit. All obligations for indemnification hereunder shall be subject to, and paid in accordance with, applicable Delaware law, as the same exists or may hereafter be amended. (d) Partial Indemnification. If the Executive is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify the Executive for the portion of such Expenses to which the Executive is entitled. (e) Advances of Expenses. Expenses incurred by the Executive in connection with any Proceeding shall be paid by the Company in advance upon request of the Executive that the Company pay such Expenses, but only in the event that the Executive shall have delivered in writing to the Company (i) an undertaking to reimburse the Company for Expenses with respect to which the Executive is not entitled to indemnification and (ii) a statement of his good faith belief that the standard of conduct necessary for indemnification by the Company has been met. (f) Notice of Claim. The Executive shall give to the Company notice of any claim made against him for which indemnification will or could be sought under this Agreement. In addition, the Executive shall give the Company such information and cooperation as it may reasonably require and as shall be within the Executive's power and at such times and places as are convenient for the Executive. (g) Defense of Claim. With respect to any Proceeding as to which the Executive notifies the Company of the commencement thereof: (i) The Company will be entitled to participate therein at its own expense; (ii) Except as otherwise provided below, to the extent that it may wish, the Company will be entitled to assume the defense thereof, with counsel reasonably satisfactory to the Executive, which in the Company's sole discretion may be regular counsel to the Company and may be counsel to other officers and directors of the Company or any subsidiary. The Executive also shall have the right to employ his own counsel in such action, suit or proceeding if he reasonably concludes that failure to do so would involve a conflict of interest between the Company and the Executive, and under such circumstances the fees and expenses of such counsel shall be at the expense of the Company. (iii) The Company shall not be liable to indemnify the Executive under this Agreement for any amounts paid in settlement of any action or claim affected without its written consent. The Company shall not settle any action or claim in any manner which would (x) impose any penalty that would not be paid directly or indirectly by the Company, (y) impose any limitation on the Executive, or (z) admit any liability on the part of the Executive, in each case without the Executive's written consent. Neither the Company nor the Executive will unreasonably withhold or delay their consent to any proposed settlement. 13 (h) Non-exclusivity. The right to indemnification and the payment of Expenses incurred in defending a Proceeding in advance of its final disposition conferred in this Section 11 shall not be exclusive of any other right which the Executive may have or hereafter may acquire under any statute or certificate of incorporation or by-laws of the Company or any subsidiary, agreement, vote of shareholders or disinterested directors or trustees or otherwise. 12. Legal Fees and Expenses. If any contest or dispute shall arise between the Company and the Executive regarding any provision of this Agreement, the Company shall reimburse the Executive for all legal fees and expenses reasonably incurred by the Executive in connection with such contest or dispute. Such reimbursement shall be made as soon as practicable following the resolution of such contest or dispute (whether or not appealed) to the extent the Company receives reasonable written evidence of such fees and expenses. 13. Successors; Binding Agreement. (a) Company's Successors. No rights or obligations of the Company under this Agreement may be assigned or transferred, except that the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall include any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) Vesting of Rights. Since Executive has rendered and continues to render valuable services to the Company in reliance upon this Agreement, the rights and obligations created hereunder are hereby vested, and may not be revoked, rescinded, modified or amended by any subsequent action of the Board. (c) Executive's Successors. No rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive other than his rights to payments or benefits hereunder, which may be transferred only by will or the laws of descent and distribution. Upon the Executive's death, this Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to the Executive's interests under this Agreement. If the Executive should die following his Date of Termination while any amounts would still be payable to him hereunder if he had continued to live, all such amounts unless otherwise provided herein shall be paid in accordance with the terms of this Agreement to such person or persons so appointed in writing by the Executive, or otherwise to his legal representatives or estate. 14. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered either 14 personally or by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: At his residence address most recently filed with the Company. If to the Company: NBTY, Inc. 90 Orville Drive Bohemia, New York 11716 Attn: Harvey Kamil, President or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 15. Miscellaneous. No provisions of this Agreement may be amended, modified, supplemented or waived unless such amendment, modification or supplement is agreed to in writing signed by the Executive and by a duly authorized officer of the Company, and such waiver is set forth in writing and signed by the party to be charged. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The respective rights and obligations of the parties hereunder of this Agreement shall survive the Executive's termination of employment and the termination of this Agreement to the extent necessary for the intended preservation of such rights and obligations. 16. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 17. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 18. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of such subject matter. 19. Governing Law. Except or otherwise provided in Section 11 hereof, the validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. 15 20. Section Headings. The section headings in this Employment Agreement are for convenience of reference only, and they form no part of this Agreement and shall not affect its interpretation. 21. Withholding. The Company shall make such deductions and withhold such amounts from each payment made to the Executive hereunder as may be required from time to time by law, governmental regulation or order. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year above first written. EXECUTIVE NBTY, INC. /s/ Scott Rudolph By:/s/ Harvey Kamil - ----------------------------- --------------------------- SCOTT RUDOLPH Harvey Kamil President 16 EXHIBIT A GROSS-UP PAYMENT In the event that any payment received by Executive or paid by the Company on behalf of Executive under this Agreement or under any other plan, arrangement or agreement with the Company or any person whose actions result in a change in control of the Company (provided that the Company approves of the arrangement pursuant to which the payment by such person is made to Executive) or any person affiliated with the Company or such person (collectively, the "Total Payments") will be subject to the excise tax (the "Excise Tax") imposed by section 4999 (or any successor provision) of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to Executive an additional amount (the "Gross-Up Payment") such that the net amount retained or to be retained by Executive, after deduction of any Excise Tax on the Total Payments and on any federal, state and local income, excise and/or other taxes upon the Gross-up Payment provided for hereunder, shall be equal to the Total Payments. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Total Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to Executive the Total Payments (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the base amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income and other taxes at the highest applicable marginal rate of taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income and other taxes at the highest applicable marginal rate of taxation in the state and locality of Executive's residence on the date the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and any other taxes. In the event that the Excise Tax is subsequently determined to be less than the amount originally taken into account hereunder, Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and other taxes imposed on the Gross-Up Payment being repaid by Executive to the extent that such repayment results in an actual reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code (provided, however, that if all or any portion of the amount of any repayment made to Executive by any governmental entity shall be made at a higher rate of interest than that provided under section 1274(b)(2)(B) of the Code (the "Higher Interest Rate Amount"), Executive shall also repay to the Company interest on the Higher Interest Rate Amount at a rate equal to the excess of such higher rate of interest over the rate provided under section 1274(b)(2)(B) of the Code). In the event that the Excise Tax is determined to exceed the amount originally taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions to tax payable by Executive with respect to such excess) at the time that the amount of such excess is finally determined. The parties agree that such excess will be considered to have been finally determined at the conclusion of Internal Revenue Service administrative appellate proceedings, unless the parties mutually agree to pay or settle such amount earlier, or agree to pursue an appeal further. Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. In the event of an audit or other administrative or judicial proceeding relating to or arising from the issue of potential liability for the Excise Tax, the Company shall pay all attorneys' and accountants' fees and other costs reasonably incurred by Executive in connection with the audit or other proceeding to the extent such fees and costs relate to such liability, provided, that in the case of judicial or administrative proceedings, the Company consents to the pursuit of such proceedings. The Gross-Up Payment payable pursuant hereto shall be payable (or, as applicable withheld), in whole or in part as applicable, on the earlier of (i) the date the Company is required to withhold the Excise Tax pursuant to section 4999 of the Code or (ii) the date Executive is required to pay the Excise Tax. Executive shall notify the Company of any audit or review by the Internal Revenue Service of Executive's federal income tax return for the year in which a payment under this Agreement is made within ten (10) days of Executive's receipt of such audit or review. In addition, Executive shall also notify the Company of the final resolution of such audit or review within ten (10) days of such resolution. 2 EX-10 7 nbtk-104.txt EXHIBIT 10.4 Exhibit 10.4 EMPLOYMENT AGREEMENT AGREEMENT, dated as of October 1, 2002, by and between NBTY, Inc., a Delaware corporation (the "Company"), and HARVEY KAMIL (the "Executive"). WHEREAS, the Company recognizes that the Executive's talents and abilities are unique, and have been integral to the success of the Company and thus wishes to secure the ongoing services of the Executive on the terms and conditions set forth herein and to prevent any other competitive business from securing his services, and in utilizing his experience, background and know how; and WHEREAS, the Executive desires to continue his employment on the terms and conditions set forth in this Agreement; and WHEREAS, the Board of Directors of the Company ("Board") recognizes that the possibility of an unsolicited tender offer or other takeover bid for the Company is unsettling to senior executives of the Company. Therefore, these arrangements are being made to help assure a continuing dedication by such senior executives to their duties to the Company notwithstanding the possibility of a tender offer or takeover bid. In particular, the Board and the Compensation Committee of the Board (the "Committee") believe it important, should the Company receive proposals from third parties with respect to its future, to enable senior executives, without being influenced by the uncertainties of their own situation, to assess and advise the Board whether such proposals would be in the best interests of the Company and its shareholders and to take such other action regarding such proposals as the Board might determine to be appropriate. The Board and the Committee also wish to demonstrate to executives of the Company that the Company is concerned with the welfare of its executives and intends to see that loyal executives are treated fairly. NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth below, the parties hereby agree as follows: 1. Employment. The Company hereby employs the Executive as President and Chief Financial Officer of the Company, and the Executive hereby accepts such employment, on the terms and conditions set forth below. 2. Term. Unless earlier terminated in accordance with Section 6 hereof, the Executive shall be employed by the Company on the terms and conditions hereof pursuant to this Agreement for a period beginning on the date hereof (the "Effective Date") and ending on the fifth (5th) anniversary of the date hereof (the "Employment Period"); provided, however, that the Employment Period shall automatically be extended on each anniversary of the Effective Date for an additional one year period unless the Executive or the Company shall give the other at least thirty (30) days' written notice to the contrary. 3. Position and Duties. During the Employment Period, the Executive shall serve as President and Chief Financial Officer of the Company, with such duties, authority and responsibilities as are normally associated with and appropriate for such positions. The Executive shall report directly to the Board or any committees thereof at the request of the Board. The Executive shall devote substantially all of his working time, attention and energies during normal business hours (other than absences due to illness or vacation) to the performance of his duties for the Company. The Executive shall comply fully and promptly with the various policies, procedures and rules governing employees promulgated and/or as amended from time to time by the Company. Notwithstanding the above, the Executive shall be permitted, to the extent such activities do not substantially interfere with his performance of his duties and responsibilities hereunder or violate Section 10 of this Agreement, to (i) manage his personal, financial and legal affairs, (ii) with the approval of the Board, serve on civic or charitable boards or committees; (iii) with the approval of the Board, serve on boards of other companies, and the Executive shall be entitled to receive and retain all remuneration received by him from the items listed in clauses (i) through (iii) of this paragraph. 4. Place of Performance. During the Employment Period, the Company shall maintain executive offices for the Executive in Bohemia, New York and the Executive shall not be required to relocate to any other location beyond a twenty-five (25) mile radius surrounding Bohemia, New York. During the Employment Period, the Company shall provide the Executive with an office and appropriate staff. 5. Compensation and Related Matters. (a) Base Salary. During the Employment Period, the Company shall pay the Executive an annual base salary at the rate of not less than Four Hundred Twenty Thousand Dollars ($420,000) per year ("Base Salary"). The Executive's Base Salary shall be paid in approximately equal installments in accordance with the Company's customary payroll practices, less all applicable tax withholdings for state and federal income taxes, FICA and other deductions as required by law and/or authorized by the Executive. Each year during the Employment Period, pursuant to the Company's policy for senior executives, the Company shall effect a performance and salary review of the Executive and may increase (but not decrease) the Base Salary in such amount as the Committee, in its sole discretion, determines, but in no event shall the increase over the prior Base Salary be less than the percentage increase in the Consumer Price Index published by the Bureau of Labor Statistics of the United States Department of Labor for each twelve (12) month period beginning on January 1 of such year. January 2002 shall be the "Base Year" and the corresponding Index number for the month of January on each anniversary of the Effective Date shall be the current Index number. If the Executive's Base Salary is increased by the Company, such increased Base Salary shall then constitute the Base Salary for all purposes of this Agreement. (b) Annual Bonus. For each full fiscal year of the Company that begins and ends during the Employment Period, the Executive shall be eligible to earn an annual 2 cash bonus in such amount as shall be determined by the Compensation Committee, in its sole discretion (the "Annual Bonus"), taking into account such factors as the achievement by the Company of performance goals established by the Compensation Committee for each such fiscal year (or portion of each fiscal year), which may include targets related to the earnings before interest, taxes, depreciation and amortization ("EBITDA") of the Company, and other relevant factors; provided, however, that the Annual Bonus shall be no less than fifty percent (50%) of the then Base Salary. (c) Automobile Allowance. The Company shall provide the Executive with an automobile allowance to cover the cost of purchasing or leasing of a suitable vehicle in the amount of One Thousand Seven Hundred Fifty Dollars ($1,750) per month. Such automobile allowance shall be paid monthly, and may be increased pursuant to procedures set forth in Section 5(a) below (as so increased from time to time, the "Auto Allowance"). The Company shall also reimburse the Executive for all costs incurred by the Executive to insure and maintain such vehicle. (d) Business, Travel and Entertainment Expenses. The Company shall promptly reimburse the Executive for all business, travel and entertainment expenses consistent with the Executive's titles including, without limitation, first class transportation or travel on a private plane. (e) Vacation. The Executive shall be entitled to six (6) weeks of vacation per year. Vacation not taken during the applicable fiscal year (but not in excess of three weeks) shall be carried over to the next following fiscal year. (f) Welfare, Pension and Incentive Benefit Plans. During the Employment Period and subject to his fulfillment of the applicable eligibility requirements of the various welfare benefit plans and programs, the Executive (and his eligible spouse and dependents) shall be entitled to participate in all the welfare benefit plans and programs maintained by the Company from time to time for the benefit of its senior executives including, without limitation, all medical, hospitalization, dental, disability, accidental death and dismemberment and travel accident insurance plans and programs. In addition, during the Employment Period and subject to his fulfillment of the applicable eligibility requirements of such employee benefit plans and programs, the Executive shall be eligible to participate in all pension, retirement, savings and other employee benefit plans and programs maintained from time to time by the Company for the benefit of its senior executives, other than any annual cash incentive plan. The Executive shall pay for the portion of the cost of such benefits as established by the Company to be paid by its senior executives. (g) Stock Options. (i) The Executive shall be eligible to receive incentive stock options, non-qualified stock options and other equity awards (collectively, the "Options"), as determined and granted to the Executive from time to time by the Board and/or the Committee; provided that the Options shall become 100% vested and exercisable upon 3 a Change in Control (as defined below); and the Options shall expire upon the earlier to occur of (i) ten (10) years from the date of grant (the "Option Term") or (ii) except as otherwise provided in Section 8, ninety (90) days following the termination of Executive's employment with the Company. (ii) If the Company shall receive any tax benefits from the failure of any Options granted hereunder to qualify as incentive stock options other than because of the limitation contained in Section 422(d) of the Internal Revenue Code of 1986, as amended, or any successor thereto, or because of Executive's failure to exercise such Options in a timely way or to hold the shares of Common Stock acquired pursuant thereto for a sufficient period of time after the grant or exercise of the Options, the Company shall pay to the Executive the amount of such benefits within ten (10) business days of the receipt of such benefit by the Company. (h) Private Clubs. The Company shall pay for the costs and expenses of maintaining a membership at one (1) private country club and one (1) health club suitable to the Executive's position. 6. Termination. The Executive's employment hereunder may be terminated during the Employment Period under the following circumstances: (a) Death. This Agreement and the Employment Period shall terminate upon the Executive's death. (b) Disability. If, as a result of the Executive's incapacity due to physical or mental illness as determined by a physician selected by the Executive, and reasonably acceptable to the Company, (i) the Executive shall have been substantially unable to perform his duties hereunder for six consecutive months, or for an aggregate of 180 days during any period of twelve consecutive months and (ii) within thirty days after written Notice of Termination (as defined in Section 7 below) is given to the Executive after such six- or twelve-month period, the Executive shall not have returned to the substantial performance of his duties on a full-time basis, the Company shall have the right to terminate the Executive's employment hereunder for "Disability" and this Agreement shall be terminated if the Company chooses to exercise such a right. (c) Cause. The Company shall have the right to terminate the Executive's employment for "Cause." For purposes of this Agreement, the Company shall have "Cause" to terminate the Executive's employment only upon the Executive's: (i) conviction of a felony (or entered a plea of nolo contender to a crime that constitutes a felony) or willful gross misconduct that, in either case, results in material and demonstrable damage to the business or reputation of the Company; or (ii) willful and continued failure by Executive to perform his duties hereunder (other than such failure resulting from the Executive's incapacity due to physical or mental illness or after the issuance of a Notice of Termination by the 4 Executive for Good Reason, as defined below) within ten business days after the Company delivers to him a written demand for performance that specifically identifies the actions to be performed; or (iii) the breach by the Executive of any term of this Agreement. For purposes of this Section 6(c), no act or failure to act by the Executive shall be considered "willful" if such act is done by the Executive in the good faith belief that such act is or was to be beneficial to the Company or one or more of its businesses, or such failure to act is due to the Executive's good faith belief that such action would be materially harmful to the Company or one of its businesses. "Cause" shall not exist unless and until the Company has delivered to the Executive a copy of a resolution duly adopted by a majority of the entire membership of the Board at a meeting of the Board called and held for such purpose after reasonable (but in no event less than thirty days') notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board, finding that in the good faith opinion of the Board that "Cause" exists, and specifying the particulars thereof in detail. This Section 6(c) shall not prevent the Executive from challenging in any court of competent jurisdiction the Board's determination that Cause exists or that the Executive has failed to cure any act (or failure to act) that purportedly formed the basis for the Board's determination. However, after giving notice to the Executive and complying with the procedures set forth in this Section 6(c), the Company may relieve the Executive of his duties on an interim basis. (d) Good Reason. The Executive may terminate his employment for "Good Reason" after giving the Company detailed written notice thereof, if the Company shall have failed to cure the event or circumstance constituting "Good Reason" within ten business days after receiving such notice. Good Reason shall mean the occurrence of any of the following without the written consent of the Executive: (i) the assignment to the Executive of duties inconsistent with this Agreement and his position (including the office to which he reports, status, offices and title), a change in his titles or authority or other action by the Company which results in a diminution of such position, authority, duties or responsibilities; (ii) any reduction by the Company of, or the Company's failure to pay, the Executive's Base Salary or Annual Bonus in breach of Sections 5(a) and (b) above; (iii) any failure by the Company to provide benefits required by Section 5; (iv) the requirement of the Executive to relocate to locations other than that provided in Section 4 hereof; 5 (v) the failure of the Company to comply with and satisfy Section 13(a) of this Agreement; (vi) as a result of a Change in Control (as defined below) and a change in circumstances thereafter significantly affecting the Executive's position, including, without limitation, a change in scope of the business or other activities for which he was responsible immediately prior to the Change in Control, Executive has been rendered substantially unable to carry out, or has been substantially hindered in the performance of, any of the authority, duties and responsibilities contemplated by Section 3 above; or (vii) any material breach of this Agreement by the Company. The Executive's right to terminate his employment hereunder for Good Reason shall not be affected by his incapacity due to physical or mental illness. The Executive's continued employment shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (e) Without Cause. So long as the Company complies in full with all of its obligations set forth in Section 8 below, the Company shall have the right to terminate the Executive's employment hereunder without Cause by providing the Executive with a Notice of Termination to that effect. (f) Without Good Reason. The Executive shall have the right to terminate his employment hereunder without Good Reason by providing the Company with a Notice of Termination to that effect. (g) Upon a Change in Control. The Company shall have the right to terminate the Executive's employment hereunder as a result of a Change in Control by providing the Executive with a Notice of Termination to that effect. For purposes of this Agreement, "Change in Control" shall mean the happening of any of the following: (i) The members of the Board at the beginning of any consecutive twenty-four calendar month period, but not including any period prior to the Effective Date (the "Incumbent Directors"), cease for any reason other than due to death or such director's desire to not stand for re-election to the Board to constitute at least a majority of the members of the Board; provided that any director whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the members of the Board then still in office who were members of the Board at the beginning of such twenty-four calendar month period shall be deemed an Incumbent Director; (ii) any "person", including a "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934), but excluding the Company, any of its affiliates or any employee benefit plan of the Company is or becomes after the Effective Date a "beneficial owner" (as such term is used in Section 13(d) and 14 of the Securities Exchange Act of 1934) directly or indirectly of securities of the Company (not 6 including in the securities beneficially owned by such person any securities acquired directly from the Company) representing 15% or more of the combined voting power of the Company's then outstanding securities; (iii) the stockholders of the Company approve a definitive agreement (1) for the merger or other business combination of the Company with or into another entity if (A) a majority of the directors of the surviving entity were not directors of the Company immediately prior to the effective date of such merger or combination, or (B) the stockholders of the Company immediately prior to the effective date of such merger or combination own less than 50% of the combined voting power of the then outstanding securities in such surviving entity or (2) for the sale or other disposition of all or substantially all of the assets of the Company; or (iv) the purchase of 15% or more of the Company's then outstanding securities pursuant to any tender or exchange offer made by any "person", including a "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934), other than the Company, any of its affiliates or any employee benefit plan of the Company. 7. Termination Procedure. (a) Notice of Termination. Any termination of the Executive's employment by the Company or by the Executive during the Employment Period (other than pursuant to Section 6(a)) shall be communicated by written Notice of Termination to the other party. For purposes of this Agreement, a "Notice of Termination" shall mean a notice indicating the specific termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under that provision. (b) Date of Termination. "Date of Termination" shall mean (i) if the Executive's employment is terminated by his death, the date of his death, (ii) if the Executive's employment is terminated pursuant to Section 6(b), thirty (30) days after the date of receipt of the Notice of Termination (provided that the Executive does not return to the substantial performance of his duties on a full-time basis during such thirty (30) day period), and (iii) if the Executive's employment is terminated for any other reason, the date on which a Notice of Termination is given or any later date (within thirty (30) days after the giving of such notice) set forth in such Notice of Termination. Notwithstanding the foregoing, in the event that the Executive has given the Company his Notice of Termination for Good Reason or otherwise, the Board may elect to have such resignation become effective immediately or at such other date, not later than the effective date specified in the Notice of Termination, as the Board may determine. (c) Resignation. Upon termination of the Executive's employment, Executive (unless otherwise requested by the Board) concurrently shall resign any directorships which he holds with the Company and all affiliates of the Company. 7 8. Compensation Upon Termination or During Disability. In the event the Executive's employment terminates during the Employment Period, the Company shall provide the Executive with the payments and benefits set forth below within 10 business days following the Date of Termination (except for the payment set forth in Section 8 (a)(vi), which shall be paid as provided in such Section). (a) Termination By Company without Cause or By Executive for Good Reason. If the Executive's employment is terminated by the Company without Cause (other than Disability) or by the Executive for Good Reason, in each case before a Change in Control has occurred: (i) the Company shall pay to the Executive, on or before the Date of Termination, a lump sum payment equal to the greater of: (1) the sum of (A) Base Salary, accrued vacation pay and Auto Allowance, in each case through the Date of Termination, (B) Base Salary and Auto Allowance that would have been payable for the remaining term of the Employment Period had such termination not taken place, and (C) Annual Bonus in the amount of fifty percent (50%) of the then Base Salary that would have been payable for the remaining term of the Employment Period had such termination not taken place, and (2) the sum of (A) Base Salary, accrued vacation pay and Auto Allowance, in each case through the Date of Termination, (B) three (3) times the Executive's Base Salary and (C) three (3) times the Annual Bonus paid with respect to the fiscal year ended immediately preceding the date of such termination; (ii) the Company shall continue to provide the Executive and his eligible spouse and dependents for a period equal to the greater of (A) the remaining term of the Employment Period, or (B) three (3) years following the Date of Termination, the medical, hospitalization, dental and life insurance program and other benefits provided for in Section 5(f), as if he had remained employed; provided, that if the Executive, his spouse or his eligible dependents cannot continue to participate in the Company programs providing such benefits, the Company shall arrange to provide the Executive and his spouse and dependents with the economic equivalent of the benefits they otherwise would have been entitled to receive under such plans and programs; and provided, further, that such benefits shall terminate on the date or dates the Executive becomes eligible to receive equivalent coverage and benefits under the plans and programs of a subsequent employer at an equivalent cost to the Executive (such coverage and benefits to be determined on a coverage- by-coverage, or benefit-by-benefit, basis); 8 (iii) all outstanding equity incentive awards (including, without limitation, stock options granted under the Stock Option Plan) shall immediately vest and, if such termination occurs prior to a Change in Control, any then outstanding stock options or similar awards held by Executive shall remain exercisable for a period of one year from the date of such termination or, if earlier, until the end of the Option Term and, if such termination occurs after a Change in Control, Executive shall be entitled to receive from the Company a lump sum amount equal to the "spread" (i.e., the closing price of one share of common stock of the Company on the Date of Termination minus the exercise price set forth in the stock option agreement or other agreement governing the option or similar award, multiplied by the number of shares of common stock of the Company that are subject to such stock option agreement or other agreement governing the option or similar award) on any then outstanding stock options or similar awards held by Executive in exchange for the surrender and cancellation of such awards; (iv) the Company shall, consistent with past practice, reimburse the Executive pursuant to Section 5 for business expenses incurred but not paid prior to such Date of Termination; (v) the Executive shall be entitled to any other rights, compensation and/or benefits as may be due to the Executive in accordance with the terms and provisions of any agreements, plans or programs of the Company (other than any severance-based plan or program); and (vi) If (x) a Change in Control shall occur following such Date of Termination and (y) it shall be determined that a Payment (as defined in Section 9(d) below) would be subject to Excise Tax (as defined in Section 9(d)), then the Executive shall be entitled to receive a Gross-Up Payment (as defined in Section 9(d)), as provided in Section 9(d) and Exhibit A hereto. The Gross-Up Payment shall be paid pursuant to Exhibit A hereto. The payments and benefits provided for as subclause (A) of clause (i) above and in clause (iv) above are hereinafter referred to as the "Accrued Obligations". The receipt of any amounts to be paid under this subsection (a) is conditioned upon the Executive or his personal representative's execution and delivery of a general release reasonably satisfactory to the Company releasing the Company, its officers, agents, stockholders and affiliates from any liability for any matter in law or equity concerning any aspect of his employment. (b) Cause or By Executive Without Good Reason. If the Executive's employment is terminated by the Company for Cause or by the Executive other than for Good Reason, then the Company shall provide the Executive with his Accrued Obligations and shall have no further obligation to the Executive hereunder. (c) Disability. During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness ("Disability Period"), the Executive shall continue to receive his full Base Salary set forth in Section 5(a) until 9 his employment is terminated pursuant to Section 6(b). In the event the Executive's employment is terminated for Disability pursuant to Section 6(b): (i) the Company shall provide the Executive with the excess, if any, of his Base Salary over the amount of any long-term disability benefits that he receives under the Company's welfare benefit plans and programs, payable in accordance with the normal payroll practices of the Company, for the remainder of the Employment Period; (ii) all outstanding equity incentive awards (including without limitation stock options granted under the Stock Option Plan) shall immediately vest and any then outstanding stock options or similar awards held by Executive shall remain exercisable for a period of one year from the date of such termination or, if earlier, until the end of the Option Term; (iii) the Company shall, consistent with past practice, reimburse the Executive pursuant to Section 5 hereof for business expenses incurred but not paid prior to such Date of Termination; and (iv) the Executive shall be entitled to any other rights, compensation and/or benefits as may be due to Executive in accordance with the terms and provisions of any agreements, plans or programs of the Company (other than any severance-based plan or program). Following the Company's payments and provisions of all of the foregoing, the Company shall have no further obligations to the Executive hereunder. (d) Death. If the Executive's employment is terminated by his death, the Company shall provide to the Executive's beneficiary, legal representatives or estate, as the case may be, the Executive's Base Salary, payable in accordance with the normal payroll practices of the Company, for a period equal to the remaining term of the Employment Period and the Company shall have no further obligations to the Executive's beneficiary, legal representative or estate hereunder. (e) Mitigation. The Executive shall not be required to mitigate damages with respect to the termination of his employment under this Agreement by seeking other employment or otherwise, and there shall be no offset against amounts due the Executive under this Agreement on account of subsequent employment except as specifically provided in this Section 8. Additionally, amounts owed to the Executive under this Agreement shall not be offset by any claims the Company may have against the Executive, and the Company's obligation to make the payments provided for in this Agreement, and otherwise to perform its obligations hereunder, shall not be affected by any other circumstances, including, without limitation, any counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. 10 9. Change in Control Benefits. (a) In the event the Executive's employment is terminated by the Company for any reason other than Cause or Disability, or in the event the Executive resigns for Good Reason, in each case after a Change in Control has occurred, the Company shall pay Executive, as liquidated damages, a lump sum cash payment in lieu of all severance benefits provided under Section 8 (a)(i) above, equal to two and ninety-nine hundredths (2.99) times the average compensation received by the Executive during the five years immediately preceding the Date of Termination. (b) The Company shall, consistent with past practice, reimburse the Executive pursuant to Section 5 for business expenses incurred but not paid prior to such Date of Termination; (c) All outstanding equity incentive awards (including, without limitation, stock options granted under the Stock Option Plan) shall immediately vest, and the Executive Shall be entitled to receive a lump sum amount equal to the "spread" on any then outstanding stock options or similar awards held by the Executive, as provided in Section 8(a)(iii) above; (d) Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be subject to the excise tax imposed by Section 4999 (or any successor provision) of the Internal Revenue Code of 1986, as amended, or any successor thereto, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest or penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including interest and penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on the Payment, in accordance with the procedures set forth in Exhibit A hereto; (e) Mitigation. The Executive shall not be required to mitigate damages with respect to the termination of his employment under this Agreement by seeking other employment or otherwise, and there shall be no offset against amounts due the Executive under this Agreement on account of subsequent employment except as specifically provided in this Section 9. Additionally, amounts owed to the Executive under this Agreement shall not be offset by any claims the Company may have against the Executive, and the Company's obligation to make the payments provided for in this Agreement, and otherwise to perform its obligations hereunder, shall not be affected by 11 any other circumstances, including, without limitation, any counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. 10. Confidential Information; Non-Competition. (a) Executive acknowledges that in his employment hereunder he will occupy a position of trust and confidence. (b) Except as may be required or appropriate in connection with his carrying out his duties under this Agreement, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or any legal process, or as is necessary in connection with any adversarial proceeding against the Company (in which case the Executive shall cooperate with the Company, at the Company's expense, in obtaining a protective order against disclosure by a court of competent jurisdiction), communicate, to anyone other than the Company and those designated by the Company or on behalf of the Company in the furtherance of its business or to perform his duties hereunder, any of the following, in each case without limitation in time: any trade secrets, confidential information, knowledge or data relating to the Company and its businesses, operations, inventions, products, strategies, and investments, obtained by the Executive during the Executive's employment by the Company that is not generally available public knowledge (other than by acts by the Executive in violation of this Agreement). Executive acknowledges that such confidential information is specialized, unique in nature and of great value to the Company, and that such confidential information gives the Company a competitive advantage. The Executive agrees to deliver or return to the Company, at the Company's request at any time or upon termination or expiration of his employment or as soon thereafter as possible, all documents, computer tapes and disks, records, lists, data, drawings, prints, notes and written information (and all copies thereof) furnished by or on behalf of the Company or prepared by the Executive in the course of his employment by the Company. (c) The obligations contained in this Section 10 shall survive the termination or expiration of Executive's employment with the Company and shall be fully enforceable thereafter in accordance with its terms. (d) During the Employment Period (and, in the event Executive terminates his employment hereunder other than for Good Reason or Executive's employment is terminated by the Company for cause, for a period of one (1) year beyond the expiration of the Term), Executive shall not, directly or indirectly, without the prior written consent of the Company, provide services to (whether as an employee or a consultant, with or without pay), own, manage, operate, join, control, participate in, or be connected with (as a stockholder, partner, or otherwise), any business, individual, partner, firm, corporation, or other entity that is then a direct competitor of the Company or its subsidiaries (each such competitor a "Competitor of the Company"); provided, however, that the "beneficial ownership" by Executive, either individually or as a member of a "group," as such terms are used in Rule 13d of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, of not more than five percent (5%) of the voting stock of any 12 publicly held corporation shall not alone constitute a violation of this Agreement and provided further that, with the consent of the Company (which consent shall not be unreasonably withheld or delayed), the foregoing shall not prohibit Executive from rendering services to an entity that conducts a business that is a "Competitor of the Company" if such business does not contribute a material portion of such entity's revenues. It is further expressly agreed that the Company will or would suffer irreparable injury if Executive were to compete with the Company or any subsidiary thereof in violation of this Agreement, and that the Company would by reason of such competition be entitled to injunctive relief in a court of appropriate jurisdiction, and Executive further consents and stipulates to the entry of such injunctive relief in such a court prohibiting Executive from competing with the Company or any subsidiary of the Company in violation of this Agreement. Executive and the Company acknowledge and agree that the business of the Company is national in nature, and that the terms of the non-competition agreement set forth herein shall apply on a nation-wide basis. 11. Indemnification. (a) General. The Company agrees that if the Executive is made a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that the Executive is or was a trustee, director or officer of the Company, or any predecessor to the Company or any of their affiliates or is or was serving at the request of the Company, or any of their affiliates as a trustee, director, officer, member, employee or agent of another corporation or a partnership, joint venture, limited liability company, trust or other enterprise, including, without limitation, service with respect to employee benefit plans, whether or not the basis of such Proceeding is alleged action in an official capacity as a trustee, director, officer, member, employee or agent while serving as a trustee, director, officer, member, employee or agent, the Executive shall be indemnified and held harmless by the Company to the fullest extent authorized by Delaware law, as the same exists or may hereafter be amended, against all Expenses (as defined below) incurred or suffered by the Executive in connection therewith, and such indemnification shall continue as to the Executive even if the Executive has ceased to be an officer, director, trustee or agent, or is no longer employed by the Company and shall inure to the benefit of his heirs, executors and administrators. (b) Expenses. As used in this Agreement, the term "Expenses" shall include, without limitation, damages, losses, judgments, liabilities, fines, penalties, excise taxes, settlements, and costs, attorneys' fees, accountants' fees, and disbursements and costs of attachment or similar bonds, investigations, and any expenses of establishing a right to indemnification under this Agreement. (c) Enforcement. If a claim or request under this Section 11 is not paid by the Company or on its behalf, within thirty (30) days after a written claim or request has been received by the Company, the Executive may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim or request and if successful in whole or in part, the Executive shall be entitled to be paid also the expenses of prosecuting such 13 suit. All obligations for indemnification hereunder shall be subject to, and paid in accordance with, applicable Delaware law, as the same exists or may hereafter be amended. (d) Partial Indemnification. If the Executive is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify the Executive for the portion of such Expenses to which the Executive is entitled. (e) Advances of Expenses. Expenses incurred by the Executive in connection with any Proceeding shall be paid by the Company in advance upon request of the Executive that the Company pay such Expenses, but only in the event that the Executive shall have delivered in writing to the Company (i) an undertaking to reimburse the Company for Expenses with respect to which the Executive is not entitled to indemnification and (ii) a statement of his good faith belief that the standard of conduct necessary for indemnification by the Company has been met. (f) Notice of Claim. The Executive shall give to the Company notice of any claim made against him for which indemnification will or could be sought under this Agreement. In addition, the Executive shall give the Company such information and cooperation as it may reasonably require and as shall be within the Executive's power and at such times and places as are convenient for the Executive. (g) Defense of Claim. With respect to any Proceeding as to which the Executive notifies the Company of the commencement thereof: (i) The Company will be entitled to participate therein at its own expense; (ii) Except as otherwise provided below, to the extent that it may wish, the Company will be entitled to assume the defense thereof, with counsel reasonably satisfactory to the Executive, which in the Company's sole discretion may be regular counsel to the Company and may be counsel to other officers and directors of the Company or any subsidiary. The Executive also shall have the right to employ his own counsel in such action, suit or proceeding if he reasonably concludes that failure to do so would involve a conflict of interest between the Company and the Executive, and under such circumstances the fees and expenses of such counsel shall be at the expense of the Company. (iii) The Company shall not be liable to indemnify the Executive under this Agreement for any amounts paid in settlement of any action or claim affected without its written consent. The Company shall not settle any action or claim in any manner which would (x) impose any penalty that would not be paid directly or indirectly by the Company, (y) impose any limitation on the Executive, or (z) admit any liability on the part of the Executive, in each case without the Executive's written consent. Neither 14 the Company nor the Executive will unreasonably withhold or delay their consent to any proposed settlement. (h) Non-exclusivity. The right to indemnification and the payment of Expenses incurred in defending a Proceeding in advance of its final disposition conferred in this Section 11 shall not be exclusive of any other right which the Executive may have or hereafter may acquire under any statute or certificate of incorporation or by-laws of the Company or any subsidiary, agreement, vote of shareholders or disinterested directors or trustees or otherwise. 12. Legal Fees and Expenses. If any contest or dispute shall arise between the Company and the Executive regarding any provision of this Agreement, the Company shall reimburse the Executive for all legal fees and expenses reasonably incurred by the Executive in connection with such contest or dispute. Such reimbursement shall be made as soon as practicable following the resolution of such contest or dispute (whether or not appealed) to the extent the Company receives reasonable written evidence of such fees and expenses. 13. Successors; Binding Agreement. (a) Company's Successors. No rights or obligations of the Company under this Agreement may be assigned or transferred, except that the Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall include any successor to its business and/or assets (by merger, purchase or otherwise) which executes and delivers the agreement provided for in this Section 13 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. (b) Vesting of Rights. Since Executive has rendered and continues to render valuable services to the Company in reliance upon this Agreement, the rights and obligations created hereunder are hereby vested, and may not be revoked, rescinded, modified or amended by any subsequent action of the Board. (c) Executive's Successors. No rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive other than his rights to payments or benefits hereunder, which may be transferred only by will or the laws of descent and distribution. Upon the Executive's death, this Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to the Executive's interests under this Agreement. If the Executive should die following his Date of Termination while any amounts would still be payable to him hereunder if he had continued to live, all such amounts unless otherwise provided herein shall be paid in accordance with the terms of this Agreement to such person or 15 persons so appointed in writing by the Executive, or otherwise to his legal representatives or estate. 14. Notice. For the purposes of this Agreement, notices, demands and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered either personally or by United States certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: At his residence address most recently filed with the Company. If to the Company: NBTY, Inc. 90 Orville Drive Bohemia, New York 11716 Attn: Scott Rudolph, Chief Executive Officer or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 15. Miscellaneous. No provisions of this Agreement may be amended, modified, supplemented or waived unless such amendment, modification or supplement is agreed to in writing signed by the Executive and by a duly authorized officer of the Company, and such waiver is set forth in writing and signed by the party to be charged. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The respective rights and obligations of the parties hereunder of this Agreement shall survive the Executive's termination of employment and the termination of this Agreement to the extent necessary for the intended preservation of such rights and obligations. 16. Validity. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 17. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 16 18. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto in respect of such subject matter. 19. Governing Law. Except or otherwise provided in Section 11 hereof, the validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. 20. Section Headings. The section headings in this Employment Agreement are for convenience of reference only, and they form no part of this Agreement and shall not affect its interpretation. 21. Withholding. The Company shall make such deductions and withhold such amounts from each payment made to the Executive hereunder as may be required from time to time by law, governmental regulation or order. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year above first written. EXECUTIVE NBTY, INC. /s/ Harvey Kamil By: /s/ Scott Rudolph - ----------------------------------- ------------------------------------ HARVEY KAMIL Name: Scott Rudolph Title: Chief Executive Officer 17 EXHIBIT A GROSS-UP PAYMENT In the event that any payment received by Executive or paid by the Company on behalf of Executive under this Agreement or under any other plan, arrangement or agreement with the Company or any person whose actions result in a change in control of the Company (provided that the Company approves of the arrangement pursuant to which the payment by such person is made to Executive) or any person affiliated with the Company or such person (collectively, the "Total Payments") will be subject to the excise tax (the "Excise Tax") imposed by section 4999 (or any successor provision) of the Internal Revenue Code of 1986, as amended (the "Code"), the Company shall pay to Executive an additional amount (the "Gross-Up Payment") such that the net amount retained or to be retained by Executive, after deduction of any Excise Tax on the Total Payments and on any federal, state and local income, excise and/or other taxes upon the Gross-up Payment provided for hereunder, shall be equal to the Total Payments. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Total Payments shall be treated as "parachute payments" within the meaning of section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and reasonably acceptable to Executive the Total Payments (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered, within the meaning of section 280G(b)(4)(B) of the Code, in excess of the base amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (ii) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income and other taxes at the highest applicable marginal rate of taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income and other taxes at the highest applicable marginal rate of taxation in the state and locality of Executive's residence on the date the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and any other taxes. In the event that the Excise Tax is subsequently determined to be less than the amount originally taken into account hereunder, Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and other taxes imposed on the Gross-Up Payment being repaid by Executive to the extent that such repayment results in an actual reduction in Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in section 1274(b)(2)(B) of the Code (provided, however, that if all or any portion of the amount of any repayment made to Executive by any governmental entity shall be made at a higher rate of interest than that provided under section 1274(b)(2)(B) of the Code (the "Higher Interest Rate Amount"), Executive shall also repay to the Company interest on the Higher Interest Rate Amount at a rate equal to the excess of such higher rate of interest over the rate provided under section 1274(b)(2)(B) of the Code). In the event that the Excise Tax is determined to exceed the amount originally taken into account hereunder (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions to tax payable by Executive with respect to such excess) at the time that the amount of such excess is finally determined. The parties agree that such excess will be considered to have been finally determined at the conclusion of Internal Revenue Service administrative appellate proceedings, unless the parties mutually agree to pay or settle such amount earlier, or agree to pursue an appeal further. Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. In the event of an audit or other administrative or judicial proceeding relating to or arising from the issue of potential liability for the Excise Tax, the Company shall pay all attorneys' and accountants' fees and other costs reasonably incurred by Executive in connection with the audit or other proceeding to the extent such fees and costs relate to such liability, provided, that in the case of judicial or administrative proceedings, the Company consents to the pursuit of such proceedings. The Gross-Up Payment payable pursuant hereto shall be payable (or, as applicable withheld), in whole or in part as applicable, on the earlier of (i) the date the Company is required to withhold the Excise Tax pursuant to section 4999 of the Code or (ii) the date Executive is required to pay the Excise Tax. Executive shall notify the Company of any audit or review by the Internal Revenue Service of Executive's federal income tax return for the year in which a payment under this Agreement is made within ten (10) days of Executive's receipt of such audit or review. In addition, Executive shall also notify the Company of the final resolution of such audit or review within ten (10) days of such resolution. 2 EX-10 8 nbtk-105.txt EXHIBIT 10.5 Exhibit 10.5 EXECUTIVE CONSULTING AGREEMENT EXECUTIVE CONSULTING AGREEMENT, made as of the 1st day of January 2002, by and between NBTY, INC. (the "Company") and RUDOLPH MANAGEMENT ASSOCIATES, INC., a Florida corporation. W I T N E S S E T H: WHEREAS, ARTHUR RUDOLPH was the founder of the Company and has previously served as Chairman of the Board, President and Chief Executive Officer of the Company, WHEREAS, ARTHUR RUDOLPH's services have been instrumental to the growth and development of the Company, WHEREAS, management of the Company recognizes that his services as an Executive Consultant to the Company will provide additional depth and experience to management, WHEREAS, ARTHUR RUDOLPH has agreed to continue to make his services available to the Company through his consulting company, Rudolph Management Associates, Inc. ("RMA"), and WHEREAS, the Company desires to retain the unique experience, background, ability and services of ARTHUR RUDOLPH as an Executive Consultant from the effective date hereof. NOW, THEREFORE, in consideration of the mutual promises hereinafter contained and for other good and valuable consideration, the parties agree as follows: 1. Retention. The Company hereby retains RMA to provide the services of ARTHUR RUDOLPH and ARTHUR RUDOLPH hereby accepts the engagement of Executive Consultant from January 1, 2002 through December 31, 2002. 2. Duties. During the period of this Agreement, ARTHUR RUDOLPH shall devote such amount of his time and energies as he may deem necessary and, if elected, shall serve as a Director of the Company and shall perform duties customarily incident thereto and such other duties as may from time to time be assigned to him by the Board of Directors. 3. Executive Consulting Compensation. (a) During the period of this Agreement, the Company shall pay to ARTHUR RUDOLPH, through RMA, a fee ("Consulting Fee"), the amount of which shall be fixed by the Board of Directors of the Company, from time to time during such period, provided that, in no event shall ARTHUR RUDOLPH's Consulting Fee be at a rate lower than Thirty Three Thousand Three Hundred Thirty Three Dollars ($33,333.00) per month. Such Consulting Fee shall be paid to ARTHUR RUDOLPH on a monthly basis. (b) Benefits. ARTHUR RUDOLPH shall also be provided by the Company with such insurance benefits (including life and medical insurance) as the Company generally provides for any group or class of executives of which ARTHUR RUDOLPH would have been a member had he been employed by the Company. 4. Disability. In the event ARTHUR RUDOLPH shall become disabled during the period of this Agreement, his Consulting Fee shall continue at the same rate that it was on the date of such disability. If ARTHUR RUDOLPH shall receive any disability payments from any insurance policy paid for by the Company, the payments to ARTHUR RUDOLPH during any period of disability shall be reduced by the amount of disability payments received by ARTHUR RUDOLPH under such insurance plans or policies. For the purposes of this Agreement, disability shall mean mental or physical illness or condition rendering ARTHUR RUDOLPH incapable of performing his normal consulting duties with the Company. 5. Expenses. It is recognized that, during the term of this Agreement, ARTHUR RUDOLPH will have to incur certain out-of-pocket expenses in connection with the services to be rendered hereunder. If ARTHUR RUDOLPH does incur such expenditures for travel, lodging, entertainment and the like, the Company will reimburse ARTHUR RUDOLPH for such expenditures. 6. Non-Competition. In consideration for this Agreement, RMA and ARTHUR RUDOLPH agree not be engaged in any business or enterprise which competes with the present business of the Company during the term of this Agreement. 7. Binding Effect. This Agreement shall inure to the benefit of, and be binding upon, the Company, its successors and assigns, including, without limitation, any person, partnership, company or corporation which may acquire substantially all of the Company's assets or business or with or into which the Company may be liquidated, consolidated, merged or otherwise combined, and shall inure to the benefit of, and be binding upon the Company, RMA and ARTHUR RUDOLPH, his heirs, distributees, personal representatives, its successors and assigns. 8. Waiver. Failure to either party to insist on any one or more instances upon performance or any terms or conditions of this Agreement shall not be construed a waiver of future performance of any such term, covenant or condition but the obligations of either party with respect thereto shall continue in full force and effect. 9. Entire Agreement. This Agreement supersedes all previous understandings and agreements between ARTHUR RUDOLPH and the Company and 2 contains the entire understanding and agreement between the parties with respect to the subject matter hereof. 10. Vesting of Rights. Since RMA and ARTHUR RUDOLPH will render valuable services to the Company in reliance upon this Agreement, the rights and obligations created hereunder are hereby vested, and may not be revoked, rescinded, modified or amended by any subsequent action of the Board of Directors of the Company. This Agreement cannot be amended, modified or supplemented in any respect except by a subsequent written agreement entered into by both parties. 11. Applicable Law. This Agreement shall be construed and enforced according to the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. RUDOLPH MANAGEMENT NBTY, INC. ASSOCIATES, INC. By: /s/ Arthur Rudolph By: /s/ Harvey Kamil - ----------------------------------- ------------------------------------ Name: Arthur Rudolph Name: Harvey Kamil Title: President Title: President Agreed and Consented: /s/ Arthur Rudolph - ----------------------------------- ARTHUR RUDOLPH, individually 3 EX-10 9 nbtk-106.txt EXHIBIT 10.6 Exhibit 10.6 NBTY, INC. EMPLOYEES' STOCK OWNERSHIP PLAN (FORMERLY NBTY, INC. PROFIT SHARING PLAN) Bruce D. Merkur, P.C. One Penn Plaza Suite 2828 New York, New York 10119-2892 TABLE OF CONTENTS ARTICLE I PURPOSE ARTICLE II DEFINITIONS AND CONSTRUCTION ARTICLE III PARTICIPATION AND SERVICE ARTICLE IV TREATMENT OF PARTICIPANT GENERAL INVESTMENT ACCOUNT ARTICLE V CONTRIBUTIONS AND FORFEITURES ARTICLE VI PARTICIPANT STOCK ARTICLE VII BENEFITS ARTICLE VIII TRUST FUND AND INVESTMENT ARTICLE IX ADMINISTRATION ARTICLE X MISCELLANEOUS ARTICLE XI AMENDMENTS AND ACTION BY EMPLOYER ARTICLE XII SUCCESSOR AND MERGER OR CONSOLIDATION OF PLANS ARTICLE XIII PLAN TERMINATIONS ARTICLE XIV LEGAL CONSIDERATIONS THIS AGREEMENT MADE THIS 28th day of December, 1999, by and among NBTY, INC., a corporation existing under the laws of the State of New York and having its address at 90 Orville Drive, Bohemia, New York 11716 (hereinafter called the "Employer"), and ARTHUR RUDOLPH (care of the above address, as "Trustee") W I T N E S S E T H WHEREAS, effective January 1, 1974, the Employer adopted then known as NATURE'S BOUNTY, INC. an Employee Stock Ownership Plan in order to help provide its Employees with adequate retirement benefits; and WHEREAS, said Plan and Trust was converted into a Profit Sharing Plan and Trust effective January 1, 1989; WHEREAS, effective January 1, 1996, the Employer converted said Profit Sharing Plan and Trust once more into an Employee Stock Ownership Plan and Trust; and WHEREAS, Section 12.5 of the Plan permits the Employer to make such amendments which are necessary or desirable and/or to entirely restate the Plan and Trust; and WHEREAS, the Employer desires to amend the Plan and Trust to comply with recent changes in the law relating to qualified retirement plans and to reflect said Plan and Trust in a completely restated document; and WHEREAS, the officers of the Employer have been authorized and directed to enter into this Agreement; NOW, THEREFORE, except where an effective date to the contrary is specifically stated herein, effective January 1, 1999, the Employer does hereby amend and restate NBTY, INC. EMPLOYEES' STOCK OWNERSHIP PLAN as follows: ARTICLE I PURPOSE The Employer has converted its Profit Sharing Plan and Trust into an Employee Stock Ownership Plan known as the NBTY, INC. EMPLOYEES' STOCK OWNERSHIP PLAN. The purpose of the Plan is to provide its eligible employees with the benefits of ownership of common stock of NBTY, INC. under the terms of this Plan. The assets of this Plan are to be invested primarily in common stock of NBTY, INC. The Plan and its related Trust, which forms a part hereof, are maintained for the exclusive benefit of eligible employees and their beneficiaries and are intended to meet the requirements of a qualified employee stock ownership plan under Sections 401(a), 501(a) and 4975(e)(7) of the Internal Revenue Code of 1986, as amended. ARTICLE II DEFINITIONS AND CONSTRUCTION 2.1 DEFINITIONS: Words and phrases appearing in this Plan shall have the respective meanings set forth in this ARTICLE, unless the context clearly indicates to the contrary. (a) Administrator: The persons appointed pursuant to ARTICLE IX to administer the Plan in accordance with said ARTICLE. (b) Allocation Date: For purposes of allocating income and allocating Employer contributions, December 31st of each Plan Year. Amounts allocated, after March 31, 1984, to an individual medical account, as defined in Section 415(1)(2) of the Code, which is part of a pension or annuity plan maintained by the employer are treated as annual additions to a defined contribution plan. Also, amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a Key employee, as defined in Section 419A(d)(3) of the Code, under a welfare benefit fund, as defined in Section 419(e) of the Code, maintained by the employer are treated as annual additions to a defined contribution plan. (c) Annual Additions: The aggregate of amounts credited to a Participant's accounts from Employer contributions and forfeitures. (d) Authorized Leave of Absence: Any absence authorized by the Employer under the Employer's standard personnel practices, provided that all persons under similar circumstances are treated alike in the granting of such Authorized 2 Leaves of Absence, and provided further that the Employee returns or retires within the period of authorized absence. An absence due to service in the Armed Forces of the United States shall be considered an Authorized Leave of Absence provided that the Employee complies with all of the requirements of Federal law in order to be entitled to reemployment and provided further that the Employee returns to employment with the Employer within the period provided by such law. (e) Beneficiary: A person or persons (natural or otherwise) designated by a Participant in accordance with the provisions of Section 7.6 to receive any death benefit which shall be payable under the Plan. (f) Code: Internal Revenue Code of 1986, as amended from time to time. (g) Considered Compensation: For Common-Law Employees shall mean the non-deferred compensation paid or accrued by the Participating Company to the Participant for personal services performed during the Plan Year, including salaries, bonuses, overtime and commissions and for Self-Employed Individuals shall mean Earned Income for the calendar year, ending within the Plan Year. These shall be no reduction for salary reductions under any 401(k) or 125 Plan. Benefits under any qualified plan maintained by the Participating Company, other fringe benefits and reimbursements for expenses shall not be taken into account for Plan purposes. Compensation in excess of one hundred fifty thousand dollars ($150,000) as adjusted to reflect changes in the cost of living shall be disregarded and shall not be deemed to be Considered Compensation for purposes hereof. Such amount shall be adjusted at the same time and in such a manner as permitted under Code Section 415(d). In applying this limitation, for Plan Years ending on or before December 3 31, 1996, the family group of a Highly Compensated Participant who is subject to the Family Member aggregation rules of Code Section 414(q)(6) because such Participant is either a "five percent (5%) owner" of the Participating Company or one of the ten (10) Highly Compensated Employees paid the greatest "415 Compensation" during the year, shall be treated as a single Participant, except that for this purpose Family Members shall include only the affected Participant's spouse and any lineal descendants who have not attained age nineteen (19) before the close of the year. If, as a result of the application of such rules the adjusted one hundred fifty thousand dollars ($150,000) limitations is exceeded, then the limitation shall be prorated among the affected Family Members in proportion to each such Family Member's Compensation prior to the application of this limitation. However, for purposes of Section 3.6(a), the preceding sentence shall not apply in determining the portion of the Compensation of a Participant which is below Excess Compensation. For Plan Years beginning prior to January 1, 1989, the one hundred fifty thousand dollars ($150,000) limit (without regard to Family Member aggregation) shall apply only for Top Heavy Plan Years and shall not be adjusted. For purposes hereof, "Family Member" means with respect to an affected Participant such Participant's spouse, such Participant's lineal descendants and ascendants and their spouse, all as described in Internal Revenue Code Section 414(2)(b)(e). "414(s) Compensation" with respect to any Employee means his "415 Compensation" as defined below paid during a Plan Year. The amount of "414(s) Compensation" during the entire twelve (12) month period ending on the last day of such Plan Year except that for Plan Years beginning prior to the later of January 1, 1992 or the date that is sixty (60) days after the date final Regulations are issued, "414(s) 4 Compensation" shall only be recognized as of an Employee's effective date of participation. For purposes of this Section, the determination of "414(s) Compensation" shall be made including salary reduction contributions made on behalf of an Employee. "414(s) Compensation" in excess of one hundred fifty thousand dollars ($150,000) shall be disregarded. Such amount shall be adjusted at the same time and in such manner as permitted under Code Section 415(d). However, for Plan Years beginning prior to January 1, 1989, the one hundred fifty thousand dollars ($150,000) limit shall apply only for Top Heavy Plan Years and shall not be adjusted. "415 Compensation" shall mean the Participant's wages, salaries, fees for professional service and other amounts for personal services actually rendered in the course of employment with a Participating Company (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses and in the case of a Participant who is an Employee within the meaning of Code Section 401(c)(1) and the regulations thereunder, the Participant's earned income (as described in Code Section 401(c)(2) and the regulations thereunder) paid during the "Limitation Year". "415 Compensation" shall exclude (1)(A) contribution made by the Participating Company to a plan of deferred compensation to the extent that, before the application of the Code Section 415 limitations to the Plan, the contributions are not includable in the gross income of the Employee for the taxable year in which contributed, (B) contributions made by the Participating Company to a plan of deferred compensation to the extent that all or a portion of such contributions are re-characterized as a voluntary 5 Employee contribution, (C) Participating Company contributions made on behalf of an Employee to a simplified employee pension plan described in Code Section 408(k) to the extent such contributions are excludable from the Employee's gross income, (D) any distributions from a plan of deferred compensation regardless of whether such amounts are includable in the gross income of the Employee when distributed except any amounts received by an Employee pursuant to an unfunded non-qualified plan to the extent such amounts are includable in the gross income of the Employee; (2) amounts realized from the exercise of a non-qualified stock option or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (3) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (4) other amounts which receive special tax benefits, such as premiums for group term life insurance (but only to the extent that the premiums are not includable in the gross income of the Employee), or contributions made by the Participating Company (whether or not under a salary reduction agreement) towards the purchase of any annuity contract described in Code Section 403(b) (whether or not the contributions are excludable from the gross income of the Employee). For the purposes of this Section, the determination of "415 Compensation" shall be made not including amounts that would otherwise be excluded from a Participant's gross income by reason of the application of Code Sections 125,402(a)(8), 402(h)(1)(B) and, in the case of Participating Company contributions made pursuant to a salary reduction agreement, Code Section 403(b). The above notwithstanding, the Plan is amended to delete the provision of family aggregation as described in Section 401(a)(17)(A) of the Code which requires certain Plan Participants, the spouse of such Participants and any lineal 6 descendants who have not attained age nineteen (19) before the close of the Plan Year to be treated as a single Participant for purposes of applying the limitation on compensation for a Plan Year. (h) Disability: A physical or mental condition which, in the judgement of the Administrator, based upon medical reports and other evidence satisfactory to the Administrator, presumably permanently prevents an Employee from satisfactorily performing his usual duties for the Employer or the duties of such other position or job which the Employer makes available to him and for which such Employee is qualified by reason of his training, education or experience. (i) Effective Date: January 1, 1974, the date on which the provisions of this Plan became effective. Effective Date of the Restatement shall mean, except where specifically stated herein to the contrary, January 1, 1997. (j) Employee: Any person who is receiving remuneration for personal services rendered to the Employer (or would be receiving such remuneration except for an Authorized Leave of Absence). "Employee" shall mean any Common-Law Employee or Self-Employed Individual employed by a Participating Company. For purposes of this Plan, a "Self-Employed Individual" shall mean, with respect to any unincorporated business, any individual described in Internal Revenue Code Section 401(c)(1). A "Common-Law Employee" shall mean any Employee other than a Self-Employed Individual. Any Leased Employee shall be treated as an Employee of the recipient Participating Company; however, contributions or benefits provided by the Leasing Organization which are attributable to services performed for the recipient 7 Participating Company shall be treated as provided by the recipient Participating Company. "Leased Employee" shall mean any person (other than an Employee of the recipient) who pursuant to an agreement between the recipient and any other person ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Section 414(n)(6) of the Code) on a substantially full-time basis for a period of at least one (1) year, and such services are performed under primary direction or control by the recipient. (k) Employer: NBTY, INC., Vitamin World, Inc., Puritan's Pride, Vitamin World Guam, NBTY, Inc. NJ, Nutrition Headquarters, Inc. DE, and Dynamic Essentials, Inc. or any successor which may assume the obligations of this Agreement or any other business entity which may, with the consent of the Plan Sponsor, become a party to this Agreement. If at any time two (2) or more companies are parties to this Agreement, a transfer of employment from one Participating Company to another shall not be deemed an interruption of the Employee's service and such service shall be deemed continuous. All provisions of this Agreement, including but ont limited to those provisions relating to contributions and plan termination, shall apply separately and independently to each Participating Company unless otherwise provided by this Agreement or by law. (l) Employer Stock: Shares of common capital stock of the NBTY, INC. which constitute "employer securities" under Section 4975(e)(8) of the Internal Revenue Code. (m) ERISA: Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, as amended from time to time. 8 (n) Fiduciaries: The Employer and the Trustee, but only with respect to the specific responsibilities described in Section 9.1. (o) Former Participant: A Participant whose employment with the Employer has terminated but who has a vested account balance under the Plan which has not been paid in full, and therefore, is continuing to participate in the allocation of Trust Fund income. (p) Highly Compensated: The term "Highly Compensated Employee" includes highly compensated active Employees and highly compensated former Employees. A highly compensated active Employee mean any Employee who: (A) was a Five Percent (5%) Owner (as defined in Section 416(i)(1) of the Code) of the Participating Company at any time during the current or the preceding year, or (B) for the preceding year - (i) had compensation from the Employer in excess of eighty thousand dollars ($80,000) (as adjusted by the Secretary pursuant to Section 415(d) of the Code, except that the base period shall be the calendar quarter ending September 30, 1996), and (ii) if the Employer elects the application of this clause for such preceding year, was in the top-paid group of Employees for such preceding year. For this purposes, an Employee is in the top-paid group of Employees for any year if such Employee is in the group consisting of the top twenty percent (20%) of the Employees when ranked on the basis of compensation paid during such year. A former Employee shall be treated as a Highly Compensated Employee if: (A) such Employee was a Highly Compensated Employee when such Employee separated from service, or (B) such Employee was a Highly Compensated Employee at any time after attaining age fifty- five (55). 9 The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, will be made in accordance with Section 414(q) of the Code and the Regulations thereunder. For purposes of this Subsection, the term "compensation" means compensation within the meaning of Section 415(c)(3) of the Code. The determination will be made without regard to Sections 125, 402(e)(3), and 402(h)(1)(B) of the Code, and in the case of Participating Company contributions made pursuant to a salary reduction agreement, without regard to Section 403(b) of the Code. For Plan Years beginning after December 31, 1997, for purposes of this Subsection, the term "compensation" mean compensation within the meaning of Section 415(c)(3) of the Code. The family aggregation rules required by IRC Section 414(q)(6) of the Code have been deleted from the Plan. This Subsection is subject to the Plan Amendment rules of Section 1.401(a)-5(a) of the Regulations. In determining who is a Highly Compensated Employee, Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Participating Company constituting United States source income within the meaning of Internal Revenue Code Section 861(a)(3) shall not be treated as Employees. Additionally, all affiliated Employers shall be taken into account as a single Employer and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a Plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Participating Company. The exclusion of 10 Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Participating Company's retirement plans. Highly Compensated Former Employees shall be treated as Highly Compensated Employees without regard to whether they performed services during the "Determination Year." "Highly Compensated Participant" means any Highly Compensated Employee who is eligible to participate in the Plan. "Non-Highly Compensated Participant" means any Participant who is neither a Highly Compensated Employee. (q) Participant: An Employee participating in the Plan in accordance with the provisions of Section 3.1. (r) Participant Employer Stock Account: The account of a Participant which is credited with his allocable share of Employer Stock purchased and paid for by the Trust, contributed to the Trust or forfeited by other Participants. This account includes Employer stock credited to the participant hereunder both when this Plan was an Employer Stock Ownership Plan and when it was a Profit Sharing Plan. (s) Participant General Investment Account: The account of a Participant which is credited with his allocable share of assets other than Employer Stock purchased and paid for by the Trust, contributed to the Trust as forfeited by other Participants. This account includes assets other than Employer Stock credited to the Participant hereunder both when the Plan was an Employee Stock Ownership Plan and when it was a Profit Sharing Plan. (t) Plan: NBTY, INC. EMPLOYEES' STOCK OWNERSHIP PLAN, the Plan set forth herein, as amended from time to time. (u) Plan Year: The twelve (12)-month period commencing on 11 January 1st and ending on December 31st. (v) Profit Sharing Plan Account: A Participant's account maintained hereunder relating to benefits accrued through December 31, 1989 which have not been transferred to a Participant Stock Account and Profit Sharing Account forfeitures. (w) Related Employer: Any corporation which is a member of a controlled group of corporations (within the meaning of Section 1563(a) of the Code, determined without regard to Sections 1563(a)(4) and (e)(3)(c) of the Code of which the Employer is a component member and each Company (whether or not incorporated) which is under common control with the Employer, as such common control is defined in Section 414(c) of the Code and Regulations issued thereunder. For the purpose of applying Section 415 of the Code, "more than fifty percent (50%)" shall be substituted for "at least eighty percent (80%)" each place it appears in Section 1563(a)(1). (x) Service: The period of a Participant's employment considered in the determination of his eligibility for benefits under the Plan and his vested interest. (y) Suspense Account: The account used to reflect stock acquired with loan proceeds pursuant to Section 8.3. (z) Trust (or Trust Fund): The fund maintained under the NBTY, INC. EMPLOYEES' STOCK OWNERSHIP PLAN in accordance with the terms of the trust agreement, as from time to time amended, which constitutes a part of this Plan. (aa) Trustees: The individuals appointed by the Board of Directors of the Employer to be Trustees under the Trust. (bb) Unallocated Stock Account: The interim account used to 12 reflect unleveraged stock acquisitions by the Trust prior to the allocation of such stock to the Participant Stock Accounts. 2.2 CONSTRUCTION: The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender and the singular to include the plural, unless the context clearly indicates to the contrary. The words "hereof", "herein", "hereunder" and other similar compounds of the word "here" shall mean and refer to the entire Plan not to any particular provision or Section. ARTICLE and Section headings are included for convenience of reference and are not intended to add to, or subtract from, the terms of the Plan. 13 ARTICLE III PARTICIPATION AND SERVICE 3.1 PARTICIPATION: An Employee shall become a Participant as of the January 1st or July 1st coincident with or next following the date he has completed a twelve (12) month period of at least one thousand (1,000) Hours of Employment as determined under Section 3.5 provided he has attained the age of twenty and one-half (20 1/2) and provided he is not an Employee covered by a collective bargaining agreement between Employee representatives and a Participating Company if there is evidence satisfactory to the Internal Revenue Service that retirement benefits have been the subject of good faith bargaining between such parties. Such twelve (12) month periods shall be measured by anniversaries of the date the Employee's employment commenced. 3.2 SERVICE: A Participant's eligibility for benefits under the Plan shall be determined by his period of Service. Service shall be based on calendar years of employment, disregarding any years when the Participant had fewer than one thousand (1,000) Hours of Employment determined under Section 3.5. Any provision hereof to the contrary, notwithstanding, an Employee shall be credited with service with NUTRITION HEADQUARTERS, INC. and NUTRO LABORATORIES, INC. for all purposes hereunder. 3.3 PARTICIPATION AND SERVICE UPON REEMPLOYMENT: Except for the continuing Participation in Trust Fund Income of a Former Participant, Participation in the Plan shall cease upon termination of employment with an Employer. Employment shall be considered terminated only if an Employee is not on an Authorized 14 Leave of Absence and is no longer receiving or entitled to receive credit for hours of employment under Section 3.3 Typically, termination of employment will have resulted from Retirement, death, voluntary or involuntary termination of employment, unauthorized absence, or by failure to return to active employment with an Employer or to retire by the date on which an Authorized Leave of Absence expired. Upon an Employee's termination of employment, a Year during which the Employee completes less than five hundred (500) hours of employment due to a termination of employment, shall constitute a Break in Service. Upon the re-employment of any person who had previously been employed by the Employer, the following rules shall apply in determining his Participation in the Plan and his Service under Section 3.2: (a) Participation: Before a Break in Service -- If the Employee is rehired before he has a one (1)-Year Break in Service, he shall participate in the Plan as of the date of his reemployment or, if later, the date he meets the eligibility requirements under Section 3.1. In addition, if a terminated Participant is rehired before he has a one-year Break in Service, he may also be entitled to a beginning accounts as provided in Section 4.3. (b) Participation: After a Break in Service -- If an Employee is rehired after he has a one (1)-Year Break in Service, but prior to cancellation of his prior Service (as determined below), he shall participate in the Plan on the date of his reemployment of if later on the date he meets the eligibility requirements under Section 3.1. However, if such an Employee is rehired after cancellation of his prior Service (as determined below), he shall participate or re- participate in the Plan on the date he meets the eligibility requirements under Section 3.1. 15 (c) Service: For Vested Participants -- In the case of a Participant who was vested when his period of employment terminated, any Service attributable to his prior period of employment shall be reinstated as of the date of his reparticipation. (d) Service: For Other Employees -- In the case of a re- employed Employee who was not a Participant in the Plan during his prior period of employment or in the case of a Participant who was not vested when his prior period of employment terminated, any Service attributable to his prior period of employment shall not be cancelled and shall be restored only if only of one of the following applicable. (1) The number of his consecutive years of Break in Service was less than the aggregate number of years of his pre- break Service (determined under Section 3.2 without regard to whether participation in the Plan had commenced), or (2) The Employee's Break in Service commenced on or after May 1, 1986 and the number of his consecutive years of Break in Service was less than five (5), or (3) The Employee's Break in Service commenced on or after May 1, 1986 due to a "maternity or paternity leave" and the number of his consecutive years of Break in Service was less than the aggregate number of years in his pre-break Service plus one year (considering Service determined under Section 3.2 without regard to whether participation in the Plan had commenced), or (4) The Employee's Break in Service commenced on or after May 1, 1986 due to a "maternity or a paternity leave" and the number of his consecutive years of Break in Service was less than six (6) years. 16 For the purpose of this Plan, "maternity or paternity leave" means termination of employment or absence from work due to the pregnancy of the Employee, the birth of a child of the Employee, the placement of a child in connection with the adoption of the child by an Employee, or the caring for an Employee's child during the period immediately following the child's birth or placement for adoption. The Administrator shall determine, under rules of uniform application and based on information provided to the Administrator by the Employee whether or not the Employee's termination of employment or absence from work is due to "maternity or paternity leave." Notwithstanding any provision of this Plan to the contrary, effective December 12, 1994, contributions, benefits, and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Internal Revenue Code. 3.4 TRANSFERS: (a) Transfers between several Employers who may be covered Employees hereunder, shall not interrupt Plan Participation or Service credit hereunder. (b) For the purposes of determining eligibility to participate in the Plan, and Service under Section 3.2, an Employee shall receive recognition of his employment by any Related Employer, provided that all such employment is determined in accordance with the reemployment provisions of Section 3.3. (c) If a Participant is transferred to employment with a Related Employer, or to a position with an Employer which makes him ineligible for continued coverage under the Plan, his participation under the Plan shall be suspended, provided, however, that during the period of his employment in such ineligible position: (i) his Participant Stock Account shall receive no Employer contribution or Forfeiture allocations under Section 6.2(c), (ii) he shall continue to participate in Income allocations pursuant to 17 Section 6.2(a); and (iii) the provisions of ARTICLE VII shall continue to apply. (d) For the purposes of this Section 3.4, Related Employer shall mean (i) any corporation which is a member of the controlled group of corporations of which an Employer is a part; (ii) any trade or business which is under common control with an Employer, and (iii) any member of an affiliated service group which includes an Employer, all as defined by Section 414 of the Internal Revenue Code. 3.5 HOURS OF EMPLOYMENT: Under this ARTICLE III, hours of employment shall include the following: (a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for an Employer, including any period of accrued vacation for which Compensation is paid upon termination of employment. (b) Up to five hundred one (501) hours of any single continuous period during which the Employee performs no duties but is directly or indirectly paid or entitled to payment by an Employer (regardless of whether employment has terminated) due to vacation, holiday, illness, incapacity including disability, layoff, jury duty, military duty or leave of absence; excluding, however, any period for which a payment is made or due under this Plan or under a plan maintained solely for the purpose of complying with workmen's compensation or unemployment compensation or disability insurance laws, or solely to reimburse the Employee for medical or medically- related expenses. An Employee shall be deemed to be "directly or indirectly paid, or entitled to payment by the Employer" regardless of whether such payment is (i) made by or due from the Employer directly; or (ii) made indirectly through a trust fund, insurer or other entity to which the Employer contributes or pays premiums. (c) Each hour for which back pay, irrespective of mitigation of 18 damages, is either awarded or agreed to by an Employer, without duplication of hours provided above, and subject to the five hundred one (501)-hour restriction for periods described in the foregoing Subparagraph (b). The foregoing provisions shall be administered in accordance with Department of Labor rules set forth in Section 2530.200b-2 of the Rules and Regulations for Minimum Standards for Employee Benefit Plans. The periods of absence described as Service in Section 3.2 shall be credited in addition to, but not in duplication of, the periods described in the foregoing provisions. 19 ARTICLE IV CONTRIBUTIONS AND FORFEITURES 4.1 EMPLOYER CONTRIBUTIONS: For Plan Year the Employer will contribute in cash or Employer stock amounts, if any, that the Employer's Board of Directors, in its sole discretion may authorize and direct to be paid. Contributions made in Employer Stock will be allocated to a Participant's Employer Stock Agreement and contributions made in asset other than Employer Stock will be allocated to a Participant's General Investment Account. The Employer contribution will be allocated to share participants who have completed at least one thousand (1,000) Hours of Service during the Plan Year and who are employed on the last day of the Plan Year allocation will be made in the ration that the Participant's Considered Compensation bears to the Considered Compensation of all Participants. 4.2 PAYMENT: The Employer's total annual contribution shall be made, in one or more installments, not later than the due date (including extensions thereof) for filing the federal income tax return of the Employer for its fiscal year ending coincident with the Plan Year for which the contribution is made. Any contribution shall in the sole discretion of the Employer's Board of Directors be (i) used to purchase available Employer Stock; or (ii) allocated to Participants' Stock Accounts; provided, however, that to the extent required, any cash contributions shall be used to repay any portion of a loan made by the Plan under Section 8.3. 20 If an Employer's contribution is made in shares of Employer Stock, the Employer Stock will be valued at the average of closing prices of the Employer Stock as quoted on any system (such as NASDAQ) sponsored by a national securities association, or as reported on any national securities exchange if such Employer Stock is at any time after the Effective Date hereof listed on a national exchange, for each day, the Employer Stock is in fact traded during the twenty (20) trading day period immediately preceding the date of the contribution. While the Employer Stock is not in fact traded on an exchange or in the over-the-counter market on at least ten (10) of said twenty (20) immediately preceding trading days, or the Employer Stock is neither listed on a national exchange or quoted on a national quotation system, the value of the Employer Stock shall equal its fair market value as of the date of the contribution, as determined in good faith by the Trustees utilizing the services of an Independent Appraiser as provided in Section 9.12. 4.3 MAXIMUM CONTRIBUTIONS: The aggregate amount of contributions made by the Employer shall not exceed fifteen percent (15%) of the aggregate compensation (as defined in Section 415(c)(3) of the Internal Revenue Code) of all Participants during the Plan Year, except as provided in this Section 4.3. For any Plan Year with respect to which Employer contributions are applied to repay any portion of a loan made to the Plan under Section 8.3, the total amount of Employer contributions used to repay principal on all such loans shall not exceed twenty-five percent (25%) of such aggregate Participant compensation for the Plan Year. The Employer may contribute any amount in excess of the maximum for the Plan Year, without limitation, for the purpose of paying interest on such loans. Furthermore, the contributions made by the Employer to this Plan, when combined with any other qualified plans, shall not exceed the maximum allowable deductions permitted under Section 404 of the Internal Revenue 21 Code. 4.4 NO CONTRIBUTIONS BY PARTICIPANTS: Participants are neither required nor permitted to make any contributions under this Plan. 4.5. DISPOSITION OF FORFEITURES: Upon termination of employment, a Participant's Forfeitures, if any, shall be reallocated to the other eligible Participants as of the end of the Plan Year in which his employment terminated and shall be added to the Employer contribution for purposes of such allocation. However, such Forfeitures may be reinstated, subject to the provisions of this Section. If the terminated Participant returns to the employ of his Employer before five (5) years has elapsed since the date of his termination of employment, and if the Participant repays, within the five (5)-year period following his re-employment date, the amount of the distribution, if any, he received from his accounts at his previous termination of employment, the repaid amount and an amount equal to the Forfeitures resulting from his previous termination of employment shall become the beginning balances in his new Accounts. Until and unless a Forfeiture is reinstated under the preceding sentence, the reemployed Participant's beginning balances in his new Accounts shall be zero. No forfeiture will occur prior to the earlier of the distribution of a participant's entire vested account balance or the completion of five (5) consecutive one (1) year breaks in service. If the present value of any nonforfeitable accrued benefit (taking into account benefits derived from both employer and employee contributions) is, or at the time of any prior distribution was, in excess of five thousand five hundred dollars ($5,000), such benefit shall not be immediately distributed without the consent of the participant and, 22 when applicable, the participant's spouse. A forfeiture shall actually occur upon the earlier of: (a) The distribution of the entire vested portion of a Participant's Company Contribution Account, or (b) The last day of the Plan Year in which the Participant incurs five (5) consecutive one (1)-Year Break in Service. 4.6 LIMITATIONS ON ANNUAL ADDITIONS: Notwithstanding anything contained herein to the contrary, allocation of Employer contributions for any Plan Year shall be subjected to the following: The Employer contributions during any Plan Year to any Participant's Account shall not exceed the lesser of thirty thousand dollars ($30,000) (or such other dollar amount which results from cost-of-living adjustments under Section 415(d) of the Code) or twenty-five percent (25%) of the Participant's Compensation from the Employer and all Related Companies. In addition, the increased limitations provided in Section 415(c)(6) of the Internal Revenue Code shall be applicable if appropriate. In the event that annual additions to all the accounts of a Participant would exceed the aforesaid limitations, they shall be reduced in the following priority: (a) Allocation of any excess to the accounts of the other Participants in proportion of the Compensation of said other Participants until the accounts of said other Participants reach the limits of the first sentence of this Paragraph, (b) Any additional amounts shall be held in the trust for allocation to Participant Accounts in later years in proportion to Compensation in later years, such allocation to occur as rapidly as may be done without violating the limits of the first sentence of this Paragraph (b). 23 If the Employers of any Related Employer contributes amounts, on behalf of Employees covered by this Plan, to other "defined contribution plans" as defined in Section 3(34) of ERISA, the limitation on annual additions provided in this Section 6.7 shall be applied to annual additions in the aggregate to this Plan and such other plans. Reduction of annual additions, where required, shall be accomplished first by reductions under such other plans pursuant to the directions of the named Fiduciary for administration of such other plans or under priorities, if any, established by the terms of such other plans and then by allocating any remaining excess for this Plan in the manner and priority set out above with respect to this Plan. In any case in which a Participant under this Plan is also a Participant under a "defined benefit plan" as defined in ERISA Section 3(35) or is a Participant under a defined benefit plan and other defined contribution plans maintained by the Employer or a Related Employer, the sum of the "defined benefit plan fraction" (as defined in Section 415(e)(2) of the Code) and the "defined contribution plan fraction" (as defined in Section 415(e)(3) of the Code) shall not exceed one point zero (1.0). Reduction of contributions to or benefits from all plans, where required, shall be accomplished by first reducing benefits under such other defined benefit plan or plans, then reducing contributions or allocating excess in the manner and priority set out above with respect to other defined contribution plans, and finally by allocating any remaining excess for this Plan in the manner and priority set out above with respect to this Plan. 4.7 TOP-HEAVY PROVISIONS: The following provisions shall become effective in any Year in which the Plan is determined to be a Top-Heavy Plan. (a) Determination of Top-Heavy: The Plan will be considered 24 a Top-Heavy Plan for the Year if as of the last day of the preceding Year, (1) the value of the Participant Stock Accounts, (but not including any allocations to be made as of such last day of the Year except contributions actually made or before that date and allocated pursuant to Section 4.3) of Participants who are Key Employees (as defined in Section 416(i) of the Internal Revenue Code, but in making such determination considering compensation as defined in Section 1.415-2(d) of the Income Tax Regulations) exceeds sixty percent (60%) of the value of the Participant accounts (but not including any allocations to be made on or before that date and allocated pursuant to Section 4.3) of all Participants (the "sixty percent (60%) Test"); or (2) the Plan is part of a required aggregation group as defined below and the required aggregation group is top-heavy. However, and notwithstanding the results of the sixty percent (60%) test, the Plan shall not be considered a Top-Heavy Plan for any Year in which the Plan is a part of a required or permissive aggregation group as defined below which is not top-heavy. (b) Minimum Vesting: In the event this Plan is Top Heavy, the special Top Heavy vesting schedule under Section 7.4 hereof shall apply. (c) Minimum Allocation: For any Plan Year during which the Plan is deemed to be a Top-Heavy Plan, a non-Key Employee who is not a Participant in a defined benefit plan sponsored by the Employers, who is eligible to participate hereunder and who is actively employed by an Employer on the last day of the Plan Year, shall receive an allocation of a minimum Employer contribution. Such minimum contribution shall be a percentage of the non-Key Employee's Compensation for the plan year equal to three percent (3%) or, if less, the highest percentage of Compensation of Employer contribution allocation to a Key Employee for such Plan Year under all defined contribution plans including Section 401(K) Plans. 25 (d) Compensation Limitation: For any Plan Year in which the Plan is a Top-Heavy Plan, the compensation limitation described in Section 416(d) of the Internal Revenue Code shall apply. (e) Change in Top-Heavy Status: If the Plan becomes a Top- Heavy Plan and subsequently ceases to be such, the vesting schedule in Subsection (b) of this section shall continue to apply in determining the vested percentage of any Participant who had at least five (5) years of Service as of December 31st in the last Plan Year of top-heaviness. For other Participants, said schedule shall apply only to their Participant Stock Account balance as of such December 31st. (f) Impact on Maximum Benefits: For any Plan Year in which the Plan is a Top-Heavy Plan, Section 4.7 shall be read by substituting the number "1.00" for the number "1.25" wherever it appears therein, except such substitution shall not have the effect of reducing any benefit accrued under a defined benefit plan prior to the first day of the Plan Year in which this provision becomes applicable. (g) Aggregation with Other Plans: (i) Required Aggregation: If a Key Employee under this Plan also participates in another Plan of the Employers which is qualified under Internal Revenue Code Section 401(a) or which is a simplified employee pension plan under Internal Revenue Code Section 408(k), or if this Plan and another plan must be aggregated so that either this Plan or the other Plan will meet the anti-discrimination and coverage requirements of Internal Revenue Code Section 401(a)(4) or 410, then this Plan and any such other Plan will be aggregated for purposes of determining top-heaviness. This Plan will automatically be deemed top-heavy if such required aggregation of plans is top- heavy as a group and will automatically be deemed not top-heavy if such required 26 aggregate of plans is not top-heavy as a group. (ii) Permissive Aggregation: Any other Plan of the Employers which is qualified under Internal Revenue Code Section 401(a) or which is a simplified employee pension plan under Internal Revenue Code Section 408(k), and which is not in the required aggregation referenced in (i) above, may be aggregated with this Plan (and with any other plan(s) in the required aggregation group in (i) above) for purposes of determining top-heaviness if such aggregation would continue to meet the anti-discrimination and coverage requirements of Internal Revenue Code Sections 401(a)(4) and 410. This Plan will automatically be deemed not top-heavy if such permissive aggregation of plans is not top-heavy as a group. (iii) Determining Aggregation Top-Heavy Status: The top- heavy status of the plans as a group is determined by aggregating the plans' respective top-heavy determinations that are made as of determination dates that fall within the same calendar year. (iv) For a plan year in which the plan is Top Heavy, each non-key employee shall receive a minimum contribution, provided that the participant has not separated from service by the end of the year, regardless of whether the non-key employee has less than one thousand (1,000) hours of service (or its equivalent). (v) Should the Plan Sponsor ever maintain a defined benefit plan and a defined contribution plan covering the same participants, any minimum required Top Heavy benefits will be provided under this plan. 27 ARTICLE V TREATMENT OF PARTICIPANT 5.1 MAINTENANCE OF PARTICIPANT GENERAL INVESTMENT ACCOUNTS: A Participant General Investment Account for each Participant hereunder. As of each Allocation Date, the Trustees shall determine the market value of Participant General Investment Accounts. All will be adjusted as of each Allocation Date to reflect income, realized and unrealized projects, and losses and expenses attributable to the accounts. Such allocation shall be made based upon a ratio of beginning account balances. Forfeitures shall be allocated in accordance with Section 5.5 hereof. 5.2 Unless otherwise required by applicable law, the maintenance of all Participant General Investment Account balances shall be for bookkeeping purposes only and no segregation of Trust Fund assets to any Participant shall be required. As soon as possible after the annual allocations to the Participant General Investment Accounts of each Participant has been made, the Trustees shall notify each Participant with respect to the status of such account. This allocation and notification shall not vest in any Participant any right, title, or interest in the trust, except to the extent, at the time or times and upon the terms and conditions set forth herein. 28 ARTICLE VI PARTICIPANT STOCK 6.1 PARTICIPANTS' STOCK ACCOUNTS: The Employer shall maintain a Participant Employer Stock Account in the name of each Participant and such account shall be credited annually as of each Allocation Date with certain amounts allocated to such Participant. Unless otherwise required by applicable law, the maintenance of all Participants' Stock Accounts shall be for bookkeeping purposes only and no segregation of Trust Fund assets shall be required. 6.2 PARTICIPANTS' STOCK ACCOUNTS IN GENERAL: As soon as practicable after the Employer has made the annual allocations to the Participant Stock Account of each Participant, the Trustees shall notify each Participant with respect to the status of such Participant's Stock Account as of such date. Such allocation and notification shall not vest in any Participant any right, title or interest in the Trust, except to the extent, at the time or times, and upon the terms and conditions set forth herein. 6.3 ALLOCATION OF EMPLOYER CONTRIBUTIONS AND FORFEITURES: As of each Allocation Date, the total number of shares and fractional shares of Employer Stock contributed to the Trust, purchased by the Trust with cash contributions by Employers, or released from the Suspense Account pursuant to Section 8.3 during the Plan Year shall be computed and allocated along with any Forfeitures relating to Participant Stock Accounts which have arisen during such Plan Year. The allocation of Employer Stock shall be made according to ARTICLE IV hereof. 29 6.4 ALLOCATION OF CASH DIVIDENDS: Cash dividends on Employer Stock allocated to a Participant's Employer Stock Account shall be credited to that Participant's Employer Stock Account. Cash dividends on unallocated shares of Employer Stock shall be allocated in accordance with the provisions of Section 6.5. Any dividends may, in the sole discretion of the Administrator, be distributed to the Participants or used to repay a loan under Section 8.3. 6.5 ALLOCATION OF EARNINGS AND LOSSES: As of each Allocation Date, the Trustees shall determine the fair market value of the assets relating to Participant Employer Stock Accounts. The Trustees shall allocate the net earnings and gains or losses related to the Participants' Employer Stock Accounts since the prior Allocation Date to the accounts of the Participants. Dividends shall be allocated based on relative beginning Participant's Account share balances less any distributions actually paid. Interest and other earnings shall be allocated based on relative beginning cash balance less any distributions actually paid. The Trustees may also make such other adjustments to the Participant Stock Employer Accounts as it deems necessary and appropriate in order to achieve an equitable allocation of the net earnings and gains or losses as long as it does so in a uniform and non-discriminatory manner. In determining the market value of Employer's Stock for purposes of this ARTICLE, Section 4.2 shall apply. 6.6 INTERIM ACCOUNTINGS: Employer Stock when initially acquired by the Trustees shall be credited to the Unallocated Stock Account or Suspense Account, which accounts shall be measured in shares. As of each Allocation Date, the balance in the Unallocated Stock Account shall be allocated to Participant Employer Stock Accounts in the manner described in Section 6.3. The balance in the Suspense Account shall be 30 released in accordance with Section 8.3(b) and allocated in the manner described in Section 6.3. 6.7 VOTING AND EXERCISING OTHER RIGHTS OF SECURITIES: (a) Each Participant shall be entitled to direct the Trustees as to the manner in which Employer Stock represented by such Participant's Employer Stock Account is to be voted and as to the manner in which rights other than voting rights with respect to such Employer Stock are to be exercised. There shall be, in effect, a complete pass through of corporate voting rights to Participants hereunder. (b) The Trustees shall notify Participants of each occasion for the exercise of voting rights within a reasonable period (not less than thirty (30) days, unless such period is impossible or impractical) before such rights are to be exercised. (c) The Trustees shall take whatever steps are reasonably necessary to allow Participants to exercise rights other than voting rights of Employer Stock represented by the Participant Employer Stock Account of such Participant. (d) The number of shares to which each Participant entitled to vote shall have the right to direct the exercise of the rights thereof shall be determined for any record date by the number of shares allocated to the Participant's Stock Account on the last Allocation Date. (e) The Trustees shall vote fractional shares by combining the directions on voting of such fractional shares to the extent possible. (f) The Trustees shall vote any shares in the Unallocated Stock Account and in the Suspense Account in the same proportion and in the same manner as the shares in the Participant Stock Accounts are voted by the Participants. (g) The Trustees shall make no recommendation regarding the 31 manner of exercising any rights under this Paragraph, including whether or not such rights should be exercised. 6.8 PUT OPTION: If, and only if, the Employer Stock, is not readily tradable on an established market, then any Participant, who is otherwise entitled to a distribution from the Plan, shall have the right (hereinafter referred to as "Put Option") to require that his Employer repurchase any Employer Stock under a fair valuation formula established by the Independent Appraiser appointed pursuant to Section 9.2 hereof. The Put Option shall only be exercisable during the sixty (60) day period immediately following the date of distribution and if the Put Option is not exercised within such sixty (60) day period, then it can be exercised for an additional period of sixty (60) days in the following Plan Year. This Put Option shall be non-terminable within the meaning of Internal Revenue Service Regulation 54.4975-11(a)(ii). The amount paid for Employer Stock under the Put Option shall be paid in substantially equal periodic payments (not less frequently than annually) over a period beginning not later than thirty (30) days after the exercise of the Put Option and not exceeding five (5) years such mode of payment to by the Employer in its sole discretion. There shall be adequate security provided and reasonable interest paid on the unpaid balance due under this Paragraph. 6.9 ALLOCATION OF EMPLOYER STOCK: Any provision hereof to the contrary notwithstanding, at any time Employer Stock and assets other than Employer Stock are to be allocated hereunder to the accounts of Participants and former Participants then, to the greatest extent possible without resulting in discrimination in 32 favor of Highly Compensated Employees, Employer Stock shall be allocated to the accounts of Participants and assets other than Employer Stock shall be allocated to the Accounts of former Participants. 33 ARTICLE VII BENEFITS 7.1 WITHDRAWALS DURING EMPLOYMENT: Subject to Section 7.7, there shall be no in-service withdrawals (including loans) made to a Participant. Distributions may only be made on account of retirement, termination of employment, death, or Disability. An employee's right to his or her normal retirement benefit is nonforfeitable on attainment of normal retirement age, as defined in Code Section 411(a)(8). 7.2 RETIREMENT OR DISABILITY: If a Participant's employment with the Employer is terminated at or after he attains age sixty-five (65) and completes five (5) Years of Participation (Retirement), or if his employment is terminated at any earlier age because Disability, he shall be vested in, and entitled to receive, one hundred percent (100%) of the entire amount then in each of his accounts. Payment of benefits due under this Section shall be made in accordance with Section 7.5. 7.3 DEATH: In the event that the termination of a Participant is caused by his death, his Beneficiary shall be vested in and paid one hundred percent (100%) of the entire amount then in each of his accounts. Payment of benefits due under this Section shall be made to the Beneficiary in accordance with Section 7.5. 7.4 TERMINATION FOR OTHER REASONS: If a Participant's employment with the Employer is terminated before age sixty-five (65), and the completion of five (5) Years of Participation for any reason other than Disability or death, 34 the Participant shall be entitled to an amount equal to a percentage of the balances then credited to his Participant General Investment Account and Participant Employer Stock Account and such balances shall include Forfeiture amounts eligible for reinstatement pursuant to Section 5.5 but not yet allocated. A participant's vested percentage, whether the participant is terminated from employment or not, shall be determined according to the following schedule:
Years of Service Vested Percentage ---------------- ----------------- Less than 5 0% 5 Years or more 100%
However, such percentage shall be determined in accordance with the following schedule, if the Plan is Top Heavy:
Years of Service Vested Percentage ---------------- ----------------- Less than 2 0% 2 Years but less than 3 20% 3 Years but less than 4 40% 4 Years but less than 5 60% 5 Years but less than 6 80% 6 Years or more 100%
Payment of benefits due under this Section shall be made in accordance with Section 7.5. Any Participant working in the Petite Fleur Division of the Plan Sponsor on as of March 6, 1998 shall be deemed to have terminated their employment with the Plan Sponsor and shall receive a distribution of his benefits hereunder as soon as possible after that date. 35 The above notwithstanding any Participant working in the Petite Fleur Division of the Plan Sponsor as of March 6, 1998 shall be fully vested in all of his accounts hereunder irrespective of his Years of Service. 7.5 PAYMENT OF BENEFITS: Distribution of stock or cash under Sections 7.2, 7.3 and 7.4 shall be in the form of a lump sum or in installments over a period not exceeding fifteen (15) Years. Unless the Participant elects otherwise, the distributions shall commence no later than one (1) year after the close of the Plan Year in which the Participant terminates employment due to death, Disability or Retirement and no later than five (5) years after the close of the Plan Year in which Participant terminates employment for any other reason. In the case of a Participant who terminates employment due to death, Disability or Retirement, the Participant or his Beneficiary, as the case may be, shall receive a distribution based on the most recent Allocation Date. Distributions related to the Participant's Employer Stock Account will be made in Employer Stock. The Participant General Investment Account will be distributed in the form of cash or employer stock. Employer Stock will be valued for distribution purposes at the price determined under the last annual valuation made in accordance with Section 5.2 hereof. The Administrator shall follow the Beneficiary designation under Section 7.6 in the case of a distribution on account of Participant's death. 7.6 DESIGNATION OF BENEFICIARY: Designation of a Beneficiary or Beneficiaries under the Plan shall be governed by the following rules: (a) Designation Procedure: Subject to the provisions of Subsection (b) below, each Participant from time to time may designate any person or persons (who may be designated primarily, contingently or successively and who may be 36 an entity other than a natural person) as his Beneficiary or Beneficiaries to whom his Plan benefits are paid if he dies before receipt of all such benefits. Each Beneficiary designation shall be in a form prescribed by the Administrator and will be effective only when filed with the Administrator during the Participant's lifetime. Each Beneficiary designation filed with the Administrator will cancel all Beneficiary designations previously filed with the Administrator. The revocation of a Beneficiary designation no matter how effected, shall not require the consent of any designated Beneficiary except as provided in Subparagraph (b) below. (b) Spousal Consent: No Beneficiary designation shall be effective under the Plan unless the participant's spouse consents in writing to such designation, the spouse's consent acknowledges the effect of such designation and the spouse's signature is witnessed by a Plan representative which shall include a member of the Administrator or a notary public. Any Beneficiary designation previously made by a Participant shall be automatically revoked upon the marriage or remarriage of a Participant. Notwithstanding the foregoing, spousal consent to a Participant's Beneficiary designation shall not be required if: (i) The spouse is designated as the sole primary beneficiary by the Participant, or (ii) It is established to the satisfaction of the Administrator that spousal consent cannot be obtained because there is no spouse, because the spouse cannot be located or because of such other circumstances as may be prescribed in regulations issued by the Secretary of the Treasury. 37 Any consent by a spouse or any determination that the consent is not required pursuant to Paragraphs (i) or (ii) above, shall be effective only with respect to such spouse. (c) Lack of Designation: If any Participant fails to designate a Beneficiary in the manner provided above, or if the Beneficiary designated by a deceased Participant dies before him or before complete distribution of the Participant's benefits, such Participant's benefits shall be paid in accordance with the following order of priority: (i) To the Participant's surviving spouse, or if there be none surviving, (ii) To the Participant's children, in equal parts, or if there be none surviving, (iii) To the Participant's father and mother, in equal parts, or if there be none surviving, (iv) To the Participant's estate. 7.7 MINIMUM DISTRIBUTIONS: Unless otherwise elected by a Participant, benefits to which a Participant is entitled shall commence no later than (1) his sixty-fifth (65th) birthday or (2) his termination of employment. (i) The distribution of benefits to any person having an ownership interest of more than five percent (5%) in any Participating Company must commence no later than the first day of April following the calendar year in which such individual attains the Age of seventy and one-half (70 1/2). 38 (ii) The distribution of benefits to any other individual must commence no later than the first day of April following the calendar year in which the later of termination of employment or Age seventy and one-half (70 1/2) occurs. (iii) If a Participant dies after distribution of his or her interest has commenced, the remaining portion of such interest will continue to be distributed at least as rapidly as under the method of distribution being used prior to the Participant's death. (iv) If a Participant dies before distribution of his or her interest commences, the Participant's entire interest will be distributed no later than five (5) years after the Participant's death except to the extent that an election is made to receive distributions in accordance with (A) or (B) below: (A) if any portion of the Participant's interest is payable to a designated Beneficiary, distributions may be made in substantially equal installments over the life or life expectancy of the designated Beneficiary commencing no later than one (1) year after the Participant's death; or (B) if the designated Beneficiary is the Participant's surviving spouse, the date distributions are required to begin in accordance with (A) above shall not be earlier than the date on which the Participant would have attained Age seventy and one-half (70 1/2), and, if the spouse dies before payments begin, subsequent distributions shall be made as if the spouse had been the Participant. (v) For the calculation of distributions to a non-spouse, the life expectancy will be calculated at the time payment first commences and payments for any twelve (12) consecutive month period will be based on such life expectancy minus the number of whole years passed since distribution first commenced. 39 (vi) Where an initial payment must be made on April 1st of the year following the year in which the Participant meets the requirement for a distribution, the second payment shall be distributed no later than December 31st of the same calendar year and each succeeding payment shall be distributed no later than December 31st thereafter. The above notwithstanding, any election made in accordance with Code Section 401(a) before January 1, 1984, shall take precedence over the provisions of Sections 7.7(i) through 7.7(vi). 7.8 NON-ALIENATION OF BENEFITS: Except with respect to federal income tax withholding, benefits payable under this Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution or levy of any kin, either voluntary or involuntary, including any such liability which is for alimony or there payments for the support of a spouse or former spouse or for any other relative of the Employee, prior to actually being received by the person entitled to the benefit under the terms of the Plan; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable hereunder, shall be void. The Trust Fund shall not in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits hereunder. Notwithstanding the above, the Administrator shall direct the Trustee to comply with a Qualified Domestic Relations Order (Q.D.R.O.). A Qualified Domestic Relations Order is a judgement, decree or order (including approval of a property settlement agreement) made pursuant to a state domestic relations law (including community property law) that relates to the provision of 40 child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of a Participant ("Alternate Payee") and which: (a) Creates or recognizes the existence of an Alternate Payee's right to, or assigns to an Alternate Payee the right to, receive all or a portion of the benefits payable to a Participant under this Plan; and (b) Specifies (i) the name and last known mailing address (if any) of the Participant and each Alternate Payee covered by the order (ii) the amount or percentage of the participant's Plan benefits to be paid to any Alternate Payee, or the manner in which such amount or percentage is to be determined and (iii) the number of payments or the period to which the order applies and each plan to which the order relates; and (c) Does not require the Plan to (i) Provide any type or form of benefit or any option not otherwise provided under the Plan; (ii) Pay any benefits to any Alternate Payee prior to the earlier of the affected Participant's termination of employment or the earlier of either (I) the earliest date benefits are payable under the Plan to a Participant, or (II) the later of the date the Participant attains age fifty (50) or the earliest date on which the Participant could obtain a distribution from the Plan if the Participant separated from service; (iii) Pay any benefits which are not vested under the Plan; (iv) Provide increased benefits, or (v) Pay benefits to an Alternate Payee that are required to be paid to another Alternate Payee under a prior Qualified Domestic Relations Order. 41 For purposes of this Plan, an Alternate Payee who had been married to the Participant for at least one year may be treated as a spouse with respect to the portion of the Participant's benefit in which such Alternate Payee has an interest provided that the Qualified Domestic Relations Order provides for such treatment. However, under no circumstances may the spouse of an Alternate Payee (who is not a Participant hereunder) be treated as a spouse under the terms of the Plan. Upon receipt of any judgment, decree or order (including approval of a property settlement agreement) relating to the provision of payment by the Plan to an Alternate Payee pursuant to a state domestic relations law, the Administrator shall promptly notify the affected Participant and any Alternate Payee of the receipt of such judgment decree order and shall notify the affected Participant and any Alternate Payee of the Administrator's procedure for determining whether or not the judgment, decree or order is a Qualified Domestic Relations Order. The Administrator shall establish a procedure to determine the status of a judgment, decree or order as a Qualified Domestic Relations Order and to administer Plan distributions in accordance with Qualified Domestic Relations Orders. Such procedure shall be in writing, shall include a provision specifying the notification requirements enumerated in the preceding Paragraph, shall permit an Alternate Payee to designate a representative for receipt of communications from the Administrator and shall include such other provisions as the Administrator shall determine, including provisions required under regulations promulgated by the Secretary of the Treasury. During any period in which the issue of whether a judgment, decree or order is a Qualified Domestic Relations Order is being determined (by the 42 Administrator, a court of competent jurisdiction or otherwise), the Administrator shall account for separately the amount, if any, which would have been payable to the Alternate Payee during such period if the judgment, decree or order had been determined to be a Qualified Domestic Relations Order. If the judgment, decree or order is determined to be a Qualified Domestic Relations Order within the eighteen (18)-month period following the receipt by the Administrator of the Qualified Domestic Relations Order, then payment of the amount shall be paid to the appropriate Alternate Payee. If such a determination is not made within the eighteen (18)-month period, the amount shall be returned to the Participant's accounts under the Plan and shall be paid at the time and the manner provided under the Plan as if no order, judgment or decree had been received by the Administrator. 7.9 This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. (a) "Eligible Rollover Distribution" shall mean any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten 43 (10) years of more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer securities). (b) "Eligible Retirement Plan" shall mean an Individual Retirement Account described in Section 408(a) of the Code, an Individual Retirement Annuity described in Section 408(b) of the Code, an Annuity Plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an Individual Retirement Account or Individual Retirement Annuity. (c) "Distributee" shall mean an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. (d) "Direct Rollover" shall mean a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 44 ARTICLE VIII TRUST FUND AND INVESTMENT 8.1 TRUST FUND: All contributions under this Plan shall be paid to the Trustee and deposited in the Trust Fund. However, all contributions made by the Employer are expressly conditioned upon the initial and continued qualification of the Plan under the Internal Revenue Code, including any amendments to the Plan, and upon the deductibility under Section 4040 of the Internal Revenue Code of contributions made to provide Plan benefits. Upon the Employer's request, a contribution which was made by a mistake of fact, or conditioned upon qualification of the Plan or any amendment thereof or upon the deductibility of the contribution under Section 404 of the Internal Revenue Code of 1986, shall be returned to the Employer within one (1) year after payment of the contribution, the denial of the qualification or the disallowance of the deduction (to the extent disallowed), whichever is applicable. Except as provided above, all assets of the Trust Fund, including investment Income, shall be retained for the exclusive benefit of Participants, Former Participants and Beneficiaries and shall be used to pay benefits to such persons or to pay administrative expenses of the Plan and Trust Fund to the extent not paid by the Employer and shall not revert to or inure to the benefits of the Employers. 8.2 INVESTMENT OF THE TRUST FUND: The Trustee shall invest the Trust Fund primarily in Employer Stock. The Administrator may direct the Trust to incur debt from time to time to finance the acquisition of Employer Stock by the Trust Fund. The Trustee may also invest the Trust Fund in other prudent investments which are permissible investments for insurance companies in the State of New York. 45 8.3 LOANS: (a) The Administrator may direct the Trustees to incur a loan on behalf of the Trust in a manner and under conditions which will cause the loan to be an "exempt loan" within the meaning of Section 4975(d)(2) of the Code and regulations thereunder. A loan shall be used primarily for the benefit of Plan Participants and their Beneficiaries. The proceeds of each such loan shall be used, within a reasonable time after the loan is obtained, only to purchase Employer Stock, to repay the loan or to repay any prior loan. Any such loan shall provide for a reasonable rate of interest, an ascertainable period of maturity and shall be without recourse against he Plan. Any such loan shall be secured solely by shares of Employer Stock acquired with the proceeds of the loan and shares of such stock that were used as collateral on a prior loan which was repaid with the proceeds of the current loan. Such stock pledged as collateral shall be placed in a Suspense Account and released pursuant to part (b) below as the loan is repaid. Employer Stock released form the Suspense Account shall be allocated in the manner described in Section 6.3. No person entitled to payment under a loan made pursuant to this Section shall have recourse against any Trust fund assets other than the stock used as collateral for the loan, Employer contributions of cash that are available to meet obligations under the loan and earnings attributable to such collateral and the investment of such contributions. Participating Employer contributions made with respect to any Plan Year during which the loan remains unpaid, and earnings on such contributions, shall be deemed available to meet obligations under the loan, unless otherwise provided by the Employer at the time such contributions made. (b) Any pledge of stock as collateral under this Section shall provide for the release of shares so pledged upon the payment of any portion of the loan. 46 Shares so pledged shall be released in the proportion that the principal and interest, paid on the loan for the Plan Year bears to the aggregate principal and interest, paid for the current Plan Year and each Plan Year thereafter, as provided in Treasury Regulation 54.4975-7(b)(8). (c) Payments of principal and interest on any loan under this Section shall be made by the Trustees at the direction of the Administrator solely from: (i) Employer contributions available to meet obligations under the loan, (ii) earnings from the investment of such contributions, (iii) earnings attributable to stock pledged as collateral for the loan, (iv) the proceeds of a subsequent loan made to repay the loan, and (v) the proceeds of the sale of any stock pledged as collateral for the loan. The contributions and earnings available to pay the loan must be accounted for separately by the Administrator until the loan is repaid. (d) Subject to the limitations in Section 6.7 on annual additions to a Participant's Account, assets released from a Suspense Account by reason of payment made on a loan shall be allocated immediately upon such payment to the accounts of all Participants who then would be entitled to an allocation of contributions if such payment had been made on the last day of the Plan Year. 8.4 DIVERSIFICATION. Any Plan Participant who has attained age fifty-five (55) and completed ten (10) years of Plan participation shall have the right to make an election to direct the Plan as to investment of his account. Such a Participant may elect within ninety (90) days after the close of each Plan Year in the qualified election period (as defined in Section 401(a)(28) of the Code) to diversify twenty-five percent (25%) of his account, less any amount to which a prior election applies. In the case of the last year to which an election applies, fifty percent (50%) shall be substituted for twenty-five percent (25%). 47 The Plan shall meet the requirements of Section 401(a)(28) by either (i) offering at least three (3) investment options selected by the Trustees to apply to all applicable Participants on a uniform nondiscriminatory basis or (ii) the portion of the participant's account covered by the election under clause (i) of Section 401(a)(28) of the Code is distributed within ninety (90) days after the period during which the election is made. 48 ARTICLE IX ADMINISTRATION 9.1 ALLOCATION OF RESPONSIBILITY AMONG FIDUCIARIES FOR PLAN AND TRUST ADMINISTRATION: The Fiduciaries shall have only those specific powers, duties, responsibilities and obligations as are specifically given them under this Plan or the Trust. The Employer shall have the sole responsibility for making the contributions provided for under Section 4.1, and shall have the sole authority to appoint and remove the Trustees and members of the Administrator, and to amend or terminate, in whole or in part, this Plan or the Trust. The Employer shall have the final responsibility for administration of the Plan, which responsibility is specifically described in this Plan and the Trust. The Administrator shall have the specific delegated powers and duties described in the further provisions of this ARTICLE IX, and such further powers and duties as hereinafter may be delegated to it by the Employer. The Trustees shall have the sole responsibility for the administration of the Trust and the management of the assets held under the Trust, all as specifically provided in the Trust. Each Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan or Trust, as the case may be, authorizing or providing for such direction, information or action. Furthermore, each Fiduciary may rely upon any such direction, information or action of another Fiduciary as being proper under this Plan or the Trust, and is not required under this Plan or the Trust to inquire into the propriety of any such direction, information or action. It is intended under this Plan and the Trust that each Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under this Plan and the Trust and shall not 49 be responsible for any act or failure to act of another Fiduciary. No Fiduciary guarantees the Trust Fund in any manner against investment loss or depreciation in asset value. 9.2 APPOINTMENT OF ADMINISTRATOR: A Administrator consisting of at least three persons shall be appointed by and serve at the pleasure of the Board of Directors of the Employer to the Plan. All usual and reasonable expenses of the Administrator may be paid in whole or in part by the Employer, and any expenses not paid by the Employer shall be paid by the Trustees out of the principal or income of the Trust Fund. Any members of the Administrator who are Employees shall not receive compensation with respect to their services for the Administrator. 9.3 CLAIMS PROCEDURE: The Administrator shall make all determinations as to the right of any person to a benefit. Any denial by the Administrator of the claim for benefits under the Plan by a Participant or Beneficiary shall be stated in writing by the Administrator and delivered or mailed to the Participant or Beneficiary; and such notice shall set forth the specific reasons for the denial, written to the best of the Administrator's ability in a manner that may be understood with legal or actuarial counsel. In addition, the Administrator shall afford a reasonable opportunity to any Participant or Beneficiary whose claim for benefits has been denied for a review of the decision denying the claim and, in the event of continued disagreement, either may appeal to the Employer, whose decision shall be final. 9.4 RECORDS AND REPORTS: The Employer (or the Administrator, if so designated by the Employer) shall exercise such authority and responsibility as it deems appropriate in order to comply with ERISA and governmental regulations issued thereunder relating to records of Participant's service, account balances and the percentage of such account balances which are nonforfeitable under the Plan; notification 50 to Participants; annual registration with the Internal Revenue Service; and annual reports to the Department of Labor. 9.5 OTHER ADMINISTRATOR POWERS AND DUTIES: The Administrator shall have such duties and powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the following: (a) To construe and interpret the Plan, decide all questions of eligibility and determine the amount, manner and time of payment of any benefits hereunder; (b) To prescribe procedures to be followed by Participants or Beneficiaries filing applications for benefits; (c) To prepare and distribute, in such manner as the Administrator determines to be appropriate, information and explaining the Plan; (d) To receive from the Employers and from Participants such information as shall be necessary for the proper administration of the Plan; (e) To furnish the Employers, upon request, such annual reports with respect to the administration of the plan as are reasonable and appropriate; (f) To receive, review and keep on file (as it deems convenient or proper) reports of the financial condition, and of the receipts and disbursements, of the Trust Fund from the Trustee; (g) To appoint or employ individuals to assist in the administration of the Plan and any other agents it deems advisable, including legal and actuarial counsel. The Administrator shall have no power to add to, subtract from or modify any of the terms of the Plan, or to change or add to any benefits provided by the 51 plan, or to waive or fail to apply any requirements of eligibility for a benefit under the Plan. 9.6 RULES AND DECISIONS: The Administrator may adopt such rules as it deems necessary, desirable or appropriate. All rules and decisions of the Administrator shall be uniformly and consistently applied to all Participants in similar circumstances. When making a determination or calculation, the Administrator shall be entitled to rely upon information furnished by a Participant or Beneficiary, the Employer, the legal counsel of the Employer, or the Trustee. 9.7 ADMINISTRATOR PROCEDURES: The Administrator may act at a meeting or in writing without a meeting. The Administrator shall elect one of its members as chairman, appoint a secretary, who may or may not be a Administrator member, and advise the Trustees of such actions in writing. The secretary shall keep a record of all meetings and forward all necessary communications to the Employers, or the Trustees. The Administrator may adopt such by laws and regulations as it deems desirable for the conduct of its affairs. All decisions of the Administrator shall be made by the vote of the majority including actions in writing taken without a meeting. 9.8 AUTHORIZATION OF BENEFIT PAYMENTS: The Administrator shall issue directions to the Trustee concerning all benefits which are to be paid from the Trust Fund pursuant to the provisions of the Plan, and warrants that all such directions are in accordance with this Plan. 9.9 APPLICATION AND FORMS FOR BENEFITS: The Administrator may require a Participant or Beneficiary to complete and file with the Administrator an application for a benefit and all other forms approved by the Administrator, and to furnish all pertinent information requested by the Administrator. The Administrator may rely upon all such information so furnished it, including the Participant's or Beneficiary's current mailing address. 52 9.10 FACILITY OF PAYMENT: Whenever, in the opinion of the Employer and the Administrator, a person entitled to receive any payment of a benefit or installment thereof hereunder is under a legal disability or is incapacitated in any way so as to be unable to manage his financial affairs, the Trustee may be directed to make payments to such person or to his legal representative or to a relative or friend of such person for his benefit, or to apply the payment of the benefit of such period in such manner as the Employer and the Administrator consider available. Any payment of a benefit or installment thereof in accordance with the provisions of this Section shall be a complete discharge of any liability for the making of such payment under the provisions of the Plan. 9.11 INDEMNIFICATION OF THE ADMINISTRATOR: The Administrator and the individual members thereof shall be indemnified by the Employer and not form the Trust Fund against any and all liabilities arising by reason of any act or failure to act made in good faith pursuant to the provisions of the Plan, including expenses reasonably incurred in the defense of any claim relating thereto. 9.12 INDEPENDENT APPRAISER: While the Employer Stock is or becomes not readily tradable on an established securities market, then any valuation required under this Plan will be conducted by an independent appraiser (as defined in Section 401(a)(28) of the Code). 53 ARTICLE X MISCELLANEOUS 10.1 NON-GUARANTEE OF EMPLOYMENT: Nothing contained in this Plan shall be construed as a contract of employment between the Employer and any Employee, or as a right of any Employee to be continued in the employment of an Employer, or as a limitation of the right of the Employer to discharge any of its Employees, with or without cause. 10.2 RIGHTS TO TRUST ASSETS: No Employee or Beneficiary shall have any right to, or interest in, any assets of the Trust Fund upon termination of his employment or otherwise, except as provided form time to time under this Plan, and then only to the extent of the benefits payable under the Plan to such Employee or Beneficiary out of the assets of the Trust Fund. Al payments of benefits as provided for in this Plan shall be made solely out of the assets of the Trust Fund and none of the Fiduciaries shall be liable therefor in any manner. 10.3 NON-FORFEITABILITY OF BENEFITS: Subject only to the specific provisions of this Plan, nothing shall be deemed to divest a Participant of his right to the nonforfeitable benefit to which he becomes entitled in accordance with the provisions of this Plan. 10.4 DISCONTINUANCE OF EMPLOYER CONTRIBUTIONS: In the event of a permanent discontinuance of contributions to the Plan by the Employer, the accounts of all Participants shall, as of the date of such discontinuance, become one hundred percent (100%) vested and nonforfeitable. 54 ARTICLE XI AMENDMENTS AND ACTION BY EMPLOYER 11.1 AMENDMENTS: Except as hereinafter provided, the Plan Sponsor shall have the right to amend or modify the Plan and Trust at any time and from time to time to any extent that it may deem advisable provided said amendment is in writing. However, no amendment or modification shall: (a) Increase the responsibilities of the Trustees without their written consent; or (b) Deprive the Insurer of any protection, except as to the Contracts issued by it after receipt at its home office of notice of the terms of such amendment; or (c) Reduce the vested percentage of a Participant's Accrued Benefit. If any amendment could directly or indirectly affect a Participant's vested interest, any Participant with at least three (3) Years of Service as of the expiration date of the Election Period described below may elect to have his nonforfeitable percentage computed under the Plan without regard to such amendment and restatement. Notwithstanding the foregoing, for Plan Years beginning before January 1, 1989, or with respect to Employees who fail to complete at least one (1) Hour of Service in a Plan Year preceding sentence. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant's election period shall commence on the adoption date of the amendment and shall end sixty (60) days after the latest of: 55 (1) The adoption date of the amendment, (2) The effective date of the amendment, or (3) The date the Participant receives written notice of the amendment from the Employer or Administrator. Except, however, any Employee who was a Participant as of the later of the effective date or adoption date of this document and who completed three (3) Years of Service shall be subject to the document vesting schedule if any provided such schedule is more liberal than the new vesting schedule. Notwithstanding the foregoing, for Plan Years beginning before January 1, 1989, or with respect to Employees who fail to complete at least one (1) Hour of Service in a Plan Year beginning after December 31, 1988, five (5) shall be substituted for three (3) in the preceding sentence. For purposes hereof, the Plan shall be treated as having been amended if the Plan provides for an automatic change in vesting due to a change in top heavy status. The Participant's Election Period shall commence on the adoption date of the amendment and shall end sixty (60) days after the latest of: (1) The adoption date of the amendment, (2) The effective date of the amendment, or (3) The date the Participant receives written notice of the amendments from the Plan Administrator. 11.2 ACTION BY EMPLOYER: Any action by the Employer under this Plan may be by resolution of its Board of Directors, or by any person or persons duly authorized by resolution of said Board to take such action. 56 ARTICLE XII SUCCESSOR AND MERGER OR CONSOLIDATION OF PLANS 12.1 SUCCESSOR: In the event of the dissolution, merger, consolidation or reorganization of the Employer, provision may be made by which the Plan and Trust will be continued by the successor; and, in that event, such successor shall be substituted for the Employer under the Plan. The substitution of the successor shall constitute an assumption of the Plan liabilities by the successor and the successor shall have all of the powers, duties and responsibilities of the Employer under the Plan. 12.2 CONDITIONS APPLICABLE TO MERGERS OR CONSOLIDATION OF PLANS: In the event of any merger or consolidation of the Plan with, or transfer in whole or in part of the assets and liabilities of the Trust Fund to another trust fund held under, any other plan of deferred compensation maintained or to be established for the benefit of all or some of the Participants of this Plan, the assets of the Trust Fund applicable to such Participants shall be merged or consolidated with or transferred to the other trust fund only if: (a) Each Participant would (if either this Plan or the other plan then terminated) receive benefit immediately after the merger, consolidation or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer (if this Plan had then terminated); (b) Resolutions of the Board of Directors of the Employer under this Plan, or of any new or successor Employer of the affected Participants, shall authorize such transfer of assets; and in the case of the new or successor employer of 57 the affected Participants, its resolution shall include an assumption of liabilities with respect to such Participants inclusion in the new employer's plan, and (c) Such other plan and trust are qualified under Sections 401(a) and 501(a) of the Internal Revenue Code. 58 ARTICLE XIII PLAN TERMINATIONS 13.1 RIGHT TO TERMINATE: In accordance with the procedures set forth in this ARTICLE, the Employer may terminate the Plan at any time. In the event of the dissolution, merger, consolidation or reorganization of the Employer, the Plan shall terminate and the Trust Fund shall be liquidated unless the Plan is continue by a successor to the Employer in accordance with Section 12.1. 13.2 PARTIAL TERMINATION: Upon termination of the Plan by the Employer with respect to a group of Participants, the Trustees shall, in accordance with the directions of the Administrator, allocate and segregate for the benefit of the Employees then or theretofore employed by the Employer with respect to which the Plan is being terminated the proportionate interests of such Participants in the Trust Fund. The funds so allocated and segregated shall be used by the Trustee to pay benefits to or on behalf of Participants in accordance with Section 13.3. 13.3 LIQUIDATION OF THE TRUST FUND: Upon partial or total termination of the Plan, the accounts of all Participant affected thereby shall be come fully vested, and the Administrator may direct the Trustees: (a) to continue to administer the Trust Fund and pay account balances in accordance with Section 7.5, to Participants affected by the termination upon their termination for employment or to their Beneficiaries upon such a Participant's death, until the Trust Fund has been liquidated, or (b) to distribute the assets remaining in the Trust Fund, after payment of any expenses properly chargeable thereto, to Participants, Former Participants and Beneficiaries in proprietor to their respective account balances. 59 In case the Administrator directs liquidation of the Trust Fund pursuant to (a) above, the expense of administering the Plan and Trust, if not paid by the Employer, shall be paid form the Trust Fund. 13.4 MANNER OF DISTRIBUTION: To the extent that no discrimination in value results, any distribution after termination of the Plan may be made, in whole or in part, in cash, in securities or other assets in kind, or in nontransferable annuity contracts, subject to the right of Participants to demand Employer Stock relating to their Participant Stock Accounts. All non-cash distributions shall be valued at fair market value at date of distribution. 60 ARTICLE XIV LEGAL CONSIDERATIONS 14.1 This Agreement shall be construed under the laws of the State of New York where it is made and under whose laws it shall be enforced. 14.2 The Administrator is designated to receive any legal process at the offices of the NBTY, INC., 90 Orville Drive, Bohemia, New York 11716. 61 IN WITNESS WHEREOF, the Employer has caused its Corporate Seal to be hereunto affixed and this Agreement to be signed by its duly authorized officers, and the Trustees have hereunto signed. ATTEST: NBTY, INC. /s/ Harvey Kamil By: /s/ Scott Rudolph Corporate Secretary President CORPORATE SEAL: /s/ Arthur Rudolph ARTHUR RUDOLPH, Trustee 62 EX-10 10 nbtk-107.txt EXHIBIT 10.7 Exhibit 10.7 AMENDMENT TO THE NBTY, INC. EMPLOYEES' STOCK OWNERSHIP PLAN THIS AGREEMENT MADE THIS 1st day of August, 2001, by and among NBTY, INC., a corporation existing under the laws of the State of New York and having its address at 90 Orville Drive, Bohemia, New York 11716 (hereinafter called the "Company"), and ARTHUR RUDOLPH, care of the above address, as Trustee. W I T N E S S E T H WHEREAS, effective January 1, 1974, the Company, then known as NATURE'S BOUNTY, INC., adopted an Employee Stock Ownership Plan in order to help provide its Employees with adequate retirement benefits; and WHEREAS, the Company now desires to further amend said Plan and Trust Agreement; and WHEREAS, said Plan and Trust Agreement, as amended and restated, authorizes the Company to amend the Plan and Trust at any time; NOW, THEREFORE, effective January 1, 2000, the Company does hereby amend the NBTY, INC. EMPLOYEES' STOCK OWNERSHIP PLAN as follows: Section 4.5 shall be amended to read as follows: "DISPOSITION OF FORFEITURES: With respect to any Participant who terminates employment and who is not fully vested hereunder a distribution will be deemed to have occurred in the Plan Year in which such termination of employment occurs. The Forfeitures of such a Participant, if any, shall be allocated to the other eligible Participants in the Plan Year subsequent to the termination of employment and shall be added to the Employer contribution for purposes of such allocation. If the present value of any non-forfeitable accrued benefit (taking into account benefits derived from both Employer and Employee contributions) is, or at the time of any prior distribution was, in excess of five thousand dollars ($5,000), such benefit shall not be immediately distributed without the consent of the Participant and, when applicable to the Participant's spouse." IN WITNESS WHEREOF, the Company has caused its Corporate Seal to be hereunto affixed and this Agreement to be signed the day and year first above written, by its duly authorized officers and the Trustee. ATTEST: NBTY, INC. /s/ Harvey Kamil By /s/ Scott Rudolph - ----------------------------------- ------------------------------------ Corporate Secretary President CORPORATE SEAL: /s/ Arthur Rudolph ------------------------------------ ARTHUR RUDOLPH, Trustee EX-21 11 nbtk-211.txt EXHIBIT 21.1 Exhibit 21.1 Jurisdiction of NBTY, Inc. Subsidiary Incorporation or Organization - --------------------- ----------------------------- American Health, Inc. Nevada Arco Pharmaceuticals, Inc. Delaware Arthritis Research Corp. Delaware BioSmart Direct Sales LLC Colorado Dynamic Essentials (DE), Inc. Delaware Good 'N Natural Manufacturing Corp. Delaware Good 'N Natural Nutrition Corp. Delaware Healthwatchers (DE), Inc. Delaware Holland & Barrett Holdings Limited England Holland & Barrett Ltd. New York Holland & Barrett Retail, Ltd. England Life's Finest, Inc. Delaware Natural Wealth Nutrition Corp. Delaware Nature's Bounty Manufacturing Corp. Delaware Nature's Bounty, Inc. New York Nature's Way Limited Ireland NatureSmart, LLC Colorado NBTY Manufacturing, LLC d/b/a D&F Industries, Omni-Pak Industries and Raven Industries Delaware Nutrition Headquarters (DE), Inc. Delaware Nutrition Headquarters (Mineola), Inc. New York Omni Vitamin & Nutrition Corp. Delaware Physiologics, LLC Colorado Puritan's Pride, Inc. Delaware United Vitamin Manufacturing Corp. New York Vitamin City (NY), Inc. New York Vitamin World (Boca), LLC Delaware Vitamin World Limited England Vitamin World of Guam, LLC Delaware Vitamin World Online, Inc. New York Vitamin World Outlet Stores, Inc. Nevada Vitamin World, Inc. Delaware EX-23 12 nbtk-231.txt EXHIBIT 23.1 NBTY, INC. and SUBSIDIARIES Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-46188, 333-71691, 333-47221) of NBTY, Inc. and subsidiaries of our report dated November 5, 2002, except as to Notes 16 and 20, which are as of December 11, 2002, relating to the financial statements and financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP - ----------------------------------- PricewaterhouseCoopers LLP New York, New York December 19, 2002 EX-99 13 nbtk-991.txt EXHIBIT 99.1 NBTY, INC. and SUBSIDIARIES Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Scott Rudolph, Chief Executive Officer of NBTY, Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Annual Report on Form 10-K of the Company for the fiscal year ended September 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: December 19, 2002 Signature: /s/ Scott Rudolph ------------------------------------ Scott Rudolph Chief Executive Officer EX-99 14 nbtk-992.txt EXHIBIT 99.2 NBTY, INC. and SUBSIDIARIES Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Harvey Kamil, Chief Financial Officer of NBTY Inc. (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Annual Report on Form 10-K of the Company for the fiscal year ended September 30, 2002 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: December 19, 2002 Signature: /s/ Harvey Kamil ------------------------------------ Harvey Kamil Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----